Is Khamenei Softening His Stance on Iran Joining FATF Regulations?

When discussing Iran’s potential accession to international monetary conventions, a significant shift is being observed within the country’s political landscape. The issue has sparked intense debate, particularly as the Expediency Discernment Council (EDC) revisits the controversial topic of compliance with anti-money laundering and terrorism financing conventions. This review not only faces opposition from hardline factions but also raises questions about the Supreme Leader’s evolving stance.

The Expediency Discernment Council, created to mediate disputes between the parliament and the Guardian Council, has recently been authorized by Supreme Leader Ali Khamenei to assess Iran’s position on these critical international agreements. In a recent announcement, Economy Minister Naser Hemmati revealed on social media that Khamenei has approved the review of Iran’s accession to various international conventions aimed at combating money laundering and terrorist financing. Despite this, Khamenei has not publicly commented on the matter as of yet.

The Financial Action Task Force (FATF) is an intergovernmental organization dedicated to combating money laundering, terrorist financing, and threats to the global financial system. Iran was initially placed on FATF’s blacklist due to its inability to meet international standards in these areas. Observers speculate that the decline of Iran’s economy, combined with increasing pressure from the presidential administration and other political figures in Tehran, may have prompted Khamenei to reconsider the issue.

In a recent interview with Euro News, Asghar Fakhrieh-Kashan, a former deputy of Iran’s Central Bank, suggested that President Masoud Pezeshkian might have reached an understanding with Khamenei regarding this contentious topic.

Role of the Expediency Discernment Council

The Expediency Discernment Council plays a crucial role in mediating between the Iranian Parliament and the Guardian Council, particularly when legislation is approved by the former but rejected by the latter. The Council’s chair and members are appointed by Khamenei, which adds a layer of complexity to its operations.

Currently, the focus is on two key pieces of legislation necessary for Iran to be removed from the FATF blacklist:

• Palermo Convention: Aims to combat transnational organized crime.
• CFT Act: Focuses on combating the financing of terrorism.

Although the Iranian Parliament approved these laws in 2018, the Guardian Council rejected them, citing conflicts with “resistance economy guidelines,” national security policies, and adherence to Sharia law. The matter has been stalled at the EDC since November 2018, indicating that Khamenei’s directive or consent is likely behind the ongoing inaction. To finalize the approval of the two pieces of legislation, a two-thirds majority of the EDC’s 43 current members is required.

Support and Opposition Regarding FATF Accession

The debate surrounding Iran’s accession to FATF-required conventions has been fraught with tension since 2016. This is largely due to the stringent restrictions Iran faces on international banking and foreign trade resulting from its blacklist status. Pezeshkian has consistently advocated for accession to FATF conventions as a critical step to prevent financial isolation.

On the other hand, hardliners such as former nuclear negotiator Saeed Jalili, who contested Pezeshkian in the recent snap presidential elections, maintain a strong influence within the EDC. Supporters of these hardliners express staunch opposition to any moves towards compliance with FATF standards.

Mehdi Koochakzadeh, an ultra-hardliner lawmaker, vocally condemned efforts to join anti-money laundering conventions, equating them to “approving servitude to America.” A letter signed by 120 lawmakers recently urged the EDC Chairman, Sadegh Amoli-Larijani, to reject accession to the Palermo and CFT conventions, arguing that such moves would exacerbate the existing problems caused by sanctions and enable the US to better uncover Iran’s circumvention methods.

Notably, reports indicate that approximately half of the EDC members have a history of opposing not only these specific laws but Iran’s accession to all FATF-required conventions. However, a subtle indication from Khamenei could potentially sway some of their opinions.

Significance of FATF Legislation Decisions

Decisions regarding FATF-related legislation are critical for Iran as the organization recommends “enhanced due diligence” for transactions involving countries on its blacklist. This makes financial dealings with Iran prohibitively expensive, risky, and time-consuming for international institutions. Furthermore, countries may impose countermeasures, including the termination of banking relationships and additional audit requirements.

Addressing FATF-related issues could reduce these barriers, thereby facilitating greater access to international financial markets and alleviating the economic pressure currently facing Iran.

Steps Taken by Iran to Meet FATF Requirements

In 2016, Iran, under President Hassan Rouhani, agreed to an FATF action plan aimed at transitioning from the blacklist to the gray list. However, by 2020, the FATF reinstated Iran on its blacklist due to non-compliance with the action plan.

The FATF has since urged its members to maintain enhanced due diligence with respect to any business relationships or transactions involving Iranian entities. Of the 41 recommendations made to Iran in 2016, 37 were accepted, including the introduction of a cash declaration regime. However, the counter-terrorism financing requirement remains a significant barrier, as hardliners argue it would restrict Iran’s ability to support proxy groups abroad.