Writing Now on Wall for Handling of Iranian Assets

By Jonathan Winer

Today's announcement by the EU that it will be adopting wider economic sanctions against Iran contains limits, caveats, deferrals, and safe harbors -- all the kinds of things one would come to expect from an economic union that has continued to do lots of business with Iran throughout the period of U.S. sanctions.

But one immediate result going forward is that foreign financial institutions in the EU that are still doing business with Iran have to now recognize that the liabilities associated with such transactions, from the perspective of reputational risk as well as transactional risk, are now high and getting higher all the time. Iran has no anti-money laundering laws, and its foundations or bonyads have been heavily involved in proliferation activity as well as in legitimate business activity. How any compliance officer is to sort out what is legitimate Iranian activity from what is not in such an environment is far from obvious.

Yes, the EU actions relate only to entities identified as proliferators. Yes, the EU action includes the usual EU folderol and hesitancy, which includes the requirement that each state undertake whatever legislative actions are required over whatever period of time it happens to take to make the sanctions possible.

Still, because the action telegraphs liability risks to institutions required to minimize such risks it will quite promptly bring further steady pressure on Iran's ability to move funds at low cost and high efficiency.

Will Iran continue to sell oil to Asia and use Middle Eastern and Asian financial institutions despite the developing reach of sanctions? Surely it will. But the process of change is necessarily incremental. As we have just seen with North Korea, economic sanctions imposed through financial institutions can play an important role in behavorial change.

TrackBack