Germany's chance to get serious on sanctions

Analysis: Banks may serve as wake-up call on Iran.

Iran sanctions 311 (photo credit: Associated Press)
Iran sanctions 311
(photo credit: Associated Press)
BERLIN – The European Union is slated this week to wrap up its new round of sanctions. The goal is to force Teheran to suspend its illicit nuclear program.
After years of drowsiness, the EU is now amenable to inflicting real economic pain on the Iranian regime where it is most vulnerable – namely its financial and energy sectors.
Germany, the key EU economic force behind trade with Iran (roughly €4 billion annually), has thus far thrown a wrench into the works by blocking sanctions against Iranian banking institutions operating on German soil that are involved in financing the nuclear weapons program. In short, Germany is the key to effective EU sanctions against Iran’s rulers.
Disclosures on Monday in The Wall Street Journal that the Hamburg- based European-Iranian Trade Bank AG – called EIH Bank in Germany – “has done over a billion dollars of business for Iranian companies associated with Iran’s conventional military and ballistic missile procurement programs” could serve as a powerful wake-up call for Berlin to drop its resistance to shutting down the four Iranian banks operating in Germany.
But the preliminary statements of the Finance Ministry and its Federal Financial Supervisory Authority, better known by its abbreviation BaFin, suggest that the authorities are doing their best to avoid drawing attention to Germany’s role in enabling the financing of Iran’s nuclear program, and simply want to contain the damage.
A spokesman for BaFin said on Monday the agency knew of no violations of UN sanctions and therefore had no reason to ban EIH Bank.
Michael Offer, a spokesman for the Finance Ministry, said: “I can say that, so far, the bank oversight authority has no information about violations... but that BaFin and the Bundesbank are investigating all of these allegations.”
The current German-Iran bank scandal recalls the revelation in 2008 that the German Federal Office of Economics and Export Control had given the green light to a €100 million-plus deal that permitted the Siegen, North Rhine-Westphalia-based engineering firm Steiner Prematechnik Gastec to build Iran three plants for converting natural gas to liquid fuel, at a time when then-British prime minister Gordon Brown and then-US president George W. Bush sought to clamp down on Iran’s liquefied natural gas sector.
As with the EIH Bank, the foreign press (in this case, The Associated Press and The Jerusalem Post) blew the whistle on the gas deal, prompting an embarrassed Chancellor Angela Merkel to utter words of disapproval about her Economics Ministry.
Nonetheless, her administration did not block the deal and she implemented what amounted to a paper tiger “discouragement” policy to reduce trade with Iran. German companies ignored the nonbinding policy and, predictably, trade with the Islamic Republic increased in 2009.
Fast forward to July 2010 and the latest exposure of Germany hosting Iranian banks with ties to terrorism as well as the illegal nuclear weapons program. Will Germany, once again, employ smoke and mirror tactics to placate the United States, France and the United Kingdom, as well as its “special relationship” ally Israel? Or will Berlin seize the opportunity to make a clean break with a jingoistic regime that mocks Germany and its partners as “idiots” – as a defiant President Mahmoud Ahmadinejad said on Monday? The Iranian despot also articulated his determination to proceed with the country’s nuclear program.
Rewind again to 2008, when the EU banned Bank Melli Iran (also called the National Bank of Iran). While Germany agreed to the prohibition on Bank Melli, the grand coalition of Social Democrats and Merkel’s conservatives impeded pulling the plug on Bank Saderat Iran (The Export Bank of Iran), which has offices in Hamburg and Frankfurt, and Bank Sepah in Frankfurt. Bank Melli’s transactions were thus easily switched to branches of other Iranian banks in the Federal Republic. The Iranian shell game – with a wink of approval from the German authorities – continued in the financial sector.
Stuart A. Levey, the American Treasury’s under secretary for terrorism and financial intelligence, in an whirlwind tour of Germany’s financial institutions in 2007, was able to twist the arms of recalcitrant institutions such as Deutsche Bank, Commerzbank and Dresdner Bank (which was subsequently acquired by Commerzbank) to pull out of the Iran business rather than face an economic beating in the United States. Much to the disappointment of those urging Berlin to voluntarily take the high road and end its alliance with Teheran, it took outside pressure to alter Germany’s behavior.
After years of deceptive Iranian financial practices, will Germany now recognize that pressure from a unified Europe could complement the robust US sanctions and ratchet up the pressure on the mullahs? After seven years of futile EU diplomacy with Iran, coupled with meek EU and UN sanctions, persona non grata status is warranted for Iranian financial terror institutions operating in the heart of Central Europe. The US Treasury outlawed trade with EIH Bank, Bank Sepah and Bank Saderat because of their connections to terrorism and nuclear proliferation.
Germany’s foreign policy reeks of security shortsightedness and narrow economic interests. EIH and the Iranian banks are a conduit for propping up the Iranian regime and financing Teheran’s jingoistic foreign policy against the West.
If Germany were to flex its economic muscle it could play a central role in isolating the Islamic Republic. Merkel has a vital opportunity to join the ranks of fellow EU countries and the United States in turning the economic screws on Iran, and to show the international community that Iran’s renegade behavior will not be accepted.