Iran's Long Battle With FATF

The February plenary of the Financial Action Task Force (FATF) is underway in Paris. The outcome of this meeting could prove pivotal for Iran.

The FATF, an intergovernmental body charged with setting standards and monitoring implementation of anti-money laundering and countering the financing of terrorism (AML/CFT) policies, has threatened to “fully lift the suspension of counter-measures and call on its members…to apply effective counter-measures” if Iran doesn’t complete the outstanding items in its action plan. Some include “adequately criminalizing terrorist financing, including by removing the exemption for designated groups “attempting to end foreign occupation, colonialism and racism” and “ratifying and implementing the Palermo and [Terrorist Financing] Conventions.”

The stakes are high because the decision over whether to fully comply with the FATF’s demands continues to be a proxy for an Iranian domestic political battle over integration vs. isolation on the world stage. Elements of Iran’s deep state—Guardian Council and the Expediency Council—have delayed, denied, and denigrated the attempts of its elected state—the Rouhani administration and parliament—to avoid the global financial blacklist. Making the February FATF plenary even more dramatic, the last day of the meeting in Paris—when it traditionally announces the status of the Iran file—is on February 21, which happens to coincide with the date of Iran’s parliamentary elections, in which hardliners are projected to make significant gains in the legislature, potentially further complicating Iran’s fate before the FATF.

Since January 2018, when Iran’s action plan expired, the FATF has adopted a carefully calibrated approach to force Iranian compliance since it first suspended countermeasures in June 2016. Since June 2019, the FATF has gradually re-imposed discrete countermeasures on the Islamic Republic—first requiring increased supervisory examination of branches of Iranian financial institutions and then introducing enhanced relevant reporting mechanisms and external audit requirements—coupled with threats to proscribe the Iranian financial system. But such a strategy hasn’t moved the needle in Tehran.

U.S. Secretary of State Mike Pompeo attends an event celebrating the one-year anniversary of the White House’s Women’s Global Development and Prosperity (W-GDP) Initiative at the Department of State in Washington, February 12, 2020

Pompeo Says Iran Must Accede To International Financial Regulations

On Sunday, Iran’s President Hassan Rouhani expressed his frustration, saying, "I am very sorry for what has happened today but I think it is out of the government's power. I met with the Supreme Leader in person several times and he explicitly said that he had no disagreement with the government bills.” However, despite what Ayatollah Ali Khamenei may have told Rouhani, his inaction has spoken louder than his words.

The supreme leader has publicly expressed distrust in the FATF. For instance, in June 2018, he noted “some of these treaties have useful parts, it’s not a problem” but advised parliament to pass legislation according to its own AML/CFT criteria, while remarking “[t]here is no need for us to accept things that we don’t know where they will end up.” It’s this hedging by Khamenei—placating President Rouhani while expressing wariness over multilateral financial frameworks—which has stalemated the regime’s decision-making.

This is because the very state organs which have served as Iran’s domestic FATF speedbumps—the Guardian Council and the Expediency Council—are effectively controlled by Iran’s supreme leader. Khamenei’s longtime lieutenant—Ahmad Jannati—has served at the helm of the Guardian Council since 1992. That’s not to mention that half of the members of the Guardian Council are appointed by the Supreme Leader, with the remaining members named by the chief justice, who is another appointee of Khamenei and reports directly to him. The Expediency Council, where the CFT and Palermo bills have been stalled following their rejection by the Guardian Council, is also under Khamenei’s thumb, with all its members anointed directly by the supreme leader.

Khamenei’s indecision and rhetorical ambiguity have caused a political deadlock on the FATF file, and offered an opening for additional power centers, like the Islamic Revolutionary Guard Corps (IRGC), to doom the reforms. Last month, Expediency Council announced ​that the deadline for the consideration of the legislation had conveniently passed, and it was therefore no longer on the Council’s agenda. Additionally, a member of the Expediency Council, Majid Ansari, alleged that "powerful circles of a certain headquarter have been sending text messages to the members of the Expediency Council to oppose the FATF [bills]".

Lastly, another incident earlier this month has gone underreported. In the aftermath of the death of the former head of the IRGC’s Quds Force in January, Iran’s former Minister of Economic and Financial Affairs Mohammad Javad Iravani reportedly sent a letter to the FATF presidency, urging him to sanction the president of the United States personally as well as his companies, and the heads of the Pentagon and CENTCOM. Then, tellingly, Iravani wrote, "imposing the said embargoes on the named individuals and announcing the sanctions to all the FATF member countries can prove the international body's impartiality.” But Iravani isn’t just a former cabinet member. He has been the deputy for supervision and auditing ​in the Office of Iran’s Supreme Leader. Such correspondence may offer a glimpse into Khamenei’s thinking, especially given his wariness over the FATF.

The dithering by Iran’s regime over the FATF has continued for years because Tehran has yet to make the decision of whether it is a country or a cause, as former U.S. Secretary of State Henry Kissinger once remarked. With parliamentary elections scheduled for the day the FATF will announce its decision on Iran, there will likely be even more resistance to Rouhani’s attempts at engagement with the international community given the anticipated conservative ascendancy. Also, it was the 10th and not the 11th parliament which had originally passed the Palermo and CFT legislation. The Rouhani administration will thus be more isolated than ever before—with the loss of a more pliant legislature which birthed the FATF reforms that are now in a legal no-man’s land. In sum, the Islamic Republic will sooner or later inevitably find itself in the familiar place of being on the wrong end of the global financial system.



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