1. Introduction
Iran has been facing various sanctions and international pressure for more than four decades. These sanctions are twofold and can be imposed unilaterally by countries or groups of countries, or by supranational organizations such as the European Union (EU) and the United Nations (UN).
2. A Brief History of Sanctions Against Iran
The United States has been the leading actor regarding
these sanctions and pressures, and the tension between the US and Iran started
with the Iran Hostage Crisis in 1979 at the US Embassy in Tehran. Subsequently,
the tension and crisis between the two countries has continued exponentially
due to the economic sanctions and embargoes imposed by the US against Iran and
continues to show its effects across the international arena today.
In 1945, the atomic bombs dropped on Hiroshima and
Nagasaki and the atmosphere of fear and anxiety following the casualties caused
by nuclear weapons created the need for various legal arrangements. Thus, the
United Nations, a supranational organization, was established in 1945. The
responsibility for international security was basically given to the United
Nations Security Council. As the world's resources diminished, countries in
search of alternative energy sources started to engage in nuclear activities.
In this sense, Iran, which has a nuclear power plant and intensively produces
nuclear studies, has become a subject of debate across the international arena
with the possibility that its studies are not only for civilian purposes and
may endanger international peace.
Iran's nuclear activities within the framework of its
uranium enrichment program raised the security concerns of the United Nations
Security Council, and the United Nations adopted multilateral sanctions
resolutions. The UN adopted its first resolution in 2006 stating that Iran must
halt its nuclear activities or face sanctions. These embargoes continued until
2015, when the Iran Nuclear Deal was signed. The UN, believing that Iran would
carry out its nuclear activities for peaceful purposes, adopted a resolution
dated 20.07.2015, which set the timetable for suspension and lifting of
sanctions and stipulated that sanctions would re-enter into force if Iran did
not comply with the Joint Comprehensive Plan of Action (JCPOA), and thus
sanctions were lifted. However, sanctions on terrorism, human rights
violations, missile technology remained in force and full inspections of
nuclear activities were decided.
For the United States, one of the five permanent
members of the United Nations, these positive developments were short-lived, as
the US decided to unilaterally withdraw from the JCPOA in 2018 and announced
that it would reintroduce the sanctions it had imposed before the JCPOA. The
other signatories of the JCPOA remained committed to the agreement. [1]
3. Economic Sanctions Imposed on the State of Iran by
the United States, the European Union and the United Nations Security Council
In this study, since the relevant sanctions covering
all sectors are quite comprehensive, rather than addressing the sanctions one
by one, we will only briefly draw attention to the important issues with
respect to the information regarding the sanctions, and we will take a more
comprehensive look at the effects of the sanctions on the commercial sector. As
mentioned, the United States has been the leading actor of the sanctions, and
of course, the United Nations Security Council and the European Union have also
signed important decisions regarding the sanctions.
The UN decided to freeze the assets in all countries
of individuals and entities dealing with Iran and supplying nuclear
energy-related materials and to restrict their travel permits. Arms trade by
Iran was banned, restricting the banks and financial institutions in their
Iran-related operations. Travel bans were imposed on persons on the sanctions
list. Foreign individuals and organizations were banned from investing in
nuclear activities and arms aid was halted. Direct and indirect sales of
sensitive nuclear materials and ballistic missiles to Iran were banned. These
sanctions were also imposed by the US and the EU.
The US has a wide range of sanctions against Iran.
Iranian state assets in the US have been frozen. Central Bank of Iran funds
entering the US financial system have been seized. The Central Bank of Iran and
related institutions are banned from entering the US financial system. Trade
with Iran and investment in Iran is prohibited. All exports of US companies to
Iran are banned. It was decided to restrict or prohibit financial institutions
from accessing the US financial system if they transact with institutions on
the SDN list. The direct transfer of US dollars to Iran is prohibited. In
general, sanctions have the effect of excluding Iran from the world financial
system. On 8 May 2018, the US President Donald Trump announced
the US withdrawal from the JCPOA and imposition of secondary sanctions by the
US. The first sanctions package of the US was put into effect on 7 August 2018
and the second sanctions package was put into effect on 5 November 2018. It has
become impossible for companies doing business with Iran to do business in the
US market. Industry giants such as Google, Apple and Microsoft have started to
impose access restrictions on users with ties to Iran. It was decided to
confiscate the assets of individuals and organizations in the US that cooperate
with Iran or provide financing. The Iranian government is prohibited from
purchasing US Dollars and trading in gold and precious metals. Even the sale of
petroleum products was sanctioned. As a result of the serious embargo on trade,
bans have been imposed on most products. Violation of the relevant prohibitions
can lead to imprisonment within the framework of primary sanctions.
