FATF

Europeans beat back Americans as FATF gives Iran more time on financial reforms

Bourse and Bazaar | Esfandyar Batmanghelidj: At its plenary meeting in Paris, the Financial Action Task Force (FATF) opted “to continue the suspension of countermeasures” related to Iran’s inclusion in the so-called “blacklist” of countries with deficiencies in anti-money laundering (AML) and combating financing of terrorism (CFT) standards.  The suspension will be in place until October 2018 and in this period jurisdictions will continue to “advise their financial institutions to apply enhanced due diligence to business relationships and transactions with natural and legal persons from Iran.”

The outcome of the plenary was the subject of great anticipation. Progress on the FATF action plan is critical for Iran’s reintegration in the global financial system. The FATF expressed its “disappointed with Iran’s failure to implement its action plan to address its significant AML/CFT deficiencies” noting in a public statement that “a majority of the action items remaining incomplete.”

Iran’s slow implementation of the Action Plan reflects in part the considerable political scrutiny that has been placed on the process in Iran. Political leaders opposed to President Hassan Rouhani have decried the action plan reforms as an effort by international actors to exert undue influence over the Iranian financial system. They have also questioned the value of the reforms given the pending snapback of US secondary sanctions following President Trump’s May 8 withdrawal from the JCPOA nuclear deal.

Iran’s hardliners were not alone in their disapproval of Iran’s FATF efforts. American officials had made it clear in the run-up to the plenary that they would be pushing for the resumption of countermeasures against Iran. Congressmen Rob Portman (R-OH) and Ed Royce (R-CA) sent a letter to Treasury Secrtary Steven Mnuchin last week to “ to ensure action next week by the Financial Action Task Force (FATF) against Iran. For many in Washington, resumption of countermeasures is seen as a way to further hobble Iran’s financial system, given that banks that might otherwise be structured to work with Iran under secondary sanctions would likely refuse to do so if the FATF action plan had failed to be implemented outright.

Officials from the European members of FATF, noting that the resumption of countermeasures would effectively end the tenuous political support for financial sector reforms in Iran, coordinated in order to ensure that Iran’s case would receive a fair evaluation. Active dialogue with Iranian stakeholders at the Ministry of Foreign Affairs and the Central Bank of Iran helped European officials gauge the likely tides of political support for the action plan reforms, especially given outstanding legislative requirements such as the ratifying and implementing the Palermo and TF Conventions.

Iranian officials were keen to impress on their European counterparts that Iran’s compliance with FATF’s recommendations is presently commensurate with many countries, which are not currently blacklisted. An appeal was made for Iran’s case to be evaluated on a technical, rather than political basis, particularly as American antipathy towards the continued suspension of countermeasures has been understood as part of the Trump administration’s broader pressure campaign against Iran.

In addition, Iranian officials noted that the FATF issue was now a matter of direct discussion between President Rouhani and Ayatollah Ali Khamenei, Iran’s supreme leader. Despite the contentiousness of the issues, there is some suggestion that a political consensus around AML/CFT reforms is achievable. Such a consensus may see reforms characterized as a national endeavor rather than one pursued at the behest of FATF. Overall, within the domestic and international political context, the suspension of countermeasures should be seen as a victory for European and Iranian multilateral cooperation in the face of an increasingly hostile American posture.