Bankers exasperated with US “double messages”
The peripatetic Secretary of State, John Kerry, stopped in London late last week to meet with a group of representatives of European financial institutions for a discussion about “Iranian banking matters.” The encounter followed on from a series of complaints by Iranian officials that they are not reaping the rewards of the Joint Comprehensive Plan of Action, (JCPA) as the deal curbing Iran’s nuclear program is formally called, that was signed last July.
Kerry’s meeting was intended to persuade major non-U.S. banks that doing business with Iran is not only permitted following the relaxation of nuclear sanctions against Iran, but actively encouraged.
The meeting appears to have borne fruit: on Tuesday, the Swedish firm Pomegranate Investment AB announced that it will be first to seek listing for investment in Iran.
But the caution with which it must proceed to ensure it does not fall afoul of existing sanctions relating to Iran’s human rights’ record and terrorist activity, and to protect itself in the event of future misconduct on the part of Iran, is indicative of the nature of the challenge.
Chief executive Florian Hellmich told Reuters on Monday that the firm, which has raised $90.5 million from European investors since its establishment in 2014, hopes to launch its IPO in Sweden within 12 months with the intention of investing in Iran’s consumer technology sector.
American and Canadian citizens and corporations are excluded from the offer.
To avoid infringing the ongoing ban on dollar payments to or from Iran passing through American financial institutions, all transactions will be made in Euros. European banks, some of which faced heavy penalties for doing business in Iran in the past decade, remain wary of US enforcement authorities.
In addition, international companies must verify that their Iranian partners are not on the US blacklist.
Reuters’ screaming headline on January 22, 2016, “Exclusive: Iran set to be hooked up to global banks in weeks,” appears to have been posted prematurely.
Stuart A. Levey, chief legal officer of HSBC Holdings, who served as undersecretary for terrorism and financial intelligence at the U.S. Treasury Department until 2011, published a blistering opinion piece in the Wall Street Journal stating that “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. But now Washington is pushing non-U.S. banks to do what it is still illegal for American banks to do.”
“This is a very odd position for the U.S. government to be taking,” he said.
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America has lived up to its part of the deal by removing all nuclear sanctions, the Iran analyst and scholar Meir Javedanfar told The Media Line. “Iran has lived up to its part with steps to curb its nuclear program. The reason some banks remain apprehensive are the other sanctions related to terrorism and human rights. It takes a lot of lawyer hours and paperwork to sort that out, not to mention what has to be undertaken in terms of due diligence.”
According to Javedanfar, who teaches at the Interdisciplinary Center (IDC) in Herzliya, the banks are asking themselves “ok, we go through this hurdle and we spend tons of money clarifying everything— and then what happens when there are new sanctions imposed because of Iran’s missiles or human rights’ violations or acts of terror or what happens if the next US president is very opposed to the Iran deal, or what if the next president of Iran is very hostile… so not only are there existing sanctions against Iran but there is a lot of uncertainty in the air and financial institutions don’t like uncertainty.”
No, they do not.
Brian Caplen, editor of the financial intelligence site The Banker, blogged that “US secretary John Kerry’s Iran stance lacks credibility.”
“The West’s policy on Iran is totally confusing and will not restart investment,” he launched his post, before continuing, “Perhaps Mr Kerry has forgotten that US authorities have fined leading European banks …billions of dollars for breaking sanctions against various countries, including Iran?”
“Perhaps he has forgotten that even if the state department says Iran business is OK, it does not mean that the US’s plethora of regulatory bodies and legal arms will necessarily go along with that view?”
“Perhaps he has forgotten that he will not be in office in six months’ time and that Donald Trump, if elected president, has promised to renegotiate the Iran deal?”
The United States finds itself in electoral turmoil, and the Iranian presidential elections are due to take place just over a year from now, in June 2017.
Hardliners gunning for President Hassan Rouhani are already trying to paint him as an incompetent.
“They are lying by saying that the nuclear deal was to have removed all sanctions and also by giving assurances that there will be no new sanctions. It’s just a lie,” Javedanfar said.
Alex Vatanka, senior fellow at Washington’s Middle East Institute and at the Jamestown Foundation,
points out that while Rouhani’s opponents may be gunning hard, they have a difficult argument to make.
“Basically what we are talking about is a nice sized grey zone,” he told The Media Line, “where so much of the bickering between the US and Iran is taking place.”
Regarding public perceptions in Iran, Vatanka said “we still have over one year before elections and we are only 2 to 4 months into the actual implementation of the deal. A lot can happen between now and a year from now. But no one should underestimate the symbolic importance that countries around the world have shown in going to Iran for diplomatic and trade opportunities. This was not happening when [former President Mahmoud] Ahmadinejahd was in power for eight long years. So, on the plus side, this is a tangible and constructive achievement Rouhani will be able to point to as part of the benefits of his reorientation of Iran’s foreign policy. It has given enough confidence to many international actors such as South Korea, South Africa, India, Japan, and the Central African states to make it quite clear that there’s great appetite there.”
“But,” he added, “symbolism alone isn’t gonna cut it.”
It appears that time alone, encompassing the outcome of both electoral campaigns, will assure—or not—the international banking sector that it is safe to open for business in Tehran.
As to Iran, if you listen to Rouhani’s top advisers, Vatanka says, they fear that the slow implementation of the nuclear agreement and of the windfall they had anticipated may affect public opinion. “They’re saying: yes, there might be some slowness in implementation, but that does not equate to this being a bad deal or having been done in bad faith as hardline critics would have it.”