Georgia starts clampdown on Iranian investment

By bne IntelliNews June 26, 2013

bne -

The Georgian government and central bank claim they are now working to prevent Iranian companies investing into the country's banking sector, as US concern that Tehran is using Tbilisi to bypass international sanctions rises.

Speaking to journalists in the capital, National Bank of Georgia President Giorgi Kadagidze said on June 25 that the central bank has stepped up efforts to prevent Iranian companies entering the banking sector. Following increased US pressure, the central bank has blocked "attempts of several Iranian banks and individuals, associated with the Iranian authorities, to enter the banking sector of Georgia," Kadagidze claimed.

The blocked investments reportedly include an attempt by Pasargad Bank to open a representative office in Tbilisi. The Iranian lender dropped its plan after the Georgian authorities refused to issue a licence.

The NBG now plans to look into the situation at InvestBank, which since 2011 has been controlled by three Iranian investors - Houshang Hosseinpour, Pourya Nayebi and Houshang Farsoudeh - via a Liechtenstein-based investment fund called KSN Foundation, reports the Wall Street Journal. They also recently set up airline FlyGeorgia and have established several other investments. The trio insists they have no connection to the government in Tehran.

However, they star in the nightmares of officials from Washington and Brussels, who have expressed worry that Iran is trying to use the Georgian financial system to bypass international sanctions, which have been implemented over concern that Tehran's nuclear programme is seeking to develop arms. Iran insists the goal is purely civil.

Sanctioned Iranian energy companies and firms tied to Iran's elite military unit, the Islamic Revolutionary Guard Corps, are among the firms that have sought to do business in Georgia, according to Iranian and Georgian officials, the Wall Street Journal reports. Two US delegations have visited Tbilisi in recent months to discuss the issue, according to both US and Georgian officials.

That pressure is now having effect on the ground. Georgian Justice Minister Tea Tsulukiani announced on June 21 that in a bid to comply with the sanctions, Tbilisi has frozen around 150 bank accounts linked to Iranian businesses and individuals. The investigation into InvestBank follows hot on the heels of a preliminary inquiry into KSN Foundation launched by regulators in Lichtenstein.

Georgian officials also said Tbilisi is considering altering its policy on visa requirements for Iranian nationals. Since 2011, Georgia has waived the visa requirement for Iranian nationals, fueling a boom of Iranian tourists and businessmen. Iranian investment in the country has boomed in the meantime, as other markets have shut access.

That push has come as Iran casts around for loopholes in international sanctions that are increasingly biting. Until the changes, Georgia was one of just three countries in Europe and the broader Middle East that offers Iranians such easy visa access.

The others are Armenia and Turkey. Ankara has been battling a clampdown on its purchases of Iranian energy for over a year. State-controlled Halkbank is reportedly continuing to act as a hub for a convoluted scheme which sees Turkey importing huge volumes to gold to pay Iranian couriers, despite US attempts to close it down.

Like Turkey, Georgia is noted as a rare strategic ally of the US in the neighbourhood, which ironically offers it the opportunity to leverage leeway. "Investing in Georgia is a way of skirting the sanctions," Iranian media quoted a development official in Tehran as saying in December, according to the WSJ.

However, with the issue now hitting the front pages, Washington insists it is determined to close the loophole. "We are focused intently on shutting down any Iranian attempts to evade sanctions, including through possible business connections in Georgia," David Cohen of the US Treasury said recently. "We are working closely with the Georgians on the issue."

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