How Iraqi-Iranian militias’ arms trafficking networks bypass US sanctions

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The recent US sanctions on the Iraqi-based South Wealth Resources Company (SWRC) have shined a light on how Iranian-backed militias are continuing to receive arms legally despite sanctions. The SWRC, which was sanctioned for smuggling arms worth hundreds of millions of dollars to Iraqi militias linked to the Iranian Revolutionary Guards Corps (IRGC), is just one of many Iraq-based companies circumventing US sanctions using legal cover.

IRGC-linked armed militias across the region have defied US sanctions by using a financial network consisting of hundreds of companies that claim to work in general trade, exchange, money transfer, agriculture, industry, and construction. According to the Foundation for Defense of Democracies (FDD), a non-partisan policy institute, there are at least 667 companies that are influenced by the IRGC, either through equity shares or positions on the board of directors.


How do these companies operate?

These companies follow all legal procedures required to operate, including licenses, registration, and official documents, a source that specializes in the affairs of Iraqi extremist groups and Islamic factions told Al Arabiya English. The companies are able to operate due to collusion between Iraqi politicians, security apparatuses, political parties, and the Central Bank. These Iraqi state institutions are under pressure from Abu Mahdi al-Mohandes, the commander of the Iranian-backed Popular Mobilization Units (PMUs) militias.

Despite the US freezing business activities and targeting boards of directors of numerous banks, financial institutions, and companies, dozens of other companies have been established legally under different names.

According to information obtained by Al Arabiya English, Al-Bilad Islamic Bank for Investment and Finance and its director Aras Habib Karim was able to circumvent sanctions by changing its name to Ataa and appointing a new board of directors. The US sanctions only obstructed the original bank’s name and director and were unable to stop the institution from laundering and money financing terrorism.

In other cases, where other exchange companies were sanctioned, Iraqi courts allowed the new companies to operate by citing a lack of evidence for these companies’ illegal activities and the absence of bilateral agreements with the US regarding its economic sanctions on Iran. Examples include Al-Kawthar Money Exchange, Silsilet Al-Thahab Money Exchange and Al-Rawi Money Exchange.

The leaders

A source close to Iraqi armed militias said that four men play a prominent role in arms trafficking on the Iraqi-Iranian border under “front companies.”

Shibl al-Zaidi, the secretary general of the Iraqi Imam Ali Brigade, smuggles weapons under the cover of furniture firms and chicken eggs imports. Al-Zaidi is aided by Sheikh Hussein al-Safi, an Iraqi, and works for Qassem Soleimani, the commander of the IRGC – Quds Force (IRGC-QF).

Sheikh Mohammed Kawtharni, a Lebanese national, invests in weapons using Hezbollah’s funds.

Mohammed Jaber Abu Jaafar, a Syrian, invests in the arms trade using the money of Syrian President Bashar al-Assad. He has a front company called Al-Osra Sugar which smuggles weapons, petroleum and drug-related substances between Iraq, Syria, and Iran.

According to the source, these four men manage funds that are worth eight to nine billion dollars. The funds are used in the arms trade between Iraq, Iran, Syria and Lebanon. The value of weapons smuggled to Iraqi militias between March 2015 and August 2017 is worth three billion dollars out of that entire amount.

A source who is familiar with American intelligence in the region added that IRGC forces have gained wide influence in East Iraq through a strong Sunni tribe and a local Shiite group. This allows them access to the Shalamcheh, Khanaqin, and Zurbatiyah border crossings, where the smugglers use local connections to avoid inspection.

Impact of US sanctions

US sanctions on Iran’s exports in petro-products and industrial minerals are not working, and sanctions continue to be circumvented via money laundering and weapons smuggling. The Iraqi militias continue to receive their wages because they are paid for by the Iraqi government, and therefore are unaffected by the sanctions on the IRGC.

In March, the US Treasury sanctioned the IRGC-controlled Al-Ansar Bank for facilitating the payment of wages to the IRGC-QF. Despite that, cash deposits to Al-Ansar Bank have increased by four percent during the past two months.

The evasion methods adopted by the bank to maintain its assets include extending the loan dues of a front company that operates within a legal framework. The front company is in fact linked to the IRGC.

US laxity?

Matthew Zweig, a senior fellow at FDD, noted in a piece in June that the US Treasury Department has not yet issued a judgement which will determine the precautionary measures that the US will demand to prevent Iran from money laundering, known as a Final Rule.

Asked if this lack of a Final Rule could be described as lax by the US administration, suggesting that America does not want to “implicitly” isolate Iran from the global financial system, Zweig told Al Arabiya English that revising a draft rule, particularly one that was first promulgated in 2011, is a difficult affair, especially when revising the evidentiary basis for the finding.

“The administration may have decided to initially prioritize expanding both the scope of the sanctions and the number of designated entities over revising this rule given the amount of time and effort that would have to go in to updating it,” he said.

“Taking actions such as revising the 311 Draft Rule, updating the evidentiary basis, and promulgating a Final Rule should now be easier due to the amount of work that the administration has now completed in terms of both designation packages and administrative guidance with respect to Iran,” Zweig added.

Commenting on expanding the Final Rule’s reach, Zweig told Al Arabiya that “this measure would be intended to act as a catch-all, designed to go beyond the current due diligence framework that would apply strictly to already designated Iranian banks — those that meet the 50 percent or more threshold for ownership by a designated person and apply to banks with any Iranian SDN ownership.”

He added that the objective is “to introduce yet another layer of risk into the equation with respect to Iran as a jurisdiction.”

Asked how US sanctions can limit the activity of companies that facilitate the smuggling of weapons to the IRGC, Zweig said: “While I am not aware of ways that the administration has noticed or not noticed Iran’s use of Iraq to circumvent sanctions, this administration has taken an increasingly aggressive approach to targeting these networks in Iraq despite continuing to exercise the waiver necessary to allow Iraq access to Iranian electricity.”

Zweig disagreed with an Iranian expert’s remark that the US sanctions will have no practical impact and said, “It is clear that US unilateral sanctions against Iran have had a substantial effect, particularly when it comes to their ability to sell oil internationally, gain access to hard currency, or even fully access their existing foreign exchange reserves.”

These facts raise some crucial questions: Is the Iranian-backed networks’ ability to circumvent sanctions a victory for them, and a defeat for the US? Or is the American administration being deliberately lax to try and bring Iran to the table for negotiation?

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