IRGC Under 'Sanction' by Domestic Banks; A Significant Event with Greater Consequences

It seems that a very important event is occurring in Iran's banking system. This event could have major implications not only in Iran but also at the regional level. This event is a form of 'banking sanction' against an important entity such as the Khatam al-Anbiya Headquarters of the Islamic Revolutionary Guard Corps (IRGC). The difference is that this banking sanction is not imposed by foreign banks but by 'domestic banks'. This important news was announced by Abdollah Ganji, the editor-in-chief of the newspaper 'Javan'. He stated that so far, two Iranian banks, namely Bank Sepah and Bank Mellat, have officially informed the Khatam al-Anbiya Headquarters that they are compelled to stop providing foreign exchange services to this headquarters. He said, 'With the sanctioning of Khatam al-Anbiya by Bank Mellat and Sepah (and possibly several other banks in the future), the results of the JCPOA become more tangible.' Thus, the dimensions of what has happened so far are as follows: First, according to the editor-in-chief of Javan (close to the IRGC), two Iranian banks have joined the sanctions regime. Second, the target of these sanctions is not organizations like ISIS, Al-Qaeda, or the Taliban. The target of this sanction is the Khatam al-Anbiya Headquarters of the IRGC, which was established in 1989 by the order of Ayatollah Khamenei. (In June 2010, the Security Council placed this headquarters and its 40 subsidiary companies on its sanctions list.) Third, according to the editor-in-chief of Javan, it is believed that in addition to Bank Sepah and Mellat, other banks in the country (both state-owned and private) will uniformly join the sanctions against this headquarters. Fourth, he described this event as 'tangible results of the JCPOA'. It is clear that so far, an important question that occupies minds is what the secret of this unprecedented news is. Given the influence that the IRGC has in the pillars of the system, how is it conceivable that two domestic banks have dared to refuse to provide foreign exchange services to this headquarters? An agreement between Iran and the Financial Action Task Force (FATF) On June 24, 2016, the FATF announced in a statement that it had suspended the restrictions on Iran's banking system for 12 months. This statement clarified that heavy restrictions had previously been imposed on Iran's banking system. This announcement and the 12-month opportunity for Iran came after the Central Bank of Iran officials reached an agreement with the FATF (called the 'Action Plan') regarding anti-money laundering and combating terrorism. Iran committed to implement the action plan to demonstrate its commitments. Interestingly, the details of Iran's commitments in the action plan have not been disclosed since that time until, for example, the recent news of two Iranian banks refusing to provide foreign exchange services to the IRGC's Khatam Headquarters was published as shocking news. An example of the sanctions now imposed by domestic banks against Khatam can be found on the hardline site Raja News. This site published images of two letters from Bank Sepah and Mellat clarifying that these banks have refused to provide foreign exchange services to Khatam. More importantly than what has happened is the question that if this event is in line with the commitment of Iran's banking system to implement the action plan to avoid being re-sanctioned, does this not mean that other banks in Iran are likely to join the sanctions against Khatam? If the influential Khatam Headquarters is now on the list of sanctions by Iranian banks, is it conceivable that this situation will extend to other individuals and entities that are on the international sanctions list? If so, how far will these sanctions be applied in Iran and against which other entities? In other words, will sanctions that were previously imposed by international banks on the entities of the Islamic Republic now be imposed by Iranian banks on them? If so, where is the end of this 'nightmare for the system'? What is the FATF and what is its function? The above questions, which are indeed very important questions, all depend on the power that the FATF holds. If the FATF's influence over Iran's banking system were not significant, the officials of the Islamic Republic would never have accepted such agreements (the action plan). The full title of the FATF is 'Financial Action Task Force on Money Laundering', which was established in 1989 by the Group of Seven (the seven largest economies in the world) to standardize global banking regulations to combat money laundering and terrorist financing in the global financial system. The main function of this task force is to approve regulations to combat money laundering and terrorism and to monitor countries' implementation of those regulations. The strength of this group's influence is such that in 2005, the UN Security Council stated in Resolution 1617: [The Security Council] strongly urges all members to fully implement the standards established by the FATF, including 40 recommendations on money laundering and 9 recommendations for combating terrorist financing. The mechanism of this group for monitoring the implementation of the aforementioned recommendations is to categorize countries into three groups. These three groups are: First, countries that fully implement the recommendations. This group includes developed countries that align with the international financial system. Second, countries that demonstrate goodwill in their efforts to implement the approved regulations. Third, countries that lack appropriate cooperation in implementing the regulations. In other words, this group of countries are those that pose a risk of money laundering and consequently terrorist financing. The third group of countries is further divided into two categories: one group of countries against which 'countermeasures' are not taken, and the other group that is placed on the 'blacklist' or 'list of concerning and uncooperative countries' against which countermeasures are taken. Since 2008 and with the start of a new round of sanctions, Iran has been placed on the blacklist. Since 2010 and following the approval of Resolution 1929 by the FATF, countermeasures against Iran were communicated to all countries. The other country on the blacklist is North Korea. Thus, from 2010 until June 2016, Iran was on this blacklist and under countermeasures until on June 24 of this year, following the commitment of Iranian officials to implement the provisions of the action plan, the FATF issued a statement temporarily suspending countermeasures against Iran for one year. This statement specifies that during this period, the FATF will closely monitor all of Iran's activities. Although many details of the agreement between Iran and the FATF have not leaked, it is generally clear that Iran has committed to clarify its 'international and domestic transactions' as a country that does not support terrorism. In fact, yielding to such a significant demand is due to the reality that Iran has realized that reputable banks in the world will refuse to cooperate with Iran if its banking transactions are not transparent, despite the approval of the JCPOA. These banks fear that if they cooperate with Iran's non-transparent banking system, they will fall into the trap of cooperating with terrorism and consequently suffer financial and reputational damages. In other words, the banking system of the Islamic Republic has realized that by implementing the FATF's resolutions, it can exit the blacklist and pave the way for global banks to cooperate with Iranian banks. The Khatam Headquarters is the first case, but not the last. Although the IRGC and the Khatam al-Anbiya Headquarters have immense influence in the pillars of power of the Islamic Republic, the experience of crippling sanctions imposed on Iran has made it clear to those who accepted the JCPOA that the function of the FATF in the field of banking transactions is exactly like the oversight of the International Atomic Energy Agency in the field of nuclear activities. Iranian banking officials have well understood that if Iran commits to the stringent demands of the Agency to lift sanctions, why should it not commit to the demands of the FATF? The Khatam Headquarters, which is now under sanctions from two Iranian banks, is the first example of Iran's commitments to the FATF, but it will not be the last. Raja News has reported, citing the CEO of the Agricultural Bank, that on September 8 of this year, the implementation of the action plan was communicated from the Central Bank to the Agricultural Bank (and probably other banks).