Iran: Top U.S. Official Says Financial Clampdown Is Working

The financial clampdown is making it harder for Iran to raise loans or exchange currency (RFE/RL) October 17, 2007 (RFE/RL) -- If the United States is waging a financial war against Iran, as some Western media say, then Stuart Levey might be seen as the commanding general in the battle to force Tehran to halt its atomic program, which Washington says masks a secret drive for nuclear weapons.

Levey, the undersecretary for terrorism and financial intelligence at the U.S. Treasury, has been at the forefront of recent U.S. efforts to persuade banks and financial institutions around the world to curtail or cut off their dealings with the Islamic Republic of Iran. And a growing number of them -- reportedly 40, including major European banks -- have agreed to jump on board the Levey-led U.S. campaign to squeeze Iran’s economy in a bid to persuade it to suspend uranium enrichment, a key process in making nuclear weapons.

“Iran is seeing itself isolated politically through UN sanctions,” Levey told RFE/RL’s Radio Farda in an exclusive interview in Washington on October 16. “They’re seeing themselves isolated financially because the conduct that they’re engaged in is so offensive to financial institutions around the world that those financial institutions have decided that they don’t want to do business with Iran now, in any currency.”

Since the beginning of the year, Iran’s ability to finance major oil deals and generally do business with the rest of the world has been curtailed. Two of Germany’s biggest banks -- Deutsche Bank AG and Commerzbank AG -- announced an end to most ties to Iranian companies, a step taken also by UBS, the world’s biggest bank as measured by total assets. HSBC, Britain’s biggest bank, announced it would conduct no more new business with Iranian clients, as have three of Japan’s biggest banks. And many other international financial institutions have followed suit, Levey says, although they have preferred to remain anonymous.

Shady Business Practices

“You’ve seen a dramatic decrease in foreign investment in Iran, including in its oil infrastructure, which is really the future of the country,” Levey said. “A lot of companies are pulling out of Iran, not only because of the sanctions that are imposed but because there are deceptive commercial practices that Iran is engaged in, and companies are worried that they may not know with whom they are really dealing, that they might be dealing with a company, for example, that holds itself out as a legitimate commercial enterprise but is in fact connected to the military or connected to the IRGC [Iranian Revolutionary Guards Corps].”

Levey says Iran now finds itself both politically and financially isolated (RFE/RL)

Two key Iranian targets of the international community are Bank Sepah and Bank Saderat. The United States has moved against both. Last year, it banned U.S. institutions from doing business with Bank Saderat, which Levey said has been a lynchpin in funding terror groups like Hamas and Hizballah. In January, Washington passed a similar measure against Bank Sepah, accusing it of financing much of Iran’s missile program, including payments to a North Korean group that exports such technologies.

Adding to the financial pressure on Iran is a tougher approach from Europe. President Nicolas Sarkozy, for one, has called on France’s largest firms not to bid for projects in Iran. While Germany and Italy, Europe’s two biggest traders with Tehran, have been slower to join efforts to clamp down financially on Iran, Levey says he is encouraged that the overall trend toward isolating Iran will achieve the desired effect.

“I think it was very dramatic to have the French government say that they are encouraging their companies not to invest in new projects in Iran,” the senior U.S. official said. “If I were a young person in Iran, I would be very worried about that kind of trend and what it says about the prospects for young people as they enter the workforce and try to make a living, that so much of the world is deciding that Iran is not a viable place to do business.”

Impact Felt, Not Only At The Top

U.S. Secretary of State Condoleezza Rice acknowledged last December that while the financial crackdown on Iran is aimed primarily at its elite, the effort “is not surgical” and will naturally have an affect on ordinary Iranians. But Levey, like Rice, points out that President Mahmud Ahmadinejad’s government is ultimately responsible for Iran’s political and economic isolation, due to its defiance of UN sanctions and because, in his words, “they’re mismanaging their economy terribly.”

Independent experts have estimated Iran’s actual unemployment rate to be about double the officially reported rate of 11 percent. Tehran also claims that inflation is at 17 percent, but many experts believe is it far higher. At the same time the government has forced the central bank to cut interest rates below the rate of inflation. “They’re not following through on their economic promises to the people,” Levey said. “On top of that, they’re making it even worse for law-abiding, good citizen Iranians, if you will, because the regime is funneling all these no-bid contracts to the people associated with the Revolutionary Guards, which means that law-abiding Iranians don’t have economic opportunities.”

Broadly, the U.S.-led financial clampdown is making it harder for Iran to raise loans, obtain foreign currency, or hold offshore assets. Greater European participation is also making it much harder for Iran to simply shift oil transactions out of dollars and into euros.

Some observers have said the campaign’s impact on Iran may even be more significant than two rounds of sanctions passed against Tehran by the UN Security Council over the past year.

The first sanctions, passed last December, ordered countries to stop supplying Iran with materials that could contribute to its nuclear and missile program, and also froze the assets of some Iranian firms and individuals related to those programs.

A second round of sanctions, passed in March, broadened the previous ones to include a ban on all Iranian arms exports. It also asked countries to restrict financial aid and loans to Tehran, and froze the assets of 28 additional officials and institutions linked to Iran's nuclear and missile programs. About one-third of those officials are linked to Iran's elite Revolutionary Guards Corps.

The United States and Western powers now want to get a third round of even tougher UN sanctions passed against Iran. President George W. Bush has also said that the United States is keeping all options on the table, including the military one, in its bid to reel back Iran’s nuclear program.

Levey acknowledged that the sanctions and U.S.-led financial squeeze have yet to achieve their desired effect -- namely, to force Iran to suspend its most sensitive nuclear activities. But he hopes that the political and financial efforts now under way will persuade Iran that it is in its best interests to cooperate with the international community.

Although Iran says it will continue to pursue its nuclear program, that doesn't mean "that the sanctions can’t possibly have the desired impact,” Levey said. “We think that there is a likelihood that these measures will have the desired impact, because a rational look at this would suggest that Iran is acting in a way detrimental to its best interests in the long run.”