John Kerry, US secretary of state, unveiled a historic deal with Iran in July 2015. This was supposed to be a key part of the Obama legacy: in exchange for Tehran freezing its nuclear programme, Washington pledged to lift many sanctions - a move that was supposed to enable money to flow into Iran again to kick-start economic growth.
The concept sounded momentous - for Iran and the US. A year later, however, this vision is not quite playing out as planned. Never mind the fact that the deal is loathed by many Republicans; so much so that Donald Trump, the party’s presidential candidate, has promised to rip it up if he gets into power. And leave aside the resentment that parts of the Iranian government still feel.
What is arguably more striking is that behind the scenes, far away from the US election campaign, a quiet rebellion is also under way among international bankers. Unless this changes, the silent revolt will make it hard for Iran to reap the benefits of any deal.
The issue revolves around the thorny question of how the US Department of Justice will treat banks who decide to deal with Iran. In recent years, American banks have been banned from dealing with Iranian counterparts. And when Mr Kerry announced the deal a year ago, he notably did not lift this particular sanction.
What Mr Kerry did say was that Washington would drop its longstanding opposition to non-American banks doing business in Iran. And earlier this year he actively urged European banks to get involved, in order to boost Iranian economic activity.
Indeed, the state department released a joint statement with European governments that promised that it “will not stand in the way of permitted business activity with Iran . . . [and] international firms or financial institutions engaging with Iran, as long as they follow all applicable laws.” This also asked firms “to approach our governments to address remaining questions, rather than forgo opportunities due to misperceptions or lack of information.”
In theory, there are reasons why non-American banks might like to grab at this chance. European banks are hungry to find high-return business opportunities, given that interest rates are low in the west. Meanwhile, banks such as Deutsche Bank, BNP Paribas, Standard Chartered and HSBC have long histories in Iran - and clients who want to do business there. Last month, for example, Siemens and Rolls-Royce started talks on new energy investments.
But there is a multibillion-dollar catch. Since 2010, the justice department has fined non-American banks some $15bn for alleged global infractions of sanctions, anti-money laundering and antiterrorism rules. This includes an eye-watering $8.9bn fine levied in 2014 against BNP Paribas over deals with Iran, Cuba and Sudan.
Unsurprisingly, this sorry piece of history leaves European and Asian banks very nervous and they have asked for watertight guarantees that the DoJ will not penalise them if they heed Mr Kerry’s appeal. He has hitherto been unable, or unwilling, to persuade the department to do this. So the banks have effectively gone on strike and are not dealing with Iran again.
“This is a very odd position for the US government to be taking,” Stuart Levey, chief legal officer of HSBC observed earlier this summer, noting that the bank would not follow Mr Kerry’s lead since there “are no assurances as to how such activity would subsequently be viewed by US regulatory and law-enforcement authorities”. Or as the chief executive of another European bank privately observes: “The American position is so bizarre, we can’t take the risk.”
This is a crazy way to run foreign policy. It could have at least two consequences. First this quiet strike will make it very hard for Iran to reap the economic benefits of the nuclear deal. That threatens to increase the existing levels of disappointment and resentment inside Iran towards the agreement.
Second, the fact that Washington is behaving in such a contradictory manner is likely to make non-American banks even more nervous about dealing with risky “frontier” countries, in case America changes the rules again.
This matters. In the past couple of years, cross-border financial flows to emerging markets have already slowed sharply; the world can ill-afford to see flows slow further.
That point will not worry American politicians on the 2016 campaign trail, least of all those who oppose the deal. But this tale is a sad example of how uncoordinated Washington’s policy can be. And that is before you even factor in the “Trump effect”. No wonder non-American banks are nervous.
