US to punish anyone using EU's alternative payment system with Iran to skirt sanctions

Washington is ready to impose sanctions against the European financial settlement (INSTEX) mechanism, which would allow trade to continue between the EU and Iran, US Special Representative to Iran Brian Hook warned on Thursday.

The financial channel, which was announced by Germany, France and the UK in January, is aimed to enable “legitimate trade” with Iran in the wake of US sanctions against the Islamic Republic.

"If this mechanism starts working ... We are ready to impose sanctions on any activity subject to restrictions," Hook said during a telephone briefing.

The US representative voiced doubts that Tehran would be able to build a "mirror mechanism" to ensure transactions from its side. Washington doesn’t see any demand from businesses for incorporation into such a mechanism, Hook noted.

Bloomberg had reported earlier that the US Treasury Department’s undersecretary for terrorism and financial intelligence, Sigal Mandelker, sent a letter on May 7 warning that INSTEX and anyone associated with it could be barred from the US financial system, if it goes into effect.

Sources told the media that European envoys had earlier downplayed the significance of the payment mechanism, in discussions they'd held with the White House. Washington, however, has decided that the three largest EU powers (France, Germany and the UK) were far more serious about it than they had originally said.

The US has been warning businesses, government officials and staff working to set up the mechanism about the consequences they face if they continued to do business in Iran, the sources said.

The EU countries had been considering the idea of a special payment channel with Iran since last year, after the US’ dramatic withdrawal from the landmark nuclear deal, signed by Tehran and six world powers in 2015. Washington then reintroduced its sanctions against Iran, ignoring its partners' advice.

The new mechanism aimed to preserve the 2015 Iranian deal, also known as the Joint Comprehensive Plan of Action (JCPOA), by continuing trade with the Islamic Republic, and it is “conditioned upon Iran’s full implementation of its nuclear-related commitments.”

Some experts, however, said the mechanism was useless and won’t change anything for European companies, who cannot feel confident that they could work in Iran without being subject to US sanctions.

READ MORE: Tired of waiting: Iran slams Europe for ‘lagging behind’ in launching trade mechanism

At the initial stage, INSTEX would have facilitated trade between the companies of the three EU nations and Iran by bypassing the SWIFT international payments system and focussing on high-priority “humanitarian goods,” such as food and medical supplies.

Tehran has recently criticized Europe for “lagging behind” in launching the trade mechanism. The country’s foreign minister, Mohammed Javad Zarif, said that Europeans have “no excuse” for delaying the launch of the mechanism any further and that Iran would not simply “continue to wait for them.”

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