Central Bank of Iran

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The Central Bank of Iran (CBI), also known as Bank Markhazi,[1] was established in 1960[2] and is in charge of settling accounts for the nation's oil trade. Since oil accounted for about 80 percent of Iran's exports as of December 2011, the CBI plays a crucial role in Iran's economy.[3] The bank is also the acting treasurer of the government, printing bank notes and enforcing monetary and financial policies.[4] Though technically an independent institution, the Iranian government has direct control over the lending and investment activities of commercial banks, including the central bank. The central bank must obtain approval from the Iranian parliament, or 'Majles' in order to issue participation papers,[5] which refers to a monetary instrument for financing government operations, which can also be used for open market operations.[6]

Role

Four major roles of the CBI, as stated in the Monetary and Banking Act of Iran (MBAI) of 1960, are: maintaining the value of national currency; maintaining the equilibrium in the balance of payments; facilitating trade-related transactions; and improving the growth potential of the country. The CBI is mandated to keep government accounts, grant loans and credits to state enterprises and agencies. The monetary and credit policies of the CBI are formulated and implemented consistent with the MBAI, the Usury-Free Banking Act of 1983, the Banks Nationalization Act of 1979, and the Law for the Administration of Banks of 1979.[2]

Combating money laundering

Iran's financial system has been prone to money laundering, and the CBI has implemented regulations to curb such crime. Iran's geographical position means it is heavily affected by drug trafficking originating from Afghanistan; in Iran, drug traffickers launder money to disguise the illegal origins of their wealth and protect their asset bases, so as to avoid the suspicion of law enforcement agencies and prevent leaving a trail of incriminating evidence, according to the UN Office on Drugs and Crime.[7] Since 2002 the central bank has engaged in efforts to combat money laundering. In January 2008, Iran passed a law criminalizing money laundering and in December 2009 adopted implementing regulations for the Anti-Money Laundering (AML) law, which continues to be brought in line with international standards.[5]

Target of international sanctions

On 21 November 2011, Canada and Britain announced a ban on transactions with the CBI and other banks in the Islamic Republic,[8] and the CBI was a key target of economic sanctions approved by the United States Congress[3] by a 100-0 vote in December 2011.[9] The US sanctions would limit dollar-based transactions between international financial institutions and the CBI. If foreign banks discontinue their business with Iran's central bank to avoid US sanctions, it would be difficult for Iran to export oil.[3] Further ramping up international sanctions, on 23 January 2012 the European Union imposed an oil embargo against Iran and froze all assets held by the CBI.[3]

The CBI also acts as an intermediary for Iranian banks that are under sanction by the United States for proliferation or terrorism,[10] including, among sixteen total, the banks Mellat, Melli, Sepah and Saderat.[11] According to the US Treasury Department, the CBI transferred billions of dollars in 2011 to multiple sanctioned Iranian banks and provided key support to Iran’s Islamic Revolutionary Guard Corps and its economic conglomerate Khatem al-Anbiya.[9]

In response to stiffening Western economic sanctions, Iran’s Central Bank in July 2012 established a separate cell to deal with the impact of sanctions. The chief of the CBI, Mahmoud Bahmani, claimed the sanctions were ‘no less than military warfare’. No details or strategies of the cell's working has been provided. International pressure, channelled through sanctions, was increasingly felt after European Union sanctions came into full effect on 1 July 2012. Financial transactions worldwide involving the CBI were targeted. [12]

External Links

Central Bank of Iran official website: www.cbi.ir/default_en.aspx

References

  1. "Iran central bank to file motion in US court to unfreeze funds" Reuters, 30 December 2011.
  2. 2.0 2.1 "General Information" Central Bank of Iran website, Retrieved 20 January 2012.
  3. 3.0 3.1 3.2 3.3 "U.S. sanctions on Iran likely to affect Japan most" Daily Yomiuri Online, 19 December 2011.
  4. "History of Banking in Iran" Pars Times, Retrieved 20 January 2012.
  5. 5.0 5.1 "Iran’s Economic Conditions: U.S. Policy Issues" Congressional Research Service, 22 April 2010.
  6. "Monetary operations and government debt management under Islamic banking" International Monetary Fund 1998, p 10.
  7. "Iran To Strengthen Its Capacities To Fight Money Laundering And Financing Of Terrorism" UN Office on Drugs and Crime, Retrieved 8 February 2012.
  8. "Impact of Sanctioning Iran's Central Bank" Washington Institute for Near East Policy, 29 November 2011.
  9. 9.0 9.1 "Pressure Mounts for Sanctions on Iran’s Central Bank" American Israel Public Affairs Committee, 7 December 2011.
  10. "US Senate Approves Sanctions Aimed at Crippling Iran Oil Sales" Bloomberg, 2 December 2011.
  11. "Financial Sanctions" United States Institute of Peace, Retrieved 7 December 2011.
  12. "Iran Central Bank Starts Sanctions Cell: Report" France 24, 31 July 2012.