The Road Ahead

Increasing financial pressure on Tehran


Balatarin
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The Road Ahead
by Michael Jacobson
07-Mar-2008
 

Recently, two important developments have broken months of gridlock on the Iranian nuclear issue: a third round of UN sanctions and a new warning by the Financial Action Task Force (FATF). Although both measures are positive, their ultimate impact will depend on how aggressively and effectively key governments implement them.

Security Council Vote
The UN Security Council adopted Resolution 1803 on March 3, after nearly eight months of negotiations. The resolution will have an important symbolic impact, given that the December 2007 U.S. National Intelligence Estimate (NIE) seemed to halt international momentum to pressure Iran, making it unclear whether additional rounds of UN sanctions were even possible. The resolution's near-unanimous passage -- with fourteen members approving and Indonesia abstaining -- will send a strong message to Tehran. Those voting in favor included Russia, China, and South Africa -- all countries with longstanding economic ties to Iran.

The previous two unanimous resolutions (1737 and 1747) caught Iran by surprise, and the latest will undoubtedly do the same. President Mahmoud Ahmadinejad's recent statements indicate that he believed the UN would not sanction Iran further, especially in the post-NIE climate. The new resolution should show Iran that the Security Council is not paralyzed, and that future UN action is possible down the line.

Resolution 1803 builds on the two previous resolutions by expanding the blacklist of entities and individuals tied to Tehran's nuclear program; banning the sale of dual-use components to the regime; calling on member states to inspect cargo going to or coming from Iran; and urging countries to "exercise vigilance" in any trade incentives or guarantees they seek to broker with Iran. Perhaps most important, the resolution calls for similar vigilance over financial institutions regarding their dealings with Iranian banks -- particularly Banks Saderat and Melli.

FATF Warning
On February 28, FATF -- the international standard-setting body for efforts against illicit financing -- reiterated its October 2007 warning about Iran, calling on member financial institutions to use "enhanced due diligence" when dealing with the country. The FATF president also urged Tehran to address "shortcomings" in its anti-money laundering and terrorism financing regimes immediately.

In evaluating the significance of FATF's action, it is important to look at the organization's composition. China and Russia are members, as are a number of Iran's other key trading partners, including Italy, Japan, Germany, and the Gulf Cooperation Council. Since FATF works by consensus, both the February and October warnings were presumably issued without opposition from any of the thirty-four members.

Iran's recent behavior indicates that it is increasingly worried about FATF's actions, as it should be. Since the October warning, Iran has enacted legislation to combat money laundering, and government officials claim that a "supreme council" will be established to address such issues. In addition, even though Iran is not a FATF member, it sent a delegation to lobby FATF about its recent legislative changes. FATF dismissed the Iranian claims, however, calling the changes "skimpy" and noting their "big deficiencies."

Financial Impact
Although no additional Iranian financial institutions were formally blacklisted, the UN and FATF moves could nonetheless increase financial pressure on Tehran. Global financial institutions -- risk-averse by nature, particularly with regard to "reputational risk" -- are already leery about dealing with Iranian banks, and this new warning may reinforce their cautiousness.

In fact, according to U.S. Treasury undersecretary Stuart Levey, all of the global financial executives that departmental officials have met with over the past two years have either cut off or reduced their institutions' exposure to Iran. The number of foreign banks operating in Iran has sharply declined since 2006, dropping from forty-six to twenty. Surprisingly, even Chinese and United Arab Emirates banks seem to be exercising greater caution in their business dealings with Iran in recent months.

Reports that two British banks -- Lloyds TSB and Barclays -- are under investigation by the U.S. Justice Department and the Manhattan district attorney for possible violations of the Iran sanctions regime should only heighten the financial sector's concern. Financial institutions are particularly eager to avoid being the "next ABN Amro" -- the Dutch bank fined $80 million by the United States in 2005 for having an inadequate program in place to ensure compliance with U.S. sanctions against Iran and Libya. The Financial Times noted that the fine sent "seismic waves through the international banking system," and that the "reverberations are still being felt today."

How the Europeans respond to the new resolution will be crucial. Following the two previous resolutions, the European Union went further than the UN required, freezing the assets of not only the designated fifty individuals and entities, but also twenty others. The EU has also enacted a more comprehensive arms embargo and travel ban against Iran and its officials than required by the UN.

Now that the UN has spoken, perhaps it will free the EU to act further. While France and Britain have been urging expanded EU efforts for months, Germany and others have called for restraint while awaiting a UN decision. Given the extensive economic ties between various EU states and Iran, bold action by the union could have a significant effect. An especially powerful measure would be a European ban on Iran-related export credits -- a form of government insurance that has long underpinned European-Iranian business ties. Given that the UN resolution specifically calls on countries to exercise vigilance with this type of assistance, the Europeans would have ample justification for their own ban.

