Thursday, September 07, 2006

U.S. Takes Aim at Banks Controlled by Tehran

Glenn R. Simpson and Neil King Jr., The Wall Street Journal:
The Bush administration is seeking to isolate a network of European and Middle Eastern banks and companies controlled by the Iranian government that U.S. officials suspect Iran is using to acquire sophisticated weapons technology.

Top officials from the U.S. Treasury and State departments are trying to enlist European governments and big multinational banks in the effort, in part by sharing information with them about suspected money laundering and other illicit activities by these banks and firms, senior administration officials said yesterday. READ MORE

The U.S. prohibits most technology exports to Iran, while other countries have lesser restrictions on selling items with potential military uses. Washington fears Iran is acquiring technology to build nuclear weapons as well as missiles that could be used against Israel and other countries.

Stuart Levey, the Treasury's undersecretary for terrorism and financial intelligence, will barnstorm Europe next week, meeting government officials and bank executives in the United Kingdom, France, Switzerland and Italy to discuss ways to combat what the Treasury calls "threats emanating from financial flows from Iran."

"This is a clear effort by Treasury and State to make sure governments around the world and the private sector understand what the Iranian government is engaging in," said a top U.S. foreign-policy official.

New Treasury Secretary Henry Paulson, meeting with Asian finance ministers, emphasized his interest in the issue. "It's very important that each country develop the appropriate authorities to identify those who abuse the system and isolate them so that they have no access to the global financial system, [which] is in many ways as strong as its weakest link," he said in Hanoi, Vietnam. Mr. Levey is also expected to address the matter in a speech in Washington today.

Law-enforcement officials from several countries say they have evidence that Iran has an elaborate weapons-acquisition program that resembles networks set up by China, Pakistan and North Korea, all three of which created scores of front companies to buy sophisticated equipment in Europe and sometimes the U.S. Prosecutors in the U.S. and the Commerce Department already have brought numerous cases against firms suspected of obtaining equipment for Iran, records show.

The U.S. effort, a greatly expanded version of an ad hoc campaign by Treasury that began last year, is expected to proceed on two levels, with efforts by Treasury to formally blacklist some firms and target others through "moral suasion" aimed at their business partners. Iranian banks and companies, long barred from doing business in the U.S. under American terrorism sanctions, have major operations in Europe's four biggest economies -- Germany, France, the U.K. and Italy.

U.S. officials say the campaign represents an important second front in a larger diplomatic bid to pressure Tehran over its nuclear program. Diplomats from the U.S. and other countries met in Berlin yesterday for a first attempt at forging a consensus on how to proceed with potential economic sanctions on Iran within the United Nations after Iran defied an Aug. 31 U.N. deadline to freeze its uranium-enrichment work.

Acknowledging that the U.N. bid may be derailed by Russian or Chinese opposition, Bush officials describe the Treasury-led campaign as an effort to win the support of financial powers in Europe and the Persian Gulf outside the U.N. framework. "What we're trying to do is convince finance ministries and banks that Iran is not a good bet," said one senior U.S. official.

U.S. officials essentially are hoping to persuade foreign banks to avoid doing business with Iranian financial institutions, figuring that will strain relations between the Iranian banks and the Iranian government because their ties are so close.

After quietly pushing the effort all year, U.S. officials say they plan to increase the pressure markedly in coming months, not only in Europe but also in Dubai, a major hub for trade and financial transactions with Iran. If a significant number of banks sign on, the campaign could have an impact on Iran's financial well-being, which despite the country's oil wealth is still hugely in need of outside investors to develop sectors ranging from oil exploration to gasoline refining.

Write to Glenn R. Simpson at and Neil King Jr. at