Iran’s Long Road To Reintegrating With The World Financial System
Wednesday March 2, 2016
The recent warning by the Financial Action Task Force to banks about dealings with Iran shows that the end of nuclear sanctions was only the start of a long process.
In its first public statement on Iran since sanctions relief went into effect following implementation of the nuclear deal last month, the Financial Action Task Force (FATF), whose thirty-seven members include Russia and China, in mid-February urged member states to warn their banks about the risks of doing business with Iran. Coming only a month after Iran received nuclear-related sanctions relief from the United Nations, United States, and European Union, the statement underscores the risks for European and Asian banks in renewing financial ties with Iran.
BACKGROUND
Established in 1989 by the G-7 (Canada, France, Germany, Italy, Japan, Britain, and the United States), the FATF is the international standard-setting body for anti-money laundering and countering the financing of terrorism (AML/CFT). Members submit to peer reviews or “mutual evaluations” of their implementation of FATF standards, and jurisdictions that fail to address strategic AML/CFT deficiencies — whether FATF members or not — are publicly identified by the FATF in statements released following the group’s plenary meetings in February, June, and October of each year. Iran has been the subject of such statements since 2008, when the FATF revised its processes for dealing with “high-risk and non-cooperative jurisdictions.” However, despite the January lifting of U.S. and EU nuclear-related sanctions on Iran, the consensus-driven intergovernmental organization did not revise the statement it has issued three times a year since calling for member states to impose countermeasures on Iran in February 2009. The statement again urged Iran to “immediately and effectively address its AML/CFT deficiencies,” noting that if Iran failed to do so, the FATF would consider calling on member states to strengthen countermeasures at its June 2016 meeting.
IMPLICATIONS FOR BANKS
For foreign financial institutions considering renewed ties with Iranian banks, the FATF’s continuing designation of Iran as a high-risk jurisdiction and repeated call for countermeasures have real implications in terms of both illicit finance and regulatory risk. Relevant FATF standards, now being followed by member states in their fourth round ...