Pressed by U.S., European Banks Limit Iran Deals

Steven R. Weisman, The New York Times:

Prodded by the United States with threats of fines and lost business, four of the biggest European banks have started curbing their activities in Iran, even in the absence of a Security Council resolution imposing economic sanctions on Iran for its suspected nuclear weapons program.

Top Treasury and State Department officials have intensified their efforts to limit Iran-related activities of major banks in Europe, the United States and the Middle East in the past six months, invoking antiterrorism and banking laws. They have also traveled to Europe and the Middle East to drive home the risky nature of dealing with a country that has repeatedly rebuffed Western demands over suspending uranium enrichment, and to urge European countries to take similar steps. READ MORE

Stuart A. Levey, the under secretary of the Treasury for terrorism and financial intelligence, said: "We are seeing banks and other institutions reassessing their ties to Iran. They are asking themselves if they really want to be handling business for entities owned by a government engaged in the proliferation of weapons of mass destruction and support for terrorism."

The four European banks — the UBS and Credit Suisse banks of Switzerland, ABN Amro of the Netherlands, and HSBC, based in London — have made varying levels of disclosure about the limits on their activities in Iran in the past six months. Almost all large European banks have branches or bureaus in the United States, units that are subject to American laws.

American officials said the United States had informed its European allies about the new pressure exerted on the banks, and indeed had asked these countries to join the effort. At the same time, the Americans have not publicized the new pressure, partly out of concern it could complicate efforts by European negotiators, who were still talking with Iran about a package of incentives to suspend uranium enrichment.

It is not clear how curbed business with four of Europe's biggest banks could adversely affect Iran. But some outside political and economic experts say it is unlikely to do much damage considering Iran is one of OPEC's leading producers and is earning hundreds of millions of dollars worth of windfall profits daily from $70-a-barrel petroleum.

The American prodding has not yet resulted in any fines or other punishment. But UBS and ABN Amro are no strangers to the sting of American financial penalties for dealing with countries that the United States has wanted to isolate. UBS was fined $100 million by the Federal Reserve two years ago for the unauthorized movement of dollars to Iran and other countries like Libya and Yugoslavia, which were subject to American trade sanctions at the time. Last December, ABN Amro was fined $80 million for failure to comply with regulations against money laundering and with economic sanctions against Libya and Iran from 1997 to 2004.

UBS now says it will no longer do direct business with any individuals, businesses or banks in Iran. UBS also says it will not finance exports or imports for any corporate clients in Iran. But the bank has said that it would not stop doing business with clients who use other means to transact business there. ABN Amro also says it has minimized its activities in Iran.

"We have no representation in Iran," said Sierk Nawijn, a spokesman for ABN Amro in Amsterdam. He added that although the bank does no dollar-based business with Iran, it was participating in "a fairly limited number of transactions" with it."

Georg Söntgerath, a spokesman for Credit Suisse in Zurich, said, "As of January, we have said that we will not enter into any new business relations with corporate clients in Iran." He said the decision, which applied to Syria and some other countries, resulted from an assessment of an "increased economic risk for our bank and our clients."

He said, however, that the bank would fulfill existing contracts with businesses in Iran.

A United Nations Security Council resolution might restrict some of those kinds of dealings.

The Americans have taken other steps to pressure Iran. With American encouragement, Iran's rating as a business risk was raised last month by the Organization for Economic Cooperation and Development, a group of 30 leading countries with market economies.

At the same time, the defiance of the West by President Mahmoud Ahmadinejad of Iran has unsettled markets, and American officials have said the climate of anxiety over the prospect of globally enforced sanctions — or even military action — was having its own effect.

"I think there is a real and growing sense that there's a risk associated with doing business with Iran, with lending Iran more money or providing it with a line of credit," said Robert G. Joseph, the under secretary of state for arms control and international security. "But I would argue that their motive is market forces, more than any American pressure."

Some European diplomats from countries with missions in Tehran say that there are signs of an impact, despite the rise in oil prices.

Whatever the cause, Iran's economic growth has slowed to less than 5 percent, its stock market has dropped more than 20 percent in the past year, new investments and construction have declined, and Iranians have been sending their money abroad, or buying gold.

Iran has recently tried to counter diplomatic pressures over its nuclear program with reminders to Europe that it was a good market, with a good work force. In a regular weekly news conference on Sunday, the Iranian Foreign Ministry spokesman, Hamidreza Assefi, urged Europe not to take any steps that would jeopardize economic links with Iran.

"We have good ties with Europe, and a bad decision by Europeans over Iran's nuclear program can undermine relations and will eventually harm the Europeans," he said.

Many experts said it would be difficult to bar banks from conducting the lucrative business of financing trade deals with Iran. Iran's largest trading partners are Japan, China, Italy, Germany and France. All of those nations have companies that use banks to finance letters of credit to export machinery, commodities and other goods to Iran.

The laws being applied against banks are varied, and many of them also apply to North Korea, Syria, Cuba and Sudan. A 1984 law requires a ban on activities with any country declared a sponsor of terrorism. Officials are also invoking the Iran-Libya Sanctions Act of 1996 and a directive signed by President Bush last year banning transactions with those suspected of helping the spread of unconventional weapons.

Under that directive, the United States has identified six Iranian entities, including its Aerospace Industries Organization, the Atomic Energy Organization of Iran and several private industrial groups, as off limits to banks that operate under American protections and laws.

Mr. Joseph said the use of American banking regulations and antiterrorism laws against European banks had been effective against Iran and would have a greater effect "if we can get other countries to take similar actions."

Some experts say they doubt that anything short of a sweeping oil embargo, or a blockade of gasoline imports — Iran imports about 40 percent of its gasoline — could get Iran to change its behavior, and the West is not contemplating such steps.

"I don't see that the pullout of a few European banks doing a tremendous amount of damage," said Karim Sadjadpour, an analyst at the International Crisis Group, an advocacy organization. "They're making $300 million a day from oil revenues, and they can weather the storm."

Nazila Fathi contributed reporting from Tehran for this article.