iran cryptocurrencies under smuggling law
M.hazratpour | 2020-07-15

Cryptocurrencies under anti-smuggling law in Iran

I.        Introduction

On Monday 18 April, in the last working days of tenth parliament of Iran, members of parliament approved a bill to add cryptocurrencies under the law of commodity and currency smuggling. As much as this enactment is clear in the scope of commodity and currency smuggling, but is vague in the sphere of cryptocurrencies.

It seems reasonable that passing the bill right on the last day of 10th Iranian Majlis is coming out of hastiness and lack of enough familiarity with current situation of cryptocurrency market in Iran and more broadly in the globe. Unfortunately, cryptocurrency area in Iran have not seen yet any specialized and research-based measures and accomplishments by government and policy makers. Viewpoints and interviews of members of central bank, government and parliament is same as well.

In February 2019, Central Bank of Iran published the requirements and principles act that faced to opposition from activists and cryptocurrency community. In July 2019, CBI announced that any activity in the area of cryptocurrencies is illegal which was in some way inconsistent with the requirements document. This two in addition to issues related to banning crypto mining and impeachment and prosecution of miners are mainly all the regulatory measures that have taken place in past years.

In the meantime, Majlis Research Center independently have done analytical studies as a progressing step, but this is far from a comprehensive and inclusive law. This article tends to propose some questions in this way and address ambiguity and uncertainties in this sphere. Moreover, we investigate the regulatory status of cryptocurrencies in Iran and some other countries around the world.

On an institutional level, Iranian policymakers are having a very difficult time understanding how the blockchain technology works. As a result, they are unable to take advantage of its benefits and mitigate its risks. For instance, wariness of its potential to facilitate capital flight and otherwise undermine the country’s vulnerable economic system led parliament to prohibit individuals from using cryptocurrency at all in May.

II.    Crypto events in Iran

The Central Bank of Iran (CBI) officially announced on April 22, 2018, that it has prohibited the handling of cryptocurrencies by all Iranian financial institutions, including banks, credit institutions and currency exchanges. The decree also bans crypto exchanges from trading virtual currencies or taking actions to promote them.

The decision was in line with their last efforts to deal with deficiencies in policies requires for complying with the action plan of FATF, which is an international organization founded to combat and eradicate money-laundering and terrorist financing. Some believes that AML/CFT was not the only reason behind of this decision and CBI aimed to prevent foreign currency outflow from the country as well as lay the foundations for developing its own sovereign cryptocurrency.

iran crypto event

Table 1: Cryptocurrency regulation events and news (11/2017 – 04/2020)

November 13, 2017 CBI warns investors aginst high risks of speculative activities Central Bank of Iran Risk concerns
November 24, 2017 Iran cyberspace authority welcomes bitcoin and other cryptocurrencies and commits itself to publishing 6 detailed documents on fintech and crypto by March 2019 High Council of Cyberspace Anti-money laundering
December 11, 2017 Russia, China and Iran are interested in using crypto instead of swap agreements due to its anonymous and decentralized way State-backed issuance
December 30, 2017 CBI governor has urged citizens and investors to proceed with caution in trading bitcoin Central Bank of Iran Risk concerns
January 6, 2018 Iranian Banker calls for cryptocurrency adaptation in the banking system Bank Melli Iran State-backed issuance
January 10, 2018 CBI does not approve of bitcoin anyway Central Bank of Iran Anti-money laundering
February 25, 2018 Some local popular websites have been using visitors’ CPUs to mine virtual currencies Iran Computer Emergency Response Team Coordination Center Risk concerns
March 6, 2018 ICT is Highlighting issues before developing state-backed cryptocurrency Ministry of Information and Communication Technology State-backed issuance
April 3, 2018 Iran Cyberspace Authority warns against Telegram’s cryptocurrency High Council of Cyberspace Risk concerns
April 22, 2018 Iranian banks and financial institutions are banned from handling cryptocurrencies Central Bank of Iran Anti-money laundering
April 28, 2018 ICT ministry of Iran prepares a preliminary prototype of state-backed cryptocurrency Ministry of Information and Communication technology State-backed issuance
May 6, 2018 Iranians purchases cryptocurrencies over 2.5 billion in total Iranian Majlis Economic Commission Risk concerns
July 6, 2018 Iranian White Hat hackers has been launched to address cybersecurity concerns Ministry of Information and Communication Technology Risk concerns

Anti-money laundering

 

July 15, 2018 US federal government seizes at least 500 bitcoins belonging to Iranians Reported by IBENA news outlet Risk concerns
July 18, 2018 The EU may opt for digital currencies in searching ways for safeguarding EU’s interests in Iran Austrian Ambassador in a large gathering of foreign diplomatic representatives in Tehran State-backed currency
July 20, 2018 Majlis think tank calls for regulating cryptocurrency market Majlis Research Center Risk concerns

Anti-money laundering

 

August 25, 2018 The draft of document on the Iran’s state-backed cryptocurrency has been prepared at the behest of the President High Council of Cyberspace State-backed issuance
August 27, 2018 The Iranian Cryptocurrency has been designed using the Hyperledger Fabric platform Informatics Services Corporation State-backed issuance
September 3, 2018 The second study by the parliamentary entity on crypto regulatory measures including anti money-laundering acts, taxation and regulation of crypto as a financial instrument Majlis Research Center Risk concerns

Anti-money laundering

 

