Exposure to the illicit use of state-issued cryptocurrencies became a greater concern for multinational financial institutions when OFAC issued new guidance on cryptocurrencies earlier this year in response to the launch of Venezuela’s “Petro” token. There should be growing interest from US regulators that Iran may be following in Venezuela’s footsteps. As post-JCPOA sanctions are ratcheted up by the US, an Iranian government minister announced in May that a national cryptocurrency could “facilitate economic deals and circumvent sanctions,” directly challenging US financial pressure.
Despite this new ambitious project, Iran’s Central Bank banned other financial institutions from offering cryptocurrency services in April, citing money laundering concerns but most likely aiming to prevent capital flight. One Iranian official told local media that $2.5 billion had left the country to purchase cryptocurrency, a blow to its fiat currency that continues to lose value at a steady rate, pushing up inflation and fanning public discontent. While this figure may be exaggerated, proprietary data from Chainalysis confirms that a portion of transactions originating from Iranian cryptocurrency services pass through western exchanges and financial institutions - a signal that Iranian cryptocurrency services do not face the same isolation felt by the country’s banks.
Years of sanctions have cut Iran off from major international payment networks such as Visa, Mastercard, Paypal and Western Union. Encrypted peer-to-peer messaging services, such as Telegram, are accessible in the country, allowing tens of thousands of users to communicate directly with dozens of Iranian cryptocurrency exchange websites, discussion forums, and media outlets. These message services play an integral role in matching local buyers and sellers and providing detailed walkthroughs on how to purchase cryptocurrency using international banks and money service businesses.
Allowing continued domestic access to cryptocurrency could lead the Iranian populace, weary from a decade of economic plight, to move their assets out of the country, adding to the destabilization of the national currency. These concerns will test the Central Bank of Iran’s willingness to block domestic cryptocurrency activity. Additionally, a move towards the creation of a national cryptocurrency would signal the government’s pivot towards embracing this new financial technology as a way out of perennial financial isolation. This path also carries a huge risk: cryptocurrencies could represent a new front line in the ongoing financial war between the US and Iran. Going forward, any internal evaluations of sanctions risks, and their implications for multinational corporations, will have to consider evasion scenarios that include cryptocurrencies.