The Forum for Partners in Iran's Marketplace

October 2019, No. 92


FATF and the Iranian Economy

Today, Iran and North Korea are the only countries that have been blacklisted by the FATF because of not complying with its rules and regulations.

Dr. Zahra Karimi, Economist

Iranís economy is in a fragile situation, and many enterprises are facing numerous problems ranging from shortages of imported raw materials and intermediate goods to lack of consumer demand, and inevitably reduce production and the number of their employees. In this way, a large part of the Iranian households are under heavy pressure and are worried about the future. In addition to the heavy sanctions imposed by the United States against Iran, restrictions on banking transactions resulting from Iranís refusal to endorse the FATF, have put international relations, even with friendly countries such as China and Russia, in basic problems and sparked economic instability.

Many experts have correctly defined the failure to approve FATF tantamount to practical sanctioning of the Iranian banking system. Given the wide range of illegal transactions, such as drug trafficking and the activities of organized human trafficking groups, industrialized countries collectively decided to prevent the entry of money gained through illegal activities into the banking system by adopting certain laws.

The global anti-money laundering body known as the Financial Action Task Force (FATF) was established in 1989 by the Group of 7 with its headquarter in Paris. Therefore, it is clear that this institution was not founded to counter Iran, and the rules designed by this institution were promptly implemented in other industrialized countries and gradually around the world. In 2001, following the attacks on US trade towers, the FATF added combating the Financing of Terrorism Act to the Anti-Money Laundering Act.

There was also no specific discussion about Iran in adopting this law, and its goal was to create transparency in international banking transactions and prevent money transfers to terrorist groups. In 1998 I lectured for a while in a UK university, but because I did not have a formal contract for the lecturing, I could not open a bank account. But unfortunately then and even now you can take a bag full of money to a bank in Iran and open an account without being asked where the money came from! Given that drug trafficking in Iran also has huge profits for wrongdoer groups; the Iranian banking system has not had much success in preventing the illegal entry of money into banks.

Astronomical proceeds of wrongdoers in electoral activities and political arenas have also helped them infiltrate and this has even made the interior minister to voice concern. In addition, lack of transparency and limitation of control mechanisms in the banking system have caused enormous corruption and embezzlement, some of which showing some shocking figures and causing people to be discontent with financial institutions. The long experience of offenders exploiting the banking system and the possibility of transferring their funds across the world have led industrialized countries to pass international laws to create transparency and control over the financial resources of the banking system.

Iran must also take advantage of these experiences. Today, Iran and North Korea are the only countries that have been blacklisted by the FATF because of not complying with its rules and regulations. Other countries whose performance of their banking system in dealing with money laundering and terrorism financing is criticized by the FATF, would take immediate action to improve monitoring mechanisms in order not to be blacklisted which would strip them of the means of transactions in international banking system.

A recent example was Pakistan, which managed to escape the risk of being included in the FATF blacklist. It had been estimated that if Pakistan was included in the blacklist, the country would suffer a loss of $10 billion annually. The losses of failure to adopt the FATF laws for corporations, individuals and banks inside and outside Iran and in general for the Iranian economy are notable and there is no acceptable justification for not approving these bills.

Economic development and the need for people to benefit from growth and development are the preconditions for realizing the goals of the Islamic Republic of Iran for elimination of poverty and deprivation and providing housing, food, clothing, health, education, and the opportunity of employment for all. Reducing uncertainty, stabilizing the economic climate and restoring Iranís link with the global system is a key factor in moving in this direction. Without the approval of the FATF laws, it is very difficult to create a suitable space for the Iranian economy.


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  October 2019
No. 92