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Al-Mirsal

Insights and commentary on legal developments in the Middle East

Iran’s Nuclear Agreement Negotiations Ease Certain US and EU Sanctions

Posted in Export Controls

Earlier this year, the International Atomic Energy Agency confirmed that Iran had met its initial obligations under the Joint Plan of Action (Joint Plan) with the “P5+1” (the United States, the United Kingdom, France, Russia, China and Germany). Iran’s suspension of sensitive nuclear activities triggered temporary relaxation of certain sanctions, but most restrictions and an aggressive enforcement climate remain in place. The US government has cautioned that the sanctions relief is “limited, temporary, targeted, and reversible.”

Limited Impact on Direct US Sanctions Against Iran

Comprehensive US trade and economic sanctions have prohibited US persons and US companies from engaging in or supporting virtually all forms of business involving Iran. These sanctions generally remain in place.

Limited Exceptions to the Rule

Targeted Impact on Secondary US Sanctions Against Iran

The US Congress and the Obama Administration have added various extraterritorial sanctions measures that target trade and financial activities between non-US parties and Iran, even if the non-US parties have little or no connection to the US. While the Joint Plan eases certain of these “secondary” sanctions, the relief is subject to significant limitations, both in terms of timing and substance.

  • Time Limitations – Activities pre-dating January 20, 2014 and activities not completed between January 20, 2014 and July 20, 2014
  • Substantive Limitations – Exports of Iran’s petrochemical products and associated services, purchase from and sale to Iran of gold and other precious metals and associated services and the sale, supply or transfer to Iran of goods and services used in connection with the automotive sector and associated services

First Installment of US$4.2 billion in Oil Funds Received

The White House estimates that the limited easing of the secondary sanctions identified above may result in approximately US$1.5 billion in revenue for Iran.

Impact on EU Regulations

The temporary suspension of certain US secondary sanctions benefits parties located in the EU and elsewhere that are not US persons or US companies, or that are not owned or controlled by US persons or US companies. In addition and in accord with the Joint Plan, the EU, by enacting Council Regulation (EU) No 2014/42 (the Regulation) on January 20, 2014, has amended its main regulation prohibiting activities related to Iran, Council Regulation (EU) No 267/2012, to authorize for the Joint Plan Period the following activities:

  • Transport of crude oil and petroleum products originating in or exported from Iran
  • Import, purchase, and transport of Iranian petrochemical products, and the related provision of insurance, reinsurance and financial assistance
  • Sale, supply, transfer or export of gold, silver, and specified base metals to, or purchase, import or transport of gold, silver, and such metals from, the Government of Iran or any person acting on its behalf
  • Provision of vessels for the transport or storage of Iranian oil and petrochemical products
  • Relaxed restrictions on the transfer of funds to or from Iran

While the implementation of the Joint Plan reflects continued progress in negotiations between the P5+1 and Iran, the sanctions relief afforded to date is limited and temporary, and does not meaningfully affect most US persons, US companies and their foreign affiliates, or multinational corporations. Indeed, the core of US and EU sanctions on Iran remain in full force, and they continue to create significant legal, reputational, and practical risks for any persons or entities seeking to do any form of business with Iran.

Photo: Dreamstime

How LIBOR Administration Change will Impact Financial Contracts

Posted in Banking and Finance, Regulatory

This month, the UK Financial Conduct Authority formally authorised ICE Benchmark Administration Limited (IBA) to assume responsibility for the administration of the London Interbank Offered Rate (LIBOR).

IBA is a subsidiary of the Intercontinental Exchange Group, a leading global network of exchanges and clearing houses that administers other benchmarks such as the French CAC40 and the Dutch AEX.

Guided by the Wheatley Review

The authorisation of IBA to administer LIBOR reflects one of the key recommendations of the Wheatley Review.  The review was published in late 2012 following allegations that a number of major financial institutions had been involved in the manipulation of the benchmark.  Click here to find out more.

IBA, as the regulated entity, will have the ultimate responsibility for all aspects of governance and administration relating to LIBOR.  However, as recommended by the Wheatley Review, it will convene an oversight committee that will take responsibility for many decision-making and technical matters.  This committee is expected to comprise benchmark submitters and users, as well as other experts, to ensure that a wide pool of stakeholders takes responsibility for LIBOR’s transparency and credibility.

The Impact on Financial Contracts

This change in the administration of LIBOR may impact financial contracts that reference LIBOR as a benchmark.

Post-Wheatley Review Financial Contracts:

Many financial contracts entered into following the publication of the Wheatley Review already contemplate the replacement of the British Bankers’ Association as the administrator for LIBOR – in these cases, there should be minimal risk of confusion created by the change of administrator or label for LIBOR.

