Iran is subject to a FATF call on its members and other jurisdictions to apply enhanced due diligence measures proportionate to the risks arising from the jurisdiction.
Latest FATF Statement - 18 October 2019
In June 2016, the FATF welcomed Iran’s high-level political commitment to address its strategic AML/CFT deficiencies, and its decision to seek technical assistance in the implementation of the Action Plan.
In November 2017, Iran established a cash declaration regime. In August 2018, Iran has enacted amendments to its Counter-Terrorist Financing Act and in January 2019, Iran has also enacted amendments to its Anti-Money Laundering Act. The FATF recognises the progress of these legislative efforts. The bills to ratify the Palermo and Terrorist Financing Conventions have passed Parliament, but are not yet in force. As with any country, the FATF can only consider fully enacted legislation. Once the remaining legislation comes fully into force, the FATF will review this alongside the enacted legislation to determine whether the measures contained therein address Iran’s Action Plan, in line with the FATF standards.
Iran’s action plan expired in January 2018. In October 2019, the FATF noted that there are still items not completed and Iran should fully address: (1) adequately criminalizing terrorist financing, including by removing the exemption for designated groups “attempting to end foreign occupation, colonialism and racism”; (2) identifying and freezing terrorist assets in line with the relevant United Nations Security Council resolutions; (3) ensuring an adequate and enforceable customer due diligence regime; (4) clarifying that the submission of STRs for attempted TF-related transactions are covered under Iran’s legal framework; (5) demonstrating how authorities are identifying and sanctioning unlicensed money/value transfer service providers; (6) ratifying and implementing the Palermo and TF Conventions and clarifying the capability to provide mutual legal assistance; and (7) ensuring that financial institutions verify that wire transfers contain complete originator and beneficiary information.
The FATF decided in June 2019 to call upon its members and urge all jurisdictions to require increased supervisory examination for branches and subsidiaries of financial institutions based in Iran. In line with the June 2019 Public Statement, the FATF decided this week to call upon its members and urge all jurisdictions to introduce enhanced relevant reporting mechanisms or systematic reporting of financial transactions; and require increased external audit requirements for financial groups with respect to any of their branches and subsidiaries located in Iran.
If before February 2020, Iran does not enact the Palermo and Terrorist Financing Conventions in line with the FATF Standards, then the FATF will fully lift the suspension of counter-measures and call on its members and urge all jurisdictions to apply effective counter-measures, in line with recommendation 191.
While acknowledging that Iran has recently adopted the AML-CFT bylaw, which the FATF has not yet reviewed, the FATF expresses its disappointment that the Action Plan remains outstanding. The FATF expects Iran to proceed swiftly in the reform path to ensure that it addresses all of the remaining items by completing and implementing the necessary AML/CFT reforms.
Iran will remain on the FATF Public Statement until the full Action Plan has been completed. Until Iran implements the measures required to address the deficiencies identified with respect to countering terrorism-financing in the Action Plan, the FATF will remain concerned with the terrorist financing risk emanating from Iran and the threat this poses to the international financial system. The FATF, therefore, calls on its members and urges all jurisdictions to continue to advise their financial institutions to apply enhanced due diligence with respect to business relationships and transactions with natural and legal persons from Iran, consistent with FATF Recommendation 19, including: (1) obtaining information on the reasons for intended transactions; and (2) conducting enhanced monitoring of business relationships, by increasing the number and timing of controls applied, and selecting patterns of transactions that need further examination.
Compliance with FATF Recommendations
Iran has not yet undertaken a Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards.
US Department of State Money Laundering assessment (INCSR)
Iran is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes.
In 2018, the United States ceased its participation in the Joint Comprehensive Plan of Action (JCPOA), and directed the re-imposition of all U.S. sanctions lifted or waived in connection with the JCPOA.
Iran has a large underground economy, spurred by uneven taxation, widespread smuggling, sanctions evasion, currency exchange controls, and a large Iranian expatriate community. Pervasive corruption continues within Iran’s ruling and religious elite, government ministries, and government-controlled business enterprises.
