SWIFT, Money Laundering, and the European Special Mechanism: An Interview with Mehrdad Emadi

The European Union will announce the details of its financial mechanism for banking transactions with Iran in a few days. This EU plan aims to preserve the JCPOA and allow Iran to benefit from financial advantages in exchange for its compliance with the nuclear agreement, but it faces strong opposition from the United States and Israel. Meanwhile, some conservative groups and figures within the Islamic Republic's government believe that Europe does not want or cannot provide what Iran seeks. Mohsen Rezaei, Secretary of the Expediency Discernment Council, is one such figure who stated on Thursday that he believes the European credit channel will lead to the purchase of food and medicine. However, senior officials from Iran and the EU have yet to announce the details and limits of this plan. On the other hand, the failure to pass three out of four bills proposed by Hassan Rouhani's government to exit the Financial Action Task Force (FATF) blacklist has become a serious obstacle for Iran's banking activities globally. Although the FATF has given Iran several opportunities to approve and implement laws related to money laundering prevention and counter-terrorism financing, the approval of these bills has faced strong opposition from conservatives and the Islamic Revolutionary Guard Corps (IRGC). The review of the three proposed bills, which were approved by the Islamic Consultative Assembly, began last week at the Expediency Discernment Council, but it is unclear what the outcome will be. The FATF has given Iran until the end of February to implement the conditions of this international body to exit its blacklist. Meanwhile, following the resumption of U.S. sanctions, Iran's banking connection with SWIFT, through which a large portion of electronic banking transactions are conducted, has effectively been severed. In a special interview with Mehrdad Emadi, an economist based in London and an international financial advisor, we sought his opinion on the launch of the EU's financial mechanism for Iran, the consequences of not passing the four government bills, and Iran's lack of access to SWIFT. Mr. Emadi, what are the latest updates regarding the launch of the EU mechanism for trade with Iran? The definitive time frame set is that this system should be operational by January 10. The team currently working on it, which has two sections, intends for this system to be implemented before January 10. What solutions does the SPV have in mind for Iran? Considering that three to four months ago when this proposal was made, the Europeans stated that their goal was to assist Iran through local European banks for trade transactions up to 20 million euros, which faced a strong reaction from Iran. Is it known how much money Iran can transfer using this system? This is one of the difficulties. There is a significant difference between the two sides on this issue. The EU's perspective is that this special payment channel is intended for payments related to trade with Iran from both sides, and in fact, it aims to coordinate and facilitate trade with Iran while also moving towards transparency in response to accusations and threats from the U.S. Treasury regarding money laundering and unclear financial dealings with Iran. However, there are two issues here: one is that Iran views this [fund] as a macro tool, such that even at the government level, it can make payments of several hundred million euros. This may indeed go in that direction in the near future, but currently, due to pressures that have significantly increased from Washington in the past six weeks, we cannot expect this fund and this special payment channel to have such capacity from the outset. For two reasons: first, to establish and implement this fund, a financial reserve is needed, and currently, with Iran's funds being blocked, Europe must provide this. Unfortunately, Tehran does not pay much attention to this aspect. The second part is that as long as Iran is not fully a member of the anti-money laundering convention, it cannot be expected that, given the serious questions surrounding Iran's banking system, which cannot be denied even within Iran, the EU will cooperate in a project that could be used for money laundering or illegal activities that Iran is not supposed to engage in under the 2015 agreement. So, in your opinion, even if the Europeans implement this financial mechanism in the coming weeks, since Iran has not yet accepted the FATF conditions and three of the four bills proposed by Mr. Rouhani are under review at the Expediency Discernment Council, Iran effectively cannot utilize this EU financial mechanism in the coming months? It can. However, this is an important issue: whether it will actually be applicable or remain on paper. They can use it, but within the ceiling that Iran also needs, it has shown and communicated that we need this within this ceiling; the special payments will not be applicable because it has been mentioned in discussions. Issues regarding money transfers in African countries for purchases that were made, or purchases related to Kazakhstan, and the money that was transferred through channels in Cyprus and Malta, all of these have been provided to the EU so that the Americans strengthen this file in terms of the amount of information day by day. It cannot be denied that if you want this special payment channel to be dedicated solely to trade and completely transparent and legal activities, you have to keep these doors open for other applications. I think the biggest challenge between Tehran and Brussels is that Tehran wants this as a blank check to use however it wants because it believes this is our money, and we have sold oil. But that is not the case. It is true that the money from energy exports belongs to Iran. However, the use of this money is even defined in the 2015 agreement to be transparent and within