The Problem of Iranian Banks is 'Non-Compliance with International Standards and Not Sanctions'

The Research Center of the Iranian Parliament reported that "contrary to the mindset of the public and some elites, a significant portion" of the problems faced by Iranian banks in cooperating with global banks stems from "non-sanction-related causes" and non-compliance with international standards. The center also noted that sanctions and the severance of relations between Iran and global banks have led these banks to fail to implement certain international standards and new regulations on money laundering and terrorism financing, becoming "even further behind global standards." According to this center, Iran is among 23 countries out of 157 that do not implement International Financial Reporting Standards (IFRS), which began to be enforced in 2005. The report states that Iranian banks are in an "unsatisfactory condition" due to reduced profitability, increased accumulated losses, and a high volume of high-risk assets. The Research Center concluded that due to weak adherence to financial reporting standards and the lack of strong regulatory bodies, foreign banks cannot trust the information provided in the financial statements of Iranian banks. It also stated that because of the non-compliance with these international standards, foreign banks cannot assess Iranian banks or establish correspondent relationships with them. Previously, on June 8, 2016, the Research Center had described the state of Iran's banking system as "crisis-ridden" and warned of the "risk of bankruptcy" for banks. Abbas Araghchi, Iran's Deputy Foreign Minister, has repeatedly stated that part of the problems in foreign banks' cooperation with Iran is due to the banks in Iran being "outdated." Meanwhile, Parviz Aghili, CEO of the Middle East Bank of Iran, stated last year at a conference in Zurich that at least half of Iran's banks need to be closed or merged within the next six years. According to Aghili, a complete reorganization of Iranian banks, with a balance sheet of $700 billion, requires $180 to $200 billion in funding, which is beyond the capacity of Iran's financial system, but banks must align with the third Basel financial standards. The Bank for International Settlements (BIS), which provides services to central banks, consists of committees, one of the most important being the Basel Committee, which provides guidelines in the area of risk management for banks. Iran ranks among the countries "attractive for money laundering." The Research Center's report also indicated that according to the Basel Committee's assessment, Iran, along with "a few other limited countries, has the worst status in terms of the 'risk of money laundering and terrorism financing.'" The report noted that in 2016, Iran was "at the top of the countries attractive for money laundering and the riskiest country, with a worse ranking than countries like Sudan, Guinea-Bissau, Mali, and Afghanistan." The Financial Action Task Force (FATF), which combats money laundering and terrorism financing globally, announced on February 23, 2018, that it would suspend actions against Iran for another four months. On January 24, 2018, the Iranian Parliament approved a bill for Iran's accession to the United Nations Convention against Transnational Organized Crime (Palermo), but the Guardian Council rejected this resolution and returned it to Parliament for amendment. Meanwhile, the bill for accession to the Terrorism Financing Convention is under review in the Iranian Parliament. However, some conservative members of Parliament have called for a six-month halt to the review of this bill until the outcome of negotiations between Iran and Europe regarding the fate of the JCPOA is determined.