The E3—comprised of Germany, France, and the United Kingdom—has set up a special trade channel designed to allow companies in the European Union to circumvent U.S. sanctions in an effort to continue humanitarian trade with Iran and encourage Iran to comply with the Joint Comprehensive Plan of Action (JCPOA), commonly known as the Iran nuclear deal.

U.S. sanctions were put in place in November and halted most significant trade between Iran and its European partners because of fears among large multinational companies that they would be targeted by U.S. authorities.

The Instrument for Supporting Trade Exchanges (INSTEX SAS) has been registered in France and will be run by German banker and former Commerzbank manager Per Fischer. The new special purpose vehicle (SPV) will have a supervisory board consisting of diplomats from all three countries. While INSTEX is likely to take months to implement, another obstacle will be to find European companies that are willing to participate. Currently, INSTEX is designed to be used to facilitate trade in “humanitarian” goods, such as food and medicines.

The impression in the compliance industry, according to one compliance training professional, is that this is now less about sanctions being a tool to change behaviour and more about business and political agendas. “Sanctions is a massively dynamic and challenging environment already,” the training professional said, “and this SPV makes life yet more complex for the compliance professional in terms of assessing risk exposure, given the divergence of approaches and the potential for further change. As there are now different perspectives from different parts of the world and the complication of secondary sanctions, the situation becomes a minefield.”

The United States has not reacted to the setup of the SPV, but it is in its early days.

“Registration is a big step, but there is still more work to be done. The E3 are working closely to address all the technical and legal aspects required to make this vehicle operational. That includes work with Iran to establish necessary counterpart structures.”

Jeremy Hunt, U.K. Foreign Secretary

U.S. law requires European companies listed on U.S. exchanges to disclose publicly nearly all transactions with Iran. If they fail to make these disclosures, they could face the possibility of a civil fine or criminal prosecution. But many small- and medium-sized European firms are not listed on U.S. exchanges and are therefore not subject to these disclosure requirements.

The SPV will “initially” cover “sectors most essential to the Iranian population—such as pharmaceutical, medical devices, and agri-food goods,” according to the statement. The United States already exempts the goods initially covered by the vehicle.

“The brief view is that it’s mainly symbolic,” said another compliance professional. “The SPV is set up to move funds in very limited areas of business that are allowed under exemptions anyway. It may expand in the future but at present seems to be causing little concern to the U.S. The U.S. may, and probably will, impose secondary sanctions on firms who use it in any future broader capacity to move funds to and from Iran. It’s symbolic and probably able to be manipulated by all parties in the dispute to suit their needs.”

Given concerns over financing terrorism, INSTEX will abide by international standards regarding anti-money laundering and combating the financing of terrorism (AML/CFT). To complement this, the E3 expects Iran to implement all the elements of its Financial Action Task Force action plan.

Eric Lorber, a former senior advisor at the Treasury Department and now the senior director of the Foundation for Defense of Democracies’ Center on Economic and Financial Power, said INSTEX was legally irrelevant because it only covered non-sanctioned goods. “Similarly, SWIFT, the financial messaging service, facilitates humanitarian transactions,” he added. “Moreover, countries that have received sanctions exemptions to purchase Iranian oil will once again be depositing their payments to Iran in escrow accounts to promote trade in non-sanctionable goods.”

Many commentators are alleging trade with Iran is not economically worth the potential reputational damage, but that is unlikely to be true for smaller firms. In addition, these are U.S. sanctions, not EU ones. The European Union is still a signatory to the JCPOA along with Iran.

The compliance training professional commented: “There are always bribery and corruption risks where humanitarian issues are concerned, but my understanding is that this is simply facilitating business (trade) rather than aid. It ‘normalises’ the transactions. But in any normal business these risks are present. I’d like to think that given the focus on the SPV as a conduit for transactional behaviour, the ‘normal’ controls would apply as a minimum. But also, it would make sense, given its high-profile nature, for additional controls to be applied during this ‘middleman’ process.”