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G-7 Ministers urge banks to weigh `risks’ of dealing with Iran

By Kevin Carmichael and Rainer Buergin
Source: Bloomberg
Oct. 19 (Bloomberg) — Group of Seven finance ministers and central bankers for the first time in at least two decades rebuked Iran, calling on banks worldwide to be wary of risks associated with doing business with the Islamic republic.

U.S. Treasury Secretary Henry Paulson, French Finance Minister Christine Lagarde and their counterparts from five other wealthy countries praised the Paris-based Financial Action Task Force, a 34-government agency that last week concluded Iran represents a “significant vulnerability” to the international financial system.

“We particularly commend FATF for taking steps to protect the international financial system from the various money- laundering and terrorist-financing risks related to Iran,” the G-7 said in a draft of their statement to be released after talks today in Washington. “Financial institutions are advised to take into account these risks.”

That marks the first time finance ministers and central bank governors collectively singled out Iran, according to a review of communiqués issued since the group began meeting in the mid-1980s. The G-7 warning was a victory for Paulson, who has spent the past year lobbying governments and banks to consider blocking Iranian President Mahmoud Ahmadinejad’s regime from the global financial system.

“It’s significant” and “a concrete, collective response that would get a message to the government of Iran that their behavior is increasingly unacceptable,” said John Kirton, an associate professor at the University of Toronto who studies G-7 policy.

UN Sanctions

Iran, the No. 2 oil producer in the Middle East, is defying two sets of United Nations sanctions by pressing ahead with plans to enrich uranium. Ahmadinejad maintains the program is meant to produce electricity. President George W. Bush’s administration says Iran’s government intends to build nuclear weapons. The U.S. is pushing for another round of UN sanctions.

Paulson raised Iran at his first G-7 meeting a year ago, telling colleagues in Singapore that one of his biggest surprises on joining the Bush administration was discovering the extent to which Iranian front companies had infiltrated the financial system.

The former chief executive officer of Goldman Sachs Group Inc. said at the gathering that he would share some U.S. intelligence on Iran with other governments and banks. Last week, Paulson said the campaign was working.

`Terrorist’ Links

“Over the past year, financial institutions across the globe have been reexamining and adjusting their relationships with Iran in light of its ongoing pursuit of nuclear weapons in defiance of the international community, support for lethal terrorist groups and deceptive financial practices,” Paulson said in a statement on Oct. 12.

Besides the U.S. and France, the G-7 includes Japan, Germany, the U.K., Italy and Canada.

Russia, which participates in some G-7 economic discussions and is full political member of the Group of Eight countries, has become a pivotal negotiator in the West’s standoff with Iran.

Alexei Kudrin, Russia’s finance minister, is scheduled to meet with Paulson at the Treasury tomorrow.

Russia, which holds a veto in the UN Security Council, is resisting additional sanctions on the Islamic Republic for what the U.S. and some allies say are attempts to build atomic weapons. Iran denies the charge and Russia, which is building a nuclear power plant in southwest Iran, says there’s no evidence the country is seeking to build a bomb.

Kudrin’s Meeting

Russia President Vladimir Putin discussed Iran’s nuclear program with Ahmadinejad on a one-day visit to Tehran on Oct. 16. Bush said earlier this week that a nuclear-armed Iran risks World War III.

“If the Russians don’t have a vote at the G-7, that makes me more optimistic,” said Jim Phillips, a research fellow at the Heritage Foundation in Washington who studies the Middle East. “If they take a harder line, that would be helpful in ratcheting up international pressure on Iran.”

The U.S. is getting support in its stand from French President Nicolas Sarkozy, who has called for economic sanctions against Iran since he was elected in May.

“We must do everything so as not to limit ourselves to catastrophic alternatives: either an Iranian bomb, or bombing Iran,” Sarkozy said in an interview published earlier this month in the official Russian government gazette, Rossiiskaya Gazeta. “Between appeasement and war — and these two words are not in my dictionary — there exists a responsible position: tightening sanctions, aimed at bringing Iran to reason.”

Paulson addressed Iran with Sarkozy when he visited Paris last month, and the country’s nuclear ambitions will be discussed when the French leader makes his first visit to Washington Nov. 6 and Nov. 7, the White House said today.

“France has come around under Sarkozy,” Phillips said.