Momentum builds for Iran to meet global financial watchdog requirements

The Financial Action Task Force (FATF) on June 29 extended until October the deadline for Iran to pass and implement legal measures to address concerns regarding anti-money laundering (AML) and combating the financing of terrorism (CFT) in its financial sector. It is clear that a failure to implement what Iran included in its own action plan more than two years ago would undermine the confidence of governments and banks wanting to continue dealing with Iran despite the re-imposition of US sanctions.

According to the FATF's statement on the extension, Iran needs to address a number of deficiencies and “proceed swiftly in the reform path to ensure that it addresses all of the remaining items in its Action Plan by completing and implementing the necessary AML/CFT reforms, in particular enacting the necessary legislation. We expect Iran to enact amendments to its AML and CFT laws and ratify the Palermo and TF Conventions in full compliance with the FATF Standards by October 2018, otherwise, the FATF will decide upon appropriate and necessary actions at that time.”

Recent developments and statements inside Iran underline that FATF-related issues need to be resolved through a domestic political process, which will require bargaining. This explains why President Hassan Rouhani has written to Ahmad Jannati, the archconservative chairman of the Guardian Council, to seek his support with the approval of necessary legislation so that Iran can be removed from the FATF blacklist and the country’s banks can engage in the global financial system. In late June, it was also announced that Rouhani, along with parliament Speaker Ali Larijani, would meet with the supreme leader, Ayatollah Ali Khamenei, to discuss the fate of FATF-related legislation.

Contrary to the mainstream interpretation that in a June 20 speech Khamenei had indicated opposition to passing the necessary laws, his statement on FATF could actually pave the way for a pragmatic approach to the legislation. Khamenei said, “In the case of the issues which arose in the Majlis [parliament] in recent months, I said that the Majlis should pass laws in an independent manner. Let us take the case of combating terrorism and money laundering for instance. … They [lawmakers] should sit and pass a law on this. If the law is about combating money laundering, there is no problem, and there are not many conditions and terms. What you, yourselves, intend to do, should be specified in the law. This is what is important. There is no need to agree with things which we know are not transparent or which we know are problematic only for the sake of their positive aspects and features.”

In other words, the parliament has been called upon to produce its own version of the required laws and refrain from copying every single word of the proposed drafts by the FATF. This may explain why on June 25, Reformist Deputy Speaker Ali Pezeshkian reacted to criticism from hard-line parliamentarians by saying that Iran needs an anti-money laundering law regardless of the requirements of international conventions. Furthermore, Ahmad Amirabadi Farahani, presiding board member in parliament, stated on June 30 that the domestic version of the law on fighting terrorism financing was “more solid and more appropriate” than the draft proposed by FATF.

In essence, while the delay in passing and ratifying the required legislation has been connected in part to domestic tensions, the legislature's effective endorsement of the delay also stemmed from the uncertainties surrounding the future of the Joint Comprehensive Plan of Action (JCPOA) after the US withdrawal from the deal. If the Rouhani administration concludes that it can live with the assurances provided by the remaining signatories to the JCPOA, then pushing forward with the FATF-related action plan would become a priority. It is also evident that the passing of the needed legislation will allow the European Union to more feasibly implement its solutions in assuring Tehran that export revenues can be transferred to Iran via banking channels. In other words, there is an interdependency between the implementation of the FATF action plan and the solutions that the Europeans can offer Iran. 

Thus, it appears, this realization compelled Rouhani to try to resolve the issue through an agreement among the heads of the three branches of power. Such a process reflects the high-level of agreement and commitment needed to push Iran toward greater transparency.

In this vein, it should be noted that a July 14 statement by Guardian Council spokesman Abbas Ali Kadkhodaei that the watchdog objects to two of the four FATF-related bills pending ratification was not merely based on the content of the texts. Indeed, Kadkhodaei underscored that the council also objects to the government having submitted the bills to parliament for review, positing that the texts should rather be submitted by the judiciary due to the nature of the proposed legislation, in effect confirming the necessity for the heads of the three branches of government to be directly involved for there to be progress on the matter.

As reported July 3 in Al-Monitor, corrupt networks in Iran are concerned about the push for openness. Therefore, the decision to move to a higher level of transparency in financial transactions will need to be endorsed and also implemented at the highest level. In a June 27 speech to judicial officials, Khamenei endorsed transparency and the fight against corruption, stating, “We do not act in a determined and transparent way in real cases of corruption. These cases should be confronted! Wherever economic corruption exists, we should act in an outspoken and transparent way.”

The combination of this speech and the call for passing independent, domestic laws on related issues should give the country’s political elite enough momentum to pass the key measures needed to satisfy FATF’s demands for greater transparency and compliance with international standards. Failure to do so will be seen as self-inflicted harm at a time when the Iranian economy requires connectivity to the global financial system to attract investment and create needed jobs.

What will help politicians to show resolve is the growing discontent among the country’s business community. In fact, the closing of accounts of a growing number of Iranian businesses in the United Arab Emirates due to AML/CFT concerns should serve as a warning. These closures have hurt the interests of Iranian merchants who have argued that Dubai will remain an important banking and trading hub for Iran in the next five years, hence the need to complete the FATF action plan. 

There is no doubt that powerful networks in Iran will try to limit the impact of FATF-related legislation and actions by disrupting the process. Judging from the Rouhani administration’s recent wave of disclosures regarding corrupt practices, however, it seems as if the top leadership has finally decided to put national interests above that of shady groups. It will not be an easy process, but it is feasible, as other countries have managed to use similar processes to realize their true economic potential.