London - October 2010 - Presented by Kirk M. Lyons

© 2010 | Lyons & Flood LLP, 65 West 36th Street, 7th Floor, New York, NY 10018

AgendaAgenda

1. Purpose and history of Iranian sanctions2. Global sources of sanctions3. Focus on U.S. sanctions4. Scope of the sanctions5. Prohibited transactions and activities6. Permitted transactions and activities7. Potential penalties for violation8. Waivers and other provisions9. Responses to sanctions10. A look forward11. Useful resources12. Q & A

2October 2010

Purpose and history of Iranian sanctionsPurpose and history of Iranian sanctions

1970s: Islamic Revolution and hostage crisis

3October 2010

Purpose and history of Iranian sanctions Purpose and history of Iranian sanctions (cont.)(cont.)

1980s: Iran-Iraq War andreduction of oil production

4October 2010

2000s: Nuclear development

Global sources of sanctionsGlobal sources of sanctions

5October 2010

Focus on U.S. sanctionsFocus on U.S. sanctions

6October 2010

Focus on U.S. sanctions (cont.)Focus on U.S. sanctions (cont.)

7October 2010

Focus on U.S. sanctions (cont.)Focus on U.S. sanctions (cont.)

8October 2010

Focus on U.S. sanctions (cont.)Focus on U.S. sanctions (cont.)

9October 2010

Focus on U.S. sanctions (cont.)Focus on U.S. sanctions (cont.)

10October 2010

Focus on U.S. sanctions (cont.)Focus on U.S. sanctions (cont.)

11October 2010

And many more…

Scope of the sanctionsScope of the sanctions

Iran Sanctions Act of 1996 (as amended by CISADA):

Applies to “any person the President determines has carried out the [sanctionable] activities”

◦ Not limited to just U.S. persons or companies – extraterritorial in reach

◦ Extends to successors, parents, subsidiaries and affiliates – the key is common ownership and/or control

All other sanctions including Executive Orders, Department of Treasury regulations, and other provisions of CISADA:

Apply to U.S. persons or companies wherever they are located or do business, including any foreign branches or subsidiariesApply to any persons or companies present in the U.S., including U.S.-based branches or subsidiaries of foreign companiesApply to persons or companies whose property is present in the U.S. to the extent of such property, including electronic funds transfers and letters of credit

12October 2010

Prohibited transactions and activitiesProhibited transactions and activities

Under the Iran Sanctions Act of 1996 (as amended by CISADA), it is prohibited to “knowingly”:Make an investment, in excess of $5 million per instance or $20 million annually, that “directly and significantly contributes to the enhancement of Iran's ability to develop petroleum resources” which includes exploration, extraction, refining, and transportation of petroleum, refined petroleum products, oil or LNG, natural gas resources, oil or LNG tankers, and products used to construct or maintain pipelines used to transport oil or LNGSell, lease, or provide to Iran “goods, services, technology, information or support,” with a fair market value in excess of $1 million per instance or $5 million annually, that could directly and significantly facilitate the maintenance or expansion of Iran's domestic production of refined petroleum products, including any direct and significant assistance with respect to the construction, modernization, or repair of petroleum refineries"

13October 2010

Prohibited transactions and activities (cont.)Prohibited transactions and activities (cont.)

Under the Iran Sanctions Act of 1996 (as amended by CISADA), it is prohibited to "knowingly":Sell or provide to Iran refined petroleum products (defined as diesel, gasoline, jet fuel, and aviation gasoline) with a fair market value of $1 million per instance or $5 million annuallySell, lease, or provide to Iran “goods, services, technology, information or support,” with a fair market value in excess of $1 million per instance or $5 million annually, that could directly and significantly contribute to the enhancement of Iran’s ability to import refined petroleum products” including:

◦ “underwriting or entering into a contract to provide insurance or reinsurance for the sale, lease, or provision of such goods, services, technology, information or support”

◦ “financing or brokering such sale, lease, or provision”◦ “providing ships or shipping services to deliver refined

petroleum products to Iran”

14October 2010

Prohibited transactions and activities (cont.)Prohibited transactions and activities (cont.)

