Court adopts wide interpretation of EU restrictive measures against Iran 20 March 2012

The EU implementing Regulation following the EU Council Decision of 23 January 2012 is still awaited. It is likely to have wide ranging effect and will address the imposition of a ban on the import, purchase or transport of Iranian crude oil and petroleum and petrochemical products. It is also likely to prohibit the provision, directly or indirectly of finance, insurance or reinsurance related to such import, purchase or transport. There has been widespread press comment upon the implications for non-EU tanker owners and third parties if such a ban is imposed. In line with other EU laws it is probable that it will prohibit the participation, knowingly or intentionally in activities the object or effect of which is to circumvent the above prohibitions. A recent EU court judgment has demonstrated that the court is likely to adopt a wide interpretation of restrictive measures imposed against Iran or other states.

On 18 February 2012 a judgment by the European Court was issued in relation to an earlier Regulation imposing restrictive measures against Iran to prevent nuclear proliferation (Regulation 423/2007). That Regulation entered into force in April 2007. Since then further Regulations have been implemented prohibiting the supply of a wide range of “dual use” goods. The case concerned the criminal prosecution in Germany of three individuals involved with the supply and installation of a sintering furnace in Iran with the potential for use in the manufacture of nuclear missile components. That Regulation prohibited making available, directly or indirectly funds or economic resources to the individuals and entities listed within its annex. “Resources” were widely defined to include assets of every kind whether tangible, intangible, movable or immovable. The Regulation also prohibited “the participation, knowingly and intentionally, in activities the object or effect of which is, directly or indirectly, to circumvent” the above prohibitions. Infringements of such EU Regulations are punishable by criminal penalties in the relevant EU state.

The court adopted a wide and purposive interpretation of that Regulation. It held that it would include the supply and installation in Iran of such a furnace for the benefit of a non-designated third party acting on behalf, under the control or on the instruction of persons listed within the Regulation. The court found that the phrases “making available” and “directly or indirectly” were framed in particularly broad terms and would include such a furnace even if it was not yet ready for use. The court also adopted a wide interpretation of the “knowingly and intentionally” provision in relation to circumvention and held that these terms imply cumulative requirements of knowledge and intent. The court found that
“Those two cumulative requirements of knowledge and intent are met where the person participating in an activity covered by [… the Regulation] deliberately seeks the object or the effect, direct or indirect, of circumvention connected therewith. They are also met where the person in question is aware that his participation in such an activity can have that object or effect and accepts that possibility.”

Summary
The case provides guidance as to the likely wide and purposive interpretation of EU restrictive measures for example in relation to the potential ban on the import, purchase or transport of Iranian crude oil and petroleum and petrochemical products. The language used in Regulation 423/2007 is similar to other formulations used in EU laws imposing restrictive measures on Iran, Syria and other countries. The Regulation implementing the EU Council Decision of 23 January 2012 should be issued in the near future. Its provisions will have significant effect and are likely to be widely interpreted.

Members should continue to ensure that they are aware of the bona fides of all parties that they deal with and that they are cognisant of the potential end use of cargos are carried. Reasonable due diligence should be conducted. Particular carte should be taken in dealing with:

• dual use goods;
• goods which are specifically listed as being prohibited;
• parties who have been designated;
• agents for undisclosed principals.

EU and other countries’ laws are in a state of flux. Members are recommended to closely monitor legislative developments in the UK, EU, US, and the law in their place of domicile and flag state.