What happened in Paris

In the past, the Islamic Republic has been considered extremely problematic for its lack of adherence to international banking standards.

July 7, 2018 21:58

A money changer poses for the camera with a U.S dollar (R) and the amount being given when converting it into Iranian rials (L), at a currency exchange shop in Tehran's business district, Iran, January 20, 2016.. (photo credit: REUTERS)

Last week the intergovernmental body, the Financial Action Task Force (FATF), met in Paris.

It was created in 1989 in order to unify international efforts to combat money laundering and its mandate was extended to combat terrorism financing in 2001 following the September 11 attacks.

The FATF has a number of recommendations to member states and those wishing to comply with FATF standards.

The Forty Recommendations and (additional) Nine Special Recommendations on terrorism financing provide a framework to identify the risks within national, regional and international financial systems, and develop policies and domestic coordination as well as pursuing the origin, distribution and final destination of money laundering, terrorism financing and the financing of proliferation associated with weapons of mass destruction.

The member states meet periodically, coming together to decide on how best to address issues within the organizations mandate. The FATF consistently reviews countries’ compliance and if it finds fault with a country’s behavior, it may place a country on the “Non-Cooperative Countries or Territories” (NCCTs) list, known less formally as the “Black List.”

The organization may request member states to apply international banking sanctions on those states it deems to be detrimental to conduct business within the framework of the FATF mission.

This has included, in the past, a loss of access to SWIFT, the secure global financial messaging service, which is crucial for states within the globalized banking and financial systems. Among the most important issues discussed during this plenary session was the issue of Iran, who has yet to pass the FATF recommended legislation on criminalizing of money laundering (the AML law) and criminalizing of financing of terrorism (the CFT law), known jointly as the AML/CFT standards.

In the past, the Islamic Republic has been considered extremely problematic for its lack of adherence to international banking standards. Iran is known to bankroll several terrorist organizations and militias, including the Popular Mobilization Forces in Iraq, Hezbollah in Lebanon and the Houthis in Yemen.

These groups are supported militarily by the Iranian Revolutionary Guard Corps (IRGC) who facilitate funding, training, arms and guidance for these groups, along with others, such as Hamas, across the region.

The IRGC is financially supported in their mission by the government in Tehran and through activity within the Iranian economy. Today, the IRGC controls approximately 40% of the Iranian economy along with many private banking institutions.

If someone wishes to do business with Iran he is likely unknowingly interacting, if not doing business directly, with the IRGC. Because of these reasons – including the group’s destabilizing activities in the region, interfering in domestic affairs of sovereign states, committing atrocities in the Syrian civil war, among others, which have led to the IRGC being sanctioned by several countries and world bodies – the FATF had consistently placed Iran on its infamous “Black List” since 2009.

It is important to note that by enacting, usually through legislation, and complying to a majority of the given recommendations, states are given favorable treatment by FATF member states. The FATF itself does not decree nor enact legislation as a body, it helps to set and create policy for member and non-member states within an international framework.

Iran adopted an FATF-devised action plan in June 2016 by which economic and banking restrictions placed on Iran within the framework of FATF guidelines were lifted temporarily with the expectation of substantial future progress on the agreed action plan. This coincided with the Joint Comprehensive Plan of Action (JCPOA), also known as the Iran nuclear deal, which came into force six months prior.

SINCE THEN, the Hassan Rouhani-led government has had limited success. While it did accept technical help in the form of heavy consultations with the FATF, it has only passed legislation allowing Iran to join the UN Convention Against Corruption and has yet to pass the recommended AML/CFT laws, which are considered as the gold standards for compliance.

To make matters more difficult for President Rouhani, the Supreme Leader Ayatollah Ali Khamenei has put the brakes on the remaining legislation in the Iranian Majlis (the Iranian parliament), publicly questioning the need for Iran to join the AML/CFT conventions a week before the FATF plenary. This is coupled with upcoming US-led economic sanctions on Iran (resulting from the US withdrawal from the JCPOA), which has led to an exodus of major foreign companies from the country – an exodus that is likely to balloon as the sanctions deadlines of August and November draw closer.

On June 27, the FATF gave Iran until its next session in October to pass legislation and begin domestic enforcement of the AML/CFT, or likely face sanctions by member states. A day after the decision in Paris, the Expediency Discernment Council (EDC), a body originally created in 1988 by the Islamic Republic’s founder Ayatollah Khomeini, which is meant to supervise long-term strategic national policies under the supervision of the supreme leader, unanimously called upon the Majlis to “clarify ambiguities” in the domestic bill, this is specifically aimed at safeguarding IRGC activities and Iran’s support for terrorist groups and militias in the region. The EDC is led by former Chief Commander of the IRGC Maj.-Gen. Mohsen Rezaei who is a known opponent to the legislation.

While the FATF is not directly linked to the JCPOA it is a strong indicator of Iran’s intentions and policies moving forward. The nuclear issue cannot and should not be separated from other issues such as regional policy, support for terrorism and other Iranian illicit activity in the Middle East. While Iran will likely withdraw from the JCPOA before the FATF’s next meeting on October 13, which is approximately three weeks before painful petroleum- oriented sanctions are to be enforced on November 4, Iran’s future compliance or non-compliance with the FATF guidelines will help us measure whether more moderate elements within the political elite have a seat at the table or whether the extremists who wish to export the Islamic Revolution – and are willing to pay a high price to do so – are in complete control.

Ezra Friedman is a research assistant at the Institute for National Security Studies (INSS) in Tel Aviv, Israel.

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