Abu Dhabi, UAEWednesday 27 May 2020

UAE businesses to feel effect of fresh US sanctions on Iran

Exchange houses and gold dealers in the UAE will feel the pinch of the new sanctions, which came into play on Monday.
Freshly cast gold bars at the refinery in Dubai. The new sanctions are likely to have an effect on the UAE's gold dealers and exchange houses. Pawel Dwulit / The National
Freshly cast gold bars at the refinery in Dubai. The new sanctions are likely to have an effect on the UAE's gold dealers and exchange houses. Pawel Dwulit / The National
DUBAI // New economic sanctions imposed on Iran by the United States will have a major impact on UAE businesses.

The rules, which came into effect on Monday, are wide-reaching and mainly target non-US companies. Anyone who breaks the sanctions risks severe penalties.

The measures most likely to affect the UAE are restrictions on banking transactions in Iranian rials and sales of gold to Iran.

There is concern among UAE authorities about the possible repercussions for exchange houses and gold dealers.

"The major impact with respect to the UAE will be on financial institutions that continue to conduct significant transactions with Iran," said Ramsey Jurdi, a compliance lawyer in the Dubai office of the New York law firm Chadbourne & Parke.

"The new sanctions will also impact all metals traders, including gold dealers. The sanctions significantly expand the scope of potential activities that could be subject to penalty - in particular, banking transactions based on the rial and sales of precious and non-precious metals to Iran."

The sanctions cover only certain types of transaction: many others remain legitimate. But there are fears that legitimate trade could be hit as companies withdraw from any engagement with Iran rather than risk US-imposed penalties.

"The new sanctions could dampen legitimate trade," said Farhad Alavi, a partner at the Akrivis Law Group in Washington with clients in the UAE.

"Because entities in Dubai and Abu Dhabi do not necessarily have expertise and sophistication in respect of US laws, this just adds a layer of confusion and fear," Mr Alavi said.

"That itself can lead to companies becoming more and more conservative and avoiding any kind of Iran business out of fear of possibly getting into trouble in the US.

"A lot of UAE banks don't want to process payments of Iranian origin even if those payments are allowed by US law."

Afshin Molavi, a senior research fellow at the New America Foundation, said: "The spider web of sanctions on Iran are wreaking havoc on Iran's economy, and the noose is only getting tighter.

"This same spider web of sanctions are also wreaking havoc on the compliance departments of international financial institutions and exchange houses, as their in-house lawyers and outside experts scramble to understand the latest sanctions laws.

"For many financial institutions that had previously conducted business with Iran, the heavy legal legwork is simply no longer worth it.

"Even if they are not breaking the law, many firms simply say it's too much effort to understand the latest regulations and the fear of the US treasury is too high."

Consultancy company Roubini Global Economics said in a recent report that Iran has used a gap in the sanctions to receive payments for natural gas exports in gold. The report said much of this gold was routed to Iran through the UAE from the country buying the gas.

David Cohen, the US under-secretary for terrorism and financial intelligence, told a Senate committee in May that the treasury department planned to focus increasingly on Iran's use of non-bank financial institutions such as exchange houses and money-services businesses.

The department said in January that Iran was increasingly using exchange houses to circumvent US sanctions and move funds.

Exchange houses are licensed to deal in foreign exchange and transmit funds on behalf of companies and individuals.

The regulations enable the US to penalise people from other countries who contravene the sanctions. It can freeze their assets, block access to the US economy or limit their ability to carry out transactions in US dollars.

Mr Jurdi said: "The sanctions for the most part threaten non-US companies with denial of access to the US economy if they conduct specified transactions with Iran.

"Exchange houses and financial institutions usually have no choice but to abide by the sanctions because of the severity of the potential penalty."

He said the US could deny UAE financial institutions a correspondent account if they conducted transactions that broke the sanctions. A correspondent account in the US enables banks in other countries to make and receive payments in US dollars.

"Without a correspondent account, the institution can no longer effectively conduct transactions in US dollars," he said. "The imposition of this penalty has been known to bankrupt institutions within weeks."


Updated: July 3, 2013 04:00 AM



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