Ambassador of Bahrain to USA highlights Kingdom's efforts in combatting money laundering and terrorism financing
The Ambassador of the Kingdom of Bahrain in the United States of America, Shaikh Abdullah bin Rashid Al Khalifa, published the following article on US News highlighting the Kingdom’s efforts in combatting money laundering and terrorism financing.
THE UNITED STATES government rightly labels Iran as the world's leading state-sponsor of terrorism. Its clerical regime – or the Velayet e-Faqih (Guardianship of Islamic Jurist) – exercises direct or indirect control over most of the country's largest financial and commercial institutions to allegedly train, finance and equip a global network of proxy forces in the Middle East, South Asia, Africa and Latin America.
During the time of the last shah, Iran's historical claims over Bahraini sovereignty ended in 1971 at the United Nations, supported by a poll taken of the Bahraini population voicing overwhelming support toward independence.
Nonetheless, Bahrain continues to be a target of Iran's efforts to expand its sphere of influence and hegemony since the revolution. More ominously, the Iranian regime has consistently used all the tools of its national power to destabilize our nation, which though territorially small, serves as a critical linchpin in the security architecture of the Middle East.
Fortunately, Bahrain has two things working in its favor: Our leadership and people have rejected the Iranian regime's theo-fascist doctrine. And we have a resolute ally in the United States.
In partnership with U.S. agencies, Bahrain recently took down a key node of Iran's global money laundering network.
Because Bahrain has always hosted a diverse group of independent financial institutions, the establishment of Future Bank in 2004 by two Iranian state-owned banks – Bank Melli and Bank Saderat – and a local Bahraini bank, Ahli United Bank, did not capture much attention.
However, by 2008 the U.S. Treasury Department designated Future Bank as being controlled by an entity linked to Iran's proliferation of weapons of mass destruction. The Central Bank of Bahrain (CBB) placed Future Bank under administration following its own investigation into Future Bank's activities and required time in order to examine the bank's accounts.
Following a comprehensive audit, the CBB found that Future Bank had engaged in systematic and wholesale violations of Bahrain's banking laws and regulations. There was widespread large-value international financial activity found to be in violation of anti-money laundering and anti-sanctions proliferations laws of numerous countries, including those of Bahrain. The modalities of Iran's fraud offer useful insights into how the world's No. 1 sponsor of international terror operates.
Bahrain's investigation discovered that the Future Bank had hidden payments from established methods of regulatory scrutiny through a measure called "wire stripping." Wire stripping refers to the falsification or removal of material identifying information from SWIFT messages in order to conceal the involvement of specific Iranian parties and banks in the underlying payment. Concealing this information often causes banks in other countries to violate their own regulatory obligations. In some cases, Future Bank induced other foreign banks to engage in the illicit practice. In total, Future Bank "wire stripped" at least 5,051 payments, with a total value of more than $5 billion.
Furthermore, from 2008-2012, Future Bank concealed certain money transfers through the illicit use of an Alternative Messaging System (AMS). Without exception, the Iranian financial institutions identified in Future Bank's AMS records had been sanctioned by the EU, the U.N. or the U.S. In total, more than 1,000 messages were transmitted through AMS in order to hide payments totaling an additional $5 billion.
Between 2004 and 2015, Future Bank also actively worked with its customers to defeat sanctions. In one example, the bank conspired with the Islamic Republic of Iran Shipping Lines to "de-flag" and "re-flag" certain sanctioned vessels, activities specifically prohibited by the U.N. Security Council. Future Bank also dealt with numerous entities and transactions affiliated with Iran's Islamic Revolutionary Guard Corps – another sanctioned entity. The transactions financed by Future Bank included export-controlled and dual-use military items as well as channeling money through various opaque financial arrangements in the form of loans, negotiable instruments and foreign currency securities.
On June 19, 2020, Bahrain's High Criminal Court sentenced three officials of Future Bank to five years in prison and imposed fines of $9 million for money laundering, funding terrorism and violating banking regulations. On July 16, it imposed additional fines of $37 million on Future Bank and three other banks.
Bahrain is justifiably regarded as one of the oldest and most reputable financial capitals in the Middle East. It is home to roughly 400 financial institutions, including more than 114 licensed banks. Total banking assets reached $201 billion in 2019, and financial services account for 16.5% of gross domestic product.
Bahrain is under no illusion that it continues to be a target for Iran and other operators seeking to exploit its openness for nefarious purposes. For this reason, we have taken notice and will not sit by the wayside, but rather double down on measures that prevent abuse while at the same time facilitating investment.
While our financial institutions have a good understanding of money laundering risks and terrorism financing, due diligence of customers and verification of beneficial ownership in other sectors may comprise potential vulnerabilities. That is why the CBB has begun to formally regulate Islamic and conventional crowdfunding businesses in its efforts to become a regional Sharia financial technology center.
Apart from having to comply with existing rules on anti-money laundering, combating terrorism financing and consumer protection among others, under the new crowdfunding rules, any firm operating a digital financing platform is required to be licensed in Bahrain and have a minimum capital requirement of just over $130,000.
Additionally, Bahrain's Real Estate Regulatory Agency recently announced enhanced measures to trace money laundering and terrorist financing in the property sector.
As for Bahrain, fighting Iran's financing of terror is not simply a battle of ideals waged in the shadows. It is also an ongoing campaign for transparency and global stability.