Tag Archives: financial sanctions against Iran

Unleashing Iran: the future of nuclear power in Iran

Arak Heavy water nuclear plant, Iran. image from wikipedia

China was expected to build two nuclear power plants for Iran as part of the country’s new nuclear direction under the controversial nuclear deal that was signed July 15, 2015. The plants were set to be located on the Makran coast, near the neighboring Gulf of Oman, Iran’s Atomic Energy Organization head Ali Akbar Salehi announced on July 22, 2015.

Uninhibited by sanctions, Iran announced plans for four new nuclear power plants. Chinese contractors will be building two of the four planned. “We will simultaneously launch construction of four new nuclear power plants in the country in the next two to three years,” Salehi said, according to Indo-Asian News Service. “We plan to engage more than 20,000 workers and engineers in this large-scale construction.”

When it comes to United Nations sanctions, China had always been an advocate for Iran, along with Russia, generally opposing Washington’s proposed restrictions. On July 20, 2015, the United Nations adopted the nuclear deal between Tehran and Washington, after the “P5+1” countries — the U.S., Britain, France, Russia, China and Germany — unanimously approved it, also voting to lift a series of economic sanctions that were previously imposed on Iran.

China has played a unique, hands-on role in the nuclear deal involving Iran’s Arak reactor, which has been described previously as a “pathway” to nuclear weapons for Iran.

“China has put forward the idea of the modification of the Arak heavy water reactor. … This is the unique role China has played in resolving the Iranian nuclear issue,” Chinese Foreign Minister Wang Yisaid in a statement…..  [The nuclear deal]  has also opened up a door to increased business opportunity in Iran, particularly for China.  Following the announcement of the landmark deal, Wang said that China played a pivotal role in negotiations, and he expressed hope that Iran would take part in China’s “one belt, one road” ambition to revive the Silk Road route.

Excerpts from Michelle FlorCruz, Iran Nuclear Deal: China To Build 2 Nuclear Power Plants For Islamic Republic Following Landmark Agreement, International Business Times, July 22, 2015

Full text of Iran Nuclear Deal Signed July 15, 2015
Joint Comprehensive Plan of Action
Annex I: Nuclear-related commitments
Annex II: Sanctions-related commitments
Attachments to Annex II
Annex III: Civil nuclear cooperation
Annex IV: Joint Commission
Annex V: Implementation Plan

Financial Sanctions Against Russia and Iran: the use of SWIFT

Swift

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) provides a network that enables financial institutions worldwide to send and receive information about financial transactions in a secure, standardized and reliable environment.  SWIFT is not an international organization.  It is instead a cooperative society under Belgian law and it is owned by its member financial institutions…

But the network’s very usefulness means it is increasingly being cast in a new role, as a tool of international sanctions. In 2012 it was obliged, under European law, to cut off access for Iranian banks that had been subjected to sanctions by the European Union. Now there are calls for Russian banks to be banned from SWIFT in response to Russia’s invasion of Ukraine.

A group of American senators is arguing for the measure, which could be inserted into a broader bill on sanctions against Russia that has a good chance of being passed in the next session of Congress. The European Parliament passed a resolution in September calling on the EU to consider mandating a cut-off…European governments are divided, with Britain and Poland among the keenest.

The earlier SWIFT ban is widely seen as having helped persuade Iran’s government to negotiate over its nuclear programme. The ban was one of the first sanctions Tehran asked to be lifted, points out Mark Dubowitz of the Foundation for Defence of Democracies, a Washington-based think-tank. Though some of the banks blocked from SWIFT managed to keep moving money by leasing telephone and fax lines from peers in Dubai, Turkey and China, or (according to a Turkish prosecutor’s report) by using non-expelled Iranian banks as conduits, such workarounds are a slow and expensive pain. And the sanctions prompted Western banks to stop conducting other business with the targeted banks.

The impact of a reprise on Russia’s already fragile economy would be huge. Its banks are more connected to international trade and capital markets than Iran’s were. They are heavy users not only of SWIFT itself but also of other payment systems to which it connects them, such as America’s Fedwire and the European Central Bank’s Target2. Kommersant, a Russian newspaper, has reported that more than 90% of transactions involving Russian banks cross borders.

