Tag Archives: sanctions

Sanctions against Sanctions: Sovereign Financial Systems, Russia

Visa

International payment operators Visa and MasterCard have started processing domestic payments inside Russia’s new national processing system, launched in response to U.S. sanctions against Moscow that saw cards from several Russian banks blocked in 2014. Observers see the creation of the National Card Payment System as the first step towards an autonomous financial system in Russia.

“The national system has already been introduced, quickly and at a little cost, and it has fully resolved the problem of payments inside the country,” says Sergei Khestanov, professor of finance and banking at the Russian Presidential Academy of National Economy and Public Administration.  If Visa and Mastercard do not fulfill the requirements of the Central Bank, they will have to pay a security deposit, whose size will be linked directly to the turnover of the credit card systems. Morgan Stanley estimated the figure at $950 million for Visa and $500 million for MasterCard.

According to Khestanov, processing Visa transactions through the national system should be viewed as a compromise: The Russian government’s control of the transactions will strengthen, but the international systems will continue to operate in Russia.  “The potential of the development of the Russian cashless payment market is still enormous,” explains Anton Soroko, an analyst at Finam Investment Holding.,,,For the time being, experts are avoiding any clear-cut predictions of success, and say that Visa’s protocols are more complex than MasterCard’s. “We will see if this will be successful only after the infrastructure assumes the full burden,” says chief analyst at UFS IS Ilya Balakirev.

The next stage should be the Russian national payment system’s issuance of plastic cards, which is slated for December 2015.The picture is further complicated by the emergence of Asian operators as an alternative to western payment systems. Immediately after the introduction of sanctions against Russia by the U.S., the Chinese bank card system UnionPay entered the Russian market in April 2014, followed in March 2015 by Japan Credit Bureau (JCB). By 2017 Russia is planning to issue about two million UnionPay cards and three million JCB cards.

Excerpts from Alexei Lossan, Visa and MasterCard join Russia’s National Card Payment System, Russia Beyond the Headlines, Apr.  2, 2015

How Iran Defeated the Sanctions: the Chinese Connection

nantaz

A Chinese citizen faces U.S. criminal charges that he conspired to export to Iran products that could be used in that country’s nuclear program, the U.S. Justice Department.  Sihai Cheng supplied thousands of parts that have nuclear applications to Eyvaz, a company involved in Iran’s nuclear weapons program, in violation of U.S. sanctions on Iran, federal prosecutors said.

Sihai Cheng of Shanghai and Seyed Abolfazl Shahab Jamili of Tehran allegedly plotted between 2009 and 2011 to send pressure measuring sensors, or transducers, ordered from MKS Instruments Inc. in Andover, USA, to Eyvaz Technic Manufacturing Co., a Tehran-based business that has supplied parts to Iranian nuclear facilities.  Transducers are used in commercial products, but can also be used in gas centrifuges to convert natural uranium into a form suited for nuclear weapons, the indictment states.

Prosecutors said MKS Instruments sent the transducers to China without knowing they were ultimately bound for Iran.

In February 2009, Jamili wrote to Cheng that Eyvaz Technic was seeking to obtain a type of transducer. Eyvaz has “supplied parts for Iran’s development of nuclear weapons,” the indictment states.  After receiving the 2009 e-mail, Cheng allegedly plotted with unidentified coconspirators at MKS-Shanghai, a wholly owned Chinese subsidiary of MKS in Andover, to set up front companies to pose as the intended recipients of the materials, which were ordered from the Andover office.  In addition, MKS-Shanghai employees listed other legitimate Chinese companies as recipients in purchase orders sent to Andover, authorities said.  More than 1,000 orders for MKStransducers with a combined value of over $1.8 million were placed between April 2009 and January 2011, the indictment said. Once the parts arrived in China, Cheng had them shipped to Eyvaz, the Iranian company accused of supplying material for Iran’s nuclear enrichment facilities.

Prosecutors wrote that MKS in Andover “unwittingly assisted MKS-Shanghai in fraudulently obtaining an export license for a large quantity of pressure transducers.”  Authorities say there is evidence MKS products reached the Natanz nuclear enrichment facility in Iran, which began operating thousands of gas centrifuges as early as 2007.  “Publicly available photographs of Natanz [with then President Mahmoud Ahmadinejad] show numerous MKS pressure transducers attached to Iran’s gas centrifuge cascades,” the indictment says.