Additionally, U.S. persons or companies cannot knowingly:Import any goods from IranExport any goods, services, or technology of U.S. origin to Iran

◦ Includes transshipments where undertaken with knowledge or reason to know that the re-exportation is intended for Iran

Purchase, sell, transport, swap, broker, approve, finance, facilitate, or guarantee such transactions – even between foreign partiesInvest in property owned or controlled by the Government of IranContract to provide supervision and management responsibility for the development of petroleum resources located in Iran, or finance or guarantee such contracts

15October 2010

Prohibited transactions and activities (cont.)Prohibited transactions and activities (cont.)

U.S. financial institutions (including insurance companies and branches or agencies of foreign banks) may not:Open or maintain correspondent accounts or payable-through accounts on behalf of foreign financial institutions which “knowingly”:

◦ Facilitate the efforts of the Government of Iran “to acquire or develop weapons of mass destruction or delivery systems for weapons of mass destruction,” “to provide support for organizations designated as foreign terrorist organizations ... or support for acts of international terrorism”

◦ “[F]acilitate the activities of a person subject to financial sanctions” pursuant to United Nations Security Council resolutions

◦ Engage in money laundering to carry out the above

◦ Facilitate efforts by Iranian financial institutions to carry out the above

◦ Facilitate significant transactions or provide significant financial services for Iran’s Revolutionary Guard Corps or any of its agents or affiliates whose property is blocked, or financial institutions whose property is blocked in connection with Iran's support for international terrorism or proliferation of weapons of mass destruction or delivery systems for weapons of mass destruction

16October 2010

Permitted transactions and activitiesPermitted transactions and activities

There are limited exceptions to the ban on imports to the U.S. from Iran including:◦ Accompanied baggage for personal travel, and information and

informational materials (defined as: publications, films, posters, phonographs, microfilms, microfiche, tapes, compact disks, CD ROMs, artworks, and wire feeds)

Similarly, permitted exports to Iran from the U.S. include:

◦ Agricultural products, medicine, medical devices, informational materials, humanitarian assistance, goods to support non-governmental organizations, hardware and software needed to access the internet, and parts and technologies necessary to assure the safety of civilian aviation

Foreign persons or companies may import goods from Iran to countries other than the U.S.

Foreign persons or companies may export goods, services, technology, information or support to Iran from other countries besides the U.S., so long as such exports do not involve refined petroleum products or enhance Iran's petroleum refining capacity or Iran's ability to import refined petroleum products in excess of the threshold amounts

17October 2010

Potential penalties for violationPotential penalties for violation

Violation of the Iran Sanctions Act of 1996 (as amended by CISADA) requires imposition of at least three of the below:Denial of assistance or credit by the Export-Import Bank of the United StatesRevocation of export licensesProhibitions on loans or credits from U.S. financial institutionsProhibition for financial institution's designation as primary dealer in U.S. debt instrumentsProhibition for financial institution's service as agent of U.S. or as repository for U.S. fundsDenial of U.S. government procurement opportunitiesProhibitions on making foreign exchange transactions in the U.S.Prohibitions on bank transfers in the U.S.Prohibitions on property transactions in the U.S.Restrictions on imports

The sanctions will also be published which could lead to reputational damage.

18October 2010

Potential penalties for violation (cont.)Potential penalties for violation (cont.)

Violation of Executive Orders:Criminal fines of up to $1 million and a prison term of up to 20 years

Violation of Iranian Transactions Regulations:Civil fines of up to $11,000 per violation, criminal fines of up to $50,000, and a prison term of up to 10 years

Violation of Iranian Financial Sanctions Regulations:Civil fines of the greater of $250,000 or double the amount at issue (i.e., the amount of the offending transaction or the balance of the offending account), criminal fines of up to $1 million, and a prison term of up to 20 years

Additional criminal fines and prison terms for making false statements or concealment of sanctions violations

19October 2010

Waivers and other provisionsWaivers and other provisions

A determination to impose sanctions is not reviewable in any court and cannot be appealed

However, waivers can be obtained from the President where such activities which are found to be “necessary to the national interest”

Alternatively, the Secretary of State is permitted to issue advisory opinions as to whether a proposed activity would result in sanctions

After receiving credible information indicating that a person is engaged in sanctionable conduct, the President is required to initiate an investigation, which must be completed within 180 days

20October 2010

Responses to sanctionsResponses to sanctions

INTERTANKO: Sanctions Clause

21October 2010

Any trade in which the vessel is employed under this Charterparty which could expose the vessel, its Owners, Managers, crew or insurers to a risk of sanctions imposed by a supranational governmental organisation or the United States, { insert other countries } shall be deemed unlawful and Owners shall be entitled, at their absolute discretion, to refuse to carry out that trade. In the event that such risk arises in relation to a voyage the vessel is performing, the Owners shall be entitled to refuse further performance and the Charterers shall be obliged to provide alternative voyage orders.

