Korea to go after Iran but not as hard as US wants

Seoul has no plans to shutter Iranian bank branch

By Cho Jin-seo

South Korea finds itself forced to make a choice between two equally competing priorities over Iran. At the moment, it looks to be a matter of time before it goes after the branch of an Iranian bank in Seoul.

Seoul has found evidence of wrongdoing at the Seoul branch of Bank Mellat, Iran’s state commercial bank, but is biding its time over punishing the Iranian bank, an official at the finance ministry said.

“We indeed found out that the Bank Mellat branch in Seoul was involved in activities banned by the United Nations,” a high-ranking official at the Ministry of Strategy and Finance told The Korea Times on Monday. He requested anonymity.

The confirmation contradicts the denial from the Iranian ambassador in Korea. Mohammad Reza Bakhtiari told Korean media on the same day that “There have never been illegal operations performed by this bank. Otherwise, it would have been stopped much earlier than this time,” he was quoted as saying by Yonhap News Agency.

The ministry official said that Korea is just taking its time before deciding how and when it would punish the bank.

“If we had wanted to, the bank would have been closed a long time ago. But we didn’t, because we didn’t need to act before the United States started taking action,” he said.

The United States has provided useful information to Korean auditors, the official said. In return, Korea notified the United States what it found during the audit. But it is not going to use the result to punish Bank Mellat right now.

“The United States wants us to follow their lead to impose strong sanctions, but we told them that the evidence is not strong enough to order a shutdown,” he said.

An official at the Financial Supervisory Service said that an audit, which was conducted as part of the routine, had been finished except for occasional follow-up inquiries. “The announcement of punitive measures will take some time.”

Teheran’s comments backfire

The ministry official also worried that the Iranian ambassador’s remarks could be interpreted as a threat to Korea, just when its people were becoming sympathetic to Iran.

Bakhtiari was quoted as saying that Korea will be sanctioning itself just as much when it puts unilateral sanctions on Iran. “Whoever is exerting or applying any sanction on Iran, first of all, they are depriving themselves of good potential business opportunities ,” he said.

A more aggressive and straightforward remark came from Tehran on the same day.

“The Koreans also need to be slapped,” Vice President Mohammad Reza Rahimi was quoted as saying by the AP during a speech. Rahimi said that Seoul needs to be punished for joining the coalition of Western countries sanctioning Iran, such as the United States, the European Nation, Japan and Australia. A likely “slap” is an increase of tariffs of up to 200 percent, the Iranian vice president reportedly said.

Keeping the balance

Seoul has been trying hard to strike a balance between Iran and the United States.

Traditionally, Korea is a close ally of the United States in military and diplomatic affairs since the days of the 1950-53 Korean War. The two countries have recently cooperated on many international issues, such as the U.S. invasion of Iraq and Afghanistan, which were not very popular in Iran and other Muslim nations. They are also joining forces in condemning North Korea over the sinking of the South’s warship, Cheonan, in March.

Iran, on the other hand, is not a market that can be overlooked by Korean firms. The country has provided critical business opportunities for Korean construction and engineering firms in 1970s. It is now a large emerging market for Korean consumer goods such as cars and electronics.

Iran supplies about 10 percent of South Korea’s oil demands. In total, the bilateral trade volume was worth more than $16 billion when including indirect exports of goods via Dubai, according to the Korean embassy in Teheran.

This volume is not very large compared to that of Korea-U.S. trade, which amounted to $85 billion in 2008. But exports to Iran was growing continuously until the global financial crisis.

Politics are not as simple as that. Under the hardliner President Mahmoud Ahmadinejad, Iran has been suspected of developing nuclear bombs. The United Nations has announced sanctions on Iran, such as travel bans, cargo inspections and asset freezes.

The United States and the European Union imposed even harsher sanctions last month. Details on financial sanctions on Iranian banks are to be announced by the United States by September.

Korea’s Financial Supervisory Service (FSS), a financial watchdog, has been conducting an audit on Bank Mellat since June. The regulators are saying that the inspection was a regular one. But the results have been kept undisclosed so far, as the government has hesitated on what action to take. “In ordinary situations, the FSS could have issued a regular warning on those violations,” the finance ministry official says.

The Koreans’ public sentiment was becoming sympathetic toward Iran when Robert Einhorn, a U.S. envoy, demanded Korea be strong against Iranian banks, to the level of sanctions enforced by the E.U.

“We suggested the South Korean government take a look at what the Europeans have done and look at that as a kind of very positive example and to consider whether it can adopt similar kinds of measures,” he said during a press briefing at the foreign ministry last week.