Western measures targeting Tehran’s nuclear programme have impeded trade of medicines for illnesses such as cancer
Hundreds of thousands of Iranians with serious illnesses have been put at imminent risk by the unintended consequences of international sanctions, which have led to dire shortages of life-saving medicines such as chemotherapy drugs for cancer and bloodclotting agents for haemophiliacs.
Western governments have built waivers into the sanctions regime – aimed at persuading Tehran to curb its nuclear programme – in an effort to ensure that essential medicines get through, but those waivers are not functioning, as they conflict with blanket restrictions on banking, as well as bans on “dual-use” chemicals which might have a military application.
“Sometimes companies agree to sell us drugs but we have no way of paying them. On one occasion, our money was in the bank for four months but the transfer repeatedly got rejected,” Naser Naghdi, the director general of Darou Pakhsh, the country’s biggest pharmaceutical company, told the Guardian, in a telephone interview from Tehran.
“There are patients for whom a medicine is the different between life and death. What is the world doing about this? Are Britain, Germany, and France thinking about what they are doing? If you have cancer and you can’t find your chemotherapy drug, your death will come soon. It is as simple as that.”
European officials are aware of the potential for disaster reminiscent of the debacle of the UN oil-for-food programme imposed on Iraq under Saddam Hussein, and discussions are under way in Brussels on how to strengthen safeguards for at-risk Iranians. The US treasury says its office of foreign asset control is seeking to reassure banks that they will not be penalised for financing humanitarian sales.
However, the US and EU bans on doing business with the major Iranian financial institutions still make such transactions extremely difficult and risk-averse western companies have tended to avoid them.
Naghdi, the head of Darou Pakhsh, which supplies about a third of Iran’s pharmaceutical needs, said he can no longer buy medical equipment such as autoclaves (sterilising machines), essential for the production of many drugs, and that some of the biggest western pharmaceutical companies refuse to have anything to do with Iran.
“The west lies when it says it hasn’t imposed sanctions on our medical sector. Many medical firms have sanctioned us,” Naghdi said.
A senior British official acknowledged that discussions between London, Brussels and Washington had been going on for months with the aim of unblocking the supply of medicines, but without a decisive outcome. “The problem is that for some of the big pharmaceutical companies and banks it’s just not worth the hassle and the risk of reputational damage, so they just steer clear,” the official said.
The international financial sanctions and the EU oil embargo last year have caused severe damage to the Iranian economy but have so far not forced the Tehran regime to accept restrictions on its uranium enrichment programme. Iran insists it is for electricity generation and medical purposes, while the west and Israel claim it is a front for Iranian ambitions to build nuclear weapons. Major western powers have suggested a new round of talks in Istanbul in mid-January, but Tehran has yet to confirm any date or venue.
Meanwhile, the scale of the looming Iranian health crisis threatens to overwhelm recent efforts to mitigate the sanctions regime. At present 85,000 new cancer patients are diagnosed each year, requiring chemotherapy and radiotherapy which are now scarce. Iranian health experts say that annual figure has nearly doubled in five years, referring to a “cancer tsunami” most likely caused by air, water and soil pollution and possibly cheap low-quality imported food and other products.
In addition, there are over 8,000 haemophiliacs who are finding it harder to get blood clotting agents. Operations on haemophiliacs have been virtually suspended because of the risks created by the shortages. An estimated 23,000 Iranians with HIV/Aids have had their access to the drugs they need to keep them alive severely restricted. The society representing the 8,000 Iranians suffering from thalassaemia, an inherited blood disorder, has said its members are beginning to die because of a lack of an essential drug, deferoxamine, used to control the iron content in the blood.
In the absence of an official supply, the drug market is being flooded with smuggled products. Many arrive on donkeys from Turkey, but there is no way of knowing which products are counterfeit and which are real. The drugs routinely spoil on the long, precarious journey over the rugged frontier. A drugs bazaar has boomed on Tehran’s Naser Khosrow Street, but prices have doubled in a few years and the provenance and authenticity of the medicines on sale are questionable.
US and European governments put the blame squarely on the Tehran regime. “Financial sanctions against Iran are in place because of the Iranian government’s refusal to address the international community’s well-founded concerns about its nuclear programme,” said John Sullivan, a US treasury spokesman. “If there is in fact a shortage of some medicines in Iran, it is due to choices made by the Iranian government, not the US government.”
Last month, Iran’s health minister, Marzieh Vahid Dastjerdi, was sacked for complaining that her ministry had only received a quarter of the £1.5bn allocated for the imports of medicine, noting that foreign currency at a subsidised official rate had been spent on imported luxury cars.
In London, the Foreign Office said: “There are a number of explicit exemptions within EU sanctions to allow Iran to purchase humanitarian goods such as medicines. The UK issues, as a priority, licenses for transactions for humanitarian goods. The responsibility for any shortage in humanitarian goods in Iran lies with the Iranian regime.”
