{"id":13924,"date":"2021-05-20T14:49:05","date_gmt":"2021-05-20T12:49:05","guid":{"rendered":"https:\/\/voelkerrechtsblog.org\/?p=13924"},"modified":"2021-05-20T17:10:06","modified_gmt":"2021-05-20T15:10:06","slug":"will-vienna-talks-put-an-end-to-the-covid-19-plus-in-iran","status":"publish","type":"post","link":"https:\/\/voelkerrechtsblog.org\/de\/will-vienna-talks-put-an-end-to-the-covid-19-plus-in-iran\/","title":{"rendered":"Will Vienna Talks Put an End to the \u201cCOVID-19 Plus\u201d in Iran?"},"content":{"rendered":"

The pandemic is still far from over. In its response to combat COVID-19, Iran has been facing significant difficulties \u201cin part due to the weakening of the national health-care system and the wider economy by the cumulative effect of sanctions imposed by the United States since 2018\u201d, says<\/a> the UN Special Rapporteur on Iran. Regardless of present exemptions, multi-layered restrictions on the Iranian financial sector, which naturally plays a vital role in processing the payments for the country\u2019s medical imports, have made it extremely difficult to transfer the already quite limited funds for such purposes. Their effective removal is therefore on the top of Iran\u2019s list of demands<\/a> during the ongoing Vienna negotiations, where remaining participants of the Joint Comprehensive Plan of Action<\/a> (JCPOA) are discussing (with the indirect involvement of the US delegation) bringing both the US and Iran back into compliance with the deal. This post aims at partially analyzing the structure of these financial sanctions and their impact on humanitarian trade with Iran, particularly during the pandemic.<\/p>\n

It was on 8 May 2018, as then US President Donald Trump announced<\/a> the US’s withdrawal from the Iran nuclear deal by issuing National Security Presidential Memorandum-11<\/a> ceasing participation in the JCPOA. Consistent with this announcement, Trump issued Executive Order (EO) 13846<\/a>, through which certain, mainly secondary sanctions were re-imposed after two different wind-down periods. Amongst this set of what he described<\/a> as the \u201ctoughest sanctions regime ever imposed on Iran\u201d were also sanctions targeting Iran\u2019s financial sector, effective from 5 November 2018.<\/p>\n

The Central Bank\u2019s Role: Re-Imposition and Relabeling of Sanctions against It<\/strong><\/p>\n

The sanctions re-imposed pursuant to EO 13846 and relevant statutory authorities included sanctions on transactions made by foreign financial institutions with the Central Bank of Iran (CBI) and other designated Iranian financial institutions. The campaign of \u201cmaximum pressure\u201d went along with the largest single-day action of the US Department of the Treasury\u2019s Office of Foreign Assets Control<\/a> (OFAC) in further targeting Iranian banks by designating<\/a> more than 70 Iran-linked financial institutions and their domestic and foreign subsidiaries. On 20 September 2019, the CBI, which was already subject to secondary sanctions, was also designated<\/a> under OFAC\u2019s counterterrorism authority based on EO 13224<\/a>, as later amended by EO 13886<\/a>.<\/p>\n

The relabeling of the CBI was even then seen<\/a> as primarily affecting the minimal ongoing humanitarian trade with Iran which had been possible under Sec. 560.532<\/a> of OFAC\u2019s Iranian Transactions and Sanctions Regulations (ITSR). This provision specifies a few burdensome payment methods for the purpose of financing exports and reexports of humanitarian goods. However, according to Sec. 560.530(d)(5)<\/a> ITSR, \u201cnothing in this section authorizes any transaction or dealing with a person [\u2026], who is designated or otherwise subject to any sanctions under [specified terrorism programs \u2026]<\/em>\u201d. Yet by definition, the CBI could be considered as being at least indirectly involved in any foreign transaction featuring Iranian financial institutions, which is why the above-mentioned ITSR payment provision became practically meaninglessness. Probably having taken this very result into account, OFAC reiterated in its related press release<\/a> that it would continue to consider as appropriate requests related to humanitarian trade with Iran.<\/p>\n

