Interview: Stephen Fallon

Banking and Sanctions Expert; Former Chief Compliance Officer (Managing Director) of INSTEX

1) How pivotal is Washington’s role in reintegrating Syria into global banking networks? Can the EU and UK ease sanctions effectively without the US taking action?

The US is extremely important, although I don’t think it is existentially important. It is definitely the single most important external actor from a financial perspective for Syria. Yet I believe that the Europeans, including the UK, can chart their own course. They’ve done it in the past with some other countries where there’s a misalignment on sanctions relief. 

Where I think the Europeans could make a mistake is that they don’t realize just how much political capital and how much money they need to spend on this. There’s a risk that they undervalue how hard sanctions relief will be without the US. That’s my current concern. 

2) With recent EU and UK sanctions suspensions, if the US turned a blind eye to what the EU and UK’s banking sector is doing, could Syria’s banking ties with Europe be restored?

Yes, but it would take years. Banks would proceed cautiously, waiting to see the US response. Major European banks, especially global institutions, wouldn’t shift their stance. Many internally apply US anti-money laundering and sanctions rules as their default standard. 

For instance, HSBC, though headquartered in London, operates as if it were a US financial institution. As long as US sanctions on Syria remain—even if unenforced—major banks will still consider transactions illegal under US law. Smaller banks or sovereign-backed institutions might engage, but global banks won’t move unless the US lifts sanctions.

3) Based on your experience with INSTEX—the financial channel set up by Germany, France, and the UK to facilitate trade with Iran despite US sanctions—could Syria’s banking sector reconnect with Europe without US approval?

In theory, yes—it could be integrated. However, Iran is not a useful comparison. If anything, it serves as an example of what not to do. What I could see the Europeans doing is establishing alternative payment routes, possibly involving government-backed banks to provide sovereign protection. But that’s only one part of the equation. 

They would also need to engage in close, continuous dialogue with the European financial system to explain why this is important for Europe and take a far more proactive approach than they did with Iran. 

In that case, they simply outlined their foreign policy vision and left it to the market, assuming it would respond accordingly. It didn’t—because the market didn’t care and was far more concerned about US repercussions.

4) How can European authorities convince European financial institutions to engage? What sort of guarantees can shield European institutions from US sanctions?

There are two main approaches. First, sovereign-backed financial institutions—such as the European Central Bank, Bank of England, and European Investment Bank—could play a crucial role. The US is unlikely to sanction these entities. There’s also a possibility that the Americans remain quiet and permissively allow everything to continue. In that situation, some of these sovereign-backed or sovereign-owned financial institutions can help. 

Second, direct outreach to private and public banks is essential. The EU, UK, and possibly Switzerland must make it clear that financial re-engagement with Syria is a strategic priority for Europe’s security and foreign policy. The case should be framed around humanitarian needs, regional stabilization, and European security, emphasizing the risks of Syria becoming a failed state—fueling migration crises, narcotrafficking, and terrorism. The goal is not for Syria to become a democracy overnight, but for the new government to become a constructive partner to the West, unlike the Assad regime. If sanctions were imposed in the name of national security, supporting Syria’s reconstruction should be seen through the same lens. 

5) You said that “pairing sanctions relief with incentives for risk-taking is crucial.” What do those incentives look like in practice? 

Governments could promote engagement through funds, financing access, tax breaks, or subsidies. If this is a national security issue, it should be treated like Ukraine—where the EU just unlocked €150 billion and restructured public finance, allowing €650 billion in extra borrowing. When the stakes are high, rules can and should be adjusted. Preventing Syria from becoming a failed state—a “Somalia in the Levant”—is a major European security risk requiring creative solutions. 

We should also be prepared to break some rules around neoliberalism. When imposing sanctions, governments are willing to pressure banks, warning them about ethical responsibilities and ordering them to de-risk, for instance, from Russia or Iran. When the opposite is needed—when we need banks to re-risk—suddenly, the market is sacrosanct and intervention is off-limits. Everybody says: “Sorry, don’t touch the market” and “We can’t lean on the bankers.” That’s inconsistent. During financial crises, policymakers did “whatever it took.” When COVID hit, Europe mobilized trillions. Now, with Ukraine, we’ve seen another extraordinary fiscal maneuver. Are we really saying we can’t find a few billion to stabilize Syria and prevent another disaster?

6) How can European governments use their public banks to facilitate transactions to Syria? Has something similar been done in other contexts?

Not exactly, but it was attempted with Iran and the JCPOA. After the US withdrew from the nuclear deal in 2018, the UK, France, Germany, and the EU sought a financial institution to process payments and uphold the agreement. They first approached the European Investment Bank (EIB), but it refused, fearing US sanctions under the maximum pressure campaign—a decision that many saw as a missed opportunity. The EIB argued it relied too heavily on US capital markets and couldn’t risk losing access.

Another challenge is institutional conflicts of interest. Many European financial institutions, including SWIFT, have US nationals in key management roles. If a dual US–Belgian national is involved in transactions that are legal under EU law but violate US primary sanctions, they cannot facilitate them due to their legal obligations to the US. This is a structural issue: Why do European governments allow such conflicts of interest in critical financial positions? It’s not about excluding Americans but recognizing that US laws are weaponized against foreign institutions, making these appointments a liability. 

7) What role does the Financial Action Task Force (FATF) play in Syria’s banking sector isolation? Would white-listing restore banking functionality? 

The FATF sets global standards for AML, CFT, and counter-proliferation financing. Countries undergo mutual evaluations by independent experts, determining their alignment with FATF standards. Based on this, they are placed on the gray list (under increased monitoring, requiring reforms), and black list (high-risk jurisdictions facing severe financial isolation). Being listed triggers “de-risking,” as FATF members pressure their domestic banks to apply stricter due diligence when dealing with institutions from flagged countries. This model relies on private sector compliance to push governments toward reform. For instance, France cannot directly sanction Jamaica, but it expects French banks to scrutinize Jamaican transactions more closely, prompting Jamaican banks to push their government to reform and adhere to stronger AML/CFT laws. 

For Syria, gray-listing worsens its financial isolation, but simply moving to the white list wouldn’t necessarily restore banking functionality. In theory, it should ease due diligence requirements and improve access to global banking. However, persistent sanctions on Syrian financial institutions—even with FATF compliance—could keep foreign banks wary. Thus, while blacklisting or gray-listing makes financial access worse, white-listing alone won’t fix it.

8) If you were the Syrian government at the moment, what would you do to help plug Syria’s banking sector into the global banking system again? 

First, Syria must restore domestic confidence in its banking sector, as it is currently a cash-based economy. The Central Bank and regulators should adopt a pledge of minimum compliance standards, committing to UN guidelines and basic anti-bribery, anti-corruption, and tax evasion rules. While sanctions remain a challenge, they should align with FATF standards on money laundering, terrorist financing, and proliferation financing, possibly incorporating Wolfsberg Group principles to attract global banks.

Hiring technical advisors to modernize and remediate Syrian banks would be key. Once reforms are in place, they should invite international observers to assess progress and re-establish correspondent banking relationships, exchanging due diligence questionnaires per Wolfsberg Group protocols.