A SWIFT Iranian Knockout Blow

Last week, one of the most important international banking organizations said it was preparing to ban blacklisted Iranian banks for their role in facilitating illicit financial transactions. Although existing international sanctions have placed significant pressure on Tehran, the United States and the European Union have the ability to render a knockout blow that would significantly curtail Iran’s access to the international financial sector.

The Society for Worldwide Interbank Financial Telecommunication, also known as SWIFT, is a banking cooperative owned by its member financial institutions. It is used by banks around the world to debit and credit money. The vast majority of global interbank transfers are routed through the SWIFT network, and nearly every bank in the world uses SWIFT to move funds globally. As of January 2011, SWIFT linked more than 9,500 financial institutions, in 210 countries and territories, and facilitated over 17 million transfers daily. SWIFT is headquartered in Belgium and has offices in the world’s major financial centers, including a very large presence in New York.

Iran relies heavily on SWIFT to move its funds and to finance its nuclear program, proliferate terrorism, and repress its own people. According to the organization’s own documentation, all of Iran’s domestic banks are connected to SWIFT, and in 2010, they sent 1.16 million messages and received 1.1 million, each of which represents movement of money. As of February 2010, Iranian financial institutions, including branches, departments, and head offices, possessed 675 SWIFT codes, which act as unique identifiers and allows Iran to manipulate the global financial market.

As the international community implements robust sanctions against Iran, SWIFT has been in breach of the sanctions regime, along with U.S. and European laws. Beginning in 2007, the UN ordered member states to cease doing business under any circumstances with Iran’s Bank Sepah and its affiliates and also placed restrictions on two other Iranian banks, Melli and Saderat. Most recently, the UN designated the First East Export Bank, located in Malaysia, and Australia, Canada, and the EU have published a list of illicit Iranian banks. For its part, the United States has formally desig­nated those named at the UN, as well as another sixteen Iranian banks for their role proliferating weapons of mass destruction and terrorism. The U.S. also blacklisted every Iranian bank specifically for engaging in money laundering. All of the Iranian banks designated by the U.S. and Europe have SWIFT Codes.

SWIFT has even in violation of its own corporate rules, which clearly state that services “should not be used to facilitate illegal activities.” Furthermore, both the United States and Europe, by blacklisting Iranian financial institutions for their role in terrorism finance and money laundering, have provided SWIFT with sufficient reasons to prevent sanctioned Iranian banks from having access to the international financial sector.

Some might argue that SWIFT must provide unfettered access to everyone, since excluding any country, no matter how nefarious, would endanger access for all. Others will claim that powerful countries like the United States could use SWIFT as a political tool. Yet it is clear that Iran, by abusing its financial sector to help sponsor terrorism, achieve nuclearization, and facilitate criminal activity, has by any reasonable standard lost its right to move money freely around the globe.

SWIFT announced last Friday that it “stands ready to act and discontinue its services to sanctioned Iranian financial institutions as soon as it has clarity on EU legislation currently being drafted.” But because SWIFT has a presence in both the U.S and EU, it is subject to both jurisdictions’ laws, and therefore should cut off all blacklisted institutions. Simply put, since all Iranian banks are engaging in criminal activity, SWIFT has the responsibility and the ability to cut off Iran and hamper its ability to abuse the international financial sector.