EU Court Strikes Down Swift's Blockade Against Iranian Banks

By Jon Matonis
Forbes
Friday, February 8, 2013

 http://www.forbes.com/sites/jonmatonis/2013/02/08/eu-court-strikes-down-swifts-blockade-against-iranian-banks/

Reuters is reporting that a European Union court has ruled against the EU banking sanctions imposed on one of Iran's largest banks, which extends to the payment sanctions imposed by Swift in March of last year. This represents the second such judgment against the banking sanctions and brings into question the legitimacy of using the Swift payments network as an economic weapon.

On Tuesday, the EU's General Court ruled that, in the case of Bank Saderat, there was insufficient evidence demonstrating that the bank was involved in Iran's nuclear program. Last week, the court issued a similar ruling in the case of Bank Mellat, the largest private sector lender in Iran. Boycotted by the EU since July 2010 and blocked out of Swift since March 2012, the two banks had filed suit with the European court to challenge those sanctions. EU governments now have two months to appeal the recent decisions.

The Society for Worldwide Interbank Financial Telecommunication, or Swift, is a worldwide financial messaging network to facilitate the interbank transfer of funds. Speaking after a news conference in Dubai, Swift's chief executive Gottfried Leibbrandt indicated that talks are continuing with European regulators about the appropriateness of requiring Swift to impose sanctions on countries such as Iran.

A global network for the transfer of funds loses some of its effectiveness once its neutrality becomes tarnished, because any member of the network could be similarly targeted without recourse.

Leibbrandt said, "There is a dialogue going on around the trade-off between using us as a sanctions tool for other countries and impeding our role as really serving as a global infrastructure mechanism." He added that "there are lots of alternatives to Swift" and international transactions can still be executed by sending instructions via telephone or email, but such alternatives are "not as secure as Swift and [lack] the convenience factor."

One such alternative is the gold bullion trade. Buyers of Iranian oil and gas must deposit payment in a local bank account and it cannot be transferred abroad. Iran sells natural gas to Turkey and receives payment in Turkish lira, which are then used to purchase gold bars in Turkey. Couriers using hand luggage carry the bullion to Dubai, where it is sold for foreign currency or shipped to Iran.

Turkish Economy Minister Zafer Caglayan said, "We will continue to make our gold exports this year to whoever seeks them. We have no restrictions and are not bound by restrictions imposed by others." Turkey was granted a six-month U.S. waiver that exempted it from financial sanctions against Iran but the waiver is due to expire in July. Also in December, the U.S. Senate passed expanded sanctions on trade with Iran which included restricting trade in precious metals.

Caglayan maintained that Turkey's state-owned Halkbank will continue its existing transactions with Iran but some other banks had pulled back in response to U.S. pressure since those private banks had activities in the U.S.

Also, Washington has warned Moscow on the implications for Russian banks and has sanctioned the parent company of Russia's Mir Business Bank, state-owned Bank Melli Iran, claiming that the Moscow-based bank has become a conduit for Iranian's seeking to keep trade flowing. "Only problem is Russians don't care what we think," according to Jim Rickards, author of Currency Wars: The Making of the Next Crisis.

In the meantime, over 30 cases are still pending at the EU General Court, including cases filed by the Central Bank of Iran and the National Iranian Oil Company.

As Inflation Rages In Iran, Bitcoin Software Not Available

By Jon Matonis
Forbes
Tuesday, October 9, 2012

 http://www.forbes.com/sites/jonmatonis/2012/10/09/as-inflation-rages-in-iran-bitcoin-software-not-available/

Hyperinflation has hit Iran hard. The government has stepped up censorship of currency exchange websites such as Mesghal.com and Mazanex.com, which had rates blanked out for the rial’s value against other nations’ currencies on Tuesday. Several major foreign airlines announced that they were discontinuing service into Tehran due to the volatility of the Iranian rial and shipping giant Maersk halted all port calls to Iran.

If severe currency devaluation and disruptive Internet cyber-attacks were not enough, the regular people of Iran have had access blocked to certain open source software sites for downloading applications such as Bitcoin. The 32-month-old blockade hasn’t been instigated by Iran’s mullahs but by the U.S.-led embargo which prohibits certain persons from receiving services via open source hosting sites.

