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http://www.treasury.gov/press/releases/hp297.htm

March 7, 2007
HP-297

Prepared Remarks of Stuart Levey
Under Secretary for Terrorism and Financial Intelligence
Before the 5th Annual Conference
on Trade, Treasury and Cash Management in the Middle East

Dubai, UNITED ARAB EMIRATES – I have been traveling across the Middle East this week discussing a wide range of issues. In Jordan I met with the Finance Minister and the Central Bank Governor, in Israel I met with the Prime Minister and Foreign Minister, and here in the UAE I met with the Minister of Foreign Affairs and the Central Bank Governor, and hope to meet with the Prime Minster today. Tonight I head to Riyadh for additional meetings with my counterparts in the Kingdom. One thing that has emerged from my discussions is that there is unanimity on one particular issue across the region: Iran's nuclear program and support for terrorism poses a great threat to our safety and security.

Throughout these discussion on global risk with governments and the private sector, I have stressed that although there are times when we caution companies about the risks of investing in a given country, the United States believes in encouraging the free flow of goods and capital, and we believe that free trade is a mechanism for enhancing economic and social ties between the United States and the Middle East.

That said, Iran under its current regime is an example of a country where there are heightened risks to investing. The regime's dogged pursuit of a nuclear program in defiance of UN Security Resolutions and its insistence on arming and supporting terrorist groups like Hizballah are threatening the stability of the region and the international community. These policies have implications for your businesses – especially when that business deals with government enterprises. I am sure you would agree that your companies want to take every precaution to avoid being involved with terrorism or other dangerous activities. Today, I would like the opportunity to discuss some of the risks that private business should consider with respect to Iran. I will also explain a bit about steps governments are taking – including targeted financial measures – to combat the threat.
I understand that a session was planned yesterday to examine the case for doing business in Iran, but that it was cancelled. This is a good indication of the prevailing view in the business community. It is clear that many businesses are taking it upon themselves to scale back. At first glance, this may appear to present a tempting business opportunity for other corporations to step in. However, there is a reason that these other companies are pulling back: they have decided that the risks of business with Iran outweigh any potential gain.

The world is well aware of Iran's defiance of the international community in pursuing its nuclear program and its sponsorship of terrorist organizations that maim and murder innocent civilians. Iran disguises its activities through an array of deceptive techniques specifically designed to evade the controls of responsible financial institutions and avoid suspicion. For example, we have seen Iranian banks request that other financial institutions take their names off of transactions when processing them in the international financial system.

Iran also works to make its procurement efforts for its nuclear program appear to be unrelated and innocent commercial activities. Iranian entities form front companies in other countries for the sole purpose of exporting dual-use items to Iran that can be used in illicit nuclear and missile programs. These front companies enable the regime to obtain materials that the country of origin would typically prohibit from being exported to Iran.

In addition, I want to tell you about another area of concern about how Iran does business. Iran's Revolutionary Guard Corps, or IRGC, is used by the regime to provide a `train and equip program' for terrorist organizations like Hizballah, as well as to pursue other military objectives of the regime. The IRGC's control and influence in the Iranian economy is growing exponentially under the regime of Ahmadinejad. More and more IRGC-associated companies are being awarded important government contracts. An IRGC company, for example, took over management of the airport and runways in Tehran, while another company won the contract to build the Tehran metro. When corporations do business with IRGC companies, they are doing business with organizations that are providing direct support to terrorism.

As the evidence of Iran's deceptive practices has mounted, financial institutions and other companies worldwide have begun to reevaluate their business relationships with Iran. Many leading financial institutions have either scaled back dramatically or even terminated their Iran-related business entirely. They have done so of their own accord, many concluding that they did not wish to be the banker for a regime that deliberately conceals the nature of its business – too often the business of funding terrorism, and defying the UN Security Council in pursuing a nuclear program.

