by Tyler Cullis
Later this month, the Financial Action Task Force (FATF)—an intergovernmental body that sets and promotes standards for combating money laundering and terrorist financing—will issue a new public statement regarding jurisdictions with deficient anti-money-laundering (AML) and counter-terrorism financing (CFT) regimes. As has been true since 2007, Iran will likely be identified as such a jurisdiction.
Nevertheless, FATF’s upcoming statement will prove a major test. Currently, major foreign banks remain hesitant to re-engage their Iranian counterparts despite the lifting of certain U.S. nuclear-related sanctions. Part of the reason for this is that Iran remains on FATF’s blacklist and subject to financial counter-measures as a result. The big question will thus be whether FATF revises its call to account for the steps that Iran is taking to remedy problems in its AML/CFT regime, thereby permitting the benefit of sanctions relief to flow to the Iranian people.
There is a good reason to expect FATF to revise its call. Recently, Iran has undertaken significant steps to comply with global banking standards, including passage of a CFT law and amendments to its existing AML law. Moreover, Iran has joined the Eurasian Group—a FATF associate member—as an observer state and has scheduled the IMF to undertake a determinative assessment of its AML/CFT regime for 2018. (The IMF insists that such assessment can move no faster than this 18 month-long timeline.) These and other action items illustrate the seriousness with which Iran is taking its global regulatory obligations.
The U.S. government has taken note of these developments. Recently, two high-level Treasury officials credited Iran with the steps it is currently taking to reform its AML/CFT regime and stated that the U.S. government had an express interest in ensuring that this progress continued.
Speaking at the Foundation for the Defense of Democracies annual conference in April, the Acting Under Secretary for Terrorism and Financial Intelligence Adam Szubin stated:
If Iran wants to take full advantage of its economic potential, it is up to Iran to cure systemic problems in its markets.
To its credit, Iran has publicly recognized that its financial transparency measures lag behind international standards and has begun to improve them. But it’s only just begun; problems remain.
Soon thereafter, Daniel Glaser, Treasury’s assistant secretary for terrorist financing, noted that:
Iran has taken important steps—that I think we should acknowledge and that I think they should get credit for—in trying to come off [the FATF] list. They’ve recently enacted a terrorist financing law; they’ve engaged with FATF and are in discussions with FATF to come up with an action plan…I think those discussions have been productive.
I think FATF is and will continue to treat Iran quite fairly; and as Iran makes progress, I think that progress will be acknowledged by FATF. It will certainly be good for Iran, for FATF, for the United States, and for the entire international community, the more steps Iran takes to police its own system for anti-money laundering and terrorist financing.
The positive tone of these remarks also follows a Cabinet-level meeting between Secretary of Treasury Jack Lew and the Central Bank of Iran Chief Valiollah Seif in Washington, D.C. in April. According to persons I’ve spoken to, Iran’s status before the FATF and the steps that Iran is taking to address deficiencies in its AML/CFT regime were squarely on the agenda at this meeting.
Implications for the Future
The FATF will issue a statement regarding jurisdictions with deficient AML/CFT regimes in a couple of weeks. Few expect Iran to be removed from this list. As the under secretary noted, Iran has a long way to go to show that it can’t just pass laws to reform its banking sector but can also implement and enforce those laws as well.
But the FATF’s call for member states and other jurisdictions to impose counter-measures targeting Iran’s financial sector should be up for revision. If so, it will signal important relief for global bankers interested in making a return to Iran. As Michael Kemmer, head of the German banking association BDB, noted to Reuters recently, “It is really important for banks that the FATF re-evaluates the situation in Iran.” Such a re-evaluation will instill much-needed confidence in global banking institutions that doing business with Iran is possible.
Moreover, Iran can no longer be regarded as a “non-cooperative” jurisdiction. As I have noted, Iran is clearly cooperating in good faith to reform its status before the FATF, and such cooperation should be acknowledged by returning Iran to the status it had back in 2008-9. That would mean keeping Iran on the list of jurisdictions with weak AML/CFT measures for now but also noting and encouraging the progress that Iranian authorities are currently making.
Provided such revisions are made, the U.S. and Iran will have shown that good-faith cooperation can lead to positive results for both parties. The United States will be assured that Iran is making real progress on reforming its banking system to conform to global standards, while Iran will start to win back the confidence of global banking institutions. There is a road to a more harmonious relationship between the two adversaries. The task ahead is to figure out how to travel it.
Photo: Valiollah Seif