UK banks scrutinise partners for ties to Iran

Banks in Britain are poring over relationships with financial partners in fear of falling foul of fresh international sanctions against Iran. As part of a dispute between Western powers over Iran's nuclear programme, Britain has ordered its lenders to cut all ties with the country.
Though UK banks largely ended their direct business with Iran in the last decade, their so-called "correspondent banking" relationships with banks who do still deal with Iran could cause headaches for risk managers looking to save their employers a visit from regulators.
Correspondent banks provide services for an overseas bank, such as establishing accounts or clearing, giving the overseas bank's customers access to an international network they might not otherwise have. Transactions involving banks in Eastern Europe, Turkey and Germany have tended to attract more attention from regulators looking for links to Iran, said Michael Zolandz, an attorney with law firm SNR Denton in Washington who advises banks on political and regulatory issues.
British banks will face scrutiny from regulators not only for their own behaviour but for the behaviour of foreign banks that they deal with. "Most of the Iranian risk is really an interwoven or interlocked risk," Zolandz said. "It's not like major financial institutions are sitting on the other side of the table from [Iranian banks]."
On November 21, in a co-ordinated action with the United States and Canada, Britain ordered all financial institutions to stop doing business with their Iranian counterparts, including the Iranian central bank. On New Year's Eve, President Barack Obama signed into law new US sanctions on Iran's Central Bank, that could penalise anyone using the banking system to make payments for Iranian crude. European Union diplomats have indicated they will soon move toward an embargo of Iranian oil. The sanctions are in response to a November 8 United Nations nuclear watchdog report which made detailed claims about Iran's development of a nuclear weapon design. Iran says its nuclear programme is peaceful and deplores sanctions.
A GAME CHANGE Until financial sanctions against Iran came into force, London was seen as a convenient transfer point for Iranian money seeking to enter the United States, proving a lucrative business for several major British banks. In the last three years however, they have had to pay hefty fines to American authorities as the US government focused on cutting off Iran's financial flows. In 2009, Lloyds TSB told US authorities that it helped Iranians channel $300 million into the US between 2001 and 2004, in violation of trade sanctions, and performed a similar service for Sudan until 2007.