Countries/Jurisdictions of Primary Concern - Iran
Although not a global financial hub, Iran has a large underground economy, spurred by restrictive taxation, widespread smuggling, sanctions evasion, currency exchange controls, capital flight, and a large Iranian expatriate community. Iran is a major transit route for opiates smuggled from Afghanistan through Pakistan to the Persian Gulf, Turkey, Russia, and Europe. At least 40 percent of opiates leaving Afghanistan enter or transit Iran for domestic consumption or for consumers in Russia and Europe. Narcotics traffickers use illicit proceeds to purchase goods in the domestic Iranian market, 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 have ties to the regional hawala hub in Dubai. Over 300,000 Iranians reside in Dubai, with approximately 8,200 Iranian-owned companies based there. According to media reporting, Iranians have invested billions of dollars in capital in the United Arab Emirates, particularly in Dubai real estate. Money launderers also use Iran’s real estate market to hide illicit funds. 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 repeatedly warned of Iran’s failure to address the risks of terrorist financing, urging 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 and guidance, to multiple terrorist organizations and other groups that undermine the stability of the Middle East and Central Asia, such as the Houthi group Ansarallah in Yemen, the Asad regime in Syria, and multiple Shia militia groups in Iraq. Hamas, Lebanese Hizballah, and the Palestinian Islamic Jihad (PIJ) maintain representative offices in Tehran, in part to help coordinate Iranian financing and training.
In recent years, the international presence of Iranian banks has diminished as a growing number of governments move to sanction Iranian financial institutions in response to UN, U.S., and autonomous sanctions regimes as well as in reaction to the FATF statements on Iran’s lack of adequate AML/CFT controls. Iran has used its state-owned banks to channel funds to terrorist organizations and finance 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. In March 2012, the Society of Worldwide Interbank Financial Telecommunication (SWIFT) removed Iranian financial institutions from its network, curtailing the institutions’ ability to send and receive international wires, in order to comply with EU sanction violations. The United States has designated at least 20 Iranian banks and subsidiaries under counter-proliferation and terrorism authorities, and in a 2014 report, the UN also 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: //2009-2017.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: All legal entities, including the central bank, banks, financial and credit institutions, insurance companies, state regulator and reinsurance provider, the Central Insurance, interest-free funds, charity foundations and institutions, municipalities, notaries, lawyers, auditors, accountants, official experts of the Ministry of Justice, and legal inspectors
Number of STRs received and time frame: Not available
Number of CTRs received and time frame: Not applicable
STR covered entities: All legal entities, including the central bank, banks, financial and credit institutions, insurance companies, state regulator and reinsurance provider, the Central Insurance, interest-free funds, charity foundations and institutions, municipalities, notaries, lawyers, auditors, accountants, official experts of the Ministry of Justice, and legal 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 a FATF-style regional body. In 2014, it applied for observer status in the Eurasian Group on Combating Money Laundering and the Financing of Terrorism (EAG).
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 Iran’s proliferation activities (E.O. 13382); one state-owned Iranian bank (Bank Saderat and its foreign operations) designated for funneling money to terrorist organizations (E.O. 13224); the Qods Force, a branch of Iran’s Islamic Revolutionary Guard Corps (IRGC), designated for providing material support to the Taliban, Lebanese Hizballah, and PIJ (E.O. 13224); 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 Hizballah, Hamas, and the PIJ, designated along with Lebanon- and U.S.-based affiliates (E.O. 13224).
Additionally, Iran has been the subject of several UNSCRs 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-sensitive nuclear activities. The Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 amending the Iran Sanctions Act of 1996, makes sanctionable certain activities in Iran’s energy sector, including the provision of refined petroleum or goods and services for Iran’s refined petroleum sector.
In 2011, President Obama signed the National Defense Authorization Act for Fiscal Year 2012. 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. The Iran Threat Reduction and Syria Human Rights Act of 2012 expands sanctions on Iran’s energy sector and against human rights violators. These build 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. Since 2009, the FATF has urged all jurisdictions to apply effective countermeasures to protect their financial sectors from the money laundering/terrorist 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. Most recently, in October 2014, the FATF reiterated its call for countermeasures, urging 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. The FATF, in its October 2014 Public Statement, said it remains particularly and exceptionally concerned about Iran’s failure to address the risk of terrorist financing, and the serious threat this poses to the integrity of the international financial system, despite Iran’s previous engagement with the FATF and recent submission of information. The FATF continues to urge Iran to immediately and meaningfully address its AML/CFT deficiencies, in particular by criminalizing terrorist financing and effectively implementing suspicious transaction reporting requirements. If Iran fails to take concrete steps to continue to improve its CFT regime, the FATF will consider calling on its members and urging all jurisdictions to strengthen countermeasures in February 2015.