By Glenn Kessler

Source:

October 20, 2010

is secretly trying to set up banks in Muslim countries around the world, including and Malaysia, using dummy names and opaque ownership structures to skirt sanctions that have increasingly curtailed the Islamic republic’s global banking activities, U.S. officials say.

The Treasury Department has blacklisted 16 Iranian banks for allegedly supporting Iran’s nuclear program and terrorist activities; other countries have followed suit with their own measures. Tehran’s search for new banking avenues is a sign of the growing effectiveness of the sanctions, U.S. officials said.

Still, they think that Iran has had limited success, if any, in secretly setting up banks.

“The Iranians, we believe, are trying to set up operations in a number of places, and it’s an indication that they can’t do normal banking,” a senior administration official said, speaking on the condition of anonymity because he was not authorized to talk publicly. “They want to buy banks and set up banks in various places where they believe they will be able to carry out business without the United States being able to impede it.”

M. Bak Sahraei, a spokesman for the Iranian mission to the United Nations, said he could not immediately comment but would seek guidance from officials in Tehran.

The U.S. official said the Obama administration is aware of Iran’s efforts in “a number of neighboring countries and not-so-neighboring countries.”

In Iraq, an Iraqi official said, Tehran has established at least two banks in Baghdad, including one affiliated with Bank Melli, Iran’s largest commercial bank. The U.N. Security Council listed Bank Melli in 2008 as being , and the European Union has shut down all of its offices in Europe. Iran also has tried – without success – to establish commercial banks farther north in Iraq, in the Kurdistan region, the Iraqi official added.

Treasury officials have fanned out across the globe in recent weeks, visiting such countries as Azerbaijan, Turkey, the United Arab Emirates, Bahrain and to bolster compliance with sanctions. Treasury and State Department officials have warned “local authorities of the risks of letting these operations take root,” the U.S. official added.

Azerbaijan has a branch of Bank Melli in Baku, its capital, and last month Iran offered to create a joint bank for the two countries, according to Azeri news reports. In 2008, the U.S. Treasury Department alleged that Futurebank in Bahrain was controlled by Bank Melli, but it continues to operate there.

Iranian Finance Minister Shamseddin Hosseini told reporters in Washington this month that while “Iran has faced some trouble from sanctions,” it has had few problems trading with other countries or securing hard currency.

“The world is big, and the people who are trading [with us] find ways to transfer money,” Hosseini asserted. “When you block the stream of water, it goes another route.”

“It has always been a cat-and-mouse game with Iran,” said Matthew Levitt, a former Treasury Department official and director of a counterterrorism and intelligence program at the Washington Institute for Near East Policy. He said the banking operations, even if successfully created in other countries, are likely to be small-scale and insufficient to make up for the volume of banking activity Iran has lost.

For years, the United Arab Emirates was an important conduit for Iranian goods and financial transactions. But since were approved in June, the UAE has cracked down on Iranian activities, in part by curtailing financial dealings with Iranian banks blacklisted by Washington. In response, Iran appears to have tried to enlist Malaysia as a new financial hub, but without success, the U.S. official said.

“As the Emirates have begun to take stronger measures, the Iranians are looking for other financial and commercial centers that they can exploit,” he said. “It’s clear that they have had their eye on Malaysia for a while. It is a constant topic of discussion with Malaysia authorities. ”

Malaysia has been a transshipment hub for suspect goods for Iran, making it a logical place for financial transactions. But this year, the Malaysian government announced that it had enacted an export-control law intended to strengthen its ability to curb trade in materiel for weapons of mass destruction.

The U.S. official praised the steps taken by Malaysian authorities to thwart Iranian efforts, including their suspension of the local branch of Iran’s second-largest bank, Bank Mellat.

U.S. officials have emphasized repeatedly to financial institutions the reputational risks of continuing to do business with Iranian entities. As the Revolutionary Guard Corps, long involved in Iran’s nuclear and missile activities, has expanded into other industries, U.S. officials have responded by blacklisting a long list of companies associated with the corps and warning international firms that they cannot be sure if they are doing business with a target of sanctions.

Major international banks, such as Lloyds, Credit Suisse and Barclays, also have been fined hundreds of millions of dollars by U.S. authorities for continuing to process payments that originated in Iran or altering records to disguise such payments.