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A GREEN LIGHT FOR DOLLAR TRANSACTIONS WITH IRAN?

What’s the current situation for trade in Iran?

The lifting of sanctions has so far not brought Iran the financial and economic benefits that were anticipated. Progress has been slow in attracting investors and finalising numerous large infrastructure contracts. This is largely due to the ambiguity of the wording of remaining U.S. sanctions, which has caused large non-U.S. banks and investors to stay away from dollar transactions with Iran.

Reluctance to trade with Iran

Although allowing non-U.S. entities to conduct business with Iran in dollars, the remaining U.S. sanctions prohibit such transactions where an American financial institution is involved. Since dollar transactions, particularly large ones, might at some point transit through an American bank, large European banks have been reluctant to engage with Iran on financing the larger deals and have steered clear of Iran altogether.

Iran sanctions result in loss of export opportunities in Europe

Some European governments have expressed concerns that this ban has resulted in significant loss of export opportunities. France, in particular, started talks some months ago with the U.S. Treasury to get a commitment that it can conduct business with Iran without fear of violating the U.S. sanctions. After the record fine of $9 billion imposed on BNP Paribas for its dealings with Iran, French banks are staying away from Iran: BNP Paribas’ Chief Financial Officer has demanded clarification (http://www.bloomberg.com/news/articles/2016-05-03/europe-s-banks-haunted-by-u-s-fines-forgo-iran-deals-amid-boom) over conditions for financing Iran-related business.

U.S guidelines for trading with Iran

This clarification came recently from the Obama administration (http://www.reuters.com/article/us-iran-usa-sanctions-idUSKCN12A29Q), after months of complaints from both Iranians and other governments and entities eager to finalise contracts with Iran.  The U.S Treasury’s Office of Foreign Assets Control issued guidelines (https://www.treasury.gov/resource-center/sanctions/Programs/Documents/jcpoa_faqs.pdf) last week, clarifying that non-U.S. banks are indeed allowed to conduct dollar transactions with Iran, with the condition that these transactions do not pass through American financial institutions.

A U.S. Treasury spokeswoman reiterated that the latest guidelines are only “intended to clarify the scope of sanctions lifting” (http://www.reuters.com/article/us-iran-usa-sanctions-idUSKCN12A29Q) rather than providing additional sanctions relief for Iran. The guideline is seen by some as a positive step forward and is a change from the previous stance of Secretary of State John Kerry in April, who encouraged banks to ask for clarity on an individual basis, rather than issuing general guidance.

How Iran has reacted

Iran, however, does not see the new guidance as enough to remove all doubt for the large banks. According to the Iranian Students News Agency (ISNA), Mr Ghazavi of the Economy Ministry stated that the U.S. has not yet resolved the ambiguity for non-U.S. banks to have 100% confidence in creating accounts, or facilitating financing in U.S. dollars for Iranian banks and individuals.

Iran’s concern is, so far, shared by major European banks who are still very reluctant to do business with Iran. It has yet to be seen if the guidance will improve the sentiment among the larger European banks.

For further information on doing business in Iran please contact Jacqueline Faridani on 020 3427 5955 or by email on jaf@prospectadvisory.co.uk

For legal advice on sanctions and their application to trading with Iran please contact Edward de la Billiere on 020 3427 5955 or by email on edlb@prospectlaw.co.uk

Prospect Law and Prospect Advisory provide legal and business consultancy services for clients involved in the infrastructure, energy and financial sectors.

This article remains the copyright property of Prospect Law and Prospect Advisory and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

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