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Guidance on Illicit transactions related to Iranian-backed terrorist organisations.

09/06/2024

The Financial Crimes Enforcement Network (FinCEN) has issued an advisory [extracted below] to assist financial institutions in detecting potentially illicit transactions related to the Islamic Republic of Iran (Iran) backed terrorist organisations amid intensified terrorist activity in the Middle East.

  • This advisory highlights how terrorist organisations receive support from Iran and describes several typologies these terrorist organisations use to illicitly access or circumvent the international financial system to raise, move, and spend funds.
  • It also provides red flags that may assist financial institutions in identifying related suspicious activity and is consistent with FinCEN’s National Anti-Money Laundering and Countering the Financing of Terrorism (AML/ CFT) Priorities, which include terrorist financing.
  • The information in the advisory is derived from FinCEN’s analysis of Bank Secrecy Act (BSA) data, open-source reporting, and information provided by law enforcement partners.

FinCEN note.

INTRO

Recent events have underscored Iran’s involvement in and financing of terrorist activity in the region.

Iran seeks, among other goals, to project power by exporting terrorism throughout the Middle East and beyond through the funding of a range of regional armed groups, some of which are U.S.-designated Foreign Terrorist Organizations (FTOs) or Specially Designated Global Terrorist organisations (SDGTs).

These terrorist organisations include.

  • Lebanese Hizballah (Hizballah),
  • Hamas,
  • The Palestinian Islamic Jihad (PIJ),
  • The Houthis (Ansarallah), and
  • Several Iran-aligned militia groups in Iraq and Syria.
  • [These are discussed later in this briefing.]

As demonstrated by the October 7, 2023, Hamas attack on Israel and recent Houthi attacks in the Red Sea, these organisations are capable of perpetrating horrific violence, causing destruction, and disrupting critical supply chains. The U.S. Department of the Treasury (Treasury) has been systematically working to dismantle these organisations by disrupting their illicit finance networks and eliminating their sources of revenue.

How Iran Raises and Moves Funds in Support of Terrorism

Iran supports its numerous terrorist partners and proxies through the Islamic Revolutionary Guard Corps (IRGC), a parallel organisation to Iran’s regular armed forces. In particular, the IRGC division known as the IRGC-Qods Force (IRGC-QF) is responsible for conducting covert lethal activities outside of Iran, such as supporting terrorism globally and serving as a conduit for funds, training, and weapons to Iran-aligned partners and proxies.

Iran’s Sources of Foreign Revenue

Iran uses the revenue from the sale of commodities, particularly oil, to countries such as the People’s Republic of China (PRC) to fund its terrorist proxies.

Following the reimposition of U.S. sanctions against Iran’s petroleum sector in 2018,14, Iran’s ability to finance itself through sales of crude oil and petroleum products—its most important economic sector—was severely diminished. In response, Iran established large-scale global oil smuggling and money laundering networks to enable access to foreign currency and the international financial system through the illicit sale of crude oil and petroleum products in global markets.

In 2021, the National Iranian Oil Company sold approximately $40 billion worth of products, and its crude oil and condensate exports reached an average of more than 600,000 barrels per day, with nearly all of it sent to the PRC and Syria.

Iran’s exports to the PRC have increased over time, reaching approximately 1.3 million barrels per day in 2023. Some of these oil proceeds finance the activities of the IRGC-QF and other terrorist groups.

To restrict these sources of revenue, the Treasury has designated numerous Iranian- and third-country operatives, front companies, and ships involved in Iran’s oil smuggling networks.

Proceeds from Iran’s sale of weapons and unmanned aerial vehicles (UAVs), including to buyers in Russia, also benefit the Iranian military, including the IRGC-QF.

In response, the Treasury has also designated companies that enable Iran’s UAV production.

Moving the Money

Iranian government agencies, such as the Central Bank of Iran (CBI) and the IRGC-QF, as well as state-sponsored organisations such as Hizballah, play a key role in channelling funds to terrorist proxies using overseas front companies and financial institutions.

Financial institutions outside Iran can—wittingly or unwittingly—become intermediaries for the IRGC-QF’s illicit transactions.

IRGC-QF officials have been known to collect funds in various currencies from CBI-held accounts at financial institutions in neighbouring countries and transfer those funds back to Iran or to terrorist organisations.

According to BSA analysis, third-country front companies— often incorporated as “trading companies” or “general trading companies”—and exchange houses act as a global “shadow banking” network that processes illicit commercial transactions and channels money to terrorist organisations on Iran’s behalf.

