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In March 2020, Instex, the EU’s new, long-anticipated “special purpose vehicle” for shielding commercial transactions with Iran from U.S. sanctions finally went into action, facilitating a €500,000 payment for medical exports from an unnamed company to the Islamic Republic.

It’s been crickets ever since.

In a Sept. 16 letter to federal lawmakers, German officials disclosed that the first payment through the “Instrument in Support of Trade Exchanges,” which the EU developed after the U.S. unilaterally withdrew from a global nuclear accord with Iran in May 2018, is the only payment to date.

“Despite the continued interest of European companies in using Instex, the Iranian partner organization STFI has not agreed to any further transactions,” German officials wrote in the letter, which the Bundestag published Tuesday. “Against this background, Instex has not yet been able to realize its potential for facilitating legitimate trade between Europe and Iran.”

U.S. officials reactivated their embargo against Iran’s banking system following then-President Donald Trump’s decision to exit the accord, warned third-party financial messaging platforms to avoid Iranian clients, and targeted the country’s dominant political and economic entity, the Islamic Revolutionary Guards Corps., with a host of sanctions.

Seeking to shield their banks from the renewed U.S. measures, France, Germany and the U.K. designed Instex as a clearinghouse that works hand-in-hand with STFI, a parallel platform in Iran, to eliminate the direct involvement of Iranian banks in commercial transactions and limit direct financial flows between the two sides.

Simple in principle, Instex immediately drew interest from companies both inside and outside the EU after going online in January 2019. But the risk of even indirectly running afoul of U.S. sanctions largely deterred banks from using the mechanism, and nearly two months elapsed before the first transaction took place.

Spain, Sweden, the Netherlands and four other nations joined Instex the following year, suggesting that the mechanism had finally gained traction and would begin handling an estimated hundreds of millions of dollars of transactions annually.

Other considerations took precedence, however.

“Business policy, regulatory and legal issues as well as compliance considerations play a central role in the initiation and processing of transactions,” German officials told lawmakers in the Sept. 16 letter, which does not include additional details nor specify why STFI withdrew from the arrangement.

Fear of U.S. punitive action is hardly unjustified, a lesson that Credit Agricole learned all too well on Monday, when two of the French lender’s indirect subsidiaries agreed to pay Treasury’s Office of Foreign Assets Control $1.1 million for maintaining accounts for 28 customers in Iran and other blacklisted jurisdictions.

BNP Paribas, Barclays, HSBC and other banks paid hundreds of millions of dollars of penalties for handling funds and maintaining accounts for blacklisted parties in Iran before the global nuclear accord came into force.

Contact Gabriel Vedrenne at gvedrenne@acams.org