American squeeze on Iran presses on London
The US Treasury has taken two courses of action. Both affect the ability of the UK subsidiaries of four Iranian-owned banks to do business in London. Officially it has imposed sanctions against Bank Saderat and Bank Sepah, including their branches in Europe and their UK subsidiaries. The US Treasury publicly accuses both banks of sponsoring terrorist activities and has cut them off from the US financial system.
At the same time, the US Treasury has put informal pressure on international banks to cease doing business with any Iranian banks, including their UK subsidiaries, irrespective of whether they have been accused of any wrongdoing.
Although Iranian banks are not able to do business in the US, thanks to the so-called “U-turn” exemption the settlement of transactions in US dollars through New York is permitted. So an Iranian bank in London is legally able to settle US dollar payments using non-US banks as clearing agents; these clear the payments through their US correspondent banks.
But the US Treasury’s hard-line stance means that more and more international banks, including Barclays and Credit Suisse, are unwilling to clear payments for Iranian-owned banks, including their UK subsidiaries, in any currency. It’s important to note that these banks have taken these decisions of their own accord. Still, the fact that the US Treasury has issued a general warning to international banks to be “very careful” in their dealings with Iranian-owned institutions leaves an uncomfortable feeling.
Clearly there is a concern that the US Treasury is overstepping its jurisdiction. If the UK subsidiaries of Bank Saderat and Bank Sepah are to be accused of any wrongdoing, isn’t that the responsibility of the UK’s Financial Services Authority? Of course the US Treasury should make the FSA aware of its concerns but ultimately any regulatory decision against a UK incorporated bank should be left in the hands of the UK regulator.
Moreover, why should the US Treasury be able to constrain the ability of law-abiding Iranian-owned banks in the UK to carry out their business, especially in non-dollars? Surely if the Iranian-owned UK-incorporated banks based in London cannot go about their business because of informal actions taken by the US Treasury, London’s credibility as an international financial centre is called into question.
These are some of the points that the head of the British Bankers’ Association, the most important lobby group for UK banks, has raised in a letter written to Ed Balls, the UK’s economic secretary to the treasury, which Euromoney has obtained.
The US justifies its most recent actions under UN Resolution 1737, which obliges all governments “to take a number of steps to combat Iran’s proliferation activities”. One of the steps that can be taken is to deny Iran any financial assistance “related to the supply, sale, transfer, manufacture, or use of prohibited items associated with Iran’s nuclear and missile programmes.”
However, Resolution 1737 was passed on December 23 and although it may be used to justify the action against Bank Sepah, which was designated on January 9, it cannot be used to justify the action against Bank Saderat as it was designated on September 8. Moreover, the Resolution does not justify pressuring international banks to desist from doing business with Iranian-owned banks that have not broken local or US laws.
The US authorities should produce specific evidence against the two cited banks and let the matter be resolved through appropriate legal processes. They should also stop putting pressure on international banks from doing business with law-abiding Iranian banks. In turn, the UK authorities should show some courage and defend legitimate commercial interests.