Source: INTERTANKO Published: March 2010

(a) The Owners shall not be obliged to comply with any orders for the employment of the Vessel in any carriage, trade or on a voyage which, in the reasonable judgement of the Owners, will expose the Vessel, Owners, managers, crew, the Vessel's insurers, or their re-insurers, to any sanction or prohibition imposed by any State, Supranational or International Governmental Organisation.

(b) If the Vessel is already performing an employment to which such sanction or prohibition is subsequently applied, the Owners shall have the right to refuse to proceed with the employment and the Charterers shall be obliged to issue alternative voyage orders within 48 hours of receipt of Owners' notification of their refusal to proceed. If the Charterers do not issue such alternative voyage orders the Owners may discharge any cargo already loaded at any safe port (including the port of loading). The Vessel to remain on hire pending completion of Charterers' alternative voyage orders or delivery of cargo by the Owners and Charterers to remain responsible for all additional costs and expenses incurred in connection with such orders/delivery of cargo. If in compliance with this Sub-clause (b) anything is done or not done, such shall not be deemed a deviation.

(c) The Charterers shall indemnify the Owners against any and all claims whatsoever brought by the owners of the cargo and/or the holders of Bills of Lading and/or sub-charterers against the Owners by reason of the Owners' compliance with such alternative voyage orders or delivery of the cargo in accordance with Sub-clause (b).

(d) The Charterers shall procure that this Clause shall be incorporated into all sub-charters and Bills of Lading issued pursuant to this Charter Party.

Date: 09.07.10Responses to sanctions (cont.)Responses to sanctions (cont.)

BIMCO: Sanctions Clause for Time Charter Parties

22October 2010

Responses to sanctions (cont.)Responses to sanctions (cont.)

Lloyd’s: Sanction Limitation and Exclusion Clause

23October 2010

No (re)insurer shall be deemed to provide cover and no (re)insurer shall be liable to pay any claim or provide any benefit hereunder to the extent that the provision of such cover, payment of such claim or provision of such benefit would expose that (re)insurer to any sanction, prohibition or restriction under United Nations resolutions or the trade or economic sanctions, laws or regulations of the European Union, United Kingdom or United States of America.

JC2010/01411 August 2010

A look forwardA look forward

The Iran Sanctions Act of 1996 (as amended by CISADA) will cease to be effective on December 31, 2016, but can be terminated earlier if the President certifies to Congress that the Government of Iran has ceased providing support for acts of international terrorism and has ceased the pursuit, acquisition, and development of nuclear, biological, and chemical weapons and ballistic missiles and ballistic missile launch technology

More specific regulation of financial institutions is expected to be issued by OFAC

OFAC will continue to add Iranian persons and entities to its list of Specially Designated Nationals and Blocked Persons

Further regulations issued by the EU Council and other national governments are expected

Next year the focus in the U.S. will shift to countries which permit evasion of sanctions and provide safe harbor for violators, such as Russia, China, the United Arab Emirates, Malaysia, and Singapore

24October 2010

Useful resourcesUseful resources

U.S. Treasury – Sanctions Program Summary for Iranhttp://www.ustreas.gov/offices/enforcement/ofac/programs/iran/iran.shtml

OFAC - List of Specially Designated Nationals and Blocked Personshttp://www.ustreas.gov/offices/enforcement/ofac/sdn/

Iran Watch – Sanctions Tallyhttp://www.iranwatch.org/ourpubs/bulletin/unscmatrix.html

Regulatory DataCorp Inc.http://www.rdc.com

25October 2010

Questions and AnswersQuestions and Answers

26October 2010