Excerpt from Chinese national indicted in US over exports to Iran,  Reuters, Apr. 4, 2014 and from Travis Andersen and Jennifer Smith,Men accused of sending nuclear supplies to Iran, Boston Globe, Apr. 5, 2014

Money Laundering: the HSBC case

HSBC avoided a legal battle by agreeing Tuesday (Dec. 11, 2012) to pay $1.9 billion to settle a U.S. money-laundering probe.  Europe’s largest bank by market value will pay the biggest penalty ever imposed on a bank after facing accusations it transferred funds through the U.S. from Mexican drug cartels and on behalf of nations such as Iran that are under international sanctions…It’s the latest scandal to hit banks since the financial crisis started in 2008. Hours earlier, Standard Chartered PLC, another British bank, signed an agreement with New York regulators to settle a money laundering investigation involving Iran with a $340 million payment…

Money laundering by banks has become a priority target for U.S. law enforcement. Since 2009, Credit Suisse, Barclays, Lloyds, and ING have all paid big settlements related to allegations that they moved money for people or companies that were on the U.S. sanctions list.  HSBC conceded that its anti-money laundering measures were inadequate and that it has taken big steps in beefing up its controls. Among other measures, it has hired a former Treasury undersecretary for terrorism and financial intelligence as its chief legal officer….

Jimmy Gurule, a former assistant U.S. Attorney General and currently a law professor at the University of Notre Dame, said the settlement made a “mockery” of the criminal justice system.  “The message sent by the U.S. Department of Justice is that if you are going to engage in large-scale money laundering for Mexican drug cartels, make sure and do it within the scope of your employment working for a bank because you won’t be prosecuted regardless of the egregious nature of your criminal conduct,” he said.

A U.S. law enforcement official said the sum HSBC was paying would include $1.25 billion in forfeiture — the largest ever in a case involving a bank — and $655 million in civil penalties….Under what is known as a deferred prosecution agreement, the financial institution will be accused of violating the Bank Secrecy Act and the Trading With the Enemy Act, the official said. The source spoke only on condition of anonymity because officials were not authorized to speak about the matter on the record.

Last summer, a Senate investigation concluded that HSBC’s lax controls exposed it to money laundering and terrorist financing.  In regard to HSBC and Mexico, the Senate investigative committee reported that in 2007 and 2008 HSBC Mexico sent about $7 billion in cash to the United States. It said such a large amount indicated illegal drug proceeds.  HSBC affiliates also skirted U.S. government bans on financial transactions with Iran and other countries, according to the report from the Senate Permanent Subcommittee on Investigations. And HSBC’s U.S. division provided money and banking services to some banks in Saudi Arabia and Bangladesh thought to have helped fund al-Qaida and other terrorist groups, the report said.

The report also blamed U.S. regulators, claiming they knew the bank had a poor system to detect problems but failed to take action.  Sen. Carl Levin, D-Mich., the committee chairman, cited instances in which HSBC had promised to fix deficiencies after being sanctioned by regulators but failed to follow through.  Levin also said the Office of the Comptroller of the Currency, the U.S. agency that oversees the biggest banks, tolerated HSBC’s weak controls against money laundering for years and said agency examiners who had raised concerns were overruled by their superiors.

HSBC, which in 2011 had net income of $16.8 billion and operates in about 80 countries, has grown quickly in recent years by acquiring banks around the world that became its affiliates. Its far-flung subsidiaries operated with a degree of autonomy that left top bank officials with less than full authority and control, experts say. Each affiliate had its own officer to oversee compliance with laws to prevent money laundering.

HSBC to pay $1.9B to settle money-laundering case, Associated Press, Dec. 11, 2012

Iran Today same as Iraq in the 1990s, the US campaign of attrition

There is another…theory, that Iran will persist in its drive to achieve a bomb—or at least a break-out capacity to get one quickly if it so desired. The Iranians say they never trusted Mr Obama’s offer of detente early in his presidency because of the heavier sanctions and the campaigns of sabotage and assassination that accompanied the offer. In the same vein, they deplore the American administration’s recent decision to drop its longstanding classification of the exiled People’s Mujahedeen of Iran as a terrorist organisation.

So Iran’s rulers will not easily trust future pledges to lift sanctions in return for nuclear concessions. In any event, Iran’s leaders may now believe that such concessions would destroy the Islamic Republic’s credibility and open it to a recurrence of the unrest that followed Mr Ahmadinejad’s disputed re-election in 2009. So it is possible that an American policy of containment, even an undeclared one, might lead to a long campaign of attrition of the kind that impoverished Iraq in the 1990s, while leaving its leader in power.

Anticipating trouble, Iran’s hardliners have been stifling the remaining repositories of dissent as fiercely as ever. The most notable of these is Akbar Hashemi Rafsanjani, an establishment heavyweight and former president who became an opposition figurehead after the contentious poll of 2009. The two most controversial of his five children—his daughter Faezeh and his son Mehdi—have recently been arrested, undoubtedly with the approval of Iran’s supreme leader, Ali Khamenei. Mr Rafsanjani had been expected to put up a fight when Mr Khamenei tries, as he probably will, to install his own nominee as president in elections that are due next spring. But with his children behind bars, the former president may favour circumspection over principle.

Excerpt, Iran: Behind the rants, uncertainty grows, Economist, Sept. 29,2012, at 54