Iran remains a major transit route for opiates smuggled from Afghanistan through Pakistan to the Persian Gulf, Turkey, Russia, and Europe. At least 40 percent of opiates leaving Afghanistan enter or transit Iran. Most opiates and hashish are smuggled into Iran across its land borders with Afghanistan and Pakistan, although maritime smuggling has increased as traffickers seek to avoid Iranian border interdiction efforts. In 2015, Iran’s minister of interior estimated the combined value of narcotics trafficking and sales in Iran at $6 billion annually.
In 2011, the U.S. government identified Iran as a state of primary money laundering concern pursuant to Section 311 of the USA PATRIOT Act. Additionally, the FATF has repeatedly warned of the risk of terrorist financing posed by Iran and the threat this presents to the international financial system, in the past urging jurisdictions worldwide to impose countermeasures to protect their financial sectors from illicit finance emanating from Iran. In June 2016, Iran made a high-level political commitment to the FATF to implement an action plan to address deficiencies. Although it has made some progress, Iran has not yet completed its action plan; all plan deadlines have now expired. In October 2018, FATF renewed its public statement on Iran.
On 10 January 2020, the US confirmed that "After an initial wind-down period, the United States will be fully reinstating its nuclear-related sanctions waived under that agreement, including banning foreign subsidiaries of U.S. companies from dealing with Iran and imposing secondary sanctions on foreign companies that engage in certain Iran-related transactions."
On November 2018, President Trump announced that the remaining sanctions that had been lifted or waived pursuant to the JCPOA come back into full effect on November 5, 2018. OFAC has published updated additional frequently asked questions (FAQs) that provide guidance on the sanctions that are to be reimposed and the relevant wind-down periods.
On 6 August 2018, President Trump announced the Executive Order, “Reimposing Certain Sanctions With Respect to Iran”. Frequently Asked Questions and Amendments to Existing Iran-related Frequently Asked Questions were published
On 8 May, 2018, President Trump announced that the United States is withdrawing from the Joint Comprehensive Plan of Action, under which certain sanctions were suspended in exchange for limitations on Iran’s nuclear program.
After an initial wind-down period, the United States will be fully reinstating its nuclear-related sanctions waived under that agreement, including banning foreign subsidiaries of U.S. companies from dealing with Iran and imposing secondary sanctions on foreign companies that engage in certain Iran-related transactions.
Sanctions Fully Effective August 6.
After a 90-day wind-down period, which ends on August 6, 2018, non-U.S. persons will once again become potentially subject to secondary sanctions for certain transactions involving the following activities:
Purchase or acquisition of U.S.-dollar banknotes by the government of Iran;
Trade with Iran in gold or precious metals;
Sale or supply to Iran of coal, certain metals and software for integrating industrial processes;
Significant transactions related to the purchase or sale of Iranian rials, or the maintenance of significant funds denominated in rials outside Iran;
Purchase of, subscription to or facilitation of issuance of Iranian sovereign debt; and
Sale or supply of goods and services to Iran’s automotive sector.
Certain primary sanctions against Iran will also be reimposed on the same day:
General and specific licenses related to export of aircraft and aircraft parts from the United States to Iran will be revoked; and
Importation of Iranian carpets and foodstuffs to the United States will once again be banned.
Sanctions Fully Effective November 4.
After a 180-day wind-down period ending on November 4, 2018, General License H, which authorizes foreign entities owned or controlled by a U.S. person to engage in certain dealings with Iran, will come to an end. This means that any transactions by such subsidiaries with persons in Iran must be brought to a close by that date.
On the same day, the remainder of the nuclear-related secondary sanctions become effective, including sanctions targeting foreign persons engaged in:
Certain transactions with Iran’s port operators, shipping and shipbuilding sectors;
Certain petroleum-related transactions, including the purchase of petroleum, petroleum products or petrochemical products from Iran;
Significant transactions by foreign financial institutions with the Central Bank of Iran and Iranian financial institutions, as well as the provision of financial messaging services to those institutions;
Insurance, reinsurance and underwriting services related to the Iranian petroleum sector and certain other activities;
Certain investments in and other dealings involving Iran’s energy sector; and
Significant dealings with the government of Iran and entities that it controls. In this regard, numerous Iranian state-owned entities will be moved from the “Executive Order 13,599 List,” created after the JCPOA was adopted, back to the Specially Designated Nationals List.
