Following the arrest of Ali Sadr Hasheminejad in the US, there has been much conjecture about the consequences for Malta. Sadr is, of course, Mr Pilatus Bank, and several high-ranking government officials and close associates are believed to have bank accounts there. But the conjecture has often been going wrong in one of two ways.
The government’s boosters have read too little into the arrest. Meanwhile, many of the government’s critics are reading too much.
Joseph Muscat’s fan club is right to insist that Sadr is a casualty of geopolitics. His arrest has attracted so much attention in the US, not least in business reporting, because it’s been taken as a strong signal that the Trump administration is going to crack down on Iran’s sanctions busting.
These sanctions were introduced because Iran has been hostile to the US since 1979. They are being stepped up because of doubts about Iran’s nuclear ambitions and its role in undermining US interests in the Middle East.
The US wants to avoid targeting the general population, since that would only strengthen the regime’s claims about the US being the Great Satan. Targeting the privileged elite of Iran, to which Sadr belongs, is another matter.
Some background. Iran is a resource-rich country (including in human resources) but has an annual per capita income that is less than Botswana’s. Its corruption and low productivity go hand in hand.
Among the most detested groups of people, besides the high-living clerics and the Islamic Revolutionary Guards (whose military adventurism has skewed the national budget and cost the country much in sanctions), are the aghazadeh, the sarcastically called ‘noble-born’ children of the elite, many of whom have stolen tens and hundreds of millions of dollars from State coffers.
It’s not for me to say how Sadr acquired his millions; he’s presumed innocent unless and until a US court finds him guilty of being a money-laundering, sanctions-busting crook. But the family conglomerate was formed in 1979, the year of the Islamic Revolution, when Sadr’s father, Mohammad, was around 29.
Mohammad Sadr began his working life on a salary of $420 a month. Now, he is said to be one of Iran’s eight richest men. His conglomerate has been allowed to flourish in a country where the size of the private sector is strictly controlled.
The point here is not what I think of the origins of the Sadr family fortune. It’s what ordinary Iranians think. About this we can make a pretty good guess if we remember how, back in 2012, the radical populist, and former president, Mahmoud Ahmadinejad, tried to boost his regime faction’s fortunes. He railed against “the 300 people” who controlled “60 per cent” of the country’s wealth, and who, he claimed, have borrowed national funds and refused the loans.
There is then no doubt that, from the US point of view, Sadr is the ideal target of a crackdown against Iranian interests. Bringing him to book sends three messages.
One is geopolitical and is addressed to not one but two hostile regimes: Iran and Venezuela (with whom the Sadr family business was dealing).
The second is geoeconomic. It’s aimed at any country or business that is currently not respecting US sanctions. Most EU and Japanese big-name companies are respecting them. Now, even discreet violators (not least South Korean companies who have assumed the US can’t afford to take action against them) will have to watch out.
The third message is to ordinary Iranian people, who will likely read about Sadr’s potential 125-year sentence in a spirit of schadenfreude.
Muscat and Schembri are still guilty of negligence in not keeping Sadr at arm’s length for State security purposes
Given all this, where are Muscat’s supporters going wrong? Aren’t they right to say that Sadr has been caught in the crossfire between the US and Iran?
They’re right on the facts but wrong on the implication. It is the responsibility of any state dealing with Iran to know what the geopolitical stakes are, and what someone like Sadr and his family wealth mean in the Iranian and international context.
To say that Sadr’s arrest is obviously borne of geopolitics does not absolve Muscat and his government. Quite the reverse. It’s tantamount to an admission of gross irresponsibility.
The first duty of a State is towards security. The first duty of a micro-State like Malta is to be super careful about associating with the enemy of a superpower, so as not to get burned in any fallout.
Let’s just assume that Pilatus Bank, Keith Schembri and Joseph Muscat are completely innocent of the money-laundering that Daphne Caruana Galizia charged them with.
Muscat and Schembri are still guilty of negligence in not keeping Sadr at arm’s length for State security purposes.
They exposed Malta to unnecessary risk, even though the financial intelligence agency was aware that Sadr was being investigated in another jurisdiction.
One risk is direct. The Trump White House might decide to act against Malta because it doesn’t like Muscat’s international strategy.
I rate this risk as low if the issue concerns only Sadr, who is himself only a pawn in the US crackdown.
It’s a different matter if Muscat has been shielding or facilitating the work of other sanctions busters – brokers for, say, IRISL, the Iranian shipping line that the US considers to have been key to the development of Iran’s nuclear and ballistics programme. Or, if Muscat has been shielding associates in Libya whose activities are at cross-purposes with US plans.
In that case, we can expect the US to retaliate, as it did over 20 years ago, with Malta under a Nationalist government, when the US didn’t like the close relationship between our then foreign minister, Guido de Marco, and the Maltese law firm involved in the defence of the two Libyans accused of the Lockerbie bombing. In such a scenario, however, US revenge will likely be served cold, behind the scenes.
The second risk is indirect. It’s influenced but not controlled by the US government. It concerns geoeconomics, not geopolitics, and follows the tempo of the banking sector.
Conspicuously stricter enforcement of sanctions by the US will mean that the banking sector will be extremely careful about having their system being contaminated by money having some Iranian connection.
If you’re wondering what “contagion” means, think of what US sanctions against Libya once meant. They meant American businesses avoided Corinthia hotels anywhere, since the Corinthia Group had Libyan investment. They meant Libyan passenger planes deteriorated because no supplier of even minor spare parts could do business with both Libya and the US.
Back to the banks. Here the risk is that, rather than be exposed to contagion from Iranian-connected money, big banks will prefer to cut off all dealings with all Maltese banks. Given the stakes (getting on the bad side of the US government) and the high cost of detailed monitoring, it will be the simpler, cheaper, safer option.
Will this happen? Not automatically. It depends on multiple factors. Which is why government critics are reading too much into what has transpired so far.
But can it plausibly happen? Yes, particularly if the government is complacent about the reputational risk that our financial sector is running. Which is another reason why the government’s fans are reading too little into Ali Sadr’s arrest.
ranierfsadni@europe.com