Banking Without Borders

Beginning on 23 December 2006, with the adoption of UNSCR 1737 imposing sanctions on Iran, the UN ordered member states to cease all business dealings with a major Iranian institution – Bank Sepah – and its affiliates. It also urged governments to "exercise vigilance" in relation to two other Iranian financial institutions, Bank Melli and Bank Saderat. All three financial institutions have been formally designated by the US government, prohibiting US banks from doing business with them.

On 8 September 2006, the US Department of the Treasury designated Bank Saderat, one of the largest Iranian-owned banks, for "facilitating Iran's transfer of hundreds of millions of dollars to Hizbullah and other terrorist organizations each year". The Treasury alleged that from 2001 to 2006, Saderat transferred USD50 million to Hizbullah alone. In turn, the Lebanese Shia group used the bank to send millions of dollars to other terrorist organizations, including Hamas. In 2005, for example, Hamas had substantial assets deposited in Bank Saderat and Bank Saderat has transferred several million dollars to Hamas, according to a statement by the Treasury on 25 October 2007.

Bank Sepah, a state-owned Iranian financial institution, was designated by the US Treasury on 9 January 2007 for reportedly providing a number of financial services to companies involved in Iranian nuclear and ballistic missile activities. The UN and US government claim that the entities in question – the Shahid Hemmat Industries Group (SHIG) and the Shahid Bakeri Industries Group (SBIG) – are key players in Iran's ballistic missile program. Sepah also provided services to the Aerospace Industries Organization (AIO), the parent company of these two entities. All three companies were designated by the US government on 29 June 2005 for their support to Iran's missile program. According to the Treasury, Bank Sepah processed and arranged financing for dozens of multimillion-dollar deals and allegedly used a range of deceptive practices to avoid detection, such as asking other institutions to remove its name from transactions.

In October 2007, the US Treasury also designated Bank Melli, Iran's largest bank, for reportedly providing services to other banks and firms involved in the country's nuclear and ballistic missile programs, including UN-designated entities such as Bank Sepah and its missile clients. According to the Treasury, after Sepah's designation under UNSCR 1747 (adopted on 24 March 2007, which extended existing sanctions on Iran), Melli took special measures to avoid identifying the bank in transactions. Treasury has also disclosed that Melli facilitated the purchase of sensitive materials for Iran's nuclear and missile programs by "opening letters of credit and maintaining accounts".

In addition, according to the Treasury, from 2002 to 2006, the Iran government reportedly used Bank Melli to send at least USD100 million to Iran's Islamic Revolutionary Guards Corps – Qods Force (IRGC-QF), a special unit of Iran's IRGC whose mission is to organize, train, equip and finance Islamist movements around the globe. "When handling transactions on behalf of the IRGC, Melli employed deceptive banking practices to obscure its involvement from the international banking system," the Treasury noted, including requesting that its name be removed from financial transactions.

In total, the US government has designated 20 of Iran's 30 banks for their role in proliferating weapons of mass destruction or facilitating terrorism, according to the Treasury Department's Office of Foreign Assets Control's Specially Designated Nationals list. Treasury's Financial Crime Enforcement Network has blacklisted all 30 Iranian banks for engaging in money laundering and abusing the international financial sector.

If the international community continues its existing approach, the Iranian government will undoubtedly be able to produce and purchase the materials necessary to continue and further develop its nuclear weapons program. Although no measure – with the possible exception of military strikes targeting the Iranian nuclear program and assets – can halt Iran's uranium enrichment activities, the US government and its allies can take steps to limit the regime's ability to obtain hard currency and access international financial markets. In so doing, they could make it much more difficult for Iran to pursue nuclear weapons and sponsor terrorism.

Case study 2: United Arab Emirates

In a March 2012 International Narcotics Control Strategy report, the US Department of State highlighted the susceptibility of the UAE to money laundering activities. "Its robust economic development, political stability and liberal business environment have attracted a massive influx of people, goods, and capital, which may leave the country vulnerable to money laundering activity. Dubai, especially, is a major international banking and trading center," the report said.

Indeed, the UAE has developed a reputation as a regional hub for money laundering and terrorist financing (ML/TF) activities, serving elements as disparate as mob figures, arms dealers, drug traffickers, diamond traders, underground money brokers and jihadists. All of these illicit actors have been known to engage in money laundering, and while the UAE has taken steps to enhance its AML/CFT efforts, its ability – and desire – to prevent and address these activities is limited.

The UAE possesses an advanced, but lightly regulated, financial services sector. Each of the emirates has an abundance of informal financial networks, known as hawaladars. Moreover, the UAE is a cash-based society and a heavy trader of precious metals, especially gold. Illicit actors exploit these characteristics, using gold and hawalas to move their money around the world with few restrictions or obstacles. These actors also seek to exploit the UAE's permissive smuggling environment, which is most conspicuous in Dubai. There, dhows – wooden boats that have been used for centuries to transport goods in this part of the world – are rarely inspected and often dock in an aptly named location, Smugglers' Creek, according to a 2005 article by US News and World Report.

The 9/11 Commission Report published in 2004 also identified the UAE as an important node in financing the 9/11 attacks. Prior to the attack, Al-Qaeda moved money freely around the world using the Al-Barakat hawala network, which had headquarters in the UAE. In addition, a UAE money changer transferred funds to Marwan al-Shehhi, a UAE citizen who piloted United Airlines Flight 175 (which crashed into the South Tower of the World Trade Center). Two of Osama bin Laden's sisters also reportedly used the UAE to smuggle cash to him in Afghanistan, while one of Bin Laden's financial chiefs, Shaykh Said (alias Mustafah Muhammad Ahmed) lived in Dubai and wired money to three of the terrorists before the attack. The funds were traced back to the Al-Ansari Exchange branch in Abu Dhabi. Ahmed has been incarcerated at Guantanamo Bay since 2006.

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