Details are emerging of a massive effort by Iran to use the U.S. financial system to help finance Iranian nuclear and missile programs.
Last Friday, one of Britain's largest banks agreed to pay US$350 million to settle charges that it helped the Iranian government (and also Sudan and Libya) disguise the origin of money flowing into and out of U.S. financial institutions. Lloyds TSB Group admitted that over a 12-year period, it illegally "stripped" wire transfer information to disguise the source of funds it transmitted to the United States.
During this time, Lloyds TSB altered or removed customer names, bank names and addresses, etc. from wire transfer authorization messages to make the funds appear to originate at Lloyds TSB's operations in the United Kingdom, rather than from Iran. The bank took this action to evade U.S. sanctions against Iran that restrict that country's access to the U.S. financial system. Its efforts helped to bypass software filters used by U.S. banks that look for entities barred from doing business in the United States.
This is a textbook case on the use by U.S. prosecutors of the International Emergency Economic Powers Act (IEEPA). This law, enacted in 1978, allows the U.S. president to impose financial sanctions against countries deemed to constitute a threat to the United States. In Iran's case, the U.S. government has barred several Iranian banks from the U.S. financial system for their alleged ties to terrorism and nuclear proliferation. Lloyds TSB admitted disguising electronic transfers from these banks to avoid the sanctions.
Why did Iran's banks need access to U.S. banks? In some cases, it appears they purchased items only available in the United States. In others, the banks may have needed U.S. involvement in order to make payments to parties demanding payment in U.S. dollars.
I've long considered laws like the IEEPA dangerous. They essentially give the U.S. president the authority to declare war against any country or group that the government considers an "enemy." The definition of enemy can change, of course, in the blink of an eye.
In this case, Lloyds TSB has the good fortune to have its headquarters in the United Kingdom, a loyal U.S. ally. And that may explain the kid glove treatment U.S. prosecutors gave the bank. Although Lloyds TSB agreed to forfeit US$350 million, neither the bank nor any of its employees face prosecution—for now. That's despite the fact that the bank had what appears to be an official policy approved by top management lasting more than a decade to essentially launder money through U.S. financial institutions.
What do you think would happen if you tried to induce a bank to pull off the same caper? At minimum, the government would shut down your business, confiscate most if not all of your assets, and prosecute you for money laundering—punishable by a 20-year prison sentence.
The Lloyds TSB caper is just another example of the how the government uses laws like to IEEPA to conduc the War on (Some) Terrorists. If you're politically connected, too big to fail, or your prosecution would embarrass someone important (here, the British government), you won't be prosecuted. You plead guilty, pay a fine (admittedly hefty in this case) and go on your way.
Will any of this change in the upcoming Obama administration? Don't hold your breath. Political connections are just as important for Democrats as Republicans.
Copyright © 2008 by Mark Nestmann
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