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Stand and deliver

March 2008
Iran has become the target of increasingly severe sanctions from the US and the United Nations and banks across the Middle East have been feeling the effect. Under secretary of the US treasury for terrorism and financial intelligence department Stuart Levey spoke to Mike Gallagher
Stuart Levey became the first under secretary of the treasury for terrorism and financial intelligence in July 2004. As under secretary, he leads an office which marshals the treasury department's policy, enforcement, regulatory, and intelligence functions.

Before that, he served as the principal associate deputy attorney general in the US department of justice, which he joined in 2001. He spent 11 years in private practice with the Washington law firm, Miller, Cassidy, Larroca & Lewin, which later merged into Baker Botts, where he had a litigation practice with a special emphasis on white collar criminal defence. Levey graduated from Harvard College, summa cum laude, in 1986 and from Harvard Law School, magna cum laude, in 1989.

Levey has been pivotal in enforcing US sanctions on Iranian banks which have been accused of financing Iran's nuclear proliferation programme. He recently visited the UAE on a tour of GCC states in an attempt to increase support for sanctions against the Iranian banks, Bank Melli , Bank Mellat , Bank Sepah and Bank Saderat .

Does the National Intelligence Estimate report which said that Iran had stopped its nuclear weapons programme in 2003, have any effect on plans to increase sanctions against banks dealing with the Iranian government?
The National Intelligence Estimate of Iran does not change the nature of the case.

One reason it does not change the nature of the case is because of the conduct of a number of Iranian banks and their activities on behalf of Iran's ballistic missile entities. The Iranian government uses these banks to procure items for the ballistic missile programme and finance the import of those items, but without identifying the true purpose of the transaction. Part of what any normal financial system will do is try to learn the true nature of any transaction before it decides it is going to become involved in it.

Iranian financial institutions went to a number of banks around the world and said, 'please handle this transaction, but do not identify us when you process the transaction, or indicate that there is any Iranian involvement. And please do not put our name on the documentation.' It is that kind of thing that raises concerns about the controls of financial institutions.

Are you seeking commitments from Middle Eastern banks as part of the sanctions?
I am not seeking commitments from anyone I have met with. What I have done is discussed and shared information about the kinds of conduct we have seen and discussed the kinds of obligations I have just talked about. I have not received any commitments and I have not asked for any commitments, but from everything that I have heard here and elsewhere, that kind of due diligence and that kind of scrutiny is what people are starting to engage in more often.

We have been taking a close look at how the Iranian banks are operating here and how the Iranians may be trying to use the banking system in the UAE to get access to the financial system for illicit purposes. However, on the matter of sovereign wealth funds, we have an open investment policy in the US and we want to see sovereign wealth funds invest in the US, provided that there is the kind of transparency that my colleagues from the treasury department have been talking about.

More European banks and countries are joining the US in enforcing the sanctions. Do you think that is driving the Iranian government to look elsewhere?
Iran had many of the major European financial institutions say that they would not deal with them in any currency any more because of these risks. Iran has therefore looked to other places to try to replace those relationships. One of the places they are trying to do that is here in the UAE. They are looking everywhere and I would say that the only place where they are not looking is in the US.

It is not clear to me how much success they have had because, as they go to financial institutions with which they do not have a relationship, they are discovering that these banks are aware of what is going on in Iran. We believe that the government controls all the major Iranian banks and has misused these banks and turned them into financial pariahs.

How does United Nations Security Council Resolution 1737 help with sanctions against banks doing business with Iran?
Resolution 1737 not only lists certain entities in Iran that should be sanctioned and have their assets should be frozen, it also has another paragraph which requires all states to ensure that there are no financial services being provided within their countries that could help Iran with its missile programme.

That must mean a requirement to do something more than just freeze the assets of the entities that are listed in paragraph 12 because if that was all that was required, then there would be no reason for paragraph six.

That paragraph states that 'all states shall also take the necessary measures to prevent the provision to Iran of any technical assistance or training, financial assistance, investment, brokering or other services, and the transfer of financial resources or services, related to the supply, sale, transfer, manufacture or use of the prohibited items, materials, equipment' and so on.

It is paragraph 12 that generates an obligation for banks and countries to go beyond merely checking lists to see and learn as much as they can about the kinds of transactions they are engaging in. If a bank is being asked to become involved in a transaction with an Iranian entity, they should try to get a sense of the real nature of their business and whether they trust the integrity of the people they are dealing with.

Do you think that the sanctions are going to have any effect on the upcoming privatisation of Iranian banks?
All of the actions we have taken involve Iranian state-owned banks and it is the government that has misused those banks. The underlying factual basis for the Financial Action Task Force (FATF) statement is the lack of any anti money laundering and terrorist financing controls within Iran. That is separate in a sense, but it also applies to private banks in Iran. The kind of enhanced due diligence that is being called for in the FATF statement would apply, not just to state-owned Iranian banks, but also to privately owned Iranian banks.

I also think there is a question when you think about privatisation in Iran and whether it is real. In other words, is it truly private or does the benefit of privatisation really fall to the same people who get the benefit of sole source contracting in Iran, namely the Iranian Revolutionary Guard Corps and other government associates. Both of those questions come up when dealing with private banks in Iran.

I understand that the government has recently introduced anti-money laundering laws in Iran. Would that have any major bearing on sanctions?
I know that the FATF was briefed on what Iran was doing. Iran came to Paris to brief the FATF delegations from a number of countries about this. I believe that the FATF took all of this into account. I do not know the details of how they assessed it, other than to say that they apparently were not persuaded that the problem has been solved by any stretch.

Your focus here in the UAE has been on two of the Iranian banks that are operating here. Have you had any focus on any of the local banks?
My focus has been on the issue of what kind of controls and scrutiny should be done in order to ensure that the financial sector that is being built here is not tainted. That is the overall theme of the discussion. This issue affects all of the banks here.

© Banker Middle East 2008