The Financial Action Task Force (FATF), the intergovernmental organization that sets global standards to combat money laundering and finance for terrorism and proliferation, had a clear message for financial institutions last week when itdeclinedto remove the Islamic Republic of Iran from its high-risk blacklist: Iran may say it’s open forbusiness but it’s not yet safe to do it.
FATF’s directive was a clear rejection of the Islamic Republic’s lobbying campaign to legitimize itself as a responsible financial actor: “Until Iran implements the measures required to address the deficiencies identified in the Action Plan, the FATF will remain concerned with the terrorist financing risk emanating from Iran and the threat this poses to theinternationalfinancial system.”
FATF urged its members and all jurisdictions to “advise their financial institutions to apply enhanced due diligence tobusinessrelationships and transactions” with Iran.
This enhanced due diligence will prove a nightmare for businesses for important reasons.
First, many Iranian companies — including entities such as the Islamic Revolutionary Guard Corps (IRGC) which is sanctioned by the U.S. and the EU — use nontransparent corporate structures and shadow companies to hide their true ownership interests. The IRGC controls an estimated 30% of Iran’s economy. Businesses should be concerned that they may be inadvertently dealing with entities owned or controlled by sanctioned entities or those that may become sanctioned when their ties to the IRGC become apparent.
Iran will use terrorism as it wishes
Second, Iran has continued its support for terrorist groups including Hezbollah, Palestinian Islamic Jihad, Hamas and sanctioned militias throughout the Middle East. It provides direct support to the Syrian regime through the IRGC and Hezbollah, and arms, finances and trains foreign Shiite fighters to support Syrian President Bashar Assad’s brutal five-year war that has killed almost 500,000 people.
Third, Tehran’s efforts to pass laws that purport to addressinternationalcounter-terrorism financing standards are hollow and don’t conform to FATF standards. Iran’s definition of terrorism, for example, excludes groups “attempting to end foreign occupation, colonialism and racism,” and has other language used to justify terrorism against America and its allies. Iran’s leaders are telling the world “we will arm and bankroll whomever we want but won’t call them terrorists.”
Businesses should make no mistake about Iran’s commitment to use terrorism as it wishes. The Obama State DepartmentrecognizesIran as the world’s leading state sponsor of terrorism.
On Friday, Hezbollah’s Secretary General Hassan Nasrallah publiclyannounced,
“We are open about the fact that Hezbollah’s budget, its income, its expenses, everything it eats and drinks, its weapons and rockets, come from the Islamic Republic of Iran.”