Billions of dollars of Iranian funds are flowing through clearing accounts at American banks each year, Western officials and researchers say, despite sanctions that prohibit anyone subject to U.S. law from taking part in almost all financial activity linked to Tehran.
Iran accesses the accounts through foreign partners that maintain relationships with U.S. banks, part of a more than century-old system called correspondent banking that helps tie the global financial system together, while also providing Tehran with plenty of ways to secretly infiltrate it.
The Trump administration has recently moved to put foreign banks that process dollar transactions with Iran via U.S. correspondent accounts on alert. Officials have also been pushing American banks to step up their vigilance on Iran-related transactions.
But detecting them can be difficult, since Iran uses a complicated network of front companies and other means to disguise them.
On Aug. 28, the U.S. Treasury identified the Emirati branch of a state-owned Egyptian bank as one of the foreign institutions it believes are helping Iran access the U.S. banking system, and said it would move to cut it off. Banque Misr’s United Arab Emirates branch accessed U.S. correspondent accounts and routed as much as $1.8 billion for companies that were potentially part of Iranian shadow-banking networks, officials said.
The Treasury said Misr UAE had U.S. dollar accounts with three U.S. banks but didn’t name them. Misr on its website lists JPMorgan Chase and Citigroup as institutions where it has correspondent accounts. Both banks declined to comment on the Treasury action.
Egypt’s Foreign Ministry said it was communicating with U.S. authorities about the Treasury’s allegations. Misr has said it is engaging with the Treasury and respects “relevant regulatory and legal frameworks.” Its Emirati branches are operating normally, the bank said last weekend.
The latest move was part of the Trump administration’s new “Operation Economic Outcast,” a wide-ranging pressure campaign aimed at squeezing Iran financially to force concessions and end Middle East hostilities. Washington is warning global leaders to sever ties with Iran or face secondary sanctions—the threat of being cut off from the U.S. dollar financial system entirely.
But some financial experts say Washington’s efforts could have limited impact if it doesn’t put more pressure on U.S. lenders to scrutinize their correspondent banking relationships more closely. The Treasury last year said it had identified about $9 billion in Iranian funds that moved through American banks in 2024, a figure that some Iran researchers say could be brought down if U.S. banks were more proactive.
“Shadow banking networks are extremely difficult to detect, but by no means is it impossible to track Iran’s financial flows,” said Elaine Dezenski, a former senior Department of Homeland Security official now at the Foundation for Defense of Democracies, a Washington think tank. “U.S. and correspondent banks are squarely on the hook, and that pressure is only increasing.”
U.S. financial institutions say they work closely with the Treasury to enforce sanctions, including by filing legally mandated reports on any suspicious activity that could be linked to Iran.
U.S. officials typically only move to penalize banks if they discover a significant failure to implement a sanctions-compliance program and police transactions. Increasing the pressure on U.S. banks and even many foreign ones could come with downsides, sanctions experts say, including closing a key avenue of insight into Tehran’s financial dealings.
Still, the Trump administration has encouraged U.S. institutions in private meetings with bank compliance officials to better monitor Iranian money flows.
“Under President Trump, Treasury has made clear that compliance with U.S. sanctions and other legal obligations is not optional, and failure to comply will carry consequences. Financial institutions are on notice,” said Gene Lange, a senior Treasury official who oversees the department’s counterterrorism financing office. The department is now “moving faster and more aggressively than ever to identify, disrupt, and penalize any institution or intermediary that continues to enable business with the Iranian regime.”
The Treasury also has published alerts for global banks laying out red flags that suggest shell companies could be using the U.S.-led financial system for Iran. These signs include an opaque ownership structure of a firm based in the U.A.E. or a company registered in Hong Kong that uses a Chinese bank account and has no online presence.
Complex problem
The root of the issue is the correspondent-banking process itself, in which any dollar-denominated transaction anywhere must ultimately be cleared by an American lender. The system gives Washington the ability to monitor most international dollar transactions and cut off users’ dollars if necessary, crippling their operations.
