Photo by Abedin Taherkenareh/EPA
The reluctance of European banks to do business with Iran is threatening to undermine the nuclear deal the Islamic republic reached last year with the US and other world powers, which promised sanctions relief in exchange for cutting back its nuclear ambitions."Clearly it was expected that Iran would get an economic benefit from this deal," said Douglas Maag, an attorney who specializes in trade sanctions at Clyde & Co, an international law firm. "They're not getting that benefit because of the unexpected fact that the European banks won't do business with them."
On Thursday, the US Department of State joined the governments of France, Germany, and the UK in issuing a statement that fell just short of imploring European banks to conduct business in Iran in order to help its people and preserve the pact — a bizarre turnabout given the rocky relations between the US and Iran over the years."We will not stand in the way of permitted business activity with Iran, and we will not stand in the way of international firms or financial institutions' engaging with Iran, as long as they follow all applicable laws," the statement read. "We understand that firms may continue to have specific sanctions-related questions or concerns about doing business in Iran, and we stand ready to provide expeditious clarifications. We encourage firms to approach our governments to address remaining questions, rather than forgo opportunities due to misperceptions or lack of information."
Under the Joint Comprehensive Plan of Action — as the deal sealed between Iran, the US, China, France, Russia, and Germany is technically known — Western countries lifted sanctions that were designed to limit Iran's nuclear program.The sanctions penalized foreign banks that did business with Iran. Two years ago, the French bank BNP Paribas paid a $9 billion fine for dealing with Iran and other rogue nations. Other financial firms such as HSBC, Credit Suisse, and UBS have also paid big fines for their involvement in Iranian business.
Since the plan of action went into effect in January, these and other foreign banks are technically free to operate in Iran.But the plan of action left separate US sanctions against Iran in place that were imposed, among other things, to deter it from developing missile technology, to punish it for violating human rights, and because the US regards it as a state sponsor of terror.
Now European banks are leery of conducting business in Iran because they are afraid of running afoul of those sanctions by inadvertently conducting transactions in US dollars, which is still banned under US law, or through an American office. They also fear what might happen if presumptive Republican presidential nominee Donald Trump wins the White House and tears up the plan of action, as he's promised.A recent Clyde & Co survey found that a quarter of British-based senior executives of businesses interested in Iran listed US sanctions as their top concern, followed by an unwillingness among banks to extend credit for ventures in Iran and insurance companies' reluctance to insure those ventures — problems that could be traced back to US sanctions."No one has claimed that Iran has ceased to engage in much of the same conduct for which it was sanctioned, including actively supporting terrorism and building and testing ballistic missiles," wrote HSBC Chief Legal Officer Stuart Levey in a recent op-ed in the Wall Street Journal recently. "But now Washington is pushing non-US banks to do what is still illegal for American banks to do. This is a very odd position for the US government to be taking."
'They thought that the enticements of the Iranian market would be such that European businesses wouldn't be able to resist the lure.'
Even though Tehran is selling more oil and buying much-needed commercial jets, trains, and other items in recent months, the country has yet to enjoy the economic boom that negotiators and critics envisioned last summer after officials inked the controversial deal.The situation is causing headaches for the Iranian leaders who put their reputations on the line in the negotiations, as well as resentment among ordinary Iranians."Hard-liners who had warned that the US was actually not interested in letting Iran get sanctions relief see their narrative as validated, as the general population is pretty upset," said Ariane Tabatabai, an expert on Iranian foreign and security policy at Georgetown University. "The happiness and excitement of the immediate post-deal time has left its place to a disillusionment."
Negotiators on both sides didn't foresee this outcome, said Barbara Slavin, acting director of the Future of Iran Initiative at the Atlantic Council."These negotiations were conducted by professional diplomats and physicists," she said. "The Iranian negotiators underestimated the amount of resistance there would be, particularly among European banks, to doing major business in Iran. They thought that the enticements of the Iranian market would be such that European businesses wouldn't be able to resist the lure."Slavin has laid out a plan that she thinks the US should adopt to make the deal work for Iran. It involves allowing foreign banks to use dollars, allowing US citizens working in foreign banks to deal with Iranian transactions, helping Iran become more transparent financially, letting American banks handle limited Iranian business, and permitting the World Bank to lend Iran money.Such changes won't happen overnight, but the chill between the countries won't thaw until the situation improves."The US-Iran estrangement is bigger than the nuclear deal," said Saam Borhani, a trade sanctions attorney who writes on Iranian issues. "Both governments have to show that the nuclear deal worked in order to convince skeptics in DC and Tehran to move on to resolving other issues."Follow John Dyer on Twitter: @johnjdyerjr