A new president will be inaugurated in Iran next week, and it is likely that this transition will lead to the U.S. and Iran finalizing a revamped nuclear deal. This comes on the heels of the U.S. Department of State informing Congress that the Biden administration will waive limitations on Iran’s illicit oil trade, allowing Tehran to access frozen funds in South Korea and Japan.
With the Iranian nuclear sanctions likely soon to be lifted, life is getting more complicated for bankers worldwide. They will shortly be faced with a dilemma: can they really do business with Iran? The answer to this question is “not yet”, as Iran is still considered a high-risk jurisdiction due to its failure to adhere to international standards on money laundering and terror financing.
The Paris-based Financial Action Task Force (FATF) is the main institution that sets these standards and reports on global compliance. One of FATF’s most effective tools is its ability to declare certain countries as “high risk jurisdictions subject to a call for action.”
FATF’s blacklist today only includes two countries: Iran and North Korea, which makes it close to impossible to agree to normal financial contacts with them. Financial institutions around the world are required to conduct additional checks regarding transactions with Iran, refrain from establishing branches or representative offices in Iran; limit business relationships or financial transactions with Iran or persons in Iran; prohibit financial institutions from trusting third parties located in Iran, and more.Iran has been under FATF scrutiny for many years. FATF has stated that it will “remain concerned with the terror financing risk emanating from Iran and the threat this poses to the international financial system.”
Given FATF’s position, all countries have been required to apply measures to mitigate the risk of money laundering and terror financing in their dealings with Iran. As a result, and despite the expected sanctions rollback, it would be surprising if any reputable bank or financial institution would now decide to engage in financial activities with Iran or Iranian companies.
If Iran really wishes to join the international community as an equal financial and trade partner, it should change its terror financing policies, and enact the necessary legislation against money laundering; all in line with the relevant conventions and international standards. The lifting of nuclear sanctions against Iran cannot rectify these problems and properly mitigate these risks. Now it is up to Tehran to decide to do what is necessary.