the framework of anti-money laundering efforts. You mentioned that three parts of it remain in the Expediency Council; how can we expect cooperation from the other side to be 100% if we do not accept three-fourths of it? So, in your opinion, even if this EU financial mechanism is implemented in the coming weeks, can Iran transfer part of the oil money it is currently selling to various countries back to Iran? Yes, Iran can use this payment channel for oil purchases related to trade with the EU and EU companies. But the idea that this money can be transferred without restrictions and oversight, allowing Iran to use it however it wants, has been indicated by the U.S. Treasury, meaning it has shown that this indirect cooperation is for Tehran's money laundering activities, the same accusation that was leveled against HSBC two and a half years ago, which also faced penalties. Therefore, it does not currently seem that you have sold oil to Europe and Europe will hand over the money to you. It appears that all of this is accompanied by pressure exerted by the U.S. Treasury, which may be 90% political, but that 10% regarding money laundering that has indeed occurred in Iran and the dozens of cases that cannot be escaped from have increased the need for transparency in dealings with Iran. I do not expect this; I may be wrong, but I do not expect that this money will be transferred to Tehran without any oversight, allowing Tehran to use it however it wants. So, in your opinion, even if the EU launches and implements this financial mechanism, as long as Iran has not fulfilled the FATF conditions and the four bills submitted by Mr. Rouhani have not been approved and implemented, Iran effectively cannot do anything, meaning the EU is putting the ball in Iran's court until Iran fulfills the FATF conditions? Yes. As long as those four bills are not approved and do not enter the legal system of Iran as current laws, all the capabilities of this special payment channel will not be active and operational. As I said, this is not my expectation, nor is it the expectation of any of those familiar with the file. Some of these facilities will be made available for payments to Iran, but as you also pointed out, these are mostly related to small payments and commercial purchases from the EU. And the ceiling that we need week by week and month by month for money to be available to the economy will not be met. Because as long as you have ongoing cases and accusations regarding money laundering and opaque dealings, the special payment channel will not operate. I can even expand this and say that you can be sure that Chinese banks will also cease many banking operations with Iran since May 2019. Mr. Emadi, in its last session, the FATF gave Iran four more months to approve and implement these laws, and this opportunity will end in February, just two months from now. Do you think there is a possibility that the FATF will extend Iran's deadline again, or is this Iran's final chance? I think the answer to your question should be found in the decision and final outcome of the current game and challenge between the Expediency Discernment Council and the government. If the Expediency Council closes this path and says no, we will not approve it, it would be very unexpected for me to see an extension of this deadline. Because we have had ample opportunity in Iran to approve and pass this. But it is clear that a very large strand of Iran's political authority, which I might see as larger, broader, and more powerful than the government, does not want transparency in Iran's market and economy because then tracking these lost funds will be easier. We are now heading towards a trillion dollars in oil revenue, and in the best-case scenario, we can trace 35 to 38 percent of this in what projects [lost money] and this is not an immediate informational tracing that friends in Tehran can shake their fists at. Understanding that one-third of Iran's economy has received this money, what has happened to the other two-thirds will be more important and valuable to the Iranian people than anything else. And that group, that strand that actually holds the upper hand does not want this to happen because if it becomes clear, astronomical money transfers from Qatar and Dubai and Abu Dhabi, starting from India, Malta, Malaysia, China, Belarus, Russia, Greece, and other countries, we are talking about 27 countries, will be identified, and these files can be activated and these funds can be returned. Naturally, such a financial and economic mafia will not allow this. If that happens, I do not expect this deadline to be extended again. Finally, Mr. Emadi, SWIFT has announced that money transfers through this system for Iran have become very limited and will continue to be so. What impact will this have on Iran's trade and economic transactions, even if this EU mechanism is implemented? The impact of SWIFT is currently directly visible, as dealings with Iran have reached a point where we have reverted to cash transactions and barter. The experience we have from the previous government is that when these cash transactions began, a significant amount of money—meaning the amount I am talking about is in the hundreds of millions of dollars—was lost. The channels that the Central Bank used to transfer this money for purchasing needs, many of which were legal purchases, could not be used because SWIFT was out of our reach, and cash had to be paid, and during the few hours or days of transfer from Iran to the country it was sent to, some of this money was lost. There are more than 27 existing cases with amounts exceeding tens of millions of dollars; we are now seeing that Iran has effectively returned to that, and this is very costly and negative for Iran's economy. In this context, I think perhaps the biggest damage or warning sign we see and can gauge the pulse of is that SWIFT has almost stopped working with Iran and providing services to Iran.