As Protests Continue, Biden Should Enable Remittance Transfers to Iran

10 Oct 2022

As Protests Continue, Biden Should Enable Remittance Transfers to Iran

By Esfandyar Batmanghelidj

October 10,2022

Protests in Iran are continuing as the Iranian people bravely maintain a presence in the streets and on social media. So far, Iranian authorities have given no clear indication that they will reform policies in line with protest demands and have signalled that a larger crackdown may be coming.

While the protests have meaningfully shifted the political discourse around women’s rights and state repression, it is unclear whether Iran’s civil society has the resources necessary to generate a large and lasting protest movement that maintains pressure on Iranian authorities and raises the costs of further crackdowns. One critical factor is the economic disempowerment of Iranian society over the last decade.

Between 2010 and 2020, the spending power of the average Iranian household has fallen by just over 20%. This loss of economic welfare is primarily the result of U.S. sanctions, particularly those imposed in 2012 and re-imposed in 2018. In the two decades leading up to 2012, Iranian households enjoyed an unbroken period in which living standards were rising.

U.S. sanctions policy has made protests in Iran more frequent, but also less likely to succeed. The economic precarity that has become a dominant feature of the Iranian social condition over the last decade makes it harder to sustain protest movements. Many Iranians literally cannot afford to organise and mobilise over weeks and months. Workers are reluctant to strike given the risk of losing their jobs. Even those who retain the economic means to protest lack the tools to organise.

In institutional terms, sanctions have weakened the formal and informal civil society organisations that help mobilise the middle class and channel middle class resources towards political action. Charities, advocacy groups, legal aid providers are starved of resources. Civic-minded women, who are at the forefront of Iran’s new protest movement, have been hit especially hard. As one Iranian activist put it last year, “Activists are struggling to survive… If they do end up with a bit of time at the end of the day for their activism, they are often too exhausted and preoccupied with economic survival to be effective.”

The recent protests have no doubt energised a wide range of social groups in Iran, but looking in both economic and institutional terms, the balance of power between Iranian state and Iranian society has clearly shifted in the state’s favour. Mobilisations have become more frequent, but they tend to be smaller and more fleeting, making it easier for the state to either crackdown or to simply wait out the protests.

As such, the Biden administration should adjust its sanctions policies to broadly authorise remittance transfers to Iran, making it possible for Iranians in the diaspora to support family and friends in ways that reduced economic hardship and strengthen capacities for political participation.

Remittance flows are restricted because banks and money transfer companies do not facilitate transfers to Iran owing to sanctions on the Iranian financial system. Most remittances are therefore made via exchange bureaus (known to Iranians as sarafis) or are hand-carried into Iran by individuals. U.S. persons are explicitly authorised to hand-carry personal remittances but are not permitted to use money service businesses. The financial flows made through exchange bureaus and hand-carry channels are difficult to track and so the true extent of remittance flows may not be reflected in authoritative estimates, but Iran is likely receiving far less remittance transfers than countries with similar economic characteristics.

The World Bank estimates Iran received $1.3 billion of remittances in 2021, equivalent to just one-tenth of a percent of GDP. By comparison, Thailand, a country with a higher per capita GDP ($19,000 vs. $16,000 in PPP terms) and a smaller population (70 million vs. 84 million), received $9.0 billion of remittances, equivalent to 1.8 percent of GDP.

It is unlikely that exchange bureaus and physical transfers total in the many billions of dollars. In short, Iran’s remittances inflows are much lower than expected given the size of the economy and the economic needs of the population. Remittances flows are far too limited to shore the economic welfare of households in the face of the generalised economic crisis to which sectoral sanctions contribute—a fact evidenced by the erosion of household consumption over the last decade.

A significant body of academic research suggests that remittances encourage political participation, including in protests. In a 2017 paper, Malcolm Easton and Gabriella Montinola use individual-level data from Latin America to explore the relationship between the receipt of remittances and political participation. They find that “remittance recipients are more likely to select protest rather than the base response” whether in a democracy or autocracy. Additionally, in autocracies, remittances make political change seem more achievable. Easton and Montinola explain that “receiving remittances increases the odds of selecting protest relative to believing change is not possible by 34%.” Abel Escriba-Folch, Covadonga Meseguer, and Joseph Wright arrive at a similar conclusion in their 2018 study which used individual-level data from eight African countries. They find strong evidence that “remittances increase protest by augmenting the resources available to political opponents” and “remittances may thus help advance political change.”

The Iranian diaspora in the United States is the largest and most politically active in the world. As U.S. persons, members of the diaspora living in the United States are unable to send remittances to Iran beyond the hand-carry method, which is not an option for those who cannot travel to Iran for personal or political reasons, or who are opting not to travel to Iran due to the increased risks facing dual nationals. To provide routine and reliable financial support to family and friends in Iran, members of the Iranian diaspora should be able to avail themselves of money service businesses or other payments solutions.

