Sanctions compliance in Iraqi supply chains engages the international sanctions regimes binding on the parties to a transaction by reason of their nationality, place of incorporation, place of business, currency of payment, or other connecting factor. The principal regimes are the United Nations Security Council sanctions, the United States Office of Foreign Assets Control (OFAC) sanctions, the European Union sanctions, and the United Kingdom sanctions, each with its own substantive prohibitions, designated persons, and procedural framework. The framework for restricted goods includes, in addition, the categories of goods the importation of which into Iraq is prohibited or restricted under Iraqi law on grounds of public order, security, or sectoral regulation.
United Nations Sanctions
United Nations Security Council sanctions are imposed by resolutions of the Security Council under Chapter VII of the United Nations Charter and are binding on all member states, including Iraq. Implementation in Iraq is effected through Council of Ministers instruments incorporating the Security Council designations into Iraqi law, with the consequence that conduct prohibited by the Security Council sanctions is also prohibited under Iraqi domestic law. UN sanctions relevant to Iraqi supply chains include sanctions targeting designated terrorist organisations, sanctions targeting designated states, and thematic sanctions addressing specific conduct. The applicable lists and prohibitions should be referenced at the screening stage of each transaction.
United States OFAC Sanctions
United States OFAC sanctions are administered by the Office of Foreign Assets Control of the United States Department of the Treasury. The regimes engage United States persons (citizens, residents, entities organised under United States law, and persons located in the United States) and persons engaging in transactions with a United States nexus, including USD-denominated transactions clearing through the United States financial system. The principal Iraq-relevant programmes include sanctions targeting Iran, sanctions targeting Syria, sanctions targeting designated terrorist organisations including under the Specially Designated Global Terrorist (SDGT) framework, and sanctions targeting designated persons under thematic programmes including human rights and corruption sanctions. The OFAC Specially Designated Nationals and Blocked Persons List (SDN List) is the principal reference for OFAC designations and should be screened against in respect of all counterparties.
European Union Sanctions
European Union sanctions are imposed by the Council of the European Union through regulations directly applicable in EU member states and decisions binding on the member states. EU sanctions engage EU persons (nationals of EU member states, entities incorporated under the law of an EU member state) and persons engaging in transactions with an EU nexus. The principal Iraq-relevant programmes parallel the OFAC programmes in their target sets and prohibitions, although with significant variations in scope and application. EU sanctions are implemented in Iraq for the purpose of EU operators conducting Iraqi business and apply to the conduct of EU operators in Iraqi supply chain operations.
United Kingdom Sanctions
Following the United Kingdom’s departure from the European Union, the United Kingdom maintains its own sanctions regimes under the Sanctions and Anti-Money Laundering Act 2018 and subsequent legislation. The UK sanctions engage UK persons (British nationals, persons in the UK, entities incorporated in the UK) and conduct with a UK nexus. The UK sanctions are administered by the Office of Financial Sanctions Implementation (OFSI) of His Majesty’s Treasury, with parallel responsibility of other UK departments for trade-related sanctions. UK sanctions are relevant in Iraqi supply chains involving UK operators or UK financial system access.
Restricted and Dual-Use Goods
Restricted goods comprise categories the importation of which into Iraq is subject to special conditions or is entirely prohibited. The principal categories include:
- Goods subject to prohibition on grounds of public order, public morality, or public health under instruments of the Iraqi competent authorities
- Strategic items including weapons, military equipment, and security-sensitive technologies
- Dual-use items capable of both civil and military application, regulated under both Iraqi domestic frameworks and the export control regimes of exporting countries
- Controlled substances including narcotics, psychotropic substances, and precursor chemicals regulated under the Iraqi Drug Control Law and the international drug control conventions
- Cultural property regulated under the Iraqi Antiquities and Heritage Law
- Endangered species regulated under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) where applicable
- Goods infringing intellectual property rights
Compliance Programme
An effective sanctions compliance programme engages the following principal elements:
- Identification of the sanctions regimes applicable to the operator and to each transaction
- Risk assessment addressing geographic, sectoral, and counterparty exposure
- Screening of counterparties, beneficial owners, vessels, ports, and goods against the applicable sanctions lists
- Restricted goods screening, identifying categories subject to special conditions or prohibitions
- Trade controls compliance, addressing dual-use and strategic items
- Contractual protections including sanctions representations, warranties, and undertakings
- Training of personnel calibrated to their role and risk exposure
- Internal reporting channels for sanctions concerns
- Periodic refreshment of screening in light of evolving designations
- Incident response procedures for the management of identified concerns
Screening
Screening is the systematic comparison of counterparty information and transaction parameters against the applicable sanctions lists and restricted goods registers. The principal screening points include onboarding (initial engagement with a counterparty), pre-transaction (immediately prior to entering into a specific transaction), and periodic refreshment (at defined intervals during ongoing relationships). The screening should engage commercial screening tools providing comprehensive coverage of the relevant lists, supplemented by manual review of high-risk matches. The screening record should be retained as part of the compliance documentation.
Contractual Sanctions Clauses
Sanctions clauses in supply contracts allocate sanctions risk between the parties and create contractual mechanisms for the management of sanctions concerns. Material elements include:
- Sanctions representations and warranties confirming the counterparty’s status against the applicable regimes
- Sanctions undertakings, requiring the counterparty to comply with applicable sanctions and not to engage in conduct that would expose the contract or the operator to sanctions exposure
- Information rights enabling the operator to verify the counterparty’s compliance
- Right to suspend or terminate the contract on the occurrence of sanctions events
- Indemnities in respect of sanctions-related losses
- Cooperation obligations in respect of any sanctions-related inquiry
Trade Finance Considerations
Trade finance instruments, including letters of credit, documentary collections, and trade loans, engage sanctions considerations through the participation of correspondent banks, the routing of payments through international financial systems, and the documentation of the underlying trade. Iraqi banks operating in correspondent relationships with international banks are subject to the sanctions compliance requirements of their correspondents, which may engage substantive sanctions restrictions notwithstanding the absence of direct Iraqi sanctions applicable to the underlying transaction. Operators structuring trade finance arrangements should consider sanctions exposure at the structuring stage.
Response to Sanctions Events
The response to sanctions events, including the designation of a counterparty or the imposition of new sanctions affecting the operator’s activities, engages the immediate review of the operator’s position, the suspension of affected transactions, the engagement with counterparties on the implications, the assessment of any available licences or authorisations, the engagement with the operator’s banking partners, and the implementation of remedial measures including the divestment of affected positions where required. The response should be conducted with the engagement of qualified counsel given the legal and reputational implications.
How We Can Help
Etihad Law Firm advises on sanctions compliance and restricted goods matters in Iraqi supply chains, including the assessment of applicable regimes, the design of compliance programmes, screening of counterparties, the drafting of contractual sanctions provisions, response to sanctions events, application for sanctions licences and authorisations where available, restricted goods compliance, and the conduct of disputes and inquiries arising from sanctions matters.