Untangling Iran's web of sanctions after the nuclear deal

United States government representatives are advising European businesses to do their homework before dipping their fingers into post-nuclear deal Iran. According to University of California Los Angeles scholar Kevan Harris and former deputy industry minister Mohsen Safai Farahani, more than half of Iran’s economy is run by pseudo-private entities linked to “parastatal organisations”, including the Islamic Revolutionary Guard Corps (IRGC), which remains subject to both European Union and United States sanctions. 

So how best can a foreign investor avoid being fined by the US government for dealing with IRGC front companies? “Check up on what you can check up on, keep your records, be able to make your case,” Richard Nephew, the former lead US sanctions negotiator in the Iran nuclear talks, told Tehran Bureau in Berlin last month.

Not everyone is convinced that such precautions are enough to mitigate the risks. German businesses fear that the costs of due diligence will be too high for small and medium-sized enterprises, and for suppliers interested in one-off transactions. At a US Treasury delegation meeting last month in Frankfurt, attended by German trade representatives and Iranian foreign affairs ministry officials, the Treasury recommended that everyone should hire lawyers. “That’s frustrating for anyone who for example just wants to make a one-off $1m delivery,” said one participant.

Germany is hoping to increase trade with Iran to pre-sanctions levels, when Iran was its main economic partner in the Middle East. In the long term, a growth in German exports from the current Eur 2.5bn (£2bn) to around Eur 10bn (£8bn) is realistic, said Ilja Nothnagel, managing director of international economic policy at the Association of German Chambers of Commerce and Industry.

Iran’s nuclear agreement with world powers - known as the JCPOA, Joint Comprehensive Plan of Action - has opened doors for Germany’s automotive, mechanical engineering, energy, technology, construction and health sectors. But the “complex network of US and EU regulations”, said Nothnagel, means German companies still have trouble finding banks willing to service financial transactions with Iran.

While several major European banks - including the Belgium-based KBC, Germany’s DZ Bank and Austria’s Erste Group - have resumed handling transactions with Iran, it may take years before Iran is fully de-stigmatised in the eyes of larger financial institutions with major activities in the US.