Guns From Londonistan: the $350 million fine paid by Lloyds TSB Group

By Reuben F. Johnson
Weekly Standard | Tuesday, January 20, 2009 

Vienna
“Londonistan” is the nickname given to the UK capitol in 1995 by France’s counterterrorism service, partly out of frustration over the safe haven that the city offers to radical Islamist groups that have been exiled from their home countries and/or other EU nations. The year 2009 began with a story that offers a whole new dimension as to how that nickname fits better than most of us would have imagined.

This past week one of the major UK banks, Lloyds TBS Group, paid $350 million to New York State and U.S. Federal authorities in an out-of-court settlement. The fine was paid over charges that Lloyds obscured the fact that billions of dollars that had passed from its office and then through U..S banks and finally on to other foreign destinations had originated in Iran, Libya, and Sudan in violation of U.S. sanctions on those nations. It is the largest fine ever paid in the history of the Manhattan DA’s office.

In all, some $300 million from Iran are believed to have transferred on to American financial institutions via Lloyds, and another $20 million from Sudan. Both nations are accused of financing numerous terrorist organisations, and it appears that the Iranian money may have been used to purchase materials that were used in that nation’s ballistic missile and nuclear weapons development programs. Lloyds activities in acting as a laundering agent in this manner date back as far as 1995, according to the U.S. Justice Department.

At first glance this subterfuge appears to be a one-off set of incidents, but there are nine other banks being investigated for engaging in similar transactions. Officials in the DA’s office talk of a “systemic, wide-ranging scheme.”

Funds from Iran and other nations that U.S. banks are forbidden by law from dealing with were made “anonymous” by Lloyds employees instructed in how to delete information that would identify the originating source,.

Lloyds has not even a shred of plausible deniability in this matter. A section of the bank’s training manual for new employees instructed personnel how to strip out transfer data and then re-enter the payment information into the Lloyds payment system in order to make appear as though London — and not Teheran, Khartoum, or Tripoli — was the point of origin for untold millions in transfers. The training was obviously quite effective. U.S. authorities who handled the case were quoted as saying that Lloyds “went to great lengths to obliterate any identification” as to where all the money came from.

When the war between Iran and Iraq flared up after the 1979 revolution, the Islamic Republic of Iran Air Force (IRIAF) and other branches of the nation’s military were in dire straits. They owned and operated a fleet of largely U.S. and some British military hardware. Spare parts and other support for these systems were supposed to have been cut off by international sanctions that were the result of the Islamic Republic’s actions, which included overrunning the U.S. Embassy in Teheran and taking its personnel hostage. Saddam Hussein’s military was knocking on the door and Iran had huge fleets of military equipment that they could not support.

The Iranians then proceeded to set up an overseas procurement division for their armed forces, which operated out of a seven-story building at number 4 Victoria Street, London. The official entity at this address was the European headquarters of the National Iranian Oil Company (NIOC). It was in a prestigious location, and the last place one would suspect as the center of a military procurement. Westminster Abbey was across the street and the famous Scotland Yard was also nearby. Nevertheless, the illegal purchase of American-made materiel became the second most important — if not the primary function — of the people inside the building.

This “Logistics Support Center” of the IRIAF moved into the NIOC building early on during the Gulf War with Iraq, as did the “Technical Supply Office” of the Iranian Navy. Previously both entities had worked out of a smaller office at 15 Young Street, which was close to Kensington Gardens. Their presence in both buildings was kept hidden from those on the outside and their activities were kept well under wraps to the extent possible.

The UK had been selected by Iran as the ideal nerve centre for these illegal arms sales for the same reason that Lloyds and other London banks later became such a convenient financial transfer mechanism. Not only is there an extensive network of Iranian business contacts in the UK, but London is also awash in banking, shipping, and insurance facilities. These institutions offer unlimited mechanisms for playing shell games with business interests.

Other than the “commissions” that UK financial, legal, and business fronts would make for handling millions in Iranian oil money, in the early 1980s Islamic Republic was also dangling the carrot of major sales for the British defense industry. The Iranians were looking to purchase — direct from the factories in the UK — hundreds of millions of dollars worth of engines, spare parts and munitions for the 890 British-built Chieftain tanks and 250 Scorpion armored cars that were in the Iranian military’s inventory when the war with Iraq began.

