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Clandestine Finance System Helped Iran Withstand Sanctions Crush, Documents Show

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Clandestine Finance System Helped Iran Withstand Sanctions Crush, Documents Show

WASHINGTON — Iran has built a secretive banking and financial system to handle tens of billions of dollars in trade blocked each year by U.S.-led sanctions, enabling Tehran to withstand an economic siege, according to Western diplomats and intelligence officials. Influence and document in multilateral nuclear negotiations.

The system, which includes accounts at foreign commercial banks, agency firms registered outside the country, firms coordinating banned trade, and clearinghouses for transactions in Iran, helped Tehran resist pressure from the Biden administration to rejoin the 2015 nuclear deal for its Buying time to advance its nuclear program even while negotiations are underway. Officials say they are close to a deal, with the release of two British women in recent days, signaling a possible deal within days.

Years of sanctions have hampered Iran’s economy and caused its currency, the rial, to collapse. But officials and some analysts say the ability to raise trade roughly to pre-sanctions levels has helped the economy rebound after three years of contraction, easing domestic political pressure and strengthening Tehran’s negotiating stance.

Iran’s success in circumventing trade and financial bans, evident in trade data and corroborated by Western diplomats and intelligence officials, shows the limits of global financial sanctions as the US and EU try to use their economic power to punish Russia sex. Invade Ukraine. The U.S. and European Union banned major Russian banks from trading dollars and euros and froze assets held abroad by the Russian central bank. As a result, the ruble has lost 13 percent of its value against the dollar since the February 24 invasion. Meanwhile, the Biden administration has sought cooperation from Russia in rounds of talks in Vienna aimed at reviving the deal.

According to documents and Western officials, the secret banking system works like this: Iranian banks that serve companies banned from importing and exporting by U.S. sanctions hire Iranian affiliates to manage sanctioned trade on their behalf. These companies set up companies outside Iran to act as agents for Iranian traders. Agents trade in U.S. dollars, euros or other foreign currencies with foreign buyers of Iranian oil and other commodities or sellers of commodities imported into Iran through accounts opened with foreign banks.

Some of the earnings were smuggled into Iran by couriers carrying cash withdrawn from foreign agency accounts, according to some officials. But most of it remains in bank accounts abroad, according to Western officials. According to the Central Bank of Iran, foreign exchange transactions are conducted between Iranian importers and exporters on a ledger maintained by Iran.

If a deal is reached, Iran is expected to rapidly ramp up efforts to extract more oil. The National Iranian Oil Company’s oil depot near Koy, Iran, in 2011.


Morteza Nikoubazl/Reuters

If a deal is reached, Iran is expected to quickly ramp up efforts to boost oil production to bring in much-needed revenue and offset supply constraints caused by Russia’s sanctions campaign. Western and Iranian officials say Iran’s clandestine financial infrastructure is inefficient, costly and vulnerable to corruption. But even if a deal allows Iran to formally link trade and financial ties to the global economy, industry insiders say it is unlikely that Western banks and businesses will quickly re-engage with Iran, fearing future conflicts with sanctions, money laundering and terrorism — financial law.

Western officials say the clandestine system works well, and Iranian authorities aim to make it a permanent part of the economy, not only to protect Iran from possible future sanctions, but also to enable it to operate without scrutiny abroad. trade under the circumstances.

“This is an unprecedented government money-laundering operation,” a Western official said of the covert system.

U.S. law prohibits foreign banks from using dollars for transactions that Washington has approved, and a similar ban applies to companies doing business in the U.S. market. In addition, local laws require banks to comply with international anti-money laundering standards that prohibit transactions that conceal the true beneficiary. In addition to these legal prohibitions, foreign banks could face U.S. penalties or be cut off from the Western financial system if they violate U.S. sanctions.

Iran’s mission to the United Nations did not respond to a request for comment on the financial system. Iranian officials have publicly described their efforts to thwart U.S. pressure by developing a “resistance economy,” but the structure, size and details of its sanctions-evading financial system have never been reported before.

