Anti-money laundering body seen keeping Iran on blacklist

Among the myriad threats to the Joint Comprehensive Plan of Action, front and center is the inability of just about anyone to convince the world’s largest banks to facilitate transactions between Iran and foreign companies. The banks’ coyness toward Iran has caused increasingly loud grumbling in Tehran and a creeping sense of unease in Western capitals. Banks have reason to be wary, not least because of the very political issues of continued unilateral US sanctions and the uncertainty surrounding the upcoming US presidential elections.

Yet, beyond the unpredictable and increasingly politicized issues surrounding the agreement, an opportunity for positive change lies in getting Iran removed from the very short list of countries deemed high risk and noncooperative by the international Financial Action Task Force (FATF). Iran was put on the blacklist because it was determined that the country lacked the means or the will — depending on who is asked — to combat money-laundering and terrorist financing. Taking major steps to get Iran off this list would ease some of the banks’ concerns, help facilitate the legal trade envisioned under the nuclear deal and aid in strengthening the global anti-money laundering (AML) regime — a decidedly nonpolitical and uncontroversial goal.

For almost a decade, Iran’s financial system was seen as an effective target for sanctions architects determined to cut the country off from international trade. Sanctions sparked the proliferation of unregulated financial institutions adept at sanctions busting that — along with more established banks — found surreptitious and novel ways to move cash around the world.

Media began to report on suitcases filled with dollars flowing through Tehran’s Imam Khomeini International Airport and suspicious truckloads of Iranian gold being seized in Turkey. A barter system was created with willing international partners, and Iran began to make extensive use of a motley but effective network of middlemen and front companies to facilitate transactions. Under such a secretive system designed specifically for survival, corruption expanded exponentially and a culture of circumvention of basic financial legal standards took root.

It didn’t take long for the FATF to notice, and in 2008 the group began to list Iran as a “high-risk” financial jurisdiction. Its recommendation to the world’s banks was explicit: Beware of any transactions having to do with Iran. Barely a month after international sanctions were removed against Iran, FATF issued a statement reiterating its warning to global financial institutions that Iran had yet to meet its regulatory standards. As long as Iran was under international sanctions, the ability to circumvent them by any means possible was considered a point of strength. Now that sanctions have been lifted, Iran’s inability to adapt to global transparency standards is a problem not only for Tehran, but also for the world’s financial capitals. Iran’s continued inclusion on the FATF blacklist has given critics of the nuclear deal ammunition in their efforts deter international banks from dealing with Iran.

It will likely take a long time to implement the reforms needed, and progress must be measured incrementally — but there are signs that the administration of President Hassan Rouhani recognizes the negative impact of the FATF’s classification on its post-nuclear deal ambitions.

Indeed, in March, after years of legislative rancor, Iran’s Guardian Council finally approved the outgoing parliament’s ratification of a UN treaty against money-laundering and terrorist financing. It will be up to the new parliament to pass more specific AML regulations upholding the treaty. Iran has signaled its desire to join the Eurasian Group, a regional organization that helps member countries in implementing AML standards. In this vein, several Iranian banks have already been receiving British assistance to implement the regulatory standards required by the FATF. Iran’s representative to the International Monetary Fund has furthermore recently asked for international technical assistance to put in place proper AML standards in the country’s banking industry.

All of these measures indicate a will by the Rouhani administration to quickly get Iran off the FATF blacklist. Whether such moves will result in actual changes in the way Iranian banks do business is a separate challenge. Iranian financial institutions, like their Western counterparts, were deeply impacted by the draconian nature of the nuclear-related sanctions. Reforms to increase transparency will likely be resisted as long as the nuclear deal seems fragile. Even if a decision to conduct wholesale AML reform is made, years of sanctions have denied Iranian banks the ability to tap the latest in technical expertise in order to bring the industry up to modern standards. The implementation of reform will likely require the help of Western financial experts and a sustained political will in the West to integrate Iran into the global rule-based financial system.

Iran’s stated desire to normalize its banking industry represents a valuable opportunity for the West — specifically strong backers of a global AML regime such as the United States. Beyond the need to show Iranians that their government’s nuclear compromises were worthwhile through a normalization of trade, the United States has an important national interest in strengthening the global efforts against money-laundering and terrorist financing.

Having a large, emerging economy like Iran outside the scope of AML standards does nothing to further American interests. Iran’s current financial officials — motivated by a desire to maximize the gains of the nuclear deal — have already signaled that they need assistance in implementing acceptable AML standards on the ground. It is thus a good time to help Iran emerge from the FATF blacklist in a transparent manner that simultaneously strengthens international efforts against money-laundering and terrorism financing.


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