Pre-Wheatley Review Financial Contracts:

The definition of LIBOR in older financial contracts, however, will need to be construed on a case by case basis.

Helpfully, the Loan Market Association (LMA) has obtained an opinion confirming that, for LIBOR definitions that followed the definition in the LMA recommended form primary documentation, an English court would interpret a reference to “BBA LIBOR” as a reference to the renamed LIBOR administered by IBA. This will no doubt provide considerable comfort to banks and borrowers that continue to have outstanding debts based on such loan agreements.

Photo: Dreamstime

How Greater Regulation Will Lead to Islamic Finance Growth in Qatar

Posted in Islamic Finance, Qatar, Regulatory

Qatar is set to further enhance financial markets regulation by developing a consistent risk-based regulatory framework.  Governor H.E. Abdulla bin Saoud al Thani has announced a three-year strategic plan, which was jointly drafted by the Qatar Central Bank, the Qatar Financial Markets Authority and the Qatar Financial Centre Regulatory Authority.

The goals of this plan include:

• Strengthening the financial market infrastructure

• Enhancing consumer and investor protection

• Promoting regulatory cooperation

• Building human capital

The Islamic financial services industry in Qatar is expected to benefit from the development of an enhanced risk-based regulatory framework by:

Creating consistent regulations for Islamic finance. With the recent closing of Islamic windows of conventional banks operating in Qatar, a risk-based regulatory approach helps to develop a level playing field in the form of consistent regulations for Islamic finance. These regulations should be aligned with the regulation of conventional financing to the extent consistent with Shari’ah requirements.

Strengthening the financial market infrastructure. With international prudential standards aligned to the core principles and standards adopted by the Basel Committee, the International Association of Insurance Supervisors (IAIS) and the International Organization of Securities Commissions (IOSCO), Qatar could minimise the opportunity for regulatory arbitrage arising from cross-sectoral and cross-border differences. The financial market infrastructure could further be strengthened by ensuring the regulatory requirements distinct for Islamic finance are effectively addressed.

Improving compliance systems and controls. Rather than focussing on regulating the religious features of Islamic products, a risk-based regulatory framework typically focus on the adequacy of the systems and controls that firms maintain for all their compliance obligations, be they conventional or Shari’ah compliant.

Developing greater public confidence in Islamic financial services. Enhancing governance requirements for Islamic finance institutions should assist in developing greater public confidence in the Islamic financial services industry and allow investors a clear and enforceable measure against which to assess performance. For example, enhancing governance would ensure that suitably qualified scholars are represented on Shari’ah Supervisory Boards. These boards would then operate under approved policies and procedures and have in place systems to disseminate their rulings.

Improving the efficiency of the supervisory processes. Information-sharing and effective coordination among regulators will enable a complete understanding of the entire risk spectrum of the risk taking activities undertaken by Islamic financial institutions operating both within and outside of Qatar. This should improve the efficiency of supervisory processes and allow for early detection and management of cross-border transmission of risks arising from group-wide activities. The resulting public confidence should facilitate growth in the Islamic financial services industry in Qatar.

Creating an Islamic economy of scale. Globally, Islamic finance standards lack enforcement and standardization which impacts market confidence. A strong, standardised and transparent regulatory framework would help create economies of scale in the Islamic financial services industry. Qatar would be well placed to drive this growth both within Qatar and in the wider GCC and MENA region.

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First Qatari IPO in Three Years and QFMA’s New Listing Rules

Posted in Capital Markets, Oil & Gas, Qatar

Qatar Petroleum (QP) recently announced the first initial public offering (IPO) in Qatar since 2010. Shares in Mesaieed Petrochecmical Holding company Q.S.C. (MPHC) are being offered to eligible Qatari investors in the first IPO in Qatar since 2010 and the introduction by the Qatar Financial Market Authority (QFMA) of its current listing rules. It is also the first public offering in Qatar since both Qatar and the UAE were upgraded from ”frontier” to ”emerging” market status by MSCI earlier in the year. The IPO is expected to raise QAR 3.2 billion (US$880 million).

Innovative Incentives

The IPO incorporates an innovative incentive share scheme designed to encourage the development of a personal savings culture in Qatar. IPO investors who retain at least 50% of their shares will receive two sets of additional shares – free of charge – in five and ten years’ time (provided they hold 50% of their original shares by that time). The Qatari government has also announced it will buy 750 shares in MPHC as a gift for each disadvantaged Qatari citizen and those with special needs.

The IPO is expected to be the first of a series of equity offerings in Qatar designed to enable Qatari nationals to participate in the country’s hydrocarbon wealth and boost liquidity on the Qatar Exchange. While the MPHC IPO is only open to Qatari nationals, foreigners can invest in the secondary market subject to foreign ownership restrictions imposed by law and MPHC’s Articles of Association. The IPO has received considerable press attention in Qatar and throughout the region.

