[R-G] Bush Effort to Sanction Iran Banks Runs into Resistance

[Yoshie Furuhashi]

<http://www.boston.com/news/world/articles/2007/12/16/bush_effort_to_sanction_iran_banks_runs_into_resistance/>
Bush effort to sanction Iran banks runs into resistance

By Farah Stockman, Globe Staff  |  December 16, 2007

WASHINGTON — The Bush administration's new policy of sanctioning
Iranian banks is facing a critical challenge as financial institutions
in Russia, China, and much of the Middle East have declined to cut
ties with the banks, analysts and diplomats say.

Even Afghanistan and Iraq — two countries that depend heavily on the
United States — have so far declined to take action against Bank
Melli, Iran's largest public financial institution, which was among
the first foreign banks to open branches in Baghdad and Kabul.

''Nothing is happening,'' said Sinan Shabibi, the governor of the
Central Bank of Iraq, in a recent telephone interview.

The world reaction to the US sanctions on Bank Melli, which operates
as Iran's central bank overseas, will determine whether President
Bush's new tool against Iran is a failure or a success, analysts say.

US officials insist that they have already seen progress. Since they
blacklisted Bank Melli, Bank Mellat, and Bank Saderat in October,
banks in Japan, India, and Europe have quietly followed suit.

''We've seen significant movement,'' said Adam J. Szubin, director of
the Office of Foreign Assets Control at the Treasury Department. ''We
are certainly not disappointed.''

But US officials want the UN Security Council to add Bank Melli to a
list of sanctioned Iranian entities, forcing countries around the
world to stop doing business with it and starving Iran of access to
foreign capital.

Russia and China, two Security Council members that can block the
move, have called the US bank sanctions arbitrary and unhelpful.

''I don't think that sanctions against a bank is something that we
have to concentrate on,'' said a Kremlin official who spoke on the
condition of anonymity because of the sensitivity of the topic.

The bank sanctions have become more controversial since a new National
Intelligence Estimate last week concluded that Iran had halted its
nuclear weapons program in 2003. Even before the report became public,
the bank sanctions stoked resentment among countries who believed that
President Bush was overstepping his authority.

The sanctions against Bank Melli stem from an executive order that
Bush issued in 2005 giving him unprecedented power to blacklist
foreign banks. While previous presidents have blacklisted foreign
companies for weapons proliferation, Bush's order allows the Treasury
Department to punish the banks in which suspected proliferators hold
accounts and make transactions.

The US government can then shut that bank out of the US financial
system without ever having to make its evidence public, or even share
the allegations with the banks themselves. Foreign banks have little
recourse to fight such sanctions, save writing a letter of protest to
the Treasury Department.

''A judge never gets to look at this,'' said Paul Downs, a New
York-based lawyer for a law firm that represented a Macau bank hit by
similar US sanctions.

Once the US blacklists a bank, many financial institutions around the
world voluntarily curb their ties with it, fearing that the United
States will blacklist them as well.

''They are effectively forced to go along,'' said SuzanneMaloney, a
former State Department specialist on Iran now at the Brookings
Institution, a Washington-based think tank.

At first, Treasury officials used the power Bush gave them sparingly,
fearing that moving against mainstream foreign banks would anger their
allies.

Their first target was Tanchon Commercial Bank, a tiny North Korean
institution with few ties to the outside world. The bank was believed
to have aided the purchase of most of that country's ballistic
missiles.

Yet, over time, US officials grew bolder. In January, they announced
sanctions against Bank Sepah, Iran's fifth largest bank, accusing it
of ''direct and extensive financial services to Iranian entities
responsible for developing missiles capable of carrying weapons of
mass destruction.'' The allegations against Bank Sepah included
facilitating a business venture between a North Korean missiles
provider and an Iranian company.

In October, Treasury officials made their most aggressive move yet:
They blacklisted three more Iranian banks, including Bank Melli, an
institution that conducts an estimated 30 percent of all financial
transactions in Iran and serves as the country's central bank
overseas.

US officials said Bank Melli was being blacklisted because it had
''provided a range of financial services on behalf of Iran's nuclear
and missile industries, including opening letters of credit and
maintaining accounts.'' Bank Melli was also accused of handling
transactions for Bank Sepah.

Treasury officials said last week that they will continue their
efforts to isolate Bank Melli despite the NIE conclusion that Iran's
nuclear program had been halted. They noted that the president's order
also covers Iran's long-range missile program, which is still active.

After the United States blacklisted Bank Melli, Russian President
Vladmir Putin portrayed the action as senseless and dangerous, like
''running around like a mad man with a blade in one's hand.'' Bao-dong
Wang, press counselor for the Chinese Embassy in Washington, said
China does not support the ''arbitrary imposition of sanctions.''

Even foreign diplomats who support the banking sanctions acknowledge
that they are designed to pressure Iran to halt its uranium enrichment
research, not to block secret weapons purchases.

''It's not that you think hitting Bank Melli will reduce the financing
of proliferation,'' said a Washington-based European diplomat who
supports the sanctions. ''It's part of the shaming game.''

The bank itself, an 80-year-old, state-run institution with 3,500
branches and affiliates worldwide, says it engages only in widely
accepted financial services for lawful clients.

''By failing to provide any evidence, the US Treasury has unjustly
denied [Bank Melli] the basic and natural right to defend itself
against serious allegations of this nature and strongly supports our
contention that no such evidence in fact exists,'' the bank said in a
statement on its website.

The banking sanctions have raised the cost of doing business in Iran.
Some Iranian businessmen are forced to pay their suppliers directly
with suitcases of cash or to travel to another country to conduct
banking transactions. Meanwhile, banks in China, Russia, and the
United Arab Emirates have sought higher payments from Bank Melli for
their services, analyst say. But business in Iran, a country raking in
cash from high oil prices, continues unabated, they say.

''If United States is targeting our financial system, it means they
are very clever, because the financial system is the most sensitive
place,'' said Saeed Laylaz, a Tehran-based analyst who has worked in
the import-export industry. ''But maybe it is too late to impose any
sanction. Without Russia and China, it is impossible.''

According to the State Department's own estimates, Iran imported
nearly $50 billion in goods this year, a 10 percent increase over last
year — a sign that the economic siege is failing. But that could
change. British officials say they have launched the lengthy process
required to blacklist Bank Melli in Britain.

The European Union is also considering action, and others could follow suit.

--
Yoshie
<http://montages.blogspot.com/>