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April 14, 2010

BBC Interview with Mehrdad Emadi , an Economic Advisor for the European Union

The following is the transcript for an excerpt of the BBC Persian broadcasting that begins at

Host: Mahmoud Bahmani, the Governer of Iran’s Central Bank, has distributed this year’s monitoring policy package to the banks. Mahmoud Bahmani has insisted on “extra effort” (a term coined by Supreme Leader Khamenei) to monitor the resources used by banks to recover unpaid loans and ensure the Islamic [policies of] banking are followed.

[The execution of the monitoring policy package] eliminates obstacles, which allows foreign banks to open branches in Iran with permits issued by the Central Bank. The package states that financial institutions are required to fully abide by laws that prohibit money laundering. Two months ago an institution related to the Organization for Economic Expansion and Cooperation in Paris, France warned businessmen to be cautious of money laundering or money used for terrorism when dealing with Iran.

I talked to economist Mehrdad Emadi, the economic adviser to the European Union, and I first asked him about the tendency of foreign banks to enter Iranian markets.

Mehrdad Emadi: The possibility for major industrial and western banks to enter Iran is very low. There are two reasons for this:

1. Within the framework of sanctions, the prospect of tighter economic activities in Iran, especially in the banking area, will dramatically increase the cost for foreign banks to operate in the country. Currently we see the participation of foreign banks in Iran to be less than 1%.

2. The second reason is that in general, due to the lack of transparency in the area of accounting in Iran, the risks for bank transfers and loans are bleak. This has led to a lack of interest on the part of foreign banks in the past 15 years to participate in the Iranian banking system.

We have seen that in the past couple years some United Arab Emirates and Chinese banks have shown interest to participate in Iran’s banking system. This is mainly due to the political relationship between the two countries and Iran. The order issued by the Central Bank of Iran might be aimed at more presence by Chinese banks, the Islamic Bank of Sharjeh, or the [National] Bank of Dubai.

Host: Mr. Emadi, another part of the order by the Central Bank of Iran includes fighting money laundering and fighting financial sources used for terrorism and the banks are ordered to execute these orders. A few months ago the Organization for Economic Expansion and Cooperation warned businesses regarding these two issues. How much will the order by the Central Bank reduce concerns regarding these two issues?

Mehrdad Emadi: The warning by the Organization for Economic Expansion and Cooperation a few months ago was due to a lack of transparency in money transferring and the large amounts of cash taken out of Iran’s banks. The transfers were strange and the sources were unclear. The order issued by the Central Bank contradicts the greater influence that the Revolutionary Guards has on the Iranian bank system that ultimately affects the country’s overall economic system. Many companies now depend on the Revolutionary Guards, especially in the last four years. The Revolutionary Guards never declared their bank accounts in the commercial market, which consequently led to a lack of public awareness about the activities taking place.  It seems very unlikely that the order by the Central Bank will be implemented.

On the other hand, the IRGC has stressed that the security surrounding its activities relates to military and national security and people are not supposed to know about these activities. It seems unlikely that the IRGC will disclose their financial activities or activities related to satellite companies.

Thus, even though the order by the Central bank means well, it is not very practical and the costs are high.