Could you be doing business – or even holidaying – in Iran in the not too distant future? One of the Middle East’s largest economies and biggest oil producers has been off limits to most Western businesses for years as a result of extensive sanctions. But it is now rejoining the international fold, following the implementation of the Iranian nuclear agreement earlier this month.
In Paris and Rome this week, President Rouhani has been discussing massive business deals, and British companies are understandably keen to ensure that they don’t get left behind.
The scale of the opportunities was made clear to me on the international trade mission to Tehran that I went on with the foreign secretary, Philip Hammond, when he re-opened the British Embassy last summer. The country appeared in surprisingly good shape, given the extensive sanctions that had been in place for years. But as we met a wide range of government ministers and business leaders, they laid out their ambitions to quickly upgrade their infrastructure, transport systems, and tourism and energy industries.
International investment will be required in order to provide the capital needed to fund this ambitious infrastructure programme. Iran is now hoping to reconnect to the global financial system, with its banks expected to once again join the SWIFT network.
Iran is also understandably eager for foreign banks to re-engage with it – but this is an extremely complex challenge. While many of the international oil and banking sanctions have now been lifted, the majority of US primary and secondary non-nuclear sanctions remain in place.
The industry is on the whole keen to help facilitate business in emerging markets, but banks must also ensure that in doing so they do not violate relevant sanctions.
This is complicated in Iran by the fact that they have minimal access to due diligence information on the ground. It is very difficult for banks to know their customer, let alone their customer’s customer, in these circumstances.
There is also nervousness about how transactions taking place with Iran now will be viewed by US regulators in the future, especially given that the issue could be politicised with the US election on the horizon later this year.
International banks are likely to need considerably more clarity from US authorities about the regulatory hurdles they need to meet before engaging with Iran. At the moment there is too much ambiguity, which leaves banks in a difficult position of trying to fulfil their financial crime obligations while simultaneously supporting the political rapprochement with Iran.
Politicians expect banks to play their role in helping businesses trade with Iran so that the nuclear agreement is a success. But until the complex legal situation is resolved, banks will have to take a balanced look at the opportunities and compliance risks of increasing their exposure to the country.
Ultimately, international businesses operating in Iran – or indeed any other country – need certainty over their legal and regulatory requirements. This is especially true for banks. We therefore look forward to playing our part in advancing engagement with US regulators so that the industry can better understand the risk profile of business in Iran.