Quds Force linked to Iranian bank at centre of fraud scandal

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The Quds Force, an Iranian military group alleged on Tuesday to be behind a terrorist plot to kill the Saudi envoy in Washington, has been linked in the past to Bank Melli, the Tehran financial institution whose chairman flew to Toronto last month after a massive fraud scandal.

While Mahmoud Reza Khavari, a dual Iranian-Canadian citizen, made headlines last month when he resigned as Melli's chairman after several Iranian banks became embroiled in a $2.6-billion (U.S.) embezzlement case, the international community has long been concerned about some of the bank's other activities.

The United States and the European Union have accused Bank Melli and another Iranian lender where Mr. Khavari worked, Bank Sepah, of financing terrorism and helping fund Iran's nuclear and missile programs.

The U.S. Treasury Department in 2007 accused Bank Melli of funnelling $100-million to the Quds Force, using "deceptive banking practices to obscure its involvement."

As early as 2003, Ottawa blocked a bid by Bank Melli to set up shop in Canada, according to a diplomatic cable released by WikiLeaks.

The cable describes a 2008 discussion with Robert Sample, senior project leader for the financial crimes section at Finance Canada. "He commented `off the record' that about five years ago, Canada rejected Iranian Bank Melli's application to open a Canadian subsidiary," it said.

Contacted by The Globe and Mail last week, Mr. Sample referred the call to his department's press officers, who referred it to the Department of Foreign Affairs and International Trade. For nearly two weeks, DFAIT has not replied to Globe questions about Mr. Khavari.

Mr. Khavari's family was in the Toronto area as early as 2001. They owned a $3-million home in the upscale Bridle Path neighbourhood and a $660,000 home in North York.

Tehran's top prosecutor is threatening to detain Mr. Khavari if he fails to return to answer questions. Members of Iran's parliament, meanwhile, have asked how a person with dual citizenship could have been put in charge of the state-owned bank.

"This is a situation that is going to engulf and dominate Iranian politics in the coming weeks if not months," said Nader Hashemi, a professor at the University of Denver's Josef Korbel School of International Studies.

While Mr. Khavari became chairman in 2009, the bank has long been an object of interest to Western agencies.

In 2008, for example, Philip Robinson, head of the British financial regulator's intelligence division, told U.S. diplomats that he "instructed his team and related British intelligence agencies to go out and `turn over every stone' to obtain any information they can showing linkages between [weapons of mass destruction]proliferation, terrorist activities and the Iranian banks," according to a leaked cable.

Bank Melli provided letters of credit and accounts that "facilitated numerous purchases of sensitive materials for Iran's nuclear and missile programs," the EU said.

The EU also alleged that Bank Melli set up a company in the Channel Island of Jersey so that it could operate a money-laundering shell company in New York.

The United States and the EU also moved to freeze assets of a string of Melli subsidiaries based in the Cayman Islands, Bahrain and Dubai.