Iran and FATF – difficulties and opportunities
The relationship between Iran and FATF has lots of ups and downs. This fluctuation could directly affect the economy of Iran so, as a businessperson, it is important for you to know about it!
Brief history of FATF
The Financial Action Task Force (FATF) is an intergovernmental organization established in 1989 at the initiative of the G7 with a focus on development policies to combat money laundering. The organization joined the Counter-Terrorism Campaign in 2001. The FATF Secretariat is based at the Organization for Economic Co-operation and Development (OECD) in Paris. Over time, the group’s activities expanded, and in the same year it published the first version of its Financial Crimes Recommendations. The title of this recommendation is international standards on combating money laundering and financing of terrorism and funding mass destruction weapons proliferation which this last duty has been added to the scope of responsibility from 2012.
Therefore, FATF is responsible to codify the international regulations in terms of three financial crimes namely money laundering, financing the terrorism and weapons proliferation. FATF is also as a main observer and watchdog of the countries to see if the countries behavior is in line with the international policies regarding the above mentioned crimes.
Right now, more than 200 countries are the members of FATF obliged to enforce its rules and recommendations. The recommendations normally amend every few years.
According to the latest version of recommendations in 2012, FATF has 40 recommendations for the countries.
The conventions of FATF
FATF has four recommended conventions for the countries asking them to join them as soon as possible. the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances or Vienna Convention (1988) and the United Nations Convention against Transnational Organized Crime or Palermo Convention (2000), the United Nations Convention against Corruption (2003) and the Terrorist Financing Convention (1999).
There are also some other territorial conventions such as the Council of Europe Convention on Cybercrime (2001) that recommends by FTAF on a non-obligatory basis.
The countries shall prohibit money laundering based on the provisions of Vienna Convention. Palermo Convention regulated measures concerning the terrorist financing.
How FATF works in practice?
FATF monitors the progress of member countries in implementing the recommendations of this group, and based on their compliance with standards and methods, has divided them into three categories: There is a group of countries that have fully complied with the recommendations of this group and implemented them, this group is mostly developed countries. The second group is developing countries and adapting to the specified standards. And the last group, the countries that have not cooperated with this group and therefore, from the group’s point of view, are countries at risk of money laundering and terrorist financing. This category is divided into two groups: one group of countries against which no retaliation is taken and the other group are those who, in addition to being blacklisted, are also retaliated against.
To achieve the desired privilege, the countries and territories must ratify the specific bills and conventions as advised by FATF and prove their compliance through cooperating with international law enforcement agencies to investigate suspicious activity.
For example, if Iran is suspected of violating anti-money laundering or terror financing laws, companies doing business with Iranian entities could be prosecuted to determine whether they were aware of such illegal activities or were complicit with or participated in them.
The history of relationship between Iran and FATF
For the first time, in 2008 Iran was blacklisted by FTAF due to the lack of integrated system of anti-money laundering and combating the financing of terrorism. However, in the beginning of 2008, Iran ratified its national Anti-money Laundering Law.
In 2013, when Hassan Rouhani was elected as the new President of the Islamic Republic of Iran, he was given the authority to put Iran’s economy on the path to recovery. Since then, he has sought to terminate industrial monopolies and eliminate corruption. His government has also sought to lift international sanctions under the Joint Comprehensive Plan of Action (JCPOA) and bring Iran’s banking policies closer to international standards. Iran could be removed from the Financial Action Task Force (FATF) blacklist.
The signing of the JCPOA in 2016 was an important step towards improving economic goals and global reintegration. Not only did it begin the process of lifting international sanctions on Iran’s nuclear weapons program, but also by temporarily removing Iran from the FATF blacklist waiting for Iran to act on the FATF and passing and enacting two bills on money laundering and terrorist financing, and two Convention on Money Laundering (Palermo) and Terrorism financing (CFT).
Iran was on the FATF blacklist from 2008 to 2016, but from 2018 to 2019, Iran partially satisfied the requirement to pass the FATF’s requisite laws. But it has not yet ratified the Palermo and CFT conventions. Therefore, after a series of extensions, in February 2020, Iran was put back on the blacklist.
Rouhani’s government argued that ratification of the FATF’s conventions could open Iran’s economy to the world. On the contrary, non-approval will lead to self-imposed economic sanctions against Iranian citizens and private businesses. Ratification of the FATF conventions greatly reduces the risk of international institutions dealing with Iran, especially EU-based institutions, and can also create a fund in Europe to facilitate international trade and allow Iran to receive its debt money. Thus, Iran’s inclusion in the FATF blacklist effectively discourages potential international economic partners from trading with Iran, as they are exposed to significant commitments.
What could be the future of Iran and FATF relationship?
In March 2021, the majority of the Iran’s heavy conservative parliament, signed a declaration against ratification of two remaining bills of FATF saying it could complete the roadmap of sanctions by the US and its allies. In contrary, Rohani said that maybe ratification of these two bills cannot solve the whole economic problems of the country but their non-acceptance will definitely worsen the economic conditions.
Considering the new round of negotiation between Iran and 5+1 countries for revival of the nuclear agreement of Iran or JCPOA, the experts are positive that the Iranian Expediency Council who are currently postponed the ratification of two bills for more than 2 years, will be convinced to ratified them and assist Iran to take an important step forward to revive its economy.