In an irony that reveals one of the most prominent loopholes in Washington's campaign to isolate Iran financially, billions of dollars in Iranian funds continue to pass annually through clearing accounts with American banks, despite sanctions that prohibit those subject to American law from participating in most financial activities linked to Tehran.
According to an investigation published by the Wall Street Journal, Iran relies to access the American financial system on a network of foreign institutions that have correspondent banking relationships with American banks, in addition to front companies and entities used to hide the connection to Tehran.
This mechanism places the American banking system in front of a complex dilemma: Thanks to the dollar system, Washington possesses an exceptional ability to monitor international financial transfers and cut off the access of targeted parties to the American currency, but at the same time it relies on a vast global banking network that is difficult to completely prevent from being used by Iran.
The dollar...a loophole in the sanctions wall
The Wall Street Journal says that billions of dollars in Iranian funds pass through clearing accounts in American banks every year, while Tehran reaches these channels through foreign partners who have correspondent relationships with American banks.
This mechanism goes back to the “correspondent banking” system, which is a system that dates back more than a century and constitutes one of the basic pillars of the global financial system, as it allows banks and financial institutions in different countries to settle cross-border payments without transferring funds in cash.
But this same system provides Iran with a path to indirectly access the US-led financial system.
The newspaper explains that any transaction denominated in dollars anywhere in the world must ultimately pass through an American clearing banking entity, which gives Washington a great ability to monitor the movement of the dollar and deprive targeted institutions or countries of access to it.
$9 billion through American banks
The Wall Street Journal indicates that the US Treasury Department said last year that it had monitored about $9 billion in Iranian funds that passed through US banks during 2024.
Researchers on Iranian affairs believe that the volume of flows could be reduced if American banks intensified their efforts to scrutinize their correspondent banking relationships and monitor operations related to Iran. However, the problem lies in the difficulty of discovering the networks used, as Tehran relies on a complex system of front companies, intermediary entities, and exchange companies to hide the real beneficiary of transactions.
Ellen Dyzinski, a former official at the US Department of Homeland Security, said that “shadow banking” networks are very difficult to detect, but tracking Iranian financial flows is not impossible, considering that US banks and correspondent banks are at the heart of responsibility for these operations.
Dubai and the remittance network
The UAE stands out in the investigation as one of the important crossing points in this network. On August 28, the US Treasury Department identified the Banque Misr branch in the Emirates as one of the foreign institutions that Washington believes helped Iran gain access to the US banking system, and announced its intention to prevent it from using US correspondent accounts.
The Treasury said that the Banque Misr branch in the UAE used dollar correspondent accounts with three American banks, and passed up to $1.8 billion to companies potentially linked to Iranian shadow banking networks.
The Treasury did not name the three American banks, while the Wall Street Journal indicates that the Banque Misr lists JP Morgan Chase and Citigroup among the institutions with which it has correspondent banking relationships. The two banks refused to comment on the American action.
The Egyptian Ministry of Foreign Affairs said that it is communicating with the American authorities regarding the accusations, while the Bank of Egypt confirmed that it is dealing with the Ministry of Treasury and respects the relevant regulatory and legal frameworks.
“Operation Economic Pariah” tightens the noose
These measures come within the framework of a broader campaign by the administration of President Donald Trump under the name “Operation Economic Pariah,” aimed at increasing financial pressure on Iran and pushing it to make concessions and end hostilities in the Middle East.
Under the campaign, Washington warns institutions and governments around the world against continuing economic relations with Iran, threatening secondary sanctions that could, in extreme cases, cut off the targeted institutions from the dollar-based financial system.
The US Treasury says financial institutions are required to strengthen oversight of flows linked to Iran, warning that failure to comply with sanctions rules will have consequences.
Gene Lang, a senior Treasury official overseeing the Countering Terrorism Financing Office, said the department is moving faster and more aggressively to identify, disrupt, and punish institutions or intermediaries that continue to enable businesses linked to the Iranian regime.
How to pass Iranian money?
