![]() ![]() The normal operators of international financial channels in the EU are therefore generally unwilling to serve as conduits for Iran-related trade, even that which is exempt from sanctions. Compounding this practical difficulty is the fact that many of the largest European banks are, or have recently been, subject to significant US enforcement action for sanctions and money laundering violations related to Iran. The overlapping mosaic of Iran sanctions legislation and executive orders creates a payment mechanism for authorized exports that is hideously complicated and impedes the delivery of TSRA goods, as well as other authorized trade. While the exports to Iran of TSRA goods is authorized, and in some ways encouraged, in practical terms, they can be challenging. Exporting these “TSRA goods,” as they’re known in the sanctions practitioner world, to sanctioned jurisdictions like Iran is a very clearly stated US policy, and it is good policy. Food, medicine, and medical devices were specifically exempted from US jurisdictional sanctions regimes under the Trade Sanctions Reform and Export Enhancement Act of 2000(TSRA) in part due to withering criticism that the United States faced in the 1990s over the embargo on Saddam Hussein’s Iraq that harmed ordinary Iraqis who were unable to get enough food and medicine. This more narrowly scoped SPV can still achieve a great deal of good to facilitate trade that will not draw sanctions from the United States. The symbolism of INSTEX being registered in France and co-owned by the three major European powers is significant in giving comfort to would-be exporters to Iran that they will not face US sanctions for conducting this humanitarian-style trade. It’s slated to become operational in the next several months, and the three co-owners reportedly expect that other countries will join INSTEX later on. What the EU announced is a state-owned trade mechanism co-owned by France, Germany, and United Kingdom that is registered in France and will reportedly serve as a sort of clearing house where EU companies can conduct trade in humanitarian goods with Iran. Instead, INSTEX more closely resembles the “humanitarian channel” that the US government established during the Iran negotiations-known as the Joint Plan of Action (JPOA) period-to facilitate humanitarian trade that was already exempt from US and EU sanctions. That’s not a realistic outcome given the interconnectedness of the US and EU economies, and it’s not surprising that there was no market for establishing that type of mechanism. The only way to conduct sanctionable trade with Iran would have been if the EU companies involved, and their banks, decided they needed to do no business with the United States or in the US dollar. But that theory didn’t account for the vulnerability of European companies and their own commercial banks that wouldn’t necessarily have had the same level of insulation as the central banks. #OFAC IRAN SANCTIONS FOOD FULL#The idea that had been floated-a direct link between Iranian banks and a fund backed by European central banks-may have theoretically been able to conduct sanctionable trade without incurring the full wrath of a US Treasury reluctant to impose sanctions on major European central banks. Instead, it will facilitate trade that is specifically exempt from US primary and secondary sanctions.Ī European trade mechanism beyond the reach of US sanctions simply wouldn’t have worked. Despite reports that the INSTEX will circumvent sanctions, what the EU just announced is in no way a circumvention mechanism. When the Trump administration announced the reimposition of US secondary sanctions on Iran following the pull-out from the Joint Comprehensive Plan of Action (JCPOA), there were calls throughout Europe to establish an SPV mechanism that circumvented US sanctions on Iran. ![]() But this doesn’t mean that the SPV will be feckless instead it will serve an important role in conducting the humanitarian trade that US sanctions policy encourages, but harsh US rhetoric and risk-averse international banks make difficult to conduct. It’s clear from the European announcement that there was no real market in the EU, especially from Europe’s financial institutions, to take on the risk of being sanctioned by the United States. Predictably, the SPV won’t seek to challenge US sanctions by attempting to conduct sanctionable trade with Iran as had been originally floated, and will instead focus on non-sanctionable trade, including humanitarian goods-food, medicine, and medical devices-exempt from US sanctions. The European Union on January 31 formally announced its long-awaited special purpose vehicle (SPV) for trade with Iran, called the Instrument in Support of Trade Exchanges (INSTEX). ![]()
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