Treasury Notes

 The Entire Iranian Banking Sector

By: David S. Cohen

As part of a series of actions announced by Secretary Geithner and Secretary Clinton to ratchet up pressure on Iran, Treasury yesterday issued a finding under Section 311 of the USA PATRIOT Act that identified Iran as a jurisdiction of “primary money laundering concern” and proposed in a rulemaking process the strengthening of the rules prohibiting Iran from accessing the U.S. financial system.

What is most significant about yesterday’s action is that for the first time, Treasury is calling out the entire Iranian banking sector, including the Central Bank of Iran, as posing terrorist financing, proliferation financing, and money laundering risks for the global financial system. We have assembled a thick dossier of evidence detailing Iran’s illicit activities and the threat that Iran’s banking sector poses to the international financial system. Dealing with Iran’s financial sector has become such a serious risk that an action against the entire jurisdiction was necessary.

As Secretary Geithner said, “Any and every financial transaction with Iran poses grave risk of supporting those activities,” and we believe that the best way for the international community to protect itself from that risk is to disassociate from the Iranian banking sector, including the Central Bank of Iran.

We were joined by the United Kingdom and Canada who took similar actions to cut off Iran from their financial systems – and our collective action today is consistent with calls from the Financial Action Task Force (FATF) to strengthen existing safeguards to protect the international financial system from the terrorist financing risk emanating from Iran, and further demonstrates our commitment to these efforts.

Our action, along with those taken by the U.K and Canada, should have a chilling effect on the willingness of foreign financial institutions to do business with Iranian banking institutions. Foreign banks in jurisdictions where there may not be comprehensive sanctions on Iran are now much more likely to make the judgment that Iran is an increasingly risky place to do business. And each time a bank decides to protect itself by backing out of business with Iran, it puts additional stress on the Iranian economy and sends a clear signal to Iran’s leadership that they need to live up to their international obligations or they will face increasing consequences.

By highlighting the Central Bank of Iran’s complicity in the illicit and deceptive conduct detailed in the finding, we expect that our partners and allies around the world will think long and hard about any transactions associated with Iran’s Central Bank and other Iranian banks, and take forceful steps to protect themselves and their financial sectors.

President Obama has called on his Administration to impose tough sanctions on Iran in order to pressure its government to adhere to its international obligations with respect to its nuclear program. Last night he said:

“Since taking office, I have made it clear that the United States is prepared to begin a new chapter with the Islamic Republic of Iran, offering the Iranian government a clear choice. It can fulfill its international obligations and reap the benefits of greater economic and political integration with countries around the world, or it can continue to defy its responsibilities and face even more pressure and isolation. Iran has chosen the path of international isolation. As long as Iran continues down this dangerous path, the United  States will continue to find ways, both in concert with our partners and through our own  actions to isolate and increase the pressure upon the Iranian regime.”

We will continue to use tough, innovative ways to increase the severe economic pressure on Iran’s leadership and will continue to move forcefully to protect the international financial system from Iran’s illicit activities.

David S. Cohen is Under Secretary of the Treasury for Terrorism and Financial Intelligence.

Posted in:  Terrorism and Financial Intelligence
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