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Top Iranian Lawmaker Says European Trade Mechanism ‘Not Likely’ To Happen

German head of The Instrument in Support of Trade Exchanges (INSTEX), Per Fischer (second from right) poses with the envoys of Britain, France and Germany in Iran, March 11, 2019.

Chairman of the Iranian Parliament's National Security and Foreign Policy Committee, Heshmatollah Falahatpisheh says INSTEX, the EU's financial mechanism to help Iran in trade, is unlikely to become operational anytime soon.

Hit hard by U.S. sanctions Iran has been demanding that Europe to help maintain trade, since the United Kingdom, France and Germany are signatories of the 2015 nuclear deal and should not abide by Washington’s unilateral sanctions.

At the same time, there are conflicting reports about the fate of the anti-money laundering bills to be decided upon by Iran’s Expediency Discernment Council. Some council members says the bills are no longer on the council's agenda while two others say the bills will be discussed at the council at a later date.

Both of these matters have become vital for Tehran to keep its financial lifeline open following the United States pull-out from the nuclear deal with Iran, which entailed paralyzing sanctions.

Without a European financial mechanism Iran may not be able to export and import much, and without the bills whose ratification has been called for by the international watchdog, the Financial Action Task Force (FATF) Iran will be blacklisted by FATF member states.

Infographic:The Instrument in Support of Trade Exchanges(INSTEX)
Infographic:The Instrument in Support of Trade Exchanges(INSTEX)

Falahatpisheh said on Tuesday May 21 that "Europeans have done nothing to protect the nuclear deal with Iran," also called the Joint Comprehensive Plan of Action (JCPOA), although European officials have repeatedly promised that INSTEX will soon become operational.

Last week, U.S. Special Representative for Iran, Brian Hook said INSTEX was unlikely to become operational. "INSTEX has two sides, but the Iranian side has not taken the necessary steps to make the mechanism operational," Mr. Hook said in an exclusive interview with Radio Farda. Hooks reference was to the repeated delays by Iran in approving the FATF requested financial reforms.

The governor of Iran's Central Bank said on March 20 that Iran has launched INSTEX's counterpart in Tehran "to eliminate limitations caused by U.S. sanctions," but according to Brian Hook Iran still lacks a transparent financial discipline that is required for making INSTEX operational. "So, I am not truly sure INSTEX will be practical," he said.

He also said that for instance, if the manager of BMW is given the choice between trading with Iran or the U.S., he would choose the United States.

The transparency referred to by Brian Hook, is where the FATF requirements come into the equation. Iranian hardliners at the Guardian Council and the Expediency Discernment Council are against transparency in Iran's financial transactions because they fear this will prevent Iran from extending financial assistance to Lebanese, Palestinian and other groups designated by Europe and the U.S. as terrorist groups.

The hardliners have ruled out membership in FATF as they believe it will pave the way for intelligence gathering from Iran.

The four bills about money laundering and stopping support for international terrorism took months to be approved by the Iranian Parliament (Majles), but that was less than half of the job. The ratifications must also be endorsed by the hardlineer0-dominated Guardian Council which did not approve the bill and send them to the Expediency Discernment Council for final arbitration. The EDC has so far approved two of the bills and the other two bills are stuck at that point.

Mostafa Kavakebian, a member of the Parliament asked at the Majles on Tuesday why the Parliament should spend months on a bill that would eventually be stuck in other parts of the government? EDC member Mohammad Sadr told reporters in Tehran that the bills are no longer on the council's agenda. However, two other EDC members say the bills have been temporarily taken off EDC's agenda.

The FATF took Iran off its black list in 2016 and three times afterward hoping that Iran will ratify the four bills and meet FATF's requirement for transparency. It is now unlikely that Iran will remain out of the blacklist after FATF's next meeting in June.

This will make it even more difficult for INSTEX to be operational.

In the meantime, Iran has suspended some of its obligations under the JCPOA giving Europe 6 months to facilitate oil export and international banking for Iran. The European partners to JCPOA, France, Germany and the United Kingdom, frowned at Iran's move and rejected the ultimatum, although they said they will remain committed to the nuclear deal.

As Iran refuses to negotiate with the United States and fails to meet FATF requirements, making INSTEX operational will become harder for Europe which has been complaining about increasing pressures by the United States.

The result so far, has been Iran's further isolation in the international markets.