Iran General NewsBig German banks to sever most Iran ties

Big German banks to sever most Iran ties

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Wall Street Journal: Deutsche Bank AG and Commerzbank AG, the two largest European banks to continue doing business with Iran despite recent U.S. pressure, say they will end most of their ties to Iranian companies. The Wall Street Journal

By GLENN R. SIMPSON and DAVID CRAWFORD
July 31, 2007; Page A4

Deutsche Bank AG and Commerzbank AG, the two largest European banks to continue doing business with Iran despite recent U.S. pressure, say they will end most of their ties to Iranian companies.

The loss of ties to the two German banks could prove a serious blow to Iran unless it can quickly line up other banks to facilitate the country’s international commerce. Iran transfers money through euro-denominated accounts at the two German banks and relies on them to finance trade deals, according to counterterrorism officials who monitor the global financial system.

The development could drive Iran closer to nations that are less sympathetic to U.S. efforts to pressure its government. Iran already taps Beijing’s state-controlled Bank of China to handle some of its international transactions, say people with access to financial intelligence.

Deutsche Bank and Commerzbank became Iran’s most important financiers in Europe in the first half of 2007 as other European banks pulled under pressure from the U.S., according to officials in the U.S. and other countries who monitor the world financial system. The U.S. is trying to maximize pressure on Iran to give up its nuclear fuel program, which Washington and other Western governments believe is designed to make nuclear weapons. Tehran says the program is for civilian purposes only.

Iran has long relied on Europe for its banking needs in the face of U.S. sanctions. Germany is one of its top sources of imports, providing about 14% of the total in 2006. Neither Germany nor other European governments have imposed general economic sanctions on Iran.

Top U.S. Treasury Department officials expressed their concerns about the situation directly to top executives of the banks and to the German government in recent months. A few weeks ago, Commerzbank informed Treasury officials during a meeting in Frankfurt it was ending its Iran business, according to people familiar with the meeting. A Commerzbank spokesman confirmed the move to end most of its ties to Iran and said the bank had informed the U.S. of the effort.

Deutsche Bank began informing many Iranian clients it had made the same decision shortly after a mid-July mission to Germany by Stuart Levey, U.S. undersecretary of Treasury for terrorism and financial intelligence.

A Deutsche Bank spokesman said the bank is terminating its business relations with clients in Iran as part of a new business policy. The bank sent letters to its Iranian clients on July 20, giving notice of termination on Sept. 14, the spokesman said.

“The increased effort required to ensure compliance with European Union and United Nations guidelines is so great, it just isn’t worth it to continue this business,” the spokesman said.

The move could drive Iran to seek financing in countries still willing to do business there. While Russia and Venezuela lack major banks with strong global networks, they have access to large amounts of U.S. currency from their oil revenue and could probably find other channels to do business with Iran. Venezuela and Iran are collaborating on forming a new multinational lender called the Bank of the South. Iran buys nuclear equipment from Russia for its civilian reactor at Bushehr, as well as arms materiel from Russia and China.

Iran’s state media reported earlier this year that the country was seeking to expand ties to Germany. Tehran hasn’t responded to the latest developments.

Until recently, Commerzbank appeared determined to maintain ties to Iran. In January, it said it would stop handling dollar-denominated transactions for Iranian banks, but has since expanded its euro business with Iran, people with knowledge of the bank’s activities say. The bank says it reduced business with Iran in recent months.

Deutsche Bank, Germany’s biggest bank, has been doing business with Iran to a lesser extent. “We engage in a limited amount of business with counterparties in Iran, including counterparties owned or controlled by the government of Iran, and have a representative office in Tehran, Iran,” the bank said in its most recent U.S. Securities and Exchange Commission report.

The two banks have also facilitated transfers of money to the Middle East on behalf of an Iran-backed European charity that the U.S. accuses of financing terrorism, according to people with access to records of the financial transfers. Counterterrorism officials say Commerzbank aided transfers of €223,000 ($305,000) to the Gaza Strip in February on behalf of the charity for an orphan-support program. In September, Deutsche Bank also transferred large sums to the Mideast for Paris-based Comité de Bienfaisance et de Secours aux Palestiniens, or Committee for Charity and Support for Palestinians, counterterrorism officials say. A CBSP spokesman couldn’t be reached. The charity previously denied supporting terrorism.

Spokesmen for both banks said they were unable to comment in time for this article to go to press. The banks previously said they wouldn’t do business with Iranian banks that are on a U.S. blacklist for allegedly supporting terrorism and Iran’s nuclear program. But law-enforcement officials say Iran’s Central Bank, which controls the country’s half-dozen major state-owned banks, has redistributed accounts and responsibilities from the two banks on the U.S. blacklist to some or all of the four banks that aren’t on the U.S. list.

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