Challenges Ahead
A more difficult challenge for the United States and its allies will be to ensure that financial efforts against Iran are heeded by smaller banks and companies that do not conduct business in the United States or Europe. For example, as the larger, more established banks have scaled down their dealings with Iran, smaller, second-tier banks have stepped in. These types of institutions are unlikely to respond to the general warnings issued by the UN or FATF, or pay attention to veiled U.S. threats. They tend to be less concerned about reputational risk than the major players, and the possibility of being cut off from the U.S. market is irrelevant to them.

Fortunately, these entities might be convinced to reduce their ties to Iran if their own governments cautioned them, since they are far less inclined to ignore the proclamations of local regulatory agencies. The key then will be to ensure that all governments follow through on the UN and FATF actions and provide appropriate warnings to the financial institutions in their jurisdictions. This should be a focus not only for the United States and its allies, but also for international bodies such as the UN and FATF. For example, FATF has noted that while some member states sent alerts to their financial sectors in response to its October warning, many others did not. The United States should continue to track this issue closely, working with other key players to pressure countries that do not live up to their international responsibilities.

The bottom line is that there are still many steps the United States and its partners could take to raise the financial costs of Tehran's nuclear program. Although success is far from guaranteed, an approach that incorporates aggressive financial pressure remains the best means of persuading Iran to abandon its nuclear ambitions.

Michael Jacobson, a senior fellow in The Washington Institute's Stein Program on Counterterrorism and Intelligence, is a former senior advisor in the Treasury Department's Office of Terrorism and Financial Intelligence.


Balatarin
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Mehdi

To: Farhad Kashani

by Mehdi on Tue Mar 11, 2008 10:29 AM PDT

I think you did not read my comment carefully. I did not say that the UN "caused" IRI to be undemocratic. I said that the UN just helped IRI become less democratic by isolating it, by calling it a "bad government." I also mentioned Cuba as an example of such utterly failed actions. Th epoint I was trying to make is that the UN is not doing what it is supposed to do, which to unify nations. Instead it is separating and isolating nations by such actions. Punishing a country is not very different from punishing a child. If you only punish and never encourage, or acknowledge when the child does something good, no matter how small, after a while the child sees you simply as an enemy and useless to his survival. It becomes a game of how to prove you wrong. And that is not what the UN should be doing. What IRI is doing should not be an excuse for the UN to do the same or worse. This is not justifying IRI. This is just pointing out that the UN is now no better than the IRI. They deserve each other now. And the UN should not allow itself to become that.


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Mehdi, if a government wants

by Farhad Kashani (not verified) on Mon Mar 10, 2008 12:03 AM PDT

Mehdi, if a government wants to be undemocratic, it does not need an "excuse" from anyone, it will act in an undemocratic fashion. So now we went from blaming U.S and Israel on IRIs action, to blaming U.N? WHos next to blame for what the regime is doing in Iran?


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Hyping the nuclear threat.

by Javadagha (not verified) on Sat Mar 08, 2008 05:03 PM PST

//www.salon.com/news/feature/2008/03/07/iran/

The Iran hawks' latest surge

U.S. and Israeli hard-liners -- some with close ties to John McCain -- are once again hyping the Iranian nuclear threat.


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Normalization/trade/free

by Anonymousm (not verified) on Sat Mar 08, 2008 12:14 PM PST

Normalization/trade/free market economy can be used to build and support a prosperous democracy for all strata of population in Iran, but not in a 'free trade' without any strings attached concept. Trade for the sake of trade ends up supporting tyrannies. What can be done is to deny trade to authoritarian or tyrannical governments and deny them the benefits of trade with us.

What some commenters are suggesting is a form of mollification of populations with goods so that Western Countries (including U.S.) may profit and that government have no reason to wish to change to something more representative. Profit garnered from those under repressive regimes ensures that those regimes have no incentive to ever become less repressive. The EU has been our largest trade partner and so far it hasn't helped either democracy or prosperity in the Islamic Republic.

The U.S. will gain by the suffering of others when we give such support and we lessen our Universal message of Liberty and Freedom via representative democracy with republican government.

That system has worked so well in Vietnam and China that they remain just about where they were when we started trading/noramlizing relations with them! For example, the poor chinese are worst off (they are no longer able to live off their land) than before the normalization. The income disparity is at all time high, and the almost slave-like situation of workers in china and Vietnam have only enriched the communist elite in China and U.S. tansnational corporations.

Europe and the Mullahs
How the EU subsidizes trade with Iran.
//opinionjournal.com/editorial/feature.html?i...


