The Humanitarian Cost of the IRGC's Involvement in a Bank

October 23, 2018

8 min read

During the last sanctions period, Parsian Bank was exempt because it helped deliver humanitarian goods to the country — and no credible links to terrorism financing could be found

The United States has issued sanctions against Parsian Bank, one of Iran’s largest banks, along with more than a dozen other Iranian companies, financial institutions, manufacturing plants and foundations.

The sanctions, which were applied on October 16, are significant because Parsian Bank is the major financial institution in Iran for the import of pharmaceuticals and other medical goods, as well as food and agricultural supplies.

It’s the first time the US has leveled sanctions at the bank, mainly due to the fact previously there was no available information suggesting a link between the bank and terrorism financing.

According to the new sanctions, any type of transactions and cooperation with this bank — whether by companies or individuals originating in the US or not — is forbidden, and anyone in violation of this will be subjected to further retaliatory sanctions from the US.

Even during the time of the strictest sanctions against Iran, Parsian Bank had never appeared on any lists and was able to carry out its business and transactions with international banks.

Iran’s foreign minister Mohammad Javad Zarif responded to the news on Twitter on October 17, pointing out the important role that Parsian, which he described as a private bank, plays in importing pharmaceuticals and food into Iran. Zarif claimed the US sanctioned Parsian because it had eight separate links with what he described as an “illegitimate target” that already featured on the sanctions list. The “illegitimate target” reference is to the Cooperative Foundation of Basij, a subsidiary of the Basij Organization (which is in turn linked to the Revolutionary Guards).

The US Department of Treasury claims all entities that appear on the new sanctions list are sponsors of the Basij Organization. One of them is Mobarakeh Steel Company, the backbone of Iran’s automobile industry. Others include Mehr Eqtesad Bank, Mehr Eqtesad Financial Group and Sina Bank. However, in terms of the impact on Iranians’ access to medicine and other necessary goods, the sanctions on Parsian Bank are the most damaging.

Parsian Bank: The Background

Parsian Bank was established in 2000, introduced as a public entity owned by people without links to the government. However, this is not strictly true since the majority of the bank's stocks are owned by Iran Khodro and Tadbir Investing Group. Although Iran Khodro has some private investors, it is primarily under the control of the Ministry of Industry, Mine, and Trade — so clearly a state organization. The other major stockholder, Tadbir Investing Group, is also controlled by the office of the Supreme Leader and so not a private entity.

Iran’s economic environment has a specific term for companies that are part private, part public, and partially owned by the Supreme Leader. The term can be roughly translated as “prublic,” and the fact that the terminology exists points to the ambiguous nature of such companies and the impossible task of distinguishing whether they are private or public.

However, during all the years of sanctions on other companies, Parsian Bank managed to gain the trust of international banks and financial institutes. It obeyed the rules against money laundering, sponsoring terrorism and drug deals, including the Financial Action Task Force (FATF) guidelines to combat terrorism financing, and thereby avoided sanctions.

For example, Parsian Bank avoids any transactions with people or financial institutes listed on the sanctions list for sponsoring terrorism or for violating human rights. The bank was so strict on this policy that it faced harsh criticism from some Iranian officials, who regarded Parsian Bank’s policies as self-imposed sanctions on its own activities, and on those of other Iranian banks.

Nevertheless, Parsian Bank eventually ended up on the US Department of Treasury sanctions list. The commanders of the Revolutionary Guards and the Quds Force also appear on this list.

So why was Parsian Bank Added to the List?

Although the United States Department of Treasury Office of Foreign Assets Control (OFAC) added Parsian Bank to the sanctions list, it has not identified it as an entity that directly sponsors terrorism. This is a new approach to imposing sanctions on Iranian entities.

In the eyes of the US, Parsian Bank has links to the Revolutionary Guards. The links between the bank and the Guards are as follows: Parsian offered services to Andishe Mehvaran Investing Groups, which feature on the recent sanctions list because some of the groups’ stocks belong to the Iran Zinc Mine Development Company, and 50 percent of this company is owned by Taktar Investing Company. In turn, 97 percent of Tektar belongs to Technotar Engineering Company, which is mostly owned by Mehr Eqtesad Financial Group and is a subsidiary of Mehr Eqtesad Bank. The bank is controlled by the Basij Organization — part of the Revolutionary Guards.

