Based on an interview by Howard Stock with Jonathan Silver and Dr. Amir Kordvani - first published in The American Lawyer.

The sanctions imposed on Iran are the most extensive and toughest sanctions ever imposed on a country. In theory, certain sectors, such as healthcare, were exempt from sanctions, but in practice, most financial institutions have been reluctant to accept Iran's money for fear of facing punishment under the U.S. and E.U. sanctions regimes. The American Lawyer talked to Dr. Amir Kordvani, an expert on Iran and associate in Clyde & Co's Abu Dhabi office, and Jonathan Silver, Managing Partner of Clyde & Co’s MENA operations, about challenges and opportunities for doing business in Iran.

How have the sanctions impacted Iranian business?
Clyde & Co: The sanctions have cut off Iran from the international banking system, making it virtually impossible for the country to engage in any form of international commerce. Under the current U.S. sanctions laws, any bank that facilitates Iranian trade by dealing with the Central Bank of Iran (CBI) will be denied access to the American banking system. Other Iranian banks, too, are unplugged from the international banking network. The Society for Worldwide Interbank Financial Telecommunications, or SWIFT, cut 40 Iranian banks from its system in 2012. U.S. and non-U.S. banks, financial institutions and multinational companies may also face significant risk if they engage in any business related to Iran in breach of the U.S. sanctions regime, even when they have a minimal nexus with the U.S., including clearing financial transactions in U.S. dollars. As sanctions limit Iran’s ability to receive payments through the international banking system, Iran accepts gold as payment for its petroleum. Imports of bullion from Turkey, which buys natural gas from Iran, jumped to 126 tons in 2012 from 1 ton in 2011. It is understood that China has also been using gold in trading with Iran.
Iran's shipping industry has also been affected by sanctions. The country's main shipping line, Islamic Republic of Iran Shipping Lines (IRISL) is currently subject to sanctions. Companies run the risk of being blacklisted if they provide significant goods or services to Iran's shipping or shipbuilding sectors, including the National Iranian Tanker Company and the IRISL. This created a peculiar situation where even if a foreign shipping line was carrying non-sanctioned cargo for non-sanctioned Iranian entities, given that the cargo would eventually have to be handled by IRISL, it could have been considered providing financial support to a sanctioned party and therefore trigger punishment under the sanctions regime. The provision of flagging or classification services to Iranian oil tankers or cargo vessels is also prohibited, as is providing insurance and reinsurance services to Iran or any entity in Iran.

How has the recent partial easing of sanctions helped Iran?
Clyde & Co: In March, the Minister of Economy of Iran stated that the country's last year's - 5.8% growth rate is starting to come close to zero at the beginning of the new Persian financial year, which started on March 21. However, it is difficult to say with any degree of certainty that such improvement in the growth rate is attributable to the recent easing of sanctions. Almost all Iranian banks are still subject to sanction regimes and remain cut off from the international financial sector. The sanctions on Iran's oil and gas, shipping, and insurance industries continue to apply. With these comprehensive sanctions in place, it is hard to envisage that the limited lifting of sanctions on export of petrochemical products, auto-industry and gold trading would have any major impact on the country's economy. The CBI and other Iranian banks and financial institutions are still barred from trading gold. Moreover, Iran is not permitted to directly exchange oil and gas for gold although it can trade oil and gas for bartered goods which can then be sold for gold.

What do Iran's foreign direct investment (FDI) rules look like?
Clyde & Co: Besides the general Civil Code of Iran and the Iranian Commercial Code, which came into force in 1930s, the key legislation regulating foreign investment in Iran includes the Foreign Investment Promotion and Protection Act (FIPPA), the Law on the Registration of the Foreign Branch or Representative Offices in Iran of 1997 and the Law on the Administration of Free Trade Zones of 1993. Depending upon the industry, foreign investment in Iran may also be subject to "Five-Year Plan" laws and regulations issued by industry regulators to regulate foreign investment, such as those in the insurance, aviation, and banking sectors. Only foreign investments for "development and productive activities in the fields of industries, mines, agriculture and services" are eligible to apply for an Investment Licence under the FIPPA.

What role does Iran's private sector play in the overall market?
Clyde & Co: Iran's private sector shares only 20% of the country's economy, but since taking power in July August 2013, the new administration has frequently stated that it is committed to leveraging the private sector in order to stabilise and boost Iran’s economy. It remains to be seen whether it can actually deliver on its commitment. Iran started a "privatisation" process in late 1980s with privatisation laws coming into force in early 2000s. Free Trade Zones and Economic Free Zones were also established during period as part of the privatisation and liberalization efforts, but failed to attract any significant foreign investment. The end result of this slow and at times mismanaged process was a "pseudo privatisation" of government entities and assets--most of them loss-generating--in which the Iranian government is decreasingly the main player, but where quasi-private enterprises with substantial state ties have emerged as the dominant force in the country’s economy. For instance, Iran Khodro Co., Iran's largest car maker, is considered a private entity but 100% of its shares are owned by the government. To be successful, privatisation policies in Iran need strong will on the part of the government and consensus across the political fractions. There should also be a stable and transparent legal framework, a transparent procedure for disposal of government assets, and a competitive market to make the privatisation process attractive to genuine private investors.

How has the Geneva deal changed the landscape?
Clyde & Co: Business delegations from as many as 60 countries, including South Korea, France, Germany and Italy, have visited Iran since the nuclear deal in November 2013. Iran has also been sending trade delegations to other countries, mainly in Europe and Asia, to explore opportunities for cooperation.

What is Iran looking for in its business partners?
Clyde & Co: Iranian authorities tend to offer privileges to companies who are willing to make long-term commitment to be business partners with Iran, create job opportunities and transfer technology. In terms of projects, priority is given to those that employ a high share of local staff and ensure a high degree of knowledge transfer. Iran has also been welcoming foreign businesses that use Iran for re-exporting their products from Iran to other Persian Gulf States, Central Asia and Afghanistan. Iran's strategic location between Turkey, the Arabian Peninsula, the Persian Gulf, the South Caucasus, and South and Central Asia creates ample opportunities for regional and trans-regional trade via Iran and adds to the attractiveness of the Iranian market.

How should investors approach investing in Iran?
Clyde & Co: Even if a foreign company may not be ready to do business with Iran today, or it may not be allowed to do so due to the sanctions, it may still be wise for it to start doing its due diligence and developing a strategy and plan for Iran and to explore investment options--LLC, branch, representative office, free zone company, etc--that allow a foreign company to establish a business presence in Iran.