Photographer: Simon Dawson/Bloomberg

Nuclear Deal Promised New Investment. Iran’s Still Waiting.

  • After $15 billion in fines, many banks remain wary of Iran
  • Treasury’s Szubin says U.S. won’t stand in the way of deals

When Iran and global powers signed a nuclear deal last year, supporters and detractors agreed on one thing: the accord would get billions of investment dollars flowing into the Islamic Republic. The only question was how much.

The answer so far -- "not much" -- is infuriating Iranian officials, who are demanding more U.S. concessions, including access to dollar-denominated trades, after curbing their nuclear program. In the U.S., opponents of the original agreement are warning against any further easing of restrictions, vowing to hold up Treasury Department nominees to ensure it doesn’t happen.

QuickTake Iran's Economy

“The deal was so contentious for both parties that the acrimony after the implementation is to be expected,” said Elizabeth Rosenberg, a senior fellow at the Center for a New American Security in Washington. “There are active detractors that are trying to collapse the deal.”

$55 Billion

The U.S. estimates that $3 billion of $55 billion in frozen assets that are supposed to be released to Iran has made it back to Tehran so far. Iranian officials -- who say they need the money to buy airliners, improve infrastructure and boost a struggling economy -- say European and Asian banks are reluctant to deal with them because they fear U.S. sanctions.

For a QuickTake explaining Iran’s economy, click here.

The House Foreign Affairs Committee and the Senate Banking Committee discussed the Iran deal, completed last July, in separate hearings Wednesday. Acting Under Secretary for Terrorism and Financial Intelligence Adam Szubin, whose Senate confirmation to the post has been held up for more than a year, testified before both panels.

“Since Iran has kept its end of the deal, we must uphold ours,” Szubin said. While the U.S. “will not stand in the way of permissible business activities involving Iran” and other countries, he said that other U.S. sanctions against Iran remain in effect.

“That means we will continue to prohibit U.S. persons from investing in Iran, importing or exporting to Iran most goods or services, or otherwise engaging in commercial or financial dealings with most Iranian persons or companies,” he said. “Iran will also continue to be denied access to U.S. markets.”

For a survey on companies reluctant to invest in Iran, click here.

Szubin spent most of his day assuring lawmakers that the Obama administration is still penalizing Iran for its missile tests, support for terrorism and human rights violations. Some Iranian entities, including about 200 individuals and companies associated with the Islamic Revolutionary Guards, are still off-limits under remaining U.S. sanctions, and Iran can’t access the U.S. financial system, including conducting transactions in U.S. dollars.

“How is it we are in essence encouraging foreign entities to do business with Iranian entities yet threatening sanctions for possibly dealing with” the Revolutionary Guards? asked Senator Bob Menendez , a New Jersey Democrat who opposed the nuclear deal.

Szubin responded that it’s “a moment of great potential” because “there are those within the Iranian system who’d like” to see the Guards’ role reduced.

Senator Elizabeth Warren said Iran needed to reform its economy if it really wanted to receive foreign investment. “The best way to change Iran’s behavior is to keep the pressure on,” the Massachusetts Democrat said in a response to critics of the accord. “The worst is to score political points in a way that gives Iran an excuse not to make the changes that they need to make.”

Kerry-Zarif Meetings

In a previous effort to resolve the dispute over whether the U.S. is keeping its end of the nuclear deal, Secretary of State John Kerry and Iran Foreign Minister Mohammad Javad Zarif met twice last month on the sidelines of a United Nations conference. Kerry then met with European banking representatives in London this month to say non-U.S. banks won’t be penalized for conducting legitimate business with Iran.

“The Iranians thought they’d get more help from the banks,” said Matthew Levitt, a former deputy assistant secretary of Treasury. “As long as they engage in illicit conduct, they’re going to find banks not willing to engage with them.”

Worried that the Obama administration’s efforts will go too far, Republican Senators Marco Rubio and Mark Kirk warned Treasury Secretary Jacob J. Lew in a May 19 letter that they will hold up Treasury Department nominees until they receive assurances that “the U.S. will not enable Iranian access to U.S. dollars elsewhere in the international financial system, including assisting Iran in gaining access to dollar payment systems outside the U.S. financial system.”

Banking Fines

Major non-U.S. banks remain wary after paying $15 billion in fines and signing settlements for violating earlier U.S. sanctions. French bank BNP Paribas SA agreed to pay $8.9 billion in July 2014 for violating U.S. sanctions against Sudan, Cuba and Iran. Germany’s Commerzbank AG agreed to pay $1.45 billion for moving funds through the U.S. financial system for Sudan and Iran.

That history makes doing business with Iran a hard sell, despite U.S. assurances.

“Promotion of banking and commercial activity in that environment is completely anathema to the message the U.S. government has been sending internationally for last 15 years,” said Juan Zarate, chairman of the Financial Integrity Network who was a White House adviser on combating terrorism under President George W. Bush.

While attacking critics of the Iran deal for having overestimated how much money would flow to the Islamic Republic, the Obama administration has also said that Iran’s behavior may be stifling investment.

Hezbollah Support

“If you were routinely testing ballistic missiles that violate the United Nations’ sanctions that govern your ballistic missile program, well, that’s not going to inspire the confidence of business leaders that this is a safe place to do business,” White House spokesman Josh Earnest told reporters May 12. “If you are supporting terrorism around the world, that’s not going to be particularly persuasive to business leaders that Iran is a good place to make an investment.”

Iran continues to provide financial and military support for the Hezbollah militia in Lebanon, which is listed as a terrorist organization by the U.S. The Treasury Department is trying to cut off funding to the group, whose soldiers are in Syria defending President Bashar al-Assad against U.S.-backed rebels.

The Financial Action Task Force, a 34-government agency sponsored by the Organization for Economic Cooperation and Development, has also cited Iran for flouting efforts to stop money laundering and terrorism finance. The only other country on the list: North Korea.

To really draw investment, Iran needs to embrace wholesale economic and political reform, said Suzanne Maloney, a senior analyst at the Brookings Institution.

“Tehran’s challenges in luring capital is further complicated by its reputation for provocative domestic and regional behavior,” Maloney wrote in a May 20 report. “As the old adage goes, capital is a coward. And the Islamic Republic is a haunted house.”

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