[Federal Register Volume 76, Number 227 (Friday, November 25, 2011)]
[Notices]
[Pages 72756-72763]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-30332]
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DEPARTMENT OF THE TREASURY
Finding That the Islamic Republic of Iran Is a Jurisdiction of
Primary Money Laundering Concern
AGENCY: The Financial Crimes Enforcement Network (``FinCEN''),
Treasury.
ACTION: Notice of finding.
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SUMMARY: Pursuant to the authority contained in 31 U.S.C. 5318A, the
Secretary of the Treasury, through his delegate, the Director of
FinCEN, finds that reasonable grounds exist for concluding that the
Islamic Republic of Iran is a jurisdiction of primary money laundering
concern.
DATES: The finding made in this notice is effective as of November 25,
2011.
FOR FURTHER INFORMATION CONTACT: Regulatory Policy and Programs
Division, FinCEN, (800) 949-2732.
SUPPLEMENTARY INFORMATION:
I. Background
A. Statutory Provisions
On October 26, 2001, the President signed into law the Uniting and
Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001 (the ``USA PATRIOT Act''),
Public Law 107-56. Title III of the USA PATRIOT Act amends the anti-
money laundering provisions of the Bank Secrecy Act (``BSA''), codified
at 12 U.S.C. 1829b, 12 U.S.C 1951-1959, and 31 U.S.C. 5311-5314 and
5316-5332, to promote prevention, detection, and prosecution of
international money laundering and the financing of terrorism.
Regulations implementing the BSA appear at 31 CFR Chapter X.
Section 311 of the USA PATRIOT Act (``section 311'') added 31
U.S.C. section 5318A to the BSA, granting the Secretary of the Treasury
(the ``Secretary'') the authority, upon finding that reasonable grounds
exist for concluding that a foreign jurisdiction, institution, class of
transactions, or type of account is of ``primary money laundering
concern,'' to require domestic financial institutions and financial
agencies to take certain ``special measures'' against the primary money
laundering concern. Section 311 identifies factors for the Secretary to
consider and requires Federal agencies to consult before the Secretary
may conclude that a jurisdiction, institution, class of transaction, or
type of account is of primary money laundering concern. The statute
also provides similar procedures, i.e., factors and consultation
requirements, for selecting the specific special measures to be imposed
against the primary money laundering concern. For purposes of the
finding contained in this notice, the Secretary has delegated his
authority under section 311 to the Director of FinCEN.\1\
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\1\ Therefore, references to the authority and findings of the
Secretary in this document apply equally to the Director of FinCEN.
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Taken as a whole, section 311 provides the Secretary with a range
of options that can be adapted to target specific money laundering and
terrorist financing concerns most effectively. Through the imposition
of various special measures, the Secretary can gain more information
about the jurisdictions, institutions, transactions, or accounts of
concern; can more effectively monitor the respective jurisdictions,
institutions, transactions, or accounts; or can prohibit U.S. financial
institutions from involvement with jurisdictions, institutions,
transactions, or accounts that pose a money laundering concern.
Before making a finding that reasonable grounds exist for
concluding that a jurisdiction is of primary money laundering concern,
the Secretary is required to consult with both the Secretary of State
and the Attorney General. The Secretary is also required by section
311, as amended,\2\ to consider ``such information as the Secretary
determines to be relevant, including the following potentially relevant
factors,'' which extend the Secretary's consideration beyond
traditional money laundering concerns to issues involving, inter alia,
terrorist financing and weapons proliferation:
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\2\ 31 U.S.C. 5318A was amended by section 501 of the Iran
Freedom Support Act of 2006, Public Law 109-293.
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Evidence that organized criminal groups, international
terrorists, or entities involved in the proliferation of weapons of
mass destruction (``WMD'') or missiles, have transacted business in
that jurisdiction;
[[Page 72757]]
The extent to which that jurisdiction or financial
institutions operating in that jurisdiction offer bank secrecy or
special regulatory advantages to nonresidents or nondomiciliaries of
that jurisdiction;
The substance and quality of administration of the bank
supervisory and counter-money laundering laws of that jurisdiction;
The relationship between the volume of financial
transactions occurring in that jurisdiction and the size of the economy
of the jurisdiction;
The extent to which that jurisdiction is characterized as
an offshore banking or secrecy haven by credible international
organizations or multilateral expert groups;
Whether the United States has a mutual legal assistance
treaty with that jurisdiction, and the experience of U.S. law
enforcement officials and regulatory officials in obtaining information
about transactions originating in or routed through or to such
jurisdiction; and
The extent to which that jurisdiction is characterized by
high levels of official or institutional corruption.
If the Secretary determines that reasonable grounds exist for
concluding that a jurisdiction is of primary money laundering concern,
the Secretary is authorized to impose one or more of the special
measures in section 311 to address the specific money laundering risks.
Section 311 provides a range of special measures that can be imposed
individually, jointly, in any combination, and in any sequence.\3\
Before imposing special measures, the statute requires the Secretary to
consult with appropriate federal agencies and other interested parties
\4\ and to consider the following specific factors:
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\3\ Available special measures include requiring: (1)
Recordkeeping and reporting of certain financial transactions; (2)
collection of information relating to beneficial ownership; (3)
collection of information relating to certain payable-through
accounts; (4) collection of information relating to certain
correspondent accounts; and (5) prohibition or conditions on the
opening or maintaining of correspondent or payable-through accounts.
31 U.S.C. 5318A(b)(1)-(5). For a complete discussion of the range of
possible countermeasures, See 68 FR 18917 (April 17, 2003)
(proposing special measures against Nauru).
\4\ Section 5318A(a)(4)(A) requires the Secretary to consult
with the Chairman of the Board of Governors of the Federal Reserve
System, any other appropriate Federal banking agency, the Secretary
of State, the Securities and Exchange Commission (``SEC''), the
Commodity Futures Trading Commission (``CFTC''), the National Credit
Union Administration (``NCUA''), and, in the sole discretion of the
Secretary, ``such other agencies and interested parties as the
Secretary may find to be appropriate.'' The consultation process
must also include the Attorney General if the Secretary is
considering prohibiting or imposing conditions on domestic financial
institutions opening or maintaining correspondent account
relationships with the targeted entity.
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Whether similar action has been or is being taken by other
nations or multilateral groups;
Whether the imposition of any particular special measures
would create a significant competitive disadvantage, including any
undue cost or burden associated with compliance, for financial
institutions organized or licensed in the United States;
The extent to which the action or the timing of the action
would have a significant adverse systemic impact on the international
payment, clearance, and settlement system, or on legitimate business
activities involving the particular jurisdiction; and
The effect of the action on U.S. national security and
foreign policy.
B. Iran
Iran's banking sector comprises Iranian state-owned commercial
banks, specialized Iranian government banks, and privately owned
Iranian financial institutions.\5\ Some of these Iranian financial
institutions \6\ operate multiple overseas branches and subsidiaries in
Asia, Europe, and the Middle East \7\ and maintain relationships in key
global financial centers.\8\
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\5\ Central Bank of the Islamic Republic of Iran. (http://www.cbi.ir/simplelist/1462.aspx). At various points in this finding,
FinCEN references public media sources to support statements of
fact. FinCEN has utilized both public and non-public sources in
reaching such conclusions.
\6\ Id.
\7\ The Bankers Almanac, September 2011.
\8\ Id.
