Iran-Venezuela Bi-National Bank’s Bleak Future

An Iranian citizen journalist, who writes under a pseudonym to protect his identity, wrote the following article on the ground inside Iran.

• The Iran-Venezuela Bi-National Bank was the brainchild of former Iranian president Mahmoud Ahmadinejad and late Venezuelan president Hugo Chavez.
• The US Treasury put the bank on its sanctions list in 2013.
• The establishment of the bank was controversial in Iran, and some members of parliament objected to the project.
• Iran's central bank now fears the partnership with Venezuela may collapse.

Former Iranian President Mahmoud Ahmadinejad and the late Venezuelan President Hugo Chavez, who died in 2013, were the best of pals. They portrayed themselves as brothers in arms against American imperialism and pursued a range of joint projects. One such venture was the Iran-Venezuela Bi-National Bank (IVBB). The bank was inaugurated in 2010 with the nominal initial capital of $1.2 billion, provided in equal measure by the Islamic Republic of Iran and the Bolivarian Republic of Venezuela.

One of IBVV’s unstated goals was to help Iran bypass international sanctions. This did not escape the notice of the US Treasury, which put the bank on its sanctions list in May 2013. “As Iran becomes increasingly isolated from the international financial system and energy markets, it is turning increasingly to convoluted schemes and shady actors to maintain its access to the global financial system,” said US Under Secretary for Terrorism and Financial Intelligence David S. Cohen. “As long as Iran tries to evade our sanctions, we will continue to expose their deceptive maneuvers.”

But it was not only the US government that viewed the bank with suspicion. From the very beginning many Iranians, including members of parliament, questioned or opposed the bank, which had been hastily established without its approval. The MPs believed that Ahmadinejad’s government had bypassed the constitution and the bylaws of Iran’s four-year development plans and demanded to know by what authority the government had taken this initiative.

In April 2009 Hamid Pour-Mohammadi, the vice-president of Management and Planning Organization of Iran (MPO), argued that the bank would expand bilateral relations between Iran and Venezuela. He said it did not need parliament’s approval because parliament had already approved a bill pertaining to cooperation between the two countries in 2005. He implicitly acknowledged that IVBB could help Iran to bypass international sanctions and told the Economic News Agency of Iran that, “after years of reviewing every aspect of the question, including the very good and friendly relations between the two countries and the necessity of expanding it, we decided that founding such a bank was necessary.”

Ahmadinejad’s government successfully ignored the opposition and the bank opened its doors. But from the very beginning, it got the Islamic Republic and its Central Bank into trouble and has continued to do so.

It Started with a Little Embezzlement

In 2011, Bahman Vakili, CEO of the Export Development Bank of Iran, told reporters that “after investigations by the Iranian delegation, we found out that the president of the Venezuelan branch [of IVBB] had embezzled $20 thousand from the bank and he is now in prison.” Vakili added that the bank’s capital was supposed to be increased, but that increase ad been put on hold.

Chavez’s death only exacerbated problems.

According to the bank’s balance sheet for 2014, the volume of deposits at IVBB fell sharply. In August 2015, Hamid Tehranfar, the Iranian Central Bank’s vice-president, reported that the Venezuelan side might withdraw from the partnership. “The Venezuelan side does not participate at shareholders and board of directors meetings and the meetings do not reach a quorum,” He told the NASIM News Agency. He added that the bank was now run exclusively by the Iranian side because the Venezuelans were showing no interest.

Around the same time, Davoud Banaei, CEO of IVBB confirmed the bad news. He also added some of his own. The bank, he said, had a working capital of $130 million whereas, to seriously work as a development bank, it needed a capital of at least $2 billion.

He said that his bank’s board of directors had eight members — four from Iran and four from Venezuela — whereas according to the Iranian Commerce Law the board must have an odd number of members to avoid hung resolutions. But the most devastating news that he revealed was that banking connections between Iran and Venezuela had been totally cut off. He blamed the new currency laws enforced in Venezuela.

It Might End with the Collapse of the Venezuelan Economy

This year, the uncertain fate of the Iran-Venezuela Bi-National Bank entered an even more critical phase. The Venezuelan economy has practically collapsed. The Venezuelan people are suffering from runaway inflation, blackouts, shortages of consumer items and medicine, and even hunger.

Venezuela is a major exporter of oil, falling oil prices and years of economic mismanagement have led to the current devastating crisis. “The growing economic crisis — fueled by low prices for oil, the country’s main export; a drought that has crippled Venezuela’s ability to generate hydroelectric power; and a long decline in manufacturing and agricultural production — has turned into an intensely political one for President Nicolas Maduro,” wrote the New York Times on May 28. In the same month, President Maduro declared a state of emergency (his second in 2016), and ordered military exercises, citing “foreign threats.”

Davoud Banaei cited the sharp drop in the value of the Venezuelan currency, the bolivar, as a major factor in the collapse of banking relations between Iran and Venezuela.

Iranian employees of the bank say that they felt from the start that their fate hung in the balance and that the bank has not been doing much business recently. According to its CEO, the major activity of IVBB has been conducting currency transactions with a “select” group of clients.

The future of this Ahmadinejad legacy looks bleak. In this, it seems no different from many other legacies of the Ahmadinejad-Chavez alliance.

Saeedeh Behroozi, Citizen-Journalist, Mashhad