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Last week, the Wall Street Journal reported that the Obama administration secretly agreed to lift United Nations sanctions on two of Iran's missile financing institutions as part of a package of controversial accommodations with Iran in January. Critics of the move have focused on an alleged "quid pro quo" in which the delisting of Bank Sepah and Sepah International was part of a "ransom" paid for the release of Americans being held in Iran. But the decision to clear the banks also diminishes the ability of the United States and other governments to enforce U.N. sanctions on Iran's ballistic missile program, which remain in place until 2023. Specifically, the United States has weakened its ability to target the Iranian banks that finance missile development—one of the most powerful means of countering Iran's missile progress.
Bank Sepah and its London-based affiliate Sepah International were two of only a handful of banks that had been sanctioned by the United Nations, thus cutting them off from the international financial system. They were targeted for their support of the Aerospace Industries Organization (AIO) and two AIO subsidiaries also sanctioned by the United Nations, the Shahid Hemmat Industrial Group (SHIG) and the Shahid Bagheri Industrial Group (SBIG). Together, these entities oversee Iran's solid and liquid fueled missile development. Yet the United States agreed to lift U.N. sanctions on Bank Sepah and Sepah International as well as to remove them from the U.S. blacklist. This move came despite the United States calling Bank Sepah AIO's “bank of choice” as well as "the financial linchpin of Iran's missile procurement network [that] has actively assisted Iran's pursuit of missiles capable of carrying weapons of mass destruction."
U.S. officials have insisted that the nuclear agreement with Iran has not affected the continuation of sanctions on its ballistic missile program. Yet as part of the nuclear agreement, in addition to Bank Sepah and Sepah International, the United States removed from its blacklist seven other Iranian-controlled banks supporting Iran's ballistic missile program, including banks that have provided financial services to Iran's Ministry of Defense and Armed Forces Logistics (MODAFL), which controls AIO; banks that have facilitated the purchase of missile-related items; and banks that supported sanctions evasion by entities tied to Iran's missile program. Four of the nine banks also have links to Iran's Bank Saderat, which remains on the U.S. blacklist for its role in financing terrorism.
These nine banks remain on the U.S. Executive Order 13599 List, indicating that they are part of the Government of Iran or an Iranian financial institution and are therefore still off-limits to U.S. parties. However, the United States removed its secondary sanctions on these banks, which had extended U.S. sanctions to take aim at foreign parties that dealt with the banks. As a result, these banks are now able to reconnect to the SWIFT financial messaging service, which is critical for processing transactions. Many of the banks have also re-established commercial ties to Europe this year. One of the banks, the Export Development Bank of Iran, also extended a $1 billion line of credit in July 2015 to the Syrian Commercial Bank.
The nine Iranian-controlled banks linked to missile activity that were removed from the U.S. blacklist since the beginning of the year are described below. No evidence has been presented indicating that these banks have stopped engaging in the behavior that warranted sanctions in the first place. Yet these missile financing banks, while still cut off from the U.S. financial system, are now free to do business with the rest of the world. Thus, the United States has weakened one of its most powerful tools to counter Iran's ballistic program—the targeted sanctions that effectively cut off the banks that finance Iran's missile activity from large parts of the global financial system.
- Bank Melli has provided financial services to the key Iranian agencies responsible for the ballistic missile program, including AIO, the Defense Industries Organization (DIO), a missile manufacturer, and SHIG and SBIG, both of which remain subject to U.N. sanctions. Through its financial services, Bank Melli has facilitated numerous purchases of sensitive material for Iran's missile program. It also has links to terrorism through its transactions on behalf of the IRGC-Qods Force. Bank Melli also has ties to Bank Saderat, with which it established Future Bank B.S.C. in Bahrain as a joint venture. While never under U.N. sanction, Bank Melli was the subject of a warning in U.N. resolution 1803 that called for financial institutions to “exercise vigilance” with respect to Bank Melli due to its links to nuclear and missile-related activities.
- Export Development Bank of Iran (EDBI) has provided handled transactions for MODAFL and other entities associated with Iran's missile program and has facilitated procurement activities. EDBI also allegedly served as an intermediary handling financing, including WMD-related payments, for Bank Sepah after Bank Sepah was sanctioned in 2007. In July 2015, EDBI extended a $1 billion line of credit to the state-owned Syrian Commercial Bank, a form of financial aid to the Assad regime.
