Financial Times
Najmeh Bozorgmehr | Simeon Kerr
- Iranian state-related bodies, backed by billions of dollars in unfrozen assets, have been quick to capitalise on the lifting of most sanctions, but smaller traders and investors continue to have difficulty securing finance to ramp up their operations
Optimism that Iran’s economy would quickly open up to foreign trade and investment after the easing of international sanctions has been dashed by continuing restrictions on financing businesses in the Islamic republic.
Iranian state-related bodies, backed by billions of dollars in unfrozen assets, have been quick to capitalise on the lifting of most sanctions, but smaller traders and investors continue to have difficulty securing finance to ramp up their operations.
Some US clearing banks have warned banks in Europe, Asia and the Middle East that their US-based dollar accounts will face close scrutiny if they do business with Iran, Iranian and US bankers in the region say.
The warning, echoed by US Treasury officials in meetings in the Gulf, has prevented banking transactions with Iran starting up again despite the removal of many sanctions.
“For US banks, nothing has changed,” said one senior Dubai-based banker. “And that has consequences.”
Iran and six leading powers – US, Britain, France, Russia, China and Germany – last month put into force the crucial nuclear agreement reached in July after Tehran agreed to scale down its nuclear activities in return for the lifting of sanctions.
But the continuation of many US sanctions relating to other issues, such as facilitating terrorism, has made many international banks wary that they could face penalties if they work with Iranian institutions and individuals.
US bankers say that compliance requirements are still in place at their banks to end relationships with clients that have exposure to countries such as Iran, Syria, Sudan and North Korea.
The provisions also govern relationships with banks that need to engage in US dollar transactions, which in effect covers almost all Iranian institutions doing business with foreign companies.
“Any banks we contact in Europe, Asia or even in the region like those in Turkey, Oman and UAE, tell us they were told by a few major American clearing banks that no matter which currency they use for transferring Iranians’ money, their US-based dollar accounts will be double and triple checked,” said a senior Iranian banker.
“Now all banks are scared of delays in their own dollar transactions and tell us they would love to work with us but don’t know what to do as they cannot afford to jeopardise their own dollar accounts with American banks,” he added.
Hassan Rouhani, Iran’s centrist president, on a recent visit to Paris signed agreements with Airbus to buy 118 aircraft and Peugeot PSA to produce cars inside Iran. He urged French banks to support their country’s businesses and implicitly threatened that such deals were at risk if they stayed away.
Western officials say French banks might be keen to explore new opportunities in Iran, but the risk of US sanctions remains strong. BNP Paribas was hit by a $9bn fine in 2014 for concealing transactions with Sudan, Cuba and Iran.
“US banks will be wary of importing risk by dealing with foreign financial institutions that have Iranian-related business, and foreign financial institutions will certainly remember the BNP Paribas settlement,” said Patrick Murphy, a Dubai-based partner at law firm Clyde & Co.
Many analysts believed that when nuclear sanctions were lifted the clock would be turned back to before 2010, when non-US financial institutions had been prepared to facilitate trade with Iran by using non-dollar currencies, such as euros.
“But that ignores the change in risk mindset since the settlements made by BNP and for some banks it may be a while before we go back to that pre-2010 position,” he said
Iranian banks say they have faced no trouble reconnecting to the Swift international payment system after the lifting of sanctions, but have not benefited from any other advantages.
“Clearly, it takes longer than we expected to be able to use the international banking system,” a second Iranian banker said. “It will be eventually resolved but no one knows how long it will take.”
Similarly, the insurance market remains averse to new Iranian business given that facilitating trade with Iran remains illegal for US citizens and entities, thereby constraining trade further.
New research by Clyde & Co shows that 85 per cent of respondents at London-based insurance companies said US sanctions “negatively impact their risk appetite for Iran-related business”.
“Even those London based insurers with no US operations are very concerned about the remaining US sanctions,” said Chris Hill, partner at Clyde & Co. “Those sanctions are proving a strong disincentive to such insurers providing cover for permitted EU-Iran trade.”
Iran’s economy is in dire need of new financing.
Years of sanctions imposed over its nuclear programme, combined with the populist policies of former president Mahmoud Ahmadi-Nejad, have left it with negative economic growth in most years since 2011 and a youth unemployment rate of about 25 per cent.
Japanese banks have told Iranian bankers that they would work with Iran as soon as sanctions were lifted.
“But now they don’t even answer our emails,” the first Iranian banker said. “It is shocking that European and Japanese banks need US approval to do business with Iran.”
