Why does Iran have the highest rank in money laundering risk?


ByAhmad Alavi

According to 2017 Report by Basel Institute on Governance which is located in Switzerland and assesses money laundering crimes and fighting terrorism, Iran has the first rank in money laundering risk for the 4th successive year among 146 countries that were assessed.
Except for 2013, Iran has had the highest risk of money laundering in the world from 2012 to 2017.
In 2017 Report by Basel Institute on Governance, Afghanistan, Guinea-Bissau, Laos, Mozambique, Mali, Uganda, Cambodia, and Tanzania are ranked after Iran from 2nd to 10th, as highest risk countries for money laundering.
Dirty money is the amount of money obtained from illegal transactions such as smuggling and embezzlement and is not under legal and tax system. To use this money legally within the economic system, this money must first be used officially within the framework of the banking system. Transferring the obtained money from opaque transactions and with illegal origins to official activities is called money laundering.
Money laundering has a specific process, with different sources and stages. The conditions for high risk of money laundering include existence of money laundering resources such as extensive smuggling of goods, embezzlement, financial transaction in opaque part of economy, inefficient tax system, inefficient and corrupt banking system, lack of transparency and unaccountability of private and government institutes, improper laws, and corruption in monitoring institutes. All these conditions exist in Iran.
» Important sources of “dirty money” in Iran
For various reasons, the risk of money laundering is high in Iran. The first factor for this high risk is the existence of numerous and various sources of “dirty money”. Smuggling goods in and out of Iran is one of the most significant sources of dirty money in Iran. Unfortunately, there is no acceptable assessment regarding smuggling goods in Iran, and published statistics are incompatible with each other. According to published statistics in 2013, the smuggled goods out of the country was estimated as $8.7 billion, which had decreased in years after, reaching half a billion dollars in 2016. According to these statistics, smuggling of goods into the country dropped from $17.2 billion in 2013 to $12.1 billion in 2016. Therefore, according to government’s officials’ claims, the total amount of smuggling goods in and out of the country during these years has dropped from $25 billion to $12.6 billion, showing 50% decrease.
But these statistics are not accepted by all authorities. For example, Iran’s Attorney-General Mohammad Jafar Montazeri pointed out to the inefficiency of fighting smuggling and ambiguities in statistics in this regard, calling the performance of headquarters for fighting drug trafficking and smuggling goods and foreign currencies disappointing. Questioning the achievements of headquarters for fighting drug trafficking, he said, “we don’t say they are not working, because that would be unfair. But what has a headquarter headed by the president and with effective members achieved? This shows that something is wrong. Sometimes we beat around the bushes and we are just being polite to each other, but these won’t make the country healthy”. Attorney-General added: “According to latest statistics, the condition of fighting smuggling goods is terrible. In 2016, 18 billion tomans of smuggled goods were discovered.” Attorney-General expressed his concerns about official statistics regarding fighting smuggling goods and foreign currencies, saying “some try not to announce statistics for smuggling goods as they are. Almost 18 billion tomans of smuggled goods were discovered, but we don’t know how much wasn’t discovered.”
But sources of dirty money aren’t limited to smuggling. Iran is one of these countries with the extensive unofficial economic sector. That part of Iran’s economy is not under tax system and is not transparent and accountable.
» Corrupt banking system
The condition for dirty money entering the cycle of economic liquidity is the existence of corrupt, opaque, unaccountable banking system. A considerable part of Iran’s banking system is governmental, the other part belongs to and is run by Iran Revolutionary Guards Corps (IRGC), law enforcement and municipality, and another part is private. The part of Iran’s banking system held by the private sector is more or less under the influence of the first two parts. Naturally, without healthy competition, lack of proper laws, and also influence of powerful groups, distribution of banking resources takes place within relationships of power and wealth groups that create Iran’s financial oligarchy. Akbar Torkan, chief advisor to Iran’s president, strongly criticized the country’s banking system, saying “if we compare ourselves with industrial countries in managerial systems… we have the most backward banking system and we are far behind the rest of the world.”
» Improper laws
In general, there is a direct relationship between inefficient legislation and level of money laundering. One serious incentive for money laundering in Iran is the inefficiency of laws in economic domains such as business laws and civil and tax laws. Comparison between Iran’s economic laws and those of progressive countries shows that Iran’s laws are cumbersome and at the same time insufficient, make healthy economic activities difficult, and do not help to make these activities efficient and transparent. The main source of law in Iran is Shiite jurisprudence, Islamic jurists’ fatwas, viewpoints of Islamic jurists throughout the centuries and outcome of ancient jurists’ understanding before the modern time. These sources and their corresponding laws are not compatible with today’s economic and social relationships, and cannot guarantee accountability and transparency in economic system and credit and financial system.
» Corrupt monitoring systems
According to Iranian officials themselves, bureaucratic corruption in Iran has reached a high level and has become institutionalized and systematic. As a consequence, internal monitoring institutes such the judiciary branch which is corrupt itself cannot monitor and limit extensive economic and managerial corruption in Iran. More significantly, the reason of this managerial and financial corruption is lack of accountability and transparency of bureaucratic system and suppressing media and civil society that are independent of the establishment.
Translated Piece: Radio Farda  

Opinions in this article reflect the writer’s point of view, not necessarily the view of The Arabain GCIS

Ahmad Alavi
Ahmad Alavi
An economist and financial risk expert