Non-compliance with Anti-Money Laundering and Terrorism Financing Regulations Poses Serious Problems for Banks

Kamran Nadri, head of the Islamic Banking Group at the Central Bank of Iran's Monetary and Banking Research Institute, stated on Saturday, May 19, that "non-compliance with anti-money laundering and terrorism financing regulations has put our banks in serious trouble." According to ILNA news agency, he noted that the credit rating of Iranian banks has "declined," adding that "cooperation with Iranian banks is considered a high-risk endeavor." Nadri discussed the standards of the Financial Action Task Force (FATF) and the necessity for Iran to join it, stating, "The legislative authority and standard-setting body of the FATF has established anti-money laundering regulations to combat smuggling and terrorism at the international level and to prevent the transfer of money in dirty trades." The FATF is an international body established in 1989 in collaboration with the G7, aimed at combating money laundering and terrorism financing globally. In March 2009, the FATF placed Iran on its blacklist alongside Angola, Ecuador, Ethiopia, North Korea, Pakistan, and Turkmenistan. In July 2016, the group decided to keep Iran on the blacklist of high-risk countries but suspended some restrictions against the Islamic Republic for a year following an agreement with Tehran under the framework of an "action plan." Subsequently, Central Bank officials reached an agreement with the FATF called the "action plan" regarding anti-money laundering and counter-terrorism measures, which faced opposition from a group of conservatives in Iran. These conservatives argue that Iran's membership in this group could lead to a cessation of financial support to Hezbollah in Lebanon and other groups currently funded by Iran. Ali Akbar Velayati, an advisor to the Supreme Leader on international affairs, also deemed Iran's cooperation with the international anti-money laundering organization as "not in the country's interest." In response to these criticisms, Abbas Araghchi, Iran's Deputy Foreign Minister, stated last July that Tehran would "sacrifice Hezbollah for nothing." According to the "Countering the Financing of Terrorism" law passed in 2015, "nations or liberation groups are not considered terrorist acts," and "the determination of the groups and organizations subject to this clause is the responsibility of the Supreme National Security Council." Nadri emphasized that "banks transferring money must know the source of the exchanged funds," adding, "If the source of this money is not clear, the bank that accepted this money may face serious problems." He also stated, "Foreign banks do not cooperate with banks that do not properly comply with anti-money laundering regulations." Nadri pointed out that despite the enactment of anti-money laundering laws, "practical and operational measures have not been taken in our banks, and interacting with large foreign banks is so costly that they do not even want to cooperate in the transfer of credit funds, especially when the source of the money is Iran, which raises more sensitivity." These remarks come as Hassan Hosseini Shahroodi, a member of the Economic Commission of the Parliament, announced on March 19 that the final report of this commission regarding Iran's cooperation with the FATF would be postponed until next year. He stated that a special working group in the Economic Commission is tasked with reviewing this issue. Previously, the U.S. Deputy Assistant Secretary of State for International Narcotics and Law Enforcement, on March 4, named Iran as one of the major transit points for drug trafficking in the annual report on international drug trafficking and money laundering, urging Iran to undertake deep reforms due to its "underground economy" and "corruption of the ruling apparatus" regarding money laundering. The report emphasized that Iran has a widespread underground and illegal economy influenced by factors such as tax evasion, extensive smuggling, evasion of foreign sanctions, and currency control. It also referred to widespread financial and administrative corruption among officials, clergy, ministers, and powerful institutions and economic entities controlled by the government.