September 25, 2017

Morgenthau vs. Tehran

If only the CIA were as effective against Iran as Manhattan’s D.A.

There’s good news, and some really bad news, about Iran’s efforts to evade U.S. sanctions and infiltrate the U.S. financial system. The good news is that Manhattan District Attorney Robert Morgenthau’s indictment this week of the Chinese firm LIMMT and its principal Li Fang Wei exposed some of Iran’s illicit transactions. The bad news is that Tehran wasn’t seeking U.S. currency simply as a safe haven in a turbulent market. The mullahs wanted dollars to buy critical ingredients in the production of long-range missiles and atomic warheads. And Mr. Morgenthau says they got them.

The veteran prosecutor tells us that the illegal arms trade at the heart of his 118-count indictment has provided Iran with the capability to field a new generation of missiles by the end of this year, accurate at a range of 1,300 miles. He reports that his investigation also shows that Iran has acquired technology for atomic weapons that could be ready soon after that.

Background

We told you in January about Tehran’s use of British banks to conduct “stripping” transactions. Barred from the United States, Iranian banks paid U.K. firms like Lloyds TSB Group to transfer money to correspondent banks in New York while concealing that Iran was the true source of the funds. Lloyds employees had stopped the practice in 2004, though it was not discovered by U.S. law enforcers until 2007. In January, Lloyds agreed to a $350 million fine and promised to cooperate with Mr. Morgenthau’s office and the U.S. Justice Department in exchange for a deferred prosecution agreement. The bank could otherwise be charged for violating the 1977 International Emergency Economic Powers Act, under which the U.S. has sanctioned Iran.

The big remaining question has been what Tehran was doing with the money it was converting into dollars in U.S. banks. As Mr. Morgenthau continued his investigation, gaining cooperation from banks in the U.S. and around the world, the discovery of the alleged LIMMT transactions showed another pathway into the U.S. banking system apart from the stripping transactions.

And Mr. Morgenthau says his investigation confirmed suspicions that Iran was shopping for missile parts — such as high-strength aluminum alloys and tungsten copper plates. Many of the items were manufactured in China, none in the U.S. The indictment says LIMMT, which has been under U.S. Treasury sanctions since 2006 for its role in the spread of WMD, set up a series of front companies to sell weapons to subsidiaries of the Iranian Ministry of Defense, with payments routed through U.S. banks.

Given the aggressive U.S. sanctions and the fact that no Americans appear to have been involved in the purchases, one might wonder why the rogues alleged to be on each end of this transaction were determined to do business via U.S. financial institutions. The answer is that while some transactions were conducted in euros, the dollar is still the currency of choice for global arms dealers.

LIMMT might have asked banks in London or Hong Kong to clear a transaction in dollars, but such requests are rare and would have attracted attention. That left New York, where American banks helped spot the allegedly illegal arms trade. In fact, some transactions between LIMMT and the Iranian military were also blocked by overseas banks with no obligation to do so. Seeing that LIMMT was listed on an alert from Treasury’s Office of Foreign Assets Control, these unnamed good Samaritans blocked some payments that originated in Iran.

Of course, the cooperation from banks around the world is merely the silver lining in this case. Thanks to Mr. Morgenthau’s aggressive prosecution, we see again the lengths Tehran is going to acquire weapons to threaten the world.

Copyright 2008 Dow Jones & Company, Inc. All Rights Reserved