Despite Sanctions, Iran’s Money Flow Continues

It's time for the Swift global financial network to cut off service to all of Iran's banks, not just 14.

The United States and Europe are failing to use a tool already in their possession that would deliver a knockout blow to Iran’s nuclear program. It isn’t a new piece of computer malware or a bomb. The group that would accomplish the mission isn’t the Pentagon or the European Union—it’s the Society for Worldwide Interbank Financial Telecommunication, or Swift.

From its headquarters in La Hulpe, Belgium, near Brussels, Swift facilitates about a million global financial transactions per day by serving as an interbank messaging system for crediting and debiting accounts. Iranian financial institutions, like nearly every bank in the world, are reliant on Swift to move funds globally.

The EU has blacklisted 14 of Iran’s 30 banks for facilitating illicit activity, including terrorism. The U.S. has designated the 14 banks named by the EU as well as another six Iranian banks for supporting Iran’s nuclear program and sponsorship of terrorism. Critically, the U.S. has also blacklisted all 30 Iranian banks for deficiencies present in the anti-money-laundering systems of the Islamic Republic of Iran.

Swift, however, has barred only the 14 banks blacklisted by the EU, leaving the other Iranian banks free to work within the global financial system. This is a clear violation of Swift’s own corporate rules, which state that services “should not be used to facilitate illegal activities.” Moreover, given Swift’s large physical presence in New York and its business dealings in the U.S., there are strong legal grounds to argue that it is subject to U.S. law, which would mean it is violating that as well.

U.S. banking regulators and Treasury officials have an obligation to make Swift stop its dealings with Iranian banks or cease business operations in the United States. If Swift continues to service banks that the U.S. Treasury has designated as engaged in “specified unlawful activities,” the U.S. government can take immediate legal action—under the Patriot Act of 2001 and the Laundering Control Act of 1986—and freeze its U.S.-based assets.

In Europe, Swift is adhering to the letter of the law by cutting off service to the 14 Iranian financial institutions on the EU blacklist. But the impact is blunted because those Iranian banks not on the list retain access to the Swift network and provide their blacklisted counterparts entree to the international financial system through correspondent services. The symbiotic relationship of the Iranian government and its banking sector enables the regime to maintain access to foreign currencies and markets by exploiting the banks that continue to use Swift.

Swift has maintained that it is a “neutral global financial communication network.” But by any reasonable standard, Iran has forfeited its right to move money through the international financial system. It has done so by forcing its banks to sponsor terrorism, support Tehran’s dangerous nuclear objectives, and facilitate criminal activity.

In February, Swift CEO Gottfried Leibbrandt said that if Swift completely stopped servicing Iranian banks, the Islamic Republic would be forced to reconcile its fund transfers using email or telephone, and that such alternatives are “not as secure as Swift and [lack] the convenience factor.” In laymen’s terms, Iran would effectively be shut out of the formal banking sector.

To make the existing sanctions more effective, European lawmakers should urge the European Central Bank to issue a banking advisory, as the U.S. did in 2008 and 2010, highlighting the fact that all Iranian banks are engaging in money laundering and other illicit behavior. This should provide Swift with the necessary justification for cutting off business with all 30 Iranian banks, not just those on the EU blacklist.

The Islamic Republic uses banks to support its quest for nuclear weapons, a quest that international sanctions are designed to foil. For this reason, the European Central Bank and U.S. Treasury should demand that Swift cease doing business with the Iranian-owned and operated banks and take action to ensure its compliance. Their failure to make this demand enables Iran to flout the will of the international community and thumb its nose at the sanctions so lengthily and laboriously negotiated.