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"Our operations are mainly in Europe, so we have been experiencing a certain level of difficulty. However, there has been no great material impact on our business yet" Ahmad Azizi, Melli Bank |
America’s allegations
Accusations of funding terrorism and missile development have been denied and the British Bankers’ Association fears Iranian banks in London are becoming victims of US foreign policy as other banks curtail services. Lawrence White reports.
THE INTRICATE BATTLE of words, wits and wills between the US Treasury and Iranian banks has stepped up a gear. The UK subsidiaries of the Iranian banks whose business is being disrupted by pressure from the US Treasury have begun to defend themselves, just as the UN Security Council announced official sanctions that specifically accuse one of the four state banks in question, Bank Sepah, of financing Tehran’s missile programme.
Initially, Melli Bank, Bank Saderat, Bank Sepah International and Persia International Bank made no direct response to the US authorities’ suggestion to the international financial community that they suspend business dealings with Iranian institutions. They instead preferred to approach the British Bankers’ Association, of which they are members, to voice their concerns. That resulted in a letter from Ian Mullen, CEO of the BBA, to Ed Balls, economic secretary to the UK Treasury, voicing the concern that the US authorities’ actions could be detrimental to London’s status as a financial centre. As Euromoney went to press there had been no official UK government response to the letter (see Iranian banking: American squeeze on Iran presses on London, Euromoney, February, 2007).
Why have the Iranian banks and the UK Treasury not responded more directly to the threats to their business and credibility respectively that the American calls for trade boycotts represent?
"The problem is political, not financial," says Ahmad Azizi, CEO of Melli Bank, "so the solution should be political rather than financial. Responding to these events has not been easy; we need to stay resilient. International financial centres in general and London in particular should make sure that the market infrastructure remains available to all licensed and well-regulated firms, free from political interference. Political acts can spiral out of control with unintended consequences for commercial activities."
During the speech to a conference in the Middle East where US undersecretary for terrorism and financial intelligence Stuart Levey called on the private sector to stop doing business with Iran, he made mention of targeted financial measures "aimed at a ‘conduct’, not a ‘country’". He singled out Bank Sepah and Bank Saderat as institutions with links to terrorist organizations and missile-building firms respectively. Despite this apparent attempt to enforce targeted rather than blanket sanctions, however, Levey later called for a general moratorium on financial dealings with Iran and said that the prevailing view was that "the risks of business with Iran outweigh any potential gain".
Have the banks not specifically mentioned by Levey or the UN sanctions suffered as a result of their actions? Azizi says yes, although he is cagey about the extent to which his business has been affected and what measures he has taken.
"The situation is constantly evolving," he says. "The impact may not be only on our dollar business, because the US is trying to convince other countries’ institutions including those in Europe to reduce business dealings with Iranian institutions. Our operations are mainly in Europe, and so we have been experiencing a certain level of difficulty. However, there has been no great material impact on our business as of yet."
Has he been tempted to seek credit outside Europe, to diversify into countries where US pressure is less effective?
"We are continuously examining our options. Diversification, for example into Asia and the Middle East, would have been a natural step for Iranian banks anyway."
The situation for banks such as Melli that have not been accused of any specific crime is difficult. Although they are still able to clear dollar trades via a loophole in US regulations that permits clearance in New York provided that no US institution is directly involved, they are still likely to suffer as a result of their counterparties backing out of doing business with Iran.
"It’s my understanding that Melli’s operations in places like Dubai have not been too badly affected by the informal sanctions being imposed by the US," says a country risk economist following the situation. "However, I think its London branch will have been affected. The Iranian banks could also suffer if the sanctions continued long enough to trigger a drop in Iran’s rating. For the moment Iran can survive on domestically generated oil revenues, but the break-even price is higher than that for most exporters and if the price of oil were to fall it would be hit harder than most."
For the banks accused of direct involvement with organizations promoting terror and the development of WMD delivery platforms, life is tougher still. Euromoney understands that Bank Saderat commissioned an external auditor to examine its accounts, and that no evidence of wrongdoing was found. However, the results have not been published. Bank Sepah International has issued a flat denial of the US charges on its website. It runs: "You will no doubt have seen the announcement by the US government yesterday to the effect that Bank Sepah, including Bank Sepah International plc, have been designated as entities providing support and services to proliferators of weapons of mass destruction. The US government therefore intends to impose sanctions against Bank Sepah and Bank Sepah International plc... Bank Sepah International plc has had no involvement with any of the transactions to which the US government has referred in its public pronouncement..."
In a matter as grave as an accusation of financing terrorist organizations, the burden of proof might reasonably be expected to be on the accuser. In any case, Levey has provided no specific evidence of his assertion that "Sepah provides direct and extensive financial services to Iranian entities responsible for developing missiles capable of delivering weapons of mass destruction".