The document discusses opportunities and financial crime risks associated with Iran following the lifting of sanctions as part of the Joint Comprehensive Plan of Action. It notes that financial crime such as money laundering and corruption are major issues in Iran's economy and political system. While the lifting of sanctions may open up business opportunities, companies exploring opportunities in Iran will need to exercise due diligence on partners and agents given the risks of ties to the government and involvement in illicit activities. The document provides an overview of typical financial crimes in Iran as well as the country's anti-money laundering efforts and challenges.

1. ISLAMIC REPUBLIC OF IRAN
OPPORTUNITIES AND FINANCIAL CRIME RISKS
OCTOBER 2015

2. I S L A M I C R E P U B L I C O F I R A N : O P P O R T U N I T I E S A N D
F I N A N C I A L C R I M E R I S K S
THE IRAN OPENING
2
• On 20 July 2015, the United Nations Security Council
endorsed the Joint Comprehensive Plan of Action
(JCPOA), as agreed upon by Iran and the P5+1 (the
permanent members of the UN Security Council -
China, France, Russia, United Kingdom, United States
- plus Germany).
• “Implementation day” – expected early 2016 – is the
date when the U.S. and EU will be obliged to lift
sanctions as set out in the JCPOA. The majority of
financial restrictions related to dealing with Iran will
be lifted.
• Most U.S. “secondary sanctions” against non-U.S.
persons will be terminated.
• Some U.S. and EU sanctions outside the JCPOA, such
as those relating to terrorism and human rights, will
remain in force.

3. I S L A M I C R E P U B L I C O F I R A N : O P P O R T U N I T I E S A N D
F I N A N C I A L C R I M E R I S K S
FINANCIAL CRIME IN IRAN
3
• Financial crime is a major issue in Iran. There is
pervasive corruption within the ruling and religious
elite, government ministries, and government-
controlled business enterprises.
• Senior politicians on both sides of Iran’s political divide
routinely criticise corruption in the government, as
does the Supreme Leader.
• In April 2015, Supreme Leader Ali Khamenei said:
“corruption is frequently spoken about, but this is of no
use. If we only shout ‘thief, thief’, thieves do not stop
their work.”
• Iran has a notable underground economy, encouraged
by restrictive taxation, widespread goods smuggling,
capital flight, currency exchange controls, and a large
expatriate community.
“CORRUPTION IS FREQUENTLY SPOKEN
ABOUT, BUT THIS IS OF NO USE. IF WE
ONLY SHOUT ‘THIEF, THIEF’, THIEVES
DO NOT STOP THEIR WORK.”

4. I S L A M I C R E P U B L I C O F I R A N : O P P O R T U N I T I E S A N D
F I N A N C I A L C R I M E R I S K S
MONEY LAUNDERING RISKS IN IRAN
4
• Implementation of EU, UN and U.S. sanctions, and
circumvention of these sanctions, has undermined the
potential for private sector growth in Iran, whilst
facilitating money laundering.
• The Financial Action Task Force (FATF) has repeatedly
warned of Iran’s failure to address the risks of terrorist
financing. The FATF has urged jurisdictions around the
world to impose countermeasures to protect their
financial sectors from illicit finance emanating from
Iran.
• Iran is a major transit route for opiates headed for the
Persian Gulf, Russia and Europe. At least 40% of opiates
leaving Afghanistan enter or transit Iran. Illicit
proceeds from narcotics trafficking can be used to
purchase goods in Iran; goods which are often exported
and sold in Dubai.
• Iran’s bazaari community makes active use of value
transfer systems, including hawala and moneylenders.
Counter-valuation in hawala transactions is often
accomplished via trade. Thus, trade-based transactions
are likely to be a prevalent form of money laundering.
Many hawaladars and traditional bazaari are linked
directly to the regional hawala hub in Dubai.
AT LEAST 40% OF OPIATES
LEAVING AFGHANISTAN ENTER
OR TRANSIT IRAN

5. I S L A M I C R E P U B L I C O F I R A N : O P P O R T U N I T I E S A N D
F I N A N C I A L C R I M E R I S K S
MONEY LAUNDERING RISKS IN IRAN (2)
5
• Half a million Iranians reside in the UAE, with nearly
10,000 Iranian-held companies based there. There are
reports that billions of dollars in Iranian capital have
been invested in the UAE, particularly in Dubai real
estate. Increasingly, Iran’s domestic real estate market
has also been used to launder money.
• Systems that facilitate corruption in Iran, whether
through charitable foundations or intermediaries,
pre-date the foundation of the Islamic Republic in
1979, and were widely used during the Pahlavi dynasty.
INCREASINGLY, IRAN’S DOMESTIC
REAL ESTATE MARKET HAS ALSO BEEN
USED TO LAUNDER MONEY.