Foreign firms that do business in Russia would suffer, too. Countries that trade heavily with Russia, such as Germany and Italy, are therefore none too keen…

SWIFT’s own rules allow it to cut off banks involved in illegal activity, and it has occasionally done so. But if it ends up being used frequently for sanctions, it could come to be seen as an instrument of foreign policy…Already there are calls for it to be used in other conflicts: pro-Palestinian groups have recently sought for Israel’s banks to be shut out, for instance. And as China’s economic clout grows, might it want Taiwanese banks excluded?

Another risk is that using SWIFT in this way could lead to the creation of a rival. Russia’s central bank is pre-emptively working to develop an alternative network; China has also shown interest in shifting the world’s financial centre of gravity eastward. Earlier this year it co-founded a BRICS development bank with Russia, India, China and South Africa, and its UnionPay service, set up in 2002, has loosened the stranglehold of MasterCard and Visa on card payments. If China and other countries that feared being subjected to future Western sanctions joined the Russian venture, it might become an alternative to SWIFT—and one less concerned with preventing money laundering and the financing of terrorism…

America’s current crop of senior Treasury officials are similarly cautious, despite being vocal proponents of sanctions in general. SWIFT is a “global utility”, says one, and using it for sanctions should be “an extraordinary step, to be used in only the most extraordinary situations”. Blocking access to SWIFT, he frets, could mean that traffic shifts to networks that are less secure and easier to disrupt—and thus make life easier for criminals and cyberterrorists, including those in rogue governments. Against those who threaten global security, a SWIFT ban is a powerful and proven weapon. But it is also a risky one.

Financial Sanctions: The Pros and Cons of a SWIFT Response, Economist,  Nov. 22, 2014

Financial Sanctions Against Iran and the Afghan Loophole

With American and European sanctions spurring a currency crisis in Iran, officials say a growing number of Iranians are packing trucks with devalued rials and heading to the freewheeling currency market next door in American-occupied Afghanistan, to trade for dollars.  The rial has lost more than half its value against the dollar, and cross-border bank transfers and currency exchanges have become difficult, as sanctions have slashed Iran’s vital oil revenue and cut the country off from international financial markets. Iranian businesses and individuals are desperate to avoid further losses, by converting their money and moving it out for safekeeping. At the same time, the government is trying to find alternate ways to bring in hard currency.

Enter Afghanistan, where dollars function as a second national currency after years of Western spending and where financial oversight is so lax that billions of dollars in cash leave the country every year. Though Afghan and Western officials say they cannot put a precise figure on the trade with Iran, they see it as a potential challenge to the sanctions, and one that the United States, as Afghanistan’s main benefactor, helped create.  The Iranians are “in essence using our own money, and they’re getting around what we’re trying to enforce,” one American official said.  It is a new iteration of an enduring problem in Afghanistan, where Western officials are already struggling to quell a storm of corruption that has undercut the war effort. In the years since the invasion, the country has become a smuggler’s dream, with a booming opium economy and pervasive government graft that is widely believed to be a factor in funneling Western aid money to the Taliban.

On its own, the rush of Iranian money to Afghanistan is unlikely to be enough to undercut the sanctions, which are the cornerstone of Western efforts to coerce Iran into abandoning its nuclear program. But it is clear that American officials are worried. In one indication, President Obama last month quietly strengthened the sanctions by giving the Treasury Department the capacity to punish any person who buys dollars or precious metals, like gold, on behalf of the Iranian government.  “We are taking steps to make it more difficult for the government of Iran to satisfy its heightened demand for dollars — and making it clear to anyone who provides dollars to the government that they face sanctions,” said David S. Cohen, the Treasury Department under secretary for terrorism and financial intelligence.

