October 26, 2023
Global Sanctions Dashboard: How Iran evades sanctions and finances terrorist organizations like Hamas
Key takeaways
- Tehran has been militarily and financially propping up Hamas for years, which ultimately advanced the terrorist group's ability to launch the attack against Israel on October 7.
- The UAE has become a haven for Iranian and Russian sanctions evasion and circumvention. The Financial Action Task Force (FATF), an international coordinating body combating money laundering, has gray-listed the UAE.
- UN restrictions on Iran’s trade of missile-related technology expired on October 18. Ballistic missile components to and from Iran can move more freely now.
The scale and sophistication of Hamas’s October 7 attack on Israel has generated a lot of talk about the backing the group receives from Iran. Tehran has indeed been militarily and financially propping up Hamas and other terrorist groups such as Lebanese Hezbollah for years. But what does that support actually look like in practice? The map below visualizes Iran’s facilitation of terrorist activity in the Middle East, and depicts the financial and military support Tehran has provided to terrorist organizations encircling Israel.
The US Treasury has designated nearly one thousand individuals and entities to date connected to terrorism and terrorist financing by the Iranian regime and its proxies. Despite being heavily sanctioned, Tehran has continued to provide more than $700 million annually to support terrorist groups, including Lebanese Hezbollah, and up to $100 million annually to Hamas and other Palestinian terrorist groups. It has also transferred artillery rockets to Palestinian groups. More importantly, Iran has transferred the know-how and equipment to give Palestinian terrorist groups the capability to build rockets and missiles locally. Given Tehran’s long-standing support of Hamas, the United States and Qatar on October 12 agreed to block Iran’s access to six billion in funds from South Korea that were transferred to Qatari accounts last month as part of a deal to release American hostages in Iran.
In support of Russia’s war with Ukraine, Iran has been supplying Russia with Shahed-136 unmanned aerial vehicles (UAVs). Even though the Treasury Department has issued nine rounds of designations targeting Iran’s UAV program, Iranian drones still continue to be a key tool in Russia’s hands.
Iran has managed to advance Hamas’s goals in Israel, and Russia’s in Ukraine, while being designated as a State Sponsor of Terrorism, designated across multiple jurisdictions and by the United Nations (UN) for a range of issues including, but not limited to, terrorism, proliferation, cybercrime, and human rights abuses. It has also been identified as a jurisdiction of primary money laundering concern by the United States and has been effectively shut off from the global banking system under the powerful Section 311 of the USA PATRIOT ACT. How does Iran manage to facilitate cross-border transactions and receive payments for oil exports despite being heavily sanctioned? Who is involved in Iran’s evasion network? Finding answers to these questions will be key in truly degrading Iran’s financial capabilities for bolstering state and non-state threat actors who wage wars and spread instability in the Middle East and beyond.
United Arab Emirates: Global financial hub or global evasion hub?
As a countermeasure to US, Western, and UN sanctions, the Iranian regime has set up an illicit global network of shell companies, banks, and exchange houses that facilitate transactions on its behalf. This shadow network has been a target of the Treasury Department’s recent tranche of designations of facilitators of Iran sanctions evasion. A significant number of entities in Iran’s now-sanctioned “shadow banking network” are based in the United Arab Emirates (UAE), one of the world’s leading financial hubs. UAE-based foreign exchange houses have enabled sanctioned Persian Gulf Petrochemical Industry Commercial Co. (PGPICC) to facilitate sales of billions of dollars worth of petrochemicals from Iranian petrochemical companies to foreign buyers. Dubai-based front companies have also processed payments from foreign customers to PGPICC, all while hiding PGPICC’s involvement in these transactions.
The UAE has become a haven for evasion for sanctioned Russians as well. The US Treasury recently took action against several Russia-based financial services companies that have been laundering Russian money through the UAE financial system. For example, Huriya, a now-sanctioned Russia-based private equity company, moved Russian assets into UAE institutions where they would not be sanctioned right after Russia’s invasion of Ukraine began.
The UAE’s favorable, low-tax business environment, vibrant gold trade, and strategic location attract investors from around the world. Unfortunately, the UAE also attracts nefarious Iranian, Russian, and other actors who are taking advantage of loopholes in its financial system to evade sanctions. Western sanctioning authorities are running out of patience with the UAE and are pushing for the Emirati government to implement more robust controls and enforcement mechanisms. Earlier in March, the Financial Action Task Force (FATF), an international coordinating body combating money laundering, gray-listed the UAE. This listing requires UAE financial institutions to enhance their anti-money-laundering (AML) and counter-terrorist financing (CFT) regulatory regimes, and also warns non-UAE financial institutions to increase scrutiny of their transactions with the UAE. Given its aspirations of becoming a global financial hub next to New York and London (which would be challenging as a gray-listed country), the UAE took action on FATF’s recommendations, after which FATF improved the UAE’s rating but still left the country in the gray list.
