As part of the effort to salvage the Iran nuclear deal, European governments have vowed to sustain their economic ties – not least their banking connections – with Iran. From 4 November, American sanctions targeting Iran’s banks will make it extremely difficult for European companies to engage in transactions with firms in the country. Many of the pathways to reduce the secondary impact of US secondary sanctions on the European financial sector present significant technical and political challenges – which stem from the US financial system’s global dominance and the integration of the US and European banking sectors. Moreover, the Iranian financial sector must take several proactive steps to ensure it meets the international compliance standards European banks require.
The banking blockage
With the incoming US sanctions, European companies face an even greater struggle to engage in transactions with Iran. For instance, Swedish automaker Volvo is leaving Iranbecause, as one of its spokesman put it, “with all these sanctions and everything that the United States put [in place] … the [banking] system doesn’t work in Iran … We can’t get paid.”
This problem has driven most of the multinationals once active in the Iranian market to suspend their operations there, ahead of the new round of US sanctions. There is a widespread expectation that several Iranian private banks and the Central Bank of Iran will be designated entities under the measures.