LONDON—The Obama administration’s calls for restoring global business ties with Iran are falling flat in Europe, where risk-averse banks told U.S. Secretary of State John Kerry on Thursday that they don’t believe they can do business in the Islamic Republic without triggering U.S. sanctions.
Nearly a year after the U.S. and world powers struck a deal to ease financial penalties against Iran in exchange for curbs on its nuclear program, the Tehran government complains that U.S. policy is denying that promised relief. Kerry and other top officials have been fanning out across the globe to correct what Kerry called “misinterpretations or mere rumours” about what kind of transactions are still prohibited.
The nuclear deal removed broad U.S. sanctions on Iran’s economy, clearing the way for foreign companies to conduct business. Some specific entities, including companies associated with Iran’s Revolutionary Guard, remain off-limits under sanctions intended to punish Iran for other behaviour such as its ballistic missiles program and sponsorship of groups the U.S. considers terrorist organizations.
“We want to make it clear that legitimate business, which is clear under the definition of the agreement, is available to banks,” Kerry said after an unusual meeting in London with top financiers. “As long as they do their normal due diligence and know who they’re dealing with, they’re not going to be held to some undefined and inappropriate standard here.”
Europe’s banking powerhouses were unconvinced.
“We will not accept any new clients who reside in Iran, or which are an entity owned or controlled by a person there,” said Standard Chartered. “Nor will we undertake any new transactions involving Iran or any party in Iran.”
Deutsche Bank acknowledged “increased expectations on the banking sector” to facilitate business with Iran due to eased sanctions, while noting that other U.S. and European Union penalties are in place.
“Therefore, Deutsche Bank continues to generally restrict business connected to Iran,” the bank said in a statement. Deutsche Bank declined to answer questions about what exceptions, if any, it would entertain.
For a bank’s lawyers and compliance officers, that’s a recipe for heartburn. Iran and its Revolutionary Guard are notorious for using front companies and opaque financial transactions to circumvent sanctions.
Foreign governments, banks and other companies want written clarification from the U.S. Treasury Department — essentially a guarantee they won’t be punished. But Washington is reluctant to do that, not wanting to appear to be softening its firm penalties for non-nuclear behaviour.
Yet the Obama administration is eager for banks to accept its word and do business with Tehran because some Iranian hard-liners have threatened to tear up the nuclear deal without the promised relief. That would damage President Barack Obama’s foreign policy legacy and could mean Iran continues to pursue a nuclear weapon.
Ross Denton, a London-based sanctions and international compliance expert at the law firm Baker & McKenzie, said it’s impossible for banks to accurately determine with whom in Iran they’re really dealing because the country is so isolated from the modern financial system. Major global accounting and risk-management firms don’t operate there, putting banks at risk of unwittingly violating sanctions.
“The problem is not where you can see it,” Denton said. “It is where you can’t.”
The administration has preserved a prohibition on Iran accessing the American financial system or directly conducting transactions in U.S. dollars. That has caused confusion and practical impediments because international transactions routinely are conducted in dollars.
Executives and compliance directors from Barclays, Lloyds, Credit Suisse and Société Générale also attended the meeting with Kerry and British Foreign Secretary Philip Hammond, the State Department said.
“It’s the first hurdle in the race,” Hammond said. “If we fail at this one, then we’ll never get the chance to demonstrate all the other benefits that can flow from this agreement that we spent so much time and energy delivering.”