March 25, 2022
The Wall Street Journal says the Islamic Republic has successfully implemented a system for evading US sanctions so it can export and import many goods. The newspaper says the system is quite effective, although it is very complex and very expensive, reducing Iran’s profits from exports and adding to the costs of imports.
The heart of the system is a series of front companies based in other countries that can buy and sell freely because they are in other countries. And despite Iran’s campaign against the US dollar, these firms can and do trade regularly using the US dollar.
In its March 18 issue, The Wall Street Journal said, “The system, which comprises accounts in foreign commercial banks, proxy companies registered outside the country, firms that coordinate the banned trade, and a transaction clearinghouse within Iran, has helped Tehran resist the Biden Administration’s pressure to rejoin the 2015 nuclear deal.”
The newspaper said it learned of the system from Western diplomats and intelligence officials as well as from some documents it saw.
It said, “According to the documents and Western officials, the clandestine banking system works like this: Iranian banks that serve companies barred by US sanctions from exporting or importing engage affiliate firms in Iran to manage sanctioned trade on their behalf. Those firms establish companies outside of Iran’s borders to serve as proxies for the Iranian traders. The proxies trade with foreign purchasers of Iranian oil and other commodities, or sellers of goods for import into Iran, in dollars, euros or other foreign currencies, through accounts set up in foreign banks.
“Some of the revenue is smuggled into Iran by couriers who carry cash withdrawn from the proxy company accounts abroad, according to some of the officials. But much of it remains in bank accounts abroad, according to the Western officials. The Iranian importers and exporters trade foreign currency among themselves, on ledgers maintained in Iran, according to the Iranian Central Bank….
“Iran’s clandestine financial infrastructure is inefficient, costly and susceptible to corruption, Western and Iranian officials have said.”
Edalat-e Ali, an anti-regime activist group, later provided Iran International with what it said was a Pasdar letter seeking to have 37 mid-level officials of the Rohani Administration—including 22 from the oil Ministry—barred from traveling outside Iran. The letter says the chief reason for the travel ban is to prevent them from revealing “secret information” on how Iran circumvents US sanctions.
The Islamic Republic faces a major problem beyond US sanctions, however. It is on the blacklist—along with North Korea—of the Financial Affairs Task Force (FATF), an international body fighting money laundering and the clandestine financing of terrorist groups. As long as Iran is on that blacklist, no major bank and few others are willing to do business with Iran.
As a result, Iran will still face major trade impediments even if sanctions are lifted. Consequently, The Wall Street Journal said, “Iranian authorities aim to make it [their trade system] a permanent part of the economy, not only to shield Iran from future possible sanctions campaigns but also to enable it to conduct trade without scrutiny from abroad.”
The newspaper said it “reviewed financial transactions for scores of Iranian proxy companies in 61 accounts at 28 foreign banks in China, Hong Kong, Singapore, Turkey and the United Arab Emirates totaling several hundred million dollars. Western intelligence officials say there is evidence of tens of billions of dollars of similar transactions. And Iran’s government has openly boasted about its ability to finance sanctions-busting trade.”
Gholamreza Mesbahi-Moghaddam, a senior Iranian political figure, said on social media in January last year that covert import and export transactions amounted to $80 billion a year. The International Monetary Fund estimates it will grow to $150 billion in 2022.
“The majority of our exports of gasoline, steel, petrochemicals—all are under hidden subsidiary activities,” Mesbahi-Moghaddam said.
From 2010 to 2015, under the Obama Administration’s sanctions campaign meant to force the Islamic Republic to restrain its nuclear program, Iran’s annual trade fell by 55 percent to $79.7 billion, according to IMF data.
Freed from sanctions at the beginning of 2016, oil sales that year doubled to more than 2 million barrels a day and the economy grew 13 percent, according to Federal Reserve and IMF data. In 2017, trade grew again to $117.5 billion, according to IMF data.
By 2019, the year after Trump reinstituted sanctions, Iranian oil exports had plummeted to a fraction of their peak. In the three years since, the regime has used the front companies to ratchet Iranian trade back up.
