Financial regulations will not stop Iran illicitly funding terrorist militant groups abroad, said experts, as the deadline for Iran to comply by global money laundering rules approaches this month.
Iran’s President Hassan Rouhani has called for Tehran to stick to rules set by the Paris-based global finance watchdog Financial Action Task Force (FATF), an unpopular move with some senior Iranian authorities, to protect ties between the sanctions-hit country and international banks.
Rouhani supports currently unpassed laws that would bring Iran into FATF compliance. But experts say that even if these laws pass, it would not stop the regime from funding regional terror.
“Tehran has carved out exceptions in the bills which allow Tehran to continue what it has been doing … The bills have created loopholes for Tehran to continue funding terrorism and bypass sanctions,” said Saeed Ghasseminejad, a senior Iran and financial economics adviser at the Foundation for Defense of Democracies (FDD).
Last month the Iranian parliament passed a domestic law ostensibly aimed at curbing money laundering which in fact had a loophole that allowed account holders to obscure their identity, allowing sanctioned individuals and companies to conceal themselves.
This law is the latest example of how the regime continues to defy sanctions, international norms, and laws on money laundering and terrorism financing.
Money laundering and sanctions
Authorities have increasingly turned to money laundering as sanctions have devastated the Iranian economy. Last month the Institute of International Finance (IFF) estimated that the economy will fall into an even deeper recession, contracting 7.2 percent for the current financial year.
US sanctions have hit the country’s oil sector particularly hard. Crude oil exports have dropped over 85 percent in recent months to 0.4 million barrels per day (bpd) in recent months, down from highs of 2.8 million bpd in May 2019. These figures are based on official numbers, which may understate exports as Iranian authorities have repeatedly sought to illegally export oil and avoid sanctions.
The US special representative for Iran, Brian Hook, told Al Arabiya last year that oil sanctions on Iran alone will deny the regime $50 billion dollars in revenue annually.
In this context, the country has increased money laundering activities in a bid to avoid sanctions. In November, Foreign Minister Mohammad Javad Zarif said that money laundering in Iran amounts to billions of dollars.
Experts pointed out that this Iranian money laundering is far from new.
“The Islamic Republic government agencies have historically engaged in money laundering in order to finance its non-state allies and proxies outside of Iran,” said Ali Alfoneh, senior fellow at the Arab Gulf States Institute in Washington.
Iran’s ability to take advantage of the legitimate financial system, coupled with a control of plethora of black-market actors, has permitted Iran to underwrite terror and aggression worldwide, added Behnam Ben Taleblu, a senior fellow at the FDD.
“That is how a country a myriad of financial problems remains the world’s foremost state sponsor of terror,” he said.
Rouhani and Khamenei split on FATF compliance
Iran’s rulers are divided on the issue, despite foreign businesses saying that compliance with FATF is vital for Tehran to attract investors and avoid US penalties.
Iranian President Rouhani last week said Tehran should stick to the FATF rules, but senior clerics have stalled the passing of key bills.
“Our national interests should not be ignored, and we should not let [US President Donald] Trump and those terrorists in the White House cut Iran’s relationship with international Banks,” said Rouhani.
Iran’s parliament has passed four bills required by FATF. However, two of the bills have been held up by Iran’s legislative Guardian Council and advisory Expediency Council, despite initial approval by lawmakers.
A member of the Expediency Council said in January that the council has rejected the Combating the Financing of Terrorism (CFT) bill, which would link Iran to Palermo and Terrorist Financing Conventions aimed at curbing transnational illicit financing.
These councils’ opposition to the laws is influenced by Iran’s Supreme Leader Ali Khamenei, who has yet to make a public decision on their adoption, said experts.
“It is not a foregone conclusion that Supreme Leader Ali Khamenei will give his blessing to ratifying the Palermo Convention. If he does not, then the Expediency Council is highly unlikely to do so, whether now or later,” said John Calabrese, Scholar in Residence at the Middle East Institute, where he is director of the institute’s project on The Middle East and Asia.
The council’s deadline to approve the CFT bill had ended, Iranian politician Ahmad Tavakoli told Iran’s semi-official ISNA news agency, adding that the deadline will not be extended and that the case has been closed.
This opposition to complying by money laundering norms is unlikely to disappear, according to experts.
“This [opposition] indicates a cognizance by some elites of how essential Iran’s bad business practices are to the regime,” Taleblu concluded.