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European Sanctions Affect Iranian Banking

Braden Holly |
March 19, 2012 | 11:59 a.m. PDT

Executive Producer

Flag of Iran.  Image courtesy of Creative Commons.
Flag of Iran. Image courtesy of Creative Commons.
A little-known European financial institution may have further reduced Iran’s ability to trade internationally, adding pressure to sanctions that have already been in place for many years.

The financial institution, which operates out of Belgium, runs a system called the Society for Worldwide Interbank Financial Telecommunication (SWIFT) that allows banks to transfer money around the world, according to NPR.  Without access to SWIFT, Iranian banks may find their ability to move money in trade severely hampered.

However, the sanctions may not be effective in severing Iranian ties to the global market.

According to NPR:

"The sanctions mean nothing if Iran can cozy up to one country in the world who says, 'I am willing to do your banking for you,'" says Hossein Askari, a professor of International Business at George Washington University.

For example, he adds, "China says, 'We're going to buy Iranian oil and deposit the money in a Chinese bank.' That Chinese bank then makes those funds available to Iran."

The bank can buy soybeans in China or BMWs in Europe, Askari says, and then ship them to Iran without involving Iran in the transfer of funds.

In addition to possibly not achieving the desired effects, the sanctions may have unintended consequences. 

The Wall Street Journal reported:

Last Thursday, the EU took an additional step, ordering European firms to cut off blacklisted Iranian banks from any financial transactions or communications. The measure was aimed mainly at Belgian-based Society for Worldwide International Financial Telecommunication, which is used by the majority of the world’s larger banks to send secured messages crucial to making international transfer payments.

When the new legislation was published on Friday,  it stated clearly that the exemptions allowed the central bank in January also applied to the ban on financial message services.

Only one problem with that: “SWIFT cannot partially disconnect a bank,” a SWIFT spokesman said. “EU-sanctioned banks will be disconnected from SWIFT and they will no longer have access to the global secure messaging service of SWIFT.”

While the sanctions are intended to stop illegitimate financial transactions from taking place, they may negatively impact legitimate trade.

The Wall Street Journal reported:

And there’s the rub. The cost of this will almost certainly fall on the end-user–the owner of a mid-sized Tehran-based importer or exporter, for example. In other words, just the type of people Brussels was hoping to avoid hurting.

As tensions between Washington and Tehran continue to mount, legitimate business owners in Iran may pay the price.



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