The UAE is a valuable trading partner of the United States and a major financial hub of the Middle East and the world. The country has so far maintained a multi-vector foreign policy, one that enables the UAE to keep business ties with both the sanctioning and sanctioned parties. However, with the United States and European Union desperate to enforce sanctions to ensure that Iran-supplied Russia doesn’t outgun Ukraine on the battlefield and Iran is not able to fund its network of proxies and terrorist groups, neutrality on sanctions enforcement is not an option: Either the UAE stands with its Western partners and enforces sanctions, or it undermines Western sanctions, which will have implications for the UAE’s status as a global financial hub.
Western allies have so far refrained from sanctioning large financial institutions based in the UAE. However, if the UAE turns into a global evasion hub, Western allies will have no other option but to start sanctioning the UAE, however painful and undesirable that might be. Western allies have demonstrated a shared understanding and strong will in countering sanctions evasion, and have already set up channels for coordinating the sanctions designation process against Russia. Such channels can be leveraged to counter Iran’s evasion efforts. To this point, US Deputy Secretary of the Treasury Wally Adeyemo is traveling to Europe this week to work with European counterparts on degrading Hamas’s ability to raise and move money.
UN restrictions on Iran’s ballistic missile program have been lifted
Iran’s nuclear program is viewed by Israel as an existential threat and by the United States and most Western allies as an untenable threat to global peace and security. Since the early 2000s, the United Nations and Western allies have all maintained sanctions on Iran in an effort to thwart its nuclear proliferation capabilities. In 2015, Iran, China, France, Germany, Iran, Russia, the United Kingdom, the United States, and the European Union signed the Joint Comprehensive Plan of Action (JCPOA). The JCPOA required Iran to implement agreed-upon restrictions on its nuclear program and accept specific monitoring and reporting requirements in exchange for the gradual lifting of these sanctions.
The United States, however, exited the JCPOA in 2018 and snapped back sanctions, leaving the other signatories, mainly the European Union (EU), to pick up the pieces. Considering oil sales are generally settled in US dollars, US sanctions severely limited Iran’s ability to export its oil. Iran saw its oil sales decrease by more than double after the United States left JCPOA. Iran, in response, stopped implementing many of the agreement’s requirements, including the required International Atomic Energy Agency (IAEA) monitoring. Since 2019, Iran’s nuclear weapons development has exceeded JCPOA-mandated limits, reaching as high as 83.7 percent purity of enriched uranium earlier this year, far closer to the 90 percent threshold for weapons grade enriched uranium than ever before.
Further, despite Iran’s nuclear development outside of the terms of the JCPOA, UN restrictions on Iran’s trade of missile-related technology expired on October 18, 2023. This could allow for supplies and ballistic missile components to move more freely to and from Iran and no longer require approval by the UN Security Council. The United States, United Kingdom, EU, and others have issued new sanctions on Iran to continue the prohibitions on missile and UAV technology, but without the UN restrictions in place it will remain to be seen how countries like China and Russia respond.
Any of the signatories can trigger the UN snapback mechanism, a clause in the agreement that would allow it to reimpose all sanctions—including those from China and Russia. The United States attempted such a trigger in 2020, but the maneuver failed due to the US exit from the JCPOA in 2018. The E3—Germany, France, and Britain—still has the authority to initiate the snapback but has yet to make such a decision.
Kimberly Donovan is the director of the Economic Statecraft Initiative within the Atlantic Council’s GeoEconomics Center. Follow her at @KDonovan_AC.
Maia Nikoladze is the assistant director at the Economic Statecraft Initiative within the Atlantic Council’s GeoEconomics Center. Follow her at @Mai_Nikoladze.
Ryan Murphy is a project assistant at the Economic Statecraft Initiative within the Atlantic Council’s GeoEconomics Center.
Yulia Bychkovska is a young global professional at the Economic Statecraft Initiative within the Atlantic Council’s GeoEconomics Center. Follow her at @_YuliaB_.
Castellum.AI partners with the Economic Statecraft Initiative and provides sanctions data for the Global Sanctions Dashboard and Russia Sanctions Database.
The Global Sanctions Dashboard provides a global overview of various sanctions regimes and lists. Each month you will find an update on the most recent listings and delistings and insights into the motivations behind them.
At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.
Image: Map of Iran on blue digital background. All source data is in the public domain: https://www.naturalearthdata.com/downloads/10m-cultural-vectors/