A sign for the Financial Action Task Force is seen in an image uploaded Nov. 14, 2016.  (photo by Facebook/FATF)

World financial watchdog keeps punting on Iran

Author: Barbara Slavin
Posted February 22, 2018

The world’s financial watchdog is poised to continue suspending punitive measures against Iran for six more months to avoid creating a new crisis at a time of political fragility inside the country and uncertainty over the fate of the landmark nuclear deal.

The Financial Action Task Force (FATF) is expected to announce the move Feb. 23 at the conclusion of its regular winter meeting.

Iran had hoped that the Paris-based body, which meets three times a year, would permanently lift so-called countermeasures in recognition of steps Tehran has taken in recent years to enact legislation barring terrorist financing and money laundering. But the Donald Trump administration opposes this, so punting until the next meeting in June is the most realistic outcome, experts say.

“Incentives line up in support of the status quo,” said a US financial expert who spoke to Al-Monitor on condition of anonymity for fear of jeopardizing the decision. The expert added that in an environment in which FATF recently criticized Ireland for not doing enough to combat financial crimes, it was unrealistic to expect that Iran would be given a clean bill of financial health.

US critics of Iran have urged that the country be removed from a FATF “gray list” and put back on a blacklist that includes North Korea.

The group United Against a Nuclear Iran on Feb. 21 published an open letter to the head of FATF requesting that tough warnings against interaction with Iranian financial institutions be reinstated. It called efforts by the government of President Hassan Rouhani to counter terrorist financing and money laundering “nominal,” given the role played by Iran’s Islamic Revolutionary Guard Corps (IRGC) in regional conflicts and the Iranian economy.

While the United States has sanctioned many leaders of the IRGC and the US Treasury Department regards the entire organization as supporting terrorism, Iran rejects the US claims. Iran regards groups aided by the IRGC, such as Lebanon’s Hezbollah, as legitimate “resistance” entities. Rouhani's government has also sought to reduce the role of the IRGC in the economy and to boost foreign investment and private enterprise.

Financial experts said it would be difficult to reimpose sanctions on Iran when US calls to put Pakistan on the FATF watchlist have failed. Pakistan’s intelligence services are believed to have close links to the Afghan Taliban and Pakistani militant groups that have carried out acts of terrorism in India and are on the State Department’s list of terrorist organizations.

Supporters of Western economic engagement with Iran welcomed news of the FATF’s pending decision.

“Just as the IAEA [International Atomic Energy Agency] has verified Iran's continued implementation of the Iran deal, the FATF continues to verify that Iran is on track to implement its action plan to improve financial controls,” Esfandyar Batmanghelidj, the founder of the Europe-Iran Forum, told Al-Monitor.

Despite Iran’s progress in this regard, large multinational banks have continued to avoid contact with Iranian banks due to concerns that the Trump administration will withdraw from the Joint Comprehensive Plan of Action (JCPOA) and reimpose so-called secondary sanctions on foreign companies doing business with Iran. In the past, major banks have been fined billions of dollars for violating such secondary sanctions, which were imposed as part of US efforts to push Iran to negotiate limits on its nuclear program. As a result, only small and medium-sized European banks have re-entered the Iranian market since the JCPOA went into full effect two years ago.

Batmanghelidj told Al-Monitor, “The few European banks that have begun transacting with Iran will have watched this [FATF] decision closely, wondering if their bet on Iran's financial reintegration was premature.”

The Trump administration has been talking to European allies about ways to “fix” the nuclear deal by extending its provisions and including issues such as ballistic missiles. It remains unclear what the United States will do if no agreement is reached by May 12, the next deadline for renewing sanctions waivers.

Speaking today in London, Iranian Deputy Foreign Minister Abbas Araghchi warned that the nuclear deal would not survive if the Trump administration keeps threatening to withdraw and large European banks continue to avoid Iran.

“If the same policy of confusion and uncertainties about the JCPOA continues, if companies and banks are not working with Iran, we cannot remain in a deal that has no benefit for us,” Araghchi told the Chatham House think tank. “That’s a fact.”

The expected move by FATF comes as Iran is struggling to recover from nationwide protests against economic inequality and unemployment. In recent weeks, the Iranian rial has also plummeted in value, adding to concerns about inflation. A FATF decision to put Iran back on the blacklist would be a major blow.

“From the Iranian perspective, the required reforms are technically complicated and politically challenging to execute,” Batmanghelidj said. “The simple fact that the FATF has once again recognized Iran's commitment will encourage the Rouhani administration to prioritize the remaining reforms. Cognizant of the fact that there is still more work to be done, the Iranians should be satisfied that the suspension has been extended."

Barbara Slavin

Barbara Slavin is a columnist for Al-Monitor and director of the Future of Iran Initiative at the Atlantic Council. On Twitter: @BarbaraSlavin1

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