Iran Bank Hit Hard by U.N. Sanctions: Diplomats
Monday, July 30, 2007
BERLIN -- U.S. sanctions have hit the European operations of Iran's Bank Sepah hard, despite Tehran's contention the penalties have had little impact and initial U.S. concern they did not go far enough, Western diplomats say.
In March the U.N. Security Council imposed a second round of sanctions on Iran for refusing to suspend a nuclear program the West fears is aimed at making bombs.
Penalties included the freezing of foreign assets of 28 Iranian individuals and entities, including Bank Sepah.
Iran denies it is developing nuclear weapons and says its atomic ambitions are limited to generating electricity. Tehran also says the U.N. sanctions are having a minimal impact.
Iranian Foreign Minister Manouchehr Mottaki told U.S. National Public Radio last week: "In today's world, the instrument of sanctions is no longer effective."
But European and U.S. officials say Bank Sepah, which a senior U.S. Treasury Department official described as "the financial linchpin of Iran's missile procurement network", is struggling to survive the stranglehold of U.N. sanctions.
"The U.N. sanctions have seriously hurt the bank in Europe," a diplomat told Reuters, citing financial intelligence gathered by his country. He estimated that Bank Sepah's total commitments amounted to over $4 billion.
t was not immediately possible to verify that figure or get any specifics on the balance sheet of the parent bank in Tehran. Iranian officials in Tehran had no immediate comment.
"This bank is under serious pressure," another diplomat told Reuters. He also requested anonymity due to the sensitivity of the issue.
Other diplomats confirmed that one or more of the bank's European branches in Frankfurt, Paris, Rome and London were struggling under the sanctions, which required the freezing of assets and a halt to commercial transactions unless special permission is obtained to carry them out.
All four branches refused to provide details about their current financial situation.
However, an official at Bank Sepah International Plc (BSIP), Bank Sepah's fully owned subsidiary in London, told Reuters life had not been easy since the U.N. sanctions were imposed on the bank. But he dismissed the idea that BSIP was teetering.
"We're not on the verge of collapse," said Liam Brennan, BSIP compliance officer. "We're limited in what we can do."
He added he could only speak for BSIP, not for the other Bank Sepah branches.
Iranian Foreign Ministry spokesman Mohammad Ali Hosseini denied Bank Sepah was on the verge of bankruptcy on Monday.
He was echoed by an official, who spoke under the condition of anonymity at Bank Sepah in Tehran, who said bankruptcy was "out of the question", as well as Deputy Central Bank Governor Mohammad Mojarad.
"Government-owned banks including bank Sepah have no problems regarding capital and the Economy and Finance Ministry has made a commitment to support them," Mojarad told Reuters.
Set up in 1925, Bank Sepah is Iran's fifth-largest. The bank has 1,700 branches. It focuses on import-export and financing trade for customers in Iran and the Middle East.
A British government source said depositors and people holding letters of credit with BSIP can apply to the Treasury to recover funds, and that BSIP is can deal with these claims and guard against fraudulent ones, but cannot do other business.
In its annual report for the year ending on March 31, 2007, BSIP managing director Mohammed Reza Fatemi said "the operating environment for the bank became increasingly difficult".
BSIP had assets amounting to $563 million at the time of latest annual report, down from $1.512 billion a year earlier.
The Frankfurt and Paris branches declined to comment. A Bank official in Paris said only that they were moving offices.
Iran's Ambassador to Rome, Abolfazl Zohrehvand, told Reuters in April that the Rome branch's activities had slowed significantly and did not have much cash left there.
Italian central bank Deputy Director General Giovanni Carosio told Reuters in May that even before the sanctions were imposed the branch was engaged in "modest activity that was in decline even before it was placed under" Italian administration.
If the four branches had any liquidity problems, Iran's central bank has ample funds thanks to windfall oil revenues and could easily bail them out.
But several diplomats said the central bank appeared loath to do this because the funds would immediately be frozen.
One European diplomat said the sanctions, paired with a U.S.-led crackdown on Iranian traffic in dollars, euros and other currencies, had reduced Iranian officials and businessmen to using "briefcases with cash" to conduct deals in Europe.
U.S. Undersecretary of the Treasury for terrorism and financial intelligence Stuart Levey said Iranian state-owned institutions -- including the central bank and Bank Sepah -- had been asking other institutions they do business with to handle transactions without using their names.
European and U.S. officials say the next round of sanctions on Iran will likely add two more Iranian banks to the U.N. blacklist -- Bank Saderat, which Washington accuses of supplying funds to Lebanon's Hezbollah militants, and Bank Melli.
For U.S. officials who once complained that the final U.N. Security Council resolutions had been "watered down" to accommodate fellow veto-wielding Council members Russia and China, the sanctions' effectiveness was a pleasant surprise.
Many in Washington would like to see the European branches of Bank Sepah collapse, diplomats and analysts say.
Mark Fitzpatrick of the London-based International Institute for Strategic Studies said the failure of Bank Sepah's European branches could strengthen the hand of those in Washington pushing for diplomacy and undermine hardliners who would like to see military action used to destroy Iran's nuclear facilities.
"If the overseas branches of Bank Sepah do fall, it will certainly encourage Washington in the diplomatic track and not to seek alternatives," said Fitzpatrick, a former U.S. State Department official.
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