Germany Joins EU Plan to Sanction Iranian Bank

BERLIN — Germany has signed on to a European Union plan to sanction an Iranian-controlled German bank that handles billions of euros in annual transactions for clients doing business in the Islamic republic, people familiar with the matter say.

“The track is set for sanctioning of the European-Iranian Trade Bank AG,” a German official who is familiar with the decision said.

The E.U. is expected to formally announce the decision to sanction EIH, as the bank is known under its German acronym, on May 23rd, when E.U. foreign ministers review proposals for new sanctions against Iran, the person said.

In a statement, EIH says that its activities are legal and that it continues to operate under a German license.

The decision marks an about-face in Germany’s policy. In February, Germany blocked a French proposal in Brussels to designate EIH for EU sanctions, two diplomats familiar with the discussion said. German business representatives have lobbied at Germany’s Economics ministry in support of EIH, arguing the bank enables transactions that are essential for legal exports to Iran.

Germany changed its position after a team of Bundesbank investigators uncovered “increasing amount of evidence” that EIH had funded transactions for businesses that were sanctioned by the United Nations, the official familiar with the German decision said. This constitutes support for illegal Iranian activities, the person said. The Bundesbank has not released the evidence yet.

Founded in 1971 by Iranian merchants in Hamburg, the bank operates openly under the supervision of German regulators.

The U.S. has lobbied Germany to close the bank since at least 2008.

U.S. officials say Iran is developing technology that could be used to produce nuclear weapons in violation of U.N. Security Council resolutions. The IAEA says Iran’s lack of cooperation prevents it from determining whether Iran’s nuclear program is military in nature. Iran says its nuclear program is strictly for peaceful purposes.

German officials argued at the time that the bank operates legally under German license, U.S. diplomatic records show. The diplomatic records released by Wikileaks to certain media outlets and reviewed by the Wall Street Journal show the U.S. repeatedly argued for sanctions, based on then undisclosed evidence the bank has assisted Iranian firms that were previously sanctioned for proliferation activity.

German scrutiny of EIH increased last year after The Wall Street Journal reported in a page one story on U.S. government allegations that the bank conducted millions of dollars in business on behalf of entities that have been sanctioned by the United Nations Security Council, the U.S. and the European Union.

The investigation was slow, however, until earlier this year when the U.S. began to share more extensive evidence of support for sanction violations by EIH, an official familiar with the investigation said.

A German Bundesbank spokesman says a team of auditors have reviewed thousands of transactions, looking for evidence that would substantiate the U.S. allegations. The person familiar with the audit results said the search was ultimately successful due in part to detailed evidence provided by international partners.