http://www.terrorfi nance.org/ the_terror_ finance_blog/ 2008/06/those- whom-the.
html

 

By David Nordell

Anyone working in the field of anti-money laundering and counter-terror
financing encounters, more or less regularly, examples of the many
contradictions and unintended or even undesirable consequences created by
the very complex international regulatory regime and by the tens of
thousands of financial institutions trying (usually) to comply with it. But
a news item a few days ago really shows the mindless stupidities that the
fight against terror finance can sometimes produce.

The London ‘Times’ reported on June 6th that “Barclays bank rejects
customers to comply with US terror law
<http://business. timesonline. co.uk/tol/ business/ industry_ sectors/banking_ and
_finance/article407 6095.ece> .” At first reading, there’s nothing strange
about that: banks worldwide, certainly those in FATF member states, are
supposed to check both new and existing customers against the USA’s OFAC
black list and various other national and international lists, and reject
anyone who is identified on them as being involved with terrorism. Except
that this time, the customers’ link with terrorism was tenuous, to say the
least: they were completely ordinary British employees — tellers and
computer engineers — working for the completely legal London branches of
the Iranian banks Saderat and Melli.

Barclays, one of the largest UK banks, refused to comment on the reports;
but the ‘Times’ wrote that it had managed to obtain a letter from a senior
Barclays lawyer saying that the bank must consider “the global regulatory
environment” and that it regards “full compliance with sanctions regimes to
be of extreme importance.” What doesn’t make sense, to put it mildly, is
that both Saderat and Melli are licensed in the UK and fully regulated by
the Financial Services Authority, and that their UK operations are not
hindered in any way by the US and European Union sanctions regimes that are
designed to put economic pressure on Iran. And if it were considered
necessary to tighten the regulatory screws on these two banks, it would make
sense for the regulators, or police, to demand details of all their
customers and then force the bank to close or freeze the accounts of the
ones considered dangerous. The same could perhaps be said of directors and
senior managers. But ordinary operating staff? At best, this is a case of
Barclays trying to cover its corporate behind against some fear of future
criticism by the authorities; at worst, it’s sheer stupidity.

But this incident points to a much more serious systemic problem, one that
is especially severe and noticeable in the UK because London is such a key
financial centre, but actually one that exists worldwide. Six-plus years
after the US Congress passed the so-called US Patriot Act, and inspired a
whole slew of new international regulation in its wake, is the international
regulatory system for fighting terror finance actually working well? How
many compliance professionals, policemen and security service analysts are
being driven mad by totally unnecessary stupidities such as this, instead of
actually fighting terror finance? If a professionally- managed international
bank such as Barclays is wasting its time victimising employees, presumably
completely innocent, of an Iranian-owned business, how much energy and
attention is being diverted, in Barclays and elsewhere, from more important
things that might actually interdict the flow of money to Iranian-backed
terrorism, or Iranian nuclear development, or home-grown Islamic suicide
bombing plots?

I’m not asking these questions in order to bite at Barclays’ ankles or to
make it look even more ridiculous: my purpose is much more serious. The
fight against terrorism, and against rogue states such as Iran that wish to
overturn whatever order exists in the world, is difficult enough anyway. The
policy-wonk community of politicians, journalists and analysts is already
riven by deep clefts of opinion about whether Al Qa’eda is still in
business, on the decline or waiting to mount another mega-outrage; whether
Islamic terrorism is now directed top-down or bottom-up; whether Pakistan
can, or should, survive in its present form; whether the USA or Israel
should mount a preemptive strike on Iran’s nuclear infrastructure and what
the costs will be if this happens; and whether the global jihad is perhaps
changing direction from violent outrages to perhaps more dangerous political
directions that can’t be countered by existing legal frameworks. All of
these differences are reflected also in the fight against terror finance:
where and how to look for intelligence; whether regulation is falling
hopelessly behind new technological innovations in global finance; what the
increasingly sophisticated transaction and identity monitoring systems
should be looking for; whether suspicious money flows should be followed for
their intelligence value or interdicted in order to possibly save lives;
whether the international regulatory regime can work when some states don’t
have clear and effective laws banning terror finance; whether sanctions
against troublesome states even work at all. These questions, and the
implementation of the resulting policies, need a lot of time, attention and
— not least — intellectual integrity. But what the wonks too often forget
is that management time is not unlimited; nor is the number of good people
to do the work. Bad decisions actually come at the expense of the ability to
get good results.

As if to prove my point, Iran’s President Mahmoud Ahmadinejad has made total
fools of the USA and the European Union by ordering Iranian banks to
repatriate funds to the country’s central bank. According to a ‘Daily
Telegraph’ article
<http://www.telegrap h.co.uk/news/ worldnews/ middleeast/ iran/2095636/ Iran%27s-
Mahmoud-Ahmadinejad -orders-banks- to-move-assets- to-beat-EU. html> of June
8th, Ahmadinejad was concerned that as tension mounts, the EU would step up
the US-inspired sanctions against the operations of Iranian banks in Europe,
especially Saderat and Melli, and so he decided to move the money home
before it was too late, using a network of front companies in the Gulf.

In Melli’s case, German financial investigators had already raided the
bank’s Hamburg office and ordered a freeze on the bank’s assets there; but
the ‘Telegraph’ quoted Western officials as being concerned that the funds
had already been smuggled back to Teheran via Dubai, possibly with the help
of Dutch banks. Even without collusion by the authorities in Dubai, the
mini-state remains the most comfortable trading and financial channel for
Iran, since there are an estimated 10,000 Iranian companies based there.

The governor of the Iranian central bank, Tahmaseb Mazaheri, may not be
happy with Ahamadinejad’ s move, presumably because the president’s
interference will handicap the country’s economic links with Europe. But
Ahmadinejad, who is no economist, was presumably more concerned about the
blow to national morale of having large sums of money frozen in Europe, and
equally about the opportunity to cock a snook at the US-European sanctions
regime. And, to the extent that he has managed to retrieve money from being
frozen in Europe, he probably feels more optimistic about being able to defy
the USA over his nuclear ambitions.

It was only last week that I had cause to look, in ‘Are knees beginning to
quake in the Gulf?’
<http://www.terrorfi nance.org/ the_terror_ finance_blog/ 2008/06/are- knees-begi
n.html> , at how a potential military strike against Iran could result in
catastrophe for the financial systems of the Gulf states in general, with
severe consequences for the rest of the world’s financial institutions as
well. As I pointed out then, the Gulf’s bankers and regulators will only
have themselves to blame for the results. But actually I was wrong: it’s not
only the greedy bankers and businessmen of the Gulf who have been driven mad
by the mythical gods referred to in the title, and thus left an open door
for Iran to continue doing business; it’s also those responsible for
regulatory and sanctions policy in the West. Let’s hope that they can snap
out of the madness quickly enough to avoid, or at least limit, the
destruction.

 

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