- Posted June 8, 2014 by
An ostracized Iranian financial system
The Iranian nuclear deal signed in Geneva in November 2013 eases parts of the economic sanctions which weigh heavily on the Iranian economy since 1979. Indeed it involves only the frozen Iranian assets, worth 7 billion USD invested abroad which should gradually get unfrozen.
The oil and banking sectors are still under full international sanctions, and this until a final deal is struck. This past February, the government of Hassan Rohani presented its 2014-2015 budget. According to the French daily Les Echos, the budget deficit is abysmal. The economic growth prospect is negative with the Iranian economy shrinking by 5.8%, the official inflation rate is 42% and unemployment reaches 30% of the country’s workforce. This new budget will be unable to solve the endemic economic crisis Iran faces. And above all, when the yearly oil revenues were at a 70 billion USD average over the last 8 years, they are estimated at only 30 billion USD in the new budget.
Heavy gale on the Iranian banks
Oil alone will not help the Iranian economy get out of its present doldrums; the paralysis of the banking sector keeps paralyzing the exchange system. In September 2006, the Bush administration blacklisted one of the leading Iranian banks, the Saderat Bank, alleging that the bank, nationalized in 1980 and with 3400 branches worldwide, was being used to transfer funds to terrorist organizations.
In 2010, it was the turn of the EU to blacklist the Saderat Bank as well as largest commercial Iranian bank, the Mellat Bank, on grounds that the two banks were participating in the Iranian nuclear programme. In February 2013 though, the Luxembourg based EU Court of Justice ordered the EU to lift its sanctions, basing its decision on the fact the EU had not brought enough evidence showing that the banks were involved in the Iranian nuclear programme. The EU has appealed against the decision and in the meantime the two leading financial institutions remain ostracized.
Already weakened by the international financial sanctions, Iranian banks were jolted in 2011 by an unprecedented scandal in the history of Iran when a massive fraud of over 2.6 billion USD was revealed. According to the Kayan newspaper, the fraud had been masterminded by Amir Mansour Aria, a financier who could be connected to Mahmoud Ahmadinejad. Amir Mansour Aria is alleged to have used forged documents to obtain loans from seven different public and private Iranian banks in order to buy privatized public companies.
At the heart of the scandal was the Saderat Bank; it is not the first time the institution had to face a major scandal. Already in 1997, tens of billions of USD had been swindled by the two brothers Daoudand Hassan Afrashtehpour. According to the Iranian newspaper Roozno, the two brothers were allegedly arrested in Tabriz and condemned one to 20, the other to 25 year prison terms. Once again, this case of corruption was supposed to involve several high representatives of the Islamic Republic. The money is supposed to still be stashed away abroad and Hassan Afrashtehpour has shunned prison. Today he is the head of a trading group, the Tejarat Aria Gostar Iranian Navid Co, and peacefully conducts his business in Teheran and abroad, most notably with the United Arab Emirates.
But Iranian problems go far beyond these corruption cases; the country has to face another major problem. Iran is forbidden to make bank transfers via the SWIFT (Society for Worldwide Interbank Financial Telecommunication) network. As a matter of fact, since March 2012 the EU denies access to the network to all the Iranian organizations under EU sanctions; that is 116 individuals and 446 companies, including the Saderat and Mellat Banks as well as the Iranian Central Bank. The SWIFT network is used worldwide by all the financial institutions for their transactions. This new restriction compels Iran to circumvent the SWIFT system, either by using cash or gold for its payments, or by going through countries that do not apply very strict scrutiny on financial transactions.
And again this opens the door to more fraud, more corruption and more embezzlement…