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In recent years, many international financial institutions have
severed ties with Iranian banks and entities because of a growing body
of public information about their illicit and deceptive conduct
designed to facilitate the Iranian government's support for terrorism
and its pursuit of nuclear and ballistic missile capabilities. This
illicit conduct by Iranian banks and companies has been highlighted in
a series of United Nations Security Council (``UN Security Council'')
resolutions related to Iranian proliferation sensitive activities. The
Financial Action Task Force \9\ (``FATF'') has also warned publicly of
the risks that Iran's deficiencies in countering money laundering and,
particularly, terrorism finance, pose to the international financial
system, and has called on FATF members and all jurisdictions to
implement counter measures to protect against these risks. Despite the
resulting reduction in Iranian financial institutions' access to
correspondent and other financial relationships with major financial
institutions,\10\ both designated and non-designated Iranian banks
continue to maintain a presence in the international financial system.
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\9\ The Financial Action Task Force is an inter-governmental
body whose purpose is the development and promotion of national and
international policies to combat money laundering and terrorist
financing. The FATF is therefore a ``policy-making body'' that works
to generate the necessary political will to bring about legislative
and regulatory reforms in these areas. (http://www.fatf-gafi.org).
\10\ ``Sanctions Against Iran: A Promising Struggle,'' The
Washington Quarterly, Summer 2008.
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II. Analysis of Factors
Based upon a review and analysis of the administrative record in
this matter, consultations with relevant Federal agencies and
departments, and after consideration of the factors enumerated in
section 311, the Director of FinCEN has determined that reasonable
grounds exist for concluding that Iran is a jurisdiction of primary
money laundering concern. While FinCEN has considered all potentially
relevant factors set forth in Section 5318A, a discussion of those most
pertinent to this finding follows. FinCEN has reason to believe that
Iran directly supports terrorism and is pursuing nuclear/ballistic
missile capabilities, relies on state agencies or state-owned or
controlled financial institutions to facilitate WMD proliferation and
financing, and uses deceptive financial practices to facilitate illicit
conduct and evade sanctions. All of these factors, when taken together,
make the international financial system increasingly vulnerable to the
risk that otherwise responsible financial institutions will unwittingly
participate in Iran's illicit activities.
A. Evidence That Organized Criminal Groups, International Terrorists,
or Entities Involved in the Proliferation of Weapons of Mass
Destruction or Missiles, Have Transacted Business in That Jurisdiction
1. Iran's Support for Terrorism and Pursuit of Nuclear and Ballistic
Missile Capabilities
Support for Terrorism: The Department of State designated Iran as a
state sponsor of international terrorism in 1984,\11\ and has
reiterated this designation every year since 2000 in its annual Country
Reports on Terrorism.\12\ Iran remains the most active of the listed
state sponsors of terrorism, routinely providing substantial
[[Page 72758]]
resources and guidance to multiple terrorist organizations.\13\ Iran
has provided extensive funding, training, and weaponry to Palestinian
terrorist groups, including Hamas and the Palestinian Islamic Jihad
(``PIJ'').\14\ In fact, Hamas,\15\ PIJ,\16\ and Hizballah\17\ have
maintained offices in Tehran to help coordinate Iranian financing and
training of these groups.
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\11\ See ``State Sponsors of Terrorism,'' U.S. Department of
State, August 18, 2011 (http://www.state.gov/s/ct/rls/crt/2010/170260.htm).
\12\ Id.
\13\ Id.
\14\ Id.
\15\ ``Ex-Iranian President Offers Mediation Between Hamas,
Fatah, Kuwait KUNA,'' KUNA, June 30, 2007.
\16\ See ``Palestine Islamic Jihad envoy to Tehran says moderate
Arabs hamper victory,'' Tehran Jomhouri-ye Eslami. December 10,
2007.
\17\ See ``Hezbollah's hate, made in Iran,'' National Post, July
28, 2006.
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Iran's Islamic Revolutionary Guard Corps (``IRGC'') was founded in
the aftermath of the 1979 Islamic Revolution to defend the government
against internal and external threats.\18\ Since then, it has expanded
far beyond its original mandate and evolved into a social, military,
political, and economic force with strong influence on Iran's power
structure.\19\ In addition, elements of the IRGC have been directly
involved in the planning and support of terrorist acts throughout the
Middle East region.\20\
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\18\ See ``Iran's Revolutionary Guards,'' Council on Foreign
Relations, June 22, 2009 (http://www.cfr.org/publication/14324/irans_revolutionary_guards.html).
\19\ Id.
\20\ See ``Country Reports on Terrorism 2010,'' U.S. Department
of State, August 18, 2011 (http://www.state.gov/s/ct/rls/crt/2010/170260.htm).
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In particular, Iran has used the IRGC-Qods Force \21\ (``Qods
Force'') to cultivate and support terrorists and militant groups
abroad. The Qods Force reportedly has been active in the Levant, where
it has a long history of supporting Hizballah's military, paramilitary,
and terrorist activities, and provides Hizballah with as much as $200
million in funding per year.\22\ Additionally, the Qods Force provides
the Taliban in Afghanistan with weapons, funding, logistics, and
training in support of anti-U.S. and anti-coalition activity.\23\
Information dating from at least 2006 indicates that Iran has arranged
frequent shipments to the Taliban of small arms and associated
ammunition, rocket propelled grenades, mortar rounds, 107 mm rockets,
and plastic explosives.\24\ Iran also has helped train Taliban fighters
within Iran and Afghanistan.\25\ Taliban commanders have stated that
they were paid by Iran to attend three month training courses within
Iran.\26\ In August 2011, a Taliban commander claimed to have trained
in Iran and been offered $50,000 by Iranian officials in return for
destroying a dam in Afghanistan.\27\ Most recently, on October 11,
2011, the Department of Justice charged two individuals for their
alleged participation in a plot directed by the Qods Force to murder
the Saudi ambassador to the United States with explosives while the
Ambassador was in the United States.\28\ On the same day, the Treasury
Department announced the designation of five individuals, including the
commander of the Qods Force and three other senior Qods Force officers
connected to the assassination plot, as well as the individual
responsible for arranging the assassination plot on behalf of the Qods
Force.\29\
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\21\ IRGC-Qods Force was designated under E.O. 13224 for
providing material support for the Taliban and other terrorist
groups. See ``Fact Sheet: Designation of Iranian Entities and
Individuals for Proliferation Activities and Support for
Terrorism,'' U.S. Treasury, October 25, 2007 (http://www.treasury.gov/press-center/press-releases/Pages/hp644.aspx).
\22\ See ``Islamic Revolutionary Guards Corps,'' Anti-Defamation
League, May 26, 2010.
\23\ See ``Country Reports on Terrorism 2010,'' U.S. Department
of State, August 18, 2011 (http://www.state.gov/s/ct/rls/crt/2010/170260.htm).
\24\ Id.
\25\ ``Taliban Fighters Training in Iran, U.S. Officials Say,''
CNN, March 23, 2010 (http://articles.cnn.com/2010-03-23/world/iran.taliban_1_taliban-fighters-afghan-taliban-iranian-official?_s=PM:WORLD).
\26\ ``Iranians Train Taliban to Use Roadside Bombs,'' The
Sunday Times, March 21, 2010.
\27\ See ``Captured Taliban Commander: `I Received Iranian
Training','' Radio Free Europe, August 23, 2011.
\28\ See ``Attorney General Holder Holds National Security
Enforcement Press Conference,'' October 11, 2011 (http://www.justice.gov/iso/opa/ag/speeches/2011/ag-speech-111011.html).