In the 2000s, the European Union applied its sanctions
in parallel with the United States. It banned all Iranian banks from SWIFT
service, which has an important position in financial transactions. The
sanctions included economic, political, military and diplomatic issues.
Following the JCPOA, Iran has re-entered the international financial system, and although it is close to achieving economic stability, it is still trying to recover its economy.
4. Legal Structure of Economic Sanctions and Their
Legal Binding for Turkey
The Article 39 of the Charter of the United Nations, entitled
" Action with Respect to Threats to the Peace, Breaches
of the Peace, and Acts of Aggression", reads as follows: " The Security Council
shall determine the existence of any threat to the peace, breach of the peace,
or act of aggression and shall make recommendations, or decide what measures
shall be taken in accordance with Articles 41 and 42, to maintain or restore international
peace and security."
The United Nations Security Council derives its
authority to impose sanctions from the present and subsequent articles.
Article 41 of the Charter of the United Nations sets
out as follows: " The Security Council may decide what measures not
involving the use of armed force are to be employed to give effect to its
decisions, and it may call upon the Members of the United Nations to apply such
measures. These may include complete or partial interruption of economic
relations and of rail, sea, air, postal, telegraphic, radio, and other means of
communication, and the severance of diplomatic relations."
As such, Turkey is a member of the UN, and under the
aforementioned articles, Turkey is also under an obligation to refrain from
providing assistance to the states against which measures are taken. UNSC
resolutions are legally binding for Turkey. However, since the UN sanctions
resolutions have been suspended, there are currently no sanctions that Turkey
has to comply with.
The possible sanctions that may be imposed by the US
are of 2 types: primary and secondary sanctions. At the same time, the US
President may grant general, country-specific or company-specific exceptions to
sanctions, and additional sanctions may also be regulated in accordance with
the President's order. The United States is one of the five permanent members
of the United Nations. Although it is one of the administrative authorities in
the decision-making process due to being a member state, the sanction decisions
taken by the US itself do not have a legal binding effect in terms of Turkey.
However, as we will further elaborate below, Turkey is under an abstract
binding in terms of trade and is almost adapted to the form of a secret
embargo.
The European Union has published Basic Principles and
two guidelines for the regulation of economic sanctions and these documents are
binding only for member states. As a candidate country, Turkey is not obliged
to comply with the economic sanctions decisions taken by the European Union.
There is no doubt that the binding mechanisms
regarding these sanctions will have different binding effects for each country
in terms of procedure and law. Although Turkey is not legally bound by the
sanctions in the current situation, investors are cautious about trade with
Iran due to the high risk factors and inefficient cost analyses, and the two
countries impose a secret embargo on each other.
5. Sanction Mechanisms
The concept of sanctions, which is basically defined
as "attempts to prevent undesirable behavior or actions of states with
a sufficient amount of damage or at least a perceptible threat", has
been stated as trying to ensure that a state refrains from threatening and
using force against other states. [2]
The sanctions imposed by the US are mainly motivated
by the exclusion of Iran from the world financial system.
In the event that an activity, business and/or
transaction is included in the sanctions list of the US, the sanctions that can
be imposed by the US against the person and/or organization carrying out the
relevant transaction are of two types: primary and secondary sanctions. Primary
sanctions are binding for US natural and legal persons. Secondary sanctions, on
the other hand, are binding on individuals and organizations of other
countries. These secondary sanctions are also binding on natural and legal persons
of Türkiye, and it is important that the persons and institutions of our
country pay attention to this issue.
According to the secondary sanctions, in case of
partnerships established and business and transactions carried out with persons
and organizations on the sanctions list, your money transfers passing through
the US may be confiscated or the US financial institution may refrain from performing
the transaction.
Sanctions related to trade bans are regulated in all
sectors and spread over a wide range. However, in some cases, there may be
exceptions for certain products related to the relevant sectors. For example;
food, medicine, hygiene, medical device products are among the exceptional
sectors.
As will be discussed below, the issue that needs to be
emphasized with respect to the countries that are likely to be subject to
secondary sanctions is not the feasibility of exports, but how the payment
systems will be operated after their implementation. And the current situation
does not make it possible to receive payments if there is a potential export.
This is because the US suppresses trade by controlling electronic financial
payment instruments and banks through secondary sanctions. Although Turkey is
not binding against these sanctions, it is possible to call this situation a
hidden embargo in practice.
