WASHINGTON — Iran has established a clandestine banking and financial system to handle tens of billions of dollars in annual trade banned under U.S.-led sanctions, allowing Tehran to bear the economic siege and giving it leverage in multilateral nuclear talks, according to Western diplomats, intelligence officials. and documents.
The system, which includes accounts in foreign commercial banks, proxy companies registered outside the country, companies that coordinate prohibited trade and a clearing house for transactions in Iran, has helped Tehran resist pressure from the Biden administration to join the 2015 nuclear deal, buying him time. advance its nuclear program even as negotiations were ongoing. Officials say they are closing in on a deal, with the release of two British women in recent days heralding a potential deal within days.
Years of sanctions have hampered Iran’s economy and caused the collapse of its currency, the rial. But the ability to boost trade to roughly pre-sanctions levels has helped the economy rebound from three years of contraction, easing domestic political pressure and strengthening Tehran’s negotiating position, officials and some analysts say. .
Iran’s success in circumventing trade and financial bans, evident in trade data and confirmed by Western diplomats and intelligence officials, shows the limits of global financial sanctions at a time when the United States and the Union European Union sought to use their economic power to punish Russia for its invasion of Ukraine. The United States and the EU banned major Russian banks from trading in dollars and euros and froze Russian central bank assets held abroad. As a result, the ruble has lost 13% of its value against the dollar since the February 24 invasion. At the same time, the Biden administration has sought Russian cooperation in rounds of talks in Vienna aimed at reviving the deal.
According to Western documents and officials, the underground banking system works like this: Iranian banks that serve companies barred by US sanctions from exporting or importing hire affiliates in Iran to handle the sanctioned trade on their behalf. These companies establish companies outside of Iran’s borders to serve as proxies for Iranian traders. Proxies trade with foreign buyers of Iranian oil and other commodities, or sellers of goods to be imported into Iran, in dollars, euros or other foreign currencies, through accounts opened in banks foreign.
Some of the revenue is smuggled into Iran by smugglers who transport cash withdrawn from the proxy company’s accounts overseas, according to some officials. But much of it remains in bank accounts overseas, according to Western officials. Iranian importers and exporters exchange foreign currency with each other, on records held in Iran, according to Iran’s central bank.
Iran should quickly step up efforts to pump more oil if a deal is struck, to generate much-needed revenue and offset supply constraints caused by the sanctions campaign against Russia. Iran’s underground financial infrastructure is inefficient, expensive and prone to corruption, Western and Iranian officials have said. But even if a deal allows Iran to formally re-establish trade and financial ties with the global economy, industry figures say Western banks and companies are unlikely to re-engage with Iran soon, fearing not to violate future sanctions, money laundering and terrorism. finance laws.
Western officials say the clandestine system has worked well enough for Iranian authorities to aim to make it a permanent part of the economy, not only to protect Iran from possible sanctions campaigns, but also to allow it to trade without foreign supervision.
“This is an unprecedented government money laundering operation,” one of the Western officials said of the clandestine system.
US law prohibits foreign banks from using US dollars for Washington-sanctioned transactions, and similar prohibitions apply to companies doing business in US markets. Additionally, local laws require banks to comply with international anti-money laundering standards that prohibit transactions that hide the true beneficiaries. Beyond these legal prohibitions, foreign banks risk being penalized by the US or cut off from the Western financial system if they violate US sanctions.
Iran’s mission to the United Nations did not respond to requests for comment on the financial system. Iranian officials have publicly described their efforts to thwart the US pressure campaign through the development of a “resistance economy,” but the architecture, scale and details of its sanctions-busting financial system have not been revealed. been reported previously.
The Wall Street Journal reviewed the financial transactions of dozens 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 deals. And the Iranian government has openly boasted about its ability to finance trade in violation of sanctions.
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Gholamreza Mesbahi-Moghaddam, an Iranian politician close to Supreme Leader Ali Khamenei, said in a live chat on social media in January last year that covert import and export transactions were rising. $80 billion a year. The International Monetary Fund estimates it will reach $150 billion in 2022, including foreign sales banned by sanctions, more than double the levels of the brief period Iran was freed from sanctions.
“Majority of our exports of gasoline, steel, petrochemicals – all are hidden subsidiary activities,” Mesbahi-Moghaddam said during the social media debate.
Iranian bank statements and corporate documents examined by the Journal show how Tehran secretly tallies export earnings of petrochemicals, metals, auto parts and other goods, while financing the import of industrial machinery, oil services and electrical components essential to the maintenance of its businesses and its economy. functioning.
The system provides Iran with the revenue and imports it needs to run its economy and country. It moderates pressure on the country’s currency by giving the Iranian economy access to dollars, euros and other reserve currencies in which global trade is denominated, according to diplomats and officials.
US officials say the terms of a restored deal would be almost identical to those of the 2015 pact, although Iran’s ‘breakout time’ – the length of time needed to amass enough nuclear fuel for a bomb – could fall at six months, compared to about a year in the original.
Iran has been pushing for the United States to ease more sanctions than those lifted under the deal, particularly sanctions targeting its ballistic missile programs and its Islamic Revolutionary Guard Corps military unit under counterterrorism power.
From 2010 to 2015, under the Obama administration’s sanctions campaign, Iran’s annual trade fell 55% to $79.7 billion, according to IMF data. Motivated in part by the economic crisis, Iran’s reformist President Hassan Rouhani signed a nuclear deal called the Joint Comprehensive Plan of Action with the United States and five other world powers in 2015. The deal lifted economic sanctions from long-serving attack on Iran the following year in exchange for curbing and monitoring the country’s nuclear program.
Freed from sanctions, oil sales that year doubled to more than 2 million barrels a day and the economy grew 13%, according to data from the Federal Reserve and the IMF. In 2017, trade increased again to $117.5 billion, according to IMF data.
In 2018, then-President Donald Trump pulled the United States out of the deal. Opponents of the deal within the administration have argued that the pact does not sufficiently limit Iran’s future ability to enrich uranium for a nuclear weapon. They said the sanctions relief had proven a cash boon for Iran’s ballistic missile program and the elite military unit and foreign militant groups that Tehran had armed and funded.
Mr Trump reimposed sanctions lifted under the 2015 deal, saying a new campaign of ‘maximum pressure’ sanctions would squeeze Iran’s economy so hard that Tehran would be forced into a tougher nuclear deal that would include also the limitation of Iran’s missile development program and its regional development. interventions.
In 2019, Iranian oil exports fell to a fraction of their peak after nuclear deal sanctions were lifted. IMF data – based on official Iranian data – showed the government was scraping the bottom of its foreign currency reserves to support its economy.
At one point, Iranian banks began using affiliates called Rahbar companies — Rahbar roughly translates to “pioneer” — to handle the sanctioned trade for their customers, Western officials said. Rahbar companies, some of which predate the reimposition of sanctions by the Trump administration, keep records of their clients’ foreign currency transactions and use Iranian agents who operate foreign exchange offices to set up foreign companies by proxy in order to trade for their Iranian clients. , according to Western diplomats. These agents also open accounts for these agent companies in foreign banks to carry out their transactions abroad.
Foreign buyers of Iranian crude and other exports pay into these accounts, and Iranian companies use the dollars and euros deposited there to pay foreign suppliers for necessary imports, according to Western officials.
—Shekib Noorkhail contributed to this article.
Write to Ian Talley at [email protected]
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