Global bank hub ready to cut off Iran
BRUSSELS - An international banking clearinghouse crucial to Iran's oil sales said Friday that it is preparing to discontinue services to Iranian financial institutions, an unprecedented and potentially devastating blow to Tehran as the West ramps up a campaign to stop its nuclear program.
The statement by the Society for Worldwide Interbank Financial Telecommunication, known as SWIFT, suggests that the European Union — under pressure from Washington — is close to approving regulations that will require the Brussels-based hub to evict Iranian institutions from its ranks.
Some U.S. lawmakers are pushing for sanctions on SWIFT itself if it keeps up its services to Iran. SWIFT lawyers were coming to Washington next week for meetings with Congress, and Friday's announcement was widely seen as a way to head off that action.
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The Obama administration wants to see Iran barred from using the financial pass-through, which is used by virtually every nation in the world and overseen by major central banks, but it has no direct leverage. Washington was keen to see Europe act first, or to have SWIFT act on its own.
A U.S. Treasury Department official, speaking on condition of anonymity because SWIFT's action is still pending, said that the U.S. welcomes the move. The official said the U.S. will continue to urge the EU to act quickly.
Mark Dubowitz, an Iran sanctions expert advising the Obama administration, said an EU directive to SWIFT is expected within a few weeks.
More than 40 Iranian banks and institutions use SWIFT to process financial transactions, and losing access to that flow of international funds could badly damage the Islamic republic's economy. It would also probably hurt average Iranians more than the welter of existing banking sanctions already in place since prices for household goods would rise while the value of Iranian currency would drop.
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"If SWIFT follows through on its public commitment to ban Iranian banks, it could sever the Iranian regime's financial lifeline," Dubowitz said. "It would also be a significant political embarrassment for the regime: Iran would be the first country in SWIFT's history to be expelled from what is the financial equivalent of the United Nations."
It was not clear whether the SWIFT ban would apply only to new transactions with overseas buyers or whether it would prevent payment on existing oil contracts that go through sanctioned Iranian banks. It was also unclear whether the powerful Central Bank of Iran would be covered at the outset.
Proponents of blocking Iran from SWIFT say the financial network's own bylaws require that its services not be used to facilitate illegal activities and allow it to prohibit users that are subject to sanctions.
SWIFT handles cross-border payments for more than 10,000 financial institutions and corporations in 210 countries. It lets users exchange financial information securely and reliably, thereby lowering costs and reducing risk.
Established in 1973, the essential but little-known hub operates on trust and neutrality — SWIFT accepts nearly all comers and does not judge the merits of the transactions passing through its secure message system. Its managers have generally brushed off investigators and enforcement agencies, telling them to take up suspected wrongdoing directly with nations or corporations.
Getting Iranian financial institutions barred from SWIFT would leapfrog the slow-pressure campaign of sanctions aimed at getting Tehran to drop what the U.S. contends is its desire for nuclear weapons. It also could help the U.S. persuade Israel not to launch a pre-emptive military strike on Iran this spring. Tehran insists its nuclear program is for peaceful purposes only.
SWIFT said Friday that it stands ready to stop services to sanctioned Iranian financial institutions once it has clarity on what new rules will require.
"This decision follows extensive consultation with our board and with relevant regulatory authorities," it said. "The decision also reflects the extraordinary and highly exceptional circumstances of significant multi-lateral international support for the intensification of sanctions against Iran."
SWIFT, as a European entity, must comply with EU regulations. Last month, the 27-nation EU imposed an oil embargo against Iran and froze the assets of its central bank. But those financial measures have not yet been enacted and existing oil contracts with Iran are expected to be allowed to run until July.
An EU official, who spoke on condition of anonymity because he was not authorized to speak to the media, also said he expected that regulations necessary to enact the sanctions adopted last month would be ready by the end of February or in March. Those regulations would apply to SWIFT, which is technically a company headquartered in Belgium.