While subjected 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 their financing system giving them access to millions in funds.
Since March, Tehran has managed to acquire some $15 billion worth of foreign currencies; the money is then inflated and sold by the Central Bank of Iran (CBI), its governor Abdolnaser Hemmati recently said.
However, according to a study by the London-based Iran International TV, the IRGC has its own system in place to effectively masquerade as official money-lenders to buy up 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 fall in the value of the rial [Iran’s currency],” Shahed Alavi, editor at Iran International TV, told Fox News.
“These dollars must be made available to importers of goods and circulated in the market, however in practice, the Quds Force buys most of these dollars at low prices through its affiliated exchanges and with the help of the Central Bank. The money eventually goes to illegal IRGC-affiliated armed groups in the region.”
That process is NIMA, an online currency system initiated by the CBI in April 2018 in anticipation of President Trump’s withdrawal from the Joint Comprehensive Plan of Action (JCPOA), which occurred the following month. It allows Iranian exporters to sell hard currency at a higher amount, typically between the official exchange rate of 42,000 rials per dollar and the unofficial rate of more than 260,000 rials.
NIMA functions only via the Islamic banking system referred to as hawala, which is widely used to move money outside the bureaucratic banking structure and is primarily based on trust.
The intention was to enable Iranian companies that import essential products not available in the country – including medicine, electronics and wheat — to have access to the subsidized exchange rate. Meanwhile, exporters are mandated to declare and sell a significant portion of the hard currency earned from abroad to CBI’s NIMA platform.
“NIMA is a platform controlled by the government of Iran for exporters and importers to exchange currency with each other. In Iran, the foreign currency gained through exports should come back to the country’s financial system under the supervision of the central bank via imported goods or currency,” explained Saeed Ghasseminejad, the senior Iran and financial economics adviser for the Foundation for Defense of Democracies (FDD).
“Not returning the currency to the country’s financial system is against the law. Additionally, you need a permit from the government to engage in export and import. The goal of this system is for the government to have control over capital and foreign currency.”
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 which received the proceed in euro in a bank in Turkey sells that euro to an importer which needs euro. The money does not necessarily touch Iran’s financial system. That is very useful to an IRGC front company, which then can take that money and send it, for example, to a front company in Lebanon, which is working for Hezbollah,” he explained. “Of course, this will need Iran’s central bank’s permission because, without that, the IRGC front company will be subject to criminal persecution for not bringing back goods or hard currency.”
CBI is alleged to be well aware of the manipulation by the IRGC, which is believed to have established a number of authorized forex outlets – the marketplace where various currencies and currency derivatives are traded – to facilitate the trade. It uses formally registered money merchants to conduct the operation. Thus, the IRGC footprint is left off official documentation.
The result is, as per Iran International’s findings, the monies derived are primarily administered by government bodies to bolster the IRCG’s missions outside its border – carried out by the murky elite unit known as the Quds Force – in places ranging from Iraq and Syria to Yemen and Lebanon. Moreover, it is said to have led to a desperate shortage of foreign monies necessary for vital imports of medical supplies and pharmaceuticals.
Alavi noted that, with this money, the Quds Force pays the salaries of Iranian-affiliated militias in the region, buys the necessary weapons and equipment for them, and provides the money needed to carry out acts of sabotage.
“Financing with the cooperation of the central bank and by abusing the mechanism of injecting dollars into the market is unprecedented,” he continued. “Because before the tightening of sanctions, the Quds Force received the money it needed directly from the government budgets and the annual budget of the Revolutionary Guards.”
Mark Gazit, CEO of cybersecurity and big data at analytics company ThetaRay, said the IRGC needs three ingredients to succeed: a way to get cash and move it to the places they need it to go, a way to do so that cannot be discovered or proven, and a way to eventually withdraw the cash. 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 to importers in exchange for necessary commodities for Iran,’ but then they’re giving that money to the IRGC, who instead spends it on weapons,” he explained.
“To push these funds through the financial system without setting off alarms, the IRGC is running a large number of accounts under aliases and conducting a massive amount of small transactions that are difficult to catch because the dollar amounts are below the thresholds of banks’ AML detection systems. This enables the Central Bank to deny knowledge that they are doing business with terrorists.”
Iran International claims that the illicit diversion between the IRGC and money traders is overseen by the top echelons at the Ministry of Defense’s Logistics and Industrial Research Office, and by figures such as Gen. Seyyed Hojjatollah Qoraishi and his colleague Rezagholi Esmaili, who was sanctioned by the U.S. in 2016 for playing a pivotal part in the development of Iran’s ballistic missile program. His name was removed by the U.N. blacklist in October, in conjunction with the end of the weapons sanctions that had long been slapped on the country.
“Whenever there’s a discrepancy between official rates and black market rates, corruption thrives. By manipulating foreign exchange, the Iranian central bank can divert the difference in rates to fund other projects,” said Michael Rubin, a senior fellow at the American Enterprise Institute (AEI).
“Put another way, if foreign companies and correspondent banks pay the official exchange rate in their business with Iran, they will be paying six times as much in dollars. Literally, that means more than 83 percent could go to the Revolutionary Guards, while only 17 percent goes to legitimate purposes.”
The Iranian economy, which has been beleaguered for more than four decades in its post-revolution era, has struggled with dizzying devaluation. The government has endeavored to camouflage this through the creation of multiple exchange rates. An analysis by the Atlantic Council earlier this year underscored that business and financial players have faced the challenge of dealing with at least “two significantly different rial exchange rates when conducting international activities: the official rate that is defined and subsidized by the Central Bank of Iran (CBI) and a floating one controlled by unregulated market supply and demand.”
“The imbalance between the two rates quickly brought inefficiencies to Iran’s international trade activities that have persisted for decades,” it said.
But when a third exchange rate – the NIMA system – was introduced almost three years ago, it struggled to make Iran’s international trade and access to hard currency any smoother.
Gazit stressed that even with the persistent issuing of sanctions on the embattled regime, it remains difficult for the U.S. government to close this loophole, mostly because now everything is digital.
“It’s very easy for entities to conduct transactions remotely,” he said. “Also, by using sophisticated A.I. techniques, it’s possible for groups like the IRGC to calculate and conduct large numbers of small transactions that look perfectly legitimate, but combine to equal tens of millions of dollars in terrorist funding.”
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 revenue in general, something that the Trump administration has done. The second step is to blacklist the vast network of the IRGC’s business empire and more importantly the people who run that network,” he said, adding a word of warning.
“[But] the moment the U.S. lifts the sanctions and Tehran gets billions of dollars and wide access to the international financial system, the IRGC one way or another will get its share to fund terrorism.”
Behnam Ben Taleblu, an FDD senior fellow, concurred.
“Relieving sanctions on entities active in funding Iran’s revolutionary foreign policy, especially under the auspices of trying to claw back a fatally flawed deal that added to Tehran’s coffers, would be the definition of a self-imposed strategic setback,” he said.