The constitutional supervisory body, Guardian Council (GC), has once again rejected the bill on fighting money laundering. In recent weeks, the GC had undertaken a study of the groundbreaking bill. It finally came to the conclusion that the bill runs contrary to Islamic laws.
The bill will now be referred to the arbitrating body, the State Expediency Council (SEC), for a final decision.
Money laundering is defined as methods used by criminals to disguise and hide the origin of the money made from their illegal activities. The term laundering is used because criminals need to turn their ’dirty’ money into clean funds that they can use without arousing suspicion. Bribery, theft, drug trafficking, smuggling and gambling includes some of the crimes.
Feizi-Chekab, a legal expert, told ISNA that smuggling is the main source of dirty money in Iran. He believes that the roots and not only the entry points of dirty money have to be detected.
“Money laundering is an open secret in today’s world and there is no doubt that it is a criminal act,“ he said, adding that in many countries, the governments have devised specific laws to prevent money laundering.
He also said that there is a legal vacuum in Iran regarding money laundering.
“In western countries, the banking system seeks information about the source of money deposited in an account, if it is unusually high,“ he said, pointing out that this is not the case with the Iranian banking system.
Feizi-Chekab stressed the need to block all routes that could be used by criminal groups to launder their illegal money, adding that this would be possible only through legal channels.
“To prevent money laundering, civil liberties have to be respected, but the financial activities (of the citizens) must be supervised (by the state),“ he said, stressing that it would be very crucial to the fight against money laundering to detect sources of money held by the citizens.
He said the law on fighting money laundering must be ratified as soon as possible, should the legal grounds for putting an end to the illegal activity be provided.
“Passing such a law will not be of any help, if it comes without a chain of other ratifications relating to customs, banking system, hard currency market, embezzlements and so on,“ he said, adding that smuggling is the main source of money laundering in Iran.
He said while preventive strategies have to be adopted against money laundering, punitive measures should also be taken in this respect.
“We must target the roots of money laundering,“ he said, adding that without judicial punishment, the fight against money laundering will not get anywhere.

No Punishment!
But Habib-Nejad, another legal expert, told ISNA that the fight against money laundering should not pursue legal punishments alone.
“The main aim of this campaign should be to return the laundered money back to its original place,“ he said.
He also said that money laundering is an organized crime. Many conventions have so far been passed at the United Nations for fighting it. Iran is also party to some of the conventions.
“The money laundering problem has to be addressed as an international issue,“ he said, adding that officials in charge of fighting money laundering need to keep aside their political inclinations.
He said money laundering has not been defined as a crime in Iran.
“However, that it is not regarded as a crime does not mean that it can be ignored,“ he said. It is not the right thing to do to base the money laundering fight on judicial punishments while the source of the laundered money remains unclear, he observed.
The cultural grounds have to be prepared for fighting this crime.

Capital Flight
Khalil Bahramian, also a legal expert, told ISNA that those who prevent the money laundering bill from becoming a law are, indeed, worsening capital flight.
“There are some people who intentionally or unintentionally criticize the money laundering bill and aggravate the capital flight dilemma,“ he said, adding that before Iran began experiencing capital flight, many western countries had wrestled with the phenomenon.
He said the officials in charge of directing the campaign against money laundering lack the required expertise.
“A few judges regulating a bill cannot help with efforts to fight money laundering,“ he said, adding that the judicial structures of the country remain incomplete. He said jail sentences must be issued for convicts of money laundering crimes.
Peyman Forouzesh, a member of the Majlis Economic Commission, told ISNA earlier that an underground economy has developed in Iran, adding that the money laundering bill, once it becomes law, will try to cleanse the banking system of illegal money.
The Central Bank of Iran (CBI) had also said earlier that the banking system is seeking to use a modern system to minimize the possibility of it being misused for money laundering-related activities.
It said all the country’s financial institutions are required to join the key project.
Noting that money laundering has complex procedures, the CBI said the traditional banking system is not capable of detecting such offenses.
The money laundering bill was initially ratified by the Sixth Majlis, but was rejected by the Guardian Council. The bill was sent back this time to the Seventh Parliament and was ratified again. But the Guardians once again rejected the bill recently.
Experts say once the bill becomes a law, greater transparency will be created in the country’s financial markets.

During his presidential election campaign, Mahmoud Ahmadinejad strongly criticized inefficient management of banks, especially over the high lending rates and unfair distribution of facilities. He promised to undertake fundamental reforms in the capital market.
The main considerations in all state endeavors, he said, would be promotion of justice and an end to discrimination.
Replacement of seven state bank managers should also be viewed from the same perspective. It also possibly resulted from his dissatisfaction over the weak performance of banks and their deviation from the Islamic principle of interest-free banking.
Changing bank managers was the easiest part, but fulfillment of the president’s promises would need structural reforms, which he once again stressed during his recent meeting with provincial governors.
The most important program of the banking sector comprises fair distribution of facilities across the nation, termination of the monopoly of 3 percent of applicants over 70 percent of bank facilities and reduction of bank profit rates and administration costs.
The government will certainly face huge impediments while trying to implement these policies, because these are in direct contrast with the existing rules and regulations of the financial market.
In the same vein, downsizing the government could help prevent wastage of small investments and improve their value. Furthermore, implementation of anti-corruption policies and elimination of rent-seeking practices are other responsibilities of the government to help protect public money.
Public money refers to assets owned by the people and managed by an elected government, which include economic properties and financial resources as well as natural resources. For instance, a justice-seeking government should distribute a nonrenewable resource such as oil and oil products without any discrimination to seven million car-owners and 60 million others who have no cars.
By extending educational and health facilities, the government could also prepare the ground for balanced development across the nation.
However, the president’s recent remarks indicate that he views bank facilities as “public money“, the equitable distribution of which in all provinces would lead to a just management of financial resources.
In this context, the governments’ perception of banks as a fund over the past 26 years amounts to a blunder. They kept urging banks to spend their facilities on predefined projects as per annual budget plans and obligated them to allocate a percentage of it for sectors such as agriculture, industry, services and construction. As a result, people’s savings deposited in banks at specific profit rates used to be allocated for state plans under the direct supervision of the government.
As per the Fourth National Development Plan (2005-10), every year the government should reduce 20 percent of the remaining mandatory facilities. And banks will offer facilities at low profit rates according to the Islamic law, but only if the government pays them the difference in the form of subsidies.
Based on the same plan, banks will be allowed to act independently when allocating facilities to all sectors, except agriculture, which will get a fixed quota of 25 percent.
The government wants to divide part of these facilities among provinces as it sees fit, as if bank facilities are part of the annual government budget. The only legal way, however, is for the government to allocate subsidies for bank facilities, because only a 1-percent reduction would mean an extra burden of 400 billion rials in the annual budget. This will boost liquidity growth, unless the government compensates for it by reducing facilities allocated for construction and development schemes.
Sensitivity toward management of people’s savings in banks and purchase of shares is of great importance.
By bringing about financial order and encouraging the private sector’s role in economic schemes, the government can increase productivity, maximize profits for private investments and boost public confidence in the economy.