Payment Void

German banks pull plug on trade with Iran

Iran Politics
How many rials to the dollar? Now, or… now? Source: AP

When Donald Trump pulled out of the nuclear deal with Iran in May, the EU and Germany vowed to keep the agreement alive. The EU even responded with a “blocking statute” that threatened European businesses with legal action if they complied with restored US sanctions.

But it isn’t working. German banks are increasingly refusing to accept payments from Iranian banks, apparently more scared of the US than of the EU. As a result, some German small and mid-sized exporters face possible bankruptcy.

“Eighty to 85 percent of all payments to German banks are being rejected,” said Helmut Gottlieb, director of the Hamburg branch of Bank Melli Iran.

Processing payments

According to Mr. Gottlieb, the refusal to process payments breaches the rules of both the Bundesbank and of Europe’s Single Euro Payments Area (SEPA) system. Germany’s central bank has a duty to uphold the payments system in Germany and to guarantee the contractual obligations of all European banks to carry out SEPA bank transfers, he continued.

Not so, said the Bundesbank, arguing it is not responsible for implementing SEPA rules and that it can’t force banks to accept payments. The German government, meanwhile, was decidedly evasive in its response to Handelsblatt inquiries. Asked for comment, the finance ministry said the matter was up to the economics ministry and the Bundesbank. The economics ministry then declined to comment.

The US ambassador to Berlin, Richard Grenell, welcomed the banks’ refusal to handle transfers, telling Handelsblatt that German companies are increasingly adhering to US sanctions against Iran. Meanwhile, Tehran said it would pull out of the nuclear deal unless its foreign trade remains intact. That’s unlikely to happen if banks don’t play ball.

Rescue the deal

Last week, Foreign Minister Heiko Maas reiterated Germany’s determination to salvage the deal together with the EU, Russia and China.

“To keep the agreement alive, we need concrete solutions so that payment routes are kept open and trade with Iran remains possible,” Mr. Maas said during a meeting about Iran on the sidelines of the UN General Assembly in New York.

He didn’t mention that payments are already being blocked by German banks, meaning money transferred for exports aren’t making it from Iran to German firms’ bank accounts. Companies worst affected do not want to go on the record, fearing more harm to their businesses. Some companies based in Germany that have Iranian shareholders even said they can’t pay their employees’ wages anymore.

DZ Bank, regional bank Helaba and Deutsche Bank joined other major banks in stopping payments to and from Iran some time ago. Only 40 to 50 of Germany’s 900 cooperative banks and scores of Austrian banks are still processing payments linked to Iranian deals.

Iran-related payments are a sensitive topic: Banks face major fines if they contravene US sanctions. Commerzbank paid $1.5 billion in 2015 for forbidden Iran deals and French bank BNP Paribas paid $9 billion. That’s why banks are so afraid of the US. They could even be locked out of all dollar transactions, which could put them out of business.

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What blocking statute?

In stopping payments, Klaus Friedrich, an expert on Iran at the German industry group VDMA, said banks were falling foul of the EU’s blocking statute. “I know of no case to date in which banks are refusing transfers by citing a reason that’s not linked to the Iran issue,” he said.

Off the record, bankers said they have a right to reject payments despite the blocking statute. “All banks can decide not to do business related to Iran, for example, if it entails a strategic business risk or because we can’t rule out that the Revolutionary Guards may be involved in the end,” said the compliance chief of a major German bank.

He said the blocking statute is only breached if a bank or another company reject business because of the US sanctions. But experts said it is evident that banks are growing cautious precisely because they’re afraid of sanctions. “It’s just that no one wants to admit that,” one lawyer said.

The EU, China and Russia now plan to circumvent US sanctions by creating a so-called special purpose vehicle (SPV) to facilitate payments related to Iran’s exports – including oil. The system would include sophisticated barter arrangements. But that will only work if Iranian payments are processed in Germany, especially after further US sanctions come into force in early November with the aim of crippling Iran’s economy.

Mathias Brüggmann has worked as a foreign correspondent in Moscow, Brussels and Warsaw and is now head of the foreign affairs desk. Elisabeth Atzler has been Handelsblatt’s banking correspondent since 2012. Frank Wiebe has been leading Handelsblatt’s monetary policy coverage out of Frankfurt since November 2017.  To contact the authors: brueggmann@handelsblatt.comatzler@handelsblatt.comwiebe@handelsblatt.com.

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