Any Pragmatic Substitutes for the CBI?<\/strong><\/p>\n

On 25 October 2019, OFAC reacted to the difficulties that subsequently arose in humanitarian transactions by announcing a new humanitarian mechanism<\/a>, one which required financial institutions to commit themselves to enhanced due diligence and reporting.<\/a> With Iran\u2019s banking sector still being on the way of becoming more transparent<\/a>, this mechanism didn\u2019t create meaningful changes for international banks, as conducting extensive due diligence together with obligations in terms of collecting, maintaining and reporting a great deal of information to OFAC on a monthly basis was immensely time-consuming and highly costly, often exceeding the revenue of such businesses. This, consequently resulted in severe shortages, delays and price increases, especially regarding pharmaceutical raw materials and a number of complex medicines used for cancer, epilepsy and genetic diseases. Even those pharma-companies willing to maintain supplies couldn\u2019t<\/a> persuade \u201cover-compliant\u201d banks so as to facilitate \u201clegitimate\u201d cross-border payments. Initiatives such as INSTEX<\/a> or the Swiss Humanitarian Trade Arrangement<\/a> have also proven not to be very practical, resulting only in single transactions, worth respectively around \u20ac500,000<\/a> and \u20ac2.3<\/a>M.<\/p>\n

COVID-19 Pandemic amid Crippling Sanctions<\/strong><\/p>\n

The rapid spread of the Coronavirus in Iran since the first confirmed case<\/a> on 19 February 2020 made the country one of the hardest hit<\/a> in the early stages of the pandemic. The disruption of health supply chains soon led to shortages \u2013 as predicted<\/a> \u2013 in the domestic production of medicines and medical equipment. Iranian officials<\/a> and scientists<\/a> thus began pressing internationally for an easing of US sanctions. As far as infections and deaths are concerned, the situation isn\u2019t any better after more than a year as the country recently entered a fierce fourth COVID wave<\/a> following the Nowruz holidays. The situation still necessitates emergency medical response.<\/p>\n

Particularly since the start of the pandemic, US officials have been announcing that humanitarian-related trade is generally<\/a> allowed under sanctions programs. Eventually, in February 2020 OFAC addressed perhaps the most fundamental impediment to the processing of humanitarian transactions by issuing general license (GL) No. 8<\/a> \u2013 later amended and replaced in October by GL No. 8A<\/a> \u2013 authorizing humanitarian transactions and activities involving the CBI. Despite this partial relief, a close look at the provisions allowing humanitarian trade reveals their limitations.<\/p>\n

Sec. 560.530(e)(2) and (3)<\/a> ITSR defines the terms medicine and medical devices as items that fall within the definitions of the terms \u201cdrug\u201d and \u201cdevice\u201d in Sec. 201 of the Federal Food, Drug, and Cosmetic Act<\/a> and that, in the case of items subject to the Export Administration Regulations, are classified by the Department of Commerce’s Bureau of Industry and Security (BIS) as EAR99.\u00a0 EAR99 includes only prescription and over-the-counter medicines and few medical devices. Even with respect to this category, the BIS explicitly points out<\/a> that limited license applications must be timely submitted to OFAC for the (re-)exportation of such goods to Iran (or Sudan); and this does not even extend to vaccines or biological and chemical products, which are classified as non-EAR99<\/a>. Items falling within the latter classification are a priori<\/em> excluded from any general or specific license under ITSR. Beyond this, Sec. 560.530(a)(3)(ii) and (iii)<\/a> ITSR exclude from the scope of the corresponding GL the (re-)exportation to Iran of an additional set of medicines along with a separate list<\/a> of medical devices. Even with regard to authorizable supplies, reports<\/a> on the ground indicate a drastic decline in both applications filed as well as licenses issued since the full reinstallation of comprehensive sanctions.<\/p>\n

An Exceptional U-Turn to Fast-Track Vaccine Procurement?<\/strong><\/p>\n

The complexities of the sanctions also impacted the supply of COVID-19 vaccines through COVAX<\/a>, an initiative set up to manage global vaccine distribution directed by Gavi, the Vaccine Alliance<\/a>, the Coalition for Epidemic Preparedness Innovations<\/a>, and the World Health Organization, alongside key delivery partner UNICEF<\/a>. Iran has \u201cpre-purchased\u201d 16.8M vaccine doses within this program. Despite an OFAC license having been issued for Iran to be able to participate, finding a payment channel led the country to once again lose precious time in fighting the pandemic. Consequently, the first batch of 700,800 doses AstraZeneca vaccine \u2013 manufactured in South Korea \u2013 did not land<\/a> in Tehran until 5 April 2021. Bearing in mind the restrictions on dollar transactions as well as the general unwillingness of banks to participate in such transactions, Iran first intended to make initial payment by transferring money from its frozen assets in South Korea, estimated<\/a> at up to $9B. Being in local currency (South Korean won), the money had to be \u201cconverted\u201d into US dollars through what is commonly referred to as a \u201cU-turn transaction\u201d, which in this case consisted of:<\/p>\n