Exchange houses and front companies primarily rely on banks with correspondent accounts with U.S. financial institutions to process dollar-denominated transactions. In such cases, Iranian banking customers may omit or falsify identifying details connecting themselves or the transfers to Iran or attempt to pass the transactions off as remittances.

In addition, Iran uses cultural and religious foundations as front organisations for funnelling money to terrorist organisations under the guise of cultural or religious support.

In 2020, the Treasury sanctioned the Reconstruction Organization for the Holy Shrines in Iraq (ROHSI).

Ostensibly a religious institution devoted to restoring and preserving Shiite shrines in Iraq, ROHSI is an IRGC-QF front organisation that channels funds to terrorist organisations.

Typologies Associated with Iran-Backed Terrorist Organizations

In addition to receiving support from Iran, terrorist organisations and Iran-aligned militia groups in Iraq and Syria employ a range of other mechanisms to raise revenue, including sham or fraudulent charities, engaging in illicit trade activities like arms and drug trafficking, taxing, and extorting local populations, and crowdfunding.

Hamas

Hamas is a Sunni terrorist organisation based predominantly in the Gaza Strip whose goal is the destruction of Israel and its replacement with an Islamic Palestinian state.

Hamas has exercised de facto control over Gaza since 2007, which enabled the group to derive revenue from taxes and fees it imposed on the local population. Until October 2023, Hamas levied taxes on commodities, imports, and businesses operating in Gaza and charged fees for licenses, birth certificates, customs duties, and vehicles.

This source of revenue has effectively disappeared since the October 7, 2023, attacks on Israel and the ongoing armed conflict in Gaza, leaving Hamas largely dependent on support from Iran, crowdfunding contributions, and whatever revenue the group can generate from its investment portfolio.

Iran has provided as much as $100 million per year to Hamas since 2018. Hamas and its armed element, the Al-Qassam Brigades, have received support from Iran since the 1990s through networks of corporations, banks, and individuals located in multiple countries, including.

  • The People’s Democratic Republic of Algeria (Algeria),
  • The Republic of Lebanon (Lebanon),
  • The Kingdom of Saudi Arabia (Saudi Arabia),
  • The Republic of Sudan (Sudan),
  • The Republic of Türkiye (Türkiye), and
  • The United Arab Emirates (UAE),

Hamas also has a history of using “sham” charities, usually foreign non-profit organisations (NPOs) that claim to provide humanitarian assistance but instead primarily or exclusively funnel money to terrorist organisations, exploiting the trust and credibility associated with charitable giving.

In addition, Hamas and other terrorist groups have exploited crowdfunding and social media platforms to raise funds under the guise of humanitarian or charitable causes worldwide.

According to the analysis of BSA data, these donations are often placed in bank accounts in third countries, including Lebanon, the State of Qatar (Qatar), and Türkiye, which are then accessed by individuals operating in the Gaza Strip.

Additionally, Hamas has used convertible virtual currency (CVC) for fundraising, leveraging money exchangers that have incorporated CVC into their operations to facilitate cross-border transfers, probably seeking to benefit from the perceived anonymity afforded by certain CVC transactions and the lax regulatory oversight of virtual asset service providers (VASPs) in some high-risk jurisdictions.

Hamas has sought CVC contributions in donation drives since at least 2019 and has historically leveraged VASPs to safeguard the anonymity of their donors. There is evidence, however, that Hamas has reacted to law enforcement action targeting its use of CVC. For instance, in April 2023, the al-Qassam Brigades announced that they would no longer accept Bitcoin donations, warning that donors could be targeted.

Houthis

the Houthis, or Ansarallah, are an Iran-backed Zaidi Islamist movement that arose in Northern Yemen in 2004.

In 2014, the Houthis launched a military campaign to overthrow the internationally recognised Yemeni government, initiating a bloody civil war. Today, the Houthis control a large portion of northern Yemen, including the former capital, Sana’a.

Following the Hamas attacks on Israel on October 7, 2023, the Houthis began attacking commercial and naval vessels transiting the Red Sea and Gulf of Aden. Since October 17, 2023, the Houthis have carried out more than 50 attacks on commercial vessels, forcing companies to divert their shipments to the much costlier route around Africa’s Cape of Good Hope.

In response, the U.S. Department of State redesignated the Houthis as a Specially Designated Global Terrorist (SDGT), effective February 16, 2024.

The United States has also responded by launching Operation Prosperity Guardian, a naval coalition of more than 20 countries to protect commercial vessels; by leading a coalition that has conducted a series of strikes against Houthi targets in Yemen; and by imposing sanctions against the exchange houses and smuggling network through which Iran funds the Houthis.