The bank UBS, last year, announced that it was cutting off all dealings with Iran. HSBC, Standard Chartered, Commerzbank, and many other global financial institutions have also indicated that they have limited their exposure to Iranian business. According to the banks, these were business decisions, pure and simple – handling Iran's accounts was no longer good for business. As further evidence of the change in tide, a number of foreign banks are refusing to issue new letters of credit to Iranian businesses. And in early 2006, the OECD raised the risk rating of Iran, reflecting this shift in perceptions and sending a message to those institutions that have not yet reconsidered their stance.

Additionally, many non-financial institutions have scaled back on their investments or projects in Iran, concluding that the risks of expanding operations in the country are too great. Multinational corporations have held back investing in Iran, including limiting investment in Iran's oil field development. These companies have done their risk analyses – they do not know what lies ahead in terms of Iran's economic stability. They do not want to risk coming under regulatory actions that impact their ability to do business. They are responsible corporate citizens, and, quite frankly, they do not want to risk the reputation of their corporations.

Let me briefly expand on these last two points. Iran sends hundreds of millions of dollars each year to terrorist groups like Hizballah and other organizations. When a country has a nine-digit line item in its budget for support to terrorist organizations and is actively seeking a WMD program, there is no way to know how the regime will use its revenues. Corporations are in the process of reconsidering their investments in Iran because they do not want revenue generated from their projects diverted towards threatening and destabilizing policies such as illicit weapons proliferation and terrorism.

Since most multinational institutions want to protect their corporate reputations by avoiding risky relationships, the United States and other nations are reaching out to better inform the private sector about the nature of some of those risks – particularly as they relate to Iran. We believe that by being equipped with information about Iran's deceptive practices, businesses such as yours will be better poised to evaluate the risk of given ventures.

When people think of sanctions, what often comes to mind is a modern-day blockade: an attempt to stop trade or investment altogether in order to weaken the economy of an entire nation. This kind of program is sometimes required. Perhaps one of the best contemporary examples is South Africa under apartheid, a situation where broad, international sanctions made a decisive impact on the course of that nation's history.

Governments are working to hamper the efforts of the Iranian regime by imposing targeted financial measures directed specifically at individuals, key regime members, front companies, and financial institutions. Targeted financial measures are aimed at "conduct" not a "country." Some of these targeted measures require financial institutions to freeze funds and close the accounts of designated actors – effectively denying these actors access to the traditional financial system. At times, the action includes bans on travel or arms transfers, which further confine and isolate the target. To maximize the effect, we try to apply these measures in concert with others. For example, whenever possible, we act with a partner or a group of countries, and in some cases we can designate a target at the United Nations.

These kinds of measures have several advantages over broad-based sanctions programs. First, by singling out those responsible for engaging in the illicit activity – rather than targeting an entire country – they are more apt to be accepted by a wider number of international actors and governments. Second, targeted financial measures warn innocent people not to deal with the designated target. And third, these measures serve as a deterrent. Those who are tempted to deal with targeted high risk actors are put on notice: if they continue this relationship, they may be next.

The United States has taken some recent targeted measures to combat Iran's pursuit of a nuclear weapons program and to confront its support for terrorism. In September 2006, we cut off one of the largest Iranian state-owned banks, Bank Saderat, from any access to the U.S. financial system. We did this because Bank Saderat, which has over 3400 branch offices, is used by the Government of Iran to transfer money to terrorist organizations. Iran uses Saderat to transfer money to Hizballah as well as to terrorist groups designated by the European Union such as Hamas, PFLP-GC, and the Palestinian Islamic Jihad. For example, since 2001, a Hizballah-controlled organization received $50 million directly from Iran through Saderat.

