Wall Street Journal – REVIEW & OUTLOOK: In the war on terror, the U.S. has had no greater friend than the United Kingdom. And as the U.S. economy continues to suffer under the burdens of Sarbanes-Oxley, our British friends have demonstrated a more sensible approach to financial regulation.
The Wall Street Journal
REVIEW & OUTLOOK
August 21, 2008; Page A12
In the war on terror, the U.S. has had no greater friend than the United Kingdom. And as the U.S. economy continues to suffer under the burdens of Sarbanes-Oxley, our British friends have demonstrated a more sensible approach to financial regulation.
For both of the preceding statements, however, there is an exception. Even as the U.K. stands with us in rallying the world against doing business with Tehran, an Iranian bank with a history of financing terrorism continues to operate in London.
On September 8, 2006, the U.S. Treasury announced it was cutting off all direct and indirect ties to the U.S. financial system for Iran's Bank Saderat, given the bank's history of financing terrorism. Treasury's press release did not mention the United Kingdom, but an October 2007 Treasury report connected the dots.
From 2001-2006, the London subsidiary of Bank Saderat transferred $50 million from the Central Bank of Iran via a Bank Saderat branch in Beirut to front groups for Hezbollah. Hezbollah also has used the bank to funnel money to other terrorist organizations such as Hamas. Almost two years after the U.S. cut off Saderat's access to American finance, and close to a year since the Bush Administration diagrammed the electronic money trail from Tehran to terror via London, Bank Saderat PLC continues to do business in the U.K.
In March, the U.N. Security Council imposed its third round of sanctions against Iran for its refusal to halt its nuclear weapons program. Included in the sanctions package was a warning to all countries "to exercise vigilance" on transactions with all Iranian banks, but especially Bank Saderat and Bank Melli, due to the risk that such transactions could support illicit nuclear activities. A June 14 statement by the G-8 finance ministers also singled out Saderat and Melli as rogue banks.
Better late than never, on June 23 the European Union, with support from the U.K., imposed tough sanctions, including an asset freeze — but only on Bank Melli. The penalty was richly deserved. Melli is Iran's largest bank, and according to Treasury, "through its role as a financial conduit, Bank Melli has facilitated numerous purchases of sensitive materials for Iran's nuclear and missile programs."
Treasury further notes that Melli is the banker to Iran's Revolutionary Guards Corps and the Qods force. During the period 2002-2006, Bank Melli was the conduit for more than $100 million sent to the Qods force. This is the outfit, you'll recall, that provides weapons, money and training to insurgents trying to kill U.S. soldiers in Iraq and Afghanistan. The U.K. has not revoked the license of Bank Melli's London subsidiary, but the EU sanctions have left the bank largely unable to conduct new business.
The same cannot be said for Bank Saderat. Even though the U.N. Security Council makes no distinction between the two Iranian banks in warning of their potential to finance Tehran's nuclear ambitions, the EU and the U.K. have allowed Saderat a much longer leash. The bank's subsidiary continues to operate in London, while Saderat branches exist in France, Germany and Greece. The latter three countries aren't known as the most helpful of our allies, although France has worked closely with U.S. intelligence agencies.
The U.K. policy is more of a puzzle. Just this month, the Brits joined with U.S. and French officials in sending a letter to the U.N. Security Council warning against "Iran's continued attempts to conduct prohibited proliferation-related activity and terrorist financing." The letter said that Iranian banks were acting to evade financial sanctions. Given that Bank Saderat PLC has been precisely the mechanism to get money to terrorists, it's hard to understand why the rogue financial institution still enjoys a home in London.
Perhaps the Brits are wary of damaging London's reputation as a global financial center, and losing an advantage over New York. If there's another explanation, we haven't heard it; Her Majesty's Treasury in Britain declined comment when we called. In any case, we're told by a senior U.S. source that other countries are beginning to ask why they should cut Iranian banking ties if such business can still be conducted in London. Iranian Banks Sepah and Persia International, which have also been the target of U.S. sanctions, are also still operating in the U.K.
British action could be particularly beneficial now, as the policy of isolating Iran from the international banking system appears to be putting genuine stress on Mahmoud Ahmadinejad's government. Almost all of the world's commercial banks have ceased doing business with Iran, making even routine trade a logistical challenge. It's not a coincidence that Iran's economy has been struggling even amid an oil boom, or that internal dissent against the Iranian government is increasing.
Further help from America's best antiterror ally could be critical in forcing needed change in Tehran.