Bank Secrecy Act/Anti-money Laundering: Update on the Continuing Illicit Finance Threat Emanating from Iran

The Financial Crimes Enforcement Network (FinCEN) issued Advisory FIN-2010-A008 on June 22, 2010. The advisory supplements information previously provided on the serious threat of money laundering, terrorism finance, and proliferation finance emanating from the Islamic Republic of Iran and provides guidance to financial institutions regarding United Nations Security Council Resolution (UNSCR) 1929, adopted on June 9.

UNSCR 1929 contains a number of new provisions that build upon and expand the financial sanctions imposed in previous resolutions (UNSCRs 1737, 1747, and 1803) and that are designed to prevent Iran from abusing the international financial system to facilitate its illicit conduct.

The resolution's measures are two-fold: the first action is a call for world states to implement their obligations pursuant to resolutions 1737, 1747, 1803, and 1929. The second action is to prevent the provision of any financial service (including insurance and reinsurance) or asset that does or could contribute to Iran's proliferation activities and to prohibit, on these states' territories, new relationships with Iranian banks. This includes (if links to proliferation are suspected) the opening of any new branches of Iranian banks.

The UNSCR also requires world states to ensure that their nationals exercise vigilance when doing business with any Iranian firm, including the Islamic Revolutionary Guard Corps (IRGC) and the Islamic Republic of Iran Shipping Lines (IRISL), when a possibility exists that such business could contribute to Iran's proliferation activities.

These Security Council actions, in addition to Financial Action Task Force statements regarding the risks posed by Iran and calling for countries to impose countermeasures, illustrate the increasing risk to the integrity of the international financial system posed by:

• The Iranian financial sector, including the Central Bank of Iran;
• Commercial enterprises that are owned or controlled by the IRGC, which was designated by the U.S. Department of State under Executive Order 13382 in 2007; and
• Other Iranian entities supporting proliferation-related activities, particularly IRISL, which was designated by the U.S. Department of the Treasury's (Treasury) Office of Foreign Assets Control in 2008 and specifically highlighted as a proliferation risk in UNSCRs 1803 and 1929.

Iran's record of illicit and deceptive activity, coupled with its extensive integration into the global financial system, increases the risk that responsible financial institutions will unwittingly become involved in Iran's illicit activities. Many of the world's major financial institutions have either cut off or dramatically reduced their relationships with Iranian banks, leaving Iran's financial institutions increasingly isolated. Despite the degradation in Iran's access to correspondent and other financial relationships with major international financial institutions, Iran continues to maintain a visible presence in the international financial system and is constantly seeking to expand its banking presence internationally.

Public sources indicate that Iranian banks operate globally, including seven state-owned commercial banks, four specialized government banks, and six privately owned Iranian financial institutions with more than four dozen overseas branches and subsidiaries in Asia, Europe, South America, and the Middle East. Many of these banks report significant relationships in key global financial centers. Treasury is also concerned that Iranian banks (both designated and nondesignated) are seeking to expand their international presence in order to circumvent the impact of sanctions on Iran's state-owned banks, presenting a risk that Iran's illicit conduct will shift to those banks that are able to maintain ties to the international financial sector. The FinCEN Advisory highlights the financial-services-related provisions of UNSCR 1929 that may affect current or future correspondent relationships of U.S. financial institutions and provides an updated list of Iranian banks.

This advisory does not describe any new legal obligations upon U.S. persons. Existing U.S. sanctions – in particular, those under the Iranian Transactions Regulations 7 and Executive Orders 13382 and 13224 – already ensure that U.S. financial institutions have very limited direct exposure to Iranian financial or commercial transactions. Nonetheless, FinCEN continues to advise all U.S. financial institutions to take commensurate risk-mitigation measures to diminish threats emanating from Iran.

For further information, please contact your examiner-in-charge, OCC supervisory office, or the OCC Compliance Policy Department at (202) 649-5740.

                       /signed/                    

Ann F. Jaedicke
Deputy Comptroller for Compliance Policy

Related Link

• FinCEN Advisory