TheChek News Flow

Treasury Department, Federal Reserve Bank of New York bar the lenders from conducting dollar transactions

WASHINGTON—The U.S. has barred 14 Iraqi banks from conducting dollar transactions, U.S. officials said, part of a sweeping crackdown on the siphoning of U.S. currency to Iran and other sanctioned Middle East countries.

The ban, which was imposed by the Treasury Department and the Federal Reserve Bank of New York, is likely to provoke new tensions between Baghdad and Washington and could spark more economic turmoil for ordinary Iraqis.

It signals a hardening of sanctions enforcement against Iran only months after the Biden administration appeared intent on lowering tensions with Tehran. The Treasury recently approved a payment of 2.5 billion euros, equivalent to about $2.8 billion, toward unpaid debts by the Iraqi government for Iranian electricity and gas imports, which had been frozen by sanctions.

Earlier this week, the Pentagon dispatched a warship and jet fighters to the region, saying it was in response to Iranian threats against commercial shipping in the Persian Gulf.

U.S. officials said they were taking action against the Iraqi banks after uncovering information that they engaged in money laundering and fraudulent transactions, some of which may have involved sanctioned individuals and raised concerns that Iran could benefit.

“We have strong reason to suspect that at least some of these laundered funds could end up going to benefit either designated individuals or individuals who could be designated,” said a senior U.S. official. “And of course the primary sanctions risk in Iraq relates to Iran.”

Iran has long used neighboring Iraq as a source of hard currency denied to it by U.S. sanctions, drawing on its strong links to many Iraqi politicians and the easy availability of dollars in Iraq’s loosely regulated currency markets.

The dollar has functioned as a virtual second official currency in Iraq since greenbacks flooded into the country after the 2003 U.S. invasion. Two decades later, Iraq still keeps its foreign currency reserves at the New York Fed, depositing the proceeds from its sales of oil in official accounts there.

Iraqi banks and currency-exchange houses figured out how to make huge profits from the dollar, using fraudulent import transactions and other schemes, according to current and former U.S. and Iraqi officials. The dollars bought from the central bank at a fixed rate could be resold at the often sharply higher market rate.

Blocking access to dollars is a slow death sentence for many Iraqi banks, which have few depositors and make minimal commercial loans, relying on dollar transactions for most of their profits, U.S. officials and Iraqi bankers say. Over two decades, the Iraqi dollar trade has become a source of its endemic corruption, as bankers formed alliances with Iraq’s powerful militias and politicians to secure access to U.S. currency.

When the Treasury and the Central Bank of Iraq cut off four other banks from access to dollars and imposed tighter controls on wire transfers in November last year, the Iraqi dinar plunged against the dollar and prices of imported goods shot up, resulting in a three-month crisis for Iraqi Prime Minister Mohammed al-Sudani.

The measures triggered daily dollar transfers through Iraqi commercial banks, which sometimes totaled over $250 million a day, to fall by 80% or more, as lenders struggled to comply with requirements to provide detailed information about where the money was going.

The tighter scrutiny of dollar transactions since last year helped the Fed identify the 14 banks that were conducting suspicious transactions, the officials said.

Several of the banks had stopped conducting wire transfers in recent months, another U.S. official said, apparently unable to supply sufficient information for the Fed to approve the transaction.

Some employed new schemes for moving dollars illicitly, including shifting transactions to different banks in hopes of escaping Fed scrutiny, the senior official said. Others tried using scores of cash cards loaded with dinars in Iraq and then transported to nearby countries where the funds could be withdrawn in dollars, he added.

To escape scrutiny, some banks also expanded their use of Western money-transfer firms and informal Middle East networks for moving cash, known as hawalla, he said.

The officials played down the impact of the latest U.S. move on the Iraqi economy, citing internal statistics that showed the 14 banks combined held only 1.29% of Iraq’s total banking assets. Much of Iraq’s legitimate banking activity is conducted by state-owned banks and the country has another 46 commercial banks unaffected by the dollar ban, they added.

One effect of the move could be to drive back up the unofficial Iraqi exchange rate, which has fallen to as low as 1,470 dinars to the dollar since reaching over 1,620 Iraqi dinars to the dollar earlier this year. U.S. officials said they expected any increase to be temporary.

Since the Treasury and the New York Fed began scrutinizing dollar activity more aggressively last fall, the number of fraudulent transactions being funneled through Iraq’s foreign-exchange system has been reduced, the officials said, which will lessen the economic impact of banning additional banks.

