Bank Saderat Linked to Eurozone’s TARGET2

EghtesadOnline: Bank Saderat Iran, which boasts the most expansive overseas presence among the more than 30 Iranian banks and credit institutions, has recently been connected to TARGET2, its chief executive announced.

News ID: ۷۸۲۹۴۹

18 June 2018

"Bank Saderat has connected to TARGET2 and conducted several successful deals and transactions of money using this system," Hojjatollah Seyyedi also told IBENA on Sunday.

He did not elaborate whether just one or all offshore branches of his bank have been granted access to the network.

According to its website, Saderat's active branches across Europe include two in Germany (in Frankfurt and Hamburg), one in the UK (London), one in France (Paris) and one in Greece (Athens), Financial Tribune reported.

TARGET2, the Trans-European Automated Real-time Gross Settlement Express Transfer System, is the real-time gross settlement system for the eurozone, which is also available to non-eurozone countries.

It is based on an integrated central technical infrastructure called the Single Shared Platform operated by three providing central banks, namely those of France, Germany and Italy. TARGET2 started to replace TARGET in November 2007.

The timing of the announcement is significant, as it comes when the relationship of Iranian banks with the international banking system, especially the eurozone, is under a cloud of doubt created by US President Donald Trump on May 8 and intensified by his top officials.

On that day, he went back on the US commitment to the Joint Comprehensive Plan of Action, Iran's nuclear deal with major world powers, and promised worst sanctions in history against Iran. The country's economy, which is highly dependent on its banks, is a main target of those sanctions.

Negotiations with Europe are ongoing and several proposals have been made so far, as all European leading figures have pledged continued commitment to the JCPOA. However, it's unclear for how long Bank Saderat's breakthrough will last.

The last time a foreign-based Iranian bank branch joined TARGET2 dates back to Oct. 15, 2017, when the Paris branch of Bank Melli, the nation's biggest branch, managed the feat.

In his remarks on Sunday, Bank Saderat's CEO was quick to point out that his bank has yet to be connected to SWIFT, and referred to the issue as "the most important problem facing our branches outside the country".

"In spite of the fact that the results of our transfers in the TARGET2 system were positive, SWIFT is not available to Bank Saderat yet," Seyyedi said.

The Brussels-based SWIFT (Society for Worldwide Interbank Financial Telecommunication) is the global network that enables financial institutions worldwide to send and receive information about financial transactions in a secure, standardized and reliable environment.

Seyyedi pointed out that in light of the global nature of the system, Iran cannot afford to be denied access to it because of US sanctions. He also expressed hope that the country would emerge victorious in the "legal case" that it has presented to remain in SWIFT and gain expanded access. He did not elaborate.

"If our SWIFT access is opened, the most important problem facing Bank Saderat to conduct its foreign exchange operations will be eliminated," he said.

The SWIFT and TARGET2 networks are a crucial battleground for Iran and the US in the new round of hostilities that was unleashed by Trump. The former has been striving to expand its access to them after it was cut off in 2012 when Iran was multilaterally sanctioned but was reestablished following JCPOA's implementation in early 2016. The latter has been trying to cut off access after the May 8 decision.

In a May 21 article for the Wall Street Journal, members of the Foundation for Defense of Democracies think-tank explicitly warned that Europeans may choose to refuse the US in cutting off Iran's access to the two networks, but Trump would have options if they do so.

"American law authorizes him to impose sanctions on SWIFT and its directors if they refuse to disconnect Iranian banks," they wrote. "The president could use his executive powers to put on the sanctions list board members and senior officials at the ECB [European Central Bank], European Investment Bank and national central banks."