While Iran increasingly prefers to do business in Chinese yuan or cryptocurrency to avoid that scrutiny, it still must use dollars sometimes to conduct trade, support Middle Eastern allies and buy restricted technology and components for its military.
To do so, U.S. officials and researchers say, Iran has built an elaborate shadow banking network that includes shell companies and currency exchange houses in places such as Hong Kong and Dubai.
Typically, those entities avoid opening direct accounts at U.S. banks, which would likely refuse their business. Instead, they tap partners in China, the U.A.E. or elsewhere that maintain correspondent relationships with American banks, U.S. officials and researchers say.
Those institutions then move the money on behalf of Iran’s front companies, without disclosing their ties to Tehran, while a U.S. bank settles the transfers.
Iranian officials didn’t respond to requests for comment.
China has said it opposes “illegal and unreasonable unilateral sanctions” by Washington and will take necessary measures to safeguard its interests. In a press briefing following the launch of Operation Economic Outcast, a Foreign Ministry spokesman added that economic warfare could disrupt the global economy.
Hong Kong’s government has said it vigorously enforces United Nations sanctions but not those imposed unilaterally by individual nations, which it says violate international law.
The U.A.E. Foreign Ministry didn’t respond to a request for comment.
Sensors and circuit boards
A recent real-world example looks like this: an Iranian engineering firm put in an order with a Chinese supplier to buy 150,000 circuit boards and sensors—electronic components that are used in car manufacturing but are also sought by Iran for weapons and drones—according to an invoice viewed by The Wall Street Journal.
The invoice from the supplier contained the details of its Chinese bank account, and noted that the $650,000 payment should be routed via a U.S.-based clearing partner in New York.
The documents viewed by the Journal showed that the Iranian engineering firm agreed to make payment via Bank Tejarat, an Iranian financial institution sanctioned by the U.S. Tejarat didn’t respond to a request for comment.
But an Iranian bank can’t just transfer dollars to a Chinese firm’s account via the U.S. In such a scenario, the payment to the account of the Chinese supplier would likely have to move from a shell company that had access to a foreign bank with a U.S. correspondent banking relationship, researchers say.
It is unclear whether the payment reflected in the invoices viewed by the Journal was ultimately made.
Well-oiled system
Correspondent banking is vital to a well-functioning global financial system because it allows lenders to settle cross-border payments without transporting physical cash. When a foreign company transfers funds, the U.S. clearing bank effectively deletes dollars from the foreign company’s account and adds them to the other party’s.
For U.S. institutions, correspondent services can be very profitable, generating fees or funding through deposits and enabling a bank to provide more services to customers abroad.
The question is whether U.S. banks are doing enough to ensure they aren’t clearing transactions that benefit Tehran.
It is a challenge that has long bedeviled Washington. If it enforces restrictions loosely, more transactions get through. But clamping down risks damaging the dollar’s dominance, as countries look for alternatives such as China’s yuan.
“The more you use the tools, the more you create incentives for alternatives” to the dollar, said Alex Zerden, a former Treasury official who founded financial technology and risk advisory firm Capitol Peak Strategies.
In the case recently announced by the Treasury, U.S. authorities stopped short of imposing secondary sanctions on Banque Misr UAE. Instead, the Treasury said it would restrict Misr’s Emirati branch from accessing U.S. correspondent accounts.
The restrictions don’t go into effect immediately. Misr will have a chance to comment on the Treasury action over 30 days before winding down the U.S. correspondent relationships of its Emirati branch. The Treasury didn’t threaten any actions against U.S. banks.
The choice of a less disruptive approach highlights the dilemma facing Treasury officials.
Cutting off a foreign bank from the U.S. has in the past effectively destroyed the foreign institution being targeted, while punishing U.S. lenders could make them rein in their correspondent banking activity. Both could have knock-on effects, either for the economy where the foreign bank is located, or the broader financial system.
“That’s why they can’t take an all-at-once approach, because it might have ripple effects that are counter to what the U.S. government is trying to accomplish,” said Jason Prince, a partner at the law firm Akin Gump and former Treasury sanctions official.