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Iran: IMF Evaluates Iran’s Legislative and Institutional Efforts to Combat Money Laundering and Terrorism Financing

(Apr. 13, 2018) In its March 2018 report assessing the economic situation in Iran, the International Monetary Fund (IMF) found that Iran had made progress in reforming its policies on combating money laundering and the financing of terrorism and was taking steps to improve the country’s connections to the international banking and trade system. (IMF, Islamic Republic of Iran: Selected Issues 24–29, IMF Country Report No. 18/94 (Mar. 7, 2018), IMF website; IMF Highlights Iran’s AML/CFT Progress, FINANCIAL TRIBUNE (Apr. 5, 2018) (by subscription).)

Background of Reforms

Iran’s anti-money laundering (AML) law (2008) and bylaw (2010) criminalized money laundering, established a ministerial coordination council and Financial Intelligence Unit, and instituted preventive measures for financial institutions and certain nonfinancial businesses and professions.  Iran also adopted a law on combating the financing of terrorism (CFT) in 2016.

The Financial Action Task Force on Money Laundering (FATF), an intergovernmental organization established to combat international money-laundering and terrorist financing, suspended previously instituted countermeasures against Iran in June 2016 in response to Iran’s high-level political commitment to reform its AML/CFT framework. Iran, however, remains on the list of Non-Cooperative Countries or Territories issued by the FATF. (Mohammad Affianian, Iran Accelerating Reforms Ahead of FATF Deadline, FINANCIAL TRIBUNE (Jan. 28, 2018); Who We Are, FATF (last visited Feb. 1, 2018); Olga Balakina et al., Bank Secrecy in Offshore Centres and Capital Flows: Does Blacklisting Matter? 2 (Baffi Carefin Centre, Working Paper No. 2016-20, May 2016), Research Papers in Economics website. )

Since June 2016, Iran has established a cash declaration regime at its border and introduced draft amendments to its AML and CFT laws in Parliament to make those laws conform to international standards. (IMF Highlights Iran’s AML/CFT Progress, supra.) Other efforts by Iran to strengthen its AML/CFT framework include its ratification on January 24, 2018, of the United Nations Convention Against Transnational Organized Crime (UNTOC), and the Central Bank of Iran’s (CBI’s) recent approval of several preventive measures to be implemented by financial institutions, including customer due diligence and collecting beneficial ownership information. (Iran Takes Initial Step to Join UNTOC, TEHRAN TIMES (Jan. 24, 2018); IMF Highlights Iran’s AML/CFT Progress, supra.) The government had pushed all these reform measures in an effort to have Iran removed from the FATF list of Non-Cooperative Countries or Territories by the FATF’s deadline of January 31, 2018. (Affianian, supra.)

However, several items contained in the FATF Action Plan, including amendments to the current AML/CFT laws and a bill regarding Iran’s accession to the International Convention for the Suppression of the Financing of Terrorism (currently being debated at the powerful Majlis (Parliament) National Security and Foreign Policy Commission), remained incomplete as of the deadline. (Maziar Motamedi, Iran Traces Political Motives in FATF Decision, FINANCIAL TRIBUNE (Feb. 24, 2018).)

Amendment of the Law on Combating the Financing of Terrorism

Two Iranian parliamentary commissions are currently debating bills on reforming the country’s policies on money laundering and the financing of terrorism. (Affianian, supra.) The Parliament passed the Law on Combating the Financing of Terrorism on March 17, 2016 (Islamic Parliament Research Center website (in Persian)), and the Cabinet approved some amendments to this Law for debate in Parliament on October 29, 2017. (Executive Bylaw of the Law on Combating the Financing of Terrorism, Oct. 29, 2017, Laws and Regulations Portal of Iran (in Persian).)

The amended version of the Law on Combating the Financing of Terrorism includes a provision requiring “all natural and legal entities, including non-governmental and charity organizations,” to register identifying information on their clients in their systems and refrain from providing services to those on sanction lists. (Iran Gov’t Notifies CFT Law, FINANCIAL TRIBUNE (Nov. 7, 2017).) In addition, these entities must assess the risk status of their clientele on the basis of “their background, occupation, income and asset sources, original birthplace and current place of residence, [and] services they wish to use,” among other criteria, and refuse to offer services to clients who cannot be screened through “reliable independent data sources.” (Id.) Furthermore, they are required to make increased efforts to identify risky clients on the basis of guidelines provided by the High Council of Anti-Money Laundering and fully identify account beneficiaries. (Id.)

The amended version of the Law also places restrictions on financial institutions, prohibiting them from “establishing correspondent ties with shell banks” and maintaining correspondent ties with banks that work with shell banks. (Id.) Lastly, the amendment directs the High Council of Anti-Money Laundering to institute measures to prevent nongovernmental and charity organizations from engaging in terrorist financing. (Id.)

IMF Recommendations

In its assessment, the IMF made recommendations to Iran aimed at further restoring confidence in the its financial system, improving Iran’s status with the FATF, and accelerating Iran’s reintegration into international financial and trade systems. The most critical recommendation is that Iran adopt and publish before the FATF’s June 2018 plenary meeting the comprehensive legislative and regulatory framework based on the FATF Action Plan agreed to by Iranian authorities. (IMF Highlights Iran’s AML/CFT Progress, supra.)

Other recommendations by the IMF include

  • conducting a National Risk Assessment on money laundering and terrorism financing to enhance authorities’ understanding of risks and development of appropriate policies;
  • improving AML/CFT risk-based supervision of banks and other financial institutions and imposing relevant corrective actions;
  • the issuing by the CBI of guidance to financial institutions to improve compliance in identifying beneficial owners and domestic politically exposed persons (PEPs) and applying effective preventive measures;
  • developing mechanisms (such as a public registry for beneficial ownership) to ensure the transparency of and timely access to accurate and current information of all types of entities established in Iran;
  • improving the system of declaration of assets of senior public officials in line with international best practices;
  • establishing an autonomous anti-corruption agency with law enforcement powers to prioritize the pursuit, prosecution, and adjudication of corruption cases without outside interference; and
  • improved domestic coordination between between AML and anti-corruption frameworks. (Id.)