On 8 May 2018 the US announced that it would be withdrawing from the Joint Comprehensive Plan of Action with Iran. On Monday, 5 November 2018, the second tranche of US extraterritorial sanctions on Iran came back into force.

The US extraterritorial sanctions on Iran go further than applying solely to US corporate entities and individuals. It also encompasses governments, business and nationals of third countries.

The EU aims to limit the impact the extraterritorial sanctions have by adding it to the list of blocked regulations annexed to the Council Regulation (EC) No 2271/96 of 22 November 1996 (the "EU Blocking Regulation") which means EU companies, including subsidiaries of US Companies incorporated in the EU, are not permitted to comply with the extraterritorial sanctions. (Further information on the US Sanctions and the EU Blocking Regulation can be found in our Public Law team's blog).

Under the US extraterritorial sanctions, a company/person is prohibited from dealing with a company/person with links to Iran. Within a loan agreement the lender would be looking at several aspects, such as:

  • Use of loan - making sure proceeds are not being made available to benefit a sanctioned person (e.g. an entity in Iran);
  • Repayment of loan - making sure that repayment funds are not coming directly or indirectly from a sanctioned person;
  • Business dealings - making sure the borrower is not dealing with a sanctioned person;
  • Ownership / Change of control - making sure that the borrower does not have any links with, or is acquired by, a sanctioned person; and
  • Representations and Undertakings - making sure that the borrower is compliant with international sanctions.

The loan agreement may also have an illegality clause meaning immediate repayment may be required if sanctions affect the borrower and it becomes unlawful for the lender to perform its obligations, fund or continue to make funds available to the borrower, follow www.achievefinance.com/installment-loans-online.

It may be a question of what obligation to breach - if the lender relies on the illegality clause or any event of default arising due to the borrower dealing/having any connection with a sanctioned entity (e.g. Iran) it will be seen as breaching the EU Blocking Regulation. However, if it does nothing, it will not be complying with its obligations under the US extraterritorial sanctions.

The loan agreement should be drafted in a way which takes these issues in to consideration, such as including language which future proofs the document against future sanctions or carve out representations and undertakings to the extent that it won't breach the EU Blocking Regulation.