Key Stakeholders

MPHC is a subsidiary of QP, holding large stakes in three key players in Qatar’s petrochemical sector – Qatar Chemical Company Ltd. (Q-Chem I), Qatar Chemical Company II Ltd. (Q-Chem II) and Qatar Vinyl Company (QVC). MPHC’s operations are based at Mesaieed Industrial City in the south-west of Qatar.

IPO Details

Issuer:

Mesaieed Petrochemical   Holding Company Q.S.C.

Offering:

323,187,677 shares   (25.725%)

Offer price:

QAR 10 per share (plus   offering and listing costs of QAR 0.20 per share)

Offer period:

31 December 2013 – 21   January 2014

Photo: Getty Images

Top 4 Trends that are Shaping UAE Capital Markets

Posted in Capital Markets, Real Estate, United Arab Emirates

The strengthening global recovery appears to have brought renewed confidence to the UAE’s capital markets. As such, a number of interesting themes have begun to emerge:

Resurgence in Dubai’s Real Estate Sector:  Following a four year gap, IPOs and other equity offerings have returned in the form of DAMAC, Al Noor Hospitals, Arabtec, NMC Healthcare and Bank of London and the Middle East.  This resurgence can be attributed to the optimism surrounding Dubai’s Expo 2020 bid, which seems to have fuelled a revival of Dubai’s real estate sector.

NASDAQ Attracting Niche Issuers:  As smaller and more niche types of issuers list on NASDAQ Dubai it bodes well for the maturation of the market.

London over Local: London remains a popular alternative listing venue for UAE issuers, with DAMAC, NMC Healthcare and Al Noor Hospitals all opting for the LSE over local exchanges. NMC and Al Noor Hospitals have gone further and registered as UK plcs, benefitting from the UK’s corporate tax exemption for holding companies.

GCC Cooperation: Abu Dhabi’s local exchange ADX has entered into an important arrangement with the Saudi Tadawul exchange to permit cross-listing of shares, allowing companies listed on the ADX to benefit from a secondary listing on the region’s most liquid exchange. This is a positive step towards a passporting regime similar to that which exists between EU jurisdictions and is a sign of increasing co-operation among GCC regulators.

Photo: Dreamstime

How to Effectively Manage Outsourcing Contracts

Posted in Outsourcing

Outsourcing contractsThe Middle East is emerging as one of the biggest growth markets for outsourcing.  Organizations seeking cost and efficiency savings combined with greater continuity and risk management are switching to outsourcing as a method of managing their back-office business operations.

MENA outsourcing revenues are predicted to hit US$2.69 billion by 2016 (Frost & Sullivan).  Across the region, commitment to outsourcing can be observed with the Kingdom of Saudi Arabia forecasting that more than 50% of its ICT needs will be fulfilled by outsourcing companies by 2016.  In the UAE, the dedicated Dubai Outsource Zone (DOZ) has announced a 15% growth rate throughout 2012.

Successfully managing an outsourcing contract requires customers to include the right governance tools and mechanisms in their contracts and then use those tools appropriately.  Click here to read more about the types of governance tools.

Contract tools provide the customer with leverage in managing the outsourcing contract.  Customers should use these tools knowingly with a view to the potential impact on the supplier relationship.

Download the “Using Contract Tools” whitepaper and learn how to effectively manage outsourcing contracts.

Understanding how to use contract tools can optimize the outcome of the relationship for the customer, who will be empowered to:

  • Manage the supplier relationship to ensure issues are resolved quickly and opportunities are maximized.
  • Maximize savings as profitability of the transaction is determined by performance.
  • Handle issues and escalations to avoid disputes.
  • Use customer leverage to ensure contractual commitments are met.
  • Manage unexpected contractual change with reasonable pricing impact.
  • Monitor service performance and audit status information provided by the supplier.
  • Maintain contractual and operational control to ensure supplier compliance.
  • Work constructively with third parties to resolve any issues that arise.

If you found this article interesting you may also enjoy our Middle East & Africa Technology, IP and Sourcing Focus Newsletter – a roundup of recent news and developments in technology, intellectual property and sourcing across the Middle East and Africa.

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How Educational Institutions Can Capitalise on Real Estate Assets

Posted in Qatar, Real Estate, Saudi Arabia, United Arab Emirates

With investment pouring into the education sector, academic institutions have never been in a stronger position to capitalise on costly real estate assets to fuel future expansion.  Research suggests the public and private education market in MENA is projected to be worth US$96 billion by 2015, with the GCC region claiming US$61 billion of that predicted value. (Al Masah Capital Report)

The sale and leaseback model is enabling educational institutions to unlock capital.

