[NYTr] Bush Fails Again in bid to punish Iranian banks

[All the News That Doesn't Fit]

Boston Globe via Intl Herald Trib - Dec 18, 2007
http://www.iht.com/bin/printfriendly.php?id=8799133


Bush's bid to punish Iranian banks stalls

By Farah Stockman
The Boston Globe

WASHINGTON: The Bush administration's new policy of penalizing Iranian
banks is facing a critical challenge as financial institutions in
Russia, China and much of the Middle East decline to cut ties, analysts
and diplomats say.

Even Afghanistan and Iraq have so far declined to take action against
Bank Melli, Iran's largest public financial institution, which was
among the first foreign banks to open branches in Kabul and Baghdad.

"Nothing is happening," Sinan Shabibi, governor of the Central Bank of
Iraq, said recently by telephone.

The world reaction to the U.S. sanctions on Bank Melli, which operates
as Iran's central bank overseas, will determine whether President
George W. Bush's new tool against Iran is a failure or a success,
analysts say.

U.S. officials say they have seen progress since they blacklisted Bank
Melli, Bank Mellat, and Bank Saderat in October. Banks in Japan, India
and Europe have quietly followed suit.

"We've seen significant movement," said Adam Szubin, director of the
Office of Foreign Assets Control at the Treasury Department. "We are
certainly not disappointed."

U.S. officials want the UN Security Council to add Bank Melli to a list
of Iranian entities facing sanctions, requiring other countries to stop
doing business with it and starving Iran of access to foreign capital.

Russia and China, two of the Security Council members that can veto the
move, have called the U.S. bank sanctions arbitrary and unhelpful.
President Vladimir Putin of Russia portrayed the blacklisting of Bank
Melli as senseless and dangerous, like "running around like a madman
with a blade in one's hand."

Wang Baodong, press counselor for the Chinese Embassy in Washington,
said China did not support the "arbitrary imposition of sanctions."

The bank sanctions have become more controversial since a new U.S.
National Intelligence Estimate concluded that Iran halted its nuclear
weapons program in 2003. Even before the report became public, the bank
sanctions stoked resentment among countries who believed that Bush was
overstepping.

The sanctions against Bank Melli stem from an executive order that Bush
issued in 2005 giving him unprecedented power to blacklist foreign
banks. While previous presidents have blacklisted foreign companies
over weapons proliferation, Bush's order allows the Treasury Department
to punish the banks in which suspected proliferators hold accounts and
make transactions.

The U.S. government can then shut that bank out of the U.S. financial
system without ever having to make its evidence public or even sharing
the allegations with the banks.

"A judge never gets to look at this," said Paul Downs, a New York-based
lawyer for a law firm that represented Banco Delta Asia, a Macao bank
hit by U.S. sanctions because North Korea had an account there. Many
financial institutions around the world broke their ties with it,
fearing that the United States would blacklist them as well.

"They are effectively forced to go along," said Suzanne Maloney, a
former State Department specialist on Iran now at the Brookings
Institution, a Washington-based research organization.

At first, Treasury officials used the power Bush gave them sparingly,
fearing that moving against mainstream foreign banks would anger their
allies.

Their first target was Tanchon Commercial Bank, a tiny North Korean
institution with few ties to the outside world. The bank was believed
to have aided the purchase of most of North Korea's ballistic missiles.

Over time, U.S. officials grew bolder. In January, they announced
sanctions against Bank Sepah, Iran's fifth largest bank, accusing it of
"direct and extensive financial services to Iranian entities
responsible for developing missiles capable of carrying weapons of mass
destruction." The allegations against Bank Sepah included facilitating
a business venture between a North Korean missile provider and an
Iranian company.

In October, Treasury officials made their most aggressive move yet:
They blacklisted three more Iranian banks, including Bank Melli, an
institution that conducts an estimated 30 percent of all financial
transactions in Iran.

U.S. officials said Bank Melli was being blacklisted because it had
"provided a range of financial services on behalf of Iran's nuclear and
missile industries, including opening letters of credit and maintaining
accounts." Bank Melli was also accused of handling transactions for
Bank Sepah. Bank Melli, an 80-year-old state-run institution with 3,500
branches and affiliates worldwide, says it engages only in widely
accepted financial services for lawful clients.

Treasury officials said last week that they would continue their
efforts to isolate Bank Melli despite the National Intelligence
Estimate's conclusion that Iran's nuclear program had been halted. They
noted that Bush's order also covers Iran's long-range missile program,
which is still active.

But even foreign diplomats who support the banking sanctions
acknowledge that they are intended to pressure Iran to halt its uranium
enrichment research, not to block secret weapons purchases.

"It's not that you think hitting Bank Melli will reduce the financing
of proliferation," said a Washington-based European diplomat who
supports the sanctions. "It's part of the shaming game."

Copyright © 2007 The International Herald Tribune