- Bank Refah Kargaran has provided financial services to MODAFL and facilitated the millions of dollars of purchases by MODAFL of weapons-related items, including missiles. It has also served as a conduit for sanctions evasion, processing outstanding transactions for Bank Melli following the sanctions imposed on Bank Melli by the European Union. It also has ties to Bank Saderat and EDBI, with whom it founded Belarus-based Onerbank as a joint venture.
- Europäisch-Iranische Handelsbank AG (EIH) is a German-based bank controlled by Iranian interests. It shareholders include Bank of Industry and Mine, Bank Mellat, and Bank Tejarat. EIH has reportedly done over a billion dollars of business for Iranian companies associated with conventional military and ballistic missile procurement, including AIO, DIO, and the Iranian Revolutionary Guard Corps (IRGC). In addition, it has acted as a conduit for payments on behalf of Iranian banks under sanction, including Bank Sepah, Bank Mellat, and Bank Saderat. When the nuclear agreement with Iran was announced, EIH stated that it was poised to “place its full range of services at the disposal of old and new customers.”  In March 2016, EIH extended lines of credit totaling over 480 million euros to Iranian banks, including Bank of Industry and Mine, Bank Mellat, and Bank Tejarat.
- Bank of Industry and Mine (BIM) helped several banks blacklisted for ballistic missile activity, including Bank Mellat and EIH Bank circumvent international sanctions, by concealing their involvement in payments. It is the majority stakeholder in EIH Bank and received a 108 million euro line of credit from the German bank in March 2016.
- Bank Tejarat has provided financial services for MODAFL and other Iranian entities linked to the country's missile program. It has begun re-establishing commercial ties to Europe. Last month, ten bankers from Bank Tejarat reportedly attended a class on compliance and European banking in the Netherlands. It also received a line of credit from EIH Bank in March 2016.
1 Jay Solomon and Carol E. Lee, "U.S. Signed Secret Document to Lift U.N. Sanctions on Iranian Banks," Wall Street Journal, September 29, 2016, http://www.wsj.com/articles/u-s-signed-secret-document-to-lift-u-n-sanctions-on-iranian-banks-1475193723
2 Jordain Carney and Sylvan Lane, "GOP lawmakers slam secret agreement to help lift Iran bank sanctions," The Hill, September 30, 2016, http://thehill.com/policy/finance/298711-obama-admin-agreed-to-push-for-iran-sanctions-relief-for-prisoner-deal-report
3 "Iran’s Bank Sepah Designated by Treasury Sepah Facilitating Iran’s Weapons Program", U.S. Department of the Treasury, January 9, 2007, https://www.treasury.gov/press-center/press-releases/Pages/hp219.aspx
4 "Iran’s Bank Sepah Designated by Treasury Sepah Facilitating Iran’s Weapons Program", U.S. Department of the Treasury, January 9, 2007, https://www.treasury.gov/press-center/press-releases/Pages/hp219.aspx
5 "Syria ratifies fresh $1 billion credit line from Iran," Reuters, July 8, 2015, http://ca.reuters.com/article/topNews/idCAKCN0PI1RD20150708?sp=true
6 Europäisch-Iranische Handelsbank AG, LinkedIn, https://www.linkedin.com/company/europ%C3%A4isch-iranische-handelsbank-ag
7 "Iranian banks open €480mn credit via IECB," Mehr News, March 14, 2016, http://en.mehrnews.com/news/115212/Iranian-banks-open-480mn-credit-via-IECB
8 "Iranian banks open €480mn credit via IECB," Mehr News, March 14, 2016, http://en.mehrnews.com/news/115212/Iranian-banks-open-480mn-credit-via-IECB
9 Mamta Borkar, "In an effort to play by international rules, Iranian banks take Dutch compliance course," Sanctions Alert, September 26, 2016, http://sanctionsalert.com/in-an-effort-toplay-by-international-rules-iranian-banks-take-dutch-compliance-course/
10 "Iranian banks open €480mn credit via IECB," Mehr News, March 14, 2016, http://en.mehrnews.com/news/115212/Iranian-banks-open-480mn-credit-via-IECB
11 "Iranian banks open €480mn credit via IECB," Mehr News, March 14, 2016, http://en.mehrnews.com/news/115212/Iranian-banks-open-480mn-credit-via-IECB