Tracking Iran's nuclear money trail to Turkey

Banks with suspected links to Tehran allowed to do business

An examination of classified reports and interviews with Western diplomats, government and intelligence officials underscore that Turkey and others have resisted international pressure to make it harder for Iran to finance its uranium enrichment programme.

“Turkey’s blossoming financial-economic relationship with Iran provides Iran with a gateway to the entire European financial system,” according to an intelligence report on Turkey and Iran provided to Reuters by a diplomat.

“The fact that Turkey is allowing itself to be used as a conduit for Iranian activity via Turkish banks and the Turkish lira is making it possible for Iranian funds in Turkish guise to make their way into Europe.”

Turkey, a NATO member that looks to join the European Union, has enjoyed growing economic and financial relations with neighbouring Iran. Trade between the two nations reached $10 billion in 2008 and could triple in five years, Turkish Prime Minister Tayyip Erdogan told a group of businessmen he met together with Iran’s First Vice President Mohammad Reza Rahimi last week.

Much of that trade is legitimate, but if Turkey becomes a virtual safe haven for Iranian banking activities, it will be easier for Tehran to dodge sanctions, according to diplomats.

Ankara’s move closer to its eastern neighbour, which is a major energy supplier to Turkey, comes at a time of growing international isolation for Tehran. Iran has been stepping up its uranium enrichment programme, which the West fears is aimed at building a nuclear bomb and Tehran says is purely peaceful.

Even so, persuading Turkey to overlook its own economic interests and restrict the activities of the more than a dozen Iranian banks the United States and EU have sanctioned won’t be easy.

Ankara is obligated to implement just the UN measures, and only Turkish banks with business in the United States could face US penalties for dealing with Iranian companies blacklisted by Washington.

Blacklisted

Earlier this year in the United States, Britain and others pushed the UN to blacklist Iran’s central bank, the Export Development Bank of Iran, Bank Mellat and other Iranian financial institutions. But they met with fierce resistance from China, which has close business ties with and imports much of its crude oil from Iran.

Those banks, US and EU officials argued, have turned to Europe, the Middle East, Asia and Africa to finance Iran’s illicit procurement activities for its nuclear and missile programmes, sometimes covering up the fact that they were working on behalf of other blacklisted Iranian banks.

In the end, the UN Security Council only added one bank — a subsidiary of Mellat called First East Export Bank — to its blacklist. Although Mellat itself avoided any sanctions, resolution 1929 noted that over the last seven years it has “facilitated hundreds of millions of dollars in transactions for Iranian nuclear, missile and defence entities.”

The US and EU, for their part, slapped Mellat, Iran’s second largest bank, with sanctions on their own. But the bank continues to operate branches in three Turkish cities — Istanbul, Ankara and Izmir — without any visible interference from the Turkish government.

The conduit

* Iranian bank under US, EU sanctions operates in Turkey
* West fears that Turkey is Iran’s financial gateway
* US sent senior official to press Turkey on sanctions
* Banks in South Korea, Austria are also under scrutiny