The Iran Sanction Compliance Minefield; a sign of things to come?

We live in interesting times, and interesting times are never easy. The world is changing in every aspect from technology to geopolitics, and we are feeling the effects. The situation we have with Iran right now is a great example of how things are changing. All the major world powers were on the same page on the Iran nuclear deal. Sanctioned were lowered as long as Iran complied. Then, the United States of America pulled out of the deal, citing concerns that Iran was not adhering to the limits set on them.

The interesting development here is that this did not lead to the nuclear deal falling apart, as it would have a decade or two decades ago, when there was immense solidarity between the European world powers and USA. Instead, the European countries have decided to go through with the original deal. They will continue to trade with Iran as long as Iran complies with the demands in the original treaty.   

Managing Compliance in the Face of Conflictions Sanctions  

This creates a nightmare for compliance managers focusing on BSA/AML measures. By law no American business can trade with or deal with Iran. This is a major problem for multi-national businesses. Corporations which have subsidiaries within the USA will be culpable under these sanctions. No work that is done under the American arm of the business can relate with any trading that the rest of the business is doing with Iran.  

This is a problem for the European countries as well. The ones that are continuing the deal with Iran are known as the E3 – France, United Kingdom, and Germany. These businesses want to encourage trade with Iran as long as Iran complies with the nuclear deal, but companies are too scared of the overreaching consequences of the USA sanctions, and are choosing not to trade with Iran.  

The current solution the E3 has come with is to create an intermediary. The plans are to create a special purpose vehicle which businesses can trade with, and this special purpose vehicle will then trade with Iran. This way no company will technically be trading with Iran, which will allow them to avoid any sanction related compliance issues in USA. 

Compliance in a Changing World  

What’s important to note here is that we are witnessing the ends of inter-country relationships and alliances that have lasted decades. The world has seen a remarkably peaceful time after World War 2, as most of the world powers ended up becoming allies. This resulted in a long period without any wars between the major world powers. The lack of war wasn’t the only consequence of the alliances – the allies also chose to bolster trade relationships and allowed easier immigration. Compliance was easier in this time, since much of the world was on the same page when it came to sanctions. If USA wanted sanctions, then it was almost a guarantee that all of Europe will support the sanctions too. 

Things are changing now. It is easy to say that this change is being caused by one country, one government, or even one president, but it would not be true. The reality is that we are witnessing changes all over the world. USA is pulling out of many countries it has been in for more than a decade and ending a lot of its operations around the world. The UK is trying to leave the EU, which would have far reaching consequences. UK played a pivotal role in EU and often helped align the EU with USA. Without the UK, the EU itself will be a different organization. NATO may be coming to an end as well. All these events aren’t happening simply due to a few people – they are major changes happening all over the world. 

Compliance will not be easy in such an environment. Iran is just the first example of a country heavily sanctioned by the USA but free to trade for European countries. We may see similar approaches elsewhere. What is needed is a framework that allows businesses to quickly adapt with changing circumstances. Compliance management systems and regulatory change management systems will be required in businesses to ensure that the business does not end up unwittingly dealing with a sanctioned entity. 

About the Company

360factors, Inc. (Austin, TX) helps companies improve business performance by reducing risk and ensuring compliance. Predict360, its flagship software product, vertically integrates regulations and requirements, policies and procedures management, risks and controls, audit management and inspections, and on-line training and qualifications, in a single cloud-based platform based on artificial intelligence.

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