\29\ See ``Treasury Sanctions Five Individuals Tied to Iranian
Plot to Assassinate the Saudi Arabian Ambassador to the United
States,'' October 11, 2011 (http://www.treasury.gov/press-center/press-releases/pages/tg1320.aspx).
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Iran has also permitted al-Qaida to funnel funds and operatives
through its territory. In July 2011, the U.S. Department of the
Treasury (``Treasury'') designated an al-Qa'ida network headed by an
individual living and operating in Iran under an agreement between al-
Qa'ida and the Iranian government.\30\ The designation of six members
of this network illustrated Iran's role as a critical transit point for
funding to support al-Qa'ida's activities in Afghanistan and Pakistan
as this network serves as a pipeline through which al-Qa'ida moves
money, facilitators, and operatives from across the Middle East to
South Asia.\31\
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\30\ See ``Treasury Targets Key Al-Qa'ida Funding and Support
Network Using Iran as a Critical Transit Point,'' Press Release,
July 28, 2011 (http://www.treasury.gov/press-center/press-releases/Pages/tg1261.aspx).
\31\ Id.
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Finally, Iran is known to have used state-owned banks to facilitate
terrorist financing. In 2007, the Treasury designated Bank Saderat
under E.O. 13224 for its financial support of terrorist organizations,
noting that from 2001 to 2006 Bank Saderat transferred $50 million from
the Central Bank of Iran through its subsidiary in London to its branch
in Beirut for the benefit of Hizballah fronts in Lebanon that support
acts of violence.\32\
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\32\ See Treasury's ``Fact Sheet: Treasury Designation of
Iranian Entities and Individuals for Proliferation Activities and
Support for Terrorism,'' October 25, 2007 (http://www.treasury.gov/press-center/press-releases/Pages/hp644.aspx).
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Pursuit of nuclear/ballistic missile capabilities: Iran also
continues to defy the international community by pursuing nuclear
capabilities and developing ballistic missiles in violation of seven
UNSCRs.\33\ Iran's failure to comply with these resolutions has
resulted in the UN Security Council's imposition of sanctions against
Iran. These have included specific provisions aimed at preventing Iran
from accessing the international financial system in order to pursue
nuclear capabilities and to develop ballistic missiles.\34\ To date,
Iran has not complied with the UN Security Council resolutions
regarding its nuclear and missile activities,\35\ and continues to
assert that it will not abandon its program to create nuclear fuel and
enrich uranium.\36\ This summer, Iran announced that it would triple
production of its most concentrated uranium fuel, which is enriched to
near 20% purity, and that some of this production would be transferred
to Iran's facility near Qom.\37\ This is a significant development
because the technical work required to produce 20% enriched uranium
from 3.5% is more difficult than that required to advance from 20% to
the 90% weapons-grade level.\38\
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\33\ See UNSCRs 1696, 1737, 1747, 1803, 1835, 1887, and 1929
(http://www.un.org/documents/scres.htm).
\34\ Id.
\35\ ''Iran's Nuclear Program,'' New York Times, June 8, 2011
(http://topics.nytimes.com/top/news/international/countriesandterritories/iran/nuclear_program/index.html?scp=1-spot&sq=iran%20nuclear%20program&st=cse).
\36\ ``Iran Claims Progress Speeding Nuclear Program'' Wall
Street Journal, August 4, 2011 (http://online.wsj.com/article/SB10001424053111903454504576486663881270144.html?mod=googlenews_wsj).
\37\ ``Iran's Uranium Enrichment Will Increase, It Says,'' New
York Times, June 8, 2011. (http://www.nytimes.com/2011/06/09/world/middleeast/09iran.html).
\38\ Iran Claims Progress Speeding Nuclear Program'' Wall Street
Journal, August 4, 2011 (http://online.wsj.com/article/SB10001424053111903454504576486663881270144.html?mod=googlenews_wsj).
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[[Page 72759]]
2. Use of government agencies and state-owned or controlled financial
institutions to facilitate WMD proliferation and financing
Iran uses government agencies and state-owned or controlled
financial institutions to advance its nuclear and ballistic missile
ambitions. Specifically, the government agencies rely on state-owned
Iranian financial institutions to help finance illicit procurement
activities related to WMD proliferation.
Government Agencies: Iran has used the Atomic Energy Organization
of Iran (``AEOI''), which was designated by Treasury as the main
Iranian organization for research and development activities in the
field of nuclear technology, including Iran's uranium enrichment
program, to manage the country's overall nuclear program.\39\
Additionally, Iran has relied on the Ministry of Defense and Armed
Forces Logistics (``MODAFL''), which was designated by the State
Department under Executive Order (``E.O.'') 13382 for proliferation
activities.\40\ Iran also controls the Defense Industries Organization
(``DIO''), which has been designated by the UN \41\ and the United
States,\42\ and the Aerospace Industries Organization (``AIO''), which
is identified in the Annex to E.O. 13382 for its role in overseeing
Iran's missile industries.\43\ AIO, the parent entity to Shahid Hemat
Industrial Group (SHIG),\44\ which is also listed in the Annex to E.O.
13382, was identified for its ballistic missile research, development,
and production activities, in addition to overseeing all of Iran's
missile industries.\45\
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\39\ ``Treasury Designates Iranian Nuclear and Missile
Entities,'' August 12, 2008 (http://www.treasury.gov/press-center/press-releases/Pages/hp1113.aspx).
\40\ ``Fact Sheet: Designation of Iranian Entities and
Individuals for Proliferation Activities and Support for
Terrorism,'' U.S. Treasury, October 25, 2007 (http://www.treas.gov/press/releases/hp644.htm).
\41\ United Nations Security Council Resolution 1737, December
23, 2006 (http://www.un.org/News/Press/docs/2006/sc8928.doc.htm).
\42\ ``Iran's Defense Industries Organization Designated by
State,'' U.S. Department of State, March 30, 2007 (http://2001-2009.state.gov/r/pa/prs/ps/2007/mar/82487.htm).
\43\ Executive Order 13382 of June 28, 2005. (http://www.fas.org/irp/offdocs/eo/eo-13382.htm).
\44\ Id.
\45\ Fact Sheet: Designation of Iranian Entities and Individuals
for Proliferation Activities and Support for Terrorism,'' U.S.
Treasury, October 25, 2007 (http://www.treas.gov/press/releases/hp644.htm).
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State-owned or controlled banks: Multiple Iranian financial
institutions have been directly implicated in facilitating Iran's
nuclear and ballistic missile activities. For example, Iranian state-
owned Bank Sepah was designated by the Treasury Department under E.O.
13382 and designated in UNSCR 1747 for providing direct and extensive
financial services to Iranian entities responsible for developing
ballistic missiles, including AIO and SHIG.\46\
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\46\ See ``Testimony of Stuart Levey, Under Secretary for
Terrorism and Financial Intelligence, Before the Senate Committee on
Banking, Housing and Urban Affairs,'' Treasury Press Release, March
21, 2007 (http://www.treasury.gov/press-center/press-releases/Pages/hp325.aspx); and U.S. Treasury, ``Iran's Bank Sepah Designated by
Treasury Sepah Facilitating Iran's Weapons Program,'' January 9,
2007 (http://www.treasury.gov/press-center/press-releases/Pages/hp219.aspx).
