October 03, 2024

Scott, Rounds Demand Answers on NY Fed’s Reported Failure to Prevent Funds Flowing to Iran, Terror Proxies

Washington, D.C. – Ranking Member Tim Scott (R-S.C.) and fellow Senate Banking Committee member, Senator Mike Rounds (R-S.D.), are demanding answers following reports that the Federal Reserve Bank of New York (NY Fed) failed to implement basic anti-money laundering controls on account relationships with the Central Bank of Iraq, resulting in potentially billions of dollars flowing to Iran and its terror proxies. Ranking Member Scott and Senator Rounds called out the NY Fed and Federal Reserve System, organizations instrumental to crafting and implementing Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) laws on the U.S. banking system, for failing to apply the same standards and expectations to their own operations.

In a letter to the leaders of the Federal Reserve Bank of New York and the Board of Governors of the Federal Reserve System, Scott and Rounds write, “According to the report and U.S. officials, ‘as much as 80% of the more than $250 million in dollar wire transfers flowing through them [the Iraqi banks] on some days were untraceable and some portion of that amount went secretly to Iran’s Islamic Revolutionary Guard Corps and the anti-U.S. militias it supports.’ If accurate, this would represent one of the single greatest failures of the U.S. financial regulatory regime.”

The senators continue, “… for over two decades, the NY Fed processed wire transfers and transactions originating from private banks in Iraq to various banks across the globe without conducting or requiring basic Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) ‘know your customer’ compliance. Reportedly, these transactions were facilitated without any disclosure of where the funds originated or the intended recipients—which if true, is astounding. As you know, if these actions were carried out by a commercial bank, the bank and its executives would likely be subject to severe civil and criminal penalties, including permanent closure.”

The letter requests detailed answers on the reporting and on steps the institutions are taking to address these failures. To read the questions and the full letter, click HERE.

BACKGROUND:

Ranking Member Scott has conducted rigorous oversight over the flow of funds to Iran and its terror proxies, particularly following the October 7, 2023, attack on Israel by Hamas. Ranking Member Scott has taken the following actions with regards to Iran:

  • Immediately following the Biden-Harris administration’s August 2023 decision to release $6 billion to Iran, Ranking Member Scott led his colleagues in demanding answers from the administration.
  • After the October 7, 2023, attack on Israel by Hamas, Ranking Member Scott called for Treasury Secretary Janet Yellen to testify on the release of the $6 billion and for the Senate to investigate the matter.
  • Following the attacks, Ranking Member Scott introduced the Revoke Iranian Funding Act (RIFA), a bipartisan bill to permanently freeze $6 billion released by the Biden administration to Iran and direct the Treasury Secretary to provide Congress with the information it needs to prevent Iran from accessing and using sanctioned funds. He also led the Solidify Iran Sanctions Act to permanently extend key sanctions targeted to stop Iran’s malign activity, including the pursuit of nuclear weapons.
    • The reporting requirement in RIFA was signed into law as part of the national security supplemental in April 2024.
  • Last November 2023, following a wave of attacks on U.S. forces and the Biden administration’s decision to extend an Iran sanctions waiver to allow Iraq to pay Iran for electricity, Ranking Member Scott led a group of 24 senators criticizing the administration’s lack of a cohesive Iran strategy.
  • In April 2024, in response to the Biden-Harris administration’s decision to release yet another Iran sanctions waiver potentially worth billions of dollars, Ranking Member Scott led 13 Republican senators in a letter to Treasury Secretary Janet Yellen and Secretary of State Antony Blinken raising concerns that the waiver makes sanctioned Iranian funds, which could be used to fund terrorism, more accessible to the Iranian regime and disregards congressional intent calling for severe restrictions on payments to Iran.
  • After Treasury Deputy Secretary Wally Adeyemo admitted in testimony before the Senate Banking Committee that any dollar Iran has access to funds terrorism, Ranking Member Scott sent a letter to Treasury Secretary Janet Yellen requesting an accounting of all international high-value Iranian assets around the world that are currently blocked by U.S. sanctions and to provide additional steps Treasury will take to actively account for current funds that have already been released to Iran.

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