Trump’s new Iran sanc­tions may hit snag with global fi­nan­cial ser­vice

Iran Daily - - National - By tar­get­ing Ira­nian banks, the United States has al­ready gone a long way to­ward iso­lat­ing Iran. Any ad­van­tage gained from forc­ing Swift to back out of Iran might be lim­ited and not worth the po­ten­tial fi­nan­cial dis­rup­tion and dam­age to re­la­tions with the

By Peter Eavis

Pres­i­dent Trump’s “Amer­ica First” for­eign pol­icy has run into an ob­scure ob­sta­cle at the heart of the global fi­nan­cial sys­tem.

The Trump ad­min­is­tra­tion aban­doned the nu­clear deal with Iran this year and is reim­pos­ing sanc­tions against the coun­try. The sanc­tions leave Western com­pa­nies and banks with a stark choice. If they do busi­ness with Iran, they lose ac­cess to the Amer­i­can mar­ket and fi­nan­cial sys­tem. Not sur­pris­ingly, busi­nesses and banks have been cut­ting ties with Iran or shelv­ing plans to in­vest there. But one im­por­tant fi­nan­cial link to the coun­try re­mains: the fi­nan­cial mes­sag­ing ser­vice that plays a cru­cial role in mov­ing money around the in­ter­na­tional bank­ing sys­tem.

The mes­sag­ing ser­vice is run by a Bel­gian co­op­er­a­tive called Swift. The ser­vice, which is owned and used by banks around the world, plays a cen­tral role in the flow of money across the globe. If, say, a Bank of Amer­ica cus­tomer wants to send money to a client of Bar­clays, Bank of Amer­ica will send a mes­sage over Swift’s net­work to Bar­clays, no­ti­fy­ing it of its in­ten­tion to move the money. Swift does not hold any of the money it­self.

Be­cause the next wave of United States sanc­tions target fi­nan­cial mes­sag­ing, Swift now finds it­self un­der pres­sure from Wash­ing­ton to dis­con­nect from Iran. But it has not done so yet — and time is run­ning out. Those sanc­tions take ef­fect af­ter Nov. 4.

The Trump ad­min­is­tra­tion now has to weigh some tough choices. It could take a hard-edge ap­proach and im­pose penal­ties on Swift or the banks and peo­ple con­nected to the en­tity. But that could un­set­tle the ma­jor fi­nan­cial in­sti­tu­tions that own and rely on Swift. The im­por­tance of the mes­sag­ing ser­vice is hard to over­state. Swift con­nects more than 11,000 banks across more than 200 coun­tries, and there is no other en­tity that could quickly step in and take its place.

But if Swift is al­lowed to main­tain its cur­rent con­nec­tions with Iran, the coun­try’s lead­ers could use Swift to move money in and out of the coun­try. It would also help the Euro­pean Union’s ef­forts to keep the Iran nu­clear ac­cord afloat.

Here are some of the ques­tions that loom over the Swift bat­tle.

What has the Trump ad­min­is­tra­tion so far said about Swift?

Pres­i­dent Trump’s na­tional se­cu­rity ad­viser, John R. Bolton, has taken a hawk­ish ap­proach to Ira­nian sanc­tions. Last month, he said that ex­ec­u­tives at en­ti­ties like Swift needed to ask whether do­ing busi­ness in Iran was “worth the risk.”

But the Trea­sury De­part­ment ac­tu­ally over­sees the im­po­si­tion of sanc­tions, and it has sig­nif­i­cant lee­way in putting them into ef­fect. When asked how it might ap­proach Swift, the Trea­sury de­clined to com­ment specif­i­cally on any po­ten­tial sanc­tions against the mes­sag­ing ser­vice. In an emailed state­ment, the agency added, “Re­gard­less of the mech­a­nisms a per­son or en­tity tries to use to trans­act busi­ness with a sanc­tioned Ira­nian en­tity, Trea­sury in­tends to take ac­tion against those con­duct­ing pro­hib­ited trans­ac­tions.”

Trea­sury Sec­re­tary Steven Mnuchin was ex­pected to dis­cuss Ira­nian sanc­tions and Swift with Euro­pean of­fi­cials at the meet­ing of the World Bank and the In­ter­na­tional Mon­e­tary Fund in Bali, In­done­sia, which ends on Sun­day.

Given the threat of sanc­tions, won’t Swift de­cide to dis­con­nect?

Since large Euro­pean en­ergy com­pa­nies have sev­ered ties with Iran, say­ing they did not want to jeop­ar­dize their busi­ness in the United States, Swift could do the same. Or it could de­cide do­ing busi­ness in the coun­try was too risky, per­haps cit­ing con­cerns that Iran’s banks don’t com­ply suf­fi­ciently with in­ter­na­tional reg­u­la­tions and norms. Re­call that Swift cut ties with Iran in 2012, when sanc­tions were im­posed on Iran.

But to Swift’s lead­ers, the cur­rent sit­u­a­tion may not be so straight­for­ward. In 2012, both the United States and the Euro­pean Union im­posed penal­ties on Iran, and Swift, as a Bel­gian en­tity, had to com­ply with the bloc’s mea­sures.

To­day, the Euro­pean Union is try­ing to main­tain trade and fi­nan­cial con­nec­tions with Iran and is ac­tively try­ing to frus­trate the United States’ Iran pol­icy. Swift may fear that re­la­tions with the bloc may de­te­ri­o­rate if it bows to Wash­ing­ton. The Euro­pean Union is work­ing on its own pay­ments sys­tem to sup­port trade with Iran.

In a state­ment, Swift said it was con­sult­ing with au­thor­i­ties from both the United States and the Euro­pean Union.

How might the ten­sions over Swift play out?

If the Trump ad­min­is­tra­tion takes ac­tion against Swift, it must do so with care. Plac­ing sanc­tions on Swift would most likely cause banks to stop us­ing the ser­vice, which might be enough to prompt Swift to dis­con­nect from Iran.

But the threat of sanc­tions on Swift could rat­tle the global fi­nan­cial sys­tem. Agen­cies like the Trea­sury typ­i­cally avoid poli­cies that could put stress on the world’s fi­nan­cial ar­chi­tec­ture. The Trea­sury can also ob­tain in­for­ma­tion from Swift re­gard­ing Iran’s trans­fer of money. If Swift stopped pro­cess­ing Ira­nian money flows, the United States might end up with less in­for­ma­tion about money mov­ing in and out of Iran.

Some ex­perts on sanc­tions said it’s im­por­tant not to fo­cus too much on Swift. Source: New York Times

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