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Iran's state-owned Bank Melli, which was identified in UNSCR
1803,\47\ has also facilitated numerous purchases of sensitive
materials for Iran's nuclear and missile programs on behalf of UN-
designated entities.\48\ Treasury found that Bank Melli has provided a
range of financial services to known proliferators, including opening
letters of credit and maintaining accounts.\49\ Additionally, Treasury
found, following the designation of Bank Sepah under UNSCR 1747 for its
support for AIO and AIO's subordinates, Bank Melli took precautions not
to identify Bank Sepah in transactions.\50\ Treasury designated Bank
Melli and associated subsidiaries and front companies under E.O. 13382
for its financial support to entities involved in the proliferation of
weapons of mass destruction.\51\ Multiple jurisdictions also have
designated Bank Melli under their respective legal authorities.\52\
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\47\ See UNSCR 1803. (http://www.un.org/Docs/sc/unsc_resolutions08.htm).
\48\ ``Fact Sheet: Designation of Iranian Entities and
Individuals for Proliferation Activities and Support for
Terrorism,'' U.S. Treasury, October 25, 2007 (http://www.treas.gov/press/releases/hp644.htm).
\49\ Id.
\50\ Id.
\51\ See ``Fact Sheet: Designation of Iranian Entities and
Individuals for Proliferation Activities and Support for
Terrorism,'' U.S. Treasury, October 25, 2007 (http://www.treas.gov/press/releases/hp644.htm); ``Treasury Designates Iran-Controlled
Bank for Proliferation Future Bank Controlled by Iran's Bank
Melli,'' U.S. Treasury, March 12, 2008 (http://www.treasury.gov/press-center/press-releases/Pages/hp869.aspx); and ``Treasury
Designates Companies Tied to Iran's Bank Melli as Proliferators,''
U.S. Treasury, March 3, 2009 (http://www.treasury.gov/press-center/press-releases/Pages/tg46.aspx).
\52\ See e.g., ``Media Release: Australia Imposes New Broad-
Ranging Sanctions Against Iran,'' Australian Minister for Foreign
Affairs and Trade, July 29, 2010 (http://foreignminister.gov.au/releases/2010/fa-s100729.html).
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Treasury has also designated under E.O. 13382 Bank Mellat, another
Iranian state-owned bank, for financially facilitating Iran's nuclear
and proliferation activities by supporting AEOI and its main financial
conduit, Novin Energy Company (``Novin'').\53\ Specifically, the
designation noted that as of October 2007, Bank Mellat had facilitated
the movement of millions of dollars for Iran's nuclear program since at
least 2003.\54\ In November 2009, First East Export Bank was designated
pursuant to E.O. 13382 as a subsidiary and for its support of Bank
Mellat.\55\ Furthermore, the international community has raised
concerns and taken action against Bank Mellat. In October 2009, the
United Kingdom's (``UK'') HM Treasury issued an order to all of its
financial and credit institutions to cease all business with Bank
Mellat, based on its connection to Iran's proliferation activities and
for being involved in transactions related to financing Iran's nuclear
and ballistic missile program.\56\ Noting that Bank Mellat itself has
facilitated hundreds of millions of dollars in transactions for Iranian
nuclear, missile, and defense entities, UNSCR 1929 designated First
East Export Bank, a Bank Mellat subsidiary in Malaysia.\57\ Since the
adoption of UNSCR 1929, the European Union (``EU''), Japan, South
Korea, Australia, Canada, Norway, and Switzerland have implemented
measures against Bank Mellat.\58\
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\53\ See ``Fact Sheet: Designation of Iranian Entities and
Individuals for Proliferation Activities and Support for
Terrorism,'' U.S. Treasury, October 25, 2007 (http://www.treasury.gov/press-center/press-releases/Pages/hp644.aspx).
\54\ Id.
\55\ See '' Treasury Designates Bank Mellat Subsidiary and
Chairman Under Proliferation Authority,'' U.S. Treasury; November 5,
2009 (http://www.treasury.gov/press-center/press-releases/Pages/tg355.aspx).
\56\ Id.
\57\ See UNSCR 1929 (http://www.un.org/Docs/sc/unsc_resolutions10.htm).
\58\ See ``Council Implementing Regulation (EU) No 668/2010,''
European Union, July 26, 2010 (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:195:0025:0036:EN:PDF); ``Accompanying
Measures Pursuant to United Nations Security Council Resolution
1929,'' Ministry of Foreign Affairs of Japan, September 3, 2010
(http://www.mofa.go.jp/region/middle_e/iran/measures_unsc_1009.html); ``Government Regarding the Implementation of UNSCR
1929,'' Republic of Korea, September 8, 2010; ``Charter of the
United Nations (Sanctions--Iran) (Specified Entities) List 2010,
Government of Australia, August 4, 2010 (http://www.comlaw.gov.au/Details/F2010L02236); Special Economic Measures (Iran) Regulations,
Government of Canada, August 4, 2010 (http://canadagazette.gc.ca/rp-pr/p2/2010/2010-08-04/html/sor-dors165-eng.html); ``Press Release,''
Government of Norway, Ministry of Foreign Affairs, January 14, 2011
(http://www.regjeringen.no/mobil/en/dep/ud/press/news/2011/sanctions_iran_adopted.html?id=630820); ``Iran: Federal Council
Takes Steps to Improve Legal Certainty and Prevent Possible
Evasion,'' January 19, 2011, The Federal Authorities of the Swiss
Federation (http://www.admin.ch/aktuell/00089/index.html?lang=en&msg-id=37283).
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In October 2008, Treasury designated the Export Development Bank of
Iran
[[Page 72760]]
(``EDBI'') under E.O. 13382 for providing or attempting to provide
financial services to MODAFL.\59\ The designation further asserted that
EDBI provides financial services to multiple MODAFL-subordinate
entities and facilitated the ongoing procurement activities of various
front companies associated with MODAFL-subordinate entities.\60\
Treasury's designation also noted that, since Bank Sepah's designation
by the United States and identification by the UN Security Council,
EDBI has served as one of the leading intermediaries handling Bank
Sepah's financing, including WMD-related payments, and has facilitated
transactions for other sanctioned proliferation-related entities.\61\
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\59\ ``Export Development Bank of Iran Designated as a
Proliferator,'' U.S. Treasury, October 22, 2008 (http://www.treasury.gov/press-center/press-releases/Pages/hp1231.aspx).
\60\ Id.
\61\ Id.
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As the Iranian banks described above have become increasingly
isolated from the international financial system due to international
sanctions, other Iranian banks have begun to play a larger role in
Iran's illicit activities and efforts to circumvent sanctions.\62\ The
Treasury Department has continued to target Iranian banks that engage
in illicit behavior and act on behalf of U.S.-designated, Iranian-
linked banks. Treasury designated Post Bank for operating on behalf of
Bank Sepah; \63\ the Iranian-owned German bank EIH for providing
financial services to Bank Mellat, Persia International Bank, EDBI, and
Post Bank; \64\ Bank Refah for providing financial services to MODAFL;
\65\ Bank of Industry and Mine for providing financial services to Bank
Mellat and EIH; \66\ and Ansar Bank and Mehr Bank for providing
financial services to the IRGC.\67\ The EU and other jurisdictions have
recognized the risks posed by the vast majority of these financial
institutions and have imposed similar measures to prohibit banks in
their jurisdictions from doing business with these entities.\68\ As
recently as May 2011, the EU designated EIH for playing a ``key role in
assisting a number of Iranian banks with alternative options for
completing transactions disrupted by EU sanctions targeting Iran.''
\69\
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\62\ See ``Testimony of Stuart Levey, Under Secretary of
Terrorism and Financial Intelligence, before the Senate Foreign
Relations Committee,'' June 22, 2010. (http://foreign.senate.gov/imo/media/doc/Levey,%20Stuart.pdf).
