FATF Should Continue Re-imposition of Countermeasures on Iran

The Financial Action Task Force (FATF) decided on Friday to keep Iran on its blacklist of countries with weak systems for anti-money laundering and combatting the financing of terrorism (AML/CFT). The list, known as the Public Statement, reiterated that Iran had again failed to complete its Action Plan for addressing its AML/CFT issues. Iran’s continued place on the list correctly sends a clear message that Tehran remains a source of terror-financing risk that threatens the international financial system.

FATF – an intergovernmental body that sets AML/CFT standards – also re-imposed a countermeasure requiring increased supervision of Iranian financial institutions’ foreign branches and subsidiaries. At least 11 FATF members have Iranian banks on their soil: Turkey, France, Germany, Netherlands, Russia, Greece, United Kingdom, South Korea, Hong Kong, Italy, and Malaysia.

While FATF’s decisions coincided with rising tensions related to Iran’s activities in the Persian Gulf, the FATF evaluation process concerns a different set of issues. When assessing compliance, FATF solely reviews adherence to a set of technical standards established by the 38-member organization and agreed to by consensus of its members.

In 2016, FATF began working with the Iranian government on a reform agenda known as an Action Plan, which specifies the concrete steps necessary to bring Tehran’s AML/CFT regulations up to international standards. Since then, Iran has failed to meet five deadlines to complete its plan. Moreover, Iran has inserted exemptions for terrorist organizations into its anti-money-laundering laws, deliberately creating loopholes contrary to FATF’s standards. Iran has seven action items left undone.

Some leading Iranian officials have publicly questioned the value of Tehran’s participation in FATF at all. “The reason some oppose FATF is that it would mean identifying the major figures who so easily move money around the country,” said Mas’oud Pezeshkan, vice-speaker of the Majlis, Iran’s parliament, on June 17. If the FATF provisions are enforced, he added, “people will come to understand what we’ve done with our money and everything will be clear.”

Greater transparency would entail substantial risk, since Iran relies on money laundering and terror finance to pursue its objectives abroad. For example, the U.S. Treasury Department imposed sanctions this month on South Wealth Resources Company (SWRC), an Iraq-based financial conduit for Iran’s Islamic Revolutionary Guard Corps-Quds Force (IRGC-QF). SWRC “covertly facilitated the IRGC-QF’s access to the Iraqi financial system to evade sanctions,” Treasury stated. This Iranian scheme also enriched “an Iraqi advisor to IRGC-QF Commander Qasem Soleimani, who has run weapons smuggling networks and participated in bombings of Western embassies and attempted assassinations in the region.”

On Friday, FATF said it would impose two additional countermeasures if Iran fails to complete its Action Plan by FATF’s next meeting in October 2019. These include enhanced reporting of financial transactions and increased external audit requirements for financial groups with respect to any of their branches and subsidiaries located in Iran.

But FATF and its members can – and should – do more.

October is just four short months away. With every deadline that Iran fails to enact its plan, the global market remains exposed to risk. FATF must uphold its standards.

Toby Dershowitz is senior vice president for government relations and strategy at the Foundation for Defense of Democracies, where Serena Frechter is a government relations analyst. Both contribute to FDD’s Center on Economic and Financial Power (CEFP). Follow Toby and Serena on Twitter @tobydersh and @serenafrechter. Follow FDD on Twitter @FDD and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.