“Because there’s more real trade occurring, versus essentially trade-based money laundering, we expect a much less meaningful drop in activity,” said the senior official.

Sudani has said that the greater scrutiny of dollar flows by U.S. and Iraqi authorities since last fall caused economic upheaval. But the Iraqi premier has acknowledged the weakness of Iraq’s banks and credited the stricter limits on dollar transactions with halting fraudulent transactions.

“Unfortunately we do not have a banking system, whether government or private one, and this is a real problem,” Sudani said in remarks at the Iraq Forum, a policy conference in Baghdad put on by the Middle East Research Institute, in May. “It was a money laundering process, smuggling of currency and a fake trade with fake documents.”

U.S. officials have pressed Iraq for years to strengthen its banking controls. In 2015, the Federal Reserve and the Treasury Department briefly shut off the flow of dollars to Iraq’s central bank over concerns that the currency was ending up at Iranian banks and possibly being funneled to Islamic State militants, officials said at the time.

But successive U.S. administrations feared that cutting off Baghdad’s access to dollars completely would plunge the country into economic turmoil, jeopardizing other goals, such as preventing the re-emergence of Islamic State and driving Baghdad away from Tehran. But U.S. officials say they hope Baghdad will begin to take more steps against money laundering and fraud in its banking system.

“What we’re looking for is for Iraq to take more proactive action, because what we don’t want is just to have to constantly play whack-a-mole,” said the senior official.

The companies could take legal action but neither has much chance of a payout

Lawyers joke that a country can only break the law once. A second infringement makes law instead, by confirming a precedent. Russia has gone for that double hit by expropriating Russian businesses of France’s Danone and Carlsberg of Denmark. The beneficiaries are cronies of Vladimir Putin. Danone’s Russian assets will go to the nephew of Chechen warlord Ramzan Kadyrov.

Official expropriation represents an escalation of Russia’s retaliation against western sanctions and military aid to Ukraine. Forced sales were its previous wheeze. Meanwhile, the west has fastidiously — and correctly — ignored calls to expropriate frozen Russian state assets as war reparations. The contrast is striking.

Western businesses have been pulling out of Russia since it invaded Ukraine last year. Many have incurred steep losses: French bank Société Générale took a €3.3bn hit. Danone was expected to make a €1bn loss on selling the assets Russia has snatched instead.

Danone, whose yoghurt making was once designated a “strategic industry” by French president Jacques Chirac, could in theory seek compensation. France has an investment agreement with Russia, allowing the company to take action through international courts, notes Stuart Dutson of Simmons & Simmons.

But frosty international relations means neither company has much chance of a payout. Past disputes do not inspire confidence in the process anyway. Exxon-Mobil has received little of the $1.4bn granted after Venezuelan expropriation in 2007.

Western companies still active in Russia will wonder how safe their own assets are from covetous allies of Putin. PepsiCo, Mars, Philip Morris, Nestlé all have businesses ripe for the plucking.

Banks like Italy’s UniCredit, Intesa Sanpaolo and Austria’s Raiffeisen Bank remain too. But their genuine strategic importance provides some protection: Russia still needs financial links to the west to sell gas and process currency.

Putin, however, is happy to go it alone in the demanding technocratic field of yoghurt production.

UK rents reach record high as mortgage rate rises hit housing market

Post-pandemic bounce back in demand combines with soaring interest rates to squeeze tenants

UK rental prices rose to the highest on record while house price growth declined as higher mortgage rates hit the property market, according to official statistics published on Wednesday.

Private rental payments paid by tenants increased by 5.1 per cent in the 12 months to June, the largest annual percentage change since the data series began in January 2016, figures published by the Office for National Statistics showed.

London’s annual percentage change in private rental prices was 5.3 per cent in the 12 months to June, above the England average and its highest annual rate since September 2012.

Neal Hudson, a housing market analyst, said the surge in rental prices was not unique to the UK. A post-pandemic bounce back in demand, combined with rising interest rates that push up landlords’ mortgage costs, have led to similar price rises in US, Canada and Ireland.

But in the UK, Hudson said, the situation had been exacerbated by a shift to longer tenancies, which had reduced turnover, and by landlords selling or shifting to temporary lettings, squeezing an already scanty supply of rental properties. “I had wondered if it was a temporary issue but it’s going on for longer,” he said.

