News ID: 277626
Published: 0357 GMT December 02, 2020

European allies pushed back when Trump sanctioned Iran’s banks: Report

European allies pushed back when Trump sanctioned Iran’s banks: Report

Germany, France and Britain urged the administration of US President Donald Trump in late October to reconsider broad, new sanctions against Iran’s banks, arguing that the move would deter humanitarian trade and hurt the allies’ common interests, Reuters reported citing diplomatic correspondence.

Germanys Bundesbank also kept a multibillion-euro deposit facility open for Iranian banks, including two that faced fresh US sanctions, giving Tehran a banking lifeline at a time its access to the global financial system was largely cut off, according to central bank data and interviews with bankers, Western diplomats and officials.

The behind-the-scenes pushback to Washington and the extent of Germanys support to Iranian trade in the face of US sanctions have not been previously reported, and shed new light on the divergent approaches to Iran taken by Trump and the US allies.

The letter came after the United States imposed sanctions on October 8 against 18 Iranian banks as part of a campaign to exert maximum pressure” on Tehran. The order barred Americans further from dealing with the Iranian banks and extended secondary sanctions on foreign companies that did business with those lenders. For foreign banks, violations could mean losing access to the US market and raise the spectra of hefty penalties, even although US sanctions, legally speaking, don't apply in Europe and other jurisdictions.

In their joint letter, dated October 26, diplomats from the three European nations told Washington that the sanctions could make food and medicine "prohibitively expensive" for ordinary Iranians in the middle of the pandemic.

They sought reassurances that the United States would not impose penalties on financial institutions processing humanitarian trade in good faith without first engaging with them.”

A spokesperson with Britain's Foreign, Commonwealth and Development Office said the UK "does not agree with these sanctions, which affect a number of banks helping the Iranian people access vital humanitarian supplies."

A French diplomatic source said the letter was part of ongoing efforts by the three countries to make clear to the US administration that it would not give up on the Iran deal.

A German government official said that humanitarian channels need to remain open and that it has advocated for this.

A Bundesbank spokesman confirmed that Iranian banks held accounts with it in order to process payments but declined to comment on them individually. "The German Bundesbank is bound by national and European law, also, naturally, in relation to financial sanctions," the spokesman said.

Trump withdrew from the Iran nuclear accord of 2015 in May 2018 and started imposing a new round of unilateral sanctions on Tehran.

Financial support for trade, one of the central tenets of the agreement, has since shriveled, hitting Irans economy. 

Tehran, meanwhile, has cited the general absence of financial support from European powers as a reason for scaling back  nuclear commitments. Ratcheting tensions further, one of the countrys top nuclear scientist was assassinated on Friday.


European efforts

Germany, France and Britain, which were also signatories to the 2015 deal, are hoping President-elect Joe Biden would change course. Biden, set to take office on January 20, has said he will rejoin the pact if Iran resumes compliance.

One European diplomat said that Germany was now leading preparations to salvage the deal. The foreign ministers of Germany, France and Britain met in Berlin at the end of November to discuss Iran in a meeting Frances Foreign Ministry said was aimed at preserving the nuclear deal.

German lawmaker Klaus Ernst said that Berlin was keen that trade was revived.

"Europe needs to win its independence from America when making international payments,” said Ernst, who chairs the Bundestag's economy and energy committee. Trade is the best way of getting Iran to change for the better.”


Bundesbank deposits

Germanys political position, informed by historical ties with Iran, has helped its banks and companies play a leading role in trade with Iran, according to two experts in international payments.

Justine Walker, the head of global sanctions and risk with ACAMS, an organization of specialists tackling financial crime, said Germany stood out for its willingness to hold Iranian accounts – a stance that has continued despite the US sanctions.

Five Iranian banks – all of which are subject to US sanctions – held roughly 3.8 billion euros on deposit with the Bundesbank at the beginning of the year, according to the banks' financial accounts. Some of this money has since been withdrawn, but the level of financial exposure is still above three billion euros, Bank for International Settlements data from June shows.

The funds are used by the Iranian banks to facilitate transactions to companies doing business with Iran, according to two finance sources with direct knowledge of the matter.

One of these banks is the German unit of Bank Melli Iran (BMI) which was sanctioned in 2018.

Helmut Gottlieb, a board member and top manager at the bank, said although the scope of the banks activities had narrowed, it still offered loans to companies that do business with Iran.

"Under Trump, weve come under increasing pressure from the Americans," Gottlieb said.

He added that the BMI’s German unit is regularly audited and must meet standards set by Bundesbank and other European regulators.


Common interests

One of the banks with an account with the Bundesbank is mentioned in the October letter. The bank is among a handful that the Europeans singled out as worthy of exemption from secondary sanctions because of their focus on financing humanitarian trade and proven record of compliance.

The European allies make a broad plea for leniency, however, the letter shows. They argue against cutting off the sanctioned banksaccess to the SWIFT payment messaging system and express worries about the impact on INSTEX, a fledgling mechanism set up to barter humanitarian goods and food with Iran.

They also argued that the sanctions would make it more difficult for diplomatic missions, international organizations and nonprofit ofganizations to maintain their presence in Iran.

The humanitarian needs of the Iranian population are acute and require an effective response. Actively hindering such a response will damage our common interests,” they wrote.


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