Iran’s military assets are being obliterated by U.S. and Israeli strikes, but airpower cannot dismantle one of the regime’s most dangerous asymmetric capabilities: sophisticated illicit financial networks that extend far beyond Iran’s borders.
Billions of dollars stashed offshore could still be mobilized by surviving hardliners to prop up the regime, finance terrorist attacks in the West, and escape accountability for their crimes against the Iranian people.
For decades, the United States and its allies have relied on sanctions to constrain the regime’s oil exports and sever its access to the formal financial system. While Iran has threatened to close the Straits of Hormuz, halting its own illicit oil shipments (some 90 percent of which go to China) would cripple its most critical revenue stream. However, a sustained conflict will inevitably degrade its ability to do so, if not destroy it altogether. Iran’s surviving leaders will therefore increasingly rely on alternative illicit revenue streams and accumulated reserves.
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Iran’s global “shadow banking” system comprises thousands of shell and front companies, exchange houses, money transmitters, hawala-style networks, and complicit professional enablers operating in jurisdictions with weak oversight. Tehran has also expanded into digital assets, with roughly $10 billion in crypto transactions detected last year.
These networks were built specifically to circumvent sanctions and sustain nuclear proliferation, terrorist groups, proxy militias, and domestic repression. If they remain intact, so too does the regime’s capacity to pursue these objectives.
An immediate risk is that these funds could be directed to activate the terrorist sleeper cells or local organized crime groups that Tehran engages to conduct bombings and assassinations in Western countries. Even if the regime collapses quickly, die-hard adherents with access to funds could reconstitute themselves as the world’s leading non-state sponsors of terrorism.
If the regime proves more resilient than expected, it will draw on these resources not only to retaliate through terrorist proxies but to re-arm itself, further repress the population, and perhaps even continue its underground enrichment program.
Opportunistic insiders may also try to abscond with regime funds to which they have access. Iran’s economy is a kleptocracy dominated by the Islamic Revolutionary Guard Corps and sham religious foundations. Officials who publicly denounce Western decadence routinely funnel stolen wealth to support their families living in Western luxury.
Focusing on financial measures may seem premature when American troops are very much in harm’s way and Iran’s political future is uncertain. But as the rush to freeze Russian assets after the full-scale invasion of Ukraine in 2022 demonstrated, time is of the essence in an era when funds can be transferred worldwide at the click of a button.
Thankfully, the U.S. Treasury Department possesses substantial capabilities to identify and freeze Iranian assets under legal authorities developed during the wars on terror and drugs. It has long devoted significant time and resources to mapping Iran’s financial networks, and now has the added experience of hunting Russian assets.
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But dismantling Iran’s offshore empire will require coordinated international enforcement. The Treasury Department should immediately establish an Iran-focused successor to the Russian Elites, Proxies, and Oligarchs (REPO) task force. After Russia’s invasion of Ukraine, REPO provided a platform for intelligence sharing and operational coordination among U.S. allies and partners that helped freeze more than $30 billion in Russian assets.
The private sector should be put on notice that secondary sanctions will be imposed aggressively against businesses facilitating Iranian capital flight. This includes banks, lawyers, and accountants not only in China (Iran’s major economic partner) but otherwise reliable partners like the United Arab Emirates, Turkey, and Malaysia, whose economies have become global money laundering hubs.
Congress can help reinforce these efforts. Lawmakers could enact narrowly tailored legislation authorizing the seizure — not merely the freezing — of designated Iranian regime assets, modeled on the REPO for Ukrainians Act. Congress could also create a Fund for the Iranian People, directing the Treasury Department to deposit seized assets into an escrow account restricted to humanitarian relief and, should a stable and legitimate government emerge, lawful repatriation.
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Finally, this moment is an opportunity to accelerate overdue domestic reforms. For example, the Treasury’s undersecretary for Terrorism and Financial Intelligence, John K. Hurley, recently announced measures to reduce compliance burdens and refocus bank reporting on actionable intelligence. The Treasury Department should also reconsider its decision to shelve the U.S. beneficial ownership registry, which is designed to curb shell company abuse: Iran itself controlled a Manhattan skyscraper for decades through a front entity before law enforcement uncovered the arrangement. How many more such cases remain undiscovered?
Iran’s political and military leadership has already been decapitated. But unless its financial networks are dismantled and its resources seized, the threat it poses will endure. Defunding the regime is not ancillary to military action but critical for ensuring that its capacity for terror, repression, and corruption does not survive defeat on the battlefield.
Nate Sibley serves as a Fellow and Director of the Kleptocracy Initiative at the Hudson Institute.