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Fallout Over Zarif’s Money Laundering Comments Deepens

Iran's Foreign Minister Javad Zarif (L), attends a parliament session to discuss the president's proposed cabinet in Tehran, August 15, 2017

The Islamic Republic's Prosecutor-General says Iranian Foreign Minister Mohammad Javad Zarif’s recent accusations of rampant money laundering in Iran are baseless, and the conservative block in Iran’s parliament is threatening to have him impeached over his comments.

In a highly controversial remark November 11, Zarif said that those who “profit in the billions of dollars" from money laundering in Iran are spending millions from their windfalls to prevent the passage of legislation requiring more financial transparency in Iran.

The foreign minister went on to implicitly accuse unspecified state agencies of mounting the campaign against President Hassan Rouhani’s package of laws against money laundering, known collectively in Iran as the Palermo Bills.

"We cannot challenge the scenes set by these wealthy and mighty state organs,” he said.

Later, Zarif clarified that he had not accused any specific state agency of money laundering. Nevertheless, allies of the Islamic Republic’s Supreme Leader, Ayatollah Ali Khamenei, have gone on the defensive.

Eight days after Zarif's comments, the head of Iran’s judiciary, Ayatollah Sadeq Amoli Larijani, characterized Zarif’s accusations as a “stab right into the heart” of the Islamic Republic ruling system, saying that if there is any evidence of widespread money laundering by state agencies, it should be referred to the judicial department.

The Islamic Republic's Prosecutor-General, mid-ranking cleric Mohammad Jafar Montazeri, later disclosed that Zarif had written a 12-page letter to his office to clarify the controversial remarks. Montazeri said the letter, which Zarif wrote at the judiciary’s insistence, was “devoid of evidence” supporting his accusations.

The Rouhani administration has defended Zarif’s comments, saying they are fully endorsed by the cabinet and reflect the government position against money laundering.

"Based on reliable statistics, nearly 10-15 billion dollars are annually laundered in Iran,” Zarif's first deputy, Morteza Sarmadi, told Iran Students News Agency (ISNA) November 20. “Zarif has not accused opponents of the Palermo Bills of money laundering. He has only condemned individuals benefiting from money laundering.”

Iranian Ambassador to London, Hamid Baeidinejad, also joined the chorus to defend Zarif by insisting that the Islamic Republic's authorities have long been aware of the high level of money laundering in the country.

“The authorities have been monitoring the main smuggling points of entry for years and are fully aware of the precise amount of money gained through these points of entry,” Baeidinejad tweeted November 20.

"Smuggling narcotics in Iran amounts to $3 billion, and hard currencies and goods $12.6 billion, each year," Baeidinejad continued, adding, "Forty million liters (roughly 10.5 million gallons) of fuel are smuggled out of Iran every day. The money gained through such deals is lining the pockets of those involved in money laundering."

International transparency watchdog Financial Action Task Force (FATF) has demanded that Iran adhere to anti-money laundering standards and enact laws to prevent financing of terrorism. The adoption of anti-money laundering and terrorism financing laws (the Palermo Bills) by Iran could also help its standing with European countries that have pledged to help Iran continue doing trade despite U.S. sanctions.

The opponents of the Palermo Bills argue that their implementation is a threat to Iran’s security. Analysts say the real fear in circles loyal to the Supreme Leader is that adhering to the financial transparency requirements would prevent Iran from financially supporting the Lebanese Hezbollah and Palestinian Hamas militant groups.

The Islamic Republic and North Korea are the only countries on the Financial Action Task Force blacklist, but the Paris-based organization has suspended counter-measures against Tehran while it works on reforms.