The Wall Street Journal explains that Iranian institutions do not usually open direct accounts with American banks, because such institutions will likely face rejection due to sanctions. Instead, Tehran uses front companies and partners in countries such as China, the UAE, and Hong Kong, where there are financial institutions that have correspondent banking relationships with American banks.
The money then moves through these institutions on behalf of companies linked to Iran, without disclosing connections to Tehran, while US banks settle the transfers in dollars.
This structure allows Iran to use the dollar when needed, despite its increasing efforts to reduce its dependence on the American currency and resort to the Chinese yuan or cryptocurrencies.
The technology bill reveals how the network works
The newspaper provides a practical example of how this network can be used. According to an invoice seen by the Wall Street Journal, an Iranian engineering company asked a Chinese supplier to purchase 150,000 circuit boards and sensors, which are components used in the automobile industry, but which are also needed in Iran for uses related to weapons and drones.
The value of the deal amounted to about $650,000, while the invoice indicated that the payment should pass through an American clearinghouse in New York.
The documents showed that the Iranian company agreed to pay through Tejarat Bank, an Iranian financial institution subject to US sanctions.
It is not clear from the documents seen by the newspaper whether the payment process actually took place, but the example illustrates the complexity of the path that Iranian funds can take to reach dollar-linked transactions.
Washington faces the dollar dilemma
The greatest irony is that the regime that gives the United States enormous power to punish Iran is the same regime that it is difficult for Washington to tighten control over without incurring broader costs. Correspondent banking relationships are essential to the functioning of the global financial system, and they also represent a profitable activity for American banks through fees and returns on deposits and the services they provide to foreign clients and institutions.
But the question now is whether American banks are doing enough to ensure that they are not used to settle transactions that benefit Tehran.
Experts warn that tightening supervision to a significant degree may prompt banks to reduce their activity in the field of correspondent banking, which may affect the flow of global payments.
Tightening sanctions may strengthen alternatives to the dollar
Washington also faces a broader strategic paradox: the more intensely it weaponizes the US financial system, the greater the incentives for countries and institutions to look for alternatives to the dollar.
The newspaper says that Iran is already working to increase the use of the Chinese yuan and cryptocurrencies to reduce its exposure to American censorship, but it still needs the dollar in some types of trade, in supporting its allies in the Middle East, and in obtaining technologies and components that are subject to restrictions.
Alex Zerden, a former official at the US Treasury Department, believes that the increased use of financial pressure tools could create greater incentives to search for alternatives to the dollar.
Here the dilemma appears before Washington: leniency with financial flows allows Iran to exploit the American financial system, while excessive strictness may push more countries to reduce their dependence on the dollar-based system.
Banque Misr reveals the limits of American escalation
In the case of the Banque Misr branch in the Emirates, the US Treasury chose a less severe path than imposing comprehensive secondary sanctions, as it decided to restrict the branch’s access to US correspondent accounts instead of imposing secondary sanctions on it.
The ministry also did not target US banks that had correspondent relationships with the branch.
The Treasury gave the branch a period of 30 days to submit its comments before ending its correspondent banking relationships in the United States.
The Wall Street Journal believes that this approach reflects the magnitude of the dilemma facing the Treasury Department. Cutting off a foreign bank from the American financial system could practically lead to its destruction, while pressure on the American banks themselves could push them to reduce their activity in correspondent banks, with implications for the broader financial system.
A broader battle than Iran
The case reveals that Washington's battle with Tehran no longer revolves only around the sanctions imposed on Iranian oil companies or institutions, but rather extends to the infrastructure on which the global financial system is based. Iran, despite its economy being subjected to severe pressure and the decline of its currency, is still able to indirectly access dollar channels through a complex international network of banks, companies, and intermediaries.
For Washington, completely blocking these channels requires stricter monitoring not only of foreign institutions, but also of the correspondent banking relationships through which dollar transfers pass.
Thus, correspondent bank accounts are turning into one of the new arenas of confrontation between the United States and Iran: Tehran is trying to remain within the global financial system through back gates, and Washington is trying to close them without pushing the regime itself to search for exits outside the dollar.
