NEAR EAST REPORT AIPAC'S BIWEEKLY ON AMERICAN MIDDLE EAST POLICY

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Senators Bob Menendez (D-NJ) and Mark Kirk (R-IL) authored the measure sanctioning the Central Bank of Iran.
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Iran relies on the Central Bank for its energy transactions, which fund the country’s illicit nuclear and missile programs.

The Central Bank of Iran: The “Lifeblood” of the Iranian Financial System

All 100 U.S. Senators voted on Dec. 1 to sanction the Central Bank of Iran (CBI) in an effort to deny the Islamic Republic the means to further develop its nuclear weapons capability and continue to finance global terror. The measure, attached as an amendment to the annual defense authorization bill and authored by Senators Bob Menendez (D-NJ) and Mark Kirk (R-IL), bars U.S. financial institutions from doing business with foreign financial institutions that knowingly conducted any significant financial transaction with the CBI.

“If you do business with the Central Bank of Iran, you cannot do business with the United States,” said Kirk. Menendez warned that “the clock is ticking” on Tehran’s nuclear program and stressed the urgency of sanctioning the CBI to prevent Tehran from financing its nuclear efforts.

In November, the U.S. Treasury Department declared Iran a “jurisdiction of primary money laundering concern” and offered new details into how Tehran directly funds terrorism and its nuclear and ballistic missile programs.

“Iran relies on state agencies or state-owned financial institutions to facilitate WMD [weapons of mass destruction] proliferation and financing, and uses deceptive financial practices to facilitate illicit conduct and evade sanctions,” reported Treasury’s Financial Crimes Enforcement Network (FinCEN).

Iran’s banking sector comprises state-owned commercial banks, specialized Iranian government banks and privately owned Iranian financial institutions. Many of the Islamic Republic’s financial institutions have been sanctioned by the United States and its allies for their involvement in terror and weapons proliferation. However, at the top of the pyramid is Iran’s Central Bank, which has so far escaped punishing sanctions, and upon which Tehran relies for its energy transactions. The cash from these transactions provides the government with the money it needs for its nuclear weapons program and the financing of its terror proxies such as Hizballah and Hamas.

While U.S. banks have long been prohibited from conducting most transactions with Iranian banks, including the Central Bank, the Menendez/Kirk amendment targets foreign banks that continue to conduct significant financial transactions with the CBI. Under the amendment, banks will be forced to choose between continuing to do business with Iran and losing access to the U.S. financial system.

Given that many of these banks use the CBI to pay for Iranian oil exports, the Senate provided significant flexibility to the president to ensure the sanctions do not increase oil prices and cause harm to America and its allies. Thus, the amendment provides a 180-day window for countries dependent on Iranian oil to identify alternative sources that are scheduled to become available in the next few months.

According to FinCEN, the CBI willingly engages in deceptive practices in order to avoid scrutiny and circumvent sanctions. For example, Iran’s Central Bank transferred billions of dollars this year through a variety of payment schemes to sanctioned Iranian banks such as Bank Saderat, Bank Melli and Bank Mellat. These institutions have, in turn, served as conduits for transferring money to terrorist groups and to Iran’s weapons programs.

Between 2001 and 2006, Bank Saderat is known to have transferred $50 million from the CBI to Beirut for the benefit of Hizballah. According to the United Nations, Bank Mellat has facilitated hundreds of millions of dollars in transactions for Iranian nuclear, missile and defense activities. Since the U.N. Security Council passed a resolution sanctioning a Bank Mellat subsidiary, the European Union, Japan, South Korea, Australia, Canada, Norway and Switzerland have implemented measures against the bank. Bank Melli has also been criticized by the Security Council for facilitating numerous purchases of sensitive materials for Iran’s nuclear and missile programs. The U.S. Treasury Department found that Bank Melli has provided a range of financial services to known WMD proliferators.

In addition to helping other Iranian banks evade sanctions, the Central Bank provides key financial support to the Islamic Revolutionary Guard Corps (IRGC)—Iran’s elite military force—and its economic enterprises. Sanctioned in 2007 by the United States for its role in aiding Iran’s nuclear and missile programs, the IRGC also controls 40-50 percent of the Iranian economy. The CBI is believed to have provided financing to IRGC’s main construction and engineering firm, Khatem al-Anbiya. The latter was sanctioned in 2010 by the Security Council for involvement in the construction of Iran’s previously secret uranium enrichment site at Qom.

The illicit activities of the CBI are all the more worrisome given revelations over the past few months about Iran’s nuclear efforts and the country’s involvement in global terrorism.

The latest International Atomic Energy Agency (IAEA) report presented an unprecedented and detailed account of Iran’s work on acquiring the capabilities to produce nuclear weapons. In October, it was revealed that members of the IRGC’s Quds Force had directed a plot to assassinate the Saudi ambassador in Washington. This brazen scheme points to Iran’s increasing aggressiveness in sponsoring terrorist attacks throughout the world.

“Obviously, none of these things happens without money,” says a senior Senate aide who helped craft the CBI legislation. “Iran’s Central Bank is the lifeblood of the Iranian financial system. The only way to do any real damage to Tehran’s nuclear program and support of global terror is to go after it.”

Last week, both the Senate and House passed the compromise version of the National Defense Authorization Act, which was agreed upon in conference and left the Iran sanctions amendment largely intact. The bill now goes to President Obama, who has said that he intends to sign it into law. BACK TO TOP