Photo: Reuters/Raheb Homavandi
After imposing a ban on crypto that took effect last April ,Tehran did an abrupt 180-degree turn this year, by opening itself up to a government-approved use of crypto, including a new gold-backed crypto known as the Peyman. Photo: Reuters/Raheb Homavandi

Iran has, for months, been meeting with representatives from the European Union, the Eurasian Economic Union and China, in an attempt to devise new ways to evade the sanctions reimposed by the US late last year.

One of Iran’s newer sanctions-evading solutions emerged in early 2019. The Instrument in Support of Trade Exchanges (INSTEX) is a joint undertaking which unites Iran with the UK, Germany and France. It allows EU-based companies to continue to engage in business in Iran without running afoul of US sanctions.

At the same time, it is intended to preserve the so-called Iran Deal, or Joint Comprehensive Plan Of Action, reached in July 2015 between Iran and the so-called  P5+1 countries –  the five permanent members of the United Nations Security Council – China, France, Russia, United Kingdom, the United States, and Germany and the European Union. The US withdrew from the Iran deal in May 2018.

From the Iranian side, there is a growing realization that crypto-currencies need to be viewed as central to any solution that emerges.

After imposing a ban on crypto that took effect last April, Tehran did an abrupt 180-degree turn this year, by opening itself up to a government-approved use of crypto, including a new gold-backed crypto known as the Peyman.

NYC-based lawyer Selva Ozelli, who focuses on international tax issues, told Asia Times that the Central Bank of Iran had already issued a first draft of crypto-currency regulations. Ozelli has also previously said that Iran was well known for implementing the most creative barter-style, sanctions-evading schemes.

“These regulations reversed an earlier crypto-currency ban and authorized initial coin offerings, tokens, crypto-currency wallets, crypto-currency exchange bureaus and mining,” Ozelli told Asia Times. “Therefore the Iranian people are free to use Bitcoin as a store of value to evade US sanctions.”

This is happening at a time when many US experts are inclined to question the effectiveness of US sanctions.

Stephen Kinzer, a senior fellow at the Watson Institute for International and Public Affairs at Brown University, has described US sanctions as having little impact on Iran’s behavior, and have only forced Iran to become more self-sufficient and to develop ingenious networks of licit and illicit trade.

“As the United States wields sanctions more widely, regimes we target have perfected the art of sanctions-busting,” Kinzer wrote in the Boston Globe.

Former US Secretary of the Treasury Jacob Lew recently issued a stern warning, too. During a discussion hosted by the Washington-based Atlantic Council, Lew said that “the plumbing is being built and tested to work around the US. If the US stays on a path where it is seen as going it alone … there will increasingly be alternatives that will chip away at the centrality of the US.”

At the core of these Washington worries sits INSTEX.

Julie Myers Wood, CEO of NYC-based security consultancy Guidepost Solutions, told Asia Times that INSTEX can “accelerate a broader acceptance of crypto (in Iran).” Myers Wood, who prior to her role at Guidepost, held leadership positions with the US Departments of Homeland Security, Commerce, Treasury and Justice and served as the Head of Immigration and Customs Enforcement, says INSTEX “provides a mechanism for companies in the EU to pursue transactions with Iran outside of SWIFT [the world’s primary provider of financial messaging services] and other typical payment systems (while) avoiding the US financial system and sanctions.

“INSTEX is still in its infancy,” concluded  Myers Wood “and it is unclear how successful or wide-reaching INSTEX will be, “but operating outside of traditional payment systems is an area in which crypto can thrive.”

According to Lisa Ellis, a partner and financial technology analyst at NYC-based MoffettNathanson LLC, a meeting of crypto and INSTEX can provide a “global pool of liquidity to facilitate cross-currency movements – in this case between Euros and the Iranian Rial.”

“INSTEX is aimed at reducing the amount of cross-currency transactions required by matching buy and sell orders in local currency by matching a European exporter to Iran and an importer from Iran and matching their orders so one just pays the other one in Euros and their counterparties in Iran pay each other in Rial,” Ellis told Asia Times.

“When too many import orders (are placed) in Europe relative to export orders into Iran, Bitcoin could play a role in direct currency exchanges – central bank to central bank – due to the sanctions. INSTEX in Europe could sell bitcoins to get Euros and its counterparty in Iran would then sell bitcoins to get Rials.”

It’s a complex cross border trading scenario and Bruno Cova, a partner in the Milan office of global law firm Paul Hastings LLP, thinks might be about to get more complicated.

“It cannot be excluded that Iran – whose interest towards crypto is extremely high – may propose solutions involving the use of virtual currencies, making the actual scenario even more complex,” Cova told Asia Times. In contrast, Cova says the Europeans “may be reluctant to add complexity into an already sensitive area.”

How sensitive? Heshmatollah Falahatpisheh, chairman of National Security and Foreign Policy Commission of the Iranian Parliament, last week said: “We expect that all EU member states, not just the European Troika, will join INSTEX. Although INSTEX does not meet all our expectations, every step taken by European countries in this regard is a blow to US unilateralism.”

However, Ayatollah Ali Khamenei, the current Supreme Leader of Iran, in a March 21 speech likened Europe’s financial trade mechanism with Iran to a “bitter joke.”

He accused the Europeans of repeatedly insisting that Iran should not pull out of the JCPOA, while simultaneously planning their exit from the JCPOA. Khamenei described this behavior toward Iran as “a knife in the back” and described politicians in Europe and the US as cruel, bullying and making excessive demands.

“Western politicians, despite a modern appearance, are wild,” he reportedly said.

As wild as Bitcoin?

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