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Bahraini Bank Investigations Offers Powerful Example for Treating De-listed Entities

Bahraini Bank Investigations Offers Powerful Example for Treating De-listed Entities

Behnam Ben Taleblu, Varsha Koduvayur
10th April 2018 - FDD's CSIF Policy Brief

The Bahraini government last week disclosed evidence detailing how the now-shuttered Future Bank participated in a multi-billion dollar sanctions-evasion scheme benefiting Iran. Bahrain’s foreign minister, Khalid bin Ahmed al Khalifa, stated that Future Bank was involved in “supporting and funding terrorist entities and organizations” and concealed at least $7 billion in transactions from 2004 until 2015.

Future Bank was a joint venture between Bahrain’s Ahli United Bank and Iran’s state-owned Bank Saderat and Bank Melli, founded to deepen Iran-Gulf Arab commercial ties. Established in 2004, it was majority-owned by Saderat and Melli, both of which the U.S. Treasury designated in 2007 under anti-terrorism and counter-proliferation authorities, respectively. Bahrain allegedly prohibited Future Bank in 2007 from conducting “new business with Iran and made Ahli United place all its Future Bank shares in a blind trust,” according to Reuters. Amid growing pressure on Iran’s banking system, Treasury designated Future Bank in 2008 due to Bank Melli’s control over the entity. In 2010, the EU imposed sanctions against the bank. In April 2015, Bahrain’s central bank placed Future Bank into administration with little public explanation, effectively ceasing the bank’s operations and taking control of the financial institution.

But in mid-January 2016, the U.S. and EU removed Future Bank from their sanctions lists pursuant to the Joint Comprehensive Plan of Action (JCPOA) nuclear deal. At that point, U.S. secondary sanctions were no longer applicable, and European companies were free to do business with the bank. Rather than be swayed by the political impact of sanctions relief, however, authorities in Manama continued to hold Future Bank in administration. One month later, Bahrain shut down Future Bank over its illicit connections and activities.

Embedded in that decision is a larger lesson: Just because an entity is delisted under the JCPOA does not mean it has a clean bill of health. Nor does it mean that an entity’s previous non-nuclear illicit activities or subsequent behavior should be excused.

In fact, a post-closure audit revealed that Future Bank routinely altered financial documents related to illicit trade involving Iran; it also issued loans to fronts for Iran’s already-sanctioned Islamic Revolutionary Guard Corps. As The Washington Post reported, Future Bank frequently used “wire-stripping” to scrub away any identifying information during bank transactions. These measures helped the Islamic Republic continue funding its illicit nuclear and destabilizing regional activities at the height of international sanctions.

The case of Future Bank attests to three things. First, the Islamic Republic’s formidable skill at accessing the international financial system while evading the safeguards designed to prevent illicit finance. Second, the various powers that governments have to hold entities accountable irrespective of their status under the JCPOA. And third, while only the Bahraini government could shutter Future Bank, the fact that their decision to do so was independent of JCPOA sanctions relief speaks volumes and is potentially instructive.

As Washington looks to push back on Iran in the days ahead, it should take note of Manama’s example and be unimpeded by JCPOA sanctions relief when looking to develop creative policies to counter Tehran. To date, the U.S. has not yet re-sanctioned a de-listed entity for ongoing non-nuclear bad behavior. This is despite the ample evidence and preexisting statutes that Washington can marshal against entities tied to Iran that pose compliance, international security, and even human rights challenges.

Behnam Ben Taleblu is a research fellow focusing on Iran at the Foundation for Defense of Democracies (FDD), where Varsha Koduvayur is a senior research analyst focusing on the Gulf states. Follow Varsha on Twitter @varshakoduvayur.

Follow FDD on Twitter @FDD. FDD is a Washington-based, nonpartisan research institute focusing on national security and foreign policy.

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