Well, the New York Times got this one wrong.

Writing on the growing interest in Iran’s market in the post-sanctions era, the Times notes that difficulties persist in regards to the impact of surviving U.S. sanctions:

Credit…remains a serious obstacle as major Western banks are waiting for clarity from the United States Treasury regarding the “state sponsor of terrorism” label. The label means that no money intended for Iran can move through American banks, something that is all but impossible to avoid in many modern transactions.

Iran is a U.S.-designated state sponsor of terrorism, which does trigger certain sanctions under three separate statutory authorities (§ 620A of the Foreign Assistance Act of 1961; § 40 of the Arms Export Control Act; and §6(j) of the Export Administration Act of 1979). These sanctions include a prohibition on most aid to Iran; a prohibition on exports, credits, guarantees, and other financial assistance to Iran; and a requirement of validated export licenses for trade in goods or technology that are controlled by the U.S. Department of Commerce for national security or foreign policy reasons.

Note that these sanctions do not include a prohibition on U.S. or U.S.-based banks transacting with Iran or Iran-related persons. Instead the statutory bar to such activities comes to us thanks to § 103 of the Comprehensive Iran Sanctions Accountability and Divestment Act (“CISADA”), which effectively codified the comprehensive U.S. trade and investment embargo with Iran first promulgated via Executive order in 1995. Such sanctions are also codified in the Iranian Transactions and Sanctions Regulations (“ITSR”), 31 C.F.R. Part 560.

Pursuant to the ITSR, U.S. financial institutions are prohibited from processing what are known as “U-turn” transfers to or from Iran or for the direct or indirect benefit of persons in Iran or the Iranian government. This means that Iran cannot “dollarize” its global trade transactions and cannot use U.S. or U.S.-based banks in New York for dollar-clearing services. That poses a substantial barrier to Iran and its ability to conduct trade in the world’s most popular currency – the U.S. dollar.

Previously, the ITSR (and its former incarnation, the ITR) included a general license for such “U-turn” transactions at 31 C.F.R. § 560.516. That license was revoked in November 2008, as the nuclear dispute between the U.S. and Iran heated up and the U.S. sought to prevent Iran from “dollarizing” transactions. Moreover, as later became known, major European banks were failing to conduct appropriate due diligence on transactions taking place thru the U.S. and were wire-stripping payment messaging to prevent their U.S. affiliates from doing the same. Eventually, this resulted in most of the major fines targeting European financial institutions that we have come to witness over the past few years.

Some believed that the earlier general license would be reinstated as part of the Joint Comprehensive Plan of Action reached between the U.S., other major world powers, and Iran. I believed it unlikely, due to the fact that the “U-turn” license was much abused when it was formerly in place, and some major non-U.S. banks had begun exploring opportunities for clearing dollars offshore from the United States. Sure enough, the JCPOA did not include a renewed general license for “U-turn” transactions.

That has left some foreign parties concerned about how to engage in trade or other dealings with Iran, as the New York Times article does accurately report. Unable to ‘dollarize’ transactions through the United States, Iran is isolated from the currency in which most global trade takes place (though the JCPOA does allow Iran to purchase U.S. bank notes). That will stymie Iran’s current efforts to hit the gates running in this post-sanctions era, as foreign parties will need to resolve a host of issues such as this before deciding to resume large-scale trade with or investment in Iran.

Nonetheless, the New York Times is very wrong in its diagnosis of the source of the problem. No one should be waiting on the U.S. Treasury Department to make a determination regarding Iran’s designation as a state sponsor of terrorism. (For starters, such determination is not the province of the Treasury Department’s to make.)  Instead, foreign parties should be zeroed in on the surviving sanctions prohibitions of the ITSR, which will continue to impact many of their dealings with Iran.

What is most troubling, however, is that the New York Times might have mis-identified the source of the problem on the basis of information being given them by foreign parties interested in Iran-related trade. If that is the case, then we’ve got a bigger problem – which is that, more than a decade after the U.S. increased its use of economic and financial sanctions, still many sophisticated foreign parties lack an appropriate understanding of their operation.

We’ve seen a lot of bad information circulating in the U.S. press regarding sanctions in the aftermath of the Iran nuclear agreement, and I’m afraid that such poor information will start informing the manner in which parties approach the Iranian market, which could in turn lead to a whole series of bad outcomes.