While the story was about yet another Obama administration Iran scandal in which Tehran’s American lobbyists-in-chief sought to make liquid $5.7 billion more dollars for the “moderate Rouhani regime”, for once in the tragedy there was an unlikely unsung hero.
American financial institutions, though often maligned, especially in the post-financial crisis world, serve a vital marketplace function. Just like all enterprises, they can be vehicles for good, such as raising capital to help businesses grow, and ill, such as engaging in fraudulent activities. On the negative side of the ledger, there is a sordid history of banks prioritizing profit over principle when it comes to doing business with evil regimes and sinister characters.
Perhaps the most sickening instance involves the conduct of Swiss banks before, during and after World War II. These institutions accepted Nazi deposits expropriated from Jews and refused for decades to acknowledge these holdings, let alone provide restitution to the families of those looted and often massacred by the German forces.
For those Jews who had smuggled their funds to Swiss banks in the hopes of protecting them from Nazi terror, the Swiss banks made it almost impossible for the victims or their relatives to claim their assets after the war. The Swiss institutions – which further did substantial business with the Nazis throughout the war – only began to face justice some 50 years later following substantial pressure from federal and state governments as well as a series of class action lawsuits.
Less egregious examples abound of banks transacting with tin-pot dictators and crime syndicates. In the case of the Iran deal, many European businesses, including financial institutions, continue to fight tooth and nail to do business with an IRGC-controlled economy, overseen by the Khomeinist regime, which is the world’s leading state sponsor of jihad. These firms and supportive governments are steadfast in their desire to do business that will in whole or in part redound to the benefit of the terrorist-backing, tyrannical revolution-exporting regime, even with America out of the pact.
In a perverse irony given the history, chief among the proponents of trade with an Iran whose leaders routinely call for the “eradication” of the Jewish state of Israel is Germany. According to a Wall Street Journal editorial by Richard Goldberg, a former Senate staffer who helped construct the sanctions regime that the Iran Deal rolled back, and his colleague Mark Dubowitz, chief executive of the Foundation for Defense of Democracies, Germany is seeking to maintain Iran’s connection to the global financial system by way of the Society for Worldwide Interbank Financial Telecommunication (SWIFT) that facilitates such international transactions.
As Goldberg and Dubowitz write:
By protecting Iran’s access to the Swift network, Germany hopes to preserve Europe’s ability to pay for Iranian oil, and receive payment for European exports, in contravention of U.S. sanctions. …
Last month, in light of “U.S. sanctions which could target EU entities active in oil transactions with Iran,” the European Commission encouraged European Union members to explore the idea of sending direct payments to the Central Bank of Iran. Access to the Swift network makes this possible.
As on the domestic side with the failure of Congress to repeal and replace Obamacare, the Obama administration likely anticipated just these sorts of logistical hurdles when it came to unwinding its signature foreign policy.
The Obama administration was the leader of the project to integrate Iran in the global economy, under guise of the dubious belief that economic “liberalization” presages political liberalization – something completely disproven by China and Russia– and more realistically a desire to make Iran the strong horse in the Islamic world.
But it went even further. As the Senate Permanent Subcommittee on Investigations recently revealed in a bombshell report, U.S. authorities granted a license to an Oman-based bank in February 2016 enabling it to convert $5.7 billion worth of Iranian assets from Omani rials to U.S. dollars (and ultimately euros) using U.S. banks as an intermediary. The license allowed the banks to evade an embargo specifically barring American financial institutions from engaging with Iran.
Oman’s Bank Muscat, where the $5.7 billion in funds were held, was thrilled. As the report notes, one of the bank’s executives wrote: “When [Bank Muscat’s] Legal Team reviewed the specific license, they commented that this was a ‘gigantic’ breakthrough which has assured Iran almost full global inclusion.”
The State and Treasury Departments granted this license in spite of the fact that administration officials in congressional testimony and correspondence in the run-up to the Iran deal, and after its implementation, said U.S. financial institutions would continue to be prevented from doing transactions with Iran.
Sens. Marco Rubio and Mark Kirk wrote to the U.S. Treasury Department in March 2016 asking for a response to reports indicating “the Administration is working to give Iran access to the U.S. financial system or to dollar transactions outside of the U.S. financial system.”
In June 2016 Treasury responded: “The U.S. Department of Treasury is not working on behalf of Iran to enable Iranian access to U.S. dollars elsewhere in the international financial system, nor are we assisting Iran in gaining access to dollar payment systems outside the U.S. financial system. The Administration has not been and is not planning to grant Iran access to the U.S. financial system.”
But the Obama administration went further than just dissembling if not outright lying. It sought to use the weight of the federal government to pressure U.S. banks into colluding with Iran in its scheme to flout financial restrictions.
The Treasury’s Office of Foreign Assets Control (OFAC) sought to convince two unnamed U.S. banks with whom Oman had an existing financial relationship — allegedly Wells Fargo and JPMorgan Chase — to facilitate the currency conversion transactions. In spite of a concerted effort by government officials to urge the two banks to engage, upon review by the relevant business, legal and compliance officers, due to both the reputational and legal risks associated with executing these transactions, both firms declined.
This is no small thing. These financial institutions of course would have profited from this business. They were facing “encouragement” (re: pressure) from an Obama administration for which the Iran Deal was paramount, over a conversion transaction that Iranian officials had argued to U.S. officials was vital, and for which Treasury internally characterized as a “Priority No. 1” matter with potentially “broad impact across multiple activities and [which] may delay the implementation of the JCPOA.”
The Obama administration, no fan of the financial services industry as is, likely could have made life hell for the banks that refused to go along with its scheme. According to the subcommittee report, an anonymous State Department official even suggested siccing Secretary of State John Kerry or Secretary of the Treasury Jack Lew on the banks to persuade them to comply. There is no indication the administration resorted to this measure, perhaps realizing the political fallout would be too great if such efforts were to be exposed.
There are a few takeaways here that have gone unstated in much of the coverage over this transaction. First, when government seeks to tip the scales, it does so with immense leverage. The idea that a presidential administration would seek to push banks to engage in dubious if not illegal transactions – even if under cover of a license – is chilling. It sets a horrific precedent for future administrations who might push private enterprises to engage in questionable business to meet its foreign policy objectives.
Second, will any of the Obama administration officials involved in covering up these decisions face any sort of justice? Will they even be called to testify and publicly reprimanded? Will there be an accounting of other efforts that were concealed from public view to assist the Iranian regime in contravention of existing law? Failing to pursue justice will only incentivize future officials to act with the kind of impunity illustrated in the various scandals we have learned about to date regarding the Iran Deal.
Last but not least, the financial institutions that turned down the Obama administration deserve to be applauded, even if we take the cynical but realistic view that their efforts might have been more attributable to fear of poor optics and/or legal liability than patriotism. Irrespective of their reasoning, these financial services firms (likely Wells Fargo and JPMorgan Chase) had more integrity than the Obama administration when it came to Iran.
Three cheers for the big banks.