Global Economics

Germany Pressured to Cut Iran Biz Ties


Berlin is resisting U.S. demands for tougher sanctions, but some German banks are winding down their business with Iran

US Under Secretary of the Treasury Stuart Levey is a well-groomed man with polite manners. While touring Europe's capitals this summer, the 44-year-old's graying hair is always perfectly parted and he prefers the genteel blue suits favored by bankers.

Levey was in Berlin in mid-July, but none of the German officials he met with were particularly pleased to be visited by the man with the Harvard law degree. And Levey knows he's not particularly welcome on this side of the Atlantic: "Sometimes I get the feeling people would just prefer to throw me out."

Appointed a few years ago as the US Treasury's first under secretary for terrorism and financial intelligence, Levey's office -- a mixture of think tank and intelligence service -- was set up to tackle the financing of terrorism, as well as money laundering and counterfeiting.

Besides looking for allies for Washington's war on terror, Levey's people also circle the globe visiting government officials in an attempt to isolate so-called rogue states pursuing weapons of mass destruction (WMD). Top on the agenda is Iran, a country thought to have ambitions to develop nuclear weapons.

Building an Economic Coalition of the Willing

But the US government is no longer content with United Nations economic sanctions on Tehran -- Washington wants more. And so, US President George W. Bush and Treasury Secretary Henry Paulson have directed Levey to form a worldwide economic coalition of the willing to increase the pressure on Iran. Despite their best efforts, American officials are irked that German companies are still doing business worth billions with Tehran. In particular, Washington has little understanding for the export guarantees Berlin still offers firms, effectively helping the mullah regime to buy new ships and power plant technologies.

While in Berlin, Levey met with Thomas Mirow, a senior official at the Finance Ministry, and Chancellor Angela Merkel's foreign policy advisor Christoph Heusgen. During those talks, he demanded Germany cut its so-called Hermes export credit insurance coverage when it came to deals with Iran. Under ex-chancellor Gerhard Schröder, Germany dramatically increased the permitted volume of export credit insurance. Moreover, Levey told the officials that Washington wanted Germany to scale back all of its other economic ties with Iran as quickly as possible.

But Levey ran into resistance from the Germans, who said his demands were understandable coming from a country that has no trade with Iran. Germany, however, exports more than €4 billion ($5.45 billion) in goods to the country each year, creating thousands of jobs. Were Germany to end its Hermes export guarantees, German locomotives might no longer be delivered to Iran, but Chinese and Russian companies would gladly step into the breach. The Americans would end up gaining nothing, while the German economy would stand to lose a lot. Besides, explained the Germans, the Hermes cover has been excluded from UN sanctions against Iran. In short, Levey could forget his request -- Germany would stick to the UN resolutions, but would do no more. But officials in Berlin know they have to come up with something to placate Washington and so both the chancellery and the foreign ministry are looking into a sweeping weapons embargo. That might be just enough to appease the Americans.

And Levey hasn't just been knocking on the doors of government ministries while in Europe -- he's also been visiting the continent's captains of industry. While in Germany he went to the country's financial center Frankfurt to try to persuade the bankers there not to do business with Iran. German financial institutions feel the United States government has been engaging in "downright blackmail," according to one banker. Anti-terror officials from the US Treasury are constantly showing up to demand they cut their traditionally good relations with Iran. The underlying threat from the men from Washington is that they wouldn't want to support terrorism, would they?

But there are no plans to stop financing German exports to Iran. "Of course our member institutions respect all sanctions set out in the UN resolutions," says a spokesman for the Association of German Banks. However, that didn't stop Deutsche Bank, along with German industrial heavyweights BASF and Siemens, from being put on a list by the US Securities and Exchange Commission (SEC) for having contacts with Iran. "No investor should ever have to wonder whether his or her investments or retirement savings are indirectly subsidizing a terrorist haven or genocidal state," said SEC Chairman Christopher Cox in a statement last month.

The SEC labeled Iran, Syria, Sudan, North Korea and Cuba "state sponsors of terrorism" on its Web site. A click on the name of one of the countries would then produce a list of foreign companies with US stock market listings that did business with that particular rogue state.

Part 2: German Banks Wind Down Business with Iran

Deutsche Bank was joined by other large international financial institutions including HSBC, Bank of Tokyo and Credit Suisse. Understandably upset by the potential damage to their reputations, Lawrence Uhlick from the Institute of International Bankers appealed to US Treasury Secretary Paulson in a letter on July 6. "It is also a matter of concern that information provided by a company in good faith pursuant to its understanding of its disclosure obligations under the federal securities laws would then be presented to investors in a manner that can be significantly misleading and unfairly prejudicial," Uhlick wrote.

In fact, Deutsche Bank, like many other financial institutions, has declared that it is systematically attempting to reduce its dealings in the countries in question. But it and the other banks were still put on the list. Uhlick said that put them at a real disadvantage since investors might unfairly judge them to be breaking the law.

The terror list has since been taken down from the SEC Web site, but it can still be easily found on the Internet. And banks fear nothing more than losing their good reputations -- all the more so if it is unjustified.

Anyone wishing to do business in the United States or hoping to attract US investors had best tread softly when it comes to Iran. Germany's Commerzbank stopped financing trade with Iran in US dollars in January, after the Americans piled on the pressure. The bank's share of financing business with the mullahs has since dropped considerably, but the German bankers are still relieved.

And the German state-backed KfW IPEX Bank is quick to stress that it hasn't acquired any new deals with Iran for the past two years. It is just winding up old loans worth a few hundred million euros.

It is becoming difficult for German exporters to do business with Iranian customers in dollars, which is why the Iranians are closing more deals denominated in euros. The Iranians are redirecting part of their foreign exchange revenues toward Germany and Iran's central bank is also said to have deposited some of its funds in Germany. According to statistics from the Germany's Central Bank in May German financial institutions were holding Iranian assets worth €6.55 billion. That's around the same level as deposits from economic powerhouse Japan. The Americans suspect every single penny of the Iranian money could be used to fund terrorism. Reason enough for Levey to pay Germany's biggest bank, Deutsche Bank, a visit.

The bank has an office in Tehran and is one of the biggest financers of euro-denominated deals with Iran. But not for long. Deutsche Bank told the American during his visit that it plans to quietly wind down its business with Iran. Officially, the Frankfurt-based bank does not want to comment on the matter, other than pointing out that its dealings with Iran make up only 0.1 percent of its total turnover.

But Deutsche Bank also told several of its customers in Iran on July 20 that it was ending their "business ties due to more important business and political reasons" on Sept. 14 this year. The reasons were not personal, the bank said, but the angry customers complained they were being discriminated against simply because of their nationality.

German importers and exporters will also have to find a new bank for their trade with Iran. But banks that don't do much business with the US are supposedly already lining up to fill the gap. After German financial institutes stopped handling dollar-denominated deals early this year, Austrian and Swedish banks jumped in. They'll soon be able to mop up even more German business.


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