Recognizing the need for additional tools to combat the proliferation of weapons of mass destruction, President Bush signed Executive Order 13382 in June of 2005. This executive order authorizes the imposition of strong financial sanctions against not only WMD proliferators, but also against entities and individuals that provide support or services to them. A designation under this E.O. cuts the target off from access to the U.S. financial and commercial systems, and puts the international community on notice about a particular threat. Since 2005, we have used this authority against a total of 36 entities and individuals, 19 of which are connected to Iran's WMD proliferation efforts.

One recent and very significant designation under E.O. 13382 was the January 9, 2007 designation of Bank Sepah, the fifth largest Iranian state-owned bank and a supporter of WMD proliferation. In particular, Sepah provides direct and extensive financial services to Iranian entities responsible for developing missiles capable of carrying weapons of mass destruction. Like other Iranian banks and entities, Bank Sepah engages in a range of deceptive practices in an effort to avoid detection, including requesting that other financial institutions take its name off of transactions going to other banks.

The United Nations has also taken a strong stand against Iran's continued defiance of the international community. On December 23, 2006, the Security Council unanimously passed United Nations Security Council Resolution 1737, which imposes targeted sanctions against the regime under Chapter VII of the United Nations Charter for Iran's continued "threat to international peace and security." This set of sanctions requires countries to take a number of actions to deny Iran access to the materials and services that support its nuclear and ballistic missile capabilities. They target equipment, training, and technology – including dual-use equipment – as well as specific individuals, like General Safavi, commander of the IRGC and listed in the resolution for his involvement in Iran's nuclear and ballistic missile programs.

Among other things, the resolution requires all states to deny Iran any financial assistance, or the transfer of any financial resources or services, related to the supply, sale, transfer, manufacture, or use of prohibited items associated with Iran's nuclear and missile programs. It also contains an annex – available for all to see – listing entities and individuals responsible for these programs. The resolution requires states to freeze their assets and those of entities owned or controlled by them.

The United Nations Security Council is also considering additional measures against Iran. Just two weeks ago, the International Atomic Energy Agency confirmed that not only had Iran had ignored the UNSCR 1737 requirement to suspend uranium enrichment within 60 days of the resolution, but also that it had actually expanded its program. As a result, the Security Council is considering adopting a second resolution.

In the Iranian regime led by President Ahmadinejad, the world faces the threatening combination of a country dedicated to developing nuclear weapons and to materially supporting terrorists. The regime not only has an ideologically extreme vision of the future, but also is intent on developing the weapons it believes will help obtain this vision. It is clear why the world should not tolerate a nuclear-armed Iran. The United States, the European Union, and the United Nations have embarked upon an effort to convince the Iranian leadership to change its course.

It is our goal to convince Iran that it can no longer afford to head down its destabilizing path. The imposition of government-imposed financial measures, coupled with the private sector's own initiative to reevaluate business with Iran, has already sparked a debate inside Iran about the wisdom of Ahmadinejad's policies. It is our hope that Iran will realize that the only way to return to the international fold – and protect its economy – is to reverse its self-isolating behavior.

The Iranian people deserve better than a government willing to sacrifice their economic well-being to pursue weapons they don't need and policies that result in the deaths of innocent civilians. They deserve better than a regime that allows unemployment and poverty to rise and their basic rights to be tossed aside. And this region deserves to be free from the pressure of an increasingly hostile and antagonistic Iran that is promoting sectarian violence and heightening Sunni and Shia tensions.

As you make your business decisions, I urge you to consider whether it is wise for your company to focus its efforts on doing business with Iran. I recognize that it may be tempting to step into the void that is being created by other companies pulling back their business in Iran, but they are pulling back for a reason. The world's top financial institutions and corporations are re-evaluating their business with Iran because they are worried about the risk and their reputations. You should worry too and be especially cautious when it comes to doing business with Iran.

This is a situation where governments and the private sector share the same goal. Caution by the private sector is putting pressure on Iran. By having governments partner with the private sector, including by sharing information and concerns with the private sector, we are seeing more of an impact on our collective efforts, and it is this impact that, I believe, can help bring about a change in course for Iran.