French banks notably absent from business delegation to Iran

One sector was notably missing from France’s historic business delegation to Iran this week: the country’s biggest banks.

More than 100 top companies from the CAC 40, including Total, Peugeot and Airbus arrived in Tehran on Monday as part of an economic and political delegation to forge business links ahead of the lifting of international sanctions on Iran.

But like many of their peers, the large French banks were nowhere to be seen. “So far, second- and third-tier European banks have visited Iran,” said one senior Iranian banker. “Banks are the most scared of all European entities and won’t take any risks due to the prices they have paid for violation of sanctions.”

The cautious approach comes as commercial banks avoid being hit by massive fines after US regulators charged some European banks with money laundering and terrorist finance and imposed large penalties.

This month, it emerged that Crédit Agricole was set to pay about $1bn to settle allegations that the French mutual bank violated US sanctions aimed at Iran and Sudan. The final figure has not been decided, but an agreement could be announced within the next few weeks, according to people close to the situation.

That followed the record $8.9bn for BNP Paribas, for US sanctions violations in 2014, after it processed billions of US dollars of transactions between 2002 and 2012 for groups in Sudan, Iran and Cuba that US regulators alleged were involved in terrorism and genocide.

“Banks need to be 110 per cent sure that there is no risk,” said an Iranian business consultant. “That means companies are only putting their baskets to keep a place but cannot sign any contracts at this stage, which is why we see a lot of smoke but no fire.”

It is not yet clear when exactly the nuclear agreement will be implemented but it could be early next year when all European sanctions will be lifted.

The European Union will remove the ban on Iranian entities using the Society for Worldwide Interbank Financial Telecommunication, the Belgium-based financial communications and clearing system. For three years, 28 Iranian banks have been blocked from Swift’s services, preventing companies and individuals from moving money out of or into the country.

But even this is not enough to reassure the major European banks, which analysts expect will wait for clarity on what the continuation of US sanctions on American businesses which remain barred from doing business with Iran would mean for non-US entities.

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Iran under Rouhani

After nearly a decade of isolation Iran has agreed a breakthrough deal with six world powers to wind back the country’s progress towards building a nuclear bomb in exchange for a sweeping reversal of international economic sanctions

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Banks in the UK are equally hesitant about entering the country. “Because of the large fines [by US regulators] British banks have very considerable nervousness and inhibitions about financing business with Iran,” said Lord Lamont, the former UK chancellor who is now chairman of the British Iranian Chamber of Commerce, at a roundtable meeting in London on Tuesday.

He added: “There are immense opportunities in Iran and if we in Britain don’t take them then the other Europeans and Asians are going to snap them up,” he said, pointing out that Germany, France and Italy were already exporting much more to Iran than the UK.

Meanwhile, western observers are conscious of the possibility — even if it may sound slim now — that the Islamic regime may breach the nuclear agreement. Some members of the French delegation — ranging from major companies to medium-sized enterprises in oil, car, aviation, luxury goods and transport — said they would look into Iran’s commitment to the deal.

But they hoped that the gap between their excitement about the potential of the vast, untapped market and banks’ reluctance will be narrowed by mid 2016 after the nuclear agreement has been implemented for some months and banks can be reassured of Iran’s commitment and how the US regulators could react to businesses.

“We are not supported by our financial system in this visit but remain optimistic despite multiple unknown factors,” said one member of the French team.

“If let’s say Total or Peugeot sign contracts with Iran, they will do whatever they can to obtain the French banks’ support,” said another member.

Some European companies have found a different solution. A second Iranian business consultant said Iranians have been told by European companies that absence of banks can be skipped through joint ventures.

“European companies, some of which face credit crunch themselves, say they will bring only brand and technology but no credit to avoid financial complications,” the consultant said. “This is no good for Iran. We need brand and technology but credit, too. Banks have to support business with Iran because we have no money, either.”