U.S. Warns Europe Against Iran Payments After Austria Bows Out

(Bloomberg) -- The U.S. official overseeing President Donald Trump’s Iran strategy warned European countries against hosting a payment system to keep money flowing to the Islamic Republic, days after Austria became the latest nation to decline to host such a facility.

“We are on alert for any type of sanctions evasion, and if we see evasion we won’t hesitate to use our sanctions to stop it,” Brian Hook, the State Department special representative for Iran, said in a phone interview from Tel Aviv, where he had just wrapped up a meeting with Israeli Prime Minister Benjamin Netanyahu.

“In light of Iran’s dark history of terrorism in Europe going back many decades, we think business-as-usual sends the wrong signal,” Hook said.

Hook’s comments came after Austrian officials rebuffed entreaties from France, Germany and the U.K. to host the so-called special purpose vehicle, a system that the European Union sought to handle payments to Iran in defiance of U.S. sanctions.

European leaders are looking for ways to keep Iran from quitting the Joint Comprehensive Plan of Action, the 2015 agreement that constrained the country’s nuclear program in exchange for sanctions relief. Trump backed out of the deal in May and reimposed sanctions targeting the country’s oil exports earlier this month.

The SPV would theoretically receive payments from countries that want to continue doing business with Iran, either by receiving U.S. waivers for oil imports or through permissible trade in goods such as food and medicine. The SPV would be an attempt to insulate firms from U.S. punishment because it would involve no direct transfer of funds between Iran and Europeans.

The challenge all along has been how to reassure banks working with the SPV that they would be shielded from American penalties, which could include banishment from the U.S. financial market.

“We have not seen any demand for a special purpose vehicle from any company of significance,” Hook said. “In fact, we have only seen strong support for choosing the American market over the Iranian market.”

Hook also defended the Trump administration’s broader pressure campaign against Iran, which includes a push to draw attention to what the U.S. calls Iran’s malign activity in the Middle East, Europe and elsewhere. On Tuesday, the U.S. announced rewards of as much as $5 million each for senior leaders of Hezbollah and Hamas in part as a way to highlight Iran’s support for the two groups.

Critics have warned that the U.S. strategy, which includes an insistence that Iran agree to 12 demands aimed at making it what Secretary of State Michael Pompeo calls a “normal” country, will only cause the leaders in Tehran to dig in against change.

“The only language this regime understands is diplomatic and economic isolation,” Hook said.

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