On July 1, 2010, The Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA), which passed by a large majority in the Congress, was signed into law. This Act puts the onus on American banks to audit and certify that their foreign correspondent banks are not knowingly facilitating or supporting Iran’s nuclear program and terrorist activities.
U.S law enforcement agencies investigation of the U.S. unit of HSBC could soon test the Administration’s resolve to act against big foreign correspondent banks that ignore the Iran Sanctions Act (ISA).
President Obama’s statement at the signing of CISADA noted that this Act requires sanctions on financial institutions facilitating certain activities involving Iran (emphasis added).
The vagueness of the President’s statement clearly indicates the Administration’s ambiguity towards the enforcement of severe sanctions against those who continue to fuel Iran’s coffers. Such ambiguity has allowed U.S. financial institutions in the past to conduct business with Iran through their correspondent banks. And now they are likely to continue their business through foreign financial institutions, even those known to do business with Iran until they are designated.
On August 16, 2010, The Office of Foreign Assets Control (OFAC) issued its Final Rule on Iranian Financial Sanctions. The Rule states that upon the finding by the Secretary of the Treasury that a foreign financial institution knowingly engaged in sanctionable activity, the Secretary will either sanction or designate the said foreign institution.
Foreign banks operating in the U.S. that were caught violating the sanctions law in the past have received a few hundred million of dollars in fines, constituting a mere slap on their wrists. In 2009, Manhattan District Attorney Robert Morgenthau’s office investigations into foreign banks’ sanctions violations forced Barclays to pay $298 million in fines, Credit Suisse paid $536 million, Lloyds was penalized $350 million, and Royal Bank of Scotland had to pay $500 million for the activities of ABN Amro.
The investigation revealed that Barclays and Lloyds went to great lengths to hide wire transfers to Iran from their respective New York offices. In many cases, staff manually removed instructions and deleted information that referenced Iran. Lloyds used branches in Tokyo and Dubai to further disguise the ultimate source and destination of funds. According to the Manhattan DA, Barclays had been doing business with sanctioned countries for over 15 years. Meanwhile, Credit Suisse was at it for more than a decade, utilizing a how to book with instructive methods for sanction evasion. For their part, Italian Banca Intesa Sanpaolo and German Deutsche Bank remain under investigation by the Manhattan District Attorney’s Office.
According to HSBC USA Inc.’s second quarter 2010 filing with the Security and Exchange Commission (SEC), it is under investigation for possible violations of anti- money laundering rules, and more.
The Export Guarantee Fund of Iran (EGFI) website identifies five Iranian banks (Keshavarzi, Mellat, Refah, Sepah, and Tejarat), as utilizing services of HSBC at 30 of its branches around the world. HSBC, through its subsidiary Amanah, is the largest western financial institution conducting Islamic finance. HSBC Amanah operates in 10 countries, including the U.K. and the U.S.
On January 13, 2010, Iran’s Export Development Bank (EDBI) website listed HSBC PLC, London, among its major creditors for 2009, but it is missing from the website since April 2010. HSBC’s Bank Middle East Limited (HBME) accessed this week notes a representative office in Tehran, Iran. Yet, its USA PATRIOT Act Certification dated August 2008, the HBME made no mention of its Tehran office: P.O. Box 19395-3474, 1503 Sayeh Tower, 1 Sayeh Street, Val-E-Asr Avenue, Tehran, Iran.
All of Iran’s banks comply with Sharia. According to the November 2009 supplement of The Banker’s Top 500 Islamic Financial Institutions survey, published in association with HSBC Amanah, Iran owned seven of the ten largest Islamic banks in the world and held close to 36%, of the $1.033 trillion in assets held by all Islamic financial institutions. For many years Iran used the rapidly growing trend of adopting Shari’a compliant financing in the West to expand its reach and bypass the sanctions.
HBME‘s website reports that this Dubai-based HSBC subsidiary, which is registered in the Jersey Islands, is the largest and most widely represented international bank in the Middle East. This entity specializes in private banking. It has 45 branches throughout the region, including branches in Bahrain, Jordan, Kuwait, Lebanon, Oman, Pakistan, Qatar, and the United Arab Emirates. In Bahrain, the branch has an office in the offshore economic free trade zone. The Jordan branch in Amman oversees HSBC’s operations in what it calls the Palestine Autonomous Area, based in Ramallah. Consequently, HSBC and HBME could easily act as conduits for monies from Iran to its terrorist allies in Lebanon (Hezbollah), Palestine (Islamic Jihad and Hamas), Pakistan (Taliban), and radical Shi’ite and Sunni organizations elsewhere.
If the U.S. government armed with the new law fails to severely punish large foreign banks, then CISADA is a waste of time, another piece of symbolic legislation lacking teeth and political resolve.
The strict enforcement of CISADA is essential to stop the money that fuels Iran’s nuclear program. The likelihood that Iran will voluntarily give up on a program it has spent over $10 billion developing over the past two decades is an illusion.
Considering the size, location, and distribution of the Iranian nuclear production and weapons program, a military campaign may slow it down, but fail to stop it. However, the inevitable Iranian counter-attack, which could include the closing of the Straits of Hormuz for weeks or months, as well as the bombardment of Israel and Saudi Arabia with thousands of missiles, may translate into a higher cost to the West than anything achieved by its military.
The most effective way to stop Iran’s nuclear program is to cut off its financial umbilical cord. Enforcing the CISADA is therefore imperative.