July 17, 2017 | Memo

Risks of Doing Business with Iran

FDD Background Resource Guide

Executive Summary

Conducting business in the Islamic Republic of Iran continues to entail profound risk. Nearly one year after the Financial Action Task Force (FATF) temporarily suspended mandatory countermeasures on Iran for its illicit conduct, Tehran has not fundamentally altered the behavior that led the standard-setting body to penalize it in the first place.

Over the past 12 months, Iran has not addressed the rampant money-laundering issues that pervade all sectors of its economy, a problem compounded by systemic financial corruption throughout Iran’s government bodies. The regime harbors a notoriously unscrupulous legal system that contains significant carve-outs for governmental discretion (under the dubious pretext of “national security”), the business empires of Iran’s Islamic Revolutionary Guard Corps (IRGC), and the Supreme Leader. Iran’s poor rankings on a wide range of corruption and compliance indexes underscore this point.

An overall lack of Iranian transparency presents compliance risks to companies and financial institutions interested in doing business in Iran.

Companies transacting in Iran also risk contravening existing U.S. sanctions regimes designed to prevent Iran from funding terrorist organizations that threaten American interests and American citizens. Iran is designated pursuant to section 311 of the USA PATRIOT Act as a jurisdiction of money-laundering concern. Former U.S. Acting Under Secretary for Terrorism and Financial Intelligence Adam Szubin stated that if foreign firms run afoul of U.S. sanctions regulations, they would be “risking the most draconian sanctions in our toolkit, and that governs not just U.S. persons but actors all around the world.”

Meanwhile, Tehran’s regional aggression and human rights violations show no signs of abating. Since President Hassan Rouhani’s election in 2013, Iran’s repression of its own people, including torture, sham trials, lack of free speech, and widespread executions, has intensified. Iran’s support for terrorist proxies in Syria, Iraq, Lebanon, Yemen and elsewhere has also continued, generating widespread instability across the Middle East and beyond.

This document provides a compilation of international rankings, expert analysis, case studies and other key data points that illustrate the myriad risks associated with doing business with Iran.

Updating software and passing laws are by themselves insufficient criteria to allow Iran back into the global financial system. Unless and until Iran takes meaningful steps to moderate its behavior and comply with international financial standards, companies should exercise extreme caution before resuming transactions with the country. At the same time, international bodies such as FATF should not reduce pressure on Tehran’s unreformed and unrepentant regime. 

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