Iran banks on East to evade sanctions
By Avi Jorisch
As the United States and its allies continue to pressure Iran through targeted
economic sanctions in an effort to force the Islamic Republic to abandon what
is suspected to be a nuclear weapons program, Asian countries such as China,
South Korea and Malaysia are aiding and abetting Iran's nuclear program by
providing it with access to international financial markets and the ability to
purchase dual-use nuclear materiel.
As a high-ranking Iranian customs official pointed out this month, Iran is
increasingly dependent on Asian imports for the health of its economy. If the
international sanctions regime is to have a chance of succeeding, Asian
countries will have to close Iranian banks openly operating in their
jurisdictions to curb the Islamic
Republic's ability to obtain illicit commodities; otherwise, the sanctions will
ultimately fail.
The United Nations, the European Union and the United States have taken steps
to isolate Iranian banks that are suspected of financially facilitating the
purchase of illegal goods via the international financial system. The United
Nations, for example, has blacklisted four Iranian financial institutions for
their role in proliferating weapons of mass destruction - the Sepah, Melli and
Mellat banks, and the First East Export Bank of Iran. Three of the four operate
in Asia: Bank Melli is in Hong Kong, First East Export Bank in Labuan,
Malaysia, and Bank Mellat in Seoul, South Korea.
Elsewhere around the world, more than 80 financial institutions - including
such giants as Credit Suisse and Deutsche Bank - have cut off or significantly
reduced their relationship with the Islamic Republic. More specifically, major
international financial institutions that once provided credit lines to Iran's
commodities industry have stopped. In particular, Iran is finding it
increasingly difficult to get banks to process oil and gas payments, which
represent about 80% of the country's export revenue.
Unfortunately, a number of Asian banks, in addition to the ones named above,
are reportedly continuing to do business with Iran. In South Korea, Woori Bank
and the Industrial Bank of Korea are clearing oil payments. In China, Yinzhou
Bank is reportedly doing business with many of Iran's 30 banks, clearing
payments and providing letters of credit.
Iran is also increasingly looking to the east for trading partners, and during
the past 12 months it has vastly increased its Asian trade, importing US$64.3
billion worth of commodities - a healthy 15% increase compared to the previous
12 months - and exporting $32.6 billion worth of domestically manufactured
agricultural oil products (excluding crude oil), according to Iranian customs
director Abbas Memarnejad. Asia was responsible for 61% of the imports, while
Europe accounted for only 34%.
Economic relations between Iran and China, South Korea and Malaysia are
significant. In 2009, the People's Republic emerged as Iran's top economic
partner, with trade totaling around $21.2 billion. Chinese companies supply
Iran with 13% of its imports, approximately $7.9 billion per annum. In
addition, there are over 100 Chinese state companies operating in Iran, where
they invest heavily in the energy sector.
The economic relationship between South Korea and Iran was valued at $10
billion in 2008, and Iran remains South Korea's fourth-largest supplier of
crude oil. Iran and Malaysia have mostly cooperated in the energy realm, with
Malaysian companies involved in developing the Resalat oil field in the Persian
Gulf. As a result of US pressure, however, Malaysia's state-owned Petronas oil
company stopped gasoline shipments to Iran in March 2010.
Some of Iran's Asian trade is illicit. Nearly 200 front companies and other
entities linked to Iran's efforts to procure materials for its nuclear program,
some of them located in various parts of Asia, are now on United Nations,
European Union and US blacklists. Last October, the Washington Post quoted a
senior official from a Western intelligence agency as saying that Chinese firms
had been discovered "selling high-quality carbon fiber to Iran to help it build
better centrifuges, which are used in enriching uranium".
Those doing business with Iranian banks are on notice. The United States in
particular has cracked down hard. Thanks to recent legislation, all
international banks operating in the US must choose between the American
financial market and its Iranian counterpart. Banks that choose to do business
with sanctioned Iranian institutions face serious punishment: the Justice
Department can close any branches they maintain on American soil or force a
sale of all their US assets, among other things.
The Chinese and South Korean banks named above all have banking relationships
with US financial institutions, and the Korean banks have a physical presence
in the United States. In addition, those selling dual-use materiel that
furthers the Islamic Republic's nuclear agenda are also under close watch in
Washington.
Going forward, Asian policymakers need to close the loopholes that enable
designated Iranian banks to provide illicit actors with the means to conduct
their activities and maintain their infrastructure. Countries like China,
Malaysia and South Korea should also be more vigilant in cracking down on
companies trafficking in dual-use parts. Sanctions can still work, but the
clock is ticking.
Avi Jorisch, a former US Treasury official, is president of the
Red Cell Intelligence Groupand the author of Iran's Dirty
Banking: How the Islamic Republic Is Skirting International Financial
Sanctions. His website is www.avijorisch.com
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