Will anti-money laundering reform in Iran matter?

By Aaron Arnold, September 14, 2018

shutterstock_284561786.jpgImage courtesy of Shutterstock.

Next month, the Financial Action Task Force (FATF)—an intergovernmental body that sets and promotes worldwide anti-money laundering standards—will make a key decision on whether or not to lift Iran’s probationary status or place the country back its blacklist. If put back onto the blacklist, member states would be asked to employ financial countermeasures that range from requiring extra scrutiny of Iranian-linked accounts to shutting down certain types of banking networks.

The FATF’s decision rests entirely on Iran maintaining its commitment to implementing anti-money laundering and counter-terrorist financing reforms within its banking and finance systems. But if Iran fails to comply with FATF standards, a blacklist designation would effectively narrow the remaining paths to keep intact the Joint Comprehensive Plan of Action (JCPOA), otherwise known as the “Iran Deal”—the 2015 agreement between Iran and the P5+1 (China, France, Russia, the United Kingdom, the United States, and Germany) that curbed Iran’s nuclear program in exchange for sanctions relief. This is especially true now, given that the United States has unilaterally withdrawn from the agreement and placed foreign companies under threat of secondary sanctions.

On the other hand, if Iran does bring its anti-money laundering rules and regulations into compliance with FATF standards, it would send a strong signal to the international community of Iran’s commitment to reintegrating with the global economy and more broadly, the JCPOA.

In June 2016, the FATF took the unusual step of removing Iran from its blacklist and placing the country on probationary status—while calling on its members to continue to conduct ‘enhanced due diligence’ for Iranian transactions. This was unusual because other than expressing a political commitment to reform its anti-money laundering rules, Tehran had yet to actually implement any meaningful reforms. The FATF has since maintained the suspension of countermeasures under the assumption that Tehran would work towards its political commitments to implementing FATF standards. Two years on, Iran has yet to make even the most modest of changes.

At its last meeting this past June, the FATF expressed its disappointment with Iran and set an October deadline for full compliance. So far, Iran has several pieces of legislation up for consideration on its agenda that would address some but not all of the country’s anti-money laundering deficiencies. One of the most politically contentious reforms that Tehran would need to implement requires national capabilities to identify and freeze terrorists’ assets in accordance with relevant UN Security Council resolutions.

Although almost all of the UN terrorist designations focus on Al Qaeda, Iran’s hardliners are concerned that the new rules may interfere with its regional security interests—specifically the country’s ability to provide support to Hamas and Hezbollah. Supreme Leader Khamenei has generally acknowledged the importance of anti-money laundering reforms to broader economic development, but has remained critical of the proposed legislation, calling it “cooked up by foreign powers.” In August, Iran’s Guardian Council rejected terrorist financing components of the new anti-money laundering legislation—a move that will surely make meeting the October deadline more difficult.

EU businesses continue to withdraw from Iran by the day, under threat of US secondary sanctions. In the most recent example, ATR—a Franco-Italian aircraft manufacturer—began what it called “re-allocating” of undelivered commercial turboprop aircraft sold to Iran after the US Department of the Treasury rejected an EU appeal for a waiver. (In other words, planes earmarked for delivery to Iran will now be sent to other customers in other countries, despite ATR having previously signed a $536-million deal with Iran.) This trend, coupled with increased US pressure on international partners to decrease Iranian oil imports, puts the future of the JCPOA in serious jeopardy.

The fact is that even if Tehran is able to bring its anti-money laundering rules and regulations in line with FATF standards by the October deadline, there is no guarantee that it will be enough to counteract the threat of US secondary sanctions—that is, penalties applied to third-party foreign banks. Nonetheless, demonstrating a strong commitment to FATF standards would reaffirm Iran’s commitment to global economic reintegration and in turn, the JCPOA. Perhaps more importantly, it would put the European Union in a better position—politically—to defend its businesses against US pressures.


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