United States: Clyde & Co Research Finds Remaining US Sanctions Are Dissuading Businesses From Entering Iran
Last Updated: June 1 2016

The greatest concern for businesses looking to enter Iran is the remaining US sanctions, and its consequential effect on the ability to raise finance according to research carried out by global law firm, Clyde & Co.

Clyde & Co explains that this is mainly driven at a financial level by high levels of due diligence and uncertainty around the application of US sanction laws to EU nationals.

25% of senior executives of businesses looking to enter Iran listed the remaining US sanctions as their top concern for doing business in Iran, more than any other category.

Clyde & Co says that although there has been significant sanctions relief, the US sanctions that remain in place are proving a strong disincentive to businesses looking to do business with Iran, and even more so their financiers.

On "Implementation Day" the vast majority of Iran-related EU sanctions and US secondary sanctions were lifted. This means that, broadly, it is permissible for EU persons to trade with Iran subject to certain restrictions including the inability to trade with designated entities. There is also scope for US nationals to legally establish non-US subsidiaries, which would allow US companies to indirectly trade with Iran.

However, US primary sanctions – those US sanctions targeting US persons (both US individuals and entities) – remain in place. This means that virtually all trade, directly or indirectly, with Iran is still prohibited for US persons.  

John Whittaker, Partner at Clyde & Co, comments: "The remaining US sanctions are a concern, not because the US sanctions apply directly but due to the uncertainty amongst exporters and their financiers about the consequences of breaching the remaining sanctions."

"Another concern, is that exporters may unwittingly trade with a designated person or entity."

"Thorough due diligence is the key which comes at a cost so there has to be sufficient margin to make the trades viable," adds John Whittaker.

Clyde & Co's research found that the second greatest concern for businesses is the possibility of a snapback of sanctions (15%), closely followed by lack of availability of credit (14%) (see full table of responses below). 


Snapback - the reinstatement of sanctions - remains a possibility despite sanctions relief. The agreement with Iran permits sanctions to be reinstated in the event of significant non-performance. There is uncertainty amongst businesses with exposing themselves to the risk of "snapback" which, if it happens, is very likely to lead to a loss of money, explains Clyde & Co.

Lack of available credit

Clyde & Co says that availability of credit is also a key concern for businesses seeking to do business in Iran because the European tier one banks have so far shown zero appetite for conducting Iran-related business. This means businesses are unable to access credit to fund their business with Iran.

30% of respondents said they were not comfortable talking to their current banks about their appetite to do business with Iran, according to Clyde & Co.

John Whittaker comments: "This is very telling. If a third of the businesses looking to enter Iran are so worried about sanctions that they are fearful of discussing their plans with their own banks, then there is a problem."

"The high level of regulation involved is proving too arduous for most banks, coupled with concerns over handling Iran related business. Whilst Iran and the UK are keen to develop trade ties, the banks are holding things up. They need to be encouraged to process payments relating to Iran otherwise this great new trade opportunity will fade and the UK will find itself at the back of the queue."

Dollar transactions

Clyde & Co points out that getting money out of Iran is also a major problem. The US dollar is the most liquid currency in the world and is therefore used in lots of global businesses contracts, particularly in the energy and commodities areas.

Nearly all US dollar transactions have to clear via the US banking system. If such transactions were linked to Iran-related business, they would be blocked by the US bank and/or potentially place the clearing bank in breach of sanctions.

Therefore US dollars cannot be used for such business, which is a major problem as a large proportion of international companies conduct their business in dollars. The alternative of trading in a different currency is more expensive, as it can often require hedging.

Due diligence concerns

Clyde & Co's research found that 58% of businesses looking to enter Iran do not feel confident that they know what level of due diligence is required in order to protect their investments and avoid enforcement action from the regulators.

The remaining US sanctions are not the only problem. There are still a significant number of individuals and entities that are listed by the EU/UK and US (including the Islamic Revolutionary Guard Corp which is heavy involved in the Iranian economy).  This creates significant compliance challenges as information on counterparties is not as readily available as in other countries. The risks of getting this wrong are substantial so extra caution is required before entering any contracts.

"Due diligence is vital, so businesses are right to be concerned about their requirements," says John Whittaker. 

Lack of insurance cover

Clyde & Co says that just 36% of business said they had been able to get insurance cover for their proposed business activities in Iran.

John Whittaker says: "Insurers are in a similar position to other businesses and the remaining sanctions are negatively impacting their risk-appetite for doing business with Iran."

"There are however specialist financial providers set up to specifically help UK exporters by providing them with insurance and guarantees to banks to share the risks of providing export finance."

Next year the London Chamber of Commerce and Industry is planning a trade mission to Iran to help British Businesses further explore opportunities.

Deputy Chief Executive of LCCI Peter Bishop said: "This survey highlights the key issues in trading with Iran which companies need to understand and address. By listening to businesses and talking to experts we believe they will be able to make the most of the new opportunity to trade in the post-sanctions era."

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