Recent surveys have shown rental demand strengthening as higher mortgage rates leave fewer people able to buy a property.

The ONS data showed that average UK house prices fell by 0.4 per cent, on a seasonally adjusted basis, between April and May. This took the annual rate of increase down to 1.9 per cent, from a revised 3.2 per cent in the previous month.

The weakest growth over the past year has been in London, where prices are highest and buyers more indebted.

“House prices already were falling before the renewed jump in mortgage rates,” said Gabriella Dickens, economist at the consultancy Pantheon Macroeconomics, adding that more timely surveys suggested the price falls would become steeper in the coming months.

House prices have so far proved more resilient than many economists had expected in the face of rising interest rates, although the number of transactions has fallen sharply.

Dickens noted that the fall in May still left average prices a “whopping” 24.6 per cent above their average level in 2019.

Hudson said many people appeared to be settling for smaller properties, while taking on mortgages with longer terms and payments that would absorb a bigger share of their income.

This resulted in “an even worse version of the already failing housing market we had last year” — with new buyers straining themselves for “a home that is probably smaller, further away and less appropriate”.

Surging prices hit a sticky wicket in St John’s Wood

From catching the cricket to securing a school place, the north London area remains popular despite rising mortgage rates — for those who can afford it

Having Lord’s on the doorstep wasn’t the only reason company adviser Surath Chatterjee was bowled over by St John’s Wood, but it helped.

“We have lots of friends here and like the fact it’s very leafy yet well-connected,” says Chatterjee, 62. He and his wife Rashmy, a tech business chief executive, recently bought a six-bedroom house with a large garden in the north-west London neighbourhood. “I’m a big cricket fan and love being so close to the ground,” says Chatterjee, who watched the second Ashes Test at Lord’s several weeks ago.

While England may have faltered in that match, the popularity of the area — and its house prices — have been driven skyward in recent years.

Between 2015 and 2019, about one in 15 houses sold in the NW8 postcode went for more than £2,000 per sq ft, according to LonRes, which tracks the UK capital’s prime property market. In 2022 and this year, it has risen to one in four. “This is the largest increase in London by far and means prices in St John’s Wood are now in the ranks of Kensington and Notting Hill,” says Nick Gregori, of LonRes.

But the market has been caught out by rising interest rates. In the first five months of this year, the number of home sales was 37 per cent down on the same period in 2022; prices dropped 4.5 per cent to about £1,260 per sq ft, LonRes says. Separate data from Coutts bank reveals that 39 per cent of properties priced between £1mn and £10mn that sold in the first quarter of this year had been reduced.

“The market between £1mn and £15mn has been affected quite considerably,” says Stephen Lindsay, of Savills estate agency. “There is not a lot of stock and there are serious buyers but they don’t want to overpay given what’s happened to mortgage rates. Sellers’ expectations are also way too high,” he adds.

St John’s Wood benefited from the Covid-era race for space and big-ticket buyers flocked there to get significantly more home and garden for their money than in more central areas, says Jo Eccles, of buying agency Eccord. “Families are also attracted here by the schools — particularly Americans, who come for the American School,” she says.

Schooling helped prompt American interior designer Priscilla Kandasamy to buy in St John’s Wood. “Our elder daughter is about to embark on the 11-plus so we wanted to live somewhere with access to great schools,” says Kandasamy, 38, principal at PTK Interiors.

She and her financier husband bought a four-bedroom house a short walk from St John’s Wood High Street for about £4mn — the property was part way through being redeveloped and they have since finished it. “We moved from Greenwich [Connecticut], so we are used to quite large homes and I liked the feeling of space in St John’s Wood,” Kandasamy adds. 

St John’s Wood has long been popular with international buyers. Neir Gigi, of Knight Frank estate agency, estimates that 60 per cent of homes priced between £4.5mn and £10mn go to international purchasers. “Above that, it’s about 80 per cent.”

St John’s Wood is known for its Regency white stucco villas and red-brick Victorian and Edwardian mansion buildings. In 1968, a significant proportion of the district became one of London’s first conservation areas and its character is keenly protected by the St John’s Wood Society.

The east side of St John’s Wood, near the High Street, Regent’s Park and Primrose Hill, is the most prestigious. According to Marc Schneiderman, of Arlington Residential, the premier streets are Norfolk Road, Acacia Road, Queen’s Grove, Woronzow Road and Ordnance Hill — values here are generally 20 per cent higher than other parts of NW8 and family houses typically range from £3mn to more than £20mn.