The relevant regulation does stipulate that remittance transfers “processed by a United States depository institution or a United States registered broker or dealer in securities” are authorised. However, there is a lack of such institutions offering remittance services for Iran—U.S. banks do not maintain correspondent accounts at Iranian financial institutions. As such, the Biden administration should update its regulations to enable U.S. persons to make remittances transfers through other channels. This can be done through the issuance of a new general license with two aims.

First, the Biden administration could authorise the use by U.S. persons of money service businesses, such as Europe-based exchange bureaus, to transfer non-commercial, personal remittances to Iran. Second, and perhaps more usefully, the Biden administration could authorise the use by U.S. persons of cryptocurrency exchanges to purchase USDC stablecoins and transfer those stablecoins as non-commercial, personal remittances to Iran. The administration would also need to authorise U.S. cryptocurrency exchanges to onboard users in Iran.

Exchange bureaus can typically make deposits to accounts at Iranian financial institutions. The existing regulations do state that U.S. banks can engage with money service businesses in third-countries to make remittance transfers to Iran. But that makes such transfers subject to the discretion of U.S. banks. The guidance should be modified such that U.S. persons can directly engage exchange bureaus, for example those in Europe, to make transfers to Iranian bank accounts. Making it possible for U.S. persons to use third-country money service businesses would have an immediate impact on the volume of remittances sent to Iran. However, this channel cannot scale indefinitely as money service businesses generally need to balance inflows and outflows to make transfers in a netting process.  

The use of cryptocurrency could be even more impactful. While few Iranians maintain cryptocurrency accounts, the technology provides one of the few scalable options for enabling U.S. persons to make remittance transfers to Iran. So long as cryptocurrency exchanges receive guidance that allows them to onboard Iranian users, Iranians can be expected to adopt the technology and U.S. persons will be able to transfer cryptocurrency without a constraint on scale.

The authorisation should be limited to exchanges and should not cover transfers made directly to addresses or via wallet providers, because of the additional controls that the exchange can impose. It is technically feasible for cryptocurrency exchanges (such as Coinbase and FTX) to limit the value of transfers that can be received and held by Iranian users in line with the provisions of the authorisation. Additionally, transactions processed by the exchange do not happen on cryptocurrency blockchains, they are run within the exchange’s internal database. This enables the exchange to freeze any account held by its user and block further transfers if necessary. Moreover, the exchange could ensure that users were only able to transfer certain cryptocurrencies to Iran, such as traceable USD stablecoins which are pegged to the dollar (the best option is USDC, which has a track record of cooperation with US regulators). This would ensure that exchanges are not providing a platform for speculative trading by Iranian users and that Iranians do not have a perverse incentive to hold onto their remittances. These exchanges can also require additional KYC for U.S. persons and Iranian individuals on either end of a given transfer.

To be effective, these authorisations would need to be followed by extensive outreach by the U.S. Department of Treasury and U.S. Department of State to ensure that money service businesses and cryptocurrency exchanges begin supporting Iran-related transfers. U.S. authorities would also impress the importance of monitoring for suspicious transactions and could ask for data on the remittance flows to enable better enforcement. Any authorisation could be granted based on a limit to the value of remittances made by a U.S. person each month—a limit as low as a few hundred U.S. dollars could make a significant difference in supporting basic household welfare in Iran.

There is a risk of abuse by individuals seeking to transfer funds to designated entities or individuals in Iran. But the risk is limited. Flows of USDC cannot be directly taxed or expropriated by the state. To spend any remittances they have received, Iranians would either need to pay for goods and services by transferring USDC to another Iranian user that has created an account on the exchange, or by finding an Iranian user who is willing to exchange USDC for cash.

The lack of hard currency flows means that the proposed action does not entail a substantive change to the structure of U.S. sanctions on Iranian economic sectors and state-owned and controlled entities. Even so, the authorisations can significantly boost the economic resources of Iranian civil society and enable more robust political participation, including in protests. However, the decision to participate in the protests lies with each Iranian. Unlike a strike fund, this policy does not create an incentive for protest, nor are the remittances made contingent on certain kinds of political action.

There is a precedent for this approach. Even while adding sanctions on the Maduro government, the Trump and Biden administrations have notably allowed Venezuelans to continue to use U.S.-based financial services, such as the payments app Zelle, to send and receive U.S. dollars. This has had the effect of shielding many Venezuelans from even steeper declines in economic welfare as the country experienced a steep sanctions-induced recession.

Enabling Iranian-Americans to make remittance transfers to their family members in Iran within the context of existing sanctions regulations would mean that the Biden administration is not only seeking to deprive the Iranian state of resources for repression but is also working actively to preserve the power of the civil society at a time of general economic crisis. This is what true solidarity would look like.