Financial Transparency Coalition

If you’re not to be swayed against banking secrecy by arguments of tax or justice, I’ve got one for you.   National security.  It is now clear: international banking secrecy is solidifying a growing relationship between Iran and Venezuela – likely putting Iran one step closer to obtaining nuclear power.

On Tuesday, at an event hosted by Global Financial Integrity and The American Interest, New York District Attorney Robert Morgenthau spelled out the mounting financial, military, and economic ties between the seemingly “unlikely bedfellows,” Iran and Venezuela.

Ideologically the relationship makes sense.  Both countries are self-described enemies of the Western world and often unload passionate loathing onto the U.S.  Both seek regional domination and espouse a politics of populism.  And both have strong ties to the terrorist groups Hezbollah and Hamas.  But in the last few years, this relationship has deepened far beyond a cursory meeting of politics and ideology, as these countries have solidified their tie, calling themselves the “axis of unity.”

So? You might shrug.  It might be chilling, but what does it have to do with nuclear power or banking secrecy?  The answer is: a lot.  And it all goes back to money, money, money.

The U.S. first imposed economic sanctions on Iran following its Islamic Revolution in 1979.  Since then it has escalated the restrictions, with broad UN support, in response to Iran’s uranium enrichment program, which is broadly considered a grave threat to security in the Middle East, and indeed, the rest of the world.  Central to these sanctions are banking restrictions, which prohibit Iranian banks from transferring money to or from banks in the United States.

But with restrictions comes evasion and Iran is no exception.  The country has noticed that banks in Venezuela are not restricted in their access to America and, indeed, are largely responsible for self regulating to make sure the funds they transfer to the U.S. are for legitimate purposes.  This has provided Iran with not only an ideological match, but a convenient co-conspirator as well.  Seizing on this loophole, Iran has opened the Banco Internacional de Desarrollo (International Development Bank or BID) in Caracas and through this bank has opened thick ties with Panama, a notorious secrecy jurisdiction.  District Attorney Morgenthau notes his office suspects an “ulterior motive,” as BID clearly provides a “sanction busting” method for Iran to gain access to the U.S. financial system.

So why would Iran go to these lengths for some bank deposits in Manhattan?  Because to obtain banned missile and nuclear materials in an international market, Iran must make payments through wire transfers in U.S. dollars, which must clear through correspondent accounts in the United States.  In this way, Iran can use Venezuela’s banks as a third party to guarantee its “continued development of nuclear technology and long-range missiles.”

And so has formed a frightening marriage of two nations, who are united by a passionate hatred of the U.S., a convenient international system of economic sanctions, and a whole bunch of cash.

Note: This post is based mainly on the remarks of Robert Morgenthau, but some of my own perspective and comments are included, as well.  Morgenthau’s full report can be read on the GFI website here.