Iran's mystery banker in Canada

Khavari’s banking career has been nothing short of brilliant. Many companies he has been affiliated with have been blacklisted by the United Nations.

October 31, 2011 22:43
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Iranian Flag (R)_311. (photo credit: Reuters)

As details of the Iranian plot to blow up the Saudi Embassy in Washington, DC, becomes clearer, the US and other Western allies will look to punish Iran. One of the most powerful ways to influence Iran is through the banking sector. Through an interesting turn of events, Canada is in a position to exert significant financial leverage through one individual in particular.

One of the world’s most important international bankers currently resides in Toronto. After fleeing his country of birth Mahmoud Reza Khavari served until recently as head of Iran’s Bank Melli, an institution notorious for assisting in Iran’s proliferation of weapons of mass destruction and financing of terrorism. Canadian authorities have yet to take action against Mr. Khavari, who represents a potential gold mine of information about how Iranian banks raise and move money around the globe.

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According to Iran’s semiofficial Mehr news agency, Khavari flew to Canada on September 28 after Iran issued arrest warrants for 22 top-level bankers in what appears to be the largest embezzlement scheme in the country’s history.

Khavari is accused of facilitating fraudulent payments – totaling over $2.6 billion – on behalf of Bank Melli. Many of Iran’s political elite, including President Mahmoud Ahmadinejad himself, have been linked to the scandal. Khavari’s banking career has been nothing short of brilliant.

According to international press reports and Khavari’s own resume, available online at Bank Melli’s website, he has been with the bank since 2009.

Before that, he held a variety of positions, including that of chairman of Bank Sepah’s board of directors from December 2003 until at least March 2005. He has also worked at Iran’s Bank of Industry and Mine and served as a member on the Teheran Stock Exchange’s board of directors.

Many of the companies and financial institutions Khavari has been affiliated with have been blacklisted by the United Nations and members of the international community.

BEGINNING IN 2007, the UN ordered member states to cease doing business with Bank Sepah and its affiliates under any circumstances. It later placed restrictions on two other banks, Melli and Saderat.

The EU and countries around the world followed suit, including Canada, Australia and the United States, and they have published their own list of blacklisted Iranian banks. For example, Canada has blacklisted four Iranian financial institutions, including the Melli, Mellat and Saderat banks, as well as the Export Development Bank of Iran (but not Bank Sepah, in seeming contradiction of international law).

Banks Sepah and Melli – two financial institutions where Khavari held senior posts – are particularly guilty of involvement in illicit international activity. The UN Security Council blacklisted Sepah and its subsidiaries under resolution 1747 and placed restrictions on Melli under resolution 1803.

Both financial institutions were implicated in contributing to the proliferation of sensitive nuclear activities or to the development of Iranian nuclear-weapon delivery systems.

These banks have also reportedly been involved in providing banking services in support of Iran’s nuclear drive and its elite Revolutionary Guards.

Khavari’s connections to Canada are noteworthy. To begin with, he and his immediate family are reportedly Canadian citizens. As recently as 2007, he purchased a CAD 2.93 million home in one of Toronto’s most exclusive neighborhoods, Bridle Path. In 2001, he bought a home with his wife in Toronto’s North York neighborhood, taking out a mortgage of CAD 615,000. At a certain point, Khavari also owned a Toronto-based company called Soaring Properties (it is unclear if he still owns it).

There are a number of steps Canadian authorities can take immediately. First, Khavari is apparently in violation of the Special Economic Measures (Iran) Regulations for having worked and provided financial services on behalf of a designated Canadian entity. In all likelihood, Khavari is also in violation of Canada’s Anti-Terrorism Act, along with Part II.1 of the Criminal Code (Section 83.05). This section has provisions that prohibit the financing of terrorism. It also lists individuals or entities which, there are reasonable grounds to believe, have participated in or facilitated terrorist activity, or knowingly acted on behalf of, or associated with, an entity involved in terrorism.

Under Section 83.05, Canadian authorities may even have the right to freeze Khavari’s assets.

Canada should make a legal determination regarding whether to freeze his assets in the country. Once they have done this, authorities might be able to uncover the full extent of Bank Melli’s involvement in Iran’s proliferation of nuclear weapons and terrorism financing.

Khavari possesses critical information on Iran’s banking network and the extent to which Iran abuses the international financial sector for illicit purposes. The intelligence gathered from Khavari should be shared with international partners both on a bilateral basis and at the UN Security Council.

While Canada has certainly been a staunch ally of members of the international community that have tried to implement sanctions against Iran to stop its nuclearization, it does appear that Canada is out of compliance with international law in this case. According to Chapter VII of the Charter of the United Nations, all member states are obligated to blacklist Bank Sepah. Canadian lawmakers, and in particular, the governor in council, should rectify this loophole as quickly as possible; Bank Sepah was blacklisted by the UN as far back as March 2007.

Through existing legislation, the Canadian government has made it clear that there is a cost for doing business with Iran.

Going forward, Canadian policymakers should move expeditiously in regard to Khavari. As one of Iran’s top bankers, he could be of great use to any nation that is intent on stopping Iran from getting the bomb.

The writer is a former US Treasury official and on the Advisory Board of United Against a Nuclear Iran (UANI). He is also the author of Iran’s Dirty Banking: How the Islamic Republic Skirts International Financial Sanctions (2010).

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