Sunday, May 07, 2006

US Seeks De Facto Financial Sanctions on Iran

Edward Alden and Caroline Daniel, The Financial Times:
The US is attempting to persuade European governments, banks and companies to isolate the Iranian government by engaging in de facto financial sanctions, according to US government officials and advisers. The tactics are modelled on those used for the first time last year against North Korea. That country’s financial dealings abroad were largely cut off after Washington put pressure on Banco Delta Asia, a Macau bank the US said was facilitating illicit dealings by Pyongyang.

The risk of similar reputational damage has already caused some European banks to cut their dealings with Iran, including UBS and Credit Suisse earlier this year.

John Snow, the US Treasury secretary, last week hinted strongly at the new effort against Iran, saying: “When the US is confronted with a threat that is unreceptive to diplomatic outreach and when military action is not an option, [financial] tools are often the best authorities available to exert pressure and to wield a tangible impact.” READ MORE

Iran poses a far greater challenge than North Korea because it is far more integrated into the international financial system. Iran had $51bn of exports and $48bn of imports last year, according to the International Monetary Fund.

Condoleezza Rice, US secretary of state, is on Monday night scheduled to meet the foreign ministers of the UK, China, France, Germany and Russia following discussions on a draft United Nations security council resolution that would order Iran to cease nuclear enrichment or face the possibility of “further measures”.

As the UN debate continues, US officials are stepping up efforts to put pressure on the private sector. Patrick Clawson, deputy director at the Washington Institute for Near East policy, said: This is about de facto sanctions instead of formal sanctions, which can be used to whip up nationalist sympathies [within Iran]. It is a good idea to do things quietly. The Treasury is becoming even more aggressive in enforcing the rules they have. The US helped persuade [in January] two of the largest banks – UBS and Credit Suisse – to cease business in Iran.”

A senior US official said: “I think these financial institutions are very responsible for the most part, and they’re trying to figure out what kind of corporate citizens they want to be. They’re starting to look at whether they really want to do business with the government of Iran.”

Mr Clawson said the US could move to block third-party banks that process a dollar transaction involving Iranian assets through a US bank.