Wall Street Journal – REVIEW & OUTLOOK: The announcement late Friday that Lloyds bank has admitted to illegally transferring Iranian money into the U.S. deserves more public attention.
The Wall Street Journal
How Lloyds bank helped Iran's global shopping spree.
REVIEW & OUTLOOK
The announcement late Friday that Lloyds bank has admitted to illegally transferring Iranian money into the U.S. deserves more public attention. The deferred prosecution agreement is a victory for the Manhattan District Attorney's office despite backroom foot-dragging from the U.S. Treasury. And it's further evidence of how deadly serious Iran is in seeking to buy parts for its missile and nuclear programs.
Under Lloyds TSB Group's deferred prosecution agreement with District Attorney Robert Morgenthau and the Justice Department, the British bank will pay a $350 million fine and, most important, share all its records on the Iranian transfers. If Lloyds continues to cooperate, neither the bank nor its executives will be criminally prosecuted for violating the 1977 International Emergency Economic Powers Act, under which the U.S. has imposed sanctions on Iran.
State-owned Iranian banks Saderat and Melli have been barred from the U.S. financial system for their ties to terrorism and nuclear proliferation, respectively, and were specifically cited in the U.N. Security Council's most recent sanctions order against Iran. But for years, Lloyds and other financial firms helped Iran's rogue banks infiltrate the U.S. Why did Iran's banks need American dollars? In some cases they appear to have purchased items within U.S. borders. In others, law enforcement sources believe the banks were channeling billions in cash through U.S. banks to third countries to parties demanding payment in dollars.
Our sources say the money trail often began at the Iranian Central Bank, which sent funds to banks Melli and Saderat, as well as to Bank Sepah, which a U.S. Treasury official has called "the financial linchpin of Iran's missile procurement network." The U.K. branches or subsidiaries of the Iranian banks would send electronic messages via the Swift banking payments system to Lloyds and possibly other financial houses. Employees at Lloyds would then re-key the data into a new Swift message, carefully removing any reference to Iran or its banks. Employees at the British bank called this "stripping." The sophisticated screening software at American banks would have raised red flags if the true source of the funds had been revealed, but coming from a respected British financial institution, they weren't questioned.
Lloyds admits to stripping for Iran from 2001-2004, though it may have begun in the 1990s and wasn't detected by law enforcement until early 2007. But one reason for deferring prosecution is that Lloyds's employees began to raise questions and convinced the bank's leadership to end the illegal Iranian transfers via London by April of 2004. Lloyds's offices in Dubai and Tokyo continued to facilitate Iranian money transfers into the U.S. until October of that year. Illegal transfers from Sudan, similarly disguised to evade sanctions but at much lower dollar amounts, occurred through 2007.
We're told that records of transfers back to London suggest that the Iranians sometimes used overnight deposits in the U.S. to take advantage of favorable interest rates. But American officials are also now in a race to track down all of the ultimate destinations. Mr. Morgenthau's office, which has led this effort, suspects that some funds may have been used to purchase raw materials for long-range missiles.
We're also told that nine other banks are being investigated, including another British bank, a Swiss bank and a German bank. But since any illegal activity does not appear to have involved the U.S. subsidiaries of foreign firms, there is a question of how cooperative the foreign banks will be. The biggest potential payoff from Lloyds's cooperation should be when the bank identifies for U.S. law enforcers all of the wire transfers that originated in Iran, thus helping the CIA and FBI track them to their final destinations.
The size of this financial cover-up shows the lengths Iran has been going to evade sanctions and expand its military arsenal. Mr. Morgenthau has done a service in releasing the details, all the more so given the strange reticence of the U.S. Treasury. Treasury has long pushed for tough financial sanctions on Iran. Yet in this case it fought against criminal sanction, preferring only a civil judgment, and it argued for a lower fine. One possible explanation is that Treasury Secretary Hank Paulson didn't want to offend British regulators by coming down too hard on one of their banks. However, it strikes us that helping Iran cover up its weapons-buying is serious enough to deserve the criminal sanction. Treasury officials declined our repeated invitations to comment.
Iran continues to make progress on its nuclear program, and yesterday the New York Times reported that President Bush refused a recent Israeli request for weapons that could help in any military strike against Tehran's nuclear sites. Whether or not that proves to be an historic mistake, it increases the importance of financial pressure on Iran. President-elect Obama has said he wants to toughen sanctions against Iran, and his new Treasury team can help by cooperating more with Mr. Morgenthau's investigation.