The original and ‘reference’ Bitcoin client is hosted in the United States on GeekNet’s SourceForge.net who explained their denial of site access policy on their blog:

"The specific list of sanctions that affect our users concern the transfer and export of certain technology to foreign persons and governments on the sanctions list. This means users residing in countries on the United States Office of Foreign Assets Control (OFAC) sanction list, including Cuba, Iran, North Korea, Sudan, and Syria, may not post content to, or access content available through, SourceForge.net. Last week, SourceForge.net began automatic blocking of certain IP addresses to enforce those conditions of use."

Then, after an angry reaction from project administrators and developers, SourceForge removed the blanket blocking and modified their policy to put the power of determining a block trigger in the hands of each project’s leadership, as announced in their February 2010 blog posting:

"Beginning now, every project admin can click on Develop -> Project Admin -> Project Settings to find a new section called Export Control. By default, we’ve ticked the more restrictive setting. If you conclude that your project is *not* subject to export regulations, or any other related prohibitions, you may now tick the other check mark and click Update. After that, all users will be able to download your project files as they did before last month’s change."

Therefore, the export control determination has to be made by the project’s registered administrator on SourceForge, which for Bitcoin is lead developer Gavin Andresen after assuming the role from Bitcoin creator, Satoshi Nakamoto.

Export of software from the U.S., including software that deploys encryption functions, is controlled by the Bureau of Industry and Security (BIS) in accordance with the Export Administration Regulations (EAR).

Andresen, who is also Chief Scientist for Bitcoin Foundation, stated that Bitcoin compiles against the full OpenSSL library and the wallet encryption feature uses AES-256 which is what places Bitcoin in the above category. The SourceForge option that Bitcoin.org selects to remain in compliance with U.S. law states, “This project incorporates, accesses, calls upon or otherwise uses encryption software with a symmetric key length greater than 64 bits (“encryption”). This review does not include products that use encryption for authentication only.”

Forget about the mere difficulties of obtaining and trading bitcoin for national fiat currency in Iran — without the client software, they are not even there yet. Other Bitcoin “experts” have alluded to alternative methods of downloading the Bitcoin client such as using non-U.S. independent mirrored sites, Virtual Private Network (VPN) for IP address masking, Tor if your country has an exit node, or BitTorrent file sharing.

Aside from the inherent weaknesses within the entire SSL infrastructure, other download channels, and even SourceForge itself, present challenges. The initial install code would need to be verified for authenticity and the only way to accomplish that is to have the core developer sign the code personally or have a neutral third-party like the Bitcoin Foundation sign downloadable code with their certificate as a registered developer.

In extreme circumstances the verified source code can be compiled directly by the user so that downloading binaries is not necessary. Source code can also be distributed in text-based form like a PDF or scanable book which is what MIT did for Phil Zimmermann and later what 70 international volunteers did for the PGPi Scanning Project in 1997. More and more, the Bitcoin Project is starting to look like the Pretty Good Privacy (PGP) secure email program with each passing day.

For further reading:
"More surreal events in the Crypto Cold War - the BitCoin blockade of Iran", Ian Grigg, October 14, 2012
"US Laws Restrict Individual Freedom and SourceForge Complies", Ryan Bagueros, March 4, 2010
"Should open-source repositories block nations under U.S. sanctions?", Sharon Machlis, Computerworld, January 25, 2010

The Payments Network As Economic Weapon

By Jon Matonis
Forbes
Tuesday, March 27, 2012

http://www.forbes.com/sites/jonmatonis/2012/03/27/the-payments-network-as-economic-weapon/ 

"Extraordinary and unprecedented" is how SWIFT chief executive, Lázaro Campos, describes the March 17th move by Belgium-based SWIFT to discontinue service to 30 Iranian banks. The Society for Worldwide Interbank Financial Telecommunication, or SWIFT, is a worldwide financial messaging network to facilitate the interbank transfer of funds. Now, it has become an economic weapon as well.

SWIFT Headquarters in La Hulpe, Belgium

Campos emphasized the monetary blockade is "a direct result of international and multilateral action to intensify financial sanctions against Iran" and that SWIFT was forced by recent European Union sanctions designed to isolate Iran financially for its failure to demonstrate to Western nations that it is not developing nuclear weapons.

SWIFT has never expelled an institution in its 39-year history and in 2010 it processed 2 million messages for 19 Iranian member banks and 25 financial institutions. This is a vastly significant change in tactics and the repercussions are still unknown. Governments have long used the financial system as a method of tracking and blocking payment flow for targeted individuals and companies, but now it has been escalated to the nation-state level via the modern telecommunications network.

