FinCEN has issued an advisory for Iran that specifically is targeted for digital currency exchanges, banks and foreign banks so that the latter can understand their obligations under the correspondent banking system. The advisory is interesting because it is one of first instances of an attempt to provide guidance to foreign banks in respect of the reach of US financial crime law arising from the correspondent banking system. Often foreign banks, and in particular, digital currency exchanges, are not aware of the correspondent banking system and how US AML / CTF / sanctions law is applicable to them.
The practice in Iran seems to be to move money out to Dubai and from there, banks and money services businesses sanctions-strip the money and move it to the US, Germany, UK or Canada. Sanctions-stripping is a way of providing originating information for banks that strips the origin of the money from being associated with Iran, an Iranian foreign national, or a person who holds an Iranian passport.
The FinCEN Advisory directs US correspondents to go back to foreign banks they provide services to (including Canadian banks) and seek additional information to ascertain that they are not being used for sanctions avoidance from Iran. In other words, to determine if sanctions-stripping of data occurred.
According to the Advisory, officials tied to the Central Bank of Iran, in particular, are being deployed to move money internationally to finance terrorism through Dubai and other cities in the United Arab Emirates. The Advisory provides examples including of an Iranian airline that moved money to Canada through Germany to finance terrorism. All Iranian foreign nationals use third parties and third party countries to move money – they have to because it is near impossible to export money in any form from Iran directly to another foreign financial institution except to Dubai and a handful of other countries whose banks deal with Iranian funds.
Enter Bitcoin – Bitcoin and other digital currencies could allow for the movement of funds from Iran to anywhere in the world because they are decentralized and are outside of the formal financial system. The Advisory estimates that at least $3.8 million is exiting Iran through Bitcoin annually using digital currency exchanges.
And that brings us to so-called sovereign initial coin offerings (“SOV“); they are ICOs issued by a government. A SOV is a new digital currency issued off an existing or a new Blockchain by a government agency. Venezuela is an example of a country that issued a SOV called the Petro coin for sanctions avoidance on the NEM Blockchain, that can be bought with NEM coins. Here, you can read how millions of dollars of stolen NEM coin were allegedly traced and traded at a Vancouver digital currency exchange. That means that the Petro coin from Venezuela apparently issued for US sanctions avoidance, can be bought with NEM at a Vancouver digital currency exchange without visibility because that exchange trades NEM. If you can buy the Petro coin in Vancouver with NEM for sanctions avoidance, you will likely be able to buy an Iranian SOV.
The Advisory suggests that banks and foreign digital currency exchanges monitor IP addresses and engage in Blockchain tracing to ascertain the origin of digital currency trades from Iran, although the latter is harder to do than the Advisory suggests.