\63\ See ``Fact Sheet: U.S. Treasury Department Targets Iran's
Nuclear and Missile Programs,'' U.S. Treasury, June 16, 2010 (http://www.treasury.gov/press-center/press-releases/Pages/tg747.aspx).
\64\ See ``Treasury Department Targets Iranian-Owned Bank in
Germany Facilitating Iran's Proliferation Activities,'' U.S.
Treasury, September 7, 2010 (http://www.treasury.gov/press-center/press-releases/Pages/tg847.aspx).
\65\ See ``Treasury Targets Iranian Bank for Providing Financial
Services to Designated Entities Connected to Iran's Proliferation
Activities,'' U.S. Treasury, February 17, 2011 (http://www.treasury.gov/press-center/press-releases/Pages/tg1067.aspx).
\66\ See ``Treasury Designates Iranian State-Owned Bank for
Facilitating Iran's Proliferation Activities,'' U.S. Treasury, May
17, 2011 (http://www.treasury.gov/press-center/press-releases/Pages/tg1178.aspx).
\67\ See ``Fact Sheet: Treasury Designated Iranian Entities Tied
to the IRGC and IRISL,'' U.S. Treasury, December 21, 2010 (http://www.treasury.gov/press-center/press-releases/pages/tg/1010.aspx).
\68\ See ``Council Implementing Regulation (EU) No 668/2010,''
European Union, July 26, 2010 (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:195:0025:0036:EN:PDF); ``Council
Implementing Regulation (EU) No. 2011/301/CFSP,'' European Union,
May 23, 2011 (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2011:136:0087:0090:EN:PDF); ``Charter of the
United Nations (Sanctions--Iran) (Specified Entities) List 2010,
Government of Australia, August 4, 2010 (http://www.comlaw.gov.au/Details/F2010L02236).
\69\ See ``Council Implementing Regulation (EU) No. 2011/299/
CFSP,'' European Union, May 23, 2011 (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2011:136:0087:0090:EN:PDF).
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3. The Iranian Government's Use of Deceptive Financial Practices
Since 1979, Iran long has been subject to a variety of U.S.
sanctions that have significantly expanded over time, including
prohibition of the importation of Iranian-origin goods and services,
prohibitions on certain transactions with respect to the development of
Iranian petroleum resources, and prohibitions on exports and re-exports
to Iran. Today, most trade-related transactions with Iran are
prohibited, and U.S. financial institutions are generally prohibited,
with only limited exceptions, from doing business with Iranian
financial institutions.\70\
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\70\ On November 14, 1979, the President issued E.O. 12170
blocking Iranian government property. See (http://www.archives.gov/federal-register/codification/executive-order/12170.html). The
Iranian Transactions Regulations (``ITR''), 31 CFT part 560,
implement a series of Executive Orders that began with E.O. 12613
issued in 1987, which prohibit the importation of Iranian-origin
goods and services. In response to Iran's continued support of
international terrorism and active pursuit of weapons of mass
destruction, U.S. sanctions have expanded to include E.O. 12957
(March 1997), which imposed prohibition on certain transactions with
respect to the development of petroleum resources, and in May 1995,
E.O. 12959, which imposed comprehensive trade and financial
sanctions on Iran. In August 1997, E.O. 13059 was issued
consolidating and clarifying the previous orders. See (http://treasury.gov/resource-center/sanctions/Programs/Documents/iran.pdf).
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To further amplify financial pressure on Iranian financial
institutions involved in Iran's support for terrorism and weapons
proliferation, President Obama signed into law the Comprehensive Iran
Sanctions, Accountability, and Divestment Act of 2010 (``CISADA'') on
July 1, 2010, which includes a provision that authorizes the Secretary
of the Treasury to impose sanctions on foreign financial institutions
that knowingly facilitate certain activities related to Iran.\71\ On
August 16, 2010, Treasury's Office of Foreign Assets Control (``OFAC'')
published a final rule implementing certain aspects of CISADA, \72\ and
on October 5, 2011, FinCEN published a final rule to implement section
104(e) of CISADA to complement Treasury's ongoing efforts to protect
the international financial system from abuse by Iran.\73\
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\71\ For a full discussion of CISADA and its provisions, See the
U.S. Department of the Treasury Web site (http://www.treasury.gov/resource-center/sanctions/Documents/hr2194.pdf).
\72\ See OFAC CISADA regulations at 75 FR 49836 (August 16,
2010) or 31 CFR part 561 (http://edocket.access.gpo.gov/2010/pdf/2010-20238.pdf).
\73\ See Fact Sheet ``FinCEN Implements Provision of the
Comprehensive Iran Sanctions, Accountability, and Divestment Act of
2010,'' October 5, 2011 (http://www.fincen.gov/news_room/nr/html/20111005.html).
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As a result of the strengthened U.S. sanctions and similar measures
taken by the United Nations and other members of the global community,
Iran now faces significant barriers to conducting international
transactions. In response, Iran has used deceptive financial practices
to disguise both the nature of transactions and its involvement in them
in an effort to circumvent sanctions. This conduct puts any financial
institution involved with Iranian entities at risk of unwittingly
facilitating transactions related to terrorism, proliferation, or the
evasion of U.S. and multilateral sanctions. Iranian financial
institutions, including the Central Bank of Iran (``CBI''), and other
state-controlled entities, willingly engage in deceptive practices to
disguise illicit conduct, evade international sanctions, and undermine
the efforts of responsible regulatory agencies around the world.
Iranian financial institutions: Iran employs numerous deceptive
practices to disguise the Iranian origin of transactions in order to
avoid scrutiny and evade international sanctions. These practices
include the transfer of funds from Iran to exchange houses outside Iran
and the use of back-to-back letters of credit. Iranian foreign bank
branches transfer funds to local banks in the same jurisdiction for
onward payments that may conceal the Iranian origin of funds.
In other examples, Bank Sepah has requested that its name be
removed from transactions in order to make it
[[Page 72761]]
more difficult for intermediary financial institutions to determine the
true parties to a transaction.\74\ As noted in Treasury's designation,
Bank Melli took precautions not to identify Bank Sepah in transactions
following Bank Sepah's designation under UNSCR 1747 and employed
similar deceptive banking practices to obscure its involvement from
non-Iranian financial institutions when handling financial transactions
on behalf of the IRGC.\75\
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\74\ ``Testimony of Stuart Levey, Under Secretary for Terrorism
and Financial Intelligence, Before the Senate Committee on Banking,
Housing and Urban Affairs,'' March 21, 2007 (http://www.treasury.gov/press-center/press-releases/Pages/hp325.aspx).
\75\ ``Fact Sheet: Designation of Iranian Entities and
Individuals for Proliferation Activities and Support for
Terrorism,'' U.S. Treasury, October 25, 2007 (http://www.treasury.gov/press-center/press-releases/Pages/hp644.aspx).
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In June 2010, Post Bank of Iran was designated by the Treasury
Department under E.O. 13382 \76\ for facilitating transactions on
behalf of Bank Sepah after Bank Sepah was designated by the UN and
United States.\77\ The designation further notes that, in 2009, Post
Bank facilitated business on behalf of Bank Sepah between Iran's
defense industries and overseas beneficiaries and transacted millions
of dollars worth of business between U.S.-designated Hong Kong
Electronics and other overseas beneficiaries.\78\
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\76\ ``Fact Sheet: U.S. Treasury Department Targets Iran's
Nuclear and Missile Programs,'' U.S. Treasury, June 16, 2010 (http://www.treasury.gov/press-center/press-releases/Pages/tg747.aspx).