Mark Dubowitz is a sanctions specialist in Washington D.C. who advised U.S. lawmakers on the recent SWIFT legislation. He said the decision could limit the ability of Iran’s banks "to move billions of dollars in financial transactions and put immense pressure on Iran’s leaders to reconsider their policies" and that it underscores "the growing political isolation of Iran as it becomes the first country to be expelled from what is the financial equivalent of the United Nations."

Highlighting and exposing the structural importance of centralized financial institutions that sit at the very top of the payments pyramid will hasten the trend to more decentralized and regional payment structures. Moreover, a single worldwide financial structure with near-absolute authority will begin to be seen as a vulnerability to many nations because they cannot always be expected to comply with U.S. and European Union directives. Now that the precedent has been set for evicting a country's financial institutions from the prevailing global payments network, all nations will be rightly suspicious of that powerful weapon.

Trader and gold advocate Jim Sinclair explains to King World News how the U.S. government uses the international payments system as a weapon of war:

"We go to war, challenging the other side to do the same because whatever you use as a weapon, the other side is going to tend to use as a weapon.  The weapon that’s being used is the interbank transfer system, the way money is sent from bank to bank. We’ve already seen that Iran has been basically shut out of the SWIFT system and the SWIFT system is what this is all about.  The SWIFT system doesn’t take any money for the money that goes through it.  The SWIFT system is like the old telephone company.  What it does is charge for the use of its communication.

Believe me the SWIFT system works for the West.  It’s located in Belgium and you would think the US had no power on it.  It’s never discussed as being a US arm, but it is a US weapon. You’ve got to see now you’ve got this visual in front of you of a battlefield.  You’ve got Wall Street firing by lighting off something that looks like a cruise missile, but it’s got SWIFT written on the side."

India is now told to cooperate or suffer the consequences implying tacitly that payment network sanctions are a real possibility. In a March 26th, 2012 audio interview, Sinclair goes on to forecast how the BRIC economies and other emerging trade areas around the world may soon look to establish their own SWIFT-type transfer systems so as not to get locked out of the international monetary system in the future. The backlash from this action will lead to the remonetization of gold around the world as barter and currency substitutes to the U.S. dollar gain in importance.

Gulf Petro-powers to Launch Currency in Latest Threat to Dollar Hegemony

By Ambrose Evans-Pritchard
The Telegraph, London
Tuesday, December 15, 2009

http://www.telegraph.co.uk/finance/economics/6819136/Gulf-petro-powers-to-launch-currency-in-latest-threat-to-dollar-hegemony.html

The Arab states of the Gulf region have agreed to launch a single currency modelled on the euro, hoping to blaze a trail towards a pan-Arab monetary union swelling to the ancient borders of the Ummayad Caliphate.

“The Gulf monetary union pact has come into effect,” said Kuwait’s finance minister, Mustafa al-Shamali, speaking at a Gulf Co-operation Council (GCC) summit in Kuwait.

The move will give the hyper-rich club of oil exporters a petro-currency of their own, greatly increasing their influence in the global exchange and capital markets and potentially displacing the US dollar as the pricing currency for oil contracts. Between them they amount to regional superpower with a GDP of $1.2 trillion (£739bn), some 40pc of the world’s proven oil reserves, and financial clout equal to that of China.

Saudi Arabia, Kuwait, Bahrain, and Qatar are to launch the first phase next year, creating a Gulf Monetary Council that will evolve quickly into a full-fledged central bank.

The Emirates are staying out for now – irked that the bank will be located in Riyadh at the insistence of Saudi King Abdullah rather than in Abu Dhabi. They are expected join later, along with Oman.

The Gulf states remain divided over the wisdom of anchoring their economies to the US dollar. The Gulf currency – dubbed “Gulfo” – is likely to track a global exchange basket and may ultimately float as a regional reserve currency in its own right. “The US dollar has failed. We need to delink,” said Nahed Taher, chief executive of Bahrain’s Gulf One Investment Bank.

The project is inspired by Europe’s monetary union, seen as a huge success in the Arab world. But there are concerns that the region is trying to run before it can walk.

Europe took 40 years to reach the point where it felt ready to launch a currency. It began with the creation of the Iron & Steel Community in the 1950s, moving by steps towards a single market enforced by powerful Commission and European Court. The EMU timetable was fixed at the Masstricht in 1991 but it took another 11 for euro notes and coins to reach the streets.