Siamak Namazi, an Iranian-American business consultant based in Dubai, argues the regime’s own shortcomings may well exacerbate the acute medical problems in Iran but are not their direct cause. “There is a lot of government mismanagement that is compounding the problem. But Iran had the same government before and there was plenty of medicines around. This is not a chicken-and-egg situation. The shortages have come after the sanctions,” said Namazi.
One of the unintended consequences of sanctions on the health sector is that they have strengthened companies linked to the regime and the Revolutionary Guards at the expense of the private sector, because of their privileged access to hard currency at the official rate. In some cases, those regime-connected firms are actually using their access to cheap foreign currency to acquire drugs cheaply and smuggle them into Iraq, deepening the crisis.
The US and EU’s explicit exemptions and waivers linked into the sanctions legislation are not working
UN measures including travel bans and asset freezes have been imposed for many years against named Iranians allegedly linked with nuclear weapons research and procurement. But those targeted sanctions have not worked and Iran has shown little inclination to obey security council demands to suspend uranium enrichment.
Over the past year, the US and the European Union have imposed sweeping financial sanctions and an oil embargo, partly in frustration and the failure of UN sanctions, partly in the hope of stalling Israeli military action.
Despite fundamental damage to the Iranian economy and accounts of deep divisions in the Tehran heirarchy as a result of the intense pressure, there is still no evidence that Iran is more willing to do a deal that would involve restricting its uranium enrichment programme, the focus of the impasse with the west.
At the moment, it is the Iranians who are dragging their heels over agreeing a date and a venue for the next diplomatic round. They have also been shy of direct bilateral talks with the Americans, thought by many as the quickest, surest path to a grand bargain that would avoid a conflict.
At the same time, the sweeping nature of the new sanctions has had an array of unintended consequences, worst of all is the crisis they triggered in the Iranian pharmaceutical market, and the impact that it has had on millions of Iranians with chronic health problems.
The US and EU have both ensured that explicit exemptions and waivers have been inked into the sanctions legislation, but the evidence on the streets and in the bazaars of Iran is that those exemptions are not working.
One of the reasons for the dysfunction is that having been warned for years of the potential for huge fines for doing business with Iran, many big companies, including pharmaceutical companies, do not think it worth the hassle and potential risk to their reputation.
“Their legal counsels stand a long way behind the red lines, and for good reason,” said Siamak Namazi, an Iranian-American business consultant who is coordinating a study on sanctions on the pharmaceutical industry.
More importantly, the humanitarian waivers granted to trade in medicines are not coordinated with any corresponding waivers in the US and EU bans on doing business with Iran’s main banks. So you might find suppliers willing to sell you the drugs your patients need but have no way of paying the bill.
Naser Naghdi, the head of the country’s largest pharmaceutical company, Darou Pakhsh told the Guardian: “Our biggest problem is the banking restrictions and the problem of transferring money. We have the currency but we can’t transfer it. We can’t pay companies outside Iran for the products.”
Mahak, a charity helping Iranian children with cancer, agreed. It said in a statement: “The main problem faced by Iran today is less related to non-availability of medicine and more related to limitations on international banking transfers and convertibility issues as a whole. Logic dictates that as long as financial sanctions are as severe as they are, shortages of pharmaceutical products will continue.”
As a result of the pariah status of the Iranian banking system, the bulk of transactions involving Iranian pharmaceutic purchases are being channelled through a single Turkish bank with a long backlog of clients and exponentially increasing facilitation fees.
There are many indirect ways in which sanctions squeeze Iran’s domestic pharmaceutical industry, which supplies 70% to 90% of the market. The oil embargo and the financial sanctions have triggered a currency run leading to multiple rates for the rial. The official rate is about 12,000 rials to the dollar. The market rate is 35,000 to the dollar. The prices dictated by the government for medicines is based on the official rate plus a mark-up. So pharmaceutical companies can only afford to buy imported drugs or chemical ingredients for their own production if they can get access to hard currency at the official rate. But they have to bribe and are kept out by firms with regime connections.
Meanwhile, domestic inflation is pushing up the costs of bottles, packaging and distribution squeezing profit margins further, to extent that medicines with narrow margins are no longer made.
US, UK and EU spokespeople point out that the Iranian regime could avoid problems if it focused resources on buying medicines as it does on the nuclear programme. However, ordinary Iranians were able to obtain the medicines under the same flawed government system before the West’s punitive measures. What has changed is the sanctions, and if Iranians start dying because hospitals cannot get their chemotherapy or haemophilia drugs, the west is unlikely to escape blame.
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Tim Geithner tells chancellor that US regulators investigating handling of Iranian money will try to coordinate their actions
US Treasury secretary Tim Geithner has reassured George Osborne that US regulators investigating breaches of sanctions by Standard Chartered will try to coordinate their actions.
As the London-based bank prepares for a hearing with New York state’s department of finance services regulator, which has accused it of moving $250bn of Iranian money around the financial system, the chancellor has sought assurances that the bank will be treated fairly.