Avenue Road, a busier arterial road, is a magnet for very wealthy international buyers. “This street is almost exclusively mansions, with asking prices regularly between £50mn and £100mn,” Schneiderman says.

The few new-build apartment schemes include One St John’s Wood, 4-6 St Edmunds Terrace and 1A St John’s Wood Park — the last is a newly launched boutique collection of nine apartments with prices starting at £1.65mn. The £400mn regeneration of St John’s Wood Barracks, master-planned by the architects Squire & Partners, will create a new community with 179 homes.

Detractors say St John’s Wood feels too suburban and in recent years has been stuck in the shadow of Marylebone, its trendy southern neighbour.

But retired tennis club manager Peta Churchman, 69, who has lived in the area since 1979, says she can’t imagine living anywhere else. Churchman and her husband live close to Abbey Road Studios in a Victorian house with a large garden, which they have recently extended and “future-proofed”. St John’s Wood “suits all ages and has a vibrant community, with lots of people working hard to keep the place beautiful and green”, she says.

You just need to be very wealthy to live there.

Birkin had previously asked the group to remove her name from crocodile bags after seeing a video of cruel practices, though the brand and the fashion icon later reached an agreement.

PARIS — PETA is putting the pressure on Hermès International once again to retire the crocodile-skin Birkin bag and commit to a corporate policy against the use of exotic skins.

Following the death of actress and singer Jane Birkin on Sunday, the animal rights group is asking the French luxury house to retire the crocodile skin versions of her namesake handbags “so that no more wildlife is killed in her name.”

The group is also asking that Hermès commit to wider company agreement against using exotic skins.

“Will Hermès continue to hark back to the past, treating these magnificent and highly intelligent exotic animals as nothing more than living, breathing ‘fabric,’ or will you embrace positive change and make a commitment to continue Ms. Birkin’s legacy in a manner that respects the natural world and all who live in it by using the finest cruelty-free materials to create a modern Birkin and other accessories? We hope you will choose the latter,” said PETA founder Ingrid Newkirk.

PETA added that the move would be to “honor her legacy,” it said in a statement.

In July 2015, Birkin herself had asked the luxury house to remove her name from the crocodile skin handbags after watching an expose film of a crocodile farm that showed animals being skinned and sawed open while alive, and other methods used to harvest the skins.

“Alerted to the cruel practices reserved for crocodiles during their killing for the production of Hermès bags carrying my name, as a signatory of Joaquin Phoenix’s ‘Mercy for Animals’ petitions protesting all the bad treatment of animals, I have asked the Maison Hermès to rename the Birkin Croco until best practices responding to international norms can be put in place for the bag’s fabrication,” she said at the time.

The following September, Hermès said it had reached an agreement with Birkin to continue to use her name on all versions of the bag, including crocodile, and said the practices shown in the video were an isolated incident. It vowed to investigate the farm in question.

“Jane Birkin has expressed her concerns regarding practices for slaughtering crocodiles,” Hermès said at the time. “Her comments do not in any way influence the friendship and confidence that we have shared for many years. Hermès respects and shares her emotions and was also shocked by the images recently broadcast.”

In calling for a corporate commitment to discontinue the use of crocodile-skin, the organization noted that other luxury houses — including Burberry, Chanel, Mulberry, Victoria Beckham, Karl Lagerfeld, Paul Smith and Stella McCartney — have banned exotic skins from their collections. Few of those brands use exotic skins in any significant way, however.

Hermès is said to have paid about $40,000 in royalties to Birkin annually in exchange for the use of her name. She consistently donated this money to various charities.

Representatives for Hermès did not respond to a request for comment.

Sequoia Capital has shaken up its senior ranks, the latest indication of how its leader, Roelof Botha, is reshaping the storied venture capital firm during a period of tumult.

The firm on Wednesday told its limited partners that longtime partner Michael Moritz would leave the firm and focus on the firm’s independent wealth management business, Sequoia Heritage, a spokesperson confirmed. Meanwhile Mike Vernal, a partner who focuses on early-stage startups and has worked at the firm since 2016, is also leaving the firm, according to a person with direct knowledge of the matter.

Vernal’s exit follows the departure of a newer partner, Daniel Chen, who also left the firm in recent months. The departures of Vernal and Chen haven’t previously been reported.