Once Again, FATF
Once Again, FATF
The news of the Leader’s acceptance to review Iran’s membership in the FATF revived hopes of reopening Iran’s blocked financial pathways with the world, although there is a long, challenging road ahead before these paths are opened. Iran’s economy spends 25% of its annual income to circumvent sanctions. This income, which has been declining since the early 2010s, is mainly spent on meeting basic needs, namely food and medicine. Iran’s removal from the global monetary transaction network, or SWIFT, and its entry into the FATF blacklist are two main factors behind the income decline.
If Iran does not exit the blacklist, major economic goals, the most important of which are 8% growth and inflation control, will not be achieved, because there is an undeniable dependency between economic growth and foreign investment. If this investment does not reach the $300 billion target, the anticipated economic growth will remain theoretical.
The reality of the direct relationship between financial relations with the world and the improvement of the economic situation has become clear to many decision-makers in recent years.
Masoud Pezeshkian, aware of this reality, has emphasized open doors and global connections since his candidacy. Therefore, internal conflicts that have prevented the approval of bills related to Iran’s joining the FATF and Palermo in recent years need to find more alignment. Since 2016, when Iran agreed to implement the 40 recommendations of the FATF and an action plan containing a scheduled guideline, several stages of review and disapproval have been passed until today, when Iran’s joining this group is to be reconsidered.
Following Iran’s acceptance of membership in 2016, the Financial Action Task Force issued a statement suspending Iran for 12 months from the list of countries requiring countermeasures. However, during the specified period, these bills were not approved. The FATF announced that given Iran’s progress in implementing financial oversight programs and confirming these advances, it agrees to continue suspending countermeasures against Iran indefinitely.
However, in its statement, the FATF emphasized that until all necessary actions to address identified deficiencies are implemented, Iran will not be permanently removed from the blacklist. Despite all the actions taken in Iran, the FATF’s demand for the approval of this law in Iran was not fulfilled, and consequently, on February 21, 2020, the Financial Action Task Force formally returned Iran to its blacklist.
The FATF statement urged countries worldwide to take countermeasures in their financial transactions with Iran to protect their banking systems from the risks of money laundering and terrorism financing. After Iran was blacklisted, there were many efforts and obstacles to approving the bill.
Eventually, the then-officials chose a solution called the ‘domestic FATF’ instead of convincing the opponents, believing that they would create a domestic FATF to track money laundering and terrorism financing. However, the FATF is a global package that makes sense only when there are foreign interactions and Iran is connected to the SWIFT system.
Therefore, financial analysts believe that the domestic FATF is a way to downplay, trivialize, and render the issue meaningless.
If we do not comply with FATF requirements, no bank will be willing to transfer funds, and if a bank agrees to establish financial relations with Iran, it will charge Iranian banks the risk cost of the transfer.
Banks will then pass this cost onto traders, and ultimately, it is the people who bear the burden of this additional cost.
The FATF issue primarily relates to foreign trade and banks’ interactions with foreign banks. If we fail to adhere to the framework recommended by the FATF, banks will be unable to connect with global banks.
This situation also incurs costs that, in the end, the people pay.
Currently, out of the 41 FATF recommendations, only two, CFT and Palermo, have not been implemented.
CFT and Palermo are two of the four bills that were presented to parliament by Hassan Rouhani’s government but were not accepted by the Guardian Council.
Ultimately, these two bills were sent to the Expediency Discernment Council, and no result was achieved in their review. Before Iran’s inclusion in the FATF blacklist, the review deadline for these bills had been extended six times.