In the most straightforward form, sale and leaseback transactions involve selling a real estate asset to an investor and simultaneously entering into a long-term lease of normally 15 years or longer.  This results in an immediate release of capital to the institution and generates profit for the investor – creating a win-win situation.

It is therefore not surprising that the GCC is witnessing a steady rise in sale and leaseback transactions.  Yet this method is not without its legal hurdles:

  • A foreign investor contemplating a sale and leaseback in the region must be mindful of the specific laws and regulations restricting who can own and register freehold and long-term leasehold interests.
  • GCC and other Islamic investors may need to comply with Shari’ah principles.
  • Various third party consents may be required as conditions precedent to any deal, for example regulator or superior landlord consent.
  • Educational providers need to meet strict accounting rules if they seek to classify long-term lease agreements as operating leases rather than finance leases.

Read more about sale and leaseback transactions in the GCC education sector here

Photo: Dreamstime

 

Infographic: How #Healthcare is Regulated in the #UAE

Posted in Healthcare, Regulatory, United Arab Emirates

Investment in the UAE’s healthcare sector is steadily increasing as the government seeks to deliver world-class healthcare to its residents.  Latham has compiled the following Infographic to explain the regulatory framework behind the UAE’s first-rate infrastructure projects and advanced healthcare services.

Read more about UAE healthcare regulations here.

How to comply with laws that protect personal #data in the #Middle East

Posted in Qatar, Regulatory, Saudi Arabia, Technology, United Arab Emirates

Data protection in the Middle EastDigital Identity Dominates

 Having a digital identity for online browsing, transactions and interactions has become necessary to operate in this information age.  As more and more lifestyle and business services shift to the digital platform, there has been an explosive growth in personal data capture.  The “Big Data” phenomenon has the potential to transform, innovate and optimize entire industries, yet policy makers need to be able to strike the balance between productivity and privacy to protect personal data.

Protecting Personal Data

Whilst it is not widely recognized that countries in the Middle East have specific established laws applicable to data protection, privacy and data protection are regulated by other laws in the region.

In Qatar, Saudi Arabia and the United Arab Emirates, the constitutions, together with certain statutes, recognize individual rights to privacy in specific circumstances.  In addition, in Saudi Arabia, protection of personal data is provided through Shari’ah principles.

Latham & Watkins’ explains in an article, published by The Oath, the laws applicable to personal data protection which govern the processing, storage and transfer of data in the UAE, Qatar and Saudi.

Read the full Privacy Matters article here.

Key themes covered include:

  • Constitutional protection: Discover how confidentiality is protected by the constitution in each country.
  • Sector-specific laws:  From labour to telecommunications law, learn how the collection, use, retention and disclosure of personal data is governed by sector-specific law
  • Shari’ah principles protection: Learn how Shari’ah principles are relevant to disclosure of personal data in Saudi Arabia
  • Separate data protection regimes: Understand how data protection is regulated in Qatar’s and Dubai’s financial centers, where compliance mimics the approach taken in the European Data Protection directive
  • Combating cybercrime: Get familiar with the Federal Laws that exist to criminalize unauthorized access, amendment, interception, damage and use of certain types of data.
  • Unified data protection regime for the region: Will the region consider following a European Union style approach to data protection?

Photo: Dreamstime

#FATCA Update: Six Month Grace

Posted in Tax

On 12 July 2013, the US Internal Revenue Service issued a revised timeline for the implementation of the requirements of sections 1471 to 1474 of the Internal Revenue Code, commonly referred to as FATCA.

Highlights

  • The implementation of FATCA withholding on US source income has been delayed by six months and will now commence on 1 July 2014 (rather than 1 January 2014).
  • The grandfathering period for FATCA withholding on US source income has also be extended by six months to 30 June 2014.
  • A number of other key starting dates for FATCA reporting and compliance obligations have also been extended, though the notice does not affect the timing for implementation of FATCA withholding on gross proceeds or passthru payments, which remains scheduled to take effect on 1 January 2017.

Principal Effects

  • Financings, derivative transactions and other similar arrangements that are entered into prior to 1 July 2014 will not be subject to FATCA withholding regardless of the status or jurisdiction of the parties, in the same way as previously applied to arrangements entered into prior to 1 January 2014 only.
  • However, as before, a “significant modification” of the relevant arrangement on or after 1 July 2014 could cause the grandfathering protection to be lost, and therefore careful consideration of FATCA provisions remains important in such arrangements.

For further detail on this development and a general overview of the impact of FATCA on Middle East transactions, please click here to view a presentation Latham hosted on 25 July 2013.

Photo: Dreamstime