Why Does Iran Have the Highest Money Laundering Risk Rating?

According to the current year (2017) report by the Basel Governance Institute based in Switzerland, which examines money laundering crimes and the fight against terrorism, Iran has ranked first in money laundering risk among 146 countries for the fourth consecutive year. Except for 2013, Iran has consistently held the highest money laundering risk rating in the world from 2012 to 2017. In this year's Basel Governance Institute report, countries such as Afghanistan, Guinea-Bissau, Tajikistan, Laos, Mozambique, Mali, Uganda, Cambodia, and Tanzania occupy the second to tenth positions for the highest money laundering risks after Iran. "Dirty money" refers to funds obtained from illegal transactions such as smuggling, embezzlement, which are not under the supervision of the tax and legal system. To utilize this money legally within the economic system, it must first be formally employed within the banking system. The process of channeling funds obtained from opaque and illegally sourced transactions into official activities is called money laundering. Money laundering has a specific process and various sources and stages. The condition for a high risk of money laundering includes the existence of money laundering sources such as extensive smuggling of goods, embezzlement, financial operations in the opaque economic sector, an inefficient tax system, a corrupt and ineffective banking system, lack of transparency and accountability of governmental and private institutions, inappropriate laws, and corruption of supervisory institutions. All these conditions exist in Iran. Significant sources of "dirty money" in Iran include various reasons that contribute to its high money laundering risk. The first factor for this high risk is the existence of numerous and diverse sources of "dirty money." Smuggling goods into and out of Iran is one of the significant sources of dirty money in Iran. Unfortunately, there is no credible estimate regarding smuggling in Iran, and the published statistics are inconsistent with each other. Based on official statistics published in 2013, the estimated value of goods smuggled out of the country was $7.8 billion, which decreased in subsequent years, reaching half a billion dollars in 2016. According to the same statistics, the value of goods smuggled out also decreased from $17.2 billion in 2013 to $12.1 billion in 2016. Therefore, according to government officials' claims, the total value of both incoming and outgoing smuggled goods during the mentioned years decreased from $25 billion to $12.6 billion, indicating a 50% reduction. However, this statistic is not accepted by all government officials. For example, Mohammad Jafar Montazeri, the Attorney General, criticized the inefficacy of the fight against smuggling and the ambiguity in related statistics, referring to the performance of anti-narcotics and smuggling committees as "miracle-less saints." This official stated that he does not claim they do not work, as that would be unfair, but questioned what output has been produced by a committee led by the President with effective members. This issue indicates that something is wrong. Sometimes we speak in veils and make polite gestures to each other, but these do not bring health to the country. The Attorney General added that based on the latest statistics, the situation of combating smuggling is terrifying. In 2016, nearly 18 trillion tomans worth of smuggled goods were discovered. He also expressed concern over the official statistics of the anti-smuggling committee, stating, "Some gentlemen are trying to not announce the smuggling statistics as they are. We have nearly 18 trillion tomans worth of smuggled goods discovered, but we do not know how much is not discovered." However, sources of dirty money are not limited to smuggling. Iran is one of the countries where the informal economy is very extensive. This part of Iran's economy is not under the umbrella of the tax system and lacks accountability and transparency. The entry of dirty money into the liquidity cycle of the economy requires a corrupt, opaque, and unaccountable banking system. A significant portion of Iran's banking system is state-owned, while another part is owned and managed by institutions such as the IRGC, police, and municipalities, and some is so-called private. The private sector of Iran's banking system is largely under the influence of the first two sectors. Naturally, with the absence of healthy competition and inappropriate laws, as well as the influence of power distribution gangs, banking resources are primarily allocated within the framework of the relationships of power and wealth gangs that form Iran's financial oligarchy. Akbar Turkan, an advisor to the President, severely criticized the country's banking system, stating, "If we want to compare our management systems with industrial countries... we have the most backward banking system and are far from the world." Generally, there is a direct relationship between ineffective legislation and the level of money laundering. One of the serious incentives for money laundering in Iran is the inefficacy of economic laws such as commercial law, tax laws, and civil laws. A comparison between Iran's economic laws and those of developed countries shows that Iran's laws are cumbersome and simultaneously inadequate, making healthy economic activity difficult and not contributing to its efficiency and transparency. The primary source of laws in Iran is Shia jurisprudence and the fatwas of jurists, which have been developed over centuries and are the product of the ancient jurists' understanding of life in the pre-modern era. These legal sources do not align with today's economic and social relationships and cannot guarantee accountability and transparency in the economic, monetary, and credit systems. According to the authorities themselves, administrative corruption in Iran has reached a high level, meaning institutionalized and systematic corruption has occurred, thus internal supervisory institutions like the judiciary, which are themselves tainted by corruption, cannot oversee and limit the widespread economic and managerial corruption in Iran. The most important reason for this economic and managerial corruption is the lack of accountability and transparency in the administrative and governmental system, as well as the suppression of independent media and civil society.