Syria and Iran consider joint bank

The Financial Times ^ | 10/13/2008 | Anna Fifield, Roula Khalaf and Najmeh Bozorgmehrin

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The Commercial Bank of Syria and Iran’s Bank Saderat, both under US sanctions, are in talks about forming a joint venture to finance increasing business links between Damascus and Tehran.

The creation of a joint bank would frustrate Washington, which has sought to isolate Iran over its nuclear programme and both countries over concerns that both back militant groups in the region.

“We are in discussions,” Abdullah Dardari, said Syria’s deputy prime minister for economic affairs, confirming that a feasibility study was under way. “We need someone to finance bilateral trade, so why not? There is plenty of bilateral trade and we are now negotiating a free trade agreement with Iran.” The prospect of a joint venture bank has the support of both governments, Mr Dardari added.

Banking officials in Tehran say the two sides signed a memorandum of understanding but say the agreement did not specify that Saderat would be the Iranian partner.

Trade volumes between the countries are low, at about $400m (€298m, £234m) a year, compared with trade to Europe and other Arab states. But total Iranian investments in Syria have been increasing, and now include two Iranian car factories and a cement plant.

Nabil Sukkar, an economist who runs the Syrian Consulting Bureau, said that greater economic co-operation was driven by the tighter political alliance.

“The Iranian investment coming to Syria is official money, motivated by political considerations,” Mr Sukkar said. “Syria’s strength today is thanks to its alliance with Iran.”

But other analysts were sceptical about the abilities of two sanctioned banks to form a meaningful venture. “Two halves cannot make a whole,” said another Syrian business analyst. Although Syria has taken steps towards better international relations, starting indirect peace talks with Israel and agreeing to open an embassy in Lebanon, it remains, with Iran, on the US list of state sponsors of terrorism.

Iran, meanwhile, has faced a series of sanctions, particularly financial ones, over its refusal to suspend uranium enrichment, which the west suspects is part of a military nuclear programme, something Tehran denies.

But a deal could be a fillip for the two state-owned banks, both of which have found themselves increasingly excluded from the international financial system and now conduct international business mainly in euros, to avoid restrictions of US dollar transactions.

The US Treasury department in 2004 accused the Commercial Bank of Syria, the country’s largest, of having terrorist links and of laundering money made from the “illicit sale of Iraqi oil”. No US banks or individuals have been allowed to do business with the bank since.

Two years ago, Washington imposed sanctions on Saderat, Iran’s second largest bank by assets and the most active internationally, with 26 branches abroad. The Treasury charged Saderat with transferring hundreds of millions of dollars to the Shia militant group Hizbollah in Lebanon, then the United Nations and the European Union this year urged financial institutions to exercise vigilance in dealing with Saderat.

Both Syria and Iran deny the accusations.