The US Treasury Department's Office of Foreign Assets
Control ("OFAC") prohibits transactions between US persons and
businesses (e.g.; companies) and entities on the Specially Designated Nationals
and Blocked Persons List, or "SDN List". In this sense, even if the
product or service to be transacted is not covered by the sanction, the
obligation to check whether the recipient of the product or service is on the
SDN list or other lists, and the end user lies with the sender. As a result,
the end user and the recipient must be checked. The US adds some Iranian
individuals, companies and institutions to the list called SDN and may impose
sanctions on third country citizens who engage in commercial transactions with
these persons. In this sense, it is important that companies control the
counterparties with whom they conduct transactions from the SDN list. Apart
from the SDN List, there are also lists of banned persons and institutions. In
this sense, it would be healthy for investors who do not want to suffer secondary
sanctions to pay attention to these controls.
The "significant transaction" criterion is
applied in determining the violation of US sanctions against Iran by US or
other nationals. OFAC considers all documents and circumstances in determining
whether a transaction is a significant transaction and makes its decision based
on the following criteria.
- Size, number, frequency of the transaction,
- Shape, complexity, commercial purpose of the
transaction,
- The level of awareness of the management level on
the repetition of the process,
- The link between the transaction and the blocked
person,
- The effect of the lawfulness of the purpose of the
transactions,
- Whether the transactions involve
deceptive/misleading behavior,
- Other reasons that the US Treasury Department will assess on a case-by-case basis. [3]
6. The Binding Nature of Iran Economic Sanctions for
Turkey and Their Impact on Trade Relations
As explained above, since the United Nations Security
Council’s binding decisions on economic sanctions against Turkey were suspended
in 2015, there are no sanctions imposed by the United Nations, except for the
restriction on the sale of heavy weapons. As for the US sanctions, they are not
legally binding for Turkey.
As a result, the transaction you make when doing
business with Iran will be legal.
However, the transaction made / to be made may involve
risks for companies within the scope of US sanctions. It is important to pay
attention not to act against the sanctions in order to maintain relations with
the USA and not to subject the company to any secondary sanctions.
As a result, it is de facto possible to
continue trade with Iran. This is because the sanctions are not binding for
Turkey to stop trade relations. However, secondary sanctions in this case
increase the risk and cost of trade. Problems such as failure to receive
payments related to the trade may arise. Or it can be seen that the final
decisions regarding the business partnerships established/to be established by
US companies are made by making a distinction between the list of companies
that trade with Iran and the list of companies that do not trade with Iran. In
the current situation, the first distinction that US firms make in the business
partnerships they choose is whether or not they trade with Iran.
Withdrawal of the US President Trump from the Iran
Nuclear Deal in line with his decisive and strict policy has disrupted
Turkey-Iran relations. Although Turkey has declared that the sanctions are
unfair and are not binding on it, the business world and investors who fear
being subjected to US sanctions have weakened and even severed their economic
ties with Iran.
As mentioned above, in the second phase of the
economic sanctions, foreign financial institutions' transactions with the
Central Bank of Iran and other Iranian banks were also made subject to
sanctions. In addition, the US government openly declared that the SWIFT
(Society for Worldwide Interbank Financial Telecommunication) system, which
regulates international fund transfers between banks, will be subject to US
sanctions if it is not closed to all embargoed Iranian financial institutions,
and that any person and organization that does not comply with the sanctions is
in danger of being excluded from the world financial system.
At this point, in addition to the companies that have
suspended their trade with Iran by avoiding taking the specified risks, the
point to be considered for the companies that want to continue their trade will
be not to use the bank channels within the framework of the economic sanctions
imposed by the USA against the Iranian government in the money transfers to be
made with the intermediary company. It seems reasonable to work in factory
delivery as much as possible. In addition, if the currency is Iranian state
currency, the possibility of acting within the scope of sanctions prohibitions
will arise. It should also be paid attention to this issue.
In this context, the most active follow-up is carried
out by the USA through the SWIFT service. As a matter of fact, a heavy sanction
was also provided through SWIFT. Therefore, Dollars should not be used in any
way when trading with Iran. Apart from and in addition to this, the US also
conducts sanctions control by using different intelligence sources and operates
the blacklist logic and motivation in practice. In addition, it is known that
sanctions can also be examined based on the notification of third parties, and
it is clearly evident that an action plan should be created by taking these
risks regarding the trade made / to be made.
In the event that an economic sanction, which is not among the existing sanctions, is applied through a third party or the state of Turkey, it is possible to request cancellation of the administrative action applied in the Administrative Courts of Turkey and to file a lawsuit demanding termination of the violation.
7. In Conclusion
In the current situation, clear and precise approaches
and responses to the issue still do not seem reasonable. As a matter of fact,
in the face of the course, importance and sensitivity of the issue in the world
conjuncture, the importance of up-to-date control and communication with the
right channels regarding the actions to be taken is clearly evident. Although
there are countries like Turkey that want to mobilize export relations with
Iran, the feasibility studies made on the grounds that the problems in the
payment systems, which are the important pillar of the export process, are a
big and important problem, generally hold companies back from taking any action.
