Iran International
The bickering of political rivals in Iran has brought to light the role of “trust companies” in funneling back proceeds from sanctioned crude oil sales and the corruption involved in such operations.
During the international sanctions of the first half of the 2010s and the US sanctions imposed since 2018, Iran faced restricted access to the international banking system. To circumvent these limitations, it relied on an extensive network of so-called ‘trust companies’ and foreign exchange outlets.
Through these channels, Iran covertly transferred proceeds from its sales of crude oil, petroleum, and petrochemical products worldwide for a range of purposes, including funding its proxies.
The Revolutionary Guards (IRGC) and its global oil laundering network are heavily involved in establishing and operating such clandestine networks.
These complex networks usually operate in the United Arab Emirates, Turkey, Singapore, Hong Kong, Iraq, Malaysia, Cyprus and Malta, as well as some Western countries as indicated by the US Treasury’s sanctions lists.
Last week a controversy over Tehran Mayor Alireza Zakani’s secretly concluded agreement with a Chinese construction firm to import transport and traffic surveillance equipment, worth nearly two billion euros, opened a pandora box that included, among other things, inadvertent references to the use of trust companies.
Under fire from critics who said the Chinese company, Poly Changda Overseas Engineering (PLCD), was ill-equipped for procurement of the equipment needed by the city, the mayor and his supporters argued that the agreement would help funnel back the funds accrued in China.
The funds, they said, could otherwise not be repatriated due to global sanctions that have blocked Iran's access to the international banking system so this was a “golden opportunity” that had to be urgently utilized.
As professional enablers of financial secrecy, trust companies also orchestrate the crude oil sales to overseas buyers while concealing its origins and the involvement of the Iranian government by rebranding products and falsifying documents.
Trust companies registered abroad, which represent the interests of the Iranian government and sanctioned entities, report their ownership by unrelated, nominal parties. They are often given vast legal powers to be able to administer and manage the financial assets of the beneficiary, that is the Iranian government, including accepting payments from buyers of Iranian oil and using it to make purchases on its behalf.
To prove the association with these entities and individuals with the Iranian government is very hard or even impossible. In many cases the trustees are not even Iranian nationals.
The role and influence of these intermediaries declined somewhat after the 2015 JCPOA nuclear deal with the West, which allowed oil revenues to be repatriated through the official banking system.
The situation changed when in 2018 the Trump administration withdrew from the JCPOA and re-imposed oil export sanctions on third parties and Iran’s banking system. Subsequent attempts by the Biden administration to restore the agreement have failed.
Those in favor of a nuclear deal with the United States in Iran have always accused their opponents of profiteering from sanctions-busting operations and dubbed them as “sanctions profiteers”. This is mainly because IRGC circles organize the secret financial networks, which can manipulate oil exports and money laundering to enrich themselves.
Officials of the government of President Ebrahim Raisi often boast of their success in circumventing sanctions that has provided enough foreign currency to the Islamic Republic to survive.
The country is now exporting nearly 1.5m barrels of oil per day most of which goes to China whereas it could barely export 200,000 bpd after the full re-imposition of US sanctions in 2019.
The government’s recent budget bill shows that it is currently outsourcing some of its oil sales to military and religious entities, and real persons representing them, rather than selling it through the National Iranian Oil Company (NIOC) which according to the Iranian Constitution should have a monopoly in oil exports.
Whistle-blowers have revealed some cases in which the trustees of the government amassed the funds being paid into their accounts for some time but later delayed payments to the government, using the funds for their own investments, or embezzling billions of dollars.
During his high-profile corruption trial in 2019, for instance, the former CEO of Mellat and Parsian banks, Ali Divandari, said one such company used to bypass sanctions operating out of the United Arab Emirates had moved around $70b for the bank. He accused several other individuals of embezzlement, one of whom he said had fled Iran with 220m UAE dirhams.
“It was not possible to register our names in trust companies because these companies were foreign and would be exposed if this was done,” he told the court.
The Iranian government is unable to take legal action against the trustees in these circumstances due to the secrecy involved in such operations.
In relation to the latest controversy and rising to Mayor Zakani’s defense, hardliner lawmaker Malek Shariati revealed in a tweet on May 3 that the anti-sanctions committee of the secretariat of the Supreme National Security Council (SNSC) had secretly blessed the deal.
Referring to the Chinese company as a “trust company”, Shariati said in response to one of the critics, former Communications Minister Mohammad-Javad Azari-Jahromi, that the Chinese side of the agreement was to provide access to hard currency for imports of basic goods, medicine and other things including subway cars and buses.
The lawmaker also argued that disclosing the contents of the SNSC’s directive would be “treason”. Zakani himself had earlier protested to the disclosure of the company’s name by a whistle-blower and claimed that the Chinese side may decide to withdraw from the agreement due to the failure of the Iranian side to preserve its anonymity.
Azari-Jahromi’s counterargument was a brusque reference to the case of the oil tycoon Babak Zanjani as a reminder of the massive corruption often involved in such clandestine financial dealings.
Zanjani sold Iran's oil in the oil black markets through a host of “trust companies” and banks in various countries such as the Malaysia-based International Safe Oil (ISO), Dubai-based Sorinet Commercial Trust Bankers (SCT Bankers), and Malaysia-based First Islamic Investment Bank (FIIB) he had established.
He was sentenced to death in 2016 for withholding $2.7bn of the proceeds of oil sales. His request for clemency was approved by Supreme Leader Ali Khamenei last week and his sentence was commuted to twenty years in prison.
Zanjani is likely to be freed soon as he has served almost half of the twenty-year sentence. Authorities claim he “cooperated” in locating his assets abroad, which he had refused to do until now, and the assets were recovered to pay all his debts to the government.
