Countries/Jurisdictions of Primary Concern - Iran
Although not an international financial hub, Iran has a large informal economy, characterized by sanctions evasion, restrictive taxation, widespread smuggling, currency exchange controls, and capital flight. Iran is a major transit route for opiates smuggled from Afghanistan or Pakistan to the Persian Gulf, Turkey, Africa, Russia, and Europe. At least 35 percent of opiates leaving Afghanistan enters or transits Iran for domestic consumption or for consumers in Russia, Africa, and Europe. Illicit proceeds from narcotics trafficking are used to purchase goods in the domestic Iranian market at discounted prices, often for exportation to and sale in Dubai. Iran’s merchant community makes active use of money and value transfer systems, including hawala and moneylenders. Counter-valuation in hawala transactions is often accomplished via trade, thus trade-based transactions are a prevalent form of money laundering. Many hawaladars and traditional bazaari are linked directly to the regional hawala hub in Dubai. Over 300,000 Iranians reside in Dubai, with approximately 8,200 Iranian-owned companies based there. There are reports that billions of dollars in Iranian capital have been invested in the United Arab Emirates, particularly in Dubai real estate. Iran’s real estate market also is used to launder money. There is pervasive corruption within the ruling and religious elite, government ministries, and government-controlled business enterprises.
On November 21, 2011, the U.S. government identified Iran as a state of primary money laundering concern pursuant to section 311 of the USA PATRIOT Act. Widespread corruption and economic sanctions, as well as evasion of those sanctions, have undermined the potential for private sector growth and facilitated money laundering. The FATF has issued repeated public statements warning of Iran’s failure to address the risks of terrorism financing and urging Iran to immediately and meaningfully address its AML/CFT deficiencies, specifically the financing of terrorism. The FATF urges jurisdictions around the world to impose countermeasures to protect their financial sectors from illicit finance emanating from Iran.
In 1984, the Department of State designated Iran as a State Sponsor of Terrorism. Iran continues to provide material support, including resources, guidance, and financial assistance to multiple terrorist organizations that undermine the stability of the Middle East and Central Asia, such as Hamas, Lebanese Hizballah, the Taliban, and Iraqi Shia militias. Hamas, Lebanese Hizballah, and the Palestinian Islamic Jihad (PIJ) maintain representative offices in Tehran, in part to help coordinate Iranian financing and training.
Iran has established an international banking network, with many large state-owned banks that have foreign branches and subsidiaries in Europe, the Middle East, Asia, and the Western Hemisphere. Their presence is diminishing because of UN, U.S., EU, and autonomous sanctions regimes and the FATF statements on Iran’s lack of adequate AML/CFT controls. Iran is known to use its state-owned banks to channel funds to terrorist organizations and finance both its nuclear and ballistic missile programs. Many of the world’s leading financial institutions have voluntarily chosen to reduce or cut ties with Iranian banks; and, in March 2012, some Iranian financial institutions were disconnected from the SWIFT international network to curtail their ability to send and receive international wires due to EU sanction violations. The United States has designated at least 20 banks and subsidiaries under counter-proliferation and terrorism authorities. Additionally, the UN has designated two banks.
For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found at: http://www.state.gov/j/ct/rls/crt/
DO FINANCIAL INSTITUTIONS ENGAGE IN CURRENCY TRANSACTIONS RELATED TO INTERNATIONAL NARCOTICS TRAFFICKING THAT INCLUDE SIGNIFICANT AMOUNTS OF US CURRENCY; CURRENCY DERIVED FROM ILLEGAL SALES IN THE U.S.; OR ILLEGAL DRUG SALES THAT OTHERWISE SIGNIFICANTLY AFFECT THE U.S.: Not available
CRIMINALIZATION OF MONEY LAUNDERING:
“All serious crimes” approach or “list” approach to predicate crimes: All serious crimes
Are legal persons covered: criminally: YES civilly: YES
KNOW-YOUR-CUSTOMER (KYC) RULES:
Enhanced due diligence procedures for PEPs: Foreign: Not available Domestic: Not available
KYC covered entities: Central Bank, banks, financial and credit institutions, insurance companies (including the state regulator and reinsurance provider), interest-free funds, charitable organizations and institutions, municipalities, notaries, lawyers, accountants, auditors, authorized specialists of the Justice Ministry, and official inspectors
Number of STRs received and time frame: Not available
Number of CTRs received and time frame: Not available
STR covered entities: Central Bank, banks, financial and credit institutions, insurance companies (including the state regulator and reinsurance provider), interest-free funds, charitable organizations and institutions, municipalities, notaries, lawyers, accountants, auditors, authorized specialists of the Justice Ministry, and official inspectors
MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:
Prosecutions: Not available
Convictions: Not available
RECORDS EXCHANGE MECHANISM:
With U.S.: MLAT: NO Other mechanism: NO
With other governments/jurisdictions: Not available
Iran is not a member of any FATF-style regional body.
ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:
For nearly two decades the United States has undertaken targeted financial actions against key Iranian financial institutions, entities, and individuals drawing on non-proliferation, counter-terrorism, human rights, and Iraq-related authorities that include legislation and more than a dozen Executive Orders (E.O.). To date, the Departments of State and Treasury have designated over 300 Iranian entities and individuals for proliferation-related activity, support for terrorism, and human rights abuses. Noteworthy actions taken against Iran under E.O.s include: 20 Iranian-linked banks located in Iran and overseas, designated in connection with proliferation activities; state-owned Iranian bank Bank Saderat and its foreign operations designated for funneling money to terrorist organizations; the Qods Force, a branch of the Iranian Revolutionary Guard Corps (IRGC), designated for providing material support to the Taliban, Hizballah, and the PIJ; and the Martyrs Foundation, also known as Bonyad Shahid, an Iranian parastatal organization that channels financial support from Iran to several terrorist organizations in the Levant, including Lebanese Hizballah, Hamas, and the PIJ, designated along with Lebanon- and U.S.-based affiliates.
Additionally, Iran has been the subject of several UNSCR and International Atomic Energy Agency resolutions for its failure to comply with its international nuclear obligations. UNSCR 1929 recognizes the potential connection between Iran’s revenues derived from its energy sector and the funding of its proliferation of sensitive nuclear activities. In 2010, in recognition of that connection, the United States adopted the Comprehensive Iran Sanctions, Accountability, and Divestment Act, which makes sanctionable certain activities in Iran’s energy sector, including the provision of goods and services for Iran’s refined petroleum sector.
On December 31, 2011, the National Defense Authorization Act for Fiscal Year 2012 was signed into law. Under Section 1245 of the Act, foreign financial institutions that knowingly facilitate significant financial transactions with the Central Bank of Iran or with U.S.-designated Iranian financial institutions risk being cut off from direct access to the U.S. financial system. On August 10, 2012, the Iran Threat Reduction and Syria Human Rights Act of 2012 was enacted, expanding sanctions on Iran’s energy sector and against human rights violators. This legislation builds upon the sanctions from previous U.S. legislation and UNSCRs.
In October 2007, the FATF issued its first public statement expressing concern over Iran’s lack of a comprehensive AML/CFT framework. In February 2009, the FATF urged all jurisdictions to apply effective countermeasures to protect their financial sectors from the money laundering and terrorism financing risks emanating from Iran, and also stated that jurisdictions should protect against correspondent relationships being used to bypass or evade countermeasures or risk-mitigation practices. In October 2013, the FATF reiterated its call for countermeasures, urged Iran to immediately and meaningfully address its AML/CFT deficiencies – in particular, by criminalizing terrorism financing and effectively implementing suspicious transaction reporting requirements – and again urged all members and jurisdictions to advise their financial institutions to give special attention to business relationships and transactions with Iran, including Iranian companies and financial institutions.
Numerous countries around the world have restricted their financial and business dealings with Iran in response to both the UNSC measures on Iran as well as the FATF statements on Iran’s lack of adequate AML/CFT controls. A growing number of governments have moved to designate Iranian banks, and many of the world’s leading financial institutions have voluntarily chosen to reduce or cut ties with Iranian banks. Since February 2007, the EU also has adopted numerous measures to implement the UNSCRs on Iran and further protect the EU from Iranian threats. For example, in 2010, the EU adopted significant new measures against Iran, including new sanctions on several Iranian banks and the IRGC; enhanced vigilance by way of additional reporting and prior authorization for any funds transfers above a certain threshold amount; a prohibition on the establishment of new Iranian bank branches, subsidiaries, joint ventures, and correspondent accounts; and other restrictions on insurance, bonds, energy, and trade.