October 14, 2016, by SanctionsAlert.com

In January 2016, when EU and US nuclear-related sanctions were partially lifted on the promising Iranian market, prospects looked nothing but bright for businesses looking to trade with the middle-eastern giant.  After the recent nuclear deal, or Joint Comprehensive Plan of Action (“JCPOA”), was struck between Iran and six major powers, a series of European countries dispatched trade missions to Iran, in search of new opportunities within a country of 80-million inhabitants and an aging infrastructure.

Despite these efforts, the expected post-sanctions trade surge has not yet materialized. Enough sanctions remain that Western banks continue to be hesitant to finance commerce with Iran for fear of facing US fines. Cultural misunderstandings among Western and Iranian entrepreneurs can also complicate business deals.

Last week, in an effort to help Dutch and Belgium exporters find ways to access the Iranian market, cultural, legal and financial experts addressed a near 100-person “Iran Logistics Congress” on the outskirts of Utrecht in the Netherlands, hosted by “Nieuwsblad Transport” a shipping and forwarding magazine.

Persians, not Arabs

Ms. Maaike Warnaar, an academic from Leiden University, the Netherlands, kicked off the conference by explaining Iranian culture and its people.

“Iran is not Arabic, it’s Persian, she said. This, Ms. Warnaar claims, explains why for many Iranians, religion is a personal spiritual experience, “not something they do in a group in a Mosque”. She adds that “culturally, Iranians feel they are closer to Europe, but also have anti-western feelings,” referring to the extensive Western support of the Iranian Shah in the 1950s which many Iranians feel was responsible for the leader’s arbitrary rule.

She laments that mainstream media paint a one-sided picture of Iran’s people and traditions. “When you search the internet for books on Iran, most are about imprisoned women and others who want to escape the country.”

But on the other hand, as Amnesty International reports show, Iran severely limits the rights to freedom of expression, arrests and imprisons journalists, human rights defenders, and others who voice dissent. Women and members of ethnic and religious minorities face pervasive discrimination in law and in practice. “We can’t forget that,” she said.

In addition to its bureaucracy, Iran works on a calendar different from the West’s, with different years, and a Thursday-Friday weekend. “Don’t arrive on a Wednesday for business in Iran,” Ms. Warnaar suggested.

‘Nothing is allowed, but everything is possible’

Mohammad Masshadi, a consultant who advises companies who want to enter the Iran market, talked about practicalities when approaching the Iranian market. He said that when a potential Iranian business partner says “yes” to a business proposal, it can mean many things. “Yes can mean ‘no’, or ‘maybe’, he warned. Iranians want to be polite, so won’t say ‘no’, he explains. “Don’t expect business deals to happen overnight. It’s a country of relationships.”  

In 2012, when Mr. Masshadi launched his consulting firm, Iran sanctions were increased and isolated the country from the Western world. “My friends asked whether I ate a donkey’s brain,” he joked, referring to an Iranian saying that means ‘are you crazy?’

“But, Iran is a country where nothing is allowed, but everything’s possible,” he added.

Asking the right questions

Mr. Masshadi explained that some sectors in Western countries like agriculture, even though sanctions did not fully apply to them, have since sanctions struck Iran shied away from doing business with Iran, because they are not used to dealing with sanctions and export controls.

On the other hand, some sectors have been able to do business in Iran regardless of restrictive trade measures. For example, traders of defense items such as “bullet proof vest manufacturers are used to export controls, so they will ask the right questions,” said Mr. Masshadi. 

Lingering US sanctions       

During the second half of the morning session, Mr. Sebastiaan Bennink and Yvo Amar, two attorneys from the Amsterdam-based law firm B&A Law, explained the current state of EU and US sanctions against Iran.

Even after the JCPOA was signed by China, Russia, France, Britain, Germany and the United States, many sanctions remain in place, frustrating the US and EU business interests of breaking into the Iranian market.