Khalid Bin Ahmad Al Kalifa, Bahrain’s foreign minister, told the FIKR Arab Thought summit in Kuwait that the project would not work unless the Gulf countries first break down basic barriers to trade and capital flows.

At the moment, trucks sit paralysed at border posts for days awaiting entry clearance. Labour mobility between states is almost zero.

“The single currency should come last. We need to coordinate our economic policies and build up common infrastructure as a first step,” he said.

Mohammed El-Enein, chair of the energy and industry committee in Egypt’s parliament, said Europe’s example could help the Arab world achieve its half-century dream of a unified currency, but the task requires discipline. “We need exactly the same institutions as the EU has created. We need a commission, a court, and a bank,” he said.

The last currency to trade in souks from Marakesh, to Baghdad and Mecca, was the Ottomon Piaster, known as the “kurush”. It suffered chronic inflation as the silver coinage was debased.

There is a logic to an Arab currency. The region speaks one language, has the unifying creed of “Umma Wahida” or One Nation from the Koran, and has not torn itself apart in savage wars – ever – in quite the way that Europe has in living memory.

Yet hurdles are formidable even for the tight-knit group of Gulf states. While the eurozone is a club of rough equals – with Germany, France, Italy, and Spain each holding two votes on the ECB council – the Gulf currency will be dominated by Saudi Arabia. The risk is that other countries will feel like satellites. Monetary policy will inevitably be set for Riyadh’s needs.

Hans Redeker, currency chief at BNP Paraibas, said the Gulf states may have romanticised Europe’s achievement and need to move with great care to avoid making the same errors.

“The Greek crisis has exposed the weak foundations on which the euro is built. The gap in competitiveness between core Europe and the periphery has grown wider and wider. The obvious mistake was to launch EMU without a central fiscal authority and political union, as the Bundesbank warned in the 1990s,” he said.

“The euro was created for political reasons after the fall of the Berlin Wall to lock Germany irrevocably into Europe. It was not done for economic reasons,” he said.

Ben Simpfendorfer, Asia economist for RBS and an expert on the Middle East, told the FIKR conference that the rise of China had paradoxically disrupted the case for pan-Arab economic integration.

There was a natural fit ten years ago between rich oil state and low-wage manufacturers in Egypt and Syria, but cheap exports from China have forced poorer Arab states to retreat behind barriers to shelter their industries. “The rationale for a single currency has become weaker,” he said.

The GCC also agreed to create a joint military strike force – akin to the EU’s rapid reaction force – to tackle threats such as the incursion of Yemeni Shiite rebels into Saudi territory earlier this year.

This is a major breakthrough after years of deadlock on defence cooperation.

The Sunni Gulf states are deeply concerned about the great power ambitions of Shiite Iran and its quest for nuclear weapons, to the point where the theme of a possible war between Iran and a Saudi-led constellation of states has crept into the media debate.

They nevertheless repeated on Tuesday that “any military action against Iran” by Western powers would be unacceptable

For further reading:
"Gulf Arab states move closer to single currency", Associated Press, December 15, 2009
"Gulf Monetary Council to Tackle Single Currency Peg, Launch", The Wall Street Journal, December 15, 2009
"Gulf nations sign monetary pact", Al Jazeera, December 15, 2009
"fairCASH – A Digital Cash Candidate for the proposed GCC Gulf Dinar", Heinz Kreft and Wael Adi, IEEE, 2006

Turkey to Drop Dollar in Trade with Iran, China

RIA-Novosti, Moscow
Wednesday, October 28, 2009

http://en.rian.ru/business/20091028/156617011.html

ANKARA, Turkey -- Turkey is switching to national currencies in trade with Iran and China, ending dependence on the U.S. dollar and the euro for about 20 percent of its commodity turnover, local media reported on Wednesday.

Turkey has already switched to settlements in national currencies with Russia amid weakening confidence in the greenback as the world's major reserve currency. The move was initiated by Turkish President Abdullah Gul during his visit to Moscow in February.

Turkey's decision to make settlements with Iran and China in national currencies was announced during a visit to Iran by Turkish Prime Minister Recep Tayyip Erdogan. The Turkish premier told a Turkish-Iranian business forum on Tuesday that the countries had prepared a legal framework for transition to settlements in national currencies.

