US crackdown leaves much of Iran’s shadow banking untouched
Iran International also found that US investigations into some banks were years behind the activities of the network, which expanded across multiple countries and moved billions of dollars for Iran despite sanctions.
The investigation was based on leaked internal correspondence and foreign transaction records from Bank Parsian spanning November 2022 to May 2023. The Iranian bank has been under US sanctions since 2018.
These documents shed light on a multi-layered operation within Iran’s banking system. The records offer only a snapshot of one network over a seven-month period, suggesting the full scale is far greater.
Iran International found no evidence that the banks in the UAE and China knowingly facilitated Iran’s efforts to circumvent US sanctions.
The investigation identified 15 foreign-based banks that helped Iran conduct international transactions in recent years.
Thirteen of these banks have faced no US penalties or enforcement for their involvement, according to publicly available records.
Only two of the 15 banks were targeted by the United States in August as part of the “D-Day” economic campaign which Washington described as an onslaught against Iran’s financial connections around the globe.
On August 24, US Treasury Secretary Scott Bessent called on all governments to close branches of Bank Melli Iran.
Four days later, the Treasury proposed cutting Banque Misr’s UAE operations off from correspondent banking access to the US financial system.
Treasury estimates that from 2024 to 2026, Banque Misr UAE processed approximately $1.8 billion for 103 companies that are potentially part of Iranian shadow banking networks.
However, documents reviewed by Iran International showed that funds originating from Iran’s central bank were being directed to accounts at Banque Misr’s UAE branches as early as November 2022.
Banque Misr and Bank Parsian did not respond to requests for comment.
China and UAE
Iranian banks use intermediaries to move foreign currency outside the country while obscuring their involvement in transactions, according to the US Treasury. Brokers working for the banks use so-called “rahbar” companies, which in turn rely on overseas shell and front companies to bypass sanctions.
The leaked documents showed funds belonging to Iranian banks being deposited into accounts outside Iran — referred to in the records as “trustee accounts” — and then moved according to the Iranian banks’ instructions.
At each stage, identifying details disappeared, leaving foreign banks facing non-Iranian, mostly non-sanctioned trading companies rather than sanctioned institutions such as Bank Parsian, Bank Shahr or Iran’s central bank.
A May 22, 2023 letter from Bank Parsian showed the bank asking Bank Shahr, another Iranian lender, to arrange the “settlement of purchased dirhams of nominee origin.”
The letter said Bank Parsian had bought 3.06 million UAE dirhams from Iran’s central bank and that the funds were held in a “trustee account” at Bank Shahr. It asked Bank Shahr to transfer the money to an account at Banque Misr.
“What keeps the regime’s shadow banking network, the so-called rahbar network, running is not clever financial engineering. It is people: trusted individuals and a handful of sarrafis, the currency brokers who serve as the regime’s gateway to the global financial system,” said Miad Maleki, a former senior Treasury official now at the Foundation for Defense of Democracies think tank.
“Just as IRGC soldiers carry out the regime’s repression at home, these businessmen and trustees carry the responsibility for funding its terrorism at home and abroad. Without them, Tehran could not move a single yuan out of its accounts in China or buy a single dollar or euro in Dubai or Istanbul,” he added.
Iran International identified 33 instruction letters in the leaked documents that directed the movement of dirham, yuan and dollars, with a total value of roughly $36 million.
Dollars made up the largest share of the value transferred, meaning the dominant currency in this shadow network was still the one US sanctions are designed to control.
UAE and China
The US Treasury described Banque Misr UAE as “a critical node for the Iranian regime’s access to U.S. dollars.”
Banque Misr was the most frequent UAE destination for Bank Parsian’s foreign transactions, the documents showed, but seven other banks operating in the Arab state also appeared in the records, including some of the UAE’s largest lenders.
The documents showed the transactions took place between 2022 and 2023, years after Bank Parsian was designated under an executive order targeting terrorism financing.
Thirteen UAE-registered companies also appeared as beneficiaries across these eight banks. Five of them held the Banque Misr accounts.
Iran International also identified seven Chinese banks that received money on behalf of Iran.
The leaked documents include 23 letters from Bank Parsian involving yuan-denominated transactions with Chinese banks, including some of the country’s largest lenders by assets.
One Chinese bank that specialises in cross-border settlements for small exporters received 11 payment instructions from Bank Parsian according to the documents.
Most of the beneficiary firms were general trading companies registered in Hong Kong and Singapore, where companies can be established relatively easily, while receiving banking services from mainland China.
None of the seven Chinese banks identified in the documents has faced US enforcement action over its dealings with Iran.
Tip of the iceberg
Bessent said in August that the department had “mapped the networks, facilitators, and financial channels that Iran uses to smuggle oil, evade sanctions, and fund terror.”
President Donald Trump also said in a post on Truth Social that “ANY country that allows its financial institutions, businesses, airports, or government entities to provide any type of lifeline to Iran will itself face TREMENDOUS Economic Consequences.”
His warning included cash transfers, exchange houses and front companies.
However, U.S. sanctions have tended to focus more heavily on Iran’s oil-revenue and procurement networks than on correspondent banking and trade finance.
The Iran International investigation reveals the scale of what remains untouched by the US administration. The leaked files show that one Iranian bank, in seven months, directed money to 15 foreign-based banks in two countries through 33 beneficiary companies.
Out of 33 beneficiaries, only three have been publicly identified by the US Treasury.
The transactions identified by the investigation were carried out by Iranian financial institutions that were already under US sanctions when the instruction letters were issued.
Throughout that period, the Iranian institutions at the heart of the network – including the Central Bank of Iran, Bank Parsian, Bank Shahr, Bank Eghtesad Novin, Bank Saman, and Bank Melli – were already under extensive US sanctions. Yet the money continued to move, largely through financial institutions outside Iran.
Section 311
Washington has stopped short of targeting larger financial institutions, particularly major Chinese banks involved in financing Iranian trade, a step Washington has so far avoided amid concerns over wider financial disruption and retaliation.
Hours after the United States sanctioned dozens of Chinese entities and threatened to target an unspecified “major financial institution” over its dealings with Tehran, Beijing said in a threatening tone that its relationship with Iran “should not be disrupted or undermined.” China would take “all necessary measures” to safeguard its interests, Foreign Ministry spokesperson Lin Jian warned.
Washington has begun targeting the banking channels used by Iran’s shadow network through a more targeted tool, Section 311 of the USA Patriot Act, which can restrict foreign financial institutions’ access to the US financial system.
Unlike a sanctions designation, a Section 311 finding does not require the Treasury to show that the bank knowingly handled Iranian money — which may be why it was the instrument chosen.
Banque Misr’s UAE operations were targeted under Section 311 as part of the economic D-Day campaign.
“What makes this package different is that it isn’t operating alone. US diplomatic engagement and pressure on jurisdictions like the UAE, Turkey — and even China, is now coupled with a blockade that is choking off a large share of the imports Iran uses these networks to finance,” former Treasury official Maleki said.
“Together, that accelerates what sanctions alone would take years to do. And the regional calculus has shifted: jurisdictions that have themselves been targeted by the regime are far more willing to cooperate on enforcement — as the UAE just showed,” he added
Washington has signaled that further action against foreign banks is coming.
Whether Washington’s D-Day economic campaign succeeds will depend heavily on enforcement beyond Iran, including action against foreign institutions facilitating Iranian transactions, many of which are based in partner countries or strategic rivals.