Kartik Mittal examines Iran sanctions in WorldECR

February 09 2022

This article was originally published in WorldECR's Issue 106. 

A new era for Iran sanctions

It is now more than 42 years since the United States first imposed restrictions on commercial activities with Iran. Although these sanctions were lifted in 1981, they were reimposed in 1984 and have been in operation for most of the time since. Sanctions were most recently reimposed when President Trump withdrew from Iran's 2015 nuclear agreement with six leading powers - the US, UK, France, China, Russia and Germany - under which Tehran agreed to curb its nuclear programme in exchange for sanctions relief.

But there are occasional chinks of light in this most difficult of international relationships. The most recent occurred in January when the US allowed South Korea to send at least $63 million in overdue damages to the Dayyani family, which owns the Iranian consumer electronics group, Entekhab Industrial Group (EIG). According to its foreign ministry, South Korea will pay this compensation over a long-running dispute after the US cleared the path to allow payment - critically, without violating its sanctions against Iran. This significant decision may serve to ease Tehran’s access to billions of dollars, which are trapped in South Korea as a result of US sanctions, helping to rebuild trust between Iran and the international community. Currently, about $7 billion of Iranian assets are estimated to be frozen in South Korea.

EIG originally filed an investor-state dispute settlement (ISDS) complaint in 2015 against the South Korean government, citing breach of contract and claiming that the $50 million deposit it had paid for its failed bid to purchase a majority stake in Daewoo Electronics was not returned. Under the ISDS, a company from one country can seek arbitration against another country where it has invested. In June 2018, the World Bank's International Centre for Settlement of Investment Disputes (ICSID) ordered that compensation of $61.4 million be paid to the Dayyani family. Despite South Korea's appeal against the Treaty arbitral award being rejected a year later, the payment was still not made because of US sanctions.

The impasse was finally broken in January 2022 when South Korea’s foreign ministry announced that the US Treasury's Office of Foreign Assets Control (OFAC) had issued a "specific license" to allow the payment using the US financial system. According to the ministry’s statement, “The license is expected to lay important groundwork for a speedy conclusion of the ISDS settlement with the Dayyani family, which has been one of the pending issues between the two countries."

It is encouraging to note that the OFAC has issued a specific license allowing the US system to facilitate payment from South Korea to EIG pursuant to the order made by ICSID. Although it is unclear how, and on what conditions, the US has agreed to allow the payment to be made by South Korea, it is likely that this will pave the way for further licensing applications to the OFAC, either by the paying or receiving party when sanctions act as a significant barrier in the making of such payments.

Back to Blogs & Insights