Trade Based Money Laundering related to Iran

Introduction of Iran Economy

Iran as an economy is one of the most controversial economy.  In Feb 2018 Financial Action Task Force (FATF) temporarily suspended financial counter measures against Iran. Many Experts suggested that this temporary suspension means, Iran still has long way to go before it is safe to do business there. Trade Based Money Laundering in Iran is an important concept. Additionally, Iran government is trying to convince the world authorities that it has been taking serious measures to meet FATF standards related to anti money laundering and combating terrorist financing. Hence, Iran’s underground economy is still a topic of discussion as it includes uneven taxation, widespread smuggling and sanctions evasion.

Most of the prominent techniques in Trade Based Money Laundering    in Iran are

Illegitimate Trade Route

Some reports state that drugs derived from opium are smuggled from Afghanistan to Europe, Russia and Persian Gulf etc.  Further reports suggest that 40 percent smugglers of Afghanistan enter Iran for domestic business or further transfer drugs to Europe, Russia.

Hawala Transactions

For centuries Hawala technique is used in Iran and called as Havaleh.  Since, many merchants make illegitimate money transfers to Europe, North America and beyond. Its anonymous nature and paperless process makes Hawala an attraction for suspicious dealing. Since there is no physical movement of cash in the Hawala system. Therefore, re-routing of goods from one country to another makes difficult to keep track on Hawala transactions. Therefore, following is the process of Hawala Transaction-

  • A money sender goes to the Hawala agent in Tehran and gives him $5000 to transfer it to his supplier in other country.
  • Then agent calls his counterpart in that other country where money is to be send.
  • This counterpart provides the amount of $5000 to supplier in that other country.
  • This process takes time less than or equal to 24 hours.
  • Fee is charged by Iranian Hawala dealers upto 1-1.5% per transaction or flat rate of $50.

Illegitimate Trade of Oil

Additionally, in 2012 many Iranian businessmen illicitly transferred oil barrels from Iran even when sanctions were imposed. Since, some reports suggest that many corrupt politicians in Iran were supporting these businessmen to trade in oil illegally. Additionally, at some point when remitting money earned through this illegal activities was difficult as using SWIFT Transfer was prohibited in banks of Iran due to breach of EU sanctions. Hence the smugglers would acquired banks in another countries using shell companies and transfer that money in acquired banks.Therefore, trade Based Money Laundering in Iran is a vast concept.

Sanctions on Iran

Since, some sanctions got withdrew but some are still active. Recent withdrawal was on 8th May, 2018 when U.S suspended certain sanctions in exchange for limitations on Iran’s nuclear program. Hence, but this suspension is temporary.

U.S Sanctions

Additionally, Economic sanctions are a way for large governments to exert their disapproval over one another. Reinstation of sanctions that got temporary suspension.  Hence, the reinstation of many secondary sanctions on 6th Aug 2018.  Therefore, sanctions include following activities-

  • Trade with Iran in gold or precious metals;
  • Sale or supply to Iran of coal, certain metals and software for integrating industrial processes;
  • Significant transactions related to the purchase or sale of Iranian rials, or the maintenance of significant funds denominated in rials outside Iran;
  • Purchase of, subscription to or facilitation of issuance of Iranian sovereign debt; and
  • Sale or supply of goods and services to Iran’s automotive sector.

Imposition of primary sanction on Iran on the same day:

  • Revocation of general and specific licenses related to export of aircraft and aircraft parts and
  • Ban on importation of Iranian Carpets and foodstuffs to United States

Additionally, Rein station of some sanctions took place on 4th November 2018.  The  U.S. government will re-impose the remaining sanctions that were lifted pursuant to the JCPOA ( Joint Comprehensive Plan of Action), including sanctions on associated services related to the activities.

EU Sanctions

Since, on 17 March 2012, following agreement two days earlier between all 27 member states of the Council of the European Union, and the Council’s subsequent ruling, the SWIFT electronic banking network, the world hub of electronic financial transactions, disconnected all Iranian banks from its international network that had been identified as institutions in breach of current EU sanctions, and that further Iranian financial institutions could be disconnected from its network.  Since, sanctions also apply to EU citizens operating outside EU territory.  Hence, restrictions mentioned below are:

  • restrictions on admission of certain persons
  • freezing of funds and economic resources
  • embargo on telecommunications monitoring and interception equipment
  • Internal Repression on banned equipment

Ban on provision of certain services

Additionally, there is a ban on certain services

  • embargo on arms and related material
  • Ban  on nearly all dual-use goods and technology
  • embargo on certain goods and technology which could contribute to enrichment-related, reprocessing or heavy water-related activities, or to the development of nuclear weapon delivery systems or to the pursuit of activities related to other topics about which the IAEA has expressed concerns
  • prohibition of procurement from Iran of arms and related material, nearly all dual-use goods and technology and certain other goods and technology
  • (arms and other embargoes related) ban on provision of certain services
  • (arms and other embargoes related) ban on certain investment
  • controls on export of certain other sensitive goods and technology
  • control on provision of certain services
  • control on certain investment
  • embargo on key equipment and technology for the oil and natural gas industries
  • ban on provision of certain services (to the oil and natural gas industries)
  • embargo on certain raw and semi-finished metals
  • ban on provision of certain services (related to graphite and metals)
  • embargo on key naval equipment and shipbuilding technology
  • ban on provision of certain related services (related to key naval equipment and shipbuilding technology)
  • prohibition of construction of new oil tankers for Iran
  • embargo on certain software for integrating industrial processes
  • ban on provision of certain related services
  • ban on Member States’ commitments for financial support for trade with Iran
  • control of transactions of EU financial institutions with banks domiciled in Iran and their subsidiaries, branches and other financial entities outside Iran
  • ban on provision of flagging and classification services to certain vessels
  • ban on ‘supply’ of certain vessels to Iran
  • vigilance requirements for EU financial institutions in their activities with banks domiciled in Iran and their branches and subsidiaries
  • ban on certain Iranian investment (nuclear industry)
  • monitoring of activities of EU branches and subsidiaries of credit and financial institutions domiciled in Iran
  • Therefore, enhanced vigilance as regards transactions of EU financial institutions with credit and financial institutions domiciled in Iran and with the latter’s branches and subsidiaries