EU Firms Join Debate Over U.S. Sanctions on Iran

WSJ-

Now that Standard Chartered PLC's dispute with a New York regulator over allegedly illegal transactions with Iran is settled, some European companies are stepping into the rhetorical fray over U.S. regulations.

The companies say that banks acting for them are refusing to handle legitimate trades with Iran for fear of falling afoul of U.S. regulatory authorities. They claim the situation has put them at a disadvantage to U.S. businesses whose trade with Tehran is soaring.

Some firms on the European Continent say that the confusion over sanctions is having a negative impact on their admissible exports to Iran because overly cautious European banks don't know where they legally stand with the U.S.

Meanwhile, they say, U.S. companies are enjoying growing sales to Tehran of goods not under sanctions, following the easing of the approval process for humanitarian exemptions.

The debate comes as U.K. bank Standard Chartered agreed Tuesday to pay a $340 million fine to a New York regulator to settle allegations it broke U.S. money-laundering laws in handling Iranian customers' transactions.

The allegations, made public by the New York Department of Financial Services last week, led some U.K. political figures to accuse the regulator of seeking to undermine London as a financial center. Bank of England Gov. Mervyn King last week appeared to criticize U.S. regulators for making public statements when the investigation wasn't then completed.

Some European firms have now added their voices to the debate, arguing that the sanctions are having a detrimental effect on the legitimate business they do with Iran.

"With all due respect, the U.S. is lecturing us on what's right or wrong, but they are not the ones suffering from it," said Dominique Courgey, a trade-union representative at PSA Peugeot Citroën's Vesoul plant in eastern France.

In April, a Peugeot manufacturing plant that supplies spare parts to Iran suspended production after French banks refused to handle Iranian payments, resulting in the loss of 280 jobs, Mr. Courgey claimed. A spokeswoman for Peugeot confirmed the suspension of Iran deliveries, saying that it cost the company €10 million ($12.3 million) a month, but declined to comment on claims by the union over the loss of jobs.

A spokesman at the U.S. Treasury Department pointed out that a number of Iranian financial institutions have been sanctioned by the European Union, as well. The Department of Financial Services and the U.S. State Department didn't return requests for comment.

EU exports to Iran dropped 32% in the first five months of the year to €2.79 billion, from €4.18 billion in the same period last year, according to data from the European Commission, the E.U.'s executive branch.

The U.S. exports a fraction of that amount to Iran, but U.S. companies' legal sales of products to the country have recently increased. Exports to Iran were up 70% in the first six months of this year to $159.2 million, from $93.8 million in the same period last year, according to trade statistics on the U.S. Census Bureau's website published Aug. 9. Food, agricultural and medical products are still allowed to be sold from the U.S. to Iran as a humanitarian gesture.

The growth in U.S. exports to Iran largely stems from a decision in October to replace the previous cumbersome approval process with a blanket license for non-sanctioned food items, said Michael Burton, a Washington-based sanctions lawyer at Arent Fox.

Some European financial institutions are suspending almost all Iranian transactions because they fear losing access to U.S. financial markets, European banks and companies say.

Geneva-based Hinduja Bank (Switzerland) Ltd., one of the last banks in Western Europe still handling Iran trades, told its clients last month it would stop issuing letters of credit for Tehran banks, citing new U.S. sanctions.

"The latest list of sanctioned entities announced [by the U.S. Treasury] includes the five private-sector banks in Iran with whom we have been working," the bank said. "The internal rules of Hinduja Bank preclude us from working with these Iranian banks. " An official at Hinduja declined to comment.

Felix Neugart, deputy managing director of international economic affairs at the Association of German Chambers of Industry and Commerce, said German banks and companies are now "thinking twice" before doing business with Tehran. "Financial transactions are becoming much more complicated [with Iran]," he said.

An official at the European Commission said Monday that the commission had expressed concerns over new sanctions against Iran's oil and banking sectors before they were signed into law Friday by U.S. President Barack Obama. However, the official declined to comment on what topics were discussed.

The EU has announced sanctions on a number of Iranian banks. But it hasn't sanctioned a number of private Iranian banks that foreign exporters rely on for letters of credit. Last year, Washington designated the entire Iranian banking sector as an area of "primary money-laundering concern."

Nigel Kushner, a sanctions expert at London-based law firm W Legal, said, "Ironically, U.S. agricultural exporters are still permitted to sell certain goods to Iran with payments originating from Iranian private banks." He said this means "we have this strange situation where it is easier to ship agricultural produce to Iran from the U.S. than from outside."

A manager at a large European cereals trading house said he had to decline Iranian requests for 60,000 tons of wheat and 30,000 tons of barley in the first half of this year because no bank in the region would finance the trade.

The U.S. has sold 59,800 metric tons of wheat to Iran this year, compared with no sales last year, according to the U.S. Department of Agriculture.

The spokesman at the U.S. Treasury said the enforced penalties against European banks for breaching sanctions on Iran weren't focused on food-related transactions.

Other European banks that have settled similar allegations that they broke U.S. sanctions laws on Iran, Cuba and Sudan in recent years include ABN Amro Bank, now part of Royal Bank of Scotland Group PLC, Credit Suisse Group AG and Barclays PLC. Royal Bank of Scotland, Credit Suisse and Barclays acknowledged violating laws including the Trading With the Enemy Act.