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Kalvoks

Iran Celebrates Victory Over America!

by Kalvoks on Sat Mar 08, 2008 08:12 AM PST

VLAD'S DAILY GLOAT

Kalvoks Daily Dombalan

Today is Sunday, but there is no rest for America's entropy.
Today, America's biggest evil villain, the "Hitler-like" Iranian
President Mahmoud Ahmadinejad, flew to Iraq and was given a red carpet
treatment, post-war Iraq's first ever! Could there be anything more
humiliating than this? Ahmadinejad flies into supposedly-occupied Iraq,
and does a Funky Chicken Dance right in front of 150,000 helpless
American soldiers. They're losing a war that Ahmadinejad is waging
against them, and to top it off, the regime that America is dying and going broke to support loves America's enemy more than it loves America. Here is today's Reuters report:

Pomp and ceremony greeted Iranian President Mahmoud
Ahmadinejad on his arrival in Iraq on Sunday, the fanfare a stark
contrast to the rushed and secretive visits of his bitter rival U.S.
President George W. Bush.

Ahmadinejad held hands with Iraqi President Jalal
Talabani as they walked down a red carpet to the tune of their
countries' national anthems, his visit the first by an Iranian
president since the two neighbours fought a ruinous war in the 1980s.

His warm reception, in which he was hugged and
kissed by Iraqi officials and presented with flowers by children, was
Iraq's first full state welcome for any leader since the U.S.-led
invasion to topple Saddam Hussein in 2003.

I especially love that line in the beginning:
"In stark contrast to the rushed and secretive visits of his bitter
rival Bush." How accurate! Only Bush is bitter, not Ahmadinejad. No,
he's happy! (If the War Nerd is right, Cheney might also be happy.)


THE RED CARPET TREATMENT FOR AMERICA'S ENEMY

Bush is not only bitter, he's a cowardly little bitch compared to Ahmadinejad:

Ahmadinejad's motorcade took Iraq's notoriously
dangerous airport road to Talabani's palace at the start of his two-day
visit, eschewing the helicopter trip usually taken by other visiting
dignitaries as a security measure.

Bush's last visit in September 2007 was to a desert
airbase in Anbar province in Iraq's west. He flew in unannounced to
ward off insurgent attacks and the visit was over in a few hours.


The message of Ahmadinejad's visit to Iraq is clear: "Thank you
gullible American dumbshits for handing me this oil-rich country! You
keep fighting and bleeding and telling yourselves that it's not over.
Meanwhile I own the place. I'll enjoy watching you bleed from my VIP
suite in the Iraqi President's house, while he washes my feet!"


HA-HA! AMERICAN IDIOTS MAKE ME LAUGH!

Not long ago I remember arrogant American imperialists talking about bombing Iran. Now, they have shit mixed with egg on their faces, and they're completely helpless.

This is what I will be thinking about when America issues tomorrow
its expected hypocritical report about how Russia isn't democratic
(even though it's electing a popular leader). But when you read how
"bad" Russia is, take a moment away from your work to watch reports of
Ahmadinejad's visit to "surge"-occupied Iraq. And then ask yourself,
"Does a country that goes bankrupt and dies in order to lose a war that
hands a country over to its sworn enemy...is this country at all
mentally fit to judge anyone else?"

Say goodbye to the American Century, you fat gullible dumbshits!

--Vlad Kalashnikov


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Road to Regime Change

by Kamangir on Sat Mar 08, 2008 05:38 AM PST

The IRI despite its mediocre rethoric and bullying has its days counted. It will happen sooner than later. The members of the IRI have been praying for an american led military massive air strikes, that never came. That would have been their last hope for survival, although that wouldn't have lasted long either. They are really concerned with these sanctions, they are feeling the heat!

Kamangir


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The sanctions are just only some illegal Jokes

by Faribors Maleknasri M.D. (not verified) on Sat Mar 08, 2008 03:39 AM PST

and stil only jokes.The greate satan wants to demonstrate it is not all dead yet. thats it. Sanctions won't stop Iranian nation.
The 4th UN sanction against Iran is going to be the harshest of all such as air and sea embargo or blocked. What makes 4th sanction different is that Bush does not need to dance with Russian or Chinese over Iranian perusing nuclear bomb and Bush will bring the tough sanction to the Security Council for vote. Russia and China have to go along with it because if they don't veto it, that means the end of diplomacy. A prefect tool for Bush to attack Iran. Greeting


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Bang Man

Meanwhile back at the farm

by Bang Man on Fri Mar 07, 2008 07:30 PM PST


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Both China and Russia

by Anonymous1212122 (not verified) on Fri Mar 07, 2008 02:29 PM PST

Both China and Russia entered into major contracts with Iran at the same time. The "strong message" to Iran was that there wasn't any strong message.


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Mehdi

Cuba has been under

by Mehdi on Fri Mar 07, 2008 01:22 PM PST

Cuba has been under sacntions since before we were born. So what? What was accomplished? UN should not be proud of isolating governments and giving them more excuse to be undemocratic. That is not the mandate of UN. When was the last time UN did something positive and encouraged dialog and friendship? When do we learn?


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The sanctions are illegal

by Javadagha (not verified) on Fri Mar 07, 2008 01:05 PM PST

Read about the U.S. foreign policy:

In New York Times: How U.S.Foreign policy has been formed by Israeli lobby (AIPAC)
//www.nytimes.com/2008/03/03/washington/03aip...


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