The Wall Street Journal reviewed financial transactions totaling hundreds of millions of dollars in 61 accounts of dozens of Iranian agents in 28 foreign banks in China, Hong Kong, Singapore, Turkey and the United Arab Emirates. Western intelligence officials say there is evidence of tens of billions of dollars in similar deals. The Iranian government has publicly touted its ability to finance sanctions-busting trade.

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Goramreza Mesbash-Mogadam, a senior Iranian political figure close to Supreme Leader Ali Khamenei, said in a live debate on social media last January that secret import and export deals are carried out every year. up to $80 billion. The International Monetary Fund estimates it will grow to $150 billion by 2022, including foreign sales prohibited by sanctions, more than double the level in the brief period Iran was free from sanctions.

“Most of the gasoline, steel, petrochemicals we export – are hidden side activities,” Mr Mesbahi-Moghaddam said in a debate on social media.

Iranian bank statements and company documents reviewed by The Wall Street Journal show how Tehran secretly records revenue from exports of petrochemicals, metals, auto parts and other goods, while financing imports of industrial machinery, oil services and electrical components Sustaining its company and economy is critical to running.

The system provides Iran with the revenue and imports it needs to keep its economy and country running. It eased pressure on the country’s currency by giving Iran’s economy access to dollars, euros and other reserve currencies denominated in world trade, according to diplomats and officials.

U.S. officials say the terms of the resumption agreement are nearly the same as the 2015 deal, although Iran’s “breakthrough time” — the duration it takes to accumulate enough nuclear fuel to make a bomb — could fall from about six months to six months . original year.

Iran has been pushing for the U.S. to ease more sanctions than those lifted under the deal, particularly sanctions on its ballistic missile program and the Islamic Revolutionary Guard Corps military unit, which has counterterrorism powers.

According to the International Monetary Fund, from 2010 to 2015, Iran’s annual trade volume fell 55 percent to $79.7 billion under the Obama administration’s sanctions. Driven in part by economic pain, reform-minded Iranian President Hassan Rouhani signed a nuclear deal with the United States and five other world powers in 2015 called the Joint Comprehensive Plan of Action. The agreement lifted long-standing economic sanctions on Iran the following year. Used to limit and monitor the country’s nuclear program.

Then-Secretary of State John Kerry, left, and Iranian Foreign Minister Mohammad Javad Zarif during the Iran nuclear talks in Vienna in 2015.


Carlos Barria/AFP/Getty Images

After sanctions were lifted, oil sales doubled to more than 2 million barrels a day and the economy grew by 13 percent, according to the Federal Reserve and the International Monetary Fund. In 2017, trade grew again to $117.5 billion, according to the International Monetary Fund.

In 2018, then-President Donald Trump withdrew the United States from the agreement. Opponents within the administration argue that the agreement does not adequately limit Iran’s ability to enrich uranium for nuclear weapons in the future. They said the sanctions relief was a cash gain for Iran’s ballistic missile program, as well as for elite military units and foreign militant groups that Tehran has armed and financed.

Mr Trump reimposed sanctions lifted under the 2015 deal, saying the new “maximum pressure” sanctions campaign would squeeze Iran’s economy so badly that Tehran would be forced into a tougher nuclear deal that also includes restrictions Iran’s missile development program and its regional interventions.

By 2019, after the nuclear deal lifted sanctions, Iran’s oil exports had fallen to a fraction of their peak. Data from the International Monetary Fund – based on official Iranian data – shows the government is doing everything it can to shore up its economy.

At some point, Iranian banks began using an affiliate called Rahbar Corporation — Rahbar roughly translates to “pioneer” — to handle sanctioned trade for its clients, Western officials said. Rahbar companies, some of which predate the Trump administration’s reimposition of sanctions, maintain ledgers of their clients’ foreign exchange transactions and use Iranian agents who operate currency exchange offices abroad to set up foreign agents to trade for their Iranian clients, according to Western Diplomat’s statement. These agents also open accounts with foreign banks for these agent companies to conduct their foreign transactions.

Foreign buyers of Iranian crude and other exports make deposits into these accounts, and Iranian companies use dollars and euros deposited there to pay foreign suppliers for needed imports, according to Western officials.

Write to Ian Talley at [email protected]

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