Iranian banking newcomer struggles as fear of sanctions hits humanitarian deals

LONDON (Reuters) - International banks are shying away from processing humanitarian deals with Iran for fear being fined for breaking Western sanctions, despite moves intended to facilitate the trade, a senior Iranian banker said.

Iran's President Hassan Rouhani smiles while replying to a question during a news conference on the sidelines of the 69th United Nations General Assembly at United Nations Headquarters in New York September 26, 2014. REUTERS/Adrees Latif

The sanctions regime, imposed by the United States and European Union over Tehran’s nuclear program, allows trade in humanitarian goods such as food and medicine.

Yet many banks avoid dealing with Iran at all due to the heavy fines handed out by U.S. authorities for trading with sanctioned countries including the Islamic Republic, such as a $8.9 billion penalty imposed on BNP Paribas BNPP.PA of France.

Tehran-headquartered Middle East Bank, which is privately owned by investors that include small and medium-sized Iranian firms who can each hold up to a 5 percent stake, started operations on Nov. 1, 2012 with a focus on the humanitarian trade. Nevertheless, the bank continues to find it hard to get deals processed, its chief executive, Parviz Aghili, said.

“Going though a very simple process of opening letters of credit for the importation of goods, even humanitarian goods, has become much more difficult and a hassle,” Aghili told Reuters in an interview.

“The (international) banks just do not want to take the risk. They understand and tell us that the rules and regulations are there. But they say the expected return is not enough to justify the risk. They tell us, ‘if anything goes wrong, we would be faced with huge fines’. And this is what happens with 99 percent of the banking system outside of Iran.”

Iran has been trying to get HSBC HSBA.L to process humanitarian transactions it has frozen because of concerns about potential breaches of sanctions.

U.S. officials stress they have expanded licenses issued for food, agricultural goods, medicine and medical devices to Iran.

They have also set up two so called “humanitarian channels” in Europe and Asia to facilitate legitimate trade with Iran, a system which includes an approved list of international companies which can do business there, with several commercial banks also involved.

Since tougher, nuclear-related sanctions were first imposed in 2006, Western governments have taken a wide range of steps against Iranian firms - freezing their assets, blocking trade and preventing them from doing business with Western banks - in an attempt to curb Tehran’s nuclear program, which the West suspects is aimed at building an atomic bomb, something Tehran denies.

Aghili said the impact of sanctions and restrictions on Iranian banks “at the outset ... was not as bad, as many banks did not know what to do”.

“But gradually it has gotten worse and worse. We certainly have seen no improvement during (Iranian President Hassan) Rouhani’s term at all. We do not need any financing, it is our own money and we still cannot execute these transactions.”

Rouhani, viewed as a pragmatic cleric, succeeded the fiercely anti-Western Mahmoud Ahmadinejad as president in August 2013, promising to resolve the stand-off with the West after years of tension.


Middle East Bank, also known as Khavarmianeh Bank, has total assets close to $1 billion and was designated as a sanctioned company by the U.S. Treasury on Aug. 29.

When contacted for comment, a U.S. Treasury spokeswoman referred to a statement the department issued in August, which said Middle East Bank had been placed on the Treasury’s designated list as part of an executive order signed by President Barack Obama in February 2012, that blocked the assets and property of Iranian financial institutions.

“Obama signed it to cover the government of Iran, the Central Bank of Iran and all the financial institutions in Iran. Whether we like it or not we are on the list simply because we are registered in Iran and because our license is issued by the government of Iran, not that we have done anything,” Aghili said.

“Even though we are designated, which is constraining our activities even with humanitarian goods, we should not be considered as an unacceptable bank,” he said. “But you go ahead and try to convince the international banks - you get nowhere. I suppose no one can blame them after the BNP fine.”

Aghili said “no state or state-affiliate had any stake” in the bank.

Iran and world powers, known as the P5+1, are trying to agree a nuclear deal before a Nov. 24 deadline, but the most recent talks in New York last month made little progress.

Aghili said Middle East Bank, which will complete its second year of operation next month, is pressing ahead with expansion plans including setting up offices in Mumbai and another location. It already has offices in Dubai and Arbil. The bank also aims to issue around $100 million in convertible debt in the next three months within the Iranian market.

“After the third year of operation we should be in a position to consider listing outside of Iran. I suppose the closest place that could be considered would be Dubai or Istanbul,” he said.

Aghili will travel to London later this month for an Iran investor conference, seeking to boost ties with counterparts.

“We are hoping that an agreement between P5+1 and Iran will be signed before Nov. 24 and I suppose after that date we do hope to have proper relationships with many international banks including many major European banks,” he said. “And this is the reason I am attending this get-together.”

Editing by Giles Elgood