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Sistema financiero paralelo

Here’s How Iran Uses a ‘Clandestine’ Finance System to Dodge U.S. Sanctions

Millions of dollars have evaded U.S. sanctions and found their way into the coffers of offshore companies set up by Iran.

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With the tough sanctions imposed by the West on Russia, Putin’s regime can learn a lot from its ally and co-sanctioned Iran. Since the start of its nuclear program, Iran has been subjected to severe financial sanctions by the West, however, the Shiite theocracy has a parallel financial system with which it evades sanctions.

From 2010 to 2015, because of international sanctions, Iran’s trade fell as much as 55%, generating a deep crisis in the Islamic country. To counteract the severe drop in international trade, according to The Wall Street Journal, Iran has created a clandestine banking system, which operates in parallel to the traditional banking system and allows it to integrate into international trade, despite the sanctions.

How does this parallel financial system work?

The Iranian banks that handle the money of the companies sanctioned by the U.S. have created a network of off-shore companies to handle the cash flows of the dismal companies. These companies are set up offshore and serve as proxies for the Iranian government, which uses them to sell oil and other commodities, subject to sanctions by the White House.

With limitations imposed on the purchase of Russian oil by several Western companies, Iran is looking for ways to get its crude oil to market and take advantage of high oil prices due to the supply chain crisis and the war in Ukraine. Offshore companies have played a key role in making the sale of Persian crude oil on the market a reality.

These offshore companies allow Iran to bring international currencies such as euros, dollars and other currencies into its economy. The shell companies often hold such currencies in foreign bank accounts.

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Iran
Iran’s parallel financial system has served the theocracy to launder millions of dollars of illicit exports and imports before the eyes of the United States. (Image: EFE)

While some of the proceeds return to Iran in cash through “mules” who make large withdrawals from the shell companies in foreign banks, much of the money remains stashed in the foreign institutions. Sometimes the money does not even need to reach Iran, as Iranian importers and exporters can use foreign currency with the foreign bank accounts established by the front companies in the service of the theocracy.

Iran’s parallel financial system has been used to cover the import and purchase of industrial machinery, oil services, and electronic components crucial to keeping Iran’s sanctioned economy operating.

According to The Wall Street Journal, this parallel financial system, despite being inefficient and costly, has served Iran to evade sanctions to such an extent that it appears to be integrating itself as part of the Persian country’s economy and trading without scrutiny.



Countries that serve as safe havens for laundering Iranian money with Western banks

To date, more than 61 deposit accounts of Iranian front companies have been identified in 28 banks in China, Hong Kong, Singapore, Turkey, and the United Arab Emirates totaling several million dollars.

Iran
Banks in China, Hong Kong and even the United Arab Emirates have served as channels for the operation of Iran’s parallel financial system. (Image: EFE)

Western banks can be removed from the international banking system if they allow their infrastructure to be used for transactions sanctioned by the U.S. government. However, the system of front companies with deposits in non-sanctioned countries has led Western banks to approve Iranian money transactions unnoticed, without even suspecting that they are moving money from the ayatollah’s regime.

Iran has in the past defended its parallel financial system by calling it “economic resistance,” however, the scale on which the system operates has failed to be detailed. Last year, the Iranian parallel financial system served to cover the inflow of more than $80 billion into the country.

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