Watchdog Reimposes Financial Restrictions on Iran

On June 21, the Financial Action Task Force (FATF) reimposed restrictions on Iran which had been suspended since October 2016. The FATF is an inter-governmental body of 36 countries that sets standards for countering the financing of terrorism and money laundering. During the FATF conference in Orlando, Florida, the organization urged its members to require an “increased supervisory examination for branches and subsidiaries of financial institutions based in Iran.” 

The FATF announced that it would keep Iran on its blacklist of countries who refuse to cooperate in global efforts to counter money laundering and terrorism financing. In June 2016, Iran agreed to a FATF “action plan” that would allow it to be removed from the list of uncooperative countries. But the FATF claimed that Tehran has failed to implement the necessary requirements.  

“Iran will remain on the FATF Public Statement until the full Action Plan has been completed. Until Iran implements the measures required to address the deficiencies identified with respect to countering terrorism-financing in the Action Plan, the FATF will remain concerned with the terrorist financing risk emanating from Iran and the threat this poses to the international financial system,” the FATF said in a statement. The following are statements by FATF and the U.S. State Department.  

 

FATF Press Statement 

In June 2016, the FATF welcomed Iran’s high-level political commitment to address its strategic AML/CFT deficiencies, and its decision to seek technical assistance in the implementation of the Action Plan. Given that Iran provided that political commitment and the relevant steps it has taken, the FATF decided in February 2019 to continue the suspension of counter-measures.

In November 2017, Iran established a cash declaration regime. In August 2018, Iran has enacted amendments to its Counter-Terrorist Financing Act and in January 2019, Iran has also enacted amendments to its Anti-Money Laundering Act. The FATF recognises the progress of these legislative efforts. The bills to ratify the Palermo and Terrorist Financing Conventions have passed Parliament, but are not yet in force. As with any country, the FATF can only consider fully enacted legislation. Once the remaining legislation comes fully into force, the FATF will review this alongside the enacted legislation to determine whether the measures contained therein address Iran’s Action Plan, in line with the FATF standards.

Iran’s action plan expired in January 2018. In June 2019, the FATF noted that there are still items not completed and Iran should fully address: (1) adequately criminalizing terrorist financing, including by removing the exemption for designated groups “attempting to end foreign occupation, colonialism and racism”; (2) identifying and freezing terrorist assets in line with the relevant United Nations Security Council resolutions; (3) ensuring an adequate and enforceable customer due diligence regime; (4) clarifying that the submission of STRs for attempted TF-related transactions are covered under Iran’s legal framework; (5) demonstrating how authorities are identifying and sanctioning unlicensed money/value transfer service providers; (6) ratifying and implementing the Palermo and TF Conventions and clarifying the capability to provide mutual legal assistance; and (7) ensuring that financial institutions verify that wire transfers contain complete originator and beneficiary information.

The FATF decided at its meeting this week to continue the suspension of counter-measures, with the exception of the FATF calling upon members and urging all jurisdictions to require increased supervisory examination for branches and subsidiaries of financial institutions based in Iran, in line with the February 2019 Public Statement.

While acknowledging the progress that Iran made including with the passage of the Anti-Money Laundering Act, the FATF expresses its disappointment that the Action Plan remains outstanding.  The FATF expects Iran to proceed swiftly in the reform path to ensure that it addresses all of the remaining items by completing and implementing the necessary AML/CFT reforms.

If by October 2019, Iran does not enact the Palermo and Terrorist Financing Conventions in line with the FATF Standards, then the FATF will require introducing enhanced relevant reporting mechanisms or systematic reporting of financial transactions; and increased external audit requirements for financial groups with respect to any of their branches and subsidiaries located in Iran. The FATF also expects Iran to continue to progress with enabling regulations and other amendments.

Iran will remain on the FATF Public Statement until the full Action Plan has been completed. Until Iran implements the measures required to address the deficiencies identified with respect to countering terrorism-financing in the Action Plan, the FATF will remain concerned with the terrorist financing risk emanating from Iran and the threat this poses to the international financial system. The FATF, therefore, calls on its members and urges all jurisdictions to continue to advise their financial institutions to apply enhanced due diligence with respect to business relationships and transactions with natural and legal persons from Iran, consistent with FATF Recommendation 19, including: (1) obtaining information on the reasons for intended transactions; and (2) conducting enhanced monitoring of business relationships, by increasing the number and timing of controls applied, and selecting patterns of transactions that need further examination.

 

U.S. State Department Press Release 

Today, the Financial Action Task Force (FATF) responded to Iran’s willful failure to address its systemic money laundering and terrorist financing deficiencies by requiring increased supervision of Iran-based financial institutions. The Islamic Republic of Iran regularly seeks to use deception and subterfuge to fund its illicit activities, threatening the integrity and security of the international financial system. 

The Islamic Revolutionary Guard Corps continues to engage in large-scale illicit financing schemes to fund its malign activities. This includes its support for U.S.-designated terrorist groups like Hizbollah and Hamas. The IRGC’s illicit financing schemes are facilitated at the highest levels of Iran’s government. The international community has made clear that Iran must live up to its commitments to behave like a normal nation.

The FATF also reaffirmed its concern with terrorist financing risk emanating from Iran and the threat it poses to the international financial system. Three years after Iran committed to an action plan with the FATF, the majority of its necessary work remains incomplete. As I have stated before, Iran must ratify the Palermo and Terrorist Financing Conventions in line with the FATF standards or face additional measures.