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Iran's money laundering threatens international markets

A man pays using Iranian rials at a shop, in Tehran on July 31, 2019 [ATTA KENARE/AFP via Getty Images]
A man pays using Iranian rials at a shop, in Tehran on July 31, 2019 [ATTA KENARE/AFP via Getty Images]

For the better part of two decades, the international focus on Iran has been pointed uniformly at the country's nuclear aspirations. Years of diplomatic efforts to reconcile with Tehran have all revolved around this issue. The truth is, however, that of all the harmful activities orchestrated by the regime, it is Iran's financial misconduct that poses the more immediate global threat.

Iran has been an active state sponsor of militant and jihadist groups around the world since shortly after the 1979 Islamic Revolution. According to US officials, to this day Iran invests hundreds of millions of dollars annually in proxy groups spreading violence and radicalism across the region. More important than its direct funding of militancy, though, are the regime's money laundering schemes, all conducted under the guise of legitimate business, that threaten to undermine trade and finance on a global scale. Equal to the direct aid provided by Iran to its proxies is the revenue it helps generate through black market networks.

Since at least the mid-1990s, for example, Iran has overseen and helped manage a slew of illegal enterprises used to fund its main proxy, Lebanon's Hezbollah. These sources of funding include vast drug production and sales networks based in Latin America; trafficking contraband and other restricted goods in Western Europe; and smuggling weapons and other valuable goods from Lebanon across the Middle East. To this day, the Iranian government plays a central role in administering these businesses.

Of all the methods employed by Tehran to support its vast illicit finance network, the most troubling is the unfettered use of Iran's financial system for money laundering and creating commercial loopholes. Iran has quite a history of moving state funds and industry profits illicitly. Throughout the 2010s, as Iran's economy was reeling from US and European sanctions, it turned to whatever methods it could to circumvent these restrictions. Tehran employed the services of anyone and everyone it could in order to launder revenue from sanction-violating trade. By 2013, Tehran had agents in locations as far-flung as Stockholm and Istanbul.

READ: Iran has a long way to go to export natural gas to Europe

One of the first major revelations of Iran's large-scale money laundering schemes followed the arrest of Reza Zarrab, a Turkish businessman with strong ties to both the Turkish government and Iranian officials. Zarrab was detained in Miami in 2016 on charges of money laundering and funding designated entities. During the investigation, it came to light that Zarrab had been instrumental in helping Iran bypass the international SWIFT payments system through a web of Turkish, UAE and Iranian banks. According to reports, the final step in transferring these profits was the purchase of gold through financial institutions in Iran.

Shortly after the Zarrab saga came to light, a similar story emerged from Stockholm, where a quiet and almost unknown money-changer called Hatam Khatoun Nema was implicated in one of the biggest money laundering scams in recent history. The Swedish-Iranian businessman ran an obscure Hong Kong company, H M E A Co. Ltd., which laundered hundreds of millions of dollars through a web of shell companies and businesses stretching from Singapore to Panama. For nearly three years, Nema helped move payments for the oil that Iran sold to China, its most important trading partner and geopolitical ally.

More recently, a Wall Street Journal article exposed how Iran has been able to create a financial system in which it takes advantage of international banks in order to evade the might of the sanctions imposed by the US. Thus Iran is able to continue its tyrannical behaviour, disregarding other states, so long as it is able to fund the proxies it operates in the Middle East and beyond. The Iranian involvement in these financial conspiracies seems to have no bounds. Reports emerge regularly on how the ayatollahs' financial malfeasance has affected countries around the region.

An Iranian police vehicle is seen parked outside a currency exchange shop in the capital Tehran on April 10, 2018 [ATTA KENARE/AFP via Getty Images]

An Iranian police vehicle is seen parked outside a currency exchange shop in the capital Tehran on April 10, 2018 [ATTA KENARE/AFP via Getty Images]

In the spring of 2021, Bahrain's attorney general announced more revelations on the Iranian laundering scheme that plagued the country's banking system for more than 12 years. Investigations over this period uncovered the activities of the Iranian Future (Mustaqbal) Bank in laundering hundreds of millions of dollars of Iranian profits to banks in Tehran. Two other Iranian banks, Melli and Saderat, also participated in the network in collusion with at least one other Bahraini financial institution. However, the most recent findings reported in late May last year are the most damning of the Iranian government, as they point to the cooperation of Iran's most powerful government-run financial institution.

According to reports, the Central Bank of Iran issued instructions to Future Bank on the use of an unapproved alternative transfer system to complete banking operations with the aim of concealing the source and movement of funds, benefiting Iranian banks. This allowed the network to circumvent international sanctions and restrictions on transactions imposed against Iranian entities.

The centrality of the Iranian state in coordinating these financial crimes cannot be overstated. Indeed, because of Tehran's participation in international money laundering, the G7-founded agency tasked with combating illicit finance, the Financial Action Task Force (FATF), was compelled to blacklist Iran, a designation that is, to this day, held only by Iran and North Korea.

READ: Iran blames the US for halt to Vienna nuclear talks

Before leaving office, Iran's moderate President Hassan Rouhani called for the financial system to comply with the measures laid out by the FATF to reintegrate the country into the global financial system. But as experts have pointed out, even the formal adoption of FATF rules will not prevent Iran's money laundering activities.

The reason for this is the persistent efforts on the part of Iranian institutions to create back doors and systemic loopholes to continue on the same path. As one analyst put it: "Tehran has carved out exceptions in the bills which allow Tehran to continue what it has been doing… The bills have created [methods] for Tehran to continue funding terrorism and bypass sanctions."

The very institutions charged with keeping Iran's financial system from being a tool of illicit activity are the ones enabling this criminal activity to continue. Tehran's far-reaching illicit networks are and will continue to have a grave impact on a global scale in two ways. By circumventing international sanctions rules, Tehran's money laundering undermines the main leverage used against the Iranian regime. The vital issues of nuclear production and supporting conflict in the region cannot be influenced as long as Iran has ample resources in skirting sanctions.

Perhaps more importantly, Iran's commercial and monetary conspiracies infuse global institutions and markets with toxic money. Over recent years, tens of billions in assets have been confiscated or designated as a result of ties with Iranian individuals and entities. To protect the integrity of global financial networks, the Iranian threat must be recognised for what it is.

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.

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