In a joint statement on 31 January 2019, France, Germany and the UK (together, E3) announced the creation of a payment channel SPV (Instrument in Support of Trade Exchanges, INSTEX) to offer European companies a settlement option in relation to their Iranian business activities.
INSTEX aims to facilitate legitimate trade between European companies and Iran, focusing initially on sectors such as pharmaceutical, medical devices and agri-food goods. INSTEX forms part of the EU’s response to the U.S. withdrawal from the Joint Comprehensive Plan of Action (JCPOA) with Iran, in addition to the extension of Council Regulation (EC) No 2271/96 (commonly known as the EU Blocking Regulation) in August last year. INSTEX has been registered in France and will be run by German banks. The specific timing to implement INSTEX remains uncertain, which will be open to registered European companies opting to use the system.
This latest initiative by the E3 has reaffirmed efforts to uphold their commitments under the JCPOA. However, questions will likely be raised for EU companies considering Iranian business via INSTEX in light of the on-going potential risks under U.S. secondary sanctions. The U.S. secondary sanctions on Iran were reinstated in November 2018, following the U.S. withdrawal from the JCPOA, and remain a risk for EU companies doing business with Iran. The U.S. secondary sanctions include the U.S. preserving the right to designate non-U.S. persons (e.g. EU companies) for any “significant” business activities with Iranian counterparties even where there is no U.S. nexus, and may result in being excluded from the U.S. financial system or doing business with U.S. companies.
For the Foreign & Commonwealth Office press release, please visit here.