Paris Seeks to Rebuild Banking Relations with Iran

Large industrial and service groups in France have signed major cooperation contracts with Iran, taking advantage of the implementation of the Joint Comprehensive Plan of Action (JCPOA). However, major French banks have so far refrained from participating in this process. It can be said that the bridges between the Iranian banking system and large French (and European) banks have not yet been rebuilt, and for this reason, commercial and industrial cooperation between Tehran and Paris is progressing slowly. The main goal of French Economy and Finance Minister Michel Sapin's three-day visit to Iran, which began on Saturday, February 4, seems to be focused on finding a solution to this problem. The 20 billion euro contract with Airbus for the sale of aircraft to Iran, the 400 million euro agreement between Peugeot-Citroën and Iran Khodro to establish a joint venture, the signing of a gas contract between Total and Iran for the development of phase eleven of South Pars (which has recently been questioned by the company's CEO), the cooperation agreement between French companies Bouygues and Paris Airports with Iran to expand Tehran Airport, the agreement with Vinci for investment and operation of Isfahan and Mashhad airports, and the signing of a cooperation agreement between the French National Railway Company and its Iranian counterparts are all signs of the French rush to strengthen their positions in Iran after the end of economic sanctions related to the Islamic Republic's nuclear file. What seems surprising in this context is the reluctance of French banking giants (BNP, Crédit Agricole, Société Générale, and Crédit Lyonnais) to finance these transactions. Data released by French sources indicates that only three small banks in the country (Vermser, Delubac, Martin Morel) are financing part of the trade and investment between Iran and France. However, these banks are not significant enough to meet the major financial needs at the level of the large economic agreements signed between the two countries. In this situation, French companies involved in contracts with Iran have been forced to turn to non-French banks. The French group Peugeot-Citroën has resorted to a regional Italian bank called Banca Popolare di Sondrio to support its cooperation with Iran Khodro. Airbus has contracted with a Middle Eastern leasing company called Dubai Aerospace Enterprise for the implementation of a significant part of its 20 billion euro contract with Iran Air. Why are French banking giants (and many of their European counterparts) refraining from financing transactions with the Islamic Republic? The main factor is their fear of the reaction of the U.S. judicial system. Over the past four years, many European banks, from French BNP and Crédit Agricole to Dutch ING and Deutsche Bank, have been fined by Washington for providing dollar facilities in relation to countries under U.S. sanctions, including Iran. It should be noted that BNP, a French bank, was forced to pay nine billion dollars in this regard, which was a heavy blow to all European banks. Given this situation, French banks and other European banks, which have significant interests in the U.S. market, tread carefully in their relations with Iran. It is worth recalling that U.S. sanctions against these banks are imposed in relation to 'primary' or 'non-JCPOA' sanctions by Washington and relate to issues such as terrorism, missile programs, or human rights. Large European banks prefer to distance themselves from any transactions related to Iran due to the legal complexities of the texts containing these sanctions. However, senior economic officials in France know very well that without the active participation of the banking giants in their country, cooperation with Iran in the fields of trade and investment will face significant financial obstacles. Paris's efforts to resolve this issue revolve around three main axes: 1) The French are individually or through cooperation with EU member countries trying to persuade the U.S. to show flexibility in imposing 'primary' (non-JCPOA) sanctions against the Islamic Republic. In fact, the strict enforcement of 'primary' sanctions by Washington often creates insurmountable obstacles to the implementation of the JCPOA. In an interview with the newspaper Donya-e-Eqtesad, published on Saturday, March 4, Michel Sapin stated, 'We are encouraging the U.S. to resolve this issue along with other European countries.' 2) Senior French economic officials are warning their large banks that if they abandon the Iranian market, Asian and Russian competitors will take their place. It seems that Asian banks, from Japanese and Chinese to Singaporean, New Zealand, and Vietnamese, are expanding their presence in the Iranian market. The opening of a branch of the Bank of China, a Chinese state giant, is particularly noteworthy. According to the French newspaper Les Echos, Iranian officials consider this massive trading bank a strategic partner, including for transactions in euros. 3) At the same time, the French are encouraging the Islamic Republic to align its banking system with international laws regarding money laundering, terrorist financing, and tax evasion. This seems to be one of the main points of Michel Sapin's negotiations in Tehran. Iran remains on the 'blacklist' of the Financial Action Task Force (FATF). The FATF was established at the 1989 summit of the seven major industrial powers to combat money laundering, and later, combating terrorist financing was added to its responsibilities.