Iran Struggles to Approve FATF Regulations

https://rasanah-iiis.org/english/?p=8975

ByRasanah

As preparatory talks were held in Vienna with Washington’s participation to potentially resume nuclear talks with Iran, Iranian legislators failed to reach a verdict regarding compliance with Financial Action and Task Force (FATF) regulations. Set up by the G7 group of industrial nations in 1989, the FATF is a non-governmental organization responsible for establishing international standards and developing as well as promoting policies to combat money laundering and terrorist financing.  

Iran has debated whether to join the FATF since 2015, after it signed the Iranian nuclear deal with other global powers.  FATF approval is crucial if Iran wants  to do business with the world. To date, major international banks have refused to carry out financial transactions with Iran, and even its allies such as China and Russia have been reluctant to trade with Tehran if it refuses to comply with FATF regulations. European countries and the United States, which have imposed sanctions on Iran in recent years, want Tehran to fully comply with FATF regulations.

Under economic pressure, Iran promised to decide regarding FATF regulations soon, but it has failed to build internal consensus on the issue. Iran’s different political currents as well as its decision-makers whether in favor or against FATF regulations all agree that Iran has had a hard time complying with anti-corruption international financial standards.

Iran remains a High Risk Jurisdiction Subject under FATF regulations, because of the Iranian leadership’s lack of will to counter money laundering and terrorist financing.  Through this designation,  the FATF has called for  counter-measures to protect the international financial system from Iran’s non-compliance with FATF anti-money laundering (AML) and counter-terrorist financing (CFT) regulations.

 Though the FATF in 2016  briefly removed Iran   from its  “counter-measures” list after the signing of the  Iranian nuclear deal, and   provided Iran with a four year grace-period to improve its financial due diligence,  last year Iranian hardliners burned an FATF banner to protest against the organization’s regulations. Subsequently, the FATF blacklisted Iran on charges of financing terrorism, citing the country’s failure to enact the UN-sponsored Palermo Convention and the Terrorist Financing Convention in line with FATF regulations.

Tehran’s hesitancy to comply with FATF regulations is because it fears that the country’s financial system will be open to scrutiny, thus impeding its ability to finance its militias and proxy networks in the region. Although Iran’s Parliament approved the bills regarding compliance with FAFT regulations, the country’s Guardian Council and members of Iran’s Expediency Council rejected the bills.

 However,  when  US President Joe Biden  indicated a willingness to revive the Iranian nuclear deal last December, Iran’s Supreme Leader Ali Khamenei in response showed some flexibility by consenting to revive the bills regarding FATF regulations.  

 President Hassan Rouhani leaves office in June, and he is likely to be replaced by a hardliner who will be in line with the supreme leader’s positions. It is important to note that how far Iran goes in relation to FATF regulations will ultimately depend on the progress that is made if nuclear talks are revived.  Iran’s hardliners insist that if Iran complies with FATF regulations, it should make it clear that it will not disclose financial information about how it circumvents US sanctions.

 Rouhani is now defending the FATF with all his might in his remaining days in office. Recently, he told his cabinet that Iran will face enormous difficulties if it does not comply with FATF regulations and he stressed that compliance has nothing to do with the nuclear deal or sanctions, but the regulations were simply about financial standards which Iran must observe.

The president’s critics disagree with his remarks.  The newspaper Kayhan demands to know why the FATF has not stipulated that if Iran complies with its regulations that the sanctions will be lifted on the country. It has argued that if FATF regulations and sanctions are unrelated, as the president suggests, then why should Iran bother at all to comply.

Iran’s  Parliament is also at odds with the idea of complying with FATF regulations.  Some legislators  conspiratorially claim that the FATF is an excuse to force Iran to comply with financial regulations, eventually leading to a soft power regime change in Tehran.

There is no denying the fact that Iran is concerned about  being blacklisted by the FATF, as it will deter investments,  even if  nuclear talks progressed and some sanctions against the country were removed. Yet, the vast majority of Iran’s politicians think that complying with FATF regulations is only useful  if sanctions were to be fully removed, thus enabling  Iran to attract foreign investment.  Otherwise, Iran would be at more risk by complying with FATF regulations and lose the secrecy to back its militias and proxies in the region and beyond.

Rasanah
Rasanah
Editorial Team