The May 8, 2018 decision by the Trump Administration to withdraw from the Joint Comprehensive Plan of Action did not terminate existing sanctions exceptions and authorizations for humanitarian trade with Iran. However, the decision, along with further sanctions and uncertainty, had a chilling effect on the willingness of international banks to facilitate these otherwise legitimate humanitarian transactions. Prompted by these changes, politically neutral Switzerland began working in 2018 with U.S. and Iranian authorities, as well as certain Swiss banks and Swiss companies, on a plan to implement a humanitarian payment mechanism for Iran.
As a result of these efforts, the Swiss Humanitarian Trade Arrangement (SHTA) officially launched and became fully operational on February 27, 2020, after an initial pilot period in late January, which involved Geneva-based bank BCP and a shipment of Novartis cancer and organ transplant drugs worth approximately $2.55 million. It establishes a payment channel with a Swiss bank, through which payments for exports to Iran by Swiss-domiciled companies are guaranteed. The arrangement is open to companies domiciled in Switzerland, including those owned or controlled by U.S. or third-party persons.
Under the rules of this new arrangement, the U.S. provides assurances that the proposed transactions do not violate U.S. sanctions. In exchange, the system is subject to strict due diligence measures. Participating financial institutions commit to conducting enhanced due diligence to ensure that humanitarian goods reach the Iranian people. For example, both exporters and participating banks have to provide information on their business activities and partners in Iran. The mechanism is designed to ensure that no revenue or payment is transferred to the Iranian Government, by restricting the Central Bank of Iran’s role in facilitating the transactions.
In humanitarian terms, the SHTA comes at a much-needed time. Certain large Swiss companies like Nestle and drugmakers Roche and Novartis already produce in Iran, and could expand their production. The SHTA also could encourage smaller Swiss companies to export food and medicine to Iran. This, in turn, would improve the flow of humanitarian goods to the Iranian people. Even before the global coronavirus epidemic, many foreign banks had categorically refused to engage in Iran-related transactions, even for sanctions-exempt humanitarian trade. This reluctance contributed to soaring medicine prices in Iran and severe consequences, especially for people suffering from illnesses that require imported medication. The COVID-19 crisis has given rise to even greater concerns over Iran’s access to humanitarian trade in food, medicine, and medical supplies. The SHTA may prove to be a significant player in the international network seeking to preserve humanitarian trade with Iran and avert humanitarian disaster.
By Amin Bahrami, (former) Legal Fellow