6. I S L A M I C R E P U B L I C O F I R A N : O P P O R T U N I T I E S A N D
F I N A N C I A L C R I M E R I S K S
ANTI-MONEY LAUNDERING MEASURES IN IRAN
6
• In 2008, amidst mounting pressure from the U.S. and
the FATF, Iran’s parliament passed the country’s first
AML law.
• Iran’s new AML law is a concerted effort to stop money
laundering and terrorist financing. Iran’s AML law
defines money laundering as obtaining, possessing,
keeping, and using the benefits resulting from illegal
activities, with knowledge that the funds came,
directly or indirectly, from the commission of money
laundering.
• Iran’s AML law created the “High Council on Anti-Money
Laundering Secretariat”, composed of Iran’s economic
minister, the head of Iran’s central bank, and various
ministers of commerce, intelligence and the interior. It
has the authority to approve and enforce necessary
money laundering regulations.
IT HAS THE AUTHORITY TO APPROVE
AND ENFORCE NECESSARY MONEY
LAUNDERING REGULATIONS.

7. I S L A M I C R E P U B L I C O F I R A N : O P P O R T U N I T I E S A N D
F I N A N C I A L C R I M E R I S K S
ANTI-MONEY LAUNDERING MEASURES IN IRAN (2)
7
• Iran’s AML law requires all legal entities to adhere
to higher standards of record keeping, client
identification, and reporting of suspicious
transactions. In late 2009, Iran’s parliament ratified
the bylaws, which resulted in the implementation of
the legislation as well as the set-up of the High Council
on Anti-Money Laundering, the Executive Secretariat
and the Iranian Financial Intelligence Unit.
• The prevailing view in the West is that the new law was
designed to appease the United States, the United
Nations and the FATF, and thereby insulate Iranian
banks from additional international scrutiny. The FATF
has not changed its position regarding Iran.
• Despite Iran’s passing of its first AML law, UN
Resolution 1803 called on UN states to scrutinise the
activities of financial institutions within their
territories relating to banks domiciled in Iran, including
their branches and subsidiaries located abroad.
DESPITE IRAN’S AML MEASURES,
THE UN HAS CALLED FOR ONGOING
SCRUTINY OF FINANCIAL INSTITUTIONS
WITH EXPOSURE TO IRAN

8. I S L A M I C R E P U B L I C O F I R A N : O P P O R T U N I T I E S A N D
F I N A N C I A L C R I M E R I S K S
ENTERING IRAN
8
• The most common way to enter the Iranian market has
been through joint ventures and third party agents.
• Years of U.S., UN and EU sanctions have meant that the
Iranian market lacks competition, and has been
dominated by the state.
• Iran is a three-tiered economy, with state-owned,
semi-private and private companies.
• Since 1989, the government has made privatisation a
priority. Today’s reality, however, reveals a private
sector dominated by government bodies, state-owned
enterprises, bonyads (wealthy, non-governmental,
ostensibly charitable, foundations) and pension
funds.This process has been dubbed “pseudo-
privatisation”.
YEARS OF U.S., UN AND EU SANCTIONS
HAVE MEANT THAT THE IRANIAN
MARKET LACKS COMPETITION

9. I S L A M I C R E P U B L I C O F I R A N : O P P O R T U N I T I E S A N D
F I N A N C I A L C R I M E R I S K S
BUSINESS PARTNER RISK
9
• The Ultimate Beneficial Ownership (UBO) structure of
publicly listed companies can be elusive. The true
beneficial owners of some of Iran’s largest publicly
listed companies are state or Iranian Revolutionary
Guard Corps (IRGC)-owned enterprises.
• Many Tehran Stock Exchange-listed entities are held by
a combination of state or IRGC-owned enterprises,
charitable trusts (bonyads), and pension funds.
• Other non-listed private companies are often indirectly
or directly held by the state, or individuals closely tied
to the Islamic Republic. For example, Mahan Air, Iran’s
largest airline, is widely believed to be ultimately held
by the Rafsanjani family. It has also been accused of
collaborating with the IRGC and Hezbollah.
• Other private companies have close ties with the IRGC
and its construction arm Khatam-al Anbiya, although
these links are often hidden through complex
structures.
• The IRGC also exerts influence over bonyads (charitable
organisations) controlled by senior clerics. Bonyads are
frequently criticised as inefficient and loss-making
organisations subsidised heavily by the state, that
hamper competition. Much like the IRGC, the bonyads
are understood to have gained power after years of
economic sanctions.

