On February 3, 2017, the U.S. Department of the Treasury added 13 individuals and 12 companies to its list of Specially Designated Nationals (SDNs) for links to Iran’s alleged support for terrorism and weapons of mass destruction proliferation. The listing broadly blocks all engagements with those named. It includes individuals from China, the UAE, Kuwait and Lebanon, underlining the sanctions regime’s global reach. The U.S. government is billing the action as a response to Iran’s ballistic missile test on January 29, and comes amid a U.S. executive order on January 27, banning Iranian nationals from entering the country.
- The new U.S. administration and Iran’s government are prodding each other to discover their respective red lines. U.S. President Donald Trump sharply criticized the Iran nuclear deal during his campaign, and senior members of his cabinet are known to advocate a tougher stance towards the country. Meanwhile, Iran is in a politically sensitive period as it prepares for presidential elections in May. While neither country has an interest in open conflict, this period of discovery risks turning into brinkmanship, threatening regional stability and the future of Western trade with Iran.
- The political impact of these additional sanctions is greater than its direct effect on trade. None of the newly added names are known to be engaging with Western investors. Nor does their inclusion on the SDN list violate the Iran nuclear deal implemented in January 2016. Nevertheless, banks will generally interpret the new sanctions as reinforcing their judgment that engaging with Iran is not worth the compliance risk.
- The U.S.’s policy shift from multilateralism to a unilateral approach in world affairs makes a return to the heavily restrictive 2012-2016 global Iranian sanctions regime unlikely. Previous sanctions were effective because the Obama administration was able to rally European and Asian nations to also cut commercial links with Iran. Going forward, political risk and regulatory uncertainty will increasingly be the main barriers for non-U.S. companies looking to enter Iran.
- Screening local counterparties and their beneficial owners for sanctions and reputational risk remains crucial to doing business in Iran. From a compliance perspective, the most challenging sanctions for investors remain those prohibiting firms from contracting with entities owned or controlled by the Iranian Revolutionary Guards Corps (IRGC), a military organization. Its interests represent about 15-20% of the Iranian economy, including significant parts of the construction, extractive and automotive sectors. There exists no comprehensive list of IRGC companies; identifying links to the IRGC and other sanctioned entities requires specialized due diligence research.