Western banks remain cautious despite lifting of Iran sanctions, says expert

Regulatory expert Tom Stocker of Pinsent Masons, the law firm behind Out-Law.com, said that with a US trade embargo still in place western banks may remain reluctant to support Iranian related businesses.

The sanctions were removed after the International Atomic Energy Agency verified that Iran has implemented the agreed nuclear-related measures that were set out in the Joint Comprehensive Plan of Action that was agreed in July 2015.

"Following the partial lifting of EU and US sanctions, non-US exporters and oil and gas service and engineering companies are set to re-enter Iran. We have seen a significant increase in companies seeking market entry advice," said Stocker.

"While life sciences, technology, university and professional service sectors were able to conduct business in Iran, the scope of EU sanctions and particularly the extra-territorial nature of US sanctions caused significant difficulties and banks generally declined to support Iranian business," he said.

Stocker said 29 individuals and 94 companies remain on the EU’s sanction list and transactions connected with them remain prohibited, while export controls on military and dual-use items are also in place.

"The biggest challenge to Iranian related business is the US regime. The US has lifted sanctions that apply to non-US persons but US businesses remain prohibited from engaging in Iranian related business and 200 entities remain subject to US sanctions. Money connected to Iranian business must also not be transferred or cleared through the US," Stocker said.

Companies are getting involved in third party payment routings to distance payments to themselves from payments originating in Iran but that leads to money laundering risks, said Mr Stocker.

"There therefore remains substantial legal risks connected to Iranian business but those risks can be navigated. There is a need to carry-out counterparty due diligence and to avoid transactions being in US dollars," he said.

"The key challenge for non-US business will be the practical one of whether their banks will process payments and confirm letters of credit. The risk appetite of western banks is likely to lag behind the lifting of the EU sanctions because the US trade embargo remains in place," Stocker said.

Sanctions on banking, financial services, oil and gas products and services, petrochemical products and services, shipping and ship buildings have been removed by the EU, and a licensing regime introduced for the export of dual use goods and the import of certain metals, diamonds and graphite. A number of individuals and entities have also been removed from the EU's designated person list.

The US has lifted sanctions on non-US businesses working with Iran's financial, banking, energy, petrochemical, shipping, shipbuilding, and automotive sectors, on the provision of insurance and re-insurance services and on trade in certain metals, coal and software and associated services. The US has also removed 400 individuals and entities from the Specially Designated Nationals (SDN) and other sanction lists.

A general licence now authorises foreign subsidiaries of US businesses to engage in most transactions that non-US persons are now allowed to engage in.

Foreign financial institutions are also now able to work with people who have been removed from the SDN list. This applies even if the institutions have branches in the US, so long as those branches and the US financial system are not involved in the transaction.

Most trade with US citizens and organisations remains prohibited, and 200 individuals and entities remain on the SDN list. The transit of funds through the US financial system and US dollar clearing transactions also remains prohibited, except under certain licences.