December 18, 2018 Renewed warning on crypto trade in Iran Iranian Cyber Police (FATA) Risk concerns
January 29, 2019 CBI releases draft of policy on cryptocurrency while maintaining the ban on popular cryptocurrencies to be used as payment method Central Bank of Iran Anti-money laundering
January 29, 2019 CBI announces new blockchain projects at the Eight Conference on Electric Banking and Payment Systems Monetary and Banking Research Institute State-backed issuance
March 04, 2019 The commodity bourse is ready to host the trade of cryptocurrency Iran Mercantile Exchange Issuance regulation
March 09, 2019 Iranian Crypto Community calls for more considered regulatory measures from central bank
July 29, 2019 Finalizing power rates for mining equal the electricity exports tariffs  Ministry of Energy Regulation of miners
August 06, 2019 Government addressing cryptocurrency mining as an industrial work Ministry of Energy Regulation of miners
September 11, 2019 Tax exemption for miners if they repatriate their earnings National Tax Administration Tax Regime
November 13, 2019 Downward adjustment of power rates for authorized cryptocurrency mining Ministry of Energy Regulation of miners
November 25, 2019 discounts on power rates for authorized cryptocurrency miners seems to be not enough Ministry of Energy Regulation of miners
January 24, 2020 Government giving 1000 cryptocurrency mining permits Ministry of Industries, Mining and Trade Regulation of miners
April 18, 2020 Parliament proposes amendment to ‘Currency Smuggling’ law and now cryptocurrencies are subject to currency smuggling law and foreign currency exchange regulations Iranian Parliament Regulation of exchanges

Source: News event collection of crypto events in Iran from Financial Tribune’s website (www.financialtribune.com)

Now, in 2020, Iranian Majlis have taken action against expansion of crypto exchanges

Now, in 2020, Iranian Majlis have taken action against expansion of crypto exchanges, so these exchanges must obtain a license from the CBI and comply with foreign currency exchange regulations, but it is still unclear how existing exchanges should apply for a license and adapt those fiat currencies’ regulation. Many believes this law will make the entrepreneurs in this domain encounter both risks of punishment by local authorities and being sanctions by U.S. government.

III.  Hopes, Challenges and Ambiguities

mining in Iran

Iran’s government has been interested in cryptocurrencies for a long time in order to support international trade outside of the existing international trade system. In July 2018, President Hassan Rouhani’s cabinet revealed their intention of developing state-backed cryptocurrency. Multiple blockchain projects had introduced by the Central Bank of Iran last year at the Electronic Banking and Digital Payments Conference.

At the other hand, the popularity of crypto transactions has been increasing dramatically to the extent that many people consider bitcoin as the only way to transfer money out of the country. In 2019, a survey conducted among 1650 residents using bitcoin and the results showed that 25 percent of the participants earned between $500 and $3000 monthly from working with cryptocurrencies.

Both government and citizens in Iran are increasingly rely on decentralized technology for evading the American sanctions. It seems that the government has fully realized the economic gains in mining sector. In August 2019, the government finally recognized mining of cryptocurrencies as an industrial undertaking and sent a directive to the relevant government bodies.

New developments in the sphere of cryptocurrencies may open up new opportunities for the Iranian government and public to circumvent American sanctions. The rise of sovereign virtual currencies based on private blockchains that provides no traceability as currencies like bitcoin does so. Countries that are still seeking their interests in trading with Iran could easily achieve them bu use of such coins.

In addition, another remarkable development in the world of cryptocurrencies is decentralized finance (DeFi), which aims to provide common financial services such as banking, lending and trading over decentralized networks and without intermediaries. Due to excessive inflation, which Iran has been suffering since 2019, Iranians tends to borrow limitlessness from overseas markets at lower rates.

As mentioned in table above, Iranian parliament had opened the gates of crypto regulation by publishing a study on the official website of Majlis Research Center. Different areas such as issuing coins by private and public sector, using virtual currencies in micro payments and maintaining currencies in created electronic wallets mentioned in this study but it lacked any further clarifications about considered solutions or way of addressing these issues from government.

Many questions remain to be answered about the cryptocurrencies regulation in Iran. One of them is how the government is planning to enforce the law on the Iran’s crypto exchanges that most of them are registered abroad.

Another question and maybe the more important one is about the approach of Iranian government to regulating the decentralized finance. As we might know, DeFi is inherently border-less and with this new technology, transferring value and negotiating contracts across the globe may become as easy as sending an email. Because it delivers financial services that are difficult to link to specific entities or even jurisdictions, we need an activity-based approach to regulation, instead of execution of supervisory mandates and directives that relies on the presence of centralized decision-making entities.

Finally, there is a considerable debate over whether the deterrent measures of government are due to their concerns about risks inherent in decentralized finance and more broadly speaking cryptocurrency markets, or they implement them as they worry about losing their roles with rising of the blockchain technology. It is argued that the blockchain technology can provide more efficient substitutes for services currently monopolized by the government such as money supply provision, contract enforcement and maintaining property rights.

IV.  Conclusion

Some experts believe this crackdown and restriction carried out on the cryptocurrency space by the government in order to pave the way for CBI’s plans to launch its sovereign cryptocurrency. It seems that Iranian Government aims to reap the rewards of blockchain technology and draw on their relative advantage in this sector, and concurrently avoid problems arising from speculation, illicit activities and free outflow of capital. Apparently, the government wants to has its cake and eat it too!

read more: Iran does not have more time to lose blockchain opportunities!