U.S. sanctions force World Bank to halt some Iran aid

New York Times: The World Bank, newly caught up in the Bush administration’s campaign against Iran, has had to suspend payments for earthquake relief, sanitation and other projects there in response to new American sanctions on leading Iranian banks, World Bank officials say. The New York Times

By STEVEN R. WEISMAN
Published: November 4, 2007

WASHINGTON, Nov. 3 — The World Bank, newly caught up in the Bush administration’s campaign against Iran, has had to suspend payments for earthquake relief, sanitation and other projects there in response to new American sanctions on leading Iranian banks, World Bank officials say.

Only $5.4 million in payments has been suspended for four projects, involving earthquake relief, water and sanitation, environment management and urban housing, the officials said, and they do not expect the suspensions to be permanent.

But the bank has no plan to resume payments because it is having trouble finding banks in Iran to handle them now that the United States has barred dealing with four of Iran’s largest banks, accusing them of involvement in terrorism, or nuclear or missile programs.

“At this point, the World Bank is looking for alternate ways to support these projects,” said a bank official, who spoke on condition of anonymity. “It is unknown how difficult that might be. It is not that easy to find alternatives. We have no answer on how or when at this point.”

American officials said they hoped that the decision by the World Bank would increase pressure on Iran, not necessarily by stopping humanitarian projects but by dramatizing the country’s economic isolation in light of its refusal to suspend uranium enrichment and negotiate with the West over its nuclear program.

The World Bank step, while small, illustrates the extraordinary reach of American sanctions, even though they were imposed unilaterally after the United States was stymied in its recent efforts to get the United Nations Security Council to approve wider penalties.

The payments for the World Bank projects have all gone through Bank Melli, one of Iran’s largest banks, but Bank Melli was accused last month by the United States of being involved in nuclear proliferation and terrorism. Also listed were two other institutions, Bank Mellat and Bank Saderat. Bank Saderat had already been listed by United States as being involved in financing terrorism.

Some Congressional critics of the administration’s Iran policies have called on the United States to block World Bank aid programs for Iran altogether. The World Bank has nine active projects in Iran and, by last year, had financed 48 operations worth about $3.4 billion, according to the bank’s Web site.

The effect of the United States’ listing four major Iranian banks is that no American bank is allowed to facilitate any dollar-based transaction between them and any other bank in the world.

The Security Council has adopted two resolutions, one last year and another this year, calling on a freeze of assets in Iran deemed to be linked to its nuclear and ballistic missile programs. The aim of the resolutions is to get Iran to suspend its uranium enrichment activities, which Western experts say are part of a secret program to make a nuclear bomb.

Only one Iranian bank, Bank Sepah, has been identified by the Security Council as involved in nuclear and ballistic missile programs. According to information circulating among members of the Security Council, the bank has all but ceased to function.

Bank Saderat, Bank Melli and Bank Mellat have been listed only by the United States. But Western diplomats, citing official information circulating in Europe and the United States, say that most major banks in Europe have ceased working or are winding down their business with them.

In addition, the diplomats said the Dutch, French, Italian and German governments had begun reducing their state credits promoting trade with Iran. The Bush administration, however, is pressing them to do more.

Administration officials say they have pressed more than 40 banks worldwide to stop doing business with Iran, and most have taken at least some steps. But banks in the Persian Gulf, China and other parts of Asia have continued, and in some cases have filled the gap left by the absence of Western banks.

World Bank officials could not say whether the bank would turn to these institutions to help ease payments for the projects in Iran.