But, the clinching factor in the Iranian decision to use London as the base for evading international sanctions was the porous nature of the UK’s legal apparatus. In the UK at that time there existed no broad and vaguely worded conspiracy laws as there are in the United States. This made indictment of any arms smugglers almost impossible because the legal standard of proof was too difficult for any agency to prove definitively. The UK had not specifically outlawed the negotiation, sale, or shipment of spare parts to Iran, even if the sale and export of offensive military equipment was against the law.

This loophole was partially closed in September 1987, when the British government announced its intention to close the Iranian buying offices on Victoria Street, but this decision was not accompanied by a crackdown on British traders and companies selling weapons to Iran. And although to date the UK has been a reliable ally of the United States in Iraq and with NATO forces in Afghanistan, the door has never quite been closed completely shut on London being used as a base for Iran’s skirting of the international sanctions that are supposed to keep it from equipping and arming its military.

* In May 2003 a “favors for friends” scandal broke inside the UK Government when it was revealed that David Mills, the husband of Culture Secretary Tessa Jowell, used his wife’s contacts to discuss a contract for Iran with Baroness Symons of the Foreign Office. The contract was for a fleet of RJ146 short haul passenger aircraft, which are made by BAE Systems but use a US-made Honeywell AS900-series jet engine. Under U.S. law the sale would be illegal because the propulsion technology in these engines is forbidden for sale to Iran due to its military applications. Mills asked Symons to go through the British Embassy in Washington and ask the U.S. Commerce Department if an exception could be made on this sale. The United States turned down the request, but the incident raised a number of questions as to why the husband of one of PM Tony Blair’s inner circle decided to use his prestigious position and posh office space in Mayfair at one of London’s most well-known law firms to become the head of ILTC, a secretive Iranian trading company. It is suspected that the Iranians sought out Mills because of his well-known ability to set up networks of difficult to comprehend off-shore companies. (Mills had created such a network at one time for the current Italian PM, Silvio Berlusconi, which later became the center of a major investigation into corruption under Berlusconi’s administration.) These UK corporate labyrinths that obscure the true end destination of a product shipment are precisely what the Iranians have used time and time again to acquire technologies and implements of war that would otherwise be denied to them.

* July 2003 saw U.S. Customs and Defense Criminal Investigation Service raids on the offices of 18 U.S. companies under suspicion that they had violated the laws preventing the sale of arms equipment to Iran. These 18 firms had been acquiring parts for U.S.-made F-4, F-5, F-14 aircraft, Hawk air defence missiles, several U.S. model radars and other spare parts before shipping them to a London-based company called Multicore Ltd, which also operated under the name AKS Industries. The company had been under investigation since 1999 by U.S. and U.K. authorities, who determined that the parts the firm was purchasing were being transshipped to Iran. It is estimated that in total over 50 U.S. firms shipped spares to Multicore that ended up in Iranian hands.

* In September of 2003 an Iranian national named Serzhik Avasappian was arrested at his hotel in Miami by U.S. Customs agents three days after his arrival from (you guessed it) London. Avasappian had told U.S. Immigration officials that was visiting this country to negotiate the purchase of “medical equipment,” but rather than a pile of contracts for medical systems what the agents found in his hotel room were numerous documents — all hidden between the mattress and box springs of his bed — proposing the illegal sale to Iran of $750,000 worth of spare parts for the Grumman F-14 fighter.

“There are allies and then there are allies,” a pilot from a NATO country lamented in the 1980s when it was revealed that although a number of German and other foreign pilots wanted to have the experience, RAF pilots were the only non-U.S. military personnel that had been permitted to fly the then-super secret Lockheed F-117A Stealth Fighter. Indeed, the “special relationship” that has existed between Washington and London for decades has never been stronger than under current programs like the F-35 Joint Strike Fighter.

But the persistent uncovering of UK entities willing to provide the mullahs with what they need to keep missiles in development, nuclear enrichment facilities humming, and Iranian military aircraft supplied with spares is more than troubling. Add this to the 2007 scandal surrounding BAE Systems and the accusations of a slush fund of more than $100 million that supplied kickbacks to Saudi Arabia and one begins to develop troubling conclusions about the influence oil-rich Middle Eastern states exert on major British institutions.

Thus, Lloyds’ long-term subterfuge on behalf of Iran is shocking but not surprising. At a minimum the bank showed unpardonable duplicity by undermining the public position the British government has tried to maintain in the war on terror. There may be no silver lining in a story that involves Iran being able to spend untold millions on its weapons procurement, but at least this UK institution’s actions debunk the popular myth that it is only the U.S. that will conveniently ignore international norms of behavior for the sake of a reliable oil supply.

Reuben Johnson is a regular contributor to THE WEEKLY STANDARD Online.

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