As the prospects of a new nuclear deal with Iran hover over the United States and its partners in Vienna, the Middle East is experiencing a spike in terrorist attacks by various Iranian proxies – some, reportedly, with direct participation from Iran itself. Since the beginning of 2022, Iran-backed Houthis have launched numerous attacks on Saudi Arabia’s oil facilities and civilian airports, including the latest attack in the city hosting the F1 races, featuring, for the first time, women drivers. This attack was so devastating, even with the Arab Coalition taking out ten Houthi drones – that reportedly, all of the airspace over the Kingdom had to be closed. The Houthis have also attacked the UAE multiple times. All these attacks resulted in death and injuries of civilians, prompting KSA and UAE to ask the Biden administration to return the Houthis to the Foreign Terrorist Organization (FTO) list. Other Iran proxies, using Iran-made missiles have launched a recent attack reportedly targeting the US consulate in Erbil, and possibly other sites. Two drones were taken down targeting Israel. Since Biden’s permissive attitude to the proxies emerged in the light of an all-consuming focus on the new nuclear deal, Iran’s targeting of Israel has become increasingly open, brazen, and aggressive.


The rise and intensity of these attacks over the past year has been significant. Although the US has to returned to recharging KSA’s Patriot missile defense system in recent weeks, the Houthis have upped the ante in the sophistication of the attacks, which now frequently included multiple booby-trapped drones, sometimes up to a dozen or more, and overwhelm the Saudi defense systems with the sheer number of missiles and drones. These attacks have been made possible by the failure of the Biden administration to enforce sanctions on Iran’s financial infrastructure.


 As the recent WSJ article by Ian Talley reveals, Iran has managed to build up a formidable clandestine financing infrastructure, which included hundreds of shell companies, over the past several years, with the specific purpose of circumventing sanctions, particularly those imposed by the Trump administration following the US withdrawal from the JCPOA.  According to Marshall S. Billingslea, the Former Presidential Envoy & Assistant Secretary of the Treasury for Terrorist Financing, the Trump administration had imposed sanctions on over 960 individuals. Failure to enforce sanctions has not allowed all these terrorism supporters to continue fundraising and traveling to the US and other Western countries, but has allowed the sanctions-busting mechanisms to mushroom with impunity. As a result, Iran has been able to benefit from oil sales to China, from trade with Russia, from access to ballistic missiles technology, and has returned to fundraise sufficiently for an uptick to donations to Hezbullah and other terrorist proxies. 


The recently uncovered documents referenced by Talley in WSJ show that the Iran government is directly responsible for the creation of this illicit funding infrastructure which operates through various branches and entities in many of the top global trade hubs. The documents do not reveal whether the local partners are aware of the true identity of these shell corporations, but that regardless of the intent, there is a clear network of trade between Iran and various international trade hotspots. The growth of this infrastructure also complicates matters for the Financial Action Task Force, which includes US and its Gulf partners, dedicated to combating Iran’s illegal financing. 
During his tenure, Billingslea has been tasked with traveling to the Gulf countries and Turkey and facilitating local law enforcement measures to identify financial institutions and ensure compliance.  Now these countries have been abandoned by the Biden administration; Iran is taking advantage of US absence to ensnare banks and other structures into deals with its shady operatives.  The result is that Iran can successfully make money through more business ventures than previously, in essence not only undoing the effects of the sanctions but creating more work for potential future enforcers. Billingslea admitted that the effective enforcement of sanctions takes resources and dedication and may sometimes feel like playing whack-a-mole.


However, there is nothing particularly new about Iran’s utilization of its Central Bank and the proliferation of various illicit funding entities around it; fundamentally, it is the continuation of Iran’s “money-laundering” mindset.  This means that the Biden administration is not required to reinvent the wheel to combat the ensuing corruption; they have to be willing to go after the identified bad actors and to disrupt the networks that help Iran’s exportation of terrorism around the world, and also empower Russia and China.  As a result of these revelations, some have raised questions whether sanctions in general are of any use, given that the Iran regime, Russia’s President Putin, and China’s CCP on various occasions dismissed sanctions and proceeded with their deadly activity. 


Sanctions, however, are not a zero-sum game; they are neither a panacea from all illegal activity, nor are a mere archaic device from a bygone era which affects mostly civilians.  According to Billingslea, “we took a country [Iran] that was running a $6.1 billion dollar trade surplus In 2019. And by 2020 they were running a $3.5 billion dollar deficit.” Effective imposition of creative and targeted sanctions, known as the maximum economic pressure policy, has significantly reduced the amount of funding that was going to finance Hezbullah and other Iran proxy operations in the region, forcing these proxies to rely on various desperate fundraising efforts, to scrape by. This, in turn, led a reduction in attacks. But Billingslea, and Ian Talley himself, speaking in the WSJ podcast covering his article,  admit that sanctions cannot operate in isolation, and are most effective when supplemented by other methods of pressure, such as cyber operations, and the credible threat of the use of military force, such as the targeted strike which took out Qassem Soleimani. 


To dismantle this newly developed infrastructure, the Biden administration would need to engage in an aggressive pursuit of intelligence, and designate a strategy to weaken Iran and its proxies overall, preventing further attacks on US allies and American targets. Alas, the strategy of appeasement and promises to lift sanctions on terrorist functionaries such as the IRGC, and their lead funders, far from helping with unraveling the clandestine financing empire Iran has built up, only encourages terrorist attacks, and helps integrate Iran’s proxies and partners around the globe into a more effective, more cohesive, machinery with interchangeable parts and greater grip on shared finances. 

 

By: Irina Tsukerman