G-7 Urges Banks to Weigh `Risks’ of Dealing With Iran (Update1)
By Kevin Carmichael

Oct. 19 (Bloomberg) — Group of Seven finance ministers and central bankers for the first time in at least two decades rebuked Iran, calling on banks worldwide to be wary of risks associated with doing business with the Islamic republic.

U.S. Treasury Secretary Henry Paulson, French Finance Minister Christine Lagarde and their counterparts from five other wealthy countries praised the Paris-based Financial Action Task Force, a 34-government agency that last week concluded Iran represents a “significant vulnerability” to the international financial system.

“We particularly commend FATF for taking steps to protect the international financial system from the various money- laundering and terrorist-financing risks related to Iran,” the G-7 said in a statement after talks today in Washington. “Financial institutions are advised to take into account these risks.”

That marks the first time finance ministers and central bank governors collectively singled out Iran, according to a review of communiqu├ęs issued since the group began meeting in the mid-1980s. The G-7’s warning was a win for Paulson, who has spent the past year lobbying governments and banks to consider blocking Iranian President Mahmoud Ahmadinejad’s regime from the global financial system.

“This is a big victory for the Bush administration,” said Suzanne Maloney, a senior fellow at the Brookings Institution’s Sabon Center for Middle East Policy in Washington. “Financial pressure from outside the Security Council environment may be the only viable way for the U.S. to put pressure on the Iranians.”

UN Sanctions

Iran, the No. 2 oil producer in the Middle East, is defying two sets of United Nations sanctions by pressing ahead with plans to enrich uranium. Ahmadinejad maintains the program is meant to produce electricity.

President George W. Bush, who maintains Iran’s government intends to build nuclear weapons, is pushing for another round of UN sanctions. That effort is being opposed by Russia, which holds a veto in the UN Security Council. Russia is building a nuclear power plant in southwest Iran.

Russian President Vladimir Putin discussed Iran’s nuclear program with Ahmadinejad on a one-day visit to Tehran on Oct. 16. Bush said earlier this week that a nuclear-armed Iran risks World War III.

Besides the U.S. and France, the G-7 includes Japan, Germany, the U.K., Italy and Canada.

Russia’s Absence

Russia participates only as an observer, and its lack of formal influence in the richer developed countries’ club might have allowed the U.S. and its allies to be more critical of Iran, said Jim Phillips, a research fellow at the Heritage Foundation in Washington who studies the Middle East.

Alexei Kudrin, Russia’s finance minister, is scheduled to meet with Paulson at the Treasury tomorrow.

“The Russians are gumming up the works at the Security Council,” Phillips said. The G-7’s statement “will be helpful in ratcheting up pressure on Iran,” he said. “Iran is dependent in obtaining large amounts of foreign investment to keep up its oil industry.”

Paulson raised Iran at his first G-7 meeting a year ago, telling colleagues in Singapore that one of his biggest surprises on joining the Bush administration was discovering the extent to which Iranian front companies had infiltrated the financial system.

`Nuclear Bomb’

The former chief executive officer of Goldman Sachs Group Inc. said at the gathering that he would share some U.S. intelligence on Iran with other governments and banks.

Last week, Paulson said the campaign was working, saying in an Oct. 12 statement that financial institutions “across the globe” are reconsidering their ties to Iran.

“We are all very concerned with Iran, with the potential to develop a nuclear bomb,” Paulson said at press conference at the end of today’s meeting.

The U.S. is getting support in its stand from French President Nicolas Sarkozy, who has called for economic sanctions against Iran since he was elected in May.

“We must do everything so as not to limit ourselves to catastrophic alternatives: either an Iranian bomb, or bombing Iran,” Sarkozy said in an interview published earlier this month in the official Russian government gazette, Rossiiskaya Gazeta. “Between appeasement and war — and these two words are not in my dictionary — there exists a responsible position: tightening sanctions, aimed at bringing Iran to reason.”

`Unacceptable’

Paulson addressed Iran with Sarkozy when he visited Paris last month, and the country’s nuclear ambitions will be discussed when the French leader makes his first visit to Washington Nov. 6 and Nov. 7, the White House said today.

Because of Sarkozy, “it’s no longer an eager America and reluctant Europe,” said John Kirton, an associate professor at the University of Toronto who studies G-7 policy. Today’s statement will “get a message to the government of Iran that their behavior is increasingly unacceptable.”

To be sure, there’s only so much a statement by a group of finance ministers can achieve on its own, Maloney said. With oil trading at about $85 a barrel, it will be difficult to cause Iran much economic pain, she said.

To contact the reporter on this story: Kevin Carmichael in Washington at [email protected] .

Last Updated: October 19, 2007 21:21 EDT

http://www.bloomberg.com/apps/news?pid=20601082&sid=axeyWtoLggHM&refer=canada

 

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