Determining the iran project upon relaxation of us sanctions

Reference no: EM133294162

Assignment:

You are a senior vice president for Atlantic Bank of Florida (ABF) and one of your most important clients is Prometheus Energy (PE), an ambitious oil and gas exploration company.

PE is a limited liability company. It is registered in the British Virgin Islands but has its headquarters in Dubai and facilities spread across the world, including in the United States.

PE's owners are:

5 U.S. citizens (who each hold a ten percent ownership stake and are active investors);
A Luxembourgian investment fund (which holds a 30 percent ownership stake); and
Ivan Drago, a Russian industrialist (who holds a 20 percent ownership stake).

PE's president is Brazilian but he also holds U.S. permanent residency (aka 'green card').

ABF has provided PE a $100 million revolving credit facility which has not been drawn down on and the bank's ornery CEO would like you to do everything to strengthen the relationship.

The credit facility has standard sanctions language prohibiting use of funds for any project in sanctioned countries or involving parties on any sanctions list (regardless of whether such activities are lawful under applicable sanctions).

Upon taking office a new U.S. President announces that he plans for the United States to reenter the JCPOA (subject to certain concessions from Iran to be negotiated). If negotiations succeed and the US reenters into the JCPOA, the following will result:

Secondary sanctions on Iranian oil companies owned or controlled by the Iranian Government including the National Iranian Oil Company (NICO) will be lifted;
NICO will be removed from the SDN list; and
The U.S. President will reinstate the general license for U.S. owned and controlled foreign subsidiaries to engage in transactions with Iranian entities, including NICO, but not entities identified as SDNs for anti-terrorism, proliferation of weapons of mass destruction or associated with the Islamic Revolutionary Guard Corp. (IRGC).

PE has learned about a new business opportunity involving a recently discovered oil field in Iran (the "Iran Project"). The Iran Project involves exploration and production of oil and gas from a deepwater offshore site in Iranian territorial waters. One of the conditions put in place by the Iranian government is that the winning bidder must work with local Iranian partners. Although the identity of the local Iranian partners is identified as a NICO affiliate, there are rumors that it is affiliated with the Islamic Revolutionary Guard Corp's al-Quds force.

Although PE has developed some of the world's most advanced deepwater exploration technology, it does not have the resources to bid on the Iran Project by itself. Knowing this, Ivan Drago's brother-in-law Sergei Siloviki, a member of President Putin's inner circle, has called PE's president to propose a joint venture to bid on the Iran Project. The joint venture, which would be formed in Singapore, would include the following participants:

PE - with a 50% ownership interest;
BolshoNeft, a Russian oil company that has been placed on the Sectoral Sanctions Identification list pursuant to Directives 2 and 4 - with a 25% ownership interest;
Sergei Siloviki - with a 25% ownership interest. Note: Siloviki is not an officer or director and has no ownership interest in BolshoNeft.

As part of its role in the joint venture, PE would be required to contribute U.S.-origin goods and technology to the Iran Project.

While driving to the beach for a relaxing weekend, you get a call from PE's president. He tells you about the proposed joint venture, but before you can respond, the line goes dead. When you arrive at the beach and are about to call back PE's president, you get a news alert from Sanctions.com. The alert reads: "Sergei Siloviki has been placed on the SDN list under E.O. 13661."

Please answer the following questions:

Identify and provide an analysis of all the relevant U.S. sanctions issues that PE will have to consider in determining whether it can move forward with the Iran Project upon relaxation of U.S. sanctions.
If PE were to draw down on the loan facility to fund the Iran Project joint venture, would this cause the bank to violate U.S. sanctions?
If PE promises not to use the loan facility funds for the Iran Project, how should the bank evaluate PE from a customer risk perspective?
How would the analysis change if negotiations between the United States and Iran breakdown? Can PE take any steps to protect itself if sanctions are re-imposed?
What additional diligence or other steps could PE's take to mitigate risk?

Reference no: EM133294162

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