President Obama signed into effect the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 on July 1. Just when you thought the United States had exhausted all its recourse against the Islamic Republic of Iran (due to very comprehensive, existing sanctions), a new legal framework has been implemented that makes full use of the U.S.’ economic prowess and influence over third countries. I was quoted on this law in the Financial Times on July 14, 2010. Click here for a link to the article. The Los Angeles Times has also quoted me – click here.
How Does the Bill Affect Iran?
As mentioned above, the United States maintains comprehensive unilateral sanctions on Iran, preventing U.S. persons (as defined in the applicable regulations) from engaging in transactions for the provision of most goods and services to Iran. As the United States has fewer levers to pull given the breadth of the current sanctions, Congress did the next best (and possibly better) thing – implementing sanctions on third country entities that assist or do business with Iran in key sectors, such as the country’s nuclear, finance, and energy sectors, not to mention the Islamic Revolutionary Guards Corps (IRGC) and related entities.
The new bill covers a range of entities and activities. Additionally, it requires that the administration periodically collect data on Iranian business done by G20 nations. Notably, human rights play a key role as well – with the placement of sanctions on individuals responsible for human rights violations in Iran following that country’s June 2009 presidential elections.
A summary I wrote on the new law is available on the Iranian-American Bar Association (IABA) website. Click here.
The ArabianBusiness.com website featured an article on Friday stating that Gulf Cooperation Council (GCC) states may move towards a single Sharia-compliant standard for Islamic financings. This follows another article earlier this month in the New York Times about the rising demand
and short supply of Sharia Finance Scholars. This short supply has in some respects led to some consolidation in the Sharia finance sector – by having the same scholars sit on multiple boards, one group is having substantially large influence in determining the industry’s direction. This helps in turn create a de facto standard for Sharia compliance.
The Sharia finance industry has two primary regulatory authorities at present – the Bahrain-based Accounting and Auditing Association for Islamic Financial Institutions (AAOIFI) and the Kuala Lumpur-based Islamic Financial Standards Board (IFSB) both of which have issued certain standards on Shariah finance. IFSB is considered by some to be more the liberal standard-bearer and the two organizations have in some way helped bifurcate the industry into a MENA sector and a Southeast Asian Sector. That said, both of these organizations’ rulings and policy guidelines are non-binding and voluntary.
The challenge of a broad set of Sharia standards becomes more problematic when taking into consideration the introduction of Sharia finance in non-Islamic jurisdictions such as the United States, the UK and France. The UK Financial Services Authority (FSA) has taken certain initiatives, as have other governments. However, the legal structures in these nations mean that Sharia finance will need to conform to local laws – something that may cause deviation with a standard set in say, the GCC.
Taking the above into consideration, given the high concentration of capital in the GCC, the consolidation of GCC standards in Sharia finance can be a crucial step towards creating a global standard for the industry (a standard that can perhaps be modified slightly to comply with the laws of other jurisdictions as well). This will help the industry grow in the region first, and that in turn will create competition – perhaps creating a situation where investment entities will have to come up with attractive, high-return Sharia-compliant vehicles to compete.
A review of MENA Region Legal and Business Affairs.