Afghan money traders said they were told this month by American officials to not conduct business with Arian Bank, an Afghan bank owned by a pair of Iranian banks. The Treasury Department has maintained sanctions against the Afghan and Iranian banks in the past few years, and the traders said they had been recently told that the Afghan bank was being used by the Iranian government to move cash in and out of Afghanistan.  Western and Afghan officials, as well as traders in Afghan money markets, said that a number of Iranians had started seeking to buy dollars and euros with their rials as American and European sanctions tightened over the past year.  The purchases are part of efforts by wealthy and middle-class Iranians to protect their savings and business profits by moving them offshore. But with legitimate transfers out of Iran virtually impossible because of the sanctions, Iranians are instead converting their rials in Afghanistan, and then moving the money to banks in the Persian Gulf and beyond.  “The middle class is in a panic about what to do right now,” said Djavad Salehi-Isfahani, an economist at Virginia Tech and an expert on Iran’s economy.

More troublingly, in the eyes of Western officials, the Iranian government is seeking to bolster its reserves of dollars, euros and precious metals to stabilize its exchange rates and ensure that it can pay for imports. Iran had about $110 billion in foreign currency and precious metal reserves in 2011, and those are believed to be dwindling now.  Afghan traders have proved more than willing to trade dollars for rials, usable as a currency in many parts of western Afghanistan, at advantageous exchange rates. Hajji Najeeb Ullah Akhtary, the president of Afghanistan’s Money Exchange Union, an association of traditional money transfer and exchange businesses that are known as hawalas, said he and his members had seen a steady increase in Iranians bringing cash into Afghanistan over the past year. That comes on top of routine transfers made by Afghans living and working in Iran, including more than one million impoverished refugees, and the regular supply of rials that circulates in Afghanistan.  The cash “comes across in trucks,” he said, with transfers arranged by Afghan middlemen who take a 5 to 7 percent commission.

Iranians were converting rials into dollars in Kabul, the western border city of Herat and in the southern cities of Kandahar and Ghazni, Mr. Akhtary said. The transactions were largely conducted through hawalas, which allow people to transfer large sums of money for small fees to relatives or business associates in distant locales within minutes. The dealers in various places cover one another to make the system work, and settle up after the fact.  The markets are often ramshackle affairs that give little hint of the vast sums being moved. Kabul’s hawala market, for instance, is little more than a few dingy lanes hidden away on the banks of the Kabul River, a trickle of fetid water that winds along trash-strewed banks. But it does huge business. Outside its storefronts, men sit on the pavement behind rickety tables piled high with afghanis, Pakistani rupees, American dollars and Iranian rials, among other currencies.  One hawala dealer, Hajji Ahmed Shah Hakimi, said two routes were primarily used to bring cash in from Iran: one directly across the border with Iran and another through Pakistan.  Both he and Mr. Akhtary insisted that they were not involved in smuggling cash for Iranians or anyone else, but that other hawala traders were.

Mr. Hakimi said the sanctions on Iran were seen in Afghanistan as an American issue, and that is why some Afghans had no problem smuggling money for Iranians. Some Afghan officials echoed that view, saying the Iranian money flow was not a top concern, though the broader problem of bulk cash smuggling was.  The flow of cash in and out of Afghanistan goes largely unmonitored and unimpeded, a “country-sized” money-laundering operation, said a European forensic auditor who has tracked financial crime in Afghanistan and spoke on the condition of anonymity.

In 2011, an estimated $4.6 billion, a sum equivalent to roughly a third of Afghanistan’s gross domestic product, was stuffed into suitcases, shrink-wrapped onto pallets or packed into boxes and flown out of Kabul’s airport on commercial airline flights, most of them headed for Dubai, United Arab Emirates, according to the central bank.  Though new rules and better enforcement have begun to cut into the cash flying out of Kabul, it is anyone’s guess how much moved out of Afghanistan overland on trucks or on twice-weekly flights to Dubai from Kandahar in southern Afghanistan, said an Afghan official who tracks suspicious financial transactions and spoke on the condition of anonymity.  “Kandahar?” he said. “We have no idea what is going there.”

By MATTHEW ROSENBERG and ANNIE LOWREY, Iranian Currency Traders Find a Haven in Afghanistan, NY Times, Aug. 17, 2012

See also Financial Sanctions against Iran and the Chinese Loophole