Has the Anti-Money Laundering Crackdown Contributed to the Collapse of the Iranian Currency?

October 9th, 2012

Following Several, Recent, High-Profile Cases Against International Banks for Violating U.S. Sanctions Against Iran, the Iranian Rial Lost 60% of its Value against the U.S. Dollar Last Week. Could There Be A Connection?

WASHINGTON, DC – The Iranian Rial tanked last week—plummeting 60% against the U.S. Dollar and triggering widespread domestic unrest—conspicuously in the wake of several, recent, high-profile legal actions against international banks for circumventing U.S. sanctions against Iran.  In a new blog post on the website of the Task Force on Financial Integrity & Economic Development, Global Financial Integrity (GFI) spokesman EJ Fagan suggests the two are likely connected.

Fagan, who holds a Masters of Public Policy from George Mason University specializing in International Institutions, writes:

Over the past four months, U.S. authorities have fined major international banks ING and Standard Chartered, and are rumored to be investigating several more, including the massive Deutsche Bank, for stripping wire transactions of information relating to their Iranian clients. The Wall Street Journal’s Corruption Currents blog reports that the EU could follow in a similar crackdown.

Oil is usually traded worldwide in U.S. dollars. Banks that provide U.S. dollar accounts, even if both parties to the transactions and the bank are not from the United States, have to open correspondent accounts stateside. This includes Iranian entities trying to sell Iranian oil. If U.S. authorities sent a strong enough message to international banks that using loopholes or deception to continue doing business with Iranian oil exporters will bring consequences, it could all of the sudden become very difficult to transfer money to those clients worldwide. Anyone in Iran stuck with large rial holdings could end up finding it very difficult to spend the currency on useful things in the future – tanking its value. They might also speculate that in order to cover its sanctions-induced deficit, the Iranian government might just print loads of money.

This kind of crisis of confidence is like one giant bank run on the Iranian currency. No one wants to be left holding a medium of exchange that they can’t exchange. Anyone on the fence sees everyone else going to the market to sell off their rial, and it creates a vicious circle that—if not halted—could result in hyperinflation.

He concludes:

There are a lot of things that could cause this effect. We should be very clear not to attribute it solely to any one cause. But if the new anti-money laundering enforcement contributed to the collapse, we should note one very important fact. No new laws were passed by the United States. U.S. law enforcement acted this summer to investigate and fine banks that were violating the law during the 2000s – not to directly stop crime that was occurring real time.

The (still-ongoing) crackdown by U.S. law enforcement was in reality an impressive demonstration of U.S. intention to go after banks that are violating the law. When Ben Lawsky very publicly threatened to take away Standard Chartered’s banking license, I bet that quite a few banks saw their potentially weak compliance programs as an existential threat to their institutions.

It proves that enforcing anti-money laundering laws of all kinds is something that the United States government is capable of doing, if the political will exists. Money laundering does not only cause harm to the United States and elsewhere when sanctions against a geopolitical enemy are involved. If we want to fight it, we can. Enforcement of financial crimes works when we want it to work.

Click here to read the complete blog post.

For questions and comments, please contact Clark Gascoigne at or EJ Fagan at



Clark Gascoigne
+1 202-293-0740 ext.222

EJ Fagan
+1 202-293-0740 ext.227


Global Financial Integrity (GFI) is a Washington, DC-based research and advocacy organization which promotes transparency in the international financial system.

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