Iran 's long road to re - integrate into the global financial system

March 3, 2016

In his first public statement on Iran since the easing of sanctions into effect after the application process has entered the nuclear deal in January , "The Working Group on financial operations" in the middle of February search of Member States to warn of the risks of banks dealing with Iran. The number of members of the "team" of 37 countries, including Russia and China. The statement came after only a month on the United Nations and the United States and the European Union to ease sanctions imposed on Iran and its activities related to nuclear, to emphasize the risks that may cause the European and Asian banks as a result of the renewal of financial ties with Iran.

The background

"The working group on financial operations", which was established by the Group of Seven industrialized nations in 1989 (Canada, France, Germany, Italy, Japan, Britain, the United States), is an international body to establish anti-money laundering and terrorist financing standards. And it offers members an overview or "assessment of a mutual" counterparts about their application criteria "working group on financial operations" as "working group" defines the authorities that fail to address the strategic deficiencies in anti-money / CFT laundering, whether they are members of the "working group "whether or not, in the data published after the plenary sessions of the team in February and June and October / October each year. Iran has been the subject of these statements since 2008, when the "working group" to revise its operations on dealing with "uncooperative authorities, which constitute a high risk."

Yet, despite the lifting of US and European Union sanctions related to Iran's nuclear weapons, but the intergovernmental organization based on consensus not revise the statement issued three times a year since it called upon Member States to impose counter-measures on Iran in February / February 2009. the statement urged Iran again on "shortcomings AML / CFT wash immediately and effectively address," pointing out that if Iran failed to do so, he would think "working group" to call on Member States to strengthen their procedures anti Iran in its meeting in June 2016.

Repercussions on banks

As for foreign financial institutions that are considering the renewal of ties with Iranian banks, there are real repercussions for the continuation of the "Working Group on financial operations" in the classification of Iran as an authority with high risk and calls repeated to take defensive action, both in terms of illicit funding or regulatory risk. Criteria "working group" related, which is now followed by the Member States in the fourth round of mutual evaluations, calling for regulators (regulators) to the banks claim to participate in the promotion of due diligence when dealing with high-risk authorities. These Aaltdabir require a lot of time and resources to determine the compliance of banks.

These procedures include obtaining additional information about the customer and the beneficial owner and the nature of the employment relationship and source of funds or use. Although it is aimed at reducing the risks that may be exposed to financial institutions by tackling illegal transactions unintentionally, even these measures may not be enough for financial institutions when it comes to Iranian banks, which, according to the US Department of the Treasury, "participates voluntarily in deceptive practices to disguise the illicit behavior. "

The criteria for "working group on financial operations" provides a range of counter-measures to mitigate the risk that regulators could be adopted in the framework of skips promote due diligence, such as the imposition of additional conditions on reporting for banks that work with high-risk authorities, and to prevent financial institutions from relying based on third parties in the country to complete the verification of the factors to be your customers, and even the reduction of trade relations or financial transactions with the state have been identified [in accordance with certain conditions.

In fact, it is referred to call "working group on financial operations" to take countermeasures to Iran in the "Results" contained in section 104 of the "comprehensive penal code, accountability and divestment on Iran," a legal basis to impose secondary sanctions by the United States on Iran. Despite the ease of secondary sanctions, including more than 400 from the Iranian authorities as part of the nuclear deal through removed from lists of US sanctions, but more than 200 hand, including the important Iranian economic entities such as «Islamic Revolutionary Guard», are still listed on the Regulations and subject to secondary sanctions.

This legislation, which called first to isolate foreign financial institutions - to participate in big deals with the Iranian authorities classified on the list - for the financial system in the United States, refers to a meeting held in February 2010 in which he urged the "working group" of Member States to apply countermeasures "to protect the international financial system from the ongoing and big money and the risk of terrorist financing operations originating in Iran laundering." This phrase is still contained in the statement of "working group," even after the implementation of the deal with Iran.

The new statement for "working group on financial operations", which kept the pressure on Member States for the "protection of the use of correspondent relations to overcome the anti and practices of the measures of risk mitigation or evade them," came just days after the confirmation of "Global Financial Communications Society between banks "(" Swift ") that the Iranian banks have restored communication with secure financial messaging program has been cut off EU sanctions communication operations in March / March 2012. even with the restoration of messaging services, the" working group "rating to Iran as the power high-risk vulnerable to countermeasures for "working group on financial operations" will continue to complicate efforts by Iranian banks to restore relations upon which the majority of the messages "the global financial communications association between banks," with reporters.

In spite of giving Iran access to about $ 100 billion of their funds, which has been denied in the past and booked abroad, the Iranian banks, in order to use these funds to make purchases and to engage in international trade, you will have to re-correspondence with the banking relationships in countries It is one of the major trading partners. And it keeps foreign correspondents for banks and deposits denominated in foreign currencies and acting as agents for non-resident banks and believe the letters of credit and completing other financial transactions on behalf of the reporters.

As for beyond the promotion of due diligence, which was discussed above, the recommendation of the "working group" on the [operations] banking correspondence calling for regulators to banks claim, at least, to collect sufficient information to assess the quality of controls to combat money / CFT wash in the enterprise messaging and quality supervision, an area of ​​Iranian banks are still in breach of it.

Next steps

In a report Article IV, issued in January 2015, as part of a policy of economic and financial developments in the country evaluated, the "IMF" recommendations to Iran, saying that "strengthen the framework for anti-money / CFT laundering would facilitate the re-integration into the the global economic system, and to reduce transaction costs, and reduce the size of the informal sector.

" In this context, Iranian officials have acknowledged, including the "central bank" officials and chief executive officer of the country in the "International Monetary Fund", the weaknesses in the Iranian banking system, which could prevent the renewal of foreign participation and foreign investment, considering that the Iranian banks 'old' faces a legacy of "the weakness of risk management and supervision is adequate."

Regulators Iranian limited steps have been taken over the past decade to improve controls to combat money / combating the financing of terrorism in the country laundering. In a statement, "Working Group on financial operations" in the October / October 2008, "the team," praised the adoption by Iran of the law against money laundering, which was approved by the Shura Council in January 2008, but the statement referred to "the absence of similar efforts in relation to terrorism. "

The draft anti-terrorism financing law, which was approved by Parliament in 2012 has remained stuck with the failure of the Iranian judiciary to international standards, according to the "International Monetary Fund". He urged the report, "International Monetary Fund" in the December / December Iranian authorities specifically on the adoption of a law criminalizing the financing of terrorism and the right to include the implementation of the United Nations sanctions imposed on terrorism mechanisms.

Iran's recent official statements have committed themselves to strengthening anti-money / combating the financing of terrorism laundering system, including adhering to the "Eurasia Group", which is about an effective entity for "working group on financial operations" based in Moscow, and the request for an evaluation by " The international Monetary Fund "system to combat money / combating the financing of terrorism and laundering according to the criteria" working group on financial operations. "

These are the first steps in the right of Iran to work with the "working group" to improve their position in the fight against AML / CFT laundering. But the process will be long, not stand out a lot of data that indicate that the actual work has begun. Despite the confirmation for "working group" Executive Secretary "Agence France-Presse," after the team plenary meeting in February that Iran had "expressed willingness" to start the cooperation, but the latest statement did not acknowledge Iran's efforts to deal with the team as I did Tehran in the past (in February 2010).

All of this means that despite the easing of sanctions and re-admission to the "global financial contacts between the Association of Banks," there are still significant obstacles to those banks that are looking to have financial relations with Iran. At a minimum, banks will continue to face illegal financing and regulatory risks, and both conditions as a result of Iran's work itself.