Six years after SWIFT cut ties with Iranian banks during the last round of Western sanctions on the Persian nation, on Thursday afternoon the U.S. took another step toward cutting Iran off from the global economy when the US Treasury announced it was levying sanctions on a financing network and accusing the country’s central bank of helping funnel U.S. dollars to the blacklisted elite military unit of the Iranian Revolutionary Guard known as the Quds Force, the WSJ reported.
Acting together with the United Arab Emirates, the US Treasury said that it had sanctioned six individuals and three "front companies engaged in a large-scale currency exchange network that has procured and transferred hundreds of millions" of dollars to Iran's elite military force; overnight Israel’s government blamed the the same Quds Force for rocket attacks from Syria Wednesday night, an action that triggered massive retaliatory strikes by Israel’s military against Iranian targets in Syria, escalating the risk of a wider regional war.
In Washington, Treasury Secretary Steven T. Mnuchin accused "the Iranian regime and its Central Bank" of misusing banking access in the UAE to acquire US dollars to fund the IRGC-QF's "malign activities, and to arm its "regional proxy groups." The new sanctions also ban US individuals and entities from doing business with the currency network.
Mnuchin alleged that the sanctioned entities had concealed the acquisition of funds and transfers: "We are intent on cutting off IRGC revenue streams wherever their source and whatever their destination."
“Countries around the world must be vigilant against Iran’s efforts to exploit their financial institutions to exchange currency and fund nefarious actions of the IRGC-QF and the world’s largest state sponsor of terror,” Mnuchin also said.
Specifically, the Treasury accused an Iranian company, Jenah Aras Kish, of being a front for the Quds Force, and said the firm received oil revenues from Central Bank of Iran accounts and gave that money to couriers who exchanged it for millions of U.S. dollar notes in the U.A.E. through two Iranian firms, Khedmati & Co. and Rashed Exchange.
That cash was then taken back to the Quds Force and distributed to Iran’s regional proxies, the U.S. said. To hide the activities from U.A.E. authorities, the Treasury Department said the network used forged documents.
Washington has repeatedly accused the Iran Revolutionary Guard of backing terrorist groups and militias affiliated with Iran, including in Lebanon and Syria where missile warfare involving Israel and allegedly Al Quds unfolded on Thursday.
In February 2015, Reuters reported that at least $1 billion in cash had been smuggled into Iran despite US and other sanctions. In that case, the cash passed through money changers and front companies in Dubai, in the UAE, and Iraq. As we further reported in December 2015, the smuggling ring used gold as the key commodity used to bypass borders and monetary barriers, as well as middlemen in Turkey and the UAE where the chain of accountability led to the very top echelons of government in both nations.
The Treasury also accused Iran's central bank of being "complicit" in supplying the IRGC.
“The Central Bank of Iran is complicit with the Quds Force for use by its proxies—that should send a very powerful message,” Sigal Mandelker, Treasury’s under secretary for terrorism and financial intelligence, said in an interview. “We’re going to use all of our authorities to disrupt these networks.”
Thursday's actions foreshadow the return of U.S. economic penalties as Washington reimposes sanctions that had been lifted as part of the 2015 nuclear agreement. Iran’s central bank wasn’t formally sanctioned in Thursday’s actions, but will be in the coming months, at which point the entire nations will once again be blacklisted by SWIFT, making USD-based international transactions impossible.
And while Thursday’s action targets only one network, it is a model of how the administration plans to implement a complete ban on dealings with the Central Bank of Iran and dollar transactions coming due in the months ahead.
Incidentally, this time around, SWIFT may not need to even get involved. “There are secondary sanctions consequences for doing business with these entities,” said the Treasury’s under secretary for terrorism and financial intelligence, Sigal Mandelker, referring to the currency-exchange network. Secondary sanctions are actions against companies that interact with blacklisted entities.
Because of Trump’s decision to reimpose broad U.S. sanctions, the use of U.S. dollar banknotes by Iran is banned after August, “and you can expect that we’re going to take that authority very seriously,” she said. “Foreign financial institutions, governments all over the world need to be on high alert to make sure that they understand the pattern and practice that these networks use to try to gain access to the USD.”
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Meanwhile, western governments and companies - many of whom disagreed with Trump's withdrawing from the nuclear deal, have been trying to figure out how aggressively Washington plans to enforce its new sanctions regime against Iran, "wary of Treasury sanctioning European bank and firms, for example, if they continue to do business with Iran beyond deadlines for compliance approaching over the next six months."
For now, European officials have said they plan to stay in the nuclear deal with Iran, which may not only give license to their companies to maintain ties to Iran, but also may be setting up a diplomatic rift between the U.S. and its closest allies.
However, if and when the US imposes a few multi-billion fines on European banks, any willingness the EU has to bypass Trump's sanctions will promptly evaporate. Furthermore, Europe "doesn’t have the power to take important decisions," said Alaeddin Boroujerdi, head of the Iranian parliament’s nation security and foreign policy committee. The "Europeans, by sanctioning Iran, seek to dance in front of the Americans."
As a result, it's only a matter of time before Iran finds itself locked out financially from the world.
Or rather the Western world, because as the US and Europe fade away as key partners for Iran, China is about to step in again.
As Bloomberg reported today, "to develop its $430 billion economy, Iran is being forced to rely on political allies in the east. Trade with China has more than doubled since 2006, to $28 billion. The biggest chunk of Iran’s oil exports go to China, about $11 billion a year at current prices."
China is “already the winner,’’ Dina Esfandiary, a fellow at the Centre for Science and Security Studies at King’s College in London, told Bloomberg. "Iran has slowly abandoned the idea of being open to the West. The Chinese have been in Iran for the past 30 years. They have the contacts, the guys on the ground, the links to the local banks.’"
And they’re more willing to defy U.S. pressure as Trump slaps sanctions back on.
In short, the more Trump pushes Iran - and the broader middle-eastern region - to comply with the will of Israel and Saudi Arabia, the closer Iran will get with China whose influence in the middle-east, where it is ideologically aligned with Russia, will only grow...