An editorial contributor to the Wall Street Journal has written an article regarding the possible use of the Asian Clearning Union (ACU) - an organisation that settles international transactions using an offsetting arrangement between member currencies instead of international currency markets - to launder "illicit" payments in contravention to the United States sanctions on Iran. Further information on the ACU is available at http://www.asianclearingunion.org
The article's author - Avi Jorisch - strongly believes that Iranian firms are paying foreign exporters with USD co-ordinated through the ACU settlement process. Mr. Jorisch pledges his belief in the dominance of the USD by stating, "Given the nature of international trade, it is unlikely that Iran has now shifted all of its ACU transaction [sic] to the euro."
Mr. Jorisch suggests that Section 311 of the United States PATRIOT act be invoked and that the ACU be declared a "primary money laundering concern", dramatic action in response to an allegation in a newspaper instead of a proven case.
Mr. Jorisch's analysis of international trade denominated in USD is flawed for three reasons:
1. Any international firm wishing to export in Iran will know immediately not to denote the transaction in USD in order to prevent any contact with USD clearing banks in New York. The euro - or any currency that can be cleared through a non-FX market settlement mechanism - is a top choice and readily acceptable to any trading company in the region with even a basic grasp of current financial realities.
2. With the United States Treasury running the printing presses night and day, the value of the USD has plummeted against all major currencies. Without access to foreign exchange hedging, no international trading firm would want to denote a long-dated transaction in USD. And if you're transacting in USD with an Iranian entity, you'll not get access to USD futures or options, unless they're local ACU-member country OTC and probably very expensive.
3. The very "raison d'etre" for an inter-regional currency settlement mechanism is to avoid exposure to expensive and inaccessible foreign currencies, thereby eliminating their use within the transaction as a reference currency. If the exporter is hoarding USD instead of paying his local operating expenses in local currency, then Mr. Jorisch's analysis may apply, however no trading business would operate long with that financial perspective.
Mr. Jorisch is a senior fellow at the Foundation for Defense of Democracies - http://www.defenddemocracy.org - an organisation that boasts members such as Richard Perle, Bill Kristol, Joe Lieberman, Dr. Michael Ledeen and other esteemed alumni of various think-tanks who trumpeted loudly that invading Iraq was effective use of American foreign policy. History has proven them tragically wrong.
Is this the same crowd influencing American pressure on the FATF and steering the international financial crime risk management community into another dreadful quagmire? At what point are the shattered remnants of their credibility paraded before the public eye as firm evidence of their sensational ignorance? At what point is the FATF reclaimed to fulfill its original mandate?
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