Top Banks in Iran Dragged Into Rouhani Tussle With Rivals

EghtesadOnline: Several of Iran’s biggest banks have been dragged into a fight between the government and its hardline opponents, as disputes over last year’s nuclear deal roil domestic politics months ahead of presidential elections.

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06 September 2016

The nation’s leading conservative newspaper on Saturday published photos of letters purportedly sent by two lenders -- Bank Mellat and Bank Sepah -- declining to serve companies and individuals working for a conglomerate owned by the Islamic Revolutionary Guard Corps. Kayhan, whose editor is appointed by Supreme Leader Ayatollah Ali Khamenei, made similar claims about other lenders, reports Bloomberg.

While the accord between Iran and world powers removed a host of economic sanctions, global banks have been reluctant to do business with the Islamic Republic for fear of running afoul of remaining U.S. curbs against organizations, such as the Guards, accused of supporting terrorism. The struggle to attract global capital is a problem for the deal’s architect, President Hassan Rouhani, who is likely to face the electorate in May with few benefits from the agreement having found their way down to ordinary Iranians.

‘Self-Sanctioning!’

Kayhan accused Iranian authorities of pandering to the international community, stating in an accompanying article: “We’ve committed ourselves to self-sanctioning!”

Central bank efforts to improve Iran’s standing with the Paris-based Financial Action Task Force, which aims to counter money laundering and terrorist financing, led a number of state-run and private banks to penalize parts of the armed forces, the paper alleged.

Bank Sepah didn’t reply to a faxed request for comment and calls to Bank Mellat weren’t answered. The central bank governor, in a statement, advised banks there were no restrictions on dealing with any Iranian entity.

The U.S. has led attempts to prevent Iran-backed militant groups, such as Lebanon’s Hezbollah, benefiting from the lifting of sanctions. Legislation passed in December forbid banks from dealing with the Shiite group. After Lebanese authorities enforced the law to protect their banks from repercussions, lenders closed some accounts of hospitals, media companies and charities linked to Hezbollah that are central to its popularity. The group was founded in 1982 to fight Israel’s occupation of southern Lebanon.

Measures Suspended

Ariane Tabatabai, a visiting assistant professor at Georgetown University, said the dispute over banking services falls into the broader tussle between Rouhani and conservatives.

“A big part of the story is you have a faction that feels like it has lost with the nuclear deal and that really seizes every single opportunity to stop the Rouhani government from being able to present a record of success,” she said. “The other part of it is putting a very important and influential group, the IRGC at the center of this back and forth so naturally there is going to be reticence to move things ahead with that in mind,” she added, using the revolutionary guards’ acronym.

Taming Inflation

Rouhani has hailed his government’s success in taming consumer price increases and bolstering economic growth, and his conservative rivals are yet to unite around a rival candidate. A poll published in July by Toronto-based IranPoll.com for the University of Maryland’s Center for International and Security Studies said less than 20 percent of Iranians have an “unfavorable” view of the president.

But with a quarter of the youth population out of work and foreign investments falling short of target, some analysts have said Rouhani could be vulnerable in next year’s vote.

Compounding the challenge he faces, opponents are seeking to drive a wedge between the government and the security establishment.

Measures introduced by the central bank in March sought to bring Iranian lending standards more in line with those of the FATF, a move that had been urged by the International Monetary Fund. As a result, the task force on June 24 suspended “counter-measures” against Iran’s banking system for 12 months.

“The U.S. government has put sections of our armed forces under sanctions,” said Fouad Izadi, a member of the Faculty of World Studies at Tehran University and a critic of the nuclear deal. “We should not see the same policies applied by Iranian banks.”

Institutions such as the Guards “are going to resist,” he said. The Task Force isn’t going to “dictate what can and cannot happen within Iranian borders,” Izadi said.

Ali Akbar Velayati, an influential conservative and president of the Center for Strategic Research, a think-tank close to Khamenei, said the Task Force “is not to the benefit of Iran,” according to the semi-official Iranian Students’ News Agency.

Sanctions ‘Illegal’

“We have to fight these sorts of restrictions, not adhere to them,” Velayati said.

Central bank governor Valiollah Seif on Monday issued a directive advising banks and financial institutions they “can have financial and business relations with all individual and institutional entities, regardless of whether or not their names are listed under sanctions.”

Iran continues to view all remaining sanctions as illegal, Seif added. Neither the nuclear deal nor the country’s “international obligations” should preclude banks from providing services to Iranian entities. He did not directly refer to the Paris-headquartered Task Force or the Revolutionary Guards.