A dangerous strategic intimacy is blossoming between two countries we might once have co nsidered unlikely bedfellows: the Islamic Republic of Iran and the Bolivarian Republic of Venezuela. This relationship has moved well beyond its 2005–06 courtship phase into a cozy financial, political and military partnership based essentially on shared anti-Americanism and the presence of certain complementary assets. For Iran, Venezuela’s established financial system can help it end-run UN Security Council sanctions, and its geographic location is ideal for building and storing weapons of mass destruction far away from the prying eyes of the International Atomic Energy Agency and the international community generally. For Venezuela, Iran provides political leverage against the United States by burnishing Caracas’s pretensions to leadership of Latin America’s anti-U.S. regimes and terrorist organizations. Iran also offers a source of military training and doctrine.
During a 2007 state visit to Tehran by President Hugo Chávez, Venezuela and Iran declared themselves to be an “axis of unity” against the United States. Many observers took this to be an act of mostly empty political theater. It is turning out to be nothing of the sort.
Some aspects of the growing Iranian-Venezuelan relationship are open for all to see. President Chávez has personally helped initiate relationships between Iran and Nicaragua, Bolivia and Ecuador, opening the way for Iranian President Mahmoud Ahmadinejad’s recent visits to Latin America. In June, while tens of thousands lined the streets of Tehran and other Iranian cities to protest, at considerable risk to life and limb, the fraudulent re-election of President Ahmadinejad, Chávez publicly offered him support.
Iranian investments inside of Venezuela are on the rise, and prospects for nuclear cooperation between the states are no secret either. Several “memoranda of understanding” between the two governments pledge joint technology development, military cooperation, banking and finance links, cooperation over oil, gas and mineral exploration and refining, and joint agricultural research. Some of these pledges have migrated from paper to practice. Since 2006, Iranian military advisers have been embedded with Venezuelan troops. Asymmetric warfare, taught to members of Iran’s Revolutionary Guard, Hizballah and Hamas, has replaced U.S. Army field manuals as standard Venezuelan military doctrine. This development appears to have been assisted by key figures among Chávez’s intimates who are strong supporters of Hizballah and the Iranian-Hizballah fundamentalist agenda. (See profile on p. 53.)
The gravest dangers, however, may yet remain hidden. According to a December 2008 Carnegie Endowment report, Venezuela has an estimated 50,000 tons of un-mined uranium. Venezuela could be mining and to some degree processing uranium for Iran on Venezuelan soil. My office has learned that, over the past three years, several Iranian-owned and controlled factories have sprung up in remote, interior parts of Venezuela. The lack of infrastructure in and around these sites is offset by their remote locations, making them ideal locations for the illicit production of weapons and weapons materiel. Though we still lack much hard evidence of what goes on at these sites, their location and secretive nature merit attention.
That is so especially in light of a December 2008 incident in which Turkish authorities detained an Iranian vessel bound for Venezuela after discovering lab equipment capable of producing explosives packed inside 22 containers marked “tractor parts.” The containers also allegedly contained barrels labeled with “danger” signs. It is safe to assume that this was a lucky catch, and that shipments of this kind most often reach their destinations in Venezuela.
The Venezuelan government has even made reference to these activities, but in a way designed to mask their likely purpose. Thus in early September in Tehran, Chávez was quoted as saying that with Iran’s help he plans to build a “nuclear village” in Venezuela. Supporting Iran’s claims that its nuclear ambitions are for peaceful purposes, Chávez stated, just a few weeks before the revelations about Iran’s secret nuclear complex near Qom, that “there is not a single proof that Iran is building a . . . nuclear bomb.”
My office has taken a particular interest in the banking and financial connections between Iran and Venezuela, for this sort of cooperation constitutes the basic infrastructure for dealings in nuclear technology as well as the narco-terrorist activities in which the Venezuelan government is clearly implicated.1 To that end, my office has publicly announced during the past year two investigations that highlight Iranian efforts to procure weapons materials despite U.S. and international economic sanctions designed to prevent Iran from developing long-range missile capacity and nuclear technology for military purposes. Our efforts uncovered a pervasive system of deceitful and fraudulent practices employed by Iranian entities to move money all over the world without detection, including through banks located in the jurisdiction I am responsible for protecting, Manhattan. The tactics used in these cases are instructive and should send signals to law enforcement, intelligence agencies and military commands throughout the world about the style and level of deception the Iranians are employing to advance their interests. The Iranian government is going to such lengths for a purpose as simple as it is obvious: to pay for materials necessary to develop nuclear weapons, long-range missiles and sophisticated roadside bombs without being detected.
As to the first case, in January 2009 my office and the U.S. Department of Justice announced deferred prosecution agreements with the UK bank Lloyds TSB. From 2001 to 2004, Lloyds, on behalf of Iranian banks and their customers, engaged in a practice known as “stripping”, in which the bank intentionally participated in a systematic process of altering wire transfer information to hide the identity of its clients. This process allowed the illegal transfer of more than $300 million of Iranian cash despite economic sanctions prohibiting Iranian access to the U.S. financial system. We are currently investigating similar misconduct by other banks.
As to the second case, in April we announced the indictment of a Chinese company called Limmt and its manager, Li Fang Wei, a rogue provider of metal alloys and minerals to the global market. Limmt’s business includes selling high-strength metals and sophisticated military materials, many of which are banned from export to Iran under international agreements. Limmt was also banned by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) from engaging in transactions with or through the U.S. financial system for its role in the proliferation of weapons of mass destruction to Iran. Our investigation revealed that, despite sanctions, Li and Limmt used aliases and shell companies to deceive banks into processing payments related to the shipment of banned missile, nuclear and “dual-use” materials to subsidiary organizations of the Iranian Defense Industries Organization.
