Iran blacklisted by powerful financial watchdog

Yasmine Mosimann

ERBIL, Kurdistan Region –  A global financial watchdog on Friday blacklisted Iran for missing the deadline to fully apply two international conventions combating money laundering and terrorism financing, a decision that may well deal a heavy blow to Iran's world trade relations.

The Financial Action Task Force (FATF), an intergovernmental organization responsible for developing international standards for combating money laundering and terrorism financing, came to the decision to categorise Iran as a "high-risk" jurisdiction at a plenary meeting in Paris.

Iran's blacklisting places its financial transactions with the Islamic Republic under further scrutiny, potentially cutting it off from the last remaining foreign banks and businesses it has dealings with.

"Now, given Iran’s failure to enact the Palermo and Terrorist Financing Conventions in line with the FATF Standards, the FATF fully lifts the suspension of counter-measures and calls on its members and urges all jurisdictions to apply effective counter-measures," a statement from FATF read. 

"Until Iran implements the measures required to address the deficiencies identified with respect to countering terrorism-financing in the Action Plan, the FATF will remain concerned with the terrorist financing risk emanating from Iran and the threat this poses to the international financial system," the statement concluded.  

The decision could have dramatic consequences on the country’s already faltering regional trade partnerships and economy, which has been hit hard by US sanctions.

Numerous Iranian officials sent appeals to FATF, asking for an extension in light of the numerous steps it has already taken in recent years to meet international standards.

Iran joins North Korea as the only other state on FATF’s blacklist.

Greylist designation

Iran was removed from the body’s financial blacklist in 2016 with the expectation that it would adopt further anti-terrorism financial measures. Being “greylisted” gave the Iranian banking system freer range to interact with the global financial market. 

European members of FATF chose to keep Iran off the blacklist following US President Donald Trump’s decision to reapply sanctions to Iran in November 2018. However, the organization issued an ultimatum for the greylisted country at its last November’s Plenary session, saying it had until February to adhere to international standards.

The Rouhani government has enacted 37 of 41 FATF recommendations, which do not need approval from Parliament. Since 2016, the Parliament and the Guardian Council have been at loggerheads over the four remaining articles and have referred the issue to the Expediency Discernment Council, which adjudicates between the Parliament and the Guardian Council when disagreement arises.

Iran’s hardliners have become more confident about their opposition to the legislation, empowered by the public anger caused by crippling effects of Washington’s sanctions against Iran. They see FATF as just another violation of Iranian sovereignty and integrity by western powers.

Iran has already suffered from compliance with FATF standards, hardliners have alleged, as it makes circumvention of US sanctions more difficult. They believe the adherence to the remaining four recommendations would render their economy hostage to the FATF, with countries like Israel and the United States able to take advantage of Iran’s disclosures.
 
The two bills have been stuck in the Expediency Council for more than a year, angering Rouhani and his officials.

Rouhani’s administration sees adherence to European demands for transparency in its financial system and the enactment of the FATF bills as a way to alleviate some of the suffering caused by the US’s devastating sanctions.

An already squeezed economy

A blacklisting of Iran would have dramatic consequences on the country’s regional trade partnerships, most notably on its $13 billion dollar dealings with Iraq, which relies on Iran for a critical supply of natural gas to fuel its power grid. Earlier this month, the United States issued a forty-five day sanctions waiver to Iraq, allowing them to keep importing vital Iranian gas and maintaining a vital source of income for Tehran.

Relations between Washington and Tehran have deteriorated since US President Donald Trump in May 2018 withdrew from the landmark 2015 JCPOA nuclear deal and reimposed sanctions on Iran. The Iranian people have since faced tremendous hardships, including mass unemployment, inflation, currency devaluation, and shortages of essential medicines. 

Despite European governments’ vocal opposition to US sanctions and calls to keep Iran within the circles of the global economy, most European banks and businesses have already cut ties with the increasingly isolated nation. Iranian officials say Europe has failed to honor its commitments to expand trade and foster financial ties set forth in the landmark 2015 nuclear deal.

Reaction to FATF's announcement, Governor of the Central Bank of Iran (CBI) Abdolnaser Hemmati downplayed the damage the blacklist designation could do the country's economy.

"The central bank's performance over the past year has reassured people that such events will not pose a problem for Iran's foreign trade and exchange rate stability," Iranian outlet Khabar Online quoted Hemmati as saying. 

It is reported that the bank accounts of Iranian nationals in Italy have had restrictions applied to them, if not fully closed, according to Euronews.

Moreover, Iranian nationals cannot open a bank account at either Iraqi or Kurdish banks, regardless of their affiliation with the Iranian regime. 

On Thursday, the United States Department of  the Treasury announced sanctions on five members of Iran’s Guardian Council for “preventing free and fair elections.”

Iran’s currency declined even further on Thursday, falling to 144,800 rials against the U.S. dollar. Iranian media says that currency traders believe the main reason for the decline is the anticipation of FATF’s blacklist status. 

FATF's decision comes on the same day as Iranian parliamentary elections, in which conservative hardliners are expected to make significant gains. If these expectations hold true, it will make the implementation of the remaining FATF requirements significantly less likely.