US Looking East After Fining Europe Over Iran Business

EghtesadOnline: The US effort to put Iran in a financial bind meant European banks were paying big fines and closing off its money flows amid severe sanctions on the country’s banking and energy sectors. But as US enforcement officials would soon discover, Iran had found a new channel for its transactions: Asia.

News ID: ۷۸۱۸۳۰

24 February 2018

Lenders in South Korea, Taiwan and elsewhere in the region may have played a part, knowingly or otherwise, in helping Iran evade trade sanctions before the nuclear deal and turn some of its oil proceeds into US dollars, according to court testimony, legal filings and people familiar with the matter, Bloomberg reported.

Now that US enforcers have extracted billions of dollars from European banks over sanctions violations, their focus is turning to Asian banks, according to several former US Treasury Department officials who specialize in sanctions work.

“The regulatory gaze and enforcement attention is facing east,” said Juan Zarate, a former Treasury Department and White House official who co-founded the Financial Integrity Network, a consulting group, Financial Tribune reported.

Many Asian banks “haven’t been leading the pack in terms of financial risk management”, he said.

The shift underscores how difficult it can be to enforce international sanctions. When one door is closed, another one inevitably opens.

A window on these Asian banks’ transactions comes from court documents and testimony in recent Iran-related cases in Alaska and New York, which included references to how Iran repatriated $1 billion of its funds from escrow accounts at Woori Bank and Industrial Bank of Korea, state-owned South Korean lenders that are among the largest in the country. Under terms of the US sanctions, those funds were supposed to be off limits for all but a handful of purposes.

Woori Bank shares fell 0.9% while Industrial Bank of Korea shares dropped 0.6%.

An IBK representative declined to comment. A Woori Bank spokesman acknowledged the bank was under investigation and said it was awaiting the results. He declined to comment further.

In the last two years, New York’s Department of Financial Services has taken action against several Asian banks for various compliance lapses, including the Agricultural Bank of China, NongHyup Bank of South Korea and Mega International Commercial Bank of Taiwan.

In 2013 and 2014, Bank of Tokyo-Mitsubishi UFJ paid more than $560 million in two settlements with New York banking regulators over its relationship with Iran.

Nuclear Deal

The scrutiny of Asian banks’ Iran ties is coming from across the US law enforcement and regulatory spectrum. Over the last year, the Treasury Department has blacklisted 20 people and entities in Asia.

The transactions under examination occurred before a 2015 multilateral agreement that let Iran resume some normal trade and collect revenue from oil sales while placing limits on Tehran’s nuclear activities. But the newly disclosed Iranian efforts to sidestep international sanctions may feed into US President Donald Trump’s threats to scrap the agreement.

For years, the US has scrutinized European banks for facilitating Iranian access to the US financial system. After nearly a dozen enforcement cases resulting in more than $16 billion in fines, those banks have been largely closed off as a conduit for Iran, former US officials say.

Trading Partners

Iran’s access to Asian financial institutions has been made possible, in part, by continued close ties with several Asian countries that remain robust trading partners and consumers of Iranian oil exports.

“Oil revenue is big business for a resource economy such as Iran, so they have a balance of trade with all these countries,” said Elizabeth Rosenberg, a former Treasury official who is a senior fellow at the Center for New American Security.

Under the strict sanctions leading up to the nuclear agreement, Iran was allowed to sell oil and gas to overseas buyers. But the proceeds had to be deposited at designated accounts in those countries and could be withdrawn only for limited purposes, such as paying for humanitarian shipments of food and medicine.

To evade the restrictions, Iran falsified records and created front companies to make transactions appear to be for allowable purchases, according to testimony and filings in Iran-related cases.

Of the roughly $200 billion in Iranian oil and gas funds that wound up in escrow accounts at banks around the world, researchers estimate that more than $50 billion were made available to Iran.

“Iranians were desperate to get this money out of these accounts,” said Mark Dubowitz, chief executive officer of the Foundation for Defense of Democracies, a nonpartisan national-security research group.

Red Flags

Iran was able to extract its $1 billion from the two South Korean banks in less than six months during 2011, before US officials raised red flags about the transactions, according to court documents.

However, even after those efforts were shut down, the officials said they feared the banks would find other means of continuing to do business as usual with Iran, according to the filings.

Woori Bank sought to establish a relationship with Turkiye Halk Bankasi AS, the lender known as Halkbank that was designated to hold Iran’s funds in Turkey, in what authorities suspected was an attempt to allow Iran continued access to the South Korean oil proceeds, according to the testimony.

“We were worried about Woori Bank and IBK, and we were concerned about the transactions that they were engaged in,” David S. Cohen, a former senior Central Intelligence Agency and Treasury official, testified during the recent prosecution of a Halkbank banker, Mehmet Hakan Atilla, who was convicted of helping Iran get its money out of Turkey.

“One of the issues that sort of spun off from that was whether they would try to use Halkbank as their entrée into Iran if other mechanisms and connections were cut off,” he said.

Iran and its enablers portrayed the withdrawals as part of allowable trade between the two countries, according to the testimony and filings.

US prosecutors have charged Kenneth Zong, a dual South Korean-American citizen who allegedly executed transactions on Iran’s behalf, with aiding the scheme.