Much of the Houthis’ funding is raised and transferred using an elaborate smuggling network connected to Iran-based IRGC-QF-backed Houthi financial facilitator Said Al-Jamal.

The network generates tens of millions annually by selling Iranian commodities like petroleum to customers in Asia, the Middle East, and Africa. Those funds are then funnelled to the Houthis in Yemen through a complex network of exchanges and intermediaries spread across multiple countries. Al-Jamal also maintains connections to Hizballah and has worked with the group to send millions of dollars to benefit the Houthis.

The Houthis also raise funds by collecting customs revenue from the Hudaydah and Salif ports in Yemen, appropriating public funds using fraudulent contracts, and unlawfully appropriating assets belonging to political opponents or those who have fled the country.

Hizballah

Formed in the wake of Israel’s invasion of Lebanon in 1982, Hizballah is a strategic partner through which Iran projects power throughout the Middle East. While primarily based in Lebanon, Hizballah’s activities extend to Syria, Iraq, and Yemen.

Iran has provided hundreds of millions of dollars in support to Hizballah and has trained thousands of its fighters at camps in Iran. Hizballah, in turn, has trained and equipped other Iran-aligned militias in the region and acts as a conduit for funds from Iran’s IRGC-QF to other Iran-aligned groups.

Estimates indicate that Iran has historically provided Hizballah with approximately $700 million of Hizballah’s estimated $1 billion annual budget.

While Iran has supported Hizballah and others through a vast network of front companies, banks, and individuals, Hizballah also finances itself through a broad range of illicit activities, including oil smuggling, money laundering, drug trafficking, counterfeiting, and illegal weapons procurement.

These activities are global in scale, encompassing the western hemisphere, Europe, Africa, and the Middle East, and often have a nexus to transnational organised criminal groups, drug trafficking organisations, and professional money laundering organisations.

Hizballah also utilises networks of front companies, legitimate businesses, and cryptocurrencies to raise, launder, and transfer funds.

Hizballah financiers use free trade zones and countries with weak regulatory frameworks to establish import-export companies that facilitate trade-based money laundering schemes. These companies are often held in the name of a relative of the financier, for example, a spouse.

Hizballah operatives have been known to operate in the Tri-border area of Argentina, Brazil, and Paraguay and free trade zones in Chile and Panama, with members and supporters identified in Colombia and Peru as well.

Hizballah’s illicit activities also extend to Africa.

In 2019, the Treasury designated Nazem Said Ahmad, who had used his Africa-based diamond business to launder money on behalf of Hizballah, along with Saleh Assi, who used his Congo-based businesses to launder and raise funds for Hizballah.

Palestinian Islamic Jihad [PIJ]

PIJ is a Sunni Islamist terrorist organisation operating in Gaza and the West Bank. It is the second-largest armed group in Gaza and receives support from Iran, Syria, and Hizballah. PIJ and Hamas share many similarities: both are violent offshoots of the Muslim Brotherhood; both seek to create an Islamic Palestinian state through the destruction of Israel; and both receive significant funding and support from Iran.

Like Hamas and Hizballah, PIJ’s operatives have been trained by Iran to use Iranian-made missiles for long-range rocket attacks against Israeli cities and to carry out suicide bombings.

PIJ relies on many of the same funding channels as Hamas. It receives much of its support from the IRGC and IRGC-QF, which distribute those funds through PIJ intermediaries or through the Islamic National Bank of Gaza, which was designated by the Treasury in 2010 for being controlled by Hamas.

Also, like Hamas, PIJ makes use of sham charities to move and launder funds. In 2023, the Treasury sanctioned the Al-Ansar Charity Foundation and the Muhjat al-Quds Foundation, through which Iran provided financial support to PIJ fighters and their families.

Iran-aligned Militia Groups in Iraq and Syria

Some of the most prominent Iran-aligned militia groups in Iraq are

  • Kata’ib Hizballah (KH),
  • Kata’ib Sayyid al Shuhada (KSS),
  • Asa’ib Ahl al-Haq (AAH), and
  • Harakat al-Nujaba (HaN).

These groups have received support, training, weapons, and intelligence from the IRGC-QF and Hizballah.

These groups have also abused the Iraqi financial system to generate revenue and launder money, including through the use of front companies, fraudulent documentation, identity theft, currency arbitrage, and counterfeit currency.

Although some members of Iran-aligned militia groups operate within Iraq’s official Popular Mobilization Forces (PMF), these groups frequently operate outside government control and conduct destabilising attacks in Iraq and neighbouring Syria as well as attacks against coalition forces seeking to defeat the Islamic State of Iraq and Syria (ISIS).

SOURCE
SANCTIONS TERRORISM FINANCING

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