US crackdown leaves much of Iran’s shadow banking untouched

Key Points:

• An Iran International investigation based on leaked Bank Parsian documents from November 2022 to May 2023 uncovered a vast Iranian shadow banking network moving billions despite US sanctions, involving at least 15 foreign banks across multiple countries, primarily the UAE and China.
• Most of the foreign banks identified, including major lenders in the UAE and China, have not faced US penalties, with only two targeted in August under the US Treasury’s “D-Day” economic campaign aimed at disrupting Iran’s global financial connections.
• The network uses intermediaries and complex structures such as “rahbar” companies and trustee accounts to obscure Iranian involvement, enabling sanctioned banks like Bank Parsian and Iran’s central bank to transfer funds through foreign banks and shell companies.
• US Treasury Secretary Scott Bessent described Banque Misr’s UAE branch as a critical node for Iranian access to US dollars, and the Treasury has employed Section 311 of the USA Patriot Act to restrict some foreign banks’ access to the US financial system without proving knowledge of illicit activity.
• Despite extensive sanctions on Iranian financial institutions, the investigation reveals significant ongoing transactions facilitated by foreign banks, highlighting challenges in enforcement and the importance of international cooperation to effectively curb Iran’s sanction evasion.