Iran Banks Face Increasing Pressure From the West

WSJ—The Belgium-based organization central to the international banking system said it was preparing to ban blacklisted Iranian banks from using its financial communications and clearing systems, a move that will sharply intensify the West's financial campaign against Tehran.

The announcement Friday by the Society for Worldwide International Financial Telecommunication, or Swift, is expected to drastically scale back Tehran's ability to conduct global trade, said U.S. and European officials.

Virtually all of the world's major banks use the Swift system to conduct financial wire transfers. And most of Iran's major state and trade banks, as well as Tehran's central bank, are expected to eventually be barred from using Swift's system to process oil sales and other large-scale transactions.

"We welcome Swift's intention to stop transactions involving designated Iranian banks, and we will continue to be in contact with our EU partners to urge action on this issue," a U.S. Treasury Department spokesman said.

U.S. lawmakers have alleged in recent months that sanctioned Iranian banks have been using Swift's services to evade these sanctions. Both chambers of the U.S. Congress have drafted legislation that could lead to penalties against Swift's board of directors and owners if the body doesn't cut off the proscribed Iranian entities from the Swift system.

The Obama administration, France and other European countries have been pressing the European Union to formally call on Swift to cut off the sanctioned Iranian banks and companies. EU financial regulators are expected to make such a ruling either later this month or in early March, according to European officials.

Swift said on Friday that it would comply with the EU's ruling. "Swift stands ready to act and discontinue its services to sanctioned Iranian financial institutions as soon as it has clarity on EU legislation currently being drafted," the organization said.

When barred from using Swift, Iran is expected to seek out other payment systems to continue conducting trade, such as IBAN, or International Bank Account Number. But financial experts said such systems aren't used nearly as widely as Swift and, therefore, the cost of conducting transactions will increase significantly for Tehran.

Many of Iran's largest financial institutions, which are currently facing U.S. and European Union sanctions for allegedly supporting Tehran's nuclear program and for supporting Middle East-based militant groups, have continued to use Swift's services, according to its public records. Among them are banks Sepah, Saderat and Mellat.

A representative for Swift wouldn't comment on whether its actions would include cutting off Iran's central bank from using the organization's services. Such a move against Bank Markazi is seen as almost completely freezing Iran out from the global financial system.

Swift's lawyers and directors have met with the Obama administration and members of Congress to discuss the new legislation being drafted, U.S. officials said. Swift has also consulted with EU regulators, the organization said.

Swift's decision marks the latest in an escalating number of sanctions imposed by the West in recent months. The U.S. and EU have particularly targeted Iran's oil exports and the ability of Iran's central bank to conduct international trade.

"This action has the potential to significantly isolate the Iranian regime from the world's markets, and lessen the capital it has to pursue nuclear weapons and fund terrorism," said Mark Wallace, president of United Against Nuclear Iran, an advocacy group that lobbied Swift to cut its Iran ties.

Despite the sanctions campaign, U.S. and EU diplomats on Friday voiced optimism that negotiations aimed at curtailing Iran's nuclear program could commence shortly.

This week, Iran's nuclear negotiator, Saeed Jalili, wrote the EU's foreign policy chief, Catherine Ashton, and said Tehran was ready to begin talks with the international community "immediately" and without preconditions. Ms. Ashton and U.S. Secretary of State Hillary Clinton met in Washington Friday and said the signs coming out of Tehran are promising for a new dialogue.

"I think it's fair to say ... we think this is an important step, and we welcome the letter," Mrs. Clinton said. Ms. Ashton said she is both cautious and optimistic.

The two diplomats said that should discussions resume, the international powers negotiating with Iran—which includes the U.S., China, Russia, Germany, U.K. and France—will look to develop confidence-building measures with Iran. Among these are greater access for United Nations nuclear inspectors and a plan that could see Tehran ship to a third country a large stockpile of its low-enriched uranium in exchange for economic assistance.

Write to Jay Solomon at [email protected]