The lifting of sanctions on Iran so far has been met by a combination of nervousness and inactivity by Western banks. If the lifting of sanctions in the country is to be a success, however, someone must blink first.
That Iran reached an agreement with six world powers over the future of its nuclear development programme was a triumph of diplomacy. Sanctions relief has given rise to the hope that trade and investment will deliver prosperity for Tehran, energise new business opportunities for the West and silence the hardliners on both sides. But a dearth of financial services offerings has stunted this promise. To correct the situation, Western financial institutions must establish full correspondent banking relationships with Iran. As it stands, a handful of small European banks are processing letters of credit.
A fear of US regulators is responsible for this dismal engagement. Over the past five years, banks have paid out $15bn in fines for breaching global strictures on engaging with Iran, the largest of which was BNP Paribas’ $8.9bn penalty in 2014. But this fear must not disrupt the progress that was made over the negotiating table. Western sanctions are only as effective as the benefits that can be offered once they are lifted.
Six months after Iran signed the Joint Comprehensive Plan of Action, the government has seen little progress. True, unstitching years of sanctions will be a difficult process and the investment environment remains opaque. But if a big, global bank were to take the plunge and offer a full clearing relationship with an Iranian counterpart, the wheels of investment would begin to turn. Non-US banks have been reassured by the US government that such a move would not be penalised.
This may offer small comfort to the men and women sitting in the boardrooms of these institutions. But if the benefits of sanctions relief fail to materialise, those who seek to undermine the agreement will be given fresh ammunition. From the South China Sea to the Baltic, global uncertainty is on the rise. The world needs a success story, and this time it is up to the banks to deliver it.
