Iran’s Financial System Under Fire: FATF Imposes Counter-Measures for Lack of AML/CFT Progress

The Financial Action Task Force (FATF), an intergovernmental body dedicated to combating money laundering and terrorist financing, has re-imposed counter-measures on Iran due to the country’s failure to pass anti-money laundering (AML) and countering the financing of terrorism (CFT) legislation.

Background

For years, the FATF has been working with Iran to address its deficiencies in AML/CFT regulations. However, despite numerous attempts, Iran’s Expediency Council quashed legislation passed by parliament, leading to the re-imposition of counter-measures.

Consequences

The decision marks an end to the group’s patience with Iran, particularly from the European Union, which had given the country numerous chances to address its deficiencies. The re-imposition of counter-measures means that countries are now required to protect the international financial system from money laundering and terrorist financing threats emanating from Iran.

• This requires significant due diligence on or even total cutoff of Iranian banks, severely hampering the country’s ability to conduct cross-border transactions.
• Global banks are already reluctant to engage in transactions with Iran due to US sanctions and other factors, making the FATF’s action largely symbolic rather than substantive.

Implications

The move has significant implications for Iran’s domestic politics, with hardline elements such as the Islamic Revolutionary Guard Corps (IRGC) gaining more influence in the country. This could undermine prospects for a revised nuclear deal and greater rapprochement between Iran and the West.

• The European Union now has additional leverage to push back on Iranian complaints about not receiving benefits owed under the nuclear deal, pointing out that even if European businesses wanted to do business with Tehran, the FATF counter-measures would stand in the way of better economic relations.
• The FATF’s action is a wake-up call for Iran’s leadership and a reminder that international cooperation and compliance are essential for maintaining access to global financial markets.

Response

It remains to be seen how Iran will respond to the decision. However, one thing is certain: the FATF’s action is a significant blow to Iran’s financial system and a warning to the country’s leadership to take AML/CFT regulations seriously.