Iran and the Financial Action Task Force: What is the Dispute About?

In the ongoing struggle with Hassan Rouhani's government, the hardline core of the Islamic Republic's 'Principlist' faction has targeted three main issues that play a crucial role in Iran's international economic relations: the Joint Comprehensive Plan of Action (JCPOA), new oil contracts (IPC), and the Financial Action Task Force (FATF). Ayatollah Alam al-Huda, the representative of the Supreme Leader in Khorasan Razavi province, has labeled these three issues as a 'cursed triangle' that, according to him, has taken everything, including independence, from Iran. The JCPOA has been widely discussed, and its name has even found its way into mourning rituals and religious recitations as a symbol of betrayal by the eleventh government. Iran's new oil contracts, which will serve as the legal basis for relations with oil companies, have been described by opponents of Hassan Rouhani as a 'second Turkmenchay,' and recently, during the signing of a significant agreement with France's Total, they were once again attacked. The third side of the 'cursed triangle,' according to Ayatollah Alam al-Huda, is the relationship between Iran and the FATF, which raises very sensitive issues for the 'worried ones' and is therefore under constant attack from their affiliated media. A report by the Fars news agency titled 'FATF warns against any commercial transactions with Iran,' published on Tuesday, July 20, is one example of this media war. What is the powerful organization 'Financial Action Task Force' (FATF) and what impact does it have on Iran's international economic relations? It is about an intergovernmental organization founded in 1989 at a meeting of the seven major industrial powers in the West to combat money laundering (the conversion of income from illegal and criminal operations into seemingly normal and legitimate assets) in Paris. Following the September 11, 2001 terrorist attacks in New York, combating the financing of terrorism was also added to the organization's responsibilities, which currently has thirty-seven members. However, the FATF does not belong to the family of United Nations member institutions and is a subsidiary of the Organization for Economic Cooperation and Development, which encompasses mainly wealthy countries. Nevertheless, this task force enjoys strong support from powerful countries and major financial organizations around the world, making it a very powerful entity, and a large number of countries implement its recommendations. The FATF categorizes countries based on their possession of strong laws regarding money laundering and terrorist financing, as well as their implementation of these laws, into four lists: 1. The green list consists of countries whose laws and their implementation align with the task force's recommendations, and their risk regarding the issues under the organization's supervision is low. 2. The gray list includes countries that have demonstrated their willingness to prepare the necessary laws and align them with the task force's standards but still face challenges. 3. The red list encompasses non-cooperative countries where the risk of money laundering and terrorist financing is significant. 4. The black list consists of countries that are not only on the red list but also have the task force calling on its members and all cooperating countries to resort to 'countermeasures' against them. A country on this list is effectively deprived of services from a large number of foreign banks and financial institutions. For years, Iran has been on the 'black list' alongside North Korea. However, in June 2016, the FATF adopted a flexible policy regarding Iran and suspended its previous recommendation for twelve months regarding 'countermeasures' against the country. In other words, Iran's name remains on the 'black list,' but no penalties are imposed on the country for a year. Without this flexibility, the implementation of the JCPOA would have faced even more difficulties than what we have seen. Importantly, in June 2017, the suspension of 'countermeasures' against Iran was extended again by the FATF, at a time when Saudi and Israeli lobbies, as well as lobbies affiliated with strongly anti-JCPOA factions in the U.S., were calling for the reinstatement of 'countermeasures' against Iran. In fact, the European Union and several emerging powers sought to continue the suspension of these measures, and ultimately, they prevailed. In other words, contrary to what the media affiliated with the 'worried ones' in Iran claim, the suspension of penalties against Iran remains in place, with the hope that the country can use this opportunity to align itself with the task force's recommendations. Why are the 'worried ones' afraid? However, under current conditions, given what is happening in the internal, regional, and global environment of the Islamic Republic, it is highly unlikely that Iran can genuinely align itself with international laws in areas such as money laundering and terrorist financing: 1. In Iran, there are both 'Anti-Money Laundering Law' and 'Countering the Financing of Terrorism Law.' The problem is that these laws lack the necessary features to meet the FATF's expectations and, more importantly, are far from being implemented. With minimal inspection by this 'task force,' it will soon become clear that financial and banking transactions in Iran evade any control, and fundamentally, the country's economy and its monetary system are in a situation where money resulting from corruption, smuggling, and various forms of criminal activities easily infiltrate banking networks, and there is no control over their use. Additionally, over the past decade, the global banking system has undergone significant transformations aimed at control, from which Iran has been deprived due to isolation and sanctions. Iranian banking and financial personnel require a relatively long training period in collaboration with international organizations to acquire new laws and techniques in the field of money laundering and combating the financing of terrorism, for which the necessary facilities are still not available. 2. Beyond technical difficulties, Iran's economic and social conditions are also not conducive to equipping itself with serious laws in the field of money laundering and terrorism and their precise implementation. Drafting and enforcing robust laws in this area requires understanding the sources of money and their uses. The goal of such laws is to establish effective techniques for precise 'tracking' of financial sources under judicial oversight. Can this 'tracking' be imposed on a country drowning in corruption? Can one expect such oversight from Iran's judiciary, given its characteristics? Let us not forget that the fear of the 'worried ones' regarding the FATF primarily stems from this 'tracking' of financial resources. Ahmad Tavakoli, a spokesperson for the so-called 'Principlist' faction, said last year about this task force: 'It controls all our accounts and prevents our money from being transferred.' 3. Another issue that arises regarding the acceptance of the FATF's recommendations is the definition of terrorism and the problems that arise in this regard for the Islamic Republic's financial assistance to its allied political groups in the Middle East. In fact, some organizations that survive with Iran's assistance are considered terrorists by several major powers, while the Islamic Republic regards them as 'resistance forces.' If Iran accepts the FATF's recommendations regarding the drafting and implementation of laws related to combating the financing of terrorism, how can it assist these organizations? This was a question raised last year by Hossein Shariatmadari, the editor-in-chief of the Kayhan newspaper. He wrote that by accepting international laws related to the financing of terrorism, Iran would be forced to question 'support for Hezbollah, resistance forces, and the Quds Force.' 4. Given all these factors, is there the necessary political will to accept and implement such laws in Iran? There is no doubt that the so-called 'worried ones' will not reconcile with such laws and will spare no effort to discredit them. The aim of placing the FATF in the 'cursed triangle' is to maintain the status quo regarding financial resources and how they are transferred. The dissemination of false rumors about this task force, as done by the media affiliated with the 'worried ones,' is directed towards that goal. In contrast, there is no doubt that Hassan Rouhani and his close associates are well aware of the necessity of accepting international laws regarding money laundering and the financing of terrorism. Without accepting these laws, Iran's financial and banking relations with the international economic community will never return to normal, and if the FATF does not agree to extend the suspension of 'countermeasures' against Iran in its upcoming meetings, international financial transactions for the country will become even more complicated than they already are. Fereydoun Khavand, an economist, economic analyst, and professor of economics in Paris, France.