More than a year after the anti-money laundering and counter-terrorist financing watchdog Financial Action Task Force (FATF) blacklisted Iran as a “high-risk jurisdiction” subject to a call for action, debate on the ratification of FATF-related bills has been rekindled in Tehran.
Reformists are blaming conservatives for stonewalling the normalization of the country’s banking and trade relations with the outside world – an issue that will indirectly factor in the June 18 presidential election where a conservative candidate will almost certainly win.
Headquartered in Paris, FATF is an intergovernmental body set up by the G7 in 1989 to draw up binding regulations to combat money laundering. In 2001, its mission was broadened to develop policies to counter terror financing.
Once a country is placed on the FATF’s blacklist, other jurisdictions are urged to exercise caution and in most cases enforce counter-measures in dealing with them to shield the international financial system from money laundering and terror financing.
At present, only two countries are blacklisted by the FATF: Iran and North Korea.
After the Joint Comprehensive Plan of Action (JCPOA) nuclear deal was agreed in July 2015, FATF granted Iran a temporary reprieve to adopt standards that could rectify the problems in its banking system to allow it to reintegrate into the international financial system.
An action plan was thus devised for Iran to comply with 40 FATF recommendations and ratify the UN Convention against Transnational Organized Crime (Palermo Convention) as well as the International Convention for the Suppression of the Financing of Terrorism (CFT).
The Hassan Rouhani administration, eyeing an end to the Islamic Republic’s isolation and sanctions-caused economic decline, drew up legislation and submitted it to the Iranian parliament, known as the Majlis.
The Majlis, at the time dominated by moderates and reformists, voted in favor of the bills and referred them to the constitutional scrutineer Guardian Council.
The Guardian Council, a hidebound unelected body at which Supreme Leader Ayatollah Ali Khamenei calls the shots, spurned the bills. In September 2018, the case was delegated to the Expediency Council, a dispute settlement ombudsman tasked with reconciling the parliament and the Guardian Council when they hit gridlock.
More than two years later, Expediency Council members, mostly conservatives appointed by the Supreme Leader, continue to stall over ideological points and partisan interests.
It’s becoming a key election issue. Indeed, the stalled enactment of the FATF’s recommendations and relevant ordinances has been raised several times during televised presidential debates ahead of the June 18 polls.
The reformist contender Abdolnaser Hemmati took a swipe at his conservative rivals Mohsen Rezaee and Saeed Jalili, both members of the Council, for dithering over the measures.
On June 6, when the first presidential debate was aired live on national television, Hemmati, a former governor of the Central Bank of Iran, addressed Mohsen Rezaee, a perennial candidate, for his alleged role in blocking the reforms needed for Iran to be removed from the FATF’s blacklist.
“Mr Rezaee, you should know that by refusing to approve the FATF bills at the Expediency Council, you have decimated the national economy. It is surprising that the Supreme Leader has emphasized the referral of FATF scrutiny to the Council, but still we have seen that it was not endorsed,” he said.
Hemmati also tore into Saeed Jalili, one of the other appointees of the Supreme Leader at the Expediency Council now running as a presidential nominee: “Mr. Jalili, in wrecking the JCPOA, you played into the hands of Trump and paralyzed the country. With what you have done in cahoots with Mr Rezaee and your other friends at the Expediency Council, we were placed in the FATF blacklist.”
Influential opponents of the FATF’s agenda at the Guardian Council and Expediency Council argue that by accepting the FATF recommendations and approving the anti-money laundering (AML) and counter-terrorist financing (CFT) laws the Islamic Republic would be limited in its ability to provide financial aid to its militant proxies in the Middle East, including Hamas and Hezbollah.
Both militant groups are recognized by the United States as terrorist organizations. The European Union has also designated Hamas and the military wing of Hezbollah as terrorist groups. But the Islamic Republic considers them essential to its Middle East policy and keeping its arch-foe Israel on its heels.
The detractors also say Iran will lose the workarounds it has concocted to circumvent US and international sanctions if it submits to the transparency-improving measures.
After years of operating in the black market to eschew the punitive measures imposed on its contentious nuclear program, Iran will find it difficult to reintegrate with global markets.
Instead, hardliners are keen to maintain the status quo of smuggling petroleum to a handful of countries prepared to buy it on the unofficial market, promoting barter trade with allies such as China, Russia, Venezuela, Cuba and Iraq, and processing monetary transactions through exchange offices rather than banks and financial institutions.
Undertaking internationally recognized mechanisms and waging war against money laundering and terrorism financing has never been their priority, and that will probably remain the case under a new conservative administration.
Some experts say if negotiations between Iran and world powers in Vienna to resuscitate the JCPOA nuclear deal lead to sanctions relief, the adoption of FATF rules will be within reach.
“Iran has not adopted the FATF standards because it would uncover how it bypasses the sanctions. Iran has experience in boycott-busting and currently can sell its oil unofficially. It can export its oil overland to the nearby countries or transship oil on the high seas to other vessels,” said Akbar Torbat, a retired professor of economics at California State University at Los Angeles.
“There are 15 nearby countries that Iran can trade with, making it very difficult for the US to micromanage the embargoes. If the US sanctions are lifted, that will open the door for Iran to adopt FATF quickly,” he added.
Many in Iran argue that the country’s economic and financial sovereignty will be compromised by adopting the FATF’s recommendations since the watchdog is under the influence of the EU and the US, both of which they believe would like to hegemonize Iran’s insular, autarkic economy.
Jamshid Damooei, a professor of economics and the executive director of the Center for Economics of Social Issues at California Lutheran University, believes this rationale is misguided as no country is willing to forfeit its economic independence.
“Countries have diverse legal and administrative arrangements and it is illogical to expect that one size model fits all. However, they all should be able to take measures preventing money laundering and financing terrorism through their financial institutions,” he told Asia Times.
Damooei, who was formerly an international consultant with the United Nations Development Program (UNDP), says countenancing FATF legislation would be “an independent milestone for progress” in normalizing Iran’s financial arrangements with the rest of the world.
He pointed to Iran’s application for a $5 billion loan to the International Monetary Fund as a contribution to its Covid-19 coping and economic recovery initiative, a bid which was rejected partly owing to Iran’s failure to ratify the FATF bills.
The request was made during the Donald Trump administration, which had made clear that it would not accede to the loan.
A FATF spokesperson said the technical requirements of FATF apply to all countries equally, and they are designed to preclude terrorism financing and money laundering.
“Iran is one of two countries on the FATF’s high risk jurisdictions subject to a call for action list. This is due to serious deficiencies in its anti-money laundering and counter-terrorist financing framework, and a failure to rectify the identified issues. The expectations that the FATF has for Iran is the same as for any other country,” the spokesperson said.
“Money laundering fuels serious crime and terrorism. If countries want to prevent serious crime and terrorism, they should fully and effectively implement the FATF standards.”
The spokesperson said, “More than 200 countries and jurisdictions have given a high-level political commitment to fully implement the FATF standards.”
Even if sanctions are lifted on Iran, it won’t be easy for Tehran to meet the due diligence requirements needed to plug back into the global financial system. That is why even humanitarian food and medicine shipments, currently exempt from US sanctions against Iran, do not take place smoothly.
“The major obstacle on humanitarian trade until now has been the FATF blacklist, which does not allow any Iranian bank to make any transaction with a foreign exporter. Due to this Iranian exports and imports have been operating in a voluntary barter trading system,” said Mahdi Ghodsi, an economist at the Vienna Institute for International Economic Studies.
“I believe that if Iran were not on the FATF blacklist, it could have much cheaper and more easily traded humanitarian goods,” he told Asia Times.