Our investigation pertains only to U.S. banks, but it should be noted that Limmt purchased and re-sold to Iran most banned materials in euros and processed the sales through European banks. We have no jurisdiction over such activities.
These two cases hardly exhaust the list of dangerous activities likely going on. Based on information developed by my office, the Iranians, with Venezuelan help, are now engaged in similar schemes to bust economic and anti-proliferation sanctions. Note that in January 2008 the Iranian government opened the International Development Bank in Caracas under the Spanish name Banco Internacional de Desarrollo C.A. (BID), an independent subsidiary of Export Development Bank of Iran (EDBI). In October 2008, OFAC imposed economic sanctions against these two Iranian banks for providing or attempting to provide financial services to Iran’s Ministry of Defense and its Armed Forces Logistics, the two Iranian military entities tasked with advancing Iran’s nuclear ambitions.
The ostensible reason for opening Iran’s BID in Caracas was to expand economic ties with Venezuela. Our sources and experience lead us to suspect that Iran is seeking to diversify its foothold into the Venezuelan banking system for purposes of further “sanctions-busting.” Despite being designated by OFAC, we believe that BID has several correspondent banking relationships with both Venezuelan banks and banks in Panama, a nation with a long-standing reputation as a money laundering safe haven. This scheme is known as “nesting.”
Nested accounts occur when a foreign financial institution gains access to the U.S. financial system by operating through a U.S. correspondent account belonging to another foreign financial institution. For example, BID, which is prohibited from establishing a relationship with a U.S. bank, could instead establish a relationship with a Venezuelan or Panamanian bank that has a relationship with a U.S. bank. If the U.S. bank is unaware that its foreign correspondent financial institution customer is providing such access to a sanctioned third-party foreign financial institution, this third-party financial institution can effectively gain anonymous access to the U.S. financial system.
OFAC sanctions alone have no chance of preventing this stratagem from working. This is because Venezuela is not currently the subject of a U.S. or international economic sanctions program that significantly restricts the ability of Venezuelan banks to conduct business with the United States, including accessing U.S. banks to clear international U.S. dollar transactions. As matters stand now, U.S. banks processing wire transfers from Venezuelan banks rely almost exclusively on the Venezuelan bank to ensure the funds are being transferred for legitimate purposes. I have little faith that this is effectively being done, and the Iranians, aware of this vulnerability, appear to be taking advantage of it.
In my view, the opening of Venezuela’s banks to the Iranian government helps guarantee the continued development of its nuclear and long-range missile technology. The presence of mysterious manufacturing plants controlled by Iran and located deep in the interior of Venezuela is also cause for concern, as is the apparent cooperation between Tehran and Caracas in assisting narco-terrorist operations in Latin America and the Middle East. The Iranian-Venezuelan relationship is making both countries more dangerous adversaries of the United States, and I am not persuaded that the problem has attracted sufficient concerted attention from the U.S. government.
One reason for this is that the Iranian-Venezuelan axis spreads across an unusual number of organizational “seams”: between Western Hemisphere and Southwest Asian bureaus and offices in the State and Defense Departments and the U.S. intelligence community; between various law enforcement, diplomatic and military functions among the Justice, Treasury, Homeland Security, State, Defense and Commerce Departments; and between Federal, state and local jurisdictions as well. These organizational seams are mirrored (and more) with respect to congressional oversight. The result is that it seems to be no one’s job to see the whole picture, and no one, short of the President himself, appears to have the authority to order coordinated, whole-of-government action.
I fear that we are entering a period in which the toxic fruits of the Iran-Venezuela bond will ripen, and that we are far from prepared for the consequences of that harvest. We overlook creeping Iranian influence in the Western Hemisphere at our peril, and we assume that President Chávez is bluffing at risk to our reputation and safety. Both he and President Ahmadinejad often come across to us as buffoonish characters, inviting of ridicule. They are not.
My office and other law enforcement agencies are doing what we can, but we can play only a small role in ensuring that money laundering, terror financing and sanctions violations are not ignored, and that criminals and the banks now aiding Iran will be discovered and prosecuted. Certainly, stopping the flow of illicit funds correlates directly with curbing wrongful conduct, but law enforcement in the United States alone is not enough to counter the threat effectively. Our law enforcement efforts must grow to include allies and friends in Europe, Asia and Latin America itself. For example, Brazil, whose constitution prohibits nuclear weapons, can play a significant role in influencing President Chávez. Together we must consider ways to monitor and sanction Venezuela’s banking system if it aids Iranian circumvention of Security Council sanctions.
Above all, we must make our own government work more effectively to recognize and confront this challenge. Failure to act will leave open a window for money laundering by the Iranian government, for narcotics organizations with ties to the Chávez regime, and for the terrorist organizations that Iran supports openly. That is a window we must shut.
1The U.S. Government Accountability Office (GAO) recently published a study examining the issue of illicit drugs transiting Venezuela, reporting a high level of corruption within the government, military and law enforcement that has enabled Venezuela to become a major transshipment route for trafficking cocaine out of Colombia. Intelligence gathered by my office strongly supports the conclusion that Hizballah supporters in South America are trafficking in narcotics. The GAO study also confirms allegations of Venezuelan support for the Revolutionary Armed Forces of Columbia (FARC).