October 22, 2024

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A passerby walks in front of a Bank Mellat Seoul Branch logo featured at the lender's office in southern Seoul. (Yonhap)

Bank Mellat, a private bank based in Iran, may have to consider pulling its operations out of South Korea with its hands tied here due to the looming fears of secondary boycott actions from the US authorities.

“With the upcoming US presidential election, the pressure on Iran will only escalate. Bank Mellat may have to consider closing its operation in Korea,” an official from Bank Mellat’s Seoul office said.

The official explained Bank Mellat’s Seoul branch has not been able to operate normally, as Korean companies, including local banks, are unwilling to associate with Iranian lenders, threatened by potential penalties from the US.

"In the case of a political turnover in the US, companies will be pressured even more and be even more reluctant to be associated with an Iranian bank,” the official said.

The Seoul unit is the lender’s only overseas branch in Asia. Bank Mellat is the only Iranian bank operating in Korea as well.

Bank Mellat has also been engaged in a lawsuit with Woori Bank, one of the top four commercial lenders here, over a frozen fund worth around 20 billion won ($14.5 million). It filed a lawsuit against Woori Bank, demanding to return the deposit and payout the 6 billion won interest, but the request was dismissed. Bank Mellat has appealed to a higher court.

Woori Bank’s legal representatives claimed the commercial lender had to freeze the account to avoid a secondary boycott from the US as Bank Mellat is included in the Specially Designated Nationals and Blocked Persons List, or the SDN List, drawn up by the US authorities.

The court acknowledged the concern of Woori Bank, saying the concern is legitimate as “the US sometimes even looks into transactions from years ago and puts sanction on an entity after a significant time has passed since the transaction date.”

The Seoul-Tehran ties seemed to improve when Korean lenders released their past withholding of around $6 billion in Iranian funds under US sanctions, following a prisoner swap deal between US and Iran, but the 20 billion won continues to be off-limits for a retrieval by the Iranian bank.

If Bank Mellat decides to close its operations in Korea, it would not be the first time. Bank Mellat first opened its Seoul branch in 2001, but was barred from business in September 2010, after the UN Security Council passed its fourth sanctions resolution on Iran backed by concerns about its suspected nuclear weapons program.

It reopened the Seoul branch in 2016, following the ease of international sanctions on Iran after a watchdog confirmed it had complied with a deal designed to prevent it from developing nuclear weapons.

In 2018, the Financial Supervisory Service, Korea's top financial watchdog, even held a meeting with the chiefs of Middle Eastern banks’ units in Korea, including Bank Mellat’s Seoul office, to encourage their operations in the country. It was the first time the watchdog had held a such meeting.

The Seoul branch has been the pivot of Bank Mellat’s expansion in the Northeast Asian region.

“The operating strategy for the Seoul branch is to provide export-related financial services to bridge Iran and Asian countries, including Korea, China and Japan,” the bank explained through a management disclosure report from the second quarter of this year.

By Im Eun-byel (silverstar@heraldcorp.com)