Trade Based Money Laundering Challenges related to Iran

The Parliament of Iran approved the Anti Money Laundering Bill in the bid to improve the Trade. Iran is trying to implement standards set by the Financial Action Task Force (FATF), an inter-governmental organization that underpins the fight against money laundering and terrorist financing.

U.S. President Donald Trump withdrew from a nuclear deal with Iran last year. He reimposed the sanctions on Iran’s banks and energy companies. U.S. expected Iran to curb its missile and nuclear programs. US wanted to counter its growing influence in the Middle East.

European Union is however looking to create a special purpose vehicle to combat the US Sanctions. Britain, France and Germany created the system to allow firms to trade with Iran without falling foul of US sanctions.

Trade Based Money Laundering (TBML) and Iran

In 2012 Iranian businessman illicitly transferred oil barrels from Iran to avoid the sanctions. He was later arrested and accused of withholding $2.7 billion of government money. He attempted to facilitate Iran’s oil revenue hindered by the sanctions against Iran. Many corrupt politicians were found to be supporting this businessman to trade in oil illegally.

Many illegal techniques of trade based money laundering were used in this operation. Billions of dollars were routed through the shell companies floated by this businessman. Layers of transactions were created to disguise the nature of transactions and using the financial institutions as conduit of laundering.

This businessman was a key facilitator for Iranian oil deals and transferring oil related money. In earlier EU sanctions, First Islamic Bank was accused of channeling Iranian oil-related payments. Iran was successful in manipulating the International trade by creating the shadow structure in United Arab Emirates.

International Trade consists of millions of trade transactions daily. The volume of transactions present a huge opportunity for financial institutions in terms of trade finance. Financial Institutions structure the products around trade transactions to generate fee based income. But there are strict norms to open account with these banks.

Banks use advanced softwares and techniques to identify the red flags of the financial crimes such as trade based money laundering. Anti Money Laundering laws in most of the countries ask for the appointment of the compliance officers. In the regulatory framework entry of criminal proceeds is easy to detect and prevent the flow in banking.

As the trade transactions present opportunities to banks it also help criminal activities to be disguised as legitimate trade transactions. Iran invaded the sanctions by using the informal mechanism of money transfer also referred to as Havaleh.

This presents an opportunity for the leading technology companies to create the framework to combat the money laundering and terrorist financing. Technology companies need to go a step ahead and create a structure for information sharing among the financial institutions. Regtechtimes, which created the platform for Indian banks to identify the heightened risk can be created for the Global Banks as well.