\77\ Id.
\78\ Id.
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The Central Bank of Iran, which regulates Iranian banks, has
assisted designated Iranian banks by transferring billions of dollars
to these banks in 2011. In mid-2011, the CBI transferred several
billion dollars to designated banks, including Saderat, Mellat, EDBI
and Melli, through a variety of payment schemes. In making these
transfers, the CBI attempted to evade sanctions by minimizing the
direct involvement of large international banks with both CBI and
designated Iranian banks. Additionally, the CBI transfers funds to
designated Iranian bank branches outside Iran via non-Iranian foreign
banks, often involving deliberate attempts on its part to conceal that
the recipient is a designated Iranian bank. In some cases, this
activity involves book-to-book transfers and the use of accounts at
intermediary banks that hold accounts for the CBI and designated banks.
Further, the CBI was believed to have provided financing to the UN-
sanctioned Khatem al-Anbiya Constructions Headquarters for defense-
related projects.
Front companies: Iran has a well-established history of using front
companies and complex corporate ownership structures to disguise the
involvement of government entities known to be involved in Iranian
proliferation activity when conducting commercial transactions. These
companies transact substantial business in Iran and elsewhere around
the world. For example, Novin, an AEOI front company that operates as
the financial arm of AEOI, has transferred millions of dollars on
behalf of AEOI to entities associated with Iran's nuclear program.\79\
Additionally, Mesbah Energy Company (``Mesbah''), was designated under
EO 13382 for being controlled by, or acting or purporting to act for or
on behalf of AEOI, and was cited in UNSCR 1737.\80\ Mesbah has been
used to procure products for Iran's heavy water project.\81\ Heavy
water is essential for Iran's heavy-water-moderated reactor, which will
provide Iran with a potential source of plutonium that could be used
for nuclear weapons.\82\
---------------------------------------------------------------------------
\79\ See UNSCR 1747 (http://www.un.org/Docs/sc/unsc_resolutions07.htm); and ``Treasury Employs Financial Sanctions
Against WMD Proliferation Supporters in Iran,'' U.S. Treasury,
January 4, 2006 (http://www.treasury.gov/press-center/press-releases/Pages/js3069.aspx).
\80\ See UNSCR 1737 (http://www.un.org/Docs/sc/unsc_resolutions06.htm) and ``Treasury Employs Financial Sanctions
Against WMD Proliferation Supporters in Iran,'' U.S. Treasury,
January 4, 2006 (http://www.treasury.gov/press-center/press-releases/Pages/js3069.aspx).
\81\ ``Testimony of Robert W. Werner, Director Office of Foreign
Assets Control,'' U.S. Treasury, February 16, 2006 (http://www.treasury.gov/press-center/press-releases/Pages/js4053.aspx).
\82\ Id.
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In some cases, the connection to Iran is not readily apparent, as
Iranian entities have formed front companies outside of Iran in an
attempt to obtain dual-use items for Iran that could be used in Iran's
nuclear or missile programs and that otherwise could not legally be
exported directly to Iran.\83\ For example, Iranian companies and their
fronts have also falsified end-user information on export forms to
allow prohibited items to be exported into the country.\84\ Iran has
colluded with some exporters to enter fictitious end-user names in the
importer section of export forms in order to evade international and
national controls on shipments to Iran.\85\ For example, in May 2010,
Balli Aviation Ltd., a UK subsidiary of Balli Group PLC, pled guilty in
the U.S. District Court for the District of Columbia to exporting three
Boeing 747 aircraft to Iran without obtaining the proper authorization
from the United States.\86\
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\83\ ``Testimony of Stuart Levey, Under Secretary for Terrorism
and Financial Intelligence, Before the Senate Committee on Banking,
Housing and Urban Affairs,'' March 21, 2007 (http://www.treasury.gov/press-center/press-releases/Pages/hp325.aspx).
\84\ ``German Report Details Smuggling of Nuclear Bomb, Missile
Components to Iran,'' Hamburg Stem, July 16, 2009.
\85\ ``Kyodo: Mitutoyo Falsifies Iranian Recipient's Name to Get
Export Permission,'' Tokyo Kyodo World Service, August 26, 2006
(http://www.freerepublic.com/focus/f-news/1690388/posts).
\86\ See ``U.K. Firm Fined $2 Million After Pleading Guilty to
Illegally Exporting Boeing 747 Aircraft to Iran,'' U.S. Department
of Justice, May 11, 2010 (http://www.justice.gov/opa/pr/2010/May/10-nsd-551.html).
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Iranian commercial entities deploy the above mentioned practices
specifically to evade those controls put in place by the United States,
international community, and responsible financial institutions,
controls that are designed to enforce international sanctions, prevent
the proliferation of nuclear weapons and their delivery systems, and
protect the international financial sector from abuse by illicit
actors. These practices by Iranian entities have allowed Iran to engage
in illicit activities and operate undetected in the international
economy.\87\
---------------------------------------------------------------------------
\87\ ``Testimony of Stuart Levey, Under Secretary for Terrorism
and Financial Intelligence, Before the Senate Committee on Banking,
Housing and Urban Affairs,'' March 21, 2007 (http://www.treasury.gov/press-center/press-releases/Pages/hp325.aspx).
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The IRGC: The IRGC, which was designated by the Department of State
as a primary proliferator under E.O. 13382 in October 2007,\88\ owns
and/or controls multiple commercial entities across a wide range of
sectors within the Iranian economy. For example, the IRGC established
Khatam al-Anbiya,\89\ the largest major Iranian construction
conglomerate, to generate income and fund IRGC operations while
presenting the company as a legitimate company
[[Page 72762]]
working on civilian projects.\90\ Khatam al-Anbiya was designated by
Treasury in 2007 pursuant to E.O. 13382.\91\ U.S.-designated, Iranian-
linked financial institutions have served as an important lifeline for
Khatam al-Anbiya. The U.S. and EU-designated Iranian banks Melli,
Mellat, and state-owned Iranian Bank Tejarat have provided financial
support to Khatam al-Anbiya-related business before and after the UN
designation of Khatam al-Anbiya and fourteen of its subsidiaries.
---------------------------------------------------------------------------
\88\ See ``Fact Sheet: Designation of Iranian Entities and
Individuals for Proliferation Activities and Support for
Terrorism,'' U.S. Treasury, October 25, 2007 (http://www.treasury.gov/press-center/press-releases/Pages/hp644.aspx).
\89\ In October 2007, the Treasury Department designated nine
IRGC-affiliated companies and five IRGC-affiliated individuals for
proliferation activity under E.O. 13382 as derivatives of the IRGC,
including Khatam al-Anbiya Construction Headquarters, which secured
deals worth at least $7 billion in the oil, gas and transportation
sectors, among others, in 2006. See Id. The European Union also
designated Khatam al-Anbiya for supporting the Iranian ballistic
missile and nuclear programs. See ``European Council Common Position
2008/479/CFSP,'' Official Journal of the European Union, June 23,
2008 (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:163:0043:0049:en:PDF).
\90\ ``Ex-Iranian Official Tells UK Daily About Likely IRGC
Earnings, Activities,'' The Financial Times, March 16, 2007.
\91\ ``Fact Sheet: Designation of Iranian Entities and
Individuals for Proliferation Activities and Support for
Terrorism,'' U.S. Treasury, October 25, 2007 (http://www.treasury.gov/press-center/press-releases/Pages/hp644.aspx).
