QUITO: The Ecuadorian Finance Co., Inc. (COFIEC), a bank that was seized a decade ago by the former Deposit Guarantee Agency (AGD) would be the legal vehicle used by the Ecuadorian state to conduct financial transactions with Iran.

The Central Bank of Ecuador (BCE) decided to conduct financial transactions through COFIEC as a part of financial cooperation agreements between Ecuador and Iran, as recorded in the minutes of the meeting that both countries held on January 12.

The bilateral meeting was attended by President Rafael Correa and his Iranian counterpart Mahmoud Ahmadinejad.

The minutes from the meeting also specify that Ecuador's Central Bank will open a bank account in a third country, where Iran will also register a bank account.

The document states that the purpose of this decision is to "facilitate trade" between the two countries.

They agreed that COFIEC should operate with banks that have not been targeted by international sanctions. The bank's officials were supposed to travel to third countries where they would scout the appropriate financial institutions for their project and then travel to Teheran in late January 2012 in order to finalize details.

This agreement has provoked a great deal of anxiety amongst experts in banking and business because of its potential effects on the Ecuadorian economy.

The president of the Federation of Chambers of Commerce, Blasco Peñaherrera Solah, warned that the procedure will allow Iran to launder money through the Ecuadorian financial system.

"This mechanism will be used to launder the world's bloodiest money, terrorism's money," he said.

Marcos Lopez, financial expert and former director of the Central Bank, argues that triangulation processes can occur in international trade, when currencies are traded instead of goods.

But he explains that applying this method in Ecuador "is playing with fire" because Ecuador is serving as a bridge for Iran to avoid sanctions that the United States and several international organizations have imposed on Teheran for its involvement in nuclear programs.

Lopez said that the country could be harmed by this decision because Washington would certainly sanction the country for its closeness to Iran.

He suggested that COFIEC would function as a legal vehicle for the kind of transactions that the Ecuadorean government would need to do.

Currently, the Ecuadorean Finance Company functions artificially because it has no customers, but its letterhead is still in use.

A 2008 report prepared by an officer of the Ecuadorean Central Bank's compliance office, Paulina Arauz, stated that U.S. sanctions would apply to entities that maintain relationships with Iran's financial sector.

The U.S. Office of Foreign Assets Control (OFAC) could extend criminal and administrative penalties for this kind of behavior. There are fines ranging from $250,000 to $10 million for companies and from $10,000 to $5 million for individuals. In addition, embargoes and blockades could be contemplated.

Ecuador has been criticized internationally for its closeness to the Ahmadinejad regime. In fact, it earned it a place on the Financial Action Task Force's black list.