Thursday, January 02, 2014

The Bank of Ayatollah

It is a mistake for the West to agree to eased sanctions on Iran's banking system, which is overwhelmingly controlled by key figures in the regime.
Of all the problematic aspects of the Joint Plan of Action recently signed in Geneva by Iran and the six world powers (The United States, Russia, China, France, Great Britain and Germany, commonly referred to as the P5+1), none is more prone to undermine the existing sanctions’ architecture than the interim deal’s banking provisions.
International sanctions against Iran’s banking sector — a multilayered architecture involving UN, EU and other Western direct sanctions, alongside U.S. secondary sanctions — have restricted Iran’s access to financial markets and made it difficult for Iran to provide its battered economy with necessary financial services. More crucially, given the conniving role of Iranian banks with proliferation efforts, the expulsion of Iranian banks from the global financial system had a restraining effect on Iranian efforts to finance their procurement activities overseas.
Of the 10 banks listed on the TSE, three are directly controlled by the Supreme Leader. None are private, independent or able to withstand regime manipulation
The interim deal now promises to unfreeze a banking channel through which humanitarian trade can freely occur. It also ensures access to banking services to cover all sanctions-relief related transactions and it guarantees a 10-fold increase the European Union’s threshold for authorized transactions through its banking channels.
While details have to be worked out, Western diplomatic sources are confident that such a relaxation will only benefit “non-sanctioned” entities with no links to Iran’s regime or its known proliferators.
There is only one problem. Close scrutiny of the banking sector at the Tehran Stock Exchange (TSE) clearly shows that Iranian banking institutions are hardly private, independent or able to withstand regime manipulation.
Of the 10 banks listed on the TSE, three are controlled by Supreme Leader Ayatollah Ali Khamenei — Karafarin Bank, Parsian Bank and Sina Bank. Most Karafarin shareholders are companies belonging to the Supreme Leader’s financial empire, including Tadbir Investment, Tose’e Eqtesad Farda, Tose’e Eqtesad Ayandesazan, Negin Ganjineh Iranian (a Revolutionary Guards (IRGC)-owned company), Mehr Afarinan Doran, and Sarmaye Gostar Door Andish. Khamenei controls Parsian Bank in much the same way, through various subsidiaries of Setad Ejrayi, the Imam Khomeini Foundation.Parsian’s other main shareholder is Iran Khodro, the government-controlled car manufacturer. And although U.S. automotive industry sanctions will now be temporarily lifted against Iran Khodro, the Foundation was recently put under U.S. sanctions — while Iran Khodro’s main shareholder, IMIDRO, remains on U.S. blacklists. Finally, Khamenei controls Sina Bank through the Foundation of the Oppressed (Bonyad-e Mostazafan), Sina’s main shareholder.
The IRGC, naturally, has a share in the banking pie.
One of the TSE-listed banks, Ansar Bank, is run by the IRGC through a co-operative company, Bonyad Ta’avon Sepah, which is headed by IRGC Commander Morteza Rezai, a former intelligence director nicknamed “the faceless general” for his decade-long elusiveness. Four others — Bank Mellat, Bank Saderat, Tejarat Bank, and Post Bank — are controlled by Iran’s executive branch and have been used by the regime to facilitate proliferation activities and sanctions’ circumvention. In practice, at least 70% of the banking sector’s market value is controlled by government entities directly involved with Iran’s nuclear program.
Outside the stock exchange, things are not much different. For example, the Basij, the paramilitary branch of IRGC, also has its own bank, Mehr Eqtesad. Mehr Eqtesad is not publicly traded but its investment arm, Mehr Eqtesad Iranian Investment Fund, is one of the biggest investors on the TSE.
These are hardly the telltale signs of private or even independent institutions that one can trust to handle transactions authorized under the interim deal in a transparent and responsible fashion.
No Iranian bank is truly an independent financial institution. None escapes the control of the regime.
If more evidence is needed of government control, consider how the banking sector’s management is tied to political power. Parsian Bank’s new CEO, Ali Soleimani Shayesteh, also represents Tose’e Eqtesad Ayandesazan, an entity under U.S. sanctions and a company controlled by Imam Khomeini Foundation. Another board member at Parsian, Aref Norozi, is a co-founder and board member of Tose’e Eqtesad Ayandesazan — and was just appointed chairman of the Barakat Foundation, an entity under the control of the Supreme Leader. The Imam Khomeini Foundation has two other representatives on the board, Gholamreza Suleimani Amiri, the board’s vice chairman, and Seyyed Hesam Shams Alam. Shams represents Tadbir investment, which is under U.S. sanctions, and Soleimani Amiri represents Refah va Tamin Atieh Omid, a charity under direct control of Setad Ejrayi and Khamenei.
Karafarin Bank’s chairman, Ali Ashraf Afkhami, previously served for many years as chairman of the sanctioned IRISL, the Islamic Republic of Iran’s Shipping Lines. Javad Shekarkhah and Ali Baghaei, both board members, also have a long work history in companies owned by Khamenei, some of which, like Tose’e Eqtesad Ayandesazan, Rey Investment, and Tadbir Investment, are under sanctions.
Consider the above. No Iranian bank is truly an independent financial institution. None escapes the control of the regime. All long ago suborned sound corporate principles to the needs of their paymasters and rulers. All things considered, it is remarkable that the Obama Administration and its European allies would allow any banking business to be conducted with such partners.
In fact, Europe and the United States should slap a blanket embargo on all Iranian banks and bar them from any role in the interim deal, only allowing select Western banking institutions to step into the fray.

*Emanuele Ottolenghi is a senior fellow at the Foundation for Defense of Democracies; 
**Saeed Ghasseminejad is a Ph.D. candidate in finance at City University of New York.