Osborne and his team spoke to Geithner and officials on Tuesday and received assurances that the US Treasury’s Office of Foreign Assets Control (OFAC) would work with the myriad of other regulators looking at Standard Chartered’s dealing with Iranian clients between 2001 and 2007.
Sir Meryvn King, the governor of the Bank of England, had already called publicly for the US regulators to work together after the surprise decision by the New York regulator to publish an order against Standard Chartered on Monday.
While the bank had known since 2010 it was being investigated for breaches of sanctions – it had shared information with regulators – it had not expected the New York regulator to go it alone in making public the alleged range of the breaches of the rules.
A government source said the chancellor had been deploying quiet diplomacy in contacting his US counterpart amid claims that some US politicians were trying to undermine London’s position as a financial centre. Osborne, however, is thought to have made clear that breaches of rules should not be tolerated.
The credit rating agency Fitch warned on Thursday that it might downgrade the bank’s credit rating as result of the accusations, which the bank strongly denies.
Fitch said: “The accusations and strong market reactions to it have damaged the bank’s reputation and it is possible that its franchise will suffer depending on how and when the case is resolved.”
There is speculation that the regulators would agree on a fine for the bank before Wednesday’s hearing although this seems unlikely given the scale the disagreement between Standard Chartered and the regulatory bodies.
Peter Sands, the bank’s chief executive, argues that while the regulator is focusing on $250bn of payments channelled for Iranian clients, the bank believes that the sum is closer to $14m.
The discrepancies relate to interpretation of the rules on U-turns which allow the banks to deal with Iranian clients as long as the money does not end up in US bank accounts.
Iran has cheap oil and sophisticated sanctions evasion tactics. There will always be parties who choose to trade with them
As this week’s money-laundering allegations against Standard Chartered bank show, Iran is feeling the pressure of heightened sanctions and is exploring all options to circumvent them.
Though the claims relate to the period 2001-7, since the start of this year co-ordinated sanctions by the EU as well as the US have tightened the noose on Tehran by blocking access to the key financial and insurance markets of Europe. Iran is slowly being excluded from large parts of the global financial system, unable to sell its oil and fast running out of space to store it.
Living with sanctions is not new to Iran, nor are many of the methods it has used to evade them. But all its counter-efforts have locked western sanctions enforcement agencies in a game of cat-and-mouse aimed at exposing anyone trying to access the financial system to launder funds or hide transactions.
And Iran’s tactics are often sophisticated. Over the past year, the regime has launched a diplomatic offensive focused on developing economies, which are desperate for cheap fuel, and it has offered them huge discounts on oil. Some countries have found ways to trade or evade by negotiating barter deals involving grain or consumer goods in exchange for oil.
In addition, tankers carrying Iranian oil are alleged to have switched off their automatic identification systems used to track their locations, and Iranian shipping firms are known to have frequently changed the name, owners, and flag state of vessels – even allegedly to have repainted tankers. The lack of transparency in the shipping industry makes detection of offenders more difficult, and Iran has historically been successful in staying ahead of US and European efforts to track and blacklist them.
Iranian corporations, directed by their government, have long used offshore companies, which have limited or no ownership disclosure requirements, to trade or try to enter the financial system. In 2010, with the help of US pressure group Iran Watch, the New York Times exposed a web of companies being used by the Iranian state-owned Islamic Republic of Iran Shipping Lines. Its network of interlinked companies was registered in financial centres such as Hong Kong and Isle of Man, and in some cases had British directors. This level of sophistication should not come as a surprise when Iran has been subject to US asset freezes since 1979 and more widespread sanctions since 1984, during its war with Iraq.
As modern sanctions have become more targeted and focused on isolating Iran from the global financial system, limiting its ability to earn foreign currency through sales of oil and gas, so too have the methods used to undermine them. Some anti-money-laundering specialists have been forced to run background checks on their students to ensure they are not trying to discover weaknesses in the system. And there are fears among oil traders that Iranian oil is being mixed with non-Iranian supplies.
There will always be countries and companies who will choose to trade with Iran, regarding sanctions as western or US-inspired measures that are unenforceable against them. As a result, major western companies doing business in Asia, the Middle East and the former Soviet Union are becoming increasingly wary of clients who may be discreetly trading with businesses in Iran. While the headlines are focused on allegations against Standard Chartered, today’s major sanction-busting deals are being done by firms that are not household names. Last week’s blacklisting by the US treasury of Bank of Kunlun Co, part of the Chinese state-owned China National Petroleum Corp, and the Elaf Islamic Bank of Iraq for “knowingly facilitating significant transactions and providing significant financial services for designated Iranian banks” was not so widely reported.
These types of transactions are indicative of the trend of a continued appetite by many to evade sanctions. Whether Standard Chartered is guilty or not, the US regulator’s action shows that it is quickly losing patience with any foreign firm, British or Chinese, which attempts to have illicit dealings with Iran.