The Iranian government has threatened (however seriously no one quite knows) to pull out of the nuclear deal. Their argument is that the remaining U.S. sanctions are so strict that it’s not possible to revive the Iranian economy under them, so why bother continuing with the deal?
The thing is, the Iranians have a point. Maybe not a crucial one, maybe not a sufficient one, but it is a valid one.
As background, I should point out that I have a small side job writing for the Iranian press – pieces concerning the joys of free markets and capitalism. The sanctions have no effect on that or me, so this isn’t personal. However, this does mean I hear stories, talk to people, even sometimes go and investigate what I’m being told. And I’ve done so on this particular point: U.S. sanctions make it almost impossible for an Iranian citizen to get a bank account outside their home country. The sanctions have a similar effect upon business as well, in a slightly different manner.
The way this works is that the U.S. claims sovereignty over all transactions conducted in U.S. dollars around the world. There is so-called “dollar clearing” in London, Hong Kong, and so on, meaning that a transaction in dollars, even between banks, can happen without it ever touching the soil of the U.S. Uncle Sam, however, insists that such deals are backed up by the manner in which most dollar transactions really take place in New York. Clearing is the process by which the banks themselves settle their payments to each other. That means U.S. law at least potentially applies to all dollar transactions everywhere.
The European Union has said that Iranians – companies and people – can transact in euro, pounds, Swiss francs, and so on, and American law nominally says the same thing. It’s only the dollar where they are still restricted.
But I have investigated this, including with the head of the financial industry of at least one offshore center, and they say that’s not quite how it works. One French bank, for example, sent dollars to Sudan and was nearly bankrupted by the U.S. government as a result. Legally, this is just about correct, and it would have been just about legal if they had sent euros instead. But no one within banking really believes this. The worry is that doing what is legal under EU law — opening accounts for, or financing, Iranians in euro, francs, pounds — would leave the institution open to heavy-handed tactics from the U.S.
One thing that needs to be known is that, above the level of the Hometown S&L, near every bank in the world does U.S. dollar transactions. It’s not really possible to be anything larger than that and not do so. So, the fear is, if people do what is definitely legal under EU law, supposedly so under U.S. law, their dollar business would still be under regulatory threat.
Perhaps it shouldn’t be this way, but that is the way it is. It’s a valid complaint. Are U.S. sanctions supposed to be doing this? It’s reasonable to say that they’re too tough for Iran — which has, after all, agreed to the nuclear deal. Or are the sanctions not supposed to be like this? In that case, there’s a gap between what the lawmakers think they are imposing and what the bureaucracy is actually doing.
That is a valid point, isn’t it?
Tim Worstall (@worstall) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute.
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