Reuters is reporting that a European Union court has ruled against the EU banking sanctions imposed on one of Iran's largest banks, which extends to the payment sanctions imposed by Swift in March of last year. This represents the second such judgment against the banking sanctions and brings into question the legitimacy of using the Swift payments network as an economic weapon.
On Tuesday, the EU's General Court ruled that, in the case of Bank Saderat, there was insufficient evidence demonstrating that the bank was involved in Iran's nuclear program. Last week, the court issued a similar ruling in the case of Bank Mellat, the largest private sector lender in Iran. Boycotted by the EU since July 2010 and blocked out of Swift since March 2012, the two banks had filed suit with the European court to challenge those sanctions. EU governments now have two months to appeal the recent decisions.
The Society for Worldwide Interbank Financial Telecommunication, or Swift, is a worldwide financial messaging network to facilitate the interbank transfer of funds. Speaking after a news conference in Dubai, Swift's chief executive Gottfried Leibbrandt indicated that talks are continuing with European regulators about the appropriateness of requiring Swift to impose sanctions on countries such as Iran.
A global network for the transfer of funds loses some of its effectiveness once its neutrality becomes tarnished, because any member of the network could be similarly targeted without recourse.
Leibbrandt said, "There is a dialogue going on around the trade-off between using us as a sanctions tool for other countries and impeding our role as really serving as a global infrastructure mechanism." He added that "there are lots of alternatives to Swift" and international transactions can still be executed by sending instructions via telephone or email, but such alternatives are "not as secure as Swift and [lack] the convenience factor."
One such alternative is the gold bullion trade. Buyers of Iranian oil and gas must deposit payment in a local bank account and it cannot be transferred abroad. Iran sells natural gas to Turkey and receives payment in Turkish lira, which are then used to purchase gold bars in Turkey. Couriers using hand luggage carry the bullion to Dubai, where it is sold for foreign currency or shipped to Iran.
Turkish Economy Minister Zafer Caglayan said, "We will continue to make our gold exports this year to whoever seeks them. We have no restrictions and are not bound by restrictions imposed by others." Turkey was granted a six-month U.S. waiver that exempted it from financial sanctions against Iran but the waiver is due to expire in July. Also in December, the U.S. Senate passed expanded sanctions on trade with Iran which included restricting trade in precious metals.
Caglayan maintained that Turkey's state-owned Halkbank will continue its existing transactions with Iran but some other banks had pulled back in response to U.S. pressure since those private banks had activities in the U.S.
Also, Washington has warned Moscow on the implications for Russian banks and has sanctioned the parent company of Russia's Mir Business Bank, state-owned Bank Melli Iran, claiming that the Moscow-based bank has become a conduit for Iranian's seeking to keep trade flowing. "Only problem is Russians don't care what we think," according to Jim Rickards, author of Currency Wars: The Making of the Next Crisis.
In the meantime, over 30 cases are still pending at the EU General Court, including cases filed by the Central Bank of Iran and the National Iranian Oil Company.
Source: The Monetary Future