Britain's banks have had a dreadful summer. Money laundering charges against our two biggest international banks HSBC and Standard Chartered (SCB), coming hard on the heels of the Libor interest rate rigging scandal at Barclays, delivered enormous reputational damage.
Amid the hue and cry over what the Economist calls the "banksters" - the people who placed profit above morals, ethics and in some cases the law - the foreign policy and diplomatic consequences of their behaviour largely has been ignored. Standard Chartered and HSBC have sought to portray the regulators clamp down on their behaviour as petty politics - the American authorities seeking to undermine the City of London's status as the world's financial centre.
But close perusal of the reports shows that the accusations of money laundering mask a systematic effort to circumvent the financial sanctions imposed on Iran and other terrorist supporting states.
As a result of their actions the banks may have made it easier for Tehran to get its hands on the expertise, material and technology to enrich uranium and develop the so called Islamic nuclear bomb.
All the historical evidence shows that while trade sanctions are useful in constraining the behaviour of rogue states they rarely are enough to force them to reverse behaviour or to bring them down. In contrast, financial and banking sanctions that cut off the lifeblood of commerce to nations, do work when they are watertight.
Most dramatically, they were largely responsible for bringing down the apartheid regime in South Africa and ushering Nelson Mandela and the African National Congress to power.
The compendious 335-page Senate Permanent Subcommittee on Investigations on HSBC's money laundering is a treasure trove of information on the bank's dealings with proscribed Middle East regimes including Iran, Syria and Sudan - all deadly enemies of Israel. Internal documents provided by HBSC's US offshoot to the inquiry show that for some years affiliates of the bank took actions deliberately designed to circumvent the Office of Foreign Assets Control sanctions on Iran.
It systematically stripped out references to Iran and instead characterised the transactions as transfers between banks in approved jurisdictions. Between 2001 and 2007 - when financial sanctions could have brought the regime in Tehran to its knees - HSBC conducted 25,000 sensitive transactions with Iran valued by the report at an estimated $19.7 billion.
Far from being isolated from the global financial system Iran found itself a regular little helper in the British bank.
The bank's willingness to run rings around US regulation was demonstrated by its relationship with the Al Rajhi Bank, the largest private financial institution in Saudi Arabia. The report found that HSBC continued to transact business with the Saudi bank even after it was identified as "financing organisations associated with terrorism" including al-Qaeda. Links were not severed until 2005 despite evidence, provided by the US, that this bank may have played a role in the 9/11 attacks on the Twin Towers.
The report also uncovered the fact that HSBC was banker to a key financial backer of one of the main financiers behind Bashar al-Assad's regime in Syria. Rami Makhlouf, a first cousin of Assad who controlled a large part of the Syrian economy, was assisted in setting up a trust in the Cayman Islands by HSBC in Geneva.
HSBC only broke off the relationship after the American authorities ruled in February 2008 that the trust it had helped create was a beneficiary of corruption.
The New York State Department of Financial Services report into the behaviour of Standard Chartered Bank is equally as damaging when it comes to the busting of Iranian sanctions. It found that for almost a decade London based (SCB) "schemed with the government of Iran" to hide from regulators 60,000 secret transactions involving an incredible $250 billion.
It argued that SCB's actions left the US financial system "vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes".
Most importantly of all, however, it meant that the US-led international efforts to paralyse the Iranian regime, with its perennial threat to wipe Israel off the map, were doomed to failure. Instead, for much of the last decade Iran and its rulers have been able to get their hands on all the cash that they have needed to fund and arm the Hizbollah terrorist network and to finance their nuclear ambitions.
Soon after June 30, in what was seen as a triumph for British diplomacy, the UK government succeeded in persuading our European allies to impose a total oil embargo on Iran.
The UK has seen tough economic and financial sanctions as a much better alternative to military actions that might block the strait of Hormuz and send oil prices across the world soaring. Britain's strong diplomatic stance has been greatly undermined by the revelation that UK banks deliberately flouted financial sanctions.
