Annegret Funke

Annegret Funke 

Posted Wednesday July 15, 2015

Iran Deal: 4 important considerations for investors and compliance teams

With the historic announcement of an agreement on Iran’s nuclear programme with the P5+1 on Tuesday morning, many firms are reassessing their strategies to prepare for the lifting of sanctions expected in early 2016. But easing of nuclear sanctions raises new challenges for those seeking entry into the Iranian market, and some geographies and sectors will struggle to adapt more than others.

Iran is the largest economy in the world that is more or less closed to western investors and recent years have seen FDI continue to tighten, falling by more than half since 2014. Banks and corporates have been fined repeatedly for violating sanctions regimes so, although there is understandable nervousness among companies that would consider investing, there is also strong interest in the opportunities that lifting sanctions would present.

1. The country is still a regulatory minefield

Despite lifting of nuclear sanctions, Iran and Iranian entities remain subject to a significant number of other restrictions and so adapting to the new regulatory and information landscape will be vital. Being first to market in post-sanctions Iran could be a poisoned chalice if firms run straight into penalties for bribery, terrorist financing or working with restricted entities. They need to ensure they develop local expertise and shift their strategies from a tick-box ‘red-flag screen’ to more thorough enhanced due diligence processes.

Iran has a high degree of state involvement in the private sector so ventures will need to thoroughly screen for political exposure in order to mitigate bribery and corruption risks. Firms will also need to navigate the remaining targeted financial sanctions on Iranian companies and individuals imposed for human rights violations and financing of terrorism.

2. US may trail Europe and Asia

US companies may be slower to enter Iran than their European counterparts as US sanction have been in place since 1979 weakening business relations between the two countries. EU sanctions were not imposed until after the UN Security Council resolution of 2006 so many European companies have relatively recent trade links with Iranian partners, and others have continued trading in non-sanctioned market sectors.

There is also the possibility that the US Congress will oppose relaxing of sanctions during the review period, creating further obstructions for US firms in entry to the market while regulatory changes come into effect. European players already seem keen: a French delegation of over 100 companiesvisited Tehran to discuss post-sanctions opportunities in February last year so there is a risk that American companies will lose out to European and Asian competitors due to sluggish unwinding of sanctions.

3. Banking will likely lag behind

Global banking is more tied up by sanctions than other market sectors so oil and gas and luxury consumer goods brands, both sectors with a huge potential value in Iran, are more likely to attempt early entry.

Iranian banks also face the practical hurdle of being disconnected from SWIFT in 2012. Although talks with SWIFT have reportedly begun to re-establish inter-bank transfer services, uncertainty over the ability to repatriate earnings has discouraged foreign parties from investing in Iran over the last 3 years.

4. Persian speakers may soon be in demand

Regulatory expansions have seen corporate compliance teams grow into ‘mini-UN’ teams with high demand for talent with linguistic and local knowledge: particularly in Arabic, Chinese, Russian and Spanish. Opening opportunities into Iran could see speakers of Persian highly sought after by risk and compliance recruiters.

Compared to much of the MENA region, Iran has fairly good tech infrastructure and locally registered companies can be verified online against an official government register by anyone able to navigate the Persian-language portal, though legal records and critical sources of news are harder to come by.

Written by Annegret Funke, MENA Researcher at Arachnys. Arachnys is a digital platform that consolidates and aggregates business information to make due diligence research quicker and more effective. If you want to hear more about conducting investigations in Iran, drop us a line

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