Treasury 'slow to act in blocking terrorist finance'

The Daily Telegraph,

America accused the Treasury of blocking attempts to close down "terrorist financiers" operating in Britain and being more concerned with protecting the interests of the City, leaked documents show.

American officials also questioned whether the Labour government was "willing to pull out all the stops" to prevent Iran's attempts to acquire nuclear weapons, during a diplomatic row that continued behind the scenes for two years.

They blamed a "pronounced split" between Gordon Brown and Alistair Darling for what they believed were delays in closing down Iranian-owned banks, despite warnings that London had become a key financial centre for the regime.

Ministers were "cautious" about using anti-terrorism legislation against Iranian banks because they had been stung by the controversy over control orders.

The allegations that the previous government dragged its heels over sanctions against Iran are contained in US embassy communications obtained by the WikiLeaks website and seen by The Daily Telegraph.

The secret memos show:

British-based firms made millions through controversial deals with Iran.

A 28-year-old British man was unwittingly pivotal in a deal to sell a Boeing 747 to Iran, in breach of sanctions.

A select committee report on Iran was shown to the US before it was released to MPs, in breach of convention.

A firm whose directors include Lord Lamont, the former chancellor, was the focus of a global probe over attempts to sell aircraft to Iran.

The row over the restrictions on Iranian banks operating in London began in 2007, shortly after Gordon Brown had come to power.

Mr Brown was said by US diplomats to be "a strong supporter of robust action against Iran" and was keen to blacklist Iranian banks including Bank Melli, Bank Saderat and Bank Mellat.

Bank Melli, also known as the National Bank of Iran and the Islamic Republic's largest bank, was of particular concern, as it had £1.2billion on its balance sheet, of which only £3million was in retail deposits, raising fears that it could be used by the Iranian regime for illicit trade deals.

In November 2007, a diplomat working in the US embassy in London recommended to the Bush administration that Britain should be urged to "broadly interpret" existing laws on terrorist financing in order to freeze the assets of the Iranian banks.

But while Mr Brown was keen to use the Financial Services Authority's "fit and proper" test as a way of shutting down the banks, Mr Darling was "concerned that any actions might end up harming the UK and UK banks more than they actually harm Iran". In May 2008, Richard LeBaron, the deputy chief of mission in London, told Washington of the rift within the Government (HMG).

He wrote: "There is a pronounced split in HMG thinking, with the Prime Minister and Foreign Office backing a strong stance against Iran, while HM Treasury is protecting London's financial position and legal framework."

Mr Darling was anxious that any action taken against Iranian banks should be "proportionate".

Lord Mandelson, the then Business Secretary, backed Mr Darling's position when he was brought into the Cabinet in October 2008. Another cable noted that he "is opposed to any unilateral implementation of sanctions which would harm UK businesses to the advantage of those of other nations".

David Miliband, the then foreign secretary, promised America that Britain would be "at the forefront" of financial measures against Iran, while the Foreign Office issued assurances that the FSA would "push the legal envelope" to limit Iranian banking activity in London.

Bank Melli was made the subject of an EU-wide asset freeze in June 2008.

In March 2009, America was again expressing frustration about Britain's cautious attitude towards asset-freezing and said Britain was "setting a poor example" to Gulf states by failing to shut down Iranian banks in London.

Britain imposed restrictions on Bank Mellat's activities in October 2009, and its assets were frozen by the EU in July 2010. The bank is currently appealing against the EU order. Bank Saderat also had its assets frozen by the EU last year, and is appealing.