“Firstly, the suspension of EU sanctions only applies to nuclear-related restrictive measures. Sanctions as a result of human rights violations remain in place,” said Mr. Bennink. As such, most business is now permitted. However, there are still sanctions that have to be taken into account when considering doing business in Iran.

Furthermore, most US sanctions remain fully in place. US sanctions laws and regulations often directly affect the business Europeans can conduct with Iran, namely when exported products contain parts that are made in the US, or US dollars are used to make payments. As such, even though EU law allows certain transactions or deals, US law may not, thus impeding many transactions with Iran in which European businesses may want to take part.

Empty laptop

For Europeans that do business both in Iran and the US, it can be difficult to maintain compliant with US sanctions. One of the pitfalls can be involvement in business with Iran while staying in the US. This would trigger applicability of US primary sanctions.

“Always carry an empty laptop to the US and avoid any involvement in business with Iran while staying in the US,” Mr. Bennink advised.

‘Snap-back’

There is also the possibility of a so-called “snap-back,” or reversing of sanctions if Iran does not comply with its obligations under the current nuclear deal, which would make the now lifted sanctions apply again in full. “It’s been a close call several times already,” said Mr. Bennink, referring to Iran’s missile tests earlier this year.

If there is a snap-back, under EU law, transactions or business deals that have already started may still be completed. In the US, however, the effect will probably be immediate. “It’s likely that nothing is allowed anymore for US companies immediately after a snap-back”, said Mr. Bennink.

Ongoing reluctance by banks

 There was considerable talk of cautious banks that do not yet want to process transactions involving Iran. Many Western banks still refuse to finance commerce with Iran without specific licenses from the US Department of Treasury’s OFAC or an EU regulator. Speakers appealed to conference participants to talk with their relationship managers at the bank before doing business in Iran.

Some banks still completely stay away from processing business from Iran and exporters worry that they won’t be able to receive payment. Banks are reluctant to process transactions involving Iranian parties, due to hefty penalties in the past resulting from sanctions violations. “Some banks allow Iran transactions on a case-by-case basis,” said Mr. Bennink.

Baby strollers

When asked if they do business in Iran, nearly half of the participants say that they are already doing business in Iran. In fact, some never retreated from Iran, even when sanctions were toughest. A representative from a trucking company said, “all my clients just tell me they are selling baby strollers”.

Mr. Amar offered advice to participants stressing the importance of “know your customer” and “know the end-user”. He warned about businesses that are used as a go-between by sanctioned entities or persons. In their effort to remain under the radar screen, entities that are on the “do not touch list” may use these companies to conduct transactions for them.

When one of the participants asked “how far does our responsibility as a transporter go?” mr. Amar explained “You have to go as far as you practically can in your due diligence. Use open sources, and ask for a declaration from your business partner ensuring that there are no sanctioned end users. You can also consider using investigative firms and programs for due diligence.”

Alternative payment routes

 Mr. Kees Lakerveld of 2FX Treasury, a Dutch company specializing in international payments, unlike perhaps some of his more cautious fellow speakers from the legal sector, offered several payment routes to conduct business in Iran.

He explained that smaller German, Austrian and Italian banks with limited ties to the US have begun working with Iran, plus a couple larger Dutch and German banks. This could pave the way for more firms to trade with Iran in the near future. The “starting point is to use the euro clearing network” he said. “Banks look for a long term relationship. Because of the potential regulatory risk, banks will be more open to accept transactions from clients with a certain degree of profitability and that have been clients longer,” he said. “In my experience, the bank does a review that takes approximately ten days, and then they let the transaction go through. Only in an extreme case, the bank will end the relationship, then you are stigmatized”. 

The nearest to universal advice from the speakers at the conference was that exporters must conduct due diligence on their counterparts and know the sanctions risks involved. “There are opportunities for European companies as long as you prepare yourself well,” said Mr. Lakerveld. “Transparency towards your bank is important”, he adds