Iran’s Center for Illicit Finance

Iran’s Center for Illicit Finance

Mark Dubowitz, Annie Fixler
15th April 2016 - FDD Policy Brief

Iranian Central Bank Governor Valiollah Seif is in Washington this week to attend summits at the World Bank and International Monetary Fund, make the rounds at think tanks, and meet with U.S. Secretary of the Treasury Jack Lew. As central bank governors from around the world gather to discuss the global economy, the Central Bank of Iran (CBI) stands out for its long rap sheet of financial crimes.

Between 2006 and 2011, as the U.S. sanctioned other Iranian banks, the CBI facilitated transactions for designated banks involved in proliferation and terror financing and, according to Treasury, helped these banks evade sanctions. As a result, Treasury took the unprecedented step in November 2011 of designating Iran and its entire financial sector – including its central bank – a “jurisdiction of primary money laundering concern.”

The following year, Congress statutorily designated the CBI for its support of nuclear and missile proliferation, terrorism, and money laundering, and banned all transactions with it beyond limited crude oil sales and humanitarian trade. In its most recent statement, in February, the Financial Action Task Force warned members that Iran’s “failure to address the risk of terrorist financing” poses a “serious threat … to the integrity of the international financial system.”

Today, Seif is attempting to persuade the global financial community to overlook this history as he tries to legitimize Tehran as a responsible financial actor. Meanwhile, the CBI continues to deny its role as Iran’s central bank for terror finance. Just this January, the bank appealed to the U.S. Supreme Court to overturn the seizure of nearly $2 billion of its assets to settle outstanding judgments won by victims of Iranian-backed terrorism. Tehran owes its victims $43.5 billion in outstanding unpaid judgments, and has thus far refused to pay a cent.

Seif himself is no stranger to illicit finance, having served in leadership positions in Bank Mellat, Bank Saderat, Bank Sepah, Bank Melli, and Future Bank, all of which Treasury later sanctioned for proliferation or terror financing. He was CEO of Bank Karafarin when Treasury listed it in July 2012 as a banned Iranian financial institution. (The bank was delisted as part of the nuclear deal.) A year later, and four months after Seif assumed the top position at the CBI, Karafarin was accused, in a Turkish prosecutor’s report, of processing illicit transactions on behalf of the Turkish-Iranian businessman Reza Zarrab, charged in a New York federal court last month with sanctions evasion by conducting hundreds of millions of dollars in transactions for the Iranian government.

The Central Bank of Iran has been given a temporary reprieve. Under the nuclear deal, President Obama removed the CBI from Treasury sanctions and used his national security interest waiver to suspend the statutory designation and permit foreign financial institutions to transact with it, provided: 1) no party to the transaction remains under U.S. sanction, 2) the transaction does not touch the U.S. financial system, and 3) the trade that the transaction facilitates is itself permissible under the nuclear deal. The president, however, lacks authority to override congressional law and permanently lift sanctions. A future president could reverse Obama’s decision.

Members of Congress from both parties have increasingly voiced concern that the administration intends to allow foreign financial institutions to seal dollarized transactions on Iran’s behalf using offshore clearing, or intra-bank book transfers and conversions, to avoid direct access to the U.S. financial system. Seif’s meeting with Secretary Lew may be aimed at pressuring the administration to approve Tehran’s indirect access to the dollar to encourage global financial institutions to re-enter the Iranian market.

Instead of granting the Islamic Republic more unilateral concessions, the administration should push Seif to detail how Iran’s entire financial sector, including the CBI, intends to clean up its act.

Mark Dubowitz is executive director of the Foundation for Defense of Democracies, where he focuses on Iran and directs its Center on Sanctions and Illicit Finance. Follow him on Twitter, Facebook, and LinkedIn

Annie Fixler is a policy analyst at FDD’s Center on Sanctions and Illicit Finance. Find her on Twitter: @afixler

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congress, csif, illicit-finance, imf, iran, policy-brief, world-bank