Financial Crime World

Iran’s Financial Sector: Opportunities Amidst Challenges of Corruption and Money Laundering

Iran, the Islamic Republic of, presents a unique blend of opportunities and risks for the global financial community. Following the historic nuclear deal, known as the Joint Comprehensive Plan of Action (JCPOA), there is renewed excitement about the potential for private sector growth in the country. However, persistent challenges of corruption and financial crimes continue to pose significant risks.

Opportunities After the Nuclear Deal

  • The JCPOA agreement, endorsed by the United Nations Security Council, is expected to lead to the lifting of most financial restrictions related to dealing with Iran early in 2016.
  • U.S. “secondary sanctions” against non-U.S. persons will be terminated, opening up the Iranian market to a wider range of international players.
  • However, sanctions related to terrorism and human rights will remain in force.

Challenges of Corruption and Financial Crimes

Prevalence of Corruption and Financial Crimes

  • Corruption within the ruling and religious elite, government ministries, and government-controlled business enterprises is pervasive.
  • Persistent challenges of corruption and financial crimes continue to pose significant risks.

Impact of Sanctions and Circumvention

  • Implementation of international sanctions and their circumvention has weakened the Iranian private sector while facilitating money laundering.
  • The Financial Action Task Force (FATF) has repeatedly expressed concerns over Iran’s failure to address these risks.

Money Laundering Risks in Iran

  • Illicit proceeds from narcotics trafficking are one of the main contributors to money laundering activities in Iran.
  • Iran is a significant transit route for opiates headed for the Persian Gulf, Russia, and Europe.
  • Systems that facilitate corruption, such as charitable foundations and intermediaries, pre-date the Islamic Republic and have been widely used.
  • The domestic real estate market has increasingly been used to launder money.

Anti-Money Laundering Measures in Iran

  • In response to international pressure, Iran passed its first anti-money laundering (AML) law in 2008.
  • The law is intended to stop money laundering and terrorist financing.
  • However, concerns exist that the law was designed primarily to appease international regulatory bodies and shield Iranian banks from additional scrutiny.

Conclusion

  • Despite these measures, the UN continues to call for ongoing scrutiny of financial institutions with exposure to Iran.
  • Dealing with third party agents closely linked to the Iranian government and its officials is practically unavoidable in this complex environment.
  • Conducting thorough integrity due diligence on business partners, third party agents, and intermediaries is crucial to ensure compliance and reduce risks.