FATF Reimposes Countermeasures on Iran for Failing to Meet Anti-Money Laundering Standards

Today, the Financial Action Task Force (FATF) followed through on its October 2019 commitment to re-impose due-diligence countermeasures on Iran if Tehran failed – as it has since 2016 – to complete a mutually agreed-upon action plan to address its well-known money laundering and terrorism finance concerns. Re-imposition of these measures further isolates Iran financially, making its desired reintegration into the global financial system more difficult.

FATF, the global anti-money laundering (AML) standard-setting body, now under the rotating presidency of China, had temporarily suspended the countermeasures since 2016, instead giving Iran more time to meet FATF’s standards. Even during the suspension of countermeasures, though, Iran remained on the blacklist. Today, however, countries – including Russia, China, and the E3 – that had previously supported extending the deadline for Iran, understood that Iran did not require more time but had made a strategic decision to defy FATF’s concerns.

FATF’s action sends a clear message to bank and corporate risk managers and others responsible for ensuring their institutions are not exposed to Iran’s illicit activities that they must reassess ties to Iran’s entire financial sector. Given Iran’s willful failure to uphold AML and terror finance standards, doing business with any Iranian bank, insurance company, or other financial institution, whether sanctioned or not, comes with heavy risks and high costs.

FATF identified six items Iran still has not completed that it “should fully address,” including adequately criminalizing terrorist financing; identifying and freezing terrorist assets in line with UN Security Council resolutions; demonstrating how authorities are identifying and sanctioning unlicensed money/value-transfer service providers; and ensuring that financial institutions verify that wire transfers contain complete originator and beneficiary information.

FATF also required Iran to ratify and implement specified AML legislation. Iran’s Majlis, or parliament, had previously passed such legislation. However, the Guardian Council, which screens prospective laws for fidelity to the regime’s Islamist ideology, rejected the bills. The bills then moved to the Expediency Council, the arbitration body that settles disputes between the parliament and the Guardian Council, which has taken no action.

Still, the legislation passed has loopholes for terrorist organizations Iran wants to continue to bankroll. FATF does not permit these carve-outs.

Iran’s defiance of FATF did not buy Tehran more good will. On the contrary, FATF said that even if Iran does ratify the required legislation, “FATF will decide on next steps, including whether to suspend countermeasures.” In other words, ratification of the legislation alone will not necessarily lead to the suspension of countermeasures.

These loopholes are not simply legal oversights or small matters. Iran openly funds Hamas and Hezbollah. In addition, as noted in successive State Department Country Reports on Terrorism since 2012, Iran has permitted al-Qaeda facilitators to operate a core facilitation pipeline through Iran since at least 2009, enabling the terrorist group to move funds and fighters to South Asia and Syria.

In 2018, the UN Security Council released a report highlighting al-Qaeda’s role in Iran. Based on intelligence from UN member states, the report concluded that al-Qaeda leaders in Iran “have grown more prominent, working with [current al-Qaeda leader] Aiman al-Zawahiri and projecting his authority more effectively than he could previously.”

FATF is a technical, not political, body and aims to protect the international financial system. The “countermeasures” are akin to required due-diligence measures rather than punitive sanctions and are steps that FATF urges entities to take in their own self-interest. The goal is to ensure no one involved in the financial sector gets entangled in a web of malign actors that could put the integrity and safety of the financial system at risk.

Mindful of FATF’s determination on Iran and its reimposed countermeasures, the U.S. Treasury Department should now formally require enhanced auditing and enhanced due diligence for all foreign banks and companies doing business with Iran. Currently, even some of the larger auditing firms are following a lower standard of due diligence and auditing that exposes the auditor and the company to serious risks and compromising the integrity of the global financial system.

FATF has urged countries and financial institutions to review, amend, and potentially terminate correspondent account relationships with Iranian financial institutions. FATF should now also impose increased audit requirements for financial institutions with branches or subsidiaries located in Iran and ensure that their financial institutions limit business relationships and financial transactions with Iran. While Iran is subject to an extensive framework of economic sanctions, FATF underscored that countries around the world must take additional steps to counteract the serious money-laundering risks emanating from the country.

Toby Dershowitz is senior vice president for government relations and strategy at the Foundation for Defense of Democracies (FDD), where she also contributes to FDD’s Center on Economic and Financial Power (CEFP). For more analysis from Toby and CEFP, please subscribe HERE. Follow Toby on Twitter @TobyDersh. Follow FDD on Twitter @FDD and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.