How Iran’s central bank monetary system is manipulated to finance regional proxy wars

Although subject to years of sanctions and a “maximum pressure” campaign inflicted by the Trump administration, reports indicate that the Iranian regime and its military wing – the Iranian Revolutionary Guard Corps (IRGC) – may have found a crack in its funding system , giving them access to millions in funds.

Since March, Tehran has managed to acquire about $ 15 billion in foreign currencies; the money is then inflated and sold by the Central Bank of Iran (CBI), its governor, Abdolnaser Hemmati, said recently.

However, according to a study by Iran International TV, based in London, the IRGC has its own system to effectively disguise itself as an official money lender to buy dollars and euros from exporters at the black market rate.

“The Iranian government injects millions of dollars into the market every day to prevent a further drop in the value of the rial [Iran’s currency], “Shahed Alavi, editor of Iran International TV, told Fox News.

“These dollars must be made available to importers of goods and circulated in the market, but in practice, Quds Force buys most of these dollars at low prices through its affiliated exchanges and with the help of the Central Bank. The money ends up going to illegal armed groups affiliated with the IRGC in the region. “

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That process is NIMA, an online monetary system initiated by the CBI in April 2018 in anticipation of President Trump’s withdrawal from the Joint Global Action Plan (JCPOA), which took place the following month. It allows Iranian exporters to sell hard currency at a higher price, usually between the official exchange rate of 42,000 rials per dollar and the unofficial rate of more than 260,000 rials.

NIMA works only through the Islamic banking system known as hawala, which is widely used to move money outside the bureaucratic banking structure and is based mainly on trust.

The intention was to allow Iranian companies that import essential products not available in the country – including medicines, electronics and wheat – to have access to subsidized exchange. Meanwhile, exporters are required to declare and sell a significant portion of the hard currency obtained abroad to CBI’s NIMA platform.

“NIMA is a platform controlled by the Iranian government for exporters and importers to exchange currencies with each other. In Iran, the foreign currency obtained from exports must return to the country’s financial system under the supervision of the central bank through imported products or currency, “explained Saeed Ghasseminejad, Iran and a senior financial economics adviser to the Foundation for the Defense of Democracies (FDD).

“Not returning the currency to the country’s financial system is against the law. In addition, you need a government license to export and import. The purpose of this system is for the government to have control over capital and foreign currency.”

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Ghasseminejad said the critical point about NIMA is that the foreign currency on the platform is not paper money and, in most cases, is already in the international financial system.

“For example, an Iranian exporter who received the product in euros at a bank in Turkey sells that euro to an importer who needs euros. The money does not necessarily affect Iran’s financial system. This is very useful for a front company. IRGC, who can then take this money and send it, for example, to a front company in Lebanon, which works for Hezbollah “, he explained. “Of course, this will need permission from Iran’s central bank because without it, the IRGC’s front company will be subject to criminal harassment for not bringing back goods or hard currency.”

The CBI is accused of being well aware of the manipulation of the IRGC, which is believed to have established a number of authorized outlets – the market where various currencies and currency derivatives are traded – to facilitate trade. He uses formally registered money traders to conduct the operation. Thus, the IRGC’s footprint is left out of the official documentation.

The result is that, according to Iran International’s findings, the money obtained is administered mainly by government agencies to reinforce IRCG missions outside its border – carried out by the obscure elite unit known as the Quds Force – in places ranging from Iraq and Syria to Yemen and Lebanon. In addition, they say it led to a desperate shortage of foreign money needed for vital imports of medical and pharmaceutical supplies.

Alavi noted that, with this money, the Quds Force pays the salaries of militias affiliated with Iran in the region, buys the weapons and equipment necessary for them and provides the money necessary to carry out acts of sabotage.

“Financing with the cooperation of the central bank and abusing the mechanism of injecting dollars into the market is unprecedented,” he continued. “Because before the sanctions were tightened, the Quds Force received the money it needed directly from government budgets and the annual budget of the Revolutionary Guard.”

Mark Gazit, CEO of cybersecurity and big data at analytics firm ThetaRay, said the IRGC needs three ingredients to succeed: a way to get money and move it to the places they need to go, a way to do that that cannot be discovered or proven and a way to eventually withdraw money. These ingredients are provided by the Central Bank of Iran.

“Essentially, the Central Bank is calling exporters and saying, ‘We need euros and dollars to give importers in exchange for the necessary commodities for Iran’, but then they are giving that money to the IRGC, which instead spends on weapons, “he explained.

“To push these funds through the financial system without setting off alarms, the IRGC is managing a large number of accounts under pseudonyms and conducting a large number of small transactions that are difficult to capture because the dollar values ​​are below the AML limits of the system banks. This allows the Central Bank to deny the knowledge that it is doing business with terrorists. “

Iran International claims that the illicit diversion between the IRGC and money traders is overseen by senior officials from the Ministry of Defense’s Office of Logistics and Industrial Research, and by figures such as General Seyyed Hojjatollah Qoraishi and his colleague Rezagholi Esmaili sanctioned by the US in 2016 for playing a key role in the development of Iran’s ballistic missile program. Its name was removed from the UN blacklist in October, in conjunction with the end of long-term weapon sanctions.

“Whenever there is a discrepancy between official and black market rates, corruption thrives. By manipulating the exchange rate, the Iranian central bank can deflect the difference in rates to finance other projects,” said Michael Rubin, senior researcher at American Enterprise Institute (AEI).

“To put it another way, if foreign companies and correspondent banks pay the official exchange rate in their dealings with Iran, they will pay six times more in dollars. Literally, that means that more than 83 percent could go to the Revolutionary Guard, while only 17 percent go for legitimate purposes. “

The Iranian economy, which was under siege for more than four decades in its post-revolution era, has struggled against a dizzying devaluation. The government has endeavored to camouflage this by creating multiple exchange rates. An analysis by the Atlantic Council earlier this year highlighted that financial and business agents faced the challenge of dealing with at least “two significantly different currency exchange rates in conducting international activities: the official rate that is defined and subsidized by the Bank Central of Iran. (CBI) and a floating one controlled by the unregulated supply and demand of the market. “

“The imbalance between the two rates quickly brought inefficiencies to Iran’s international trade activities, which have persisted for decades,” the document said.

But when a third exchange rate – the NIMA system – was introduced nearly three years ago, it struggled to make Iran’s international trade and access to hard currencies easier.

Gazit stressed that, even with the persistent issuance of sanctions to the conflicting regime, it remains difficult for the US government to close this gap, mainly because everything is now digital.

“It is very easy for entities to conduct transactions remotely,” he said. “In addition, using sophisticated AI techniques, it is possible for groups such as the IRGC to calculate and conduct a large number of small transactions that seem perfectly legitimate, but combined to amount to tens of millions of dollars in terrorist financing.”

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However, Ghasseminejad said there are small steps that can be taken.

“To limit such an operation, Washington’s best tool is to limit Iran’s overall revenue, something the Trump administration has done. The second step is to blacklist the vast network of the IRGC business empire and, most importantly, people who run this network, “he said, adding a word of warning.

“[But] the moment the US suspends sanctions and Tehran gains billions of dollars and broad access to the international financial system, the IRGC will in one way or another get its share of financing terrorism. “

Behnam Ben Taleblu, a senior FDD member, agreed.

“Relieving sanctions on entities active in financing Iran’s revolutionary foreign policy, especially under the auspices of trying to recover a fatally flawed deal that has increased Tehran’s coffers, would be the definition of a self-imposed strategic setback,” he said.