NATIONAL BANK GOES ON THE OFFENSIVE AND WINS

States that respect international law should neither maintain political contacts with self-proclaimed entities nor have commercial and economic links with them. Despite this, practically all the unrecognized entities in the former USSR alone have existed for more than 15 years with many of the requisite services for people to live there. A striking example is Nagornyy Karabakh. Since the moratorium on military action in the region was declared, Azerbaijan has not been able to relax for a moment its unseen defences on other fronts, including finance and banking. 

Voices had to be raised

Azerbaijan has often come across foreign banking and financial organizations working in the territory occupied by Armenia. Some requests from the Azerbaijani side to stop this business have received a positive response, but the fact remains that funds continue to reach the region. 

According to the National Bank, monitoring of the money transfer systems operating in Azerbaijan revealed that many systems, including Contact, Western Union, Gold Crown, MoneyGram, Migom, Privat Money and Lider, operate on the Azerbaijani territory occupied by the Armenians. At the end of July NBA Board Deputy Chairman Rufat Aslanli sent a letter to Azerbaijan's banks instructing them to stop forthwith cooperation with the money transfer systems (Western Union and MoneyGram). In explanation he said that the NBA had told the payment systems and their governing bodies that they must stop money transfers on Azerbaijan's occupied territory and, if they did not, all commercial banks operating in the country would be banned from using the transfer systems. However, despite all the demands from Azerbaijan, Western Union and MoneyGram continued to make transfers on Azerbaijan's occupied territories. 

It was clear from the beginning that only ultimatums could solve this problem. It is ludicrous to think that in this day and age foreign banks or firms could be ignorant about the Nagornyy Karabakh conflict and about the illegality of links with the occupiers. This is, therefore, simple disregard for the norms of international law under the cover of free trade. The National Bank of Azerbaijan had only to find out what the financial organizations preferred - a state with broad economic potential, record GDP growth and a strong, modern banking system or an entity recognized by no-one that exists thanks only to money transfusions from abroad. They made their choice. 

Western Union and Moneygram back on track

The National Bank of Azerbaijan has shown that it is ready to go to extremes. This step of course received immediate support from the local banks. The president of the Association of Banks of Azerbaijan, Eldar Ismayilov, said that the money transfer systems would lose out through this action because operations via one bank in Xankandi would not make up for the large client base that Western Union and MoneyGram would lose by cutting operations with Azerbaijani banks. "The association supports the action taken by the National Bank, as these payment systems, which have won international confidence, are breaking international law and international banking legislation by supporting the separatist movement," Eldar Ismayilov said. 

The country's major bank - the International Bank - which last year made transfers worth $20 million through the MoneyGram system, said that stopping operations with MoneyGram would not have an impact on the bank's work. The head of the International Bank's press service, Rauf Agayev, said that they have established links with many payment systems (Blizko, Contact, Migom), which offer far better terms than Western Union or MoneyGram.

Western Union and MoneyGram responded reasonably to the NBA action. Western Union Vice-President Jonathan Knaus visited Azerbaijan in mid-August and was received by the National Bank of Azerbaijan. "It was stated at the meeting that it was inadmissible to conduct operations on the territory of Azerbaijan occupied by the Armenians, and such operations must be immediately curtailed. The Western Union representative agreed with the Azerbaijani side's demands and assured the National Bank that business links with organizations working in the country's occupied territories would be cut," an NBA report says.

Western Union undertook at the senior management level to ensure that similar instances did not recur. MoneyGram also met all Azerbaijan's demands, accepted the condition of working in the country within the framework of legislation and international principles and undertook not to repeat similar errors.

Only after this did the National Bank of Azerbaijan allow local banks to resume business links with Western Union and MoneyGram from 14 August.

It has to be said that the Armenian side could not come up with anything other than banning banks operating in Armenia from using the Western Union international transfer system. "The decision was taken in order to reduce banking risks, as instances have occurred of the unfounded violation of provisions in agreements between Western Union and some banks operating in Armenia, and specifically in the some bank branches the money transfer system stopped providing services, which could harm the normal work of the banks, their financial position, lead to an unforeseen situation in money transfers and also affect the country's economic, financial and general sectors," a statement by the Armenian Central Bank's press service says.

However, there is practically no chance that such serious financial organizations as Western Union and MoneyGram will change their decision in Armenia's favour.

The show goes on 

At the same time it is impossible to say today that the financial flows through the occupied territories have been completely cut. Work is under way in this regard with Russian payment systems which are not always ready to follow the example of Western Union and MoneyGram.

Meanwhile, Karabakh has been excluded from the list of locations served by the Migom system, run by the Russian Yevrotrastbank to make urgent money transfers in the CIS. The National Bank of Azerbaijan wrote a letter to Migom, showing mistakes made in the names of towns in the Azerbaijani Republic where Migom provides services. "The Migom system is at present actively working with its banking partners in Azerbaijan on this issue and is ready to take the appropriate measures in order to prevent such instances," Migom's press service said.

However, Nagornyy Karabakh does not feature on the Russian Yuniastrumbank's web site but Armenia does. When the user opens the Armenia link, the list of transfer destinations includes the town of Stepanakert where Yuniastrumbank has two service points which make money transfers via a bank by the name of Artsakhbank. So the residents of this town, occupied by Armenian armed forces, can send and receive money using the Unistream system in 10 to 15 minutes with no restrictions on the amount and for 1 or 2 per cent in commission (depending on the direction of the transfer) to or from the Russian Federation, Armenia, Georgia, Ukraine, Moldova, Kyrgyzstan, Belarus and more than 60 other countries. 

There is also a system for the transfer of US dollars by individuals without opening accounts, conducted by a bank by the name of Anelik. This service costs 3-4 per cent of the value of the transfer. The bank's web site says that money transfers via the Anelik system are given and received in 70 countries. Russian banks that have joined the Anelik system (there are dozens of them) are not only actively advertising the system but republish information from the Anelik Bank OAO site without making any changes and call Karabakh a state or include it in Armenia. 

It is interesting, bearing in mind the friendly relations between, say, Russia and Azerbaijan, that banks in Azerbaijan themselves refused to make transfers to Chechnya at the height of the war in the region. Clearly the Russian banks have chosen another strategy.  

It has to be said that all the payment systems have worked and are working in Karabakh via Artsakhbank. However, the legitimacy of this organization is also very much in doubt. Initially, it described itself on web sites as the Central Bank of the Nagornyy Karabakh Republic. But three or four years ago when the Azerbaijani side (meaning the National Bank and Foreign Ministry of Azerbaijan) began a massive attack on international financial and banking structures over stopping cooperation with Artsakhbank, its head Kamo Nersisyan suddenly gave an interview to the Armenian press. He admitted in the interview that the so-called Central Bank of the NKR was just a branch of the Central Bank of Armenia. That is why they were able to conclude agreements with international money transfer systems and also a special code in the SWIFT communications system without which no bank can receive or send money transfers. Nevertheless, even Artsakhbank's work as a branch on the occupied territories is illegal, as is cooperation by other banks with this "branch". In this regard, basing their arguments on the norms of international law and relevant requirements of the Financial Action Task Force to combat money laundering, the National Bank of Azerbaijan has several times asked Russian state bodies, including the Russian Central Bank and the Russian Federation Committee for Financial Monitoring, to stop all Russian banking operations with the banks working illegally in Azerbaijan's Nagornyy Karabakh. The NBA has also asked the direct participants in the payment systems to stop any cooperation with Artsakhbank. So it is still too early to draw a line under the issue.