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 Group and the author of Iran's Dirty Banking: How the Islamic Republic Is Skirting International Financial Sanctions.
