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US PoTUS Trump starts process to re-introduce sanctions against Iran

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World Money Laundering Report

Yesterday, US President Trump announced the long-telegraphed withdrawal of the USA from the Iran nuclear sanctions agreement, known as the Comprehensive Plan of Action. According to the US Treasury "The President confirmed that the US will begin the process of re-imposing all US sanctions previously waived under the JCPoA." That's going to cause huge complexity for businesses all over the world because no other government of any international importance is adopting the USA's position. Also, there's a gold-rush about to start.

The USA is going it alone - and to be fair, Trump's position is not supported by many in the USA. The reasons behind his stance are, largely, obscure.

The situation will be complicated because, as a statement from the UK, France and Germany said "the UK Government continues to fully support expanding our trade relationship with Iran and encourages UK businesses to take advantage of the commercial opportunities that arise."

That is a clear challenge to the USA and - importantly - it's a green light to Airbus to work to replace Iran's decrepit Boeing fleet. Indeed, it was Boeing that pushed harder than most to have the USA agree to a deal and to relieving sanctions. Iran's civil airline fleet is made up of spare parts largely gathered in sanctions-busting deals that more or less make up B747s.

Any deals with Iran will now have to be done outside the USD framework. Put simply, any company that deals with Iran in US dollars will find itself under the same sanctions regime that cost several foreign banks hundreds of millions of dollars in penalties. It's a risk that no one needs to take. Deals in Sterling and Euro are free of risk.

Iran does not need the USA: dealing with it is entirely legal and unless some other roadblock arises will continue to be so. The most obvious beneficiaries are Russia, with which Iran has a long-standing relationship, and China which has more money that it knows what to do with and rapidly growing industries looking for foreign customers. Aircraft, electronics and vehicles are the obvious target markets.

By his actions, Trump has, in fact, created a gold-rush as companies and countries will try to do deals before they become illegal.

The USA is going it alone - and to be fair, Trump's position is not supported by many in the USA. The reasons behind his stance are, largely, obscure.

The situation will be complicated because, as a statement from the UK, France and Germany said "the UK Government continues to fully support expanding our trade relationship with Iran and encourages UK businesses to take advantage of the commercial opportunities that arise."

That is a clear challenge to the USA and - importantly - it's a green light to Airbus to work to replace Iran's decrepit Boeing fleet. Indeed, it was Boeing that pushed harder than most to have the USA agree to a deal and to relieving sanctions. Iran's civil airline fleet is made up of spare parts largely gathered in sanctions-busting deals that more or less make up B747s.

Any deals with Iran will now have to be done outside the USD framework. Put simply, any company that deals with Iran in US dollars will find itself under the same sanctions regime that cost several foreign banks hundreds of millions of dollars in penalties. It's a risk that no one needs to take. Deals in Sterling and Euro are free of risk.

Iran does not need the USA: for other countries and companies in those countries, dealing with it and with Iranian businesses is, subject to some non-US specific sanctions, entirely legal and unless some other roadblock arises will continue to be so. The most obvious beneficiaries are Russia, with which Iran has a long-standing relationship, and China which has more money that it knows what to do with and rapidly growing industries looking for foreign customers. Aircraft, electronics and vehicles are the obvious target markets.

By his actions, Trump has, in fact, created a gold-rush as companies and countries will try to do deals before they become illegal.

A statement from the UK Treasury specifically draws, in diplomatic language, attention to the risks of falling foul of US Sanctions law including OFAC but emphasises that the US change is a restriction, often a restriction on conduct, not a restriction on trade per se. It also reminds businesses that there are other relevant sanctions to be taken into consideration, saying "The UK fully implements UN, EU and UK domestic sanctions law. How UK companies act in response to US sanctions is a commercial and legal decision for that company. "

There is nothing new in this position - it has been the case for at least 20 years that business in US dollars carried a far higher risk than those in other currencies yet many businesses and their bankers willingly took on that risk. While no-one, including the Russians, wants to work in roubles, the increasing convertibility of the yuan/remimbi means that the world is moving towards position where deals can be done in three major currencies - CNY, EUR and, of course, USD. The most likely short term beneficiary is EUR but CNY will grow in importance as controls are relaxed further. That means that the ability of the US authorities to police US-sanctions-busting deals will be diminished.

What Trump has done with this deal has ramifications that go far beyond the Iran deal. He has taken a step in which European governments have actively encouraged their business citizens to undertake business which the USA has elected not to do.

But the USA has a history of using such sanctions to its own advantage: in relation to Myanmar, it maintains a ban on trade in US dollars except for authorised US companies ensuring that only US companies benefit from hotel, etc. projects that are funded in US dollars. It is not an unreasonable assumption that some equally dodgy system will be put in place for some large American companies in relation to Iran.

 


 

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