Iran: countering Western banking sanctions
The Islamic Republic of Iran has for many years been experiencing serious multidimensional pressure from the West. Resilience and resourcefulness allowed Iranian enterprises and, in general, Iran to skillfully overcome the barriers erected by American and European sanctions.With Iran’s renewed nuclear program in 2005, the ring of sanctions against Iranian banking institutions began to shrink. The United States of America regularly updated the extraterritorial sanctions against Iran and the list of Iranian banks, with which it was forbidden to conduct any activity to American and foreign companies and banks. The European Union, following the United States, opened its sanctions list of Iranian banks and a list of restrictions on conducting financial activities with Iran. The “double blow” of the European Union in 2012 was a strong effect: an embargo on the supply of Iranian oil and the disconnection of Iran from the international interbank system of information transfer SWIFT. As a result, in 2014, the vast majority of Iranian state and private banks were cut off from European and American banking systems and had minimal opportunities to purchase US dollars and euros for foreign trade transactions.
In these seemingly catastrophic conditions, Iran began to actively use alternative ways of making international interbank payments under international contracts. Emphasis was placed on settlements with trading partners in national currencies and barter transactions. The main goods for which Iran received funds or goods were hydrocarbons. So, with Turkey, India and China, agreements were reached on settlements in liras, rupees and yuan, respectively. Using accounts in the national banks of these countries, Iran could buy locally produced goods.
Moreover, Iran, in a situation of banking isolation, began to develop trade using gold as a means of payment. For example, Turkey carried out gas-for-gold deals with Iran, which led to serious political pressure from Ankara from the European Union and the United States, which eventually banned the sale of gold and other precious metals to Iran.
It should be noted that in circumventing Western sanctions, the calculation in national currencies, barter and gold is not the whole range of effective instruments. To meet their needs for international transactions, Iranian individuals and legal entities also used at least the services of banks of third countries, a money transfer system and cash exchange in third countries. In addition, Tehran appealed to the governments of several countries with the idea of creating joint banks.
Various sources note that Iranian businessmen made money transfers through the hawala system. A feature of the system is the fact that it is devoid of an extensive bureaucratic apparatus, most operations are carried out in amounts up to 100 thousand US dollars, and the transfer reaches the addressee within 48 or even 24 hours. In general, these characteristics allow the majority of system brokers not to fall into the view of American regulators, who monitor the maintenance of the sanctions regime against Iran and fight against money laundering. As an advantage of the hawala system, a low commission for operations is also noted: approximately 1 - 1,5%. For example, part of the financial transactions between Iran and Pakistan were carried out through this system, rather than using the legal channels of the Asian Clearing Union. At the same time, experts admit that hawala can provide money transfer from Iran to one or another country in the Middle East, and then a transaction to various banks in Asia, Europe and the USA.
In addition, Iranian business entities used the services of banks of third countries. The only feature of this kind of operations for banks and companies under Western sanctions is the high transaction fees. In particular, banks of the Middle East and Transcaucasian countries appeared in the chains of banking operations.
The story of Iran’s interaction with European banks in the period after 2008, when Washington introduced extraterritorial sanctions for all Iranian banks to make transactions under the U-turn scheme, is also interesting and since that time has classified the involvement of third-country banks in such operations in Iran’s interests of money. In general terms, the “U-turn” scheme looked as follows: Iran supplied oil to the customer, the transaction was paid in the currency of the buying country, money was transferred to an account not registered in Iran, then funds were transferred to an account in an American bank, it was converted in US dollars, after which the amount was already in dollars transferred to another foreign bank to an account from which the money went to Iran. As a result, Iran received payment for the delivered oil not in the national currency of the buying country, but in US dollars. In December, 2012 published information that British Standard Chartered, using U-turn operations, was able to conduct more than 60 thousand transactions in favor of Iranian financial institutions, for which the US authorities accused the bank of money laundering the interests of Iran. As a result, Standard Chartered put 327 million into the American treasury as a fine. Royal Bank of Scotland, UniCredit, HSBC, Deutsche Boerse also became figures for investigations into cases of violation of the sanctions regime against Iran , Société Générale and Crédit Agricole. In general, despite the sanctions imposed by Washington, many eminent European banks continued to cooperate with Iranian clients.
For Tehran, another simple method of obtaining foreign currency in dollar equivalent was the simple cash exchange of Iranian rial per US dollar in other countries. For example, in September, 2012 in Afghanistan in the city of Herat was recorded increased activity on the exchange of the Iranian rial for the US dollar. It was reported that Iranian moneychangers, through their Afghan intermediaries, exchanged the necessary amount and promptly transferred funds to Iranian territory. Iranian taxis plying between the Iranian-Afghan border and Herat could be used as a means of moving money.
Thus, the experience of Tehran in circumventing barriers in the banking sector can be called a worthy part of the “economy of resistance”, and this experience may be useful for other countries in their struggle with the effect of Western sanctions. Iran’s actions confirm, firstly, that by introducing sanctions, the West cannot provide comprehensive control over the observance of the sanction regime established by it and, secondly, that there is an “antidote” from sanctions: during counter-sanctions measures, the state and business can effectively use ways to circumvent sanctions. For this reason, under the conditions of the sanctions for the functioning of the banking system in the interests of the development of foreign trade, it is possible to conduct a comprehensive policy for maintaining and developing economic ties with key trading partners. This activity involves the use of an extensive toolkit, which includes the reorientation of the national banking system to other regions of the world, settlement in national currencies, barter transactions, the use of gold as a means of payment, etc.
Information