It is interesting to observe how these institutes conduct their internal affairs. Until March 2018, Mehr Eqtesad Financial Group was the major shareholder of Iran Zinc Mine Development Company. The group sells shares to Taktar Investing Company, of which it is actually a subsidiary. This practice of internal and interlinked transactions within and between the subsidiary companies (essentially selling back and forth to one another) is a common tactic employed by the Revolutionary Guards’ companies to bypass sanctions.

The US has sanctioned every single one of these entities because they sponsor terrorism. According to the Department of Treasury, Parsian Bank was providing the Guards Corps with financial services by avoiding intermediaries.

Until now, there has been no such argument for sanctions against an Iranian bank or financial institute. Bringing sanctions against Parsian Bank could be the first practical outcome of President Trump’s promise to level the “most unprecedented sanctions” against the Islamic Republic.

A Long History of Lack of Transparency

There is a chance that Parsian Bank was not aware of the true identity of its Basij and Guards clients, since the trail of transactions has been complicated and happened in several stages. Even the largest international banks experienced this problem with lack of transparency after the Joint Comprehensive Plan of Action (JCPOA) came into effect and sanctions were lifted. Despite the fact that John Kerry, the US Secretary of State under President Obama who played a key role in the JCPOA, met with European banks in London on May 12, 2016, many international banks and companies were still wary about the prospect of conducting business in Iran.

The issue was never fully resolved during the time that the JCPOA was in full force and the US was party to it. Because of the interconnected and complicated structure of those institutes, international banks working with companies that don’t feature on the sanctions list are worried again that they will unknowingly do business with people or entities condemned by US sanctions.

Richard Nephew, the architect of the sanctions against Iran during Obama’s administration, wrote in his 2018 book The Art of Sanctions that although the Revolutionary Guards and other entities on the sanctions list were temporarily successful in bypassing sanctions, this process involved a vast network of public and private institutes, which eventually led to an expansion of the domain of sanctions.

The Future for Food and Medicine in Iran

The increased risk of doing business with Parsian Bank because of the US sanctions will have a serious impact on the availability of and Iranians’ access to necessities, including food, pharmaceuticals and other medical supplies, and agricultural supplies. The new wave of US sanctions to come into effect on November 4 will also likely have a devastating impact.

Parsian Bank responded to the US Department of Treasury sanctions move, saying that it had stopped using US dollars in its international transactions years ago and now work with European and Asian countries and exchange mechanisms. According to them,”the new sanctions won’t have any impact on Parsian Bank’s operations.”

The bank’s transactions might not come to a complete standstill because of US sanctions, but it will certainly be more costly for businesses to work with the bank, as there will be a hike in the price of all imported goods.

The International Criminal Court, which reviewed Iran’s complaint about the re-imposition of US sanctions, issued a temporary verdict on October 3, ordering the US to immediately suspend sanctions on food, pharmaceuticals, and non-military airline services — all of which are categorized as humanitarian goods.

The US insists that it never sanctioned food or pharmaceuticals in Iran — but it has no plan to follow the International Criminal Court’s verdict. Currently, the US is blocking the very last windows of international financial transactions that have been open since January 2016, and which made it more viable for Iran to purchase food and pharmaceutical supplies.

Before the JCPOA, US sanctions against Iran were not overly strict. This helped to create a corrupt system for importing pharmaceuticals into the country. The system, in part a product of sanctions, also included the import of luxury cars and furniture, smuggled in under the cover of being a pharmaceutical import and benefitting from a subsidized exchange rate, structural corruption in the economy, lack of transparency in state organizations, and an overall lack of efficiency in the process of importing food and pharmaceuticals.

Although it will not be paralyzing in the short term, the financial sanctions such as the one imposed on Parsian Bank will eventually effect the process by which humanitarian goods come into the country — and have an obvious impact on the lives of Iranians.