"We have adopted a necessary legislative act and are prepared for the transition," the Turkish newspaper Milliyet quoted Erdogan as saying.

According to the paper, Turkey's trade with Russia, Iran, and China exceeds $65 billion a year. Russia is Turkey's largest trade partner, with $37.8 billion commodity turnover registered last year.

Russian Prime Minister Vladimir Putin said on October 14 that Russia was ready to consider using the Russian and Chinese national currencies instead of the dollar in bilateral oil and gas dealings.

"We are ready to examine the possibility of selling energy resources for rubles, but our Chinese partners need rubles for that. We are also ready to sell for yuans," Putin said.

Britain's Independent newspaper reported in early October that Russian officials had held "secret meetings" with Arab states, China and France on ending the use of the U.S. dollar in international oil trade.

The countries are reportedly seeking to switch from the dollar to a basket of currencies including the euro, Japanese yen, Chinese yuan, gold, and a new unified currency of leading Arab oil producing countries.

The Independent said the meetings have been confirmed by Chinese and Arab banking sources, although Russian officials said they had no knowledge of the talks.

Iran to Drop Dollar From Forex Reserves

Tehran Times Economic Desk
Saturday, October 17, 2009

http://www.tehrantimes.com/index_View.asp?code=205640

TEHRAN -- The Trade Promotion Organization of Iran (TPOI) announced this week that it plans to exclude the U.S. dollar from Iran’s foreign exchange reserves.

In line with this plan, Iran has informed Japan that it should use the yen instead of dollars to pay for the oil it buys from the Islamic Republic.

In addition, Iran has decided to open a bourse for oil and gas transactions in currencies other than the U.S. dollar, especially the euro.

Although the opening of the new bourse has been postponed several times, the plan shows the country’s determination to replace the dollar in its oil and gas transactions.

The TPOI has also announced that since October 2007 Iran has sold 85 percent of its oil exports in currencies other than the U.S. dollar and is determined to sell the remaining 15 percent in other currencies such as the UAE dirham.

During his first term, Iranian President Mahmoud Ahmadinejad ordered that the dollar should be replaced by the euro in the transactions of Iran’s currency reserve fund.

For further reading:
"Iran and Russia propose oil trade without U.S. dollar", Tehran Times, October 19, 2009
"Putin Prepared To Avoid Dollar In Chinese Commodity Transactions", Zero Hedge, October 16, 2009

Digital Currency Firm Fined $3 Million over Iranian Accounts

By Richard Lardner
Associated Press via Yahoo News
Thursday, October 1, 2009

http://news.yahoo.com/s/ap/20091001/ap_on_go_ca_st_pe/us_iran_florida_co...

WASHINGTON -- A Florida company has been fined nearly $3 million for activating thousands of electronic currency accounts for customers in Iran, the Treasury Department said Thursday.

The company, Gold & Silver Reserve Inc. of Melbourne, exported financial services without a license, violating federal regulations governing transactions with Iran, the department said.

Between September 2003 and December 2006, more than 56,700 of the company's e-currency accounts were opened by persons located in Iran, according to the announcement, and Gold & Silver Reserve did not voluntarily disclose the violations to the department's Office of Foreign Assets Control.

Carol Van Cleef, an attorney representing the company, said her client has overhauled its internal procedures to be in compliance with Treasury's regulations. "This deals with past issues and the company has put it behind them," she said.

With a Gold & Silver Reserve account, U.S. dollars or other currencies can be converted into digital cash that is backed by gold bullion, according to the company's web site. That allows for international transactions of goods and services at set rates among customers from different countries.

The company has temporarily suspended the creation of new accounts, the Internet site indicates.

In a separate case, the owners of Gold & Silver Reserve, who also own E-Gold Ltd., were indicted by a federal grand jury in April 2007 on charges of money laundering, conspiracy, and operating an unlicensed money transmitting business.

The Justice Department said people who wanted to use the company's gold payment system were required to provide only a valid e-mail address to open an account. Customers could access their account through the Internet and conduct anonymous transactions anywhere in the world.

The indictment alleged that E-Gold was a favored method of payment by operators of investment scams, credit card and identity fraud, and sellers of online child pornography.

The owners initially denied the allegations, but eventually pleaded guilty.

The Treasury Department said it could have fined Gold & Silver Reserve $5 million, but reduced the amount because of the forfeitures and penalties the company paid in the criminal case.