“How should petroleum revenues transfer to the country if we would like to sell it? Because the only path for transferring the incomes are banks, and we should transfer them in other ways and with higher expenses when our banks are not eligible for transfer,” says an Iranian economist.
Three years ago, the Financial Action Task Force (FATF) gave Iran a deadline to adopt the necessary steps regarding financing terrorism and money laundering. Later, on February 22, 2019, the FATF gave another opportunity to Tehran and designated July 2019 as the last call.
Indeed, the international body did whatever it took to facilitate removing Iran from the FATF blacklist and paved the path for the country to rejoin the global banking transactions. However, officials in Iran burnt these chances and put the country’s financial system in an awkward position.
In its latest statement on October 22, the task force declared that the names of Iran and North Korea remain on the blacklist. Some other countries, such as Turkey, Pakistan, and Jordan, are among gray-listed countries by the task force. However, the FATF mentioned that its counter-measures are in force for the Islamic Republic of Iran and the Democratic People’s Republic of Korea (DPRK, North Korea).
The Difference between Iran and North Korea in Opposition to FATF Membership
“The FATF has given an opportunity to Iran and North Korea to be removed from its blacklist,” said economist Albert Baghouzian. “However, North Korea’s reasons for opposition are unlike Iran’s reasons. Indeed, that country does not want to publish its financial transactions. I have not seen yet that [North Korea] opposes particular groups in the case of terrorist entities.”
Regarding Iran, proponents and opponents to the plan raise two issues. First, several officials believe that the FATF’s requests from Iran contrast to the Islamic Republic’s ideology. Indeed, the task force recognizes some domestic military groups as terrorist entities while the government sees them as ‘revolutionary groups.’ “Iran will never accept that these groups are terrorists,” Baghouzian added.
On the other hand, officials in Iran are concerned about the clarification of international financial transactions. They particularly worry about the extension of the task force’s rules to domestic transactions, which would never favor the world’s foremost state-sponsor of terrorism.
“Regarding the current challenges over the FATF, it seems unlikely to prepare an intermedial stage which is accepted by the task force and officials of the Islamic Republic too,” Baghouzian explained.
Consequences of Not Joining the FATF
The pros and cons of joining the international body have placed the Iranian government in an impasse. Tehran pursues joining the FATF to ease economic pressure due to the growing trend of domestic protests.
However, it cannot ignore supporting extremist groups such as Lebanese Hezbollah, Iraqi Shiite militias, and the Houthis in Yemen, which are considered its power leverage for aggression and extortion.
In other words, the Iranian government must accept costly consequences whether it joins or refuses to join the FATF. “The extension and strengthening of international, financial, and commercial transactions are in favor of the country’s economy. There is no formula to prove this issue; however, the only remaining issue is about the ruling system,” Baghouzian said.
Indeed, Tehran’s bleak untransparent economic system pushes international businesspeople to invest their money in FATF member counties, enabling them to track their investment. The refusal to join the task force also deprives the country of access to the global banking system, meaning that foreign banks avoid dealing with Iranian banks and financial institutions, let alone offering them loans.
On the other hand, the government’s zealous persistence in supporting terrorist entities prevents Iran from selling petroleum. “How should we transfer oil revenues to the country if we wanted to sell it?” Baghouzian questioned. The banks are the only path for [this transfer], and Tehran must pay more expenses to gain these revenues on various courses if it does not access the global banking system.
“Currently, Iran has proper relations with China and sells petroleum to this country. However, illegal and untransparent channels are the only way to obtain petroleum income. At the same time, Iran cannot complain and return these incomes if something happens to them along the route,” Baghouzian expressed his concerns.