Risk Management and Crisis Response Blog

Nike withdraws from supplying Iranian World Cup Team over sanctions concerns

Jun 15, 2018 3 MIN READ
Authors
Kevin O’Brien

Partner, Disputes, Toronto

Malcolm Aboud

Counsel, Disputes, Toronto

Nike announced on June 11, 2018 that it would withdraw from supplying shoes to players on the Iranian national soccer team as a result of U.S. sanctions against Iran. The decision comes on the eve of the commencement of the 2018 World Cup, beginning Thursday in Russia.

Nike’s decision follows U.S. President Donald Trump’s announcement on May 8 that the U.S. would be withdrawing from the Joint Comprehensive Plan of Action (Iran Nuclear Deal).  Economic sanctions that had been relaxed through this deal are being re-imposed over a three to six months period starting from that date. Violations of the Iran and Iranian Financial Institutions sanctions may be met with civil penalties of up to the greater of $250,000 or twice the transaction value, and criminal penalties for willful violations of up to $1 million and 20 years in prison.

In a statement, Nike noted “U.S. sanctions mean that, as a U.S. company, Nike cannot provide shoes to players in the Iranian National team at this time.” German-headquartered competitor Adidas will continue to sell uniforms to the Iranian federation at a discounted rate.

The Iranian national team has historically faced issues as a result of sanctions against the country, including cancellation of matches for political reasons and issues with basic tasks such as booking hotels or flights. Although a somewhat novel area, this is not the first time in recent years that international soccer has been caught up in US regulatory compliance issues. In 2005, U.S. authorities arrested several senior FIFA officials as part of an ongoing corruption investigation.

Nike’s decision to cease supplying the Iranian team has been met with curiosity, given the timing and Nike’s supplying shoes to the team in the past, notwithstanding similar sanctions historically being in place. Though Nike stated that “sanctions applicable to Nike have been in place for many years and are enforceable by law”, during the 2014 World Cup in Brazil Nike supplied the Iranian team with cleats despite similar sanctions. In addition, the announcement came just three days before the start of the World Cup, even though the re-imposition of sanctions has been clear since early May. The Iranian soccer federation has since written to FIFA requesting an explanation as well as assistance in finding a solution to the situation.

Sanctions concerns

Nike’s decision reflects the political and legal concerns companies face as they navigate sanctions issues. Companies may be subject to sanctions law either in the U.S. or Canada. The U.S. regime – operated by the Office of Foreign Assets Control (OFAC), a subsidiary of the Department of the Treasury which enforces trade sanctions against listed countries, groups, and individuals – prohibits transactions with sanctioned countries or persons by U.S. persons or within the United States.

U.S. sanctions laws may apply to Canadian companies in certain circumstances, including subsidiaries of U.S. companies, or transactions flowing through U.S. banks or using U.S. currency. Canada has a similar sanctions regime administered by Global Affairs Canada which, in addition to banning transactions with listed countries and entities/individuals, includes positive obligations such as reporting requirements for holdings and activities in relation to targeted individuals and entities.

As such, companies doing business in countries which may be subject to sanctions must be aware of these issues and seek advice from counsel to determine if a given transaction may constitute a violation. This is particularly important given the dynamic nature of sanctions compliance, where countries or individuals/entities may be listed or delisted on an ongoing basis.