In addition to sectoral-based determinations and
controls, it may also be important what kind of transaction the product
belonging to the relevant sector is subject to. As such, it would not be
difficult to support the view that reports including detailed research in
potential trades should be issued due to the wide range of interpretations
related to sanctions. In practice, corporate firms with large trade volumes may
even establish "sanctions compliance
offices" within their companies in order to eliminate such
interpretative differences. Within the scope of the fact that the authority
implementing the sanctions is the US Treasury Department, it seems healthier at
this stage to carry out process management with the confirmation letters to be
received from the relevant Offices of Commercial Counsellor after the decision
to turn the planned trade into action. While investors are trading and
collaborating;
- The position of the product subject to trade within
the scope of the sanctions regime,
- Who the persons or organizations to be traded in
Iran are (pay special attention to the SDN List),
- The level of relations with the United States,
- US citizenship of the owners (including Green Card),
- Whether the owners or the firm have assets in the
US,
- Whether US natural or legal persons are among the shareholders
of the company,
- Whether there is a credit flow from US financial
institutions to the company,
- If the company is included in the SDN List, what
kind of problems this may cause for the company,
- How to transfer money in their trade,
would be appropriate for them to make a comprehensive assessment of the issues.
Again, if we take a look at the content titled "Main Issues to be Considered in Export Transactions to Iran" dated 25 January 2022 published on the official website of the Ministry of Trade of the Republic of Türkiye;
• It should not depend only on the proforma invoice but
should act within the framework of a sales contract to be made with the Iranian
importer and all conditions to be clearly set out.
• There should be provisions under the agreements for
the Iranian importer to solve the problems that may arise in cases such as
changes in customs duties, import procedures, products and / or quantities
subject to importation. In sales to Iran, it should be worked on Ex-Works and
cash basis as much as possible. The "Reference Price Application in
Imports" applied by Iranian customs is an important problem.
• Agreements and proforma/commercial invoices should be
issued in a country currency other than US Dollars - preferably Euro, TRY or
other convertible country currency to be mutually agreed - and payments should
be made in this way. Attention should be paid to the relationship between the
payment and the mode of delivery.
• In Iran, it is seen that the state does not allow
exports below a certain price in the export prices of some products. For this
reason, it is seen that our companies may encounter problems in determining
Customs Duties. For this reason, it is important for our companies to consider
this issue in their imports from Iran. [5]
The statement that trade with Iran is not impossible,
but the process management is important and contains details.
As can be seen from the news content published on the
official website of the Ministry of Trade of the Republic of Türkiye dated 18
February 2020 titled "The Most Foreign Companies Established in Turkey
in 2019 by Iranian Citizens", companies in Iran have established
representative offices in Turkey.
According to the data announced by the Union of
Chambers and Commodity Exchanges of Turkey, Iranian citizens established the
most foreign companies in Turkey with a total of 970 companies in 2019. At this
point, Jalal Ebrahimi, Secretary General of the Turkey-Iran Business Council,
stated that the main reason for Iranian citizens to establish companies in
Turkey is to reduce the impact of US sanctions on imports and exports. "These
companies import Iranian final or disassembled products to Turkey and export
them to European and Balkan countries through processing, assembly, packaging
or brand change," Ebrahimi said. He also stated: “The fact
that Turkey has trade agreements with 36 countries, has offices of commercial
counsellor in 102 countries and is not subject to sanctions makes this
preference even more meaningful".
In this context, it should not be forgotten that the
US expects the end-user control of the first or intermediate seller to be
carried out both in Turkey and Iran and asks companies doing business with Iran
to act as a prudent merchant.
As can be seen, it is very difficult to continue trade with Iran without solving some important problems, especially the payment difficulties arising from the SWIFT electronic financial system, and the steps to be taken by countries in the future in this regard are eagerly awaited and are of great importance for the world financial order.
Att. Öykü Yaman
References:
2. AKSU,
Birleşmiş Milletler’in İran’a Uyguladığı Yaptırımlar Üzerine Bir Değerlendirme
3. Office of
the Counsellor for Commercial Affairs of the Embassy of the Republic of
Türkiye in Tehran, 15 Frequently Asked Questions on the US Sanctions on Iran
4. Office of
the Counsellor for Commercial Affairs of the Embassy of the Republic of
Türkiye in Tehran, The Impact of US Sanctions on the Iranian Economy,
Constraints and Opportunities for the Turkish Business World
5.https://ticaret.gov.tr/yurtdisi-teskilati/guney-asya/iran/raporlar/musavirlik-raporlari/irana-ihracat-islemlerinde-dikkat-edilmesi-gereken-baslica-hususlar
