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European banks shy from ties with Iran

The snow capped peaks of the Alborz mountain range stand beyond buildings and rooftops on the city skyline in Tehran, Iran, on Wednesday, Nov. 25, 2015. Iran will encourage foreign partners and investment as sanctions are lifted and the country seeks to boost its economy after July's nuclear agreement with the world powers, President Hassan Rouhani said. Photographer: Simon Dawson/Bloomberg©Bloomberg

Some of Europe’s biggest banks are to resist rising political pressure to do more business in Iran when they meet the US secretary of state and the British foreign secretary on Thursday.

John Kerry and Philip Hammond plan to call on the banks to do more to reconnect with Iran and to finance British companies seeking to win contracts in the Middle East’s second-largest economy.

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In January, Iran and six leading powers — the US, Britain, France, Russia, China and Germany — implemented an agreement reached in July 2015 when Tehran agreed to scale down its nuclear activities in return for lifting of some sanctions.

But the continuation of many US sanctions relating to other issues, such as facilitating terrorism, has made many western banks wary of working with Iranian institutions and individuals.

This is causing growing frustration among officials in Iran, the US and Europe about the slow pace with which Tehran is being reconnected to the global financial system.

“We want our banks to be able to support British companies working in Iran,” Mr Hammond said in a statement sent to the Financial Times before Thursday’s meeting in London’s Mayfair district.

“It is in our economic interest, as well as Iran’s, that legitimate business is supported. After many years of restricted relations some challenges remain, but we are working through them with international partners, Iran and the banking community.”

His pleas are likely to largely fall on deaf ears among the bankers invited to attend the meeting, including executives at Standard Chartered, HSBC, Barclays, Deutsche Bank, BNP Paribas, Santander, Lloyds Banking Group and Royal Bank of Scotland.

StanChart told the FT it would be “happy to share the practical and legal considerations behind our stated position regarding Iran: we will not accept any new clients who reside in Iran, or which are an entity owned or controlled by a person there, nor will we undertake any new transactions involving Iran or any party in Iran”.

Banks including StanChart and HSBC have paid more than $ 15bn in fines for breaching sanctions in various countries over the past five years. The costliest was the $ 8.9bn penalty for France’s BNP Paribas in 2014.

Mr Kerry said last month: “There are now opportunities for foreign banks to do business with Iran . . . Unfortunately, there seems to be some confusion among some foreign banks and we want to try to clarify that.”

Bankers doubt Mr Kerry will be able to change their cautious approach to Iran. They fear that even if they receive assurances from the US Treasury department, US prosecutors and independent regulators might adopt a different and stricter interpretation of the rules.

They add that Iran presents multiple challenges for banks other than the prospect of breaching US sanctions, including the risk of inadvertently aiding money laundering, financing terrorism and financial crime in a country that has for many years been in the financial wilderness and remains “off the grid” for most compliance systems.

With a US election looming in November, one banker said: “Kerry is not long for this world,” adding that Donald Trump, the likely Republican party nominee for president, has expressed much more negative views about the Iran nuclear deal.

Iran’s centrist government of President Hassan Rouhani, who seeks re-election next year, is under mounting pressure by hardliners for what they say is a failed nuclear agreement that has produced no benefits.

Iranian businessmen say financial transactions in some cases have become even more difficult than they were during sanctions and that visiting trade delegations cannot sign contracts. Sajid Javid, the UK’s business secretary who will attend Thursday’s meeting, recently postponed a planned trade mission to Tehran to allow him to focus on the UK steel crisis.

Mr Hammond said: “We should not lose sight of the fact that we are here because we secured a historic deal to ensure that Iran would no longer be able to develop a nuclear weapon. It imposed strict conditions on Iran in return for phased sanctions relief. Now it is incumbent on us to ensure the sanctions relief is effective.”

Thursday’s meeting will also include Lord Lamont, the prime minister’s trade envoy to Iran, and Anthony Browne, head of the British Bankers’ Association.

Mr Browne said the banks were looking forward “to discussing with the US authorities the implications of the remaining US sanctions as well as the internationally recognised risks of doing business in Iran and how these impact European banks”.

US, UK, German and French officials are due to meet next week in Washington to discuss further the issue of Iran’s financial isolation.

Under the remaining American sanctions, Iran is still barred from the US financial system and from conducting transactions in US dollars. However, the Obama administration has been trying to find ways for non-US banks to use dollars at some stage in a transaction involving Iran without falling foul of the sanctions.

It is also examining ways to give more comfort to non-American insurance companies about what sort of transactions with Iran are legitimate. Senior US officials have held a series of road shows around the world since the start of the year to try and clarify how the remaining sanctions will be applied.

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