Europe’s Instex trade channel for Iran ‘won’t work until mirror company, money laundering and terrorism financing goals are met’

Europe’s Instrument in Support of Trade Exchanges (Instex) trade mechanism devised to help European and Iranian trading parties do business without incurring US sanctions will not work until Tehran sets up a mirror company and meets international standards against money-laundering and terrorism financing, a French diplomatic source has reportedly said.

The long-delayed Instex channel is supposed when operational to initially enable the bartering of humanitarian and food goods that would not attract US sanctions, before possibly moving on to accept transactions that would trigger sanctions if not sufficiently shielded from Washington’s prying eyes. Both Iran and Russia—which has suggested it might join the scheme—have said the bartering should be allowed to include Iranian oil, but Europe has not given its consent to such a move given that it would certainly incite US officials who are engaged in an effort to drive all oil exports from Iran off world markets.

Britain, France and Germany, parties to the 2015 nuclear deal with Iran along with the US, China and Russia, want to show they can compensate for last year’s unilateral US withdrawal from the accord and salvage substantial trade promised to Iran which the Iranians are entitled to for complying with measures aimed at keeping their nuclear development programme purely civilian in nature.

“The Iranian mirror structure is not operational. The day they have signed the necessary FATF [Financial Action Task Force] conditions we’ll talk about it and the day that we are sure that the first transactions through Instex aren’t put under American sanctions, [then] we’ll talk about it again,” a diplomatic source was quoted by Reuters as saying on September 4.

France’s foreign minister said on September 3 the mirror company had not been set up.

Iran’s president, Hassan Rouhani, on September 5 gave Europe another two months to save the deal. To say Iran is underwhelmed by how much Europe has done to protect its economy from it regards as a US “economic attack” and US “economic terrorism” is putting things mildly. Rouhani also warned Tehran was preparing for further significant breaches of the nuclear deal’s caps on nuclear activity if diplomatic efforts ultimately failed.

European officials until now have said that conforming to Paris-based FATF rules was not a prerequisite for Instex, although it would facilitate its establishment, Reuters wrote.

Iran’s parliament has approved some new measures against funding terrorism under pressure to adopt international standards. But the Guardian Council, which vets laws and elections for compliance with Iran’s Islamic constitution, blocked a draft law in 2018 on the grounds it would prevent the Islamic Republic from providing financial support to Hezbollah in Lebanon, which is under US sanctions

The FATF said in June that it could only consider fully enacted legislation and gave Iran until October to meet its norms or face greater scrutiny of international financial transactions with Tehran.