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The IRGC has continued to expand its control over commercial
enterprises within Iran. For example, Tidewater Middle East Company
(``Tidewater''), a port operating company, was designated by Treasury
under E.O. 13382 in June 2011 as a company that is owned by the IRGC.
Tidewater has operations at seven Iranian ports,\92\ some of which the
Iranian government has repeatedly used to export arms or related
material in violation of UNSCRs.\93\ Treasury also designated Iran Air
under E.O. 13382 for providing material support to the IRGC and MODAFL,
both of which used the commercial airline carrier to transport
military-related equipment on passenger aircraft.\94\ Similarly, as
noted in Treasury's designation of the leadership within the IRGC-Qods
Force (``IRGC-QF''), the IRGC and the IRGC-QF engage in seemingly
legitimate activities that provide cover for intelligence operations
and support terrorist groups such as Hizballah, Hamas and the
Taliban.\95\
---------------------------------------------------------------------------
\92\ ``See U.S. Treasury ``Fact Sheet: Treasury Sanctions Major
Iranian Commercial Entities,'' June 23, 2011. (http://www.treasury.gov/press-center/press-releases/Pages/tg1217.aspx).
\93\ Id.
\94\ Id.
\95\ ``Fact Sheet: U.S. Treasury Department Targets Iran's
Support for Terrorism,'' U.S. Treasury Department, August 3, 2010
(http://www.treasury.gov/press-center/press-releases/Pages/tg810.aspx).
---------------------------------------------------------------------------
Islamic Republic of Iran Shipping Lines (``IRISL''): Treasury
designated IRISL, Iran's national maritime carrier, and affiliated
entities pursuant to E.O. 13382 for providing logistical services to
MODAFL.\96\ The concern over IRISL's role in Iran's illicit activities
has grown significantly within the international community. In October
2009, the UK and Bermuda also designated IRISL.\97\ Three IRISL-related
entities, Irano Hind Shipping Company, IRISL Benelux NV, and South
Shipping Line Iran (SSL), were sanctioned by the UN in June 2010.\98\
Subsequently, the EU, Australia, Canada, Japan, Norway, South Korea,
and Switzerland adopted measures against IRISL.\99\ Additionally, as
IRISL became increasingly unable to maintain adequate hull and
protection-and-indemnity (P&I) insurance because of international
sanctions, IRISL was forced to turn to Tehran-based Moallem Insurance
Company, which was not in the business of providing maritime insurance.
Treasury designated Moallem in December 2010 for providing marine
insurance to IRISL vessels.\100\
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\96\ ``Major Iranian Shipping Company Designated for
Proliferation Activity,'' U.S. Treasury, September 10, 2008 (http://www.treasury.gov/press-center/press-releases/Pages/tg1067.aspx).
\97\ See ``The Financial Restrictions (Iran) Order 2009,'' HM
Treasury, October 12, 2009 (http://www.hm-treasury.gov.uk/d/fin_crime_iran_order.pdf) and ``Anti-Terrorism (Financial Restrictions
Iran) Order 2010,'' The Minister of Justice, January 15, 2010
(http://www.bermudalaws.bm/Laws/Consolidated%20Laws/Anti-Terrorism%20(Financial%20Restrictions%20Iran)%20Order%202010.pdf).
\98\ See UN Security Resolution 1929 (http://daccess-dds-ny.un.org/doc/UNDOC/GEN/N10/396/79/PDF/N1039679.pdf?OpenElement).
\99\ See ``Council Implementing Regulation (EU) No 668/2010,''
European Union, July 26, 2010 (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:195:0025:0036:EN:PDF); ``Accompanying
Measures Pursuant to United Nations Security Council Resolution
1929,'' Ministry of Foreign Affairs of Japan, September 3, 2010
(http://www.mofa.go.jp/region/middle_e/iran/measures_unsc_1009.html); ``Government Regarding the Implementation of UNSCR
1929,'' Republic of Korea, September 8, 2010; ``Charter of the
United Nations (Sanctions--Iran) (Specified Entities) List 2010,
Government of Australia, August 4, 2010 (http://www.comlaw.gov.au/Details/F2010L02236); Special Economic Measures (Iran) Regulations,
Government of Canada, August 4, 2010 (http://canadagazette.gc.ca/rp-pr/p2/2010/2010-08-04/html/sor-dors165-eng.html); ``Press Release,''
Government of Norway, Ministry of Foreign Affairs, January 14, 2011
(http://www.regjeringen.no/mobil/en/dep/ud/press/news/2011/sanctions_iran_adopted.html?id=630820); ``Iran: Federal Council
Takes Steps to Improve Legal Certainty and Prevent Possible
Evasion,'' January 19, 2011, The Federal Authorities of the Swiss
Federation (http://www.admin.ch/aktuell/00089/index.html?lang=en&msg-id=37283).
\100\ See ``Fact Sheet: Treasury Designates Iranian Entities
Tied to the IRGC and IRISL,'' December 21, 2010. (http://www.treasury.gov/press-center/press-releases/Pages/tg1010.aspx).
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Iran's main shipping line has long relied upon deceptive techniques
to conceal its behavior and to avoid international and U.S.
sanctions.\101\ IRISL is increasingly employing deceptive practices to
disguise its involvement in shipping operations and the designation of
its cargo. Since being subjected to U.S. and international sanctions,
IRISL has renamed as many as 80 of the ships in its fleet and changed
ownership information and flag registries to evade sanctions.\102\
IRISL also has renamed its offices in China, Singapore, Germany, and
South Korea, has tried to mask its operations in the UAE by using a
network of front companies,\103\ and has moved its container operations
to a subsidiary, HDS Lines.\104\ Moreover, IRISL has also since stopped
referring to HDS Lines in bills of lading from its shipping agent.\105\
---------------------------------------------------------------------------
\101\ For example, on June 20, 2011, the District Attorney of
New York announced a 317-count indictment of eleven corporations and
five individuals for their roles in a conspiracy involving IRISL,
its regional offices, and its agents. The indictment alleged that
the defendants evaded U.S. economic sanctions tied to bans on trade
with countries that harbor foreign terrorist and proliferators of
weapons of mass destruction. In doing so, the defendants repeatedly
falsified the records of banks located in New York County to access
illegally the U.S. financial system. The defendants deceived
Manhattan banks into processing more than $60 million worth of
payments using aliases or corporate alter egos to hide their
conduct. See ``Iranian Company Charged With Tricking U.S. Banks,''
New York Times, June 20, 2011 (http://www.nytimes.com/2011/06/20/nyregion/iranian-shipper-accused-of-sneaking-money-through-ny-banks.html).
\102\ ``Iran Shipper Evades US Blacklist,'' Wall Street Journal,
April 10, 2010.
\103\ See (http://www.treasury.gov/press-center/press-releases/Pages/tg1212.aspx).
\104\ ``U.S. Keeps Watch on Iranian Shipping,'' Wall Street
Journal, May 28, 2010.
\105\ Id.
