Financial Action Task Force Re-Imposes Counter-Measures on Iran for Lack of Progress in Anti-Money Laundering and Counter-Terrorist Financing Legislation

The Financial Action Task Force (FATF), an intergovernmental body responsible for combating money laundering and terrorist financing, has re-imposed counter-measures on Iran after the country failed to pass anti-money laundering (AML) and counter-terrorist financing (CFT) legislation. The move comes after Iran’s Expediency Council quashed legislation passed by parliament.

Background

The FATF’s decision is a significant blow to Iran’s efforts to regain access to international financial markets, which were severely restricted due to the country’s lack of progress in implementing AML/CFT laws. Despite years of negotiations and pressure from the international community, Iran has failed to comply with FATF standards.

Consequences

The re-imposition of counter-measures means that countries are required to take measures to protect their financial systems from money laundering and terrorist financing risks associated with Iran. This could result in:

• Significant due diligence requirements for Iranian banks
• Total cut-off from international transactions

However, the impact of the FATF’s decision is likely to be largely symbolic, as major global banks have already been reluctant to do business with Iran due to concerns about sanctions and reputational risk.

Implications for Relations between Iran and the European Union

The EU can now point to Iran’s failure to comply with its commitments under the nuclear deal as evidence of Tehran’s lack of good faith in negotiations. The FATF’s action also has implications for relations between Iran and the European Union.

Response from Iran

Iran’s response to the FATF’s decision is still unclear, but it may choose to wait until after the next deadline for implementing its obligations under the nuclear deal. In the meantime, Tehran is likely to continue to criticize the decision as politically motivated, although the FATF’s technocratic nature suggests that the move was driven by a desire to combat money laundering and terrorist financing rather than politics.

Quotes

• “Iran’s failure to comply with AML/CFT laws is a significant setback for efforts to promote greater rapprochement between Iran and the West.” - Brian O’Toole, former senior adviser to the director of the US Department of the Treasury’s Office of Foreign Assets Control.