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Treasury Notes

 A Severed Financial Lifeline to Europe, A Sharpened Choice for the Leadership of Iran

By: David S. Cohen
5/24/2011

Iran’s ability to access Europe’s financial sector to support its nuclear and ballistic missile proliferation activities suffered a major defeat on Monday, as the European Union announced its decision to impose sanctions against Europaische-Iranische Handelsbank (EIH), Iran’s financial lifeline to Europe. The United States applauds this action.

Headquartered in Hamburg, but under Iranian ownership, EIH was one of the few banks in Europe that was engaging in business with Iranian banks that have been sanctioned for their proliferation activities by the U.S. and EU. EIH played a critical role for Iran, facilitating business with sanctioned Iranian banks and handling billions of dollars worth of transactions on their behalf, while actively obscuring Iranian involvement in the process.

In September 2010, the U.S. Department of the Treasury imposed sanctions against EIH under a U.S. law aimed at freezing the assets of proliferators of weapons of mass destruction (WMD) and their supporters. This action cut EIH off from the U.S. financial system and exposed EIH’s provision of financial services to known Iranian WMD proliferators.

But even after the U.S. acted, EIH continued to engage in the deceptive practices and illicit conduct that are the hallmark of Iranian government-controlled financial institutions. Its continued operations exposed European financial institutions to the risk of becoming tangled up in Iran’s proliferation activities and illicit conduct. Indeed, just last week, the U.S. sanctioned Iran’s Bank of Industry and Mines, exposing yet another scheme devised by EIH to circumvent EU banking sanctions.

In recent years, we’ve seen Iran’s leadership concentrate on developing increasingly sophisticated schemes to evade sanctions rather than engage meaningfully with the international community to address growing concerns about Iran’s proliferation activities.

The path Iran’s leadership has chosen and the threat it poses leave the international community no choice: we must continue to expose Iran’s deceptive activity take coordinated actions to hold Iran accountable for its failure to meet its international obligations and work together to robustly implement financial sanctions – like yesterday’s action against EIH – to create the leverage needed for our diplomatic efforts to succeed.

We’re seeing sanctions begin to have their intended disruptive effect, but there is still much more to be done.

As Iran’s isolation has deepened and it has struggled to attract foreign investment, develop its oil and gas fields, and maintain a grip on growing inflation and rising unemployment, we’ve seen Iran’s leadership increasingly turn to the Iranian Revolutionary Guard Corps (IRGC) in an effort to maintain economic and political control.

The IRGC’s expanded control and influence over the Iranian economy – to the detriment of ordinary Iranian businessmen – and the central role it plays in Iran’s missile and nuclear programs, its support for terrorism, as well as its involvement in serious human rights abuses, has made it a primary focus of U.S. and international sanctions.

And that is why, in the coming weeks, the United States will redouble efforts to target the IRGC’s expanding involvement in Iran’s economy, including its energy and transportation sectors, and to expose its ongoing human rights abuses and continued support for terrorism.

As we increase pressure on the IRGC, we will work closely with Germany and the EU, as well as other partners around the world, to focus attention on those entities facilitating Iran’s illicit activities, especially the IRGC.

We will also continue to act to prevent Iran from abusing the international financial system to evade international sanctions. As we discover Iranian schemes to dupe unwitting financial institutions into conducting prohibited transactions, we will take actions to expose them and stop them.

We know that Iran’s inability to access the international financial system and attract foreign investment to develop its oil and gas fields is causing its leadership great concern. The EU’s move to deny Iran the ability to use EIH as an access point to the European and international financial and commercial systems will undoubtedly impede further Iran’s ability to facilitate its proliferation activities and increase pressure on Iran’s leadership.

By blacklisting EIH and other Iranian firms engaged in illicit activity, the EU has taken an important step to sharpen further the choice for Iran’s leadership between reintegration into the international community and, increased isolation, pressure, and economic hardship.

David S. Cohen is Acting Under Secretary for Terrorism and Financial Intelligence

Posted in:  Terrorism and Financial Intelligence
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