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These deceptive practices are designed to avoid scrutiny in
financial transactions. As the U.S and other jurisdictions have
prohibited financial institutions from processing transactions
involving sanctioned entities, IRISL's deceptive practices seek to
disguise IRISL's involvement in order to permit the financial
transaction. In an advisory to U.S. financial institutions, FinCEN
noted IRISL's efforts to rename vessels and adjust information
associated with financial transactions and suggested that the
International Maritime Organization (``IMO'') registration number,
which is a unique identifier assigned to each vessel, could provide a
useful indication of whether an IRISL vessel is involved in a
transaction.\106\ In addition, OFAC issued an advisory to alert
shippers, importers, exporters, and freight forwarders of IRISL's
efforts to hide its involvement in transactions by using container
prefixes registered to another carrier, omitting or listing invalid,
incomplete or false container prefixes in shipping container numbers,
and naming non-existent ocean vessels in shipping documents.\107\
---------------------------------------------------------------------------
\106\ See ``Update on the Continuing Illicit Finance Threat
Emanating from Iran,'' FIN-2010-A008, June 22, 2010 (http://www.fincen.gov/statutes_regs/guidance/html/fin-2010-a008.html).
\107\ See OFAC Nonproliferation and Weapons of Mass Destruction
Advisory, ``Presentation of Fraudulent Shipping Documents,'' March
31, 2011. (http://www.treasury.gov/resource-center/sanctions/Programs/Documents/20110331_advisory.pdf).
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[[Page 72763]]
B. The Substance and Quality of Administration of the Bank Supervisory
and Counter-Money Laundering Laws of That Jurisdiction
Iran's serious deficiencies with respect to anti-money laundering/
countering the financing of terrorism (``AML/CFT'') controls has long
been highlighted by numerous international bodies and government
agencies. Starting in October 2007, the FATF has issued a series of
public statements expressing its concern that Iran's lack of a
comprehensive AML/CFT regime represents a significant vulnerability
within the international financial system. The statements further
called upon Iran to address those deficiencies with urgency, and called
upon FATF-member countries to advise their institutions to conduct
enhanced due diligence with respect to the risks associated with Iran's
deficiencies.\108\
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\108\ In response to concerns raised by these FATF and IMF
reports, FinCEN issued an advisory on October 16, 2007 to financial
institutions regarding the heightened risk of Iranian ``money
laundering, terrorist financing, and weapons of mass destruction
proliferation financing.'' The advisory further cautioned
institutions that there may be an increased effort by Iranian
entities to circumvent international sanctions and related financial
community scrutiny through the use of deceptive practices. See
``Guidance to Financial Institutions on the Increasing Money
Laundering Threat Involving Illicit Iranian Activity,'' FinCEN,
October 16, 2007 (http://www.fincen.gov/statutes_regs/guidance/pdf/guidance_fi_increasing_mlt_iranian.pdf). The FATF simultaneously
published guidance to assist countries with implementation of UNSCRs
1737 and 1747. See ``Guidance Regarding the Implementation of
Activity-Based Financial Prohibitions of United Nations Security
Council Resolution 1737,'' October 12, 2007 (http://www.fatf-gafi.org/dataoecd/43/17/39494050.pdf) and ``Guidance Regarding the
Implementation of Financial Provisions of the United Nations
Security Council Resolutions to Counter the Proliferation of Weapons
of Mass Destruction,'' September 5, 2007 (http://www.fatf-gafi.org/dataoecd/23/16/39318680.pdf).
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The FATF has been particularly concerned with Iran's failure to
address the risk of terrorist financing, and starting in February 2009,
the FATF called upon its members and urged all jurisdictions to apply
effective counter-measures to protect their financial sectors from the
terrorist financing risks emanating from Iran.\109\ In addition, the
FATF advised jurisdictions to protect correspondent relationships from
being used to bypass or evade counter-measures and risk mitigation
practices, and to take into account money laundering and financing of
terrorism risks when considering requests by Iranian financial
institutions to open branches and subsidiaries in their
jurisdictions.\110\ The FATF also called on its members and other
jurisdictions to advise their financial institutions to give special
attention to business relationships and transactions with Iran,
including Iranian companies and financial institutions.\111\ Over the
past three years, the FATF has repeatedly reiterated these concerns and
reaffirmed its call for FATF-member countries and all jurisdictions to
implement countermeasures to protect the international financial system
from the terrorist financing risk emanating from Iran. In response,
numerous countries, including all G7 countries, have issued advisories
to their financial institutions.\112\
---------------------------------------------------------------------------
\109\ See ``FATF Statement on Iran,'' The Financial Action Task
Force, February 25, 2009 (http://www.fatf-gafi.org/dataoecd/18/28/42242615.pdf).
\110\ Id.
\111\ Id.
\112\ See ``Circular 13/2008 (GW)--Statement of the FATF of 16
October 2008,'' November 7, 2008 (http://www.bafin.de/cln_171/nn_721228/SharedDocs/Veroeffentlichungen/EN/Service/Circulars/rs__0813__gw.html?__nnn=true); ``February 27, 2009 FINTRAC
Advisory,'' February 27, 2009 (http://www.fintrac-canafe.gc.ca/publications/avs/2009-02-27-eng.asp); ``HM Treasury warns businesses
of serious threats posed to the international financial system,''
March 11, 2009 (http://webarchive.nationalarchives.gov.uk/+/http://www.hm-treasury.gov.uk/press_26_09.htm); ``Letter from French
Minister of Economy,'' (http://www2.economie.gouv.fr/directions_services/dgtpe/sanctions/sanctionsiran.php); and ``Bank of Italy
Circular,'' (http://www.dt.tesoro.it/it/prevenzione_reati_finanziari/).
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The FATF's most recent statement in October 2011 reiterated, with a
renewed urgency, its concern regarding Iran's failure to address the
risk of terrorist financing and the serious threat this poses to the
integrity to the international financial system.\113\ The FATF
reaffirmed its February 2009 call to apply effective countermeasures to
protect their financial sectors from ML/FT risks emanating from Iran,
and further called upon its members to consider the steps already taken
and possible additional safeguards or strengthen existing ones.\114\ In
addition, the FATF stated that, if Iran fails to take concrete steps to
improve its AML/CFT regime, the FATF will consider calling on its
members and urging all jurisdictions to strengthen countermeasures in
February 2012.\115\ The numerous calls by FATF for Iran to urgently
address its terrorist financing vulnerability, coupled with the
extensive record of Iranian entities using the financial system to
finance terrorism, proliferation activities, and other illicit
activity,\116\ raises significant concern over the willingness or
ability of Iran to establish adequate controls to counter terrorist
financing.
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\113\ See ``FATF Public Statement,'' The Financial Action Task
Force, October 28, 2011 (http://www.fatf-gafi.org/document/55/0,3746,en_32250379_32236992_48966519_1_1_1_1,00.html).
\114\ Id.
\115\ Id.
\116\ ``Update on the Continuing Illicit Finance Threat
Emanating From Iran,'' FinCEN, June 22, 2010 (http://www.fincen.gov/statutes_regs/guidance/html/fin-2010-a008.html).
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C. Whether the United States Has a Mutual Legal Assistance Treaty With
That Jurisdiction, and the Experience of U.S. Law Enforcement Officials
and Regulatory Officials in Obtaining Information About Transactions
Originating in or Routed Through or to Such Jurisdiction
Iran has not entered into any mutual legal assistance treaties.
Additionally, U.S. law enforcement and regulatory officials have found
Iran to be uncooperative regarding access to information about
financial transactions. Accordingly, Iran remains a safe haven for
those who would commit financial crimes against the United States.
III. Finding
Based on the foregoing factors, the Director of FinCEN hereby finds
that the Islamic Republic of Iran is a jurisdiction of primary money
laundering concern.
Dated: November 18, 2011
James H. Freis, Jr.,
Director, Financial Crimes Enforcement Network.
[FR Doc. 2011-30332 Filed 11-23-11; 8:45 am]
BILLING CODE 4810-02-P