Wall Street Journal
Thursday, 14 July 2016
Companies remain wary of entering Iran in the year since global powers struck an agreement to freeze Tehran’s nuclear program in exchange for sanctions relief, according to sanctions experts.
While officials trotted out statements commemorating the July 14, 2015, signature of the Joint Comprehensive Plan of Action, or JCPOA, the consensus was the nuclear deal with Iran is holding but is fragile. Companies, though, don’t consider Thursday to be the one-year anniversary of the agreement; they point to the Jan. 16, 2016, implementation as the important day to commemorate, said Douglas Jacobson, a partner at international trade-focused firm Jacobson Burton Kelley PLLC.
He called any real assessment of the deal’s effectiveness “premature” and noting it’s still in its early stages. “We’re only in the first chapter and the rest of the book hasn’t even been written,” said Mr. Jacobson.
Companies have spent the last six months “putting their big toe in the swimming pool” to evaluate their prospects in Iran, said Mr. Jacobson, and they are working through the various compliance hurdles that remain despite the lifting of nuclear-related U.S. and international sanctions.
“We’re still in the very early phases of even understanding the overall impact on commercial business of the implementation of the JCPOA,” he said.
The legal experts said remaining U.S. sanctions on Iran—which target the country’s support for terrorism, human rights violations and weapons proliferation—are causing more problems for foreign companies than anyone expected, in part because of the difficulty for them to wall off any U.S. person or product from a transaction with Iran.
“This is resulting in a really, really sharp focus on the concept of the ‘U.S. person,’” said Richard Matheny, a partner at Goodwin Procter LLP.
There are more opportunities in Iran than what companies are thus far taking advantage of, but they’re slowly starting to recognize what’s authorized under a general license issued in January and could begin to move forward soon, said Mr. Matheny.
However, Messrs. Matheny and Jacobson both noted Congress is wedging itself into the post-nuclear sanctions business climate, and that is making it tougher for companies to seek deals with Iranian counterparts. “For a business evaluating prospective risk, it’s tough: This is the way it is today, but tomorrow could be different,” said Mr. Matheny.
U.S. companies are feeling left out, while foreign ones can engage, said Mr. Matheny. However, the U.S. financial system is stymieing some of that business by enforcing sanctions concerns more harshly than the Treasury Department requires, he said.
Banking concerns about Iran aren’t isolated to the U.S., however, the experts said.
Matthew Levitt, the Fromer-Wexler Fellow and director of the Stein Program on Counter terrorism & Intelligence for The Washington Institute for Near East Policy, said corporations see an opportunity in Iran, but getting a bank to provide financing for it is tough.
First- and second-tier banks across the globe remain wary for a variety of reasons, said Mr. Levitt, noting that as Iran abides by the strict terms of the agreement, its conduct contrary to Western interests continues, and banks have a broader risk concern than just the nuclear issue. “The risk calculus is different for corporations than it is for banks,” he said.
In addition, said Mr. Levitt, Iran has antiquated anti-money laundering systems, and making deals with local financial institutions is difficult while the country remains on a blacklist maintained by the Financial Action Task Force, a standard-setting body. Noting that the FATF suspended certain countermeasures against Iran for a year while keeping it on the blacklist, he said the international community gave Tehran an opportunity to right itself to the point that global banks may feel comfortable doing business there.
“This is what will be required of Iran if they are truly interested in being fully integrated into the international financial system,” said Mr. Levitt.