10. I S L A M I C R E P U B L I C O F I R A N : O P P O R T U N I T I E S A N D
F I N A N C I A L C R I M E R I S K S
CASE STUDY: ARIA ZIGGURAT TOURISM DEVELOPMENT CO.
10
• In September 2015, Aria Ziggurat Tourism Development
Co., a private company, signed a management agreement
with AccorHotels, for the management of two Ibis and
Novotel hotels located at Tehran IKIA Airport.
• Aria Ziggurat, incorporated in 2010, is a majority-owned
subsidiary of Iran Cultural Heritage and Tourism
Investment Group Co. (“SEMEGA”), a company listed on
the Tehran Stock Exchange.
• SEMEGA is held by a range of shareholders, including;
Talaye Daran Caspian Trade Co. (8.79%), Laleh
International Hotel Asaluyeh Co. (8.62%), Tanian Design
and Engineering Co. (8.1%), Saba Salman Morning Trade
Co. (7.03%), Sekandaran Trade Persia Co. (5.66%), and
Molal Movahedin Credit Cooperative (5.03%). These
entities have low press profiles, and their ultimate
beneficiaries are unclear.
• SEMEGA’s chairman is Mehdi Jahangiri, the brother of
Eshaq Jahangiri, Iran’s first vice president. He is a former
deputy of planning and investment at the Cultural
Heritage, Handcrafts and Tourism Organization (ICHTO), a
government agency.
• Such arrangements suggest that Aria Ziggurat is likely to
have strong ties to the government, with its ultimate
beneficiaries possibly linked to the government, IRGC, or
former/present public officials.

11. I S L A M I C R E P U B L I C O F I R A N : O P P O R T U N I T I E S A N D
F I N A N C I A L C R I M E R I S K S
THIRD PARTY AGENTS
11
• Though sanctions have been part of Iran’s economic
reality since the foundation of the Islamic Republic, the
ruling elite has never developed regulations or
legislation to clarify how the economy should function
under sanctions. This has been abused consistently, for
over 35 years since 1979.
• The prevalence of organisations, or more often
individuals, acting in the interest of the Iranian
government to circumvent sanctions, has become
heightened in recent years. Often, these individuals
are politically connected, traditionally the relatives
of politicians and clerics operating in collusion with
lesser known associates.
• Many high profile corruption cases and allegations, such
as those against Babak Zanjani, Reza Zarrab, Abbas
Yazdi, Mehdi Hashemi Rafsanjani, and Reza Mostafavi
Tabatabaei, have materialised, due to the state’s
reliance on intermediaries, and the propensity for
financial crime via this means.
• With the retraction of economic sanctions levied
against Iran, the need for sanctions circumvention
may disappear. However, Iran’s historic reliance on
individual intermediaries and agents to conduct
business overseas is likely to endure, and could serve
as a prominent threat to multinational companies.
IRAN’S HISTORIC RELIANCE ON INDIVIDUAL
INTERMEDIARIES AND AGENTS TO CONDUCT
BUSINESS OVERSEAS IS LIKELY TO ENDURE

12. I S L A M I C R E P U B L I C O F I R A N : O P P O R T U N I T I E S A N D
F I N A N C I A L C R I M E R I S K S
BRIBERY RISKS IN IRAN
12
• Decades of economic isolation have made Iran’s
business scene difficult to navigate for outsiders
accustomed to adhering to globally-accepted
principles. Bribery is a widespread cultural practice in
Iran, which takes effect at local, national and
transnational levels, and favours the politically
connected.
• Bribery in Iran predominantly takes the form of
kickbacks in the rewarding of state contracts, inflated
or undervalued asset sales, and secret commissions.
Corruption in the legal system, whether in the form of
forged documents or facilitation payments, has
hitherto provided little guarantee to foreign inventors.
• In recent years, it has emerged that even companies
traditionally considered to have successfully entered
Iran, such as MTN, have allegedly bribed public
officials.
• The use of intermediaries by foreign companies is
closely connected to bribery. Iran’s petroleum industry
has been particularly conducive to bribery and
corruption in the awarding of rights, tenders and
contracts. Notable examples include the recent IOEC
oil rig scandal, the 2001 Crescent Petroleum case, and
the prominent 2004 Statoil corruption case.

13. I S L A M I C R E P U B L I C O F I R A N : O P P O R T U N I T I E S A N D
F I N A N C I A L C R I M E R I S K S
CONCLUSION
13
• International sanctions have heightened financial crime
risks in Iran. Blocking access to banks, credit lines and
SWIFT, has significantly hurt the private sector, whilst
rewarding those willing and able to circumvent
sanctions.
• With foreign access to Iranian markets, there is the
potential for a competitive private sector to develop.
However, the state will continue to act as the
controlling party, not just as a facilitator. This means
that dealing with third party agents intimately
connected to the Iranian government and its officials is
practically unavoidable.
• Conducting integrity due diligence on business
partners, third party agents and intermediaries will
help to ensure compliance in a complex, but
potentially highly-rewarding, environment.

14. ABOUT APERIO INTELLIGENCE
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