On October 11, 2018, FinCEN published the following advisory: -
Advisory on the Iranian Regime’s Illicit and Malign Activities and Attempts to Exploit the Financial System
On 16 January 2016, the UN, USA and EU lifted all nuclear-related economic and financial sanctions against Iran. This follows verification by the International Atomic Energy Agency (IAEA) on 16 January 2016 that Iran has implemented the agreed nuclear-related measures as set out in the Joint Comprehensive Plan of Action (JCPOA).
On 14 July 2015, China, France, Germany, Russia, the United Kingdom and the United States, with the High Representative of the European Union for Foreign Affairs and Security Policy, agreed the JCPOA aimed at ensuring the exclusively peaceful nature of the Iranian nuclear programme while providing for the comprehensive lifting of all UN Security Council sanctions as well as EU and US sanctions related to Iran's nuclear programme following an agreed sequence of actions.
The Council on 18 October 2015 adopted the legal acts providing for the lifting of these sanctions upon verification by the IAEA of the implementation of Iran's commitments under the JCPOA.
A limited number of EU sanctions against Iran were already suspended after China, France, Germany, Russia, the United Kingdom and the United States, with the High Representative of the European Union for Foreign Affairs and Security Policy, reached an interim agreement with Iran; the Joint Plan of Action of 24 November 2013 set out an approach towards reaching a long-term comprehensive solution to the Iranian nuclear issue. The lifting of all EU economic financial sanctions taken in connection with the Iranian nuclear programme will supersede this limited sanctions relief.
Proliferation-related sanctions and restrictions will remain in place after Implementation Day. These concern the arms embargo, sanctions related to missile technology, restrictions on certain nuclear-related transfers and activities, provisions concerning certain metals and software which are subject to an authorisation regime, as well as related listings which remain in force after Implementation Day.
Measures concerning inspection of cargoes to and from Iran and those related to the provision of bunkering or ship supply services continue to apply after Implementation Day in relation to items which will continue to be prohibited.
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 28
World Governance Indicator – Control of Corruption 20
Companies operating or planning to invest in Iran face a very high risk of corruption. A powerful system of political patronage, nepotism and cronyism pervades all sectors of the economy. Irregular payments and bribes are often exchanged to obtain services, permits or public contracts. The Rouhani government has addressed the need to curtail corruption but fails to exert enough pressure on hardliners in control of key state institutions, including the Islamic Revolutionary Guards Corps (IRGC) and the judiciary. While there are multiple laws in place that criminalize various forms of corruption in both the public and private sectors, they are not effectively enforced in practice and impunity is pervasive. For further information - GAN Integrity Business Anti-Corruption Portal
Iran's economy is marked by statist policies, inefficiencies, and reliance on oil and gas exports, but Iran also possesses significant agricultural, industrial, and service sectors. The Iranian government directly owns and operates hundreds of state-owned enterprises and indirectly controls many companies affiliated with the country's security forces. Distortions - including inflation, price controls, subsidies, and a banking system holding billions of dollars of non-performing loans - weigh down the economy, undermining the potential for private-sector-led growth.
Private sector activity includes small-scale workshops, farming, some manufacturing, and services, in addition to medium-scale construction, cement production, mining, and metalworking. Significant informal market activity flourishes and corruption is widespread.
Fiscal and monetary constraints, following the expansion of international sanctions in 2012 on Iran's Central Bank and oil exports, significantly reduced Iran's oil revenue, forced government spending cuts, and sparked a sharp currency depreciation. Iran’s economy contracted for the first time in two decades during both 2012 and 2013, but growth resumed in 2014. Iran continues to suffer from high unemployment and underemployment. Lack of job opportunities has prompted many educated Iranian youth to seek employment overseas, resulting in a significant "brain drain."
In June 2013, the election of President Hasan RUHANI generated widespread public expectations of economic improvement and greater international engagement. Almost two years into his term, RUHANI has achieved some success, including reining in inflation and, in July of 2015, securing the promise of sanctions relief for Iran by signing the Joint Comprehensive Plan of Action (JCPOA) with the P5+1. The JCPOA, which severely limits Iran’s nuclear program in exchange for unfreezing Iranian assets and reopening Iran to international trade, should bolster foreign direct investment, increase trade, and stimulate growth. In spite of RUHANI’s efforts, Iran’s growth was tepid in 2015, and significant economic improvement resulting from sanctions relief will take months or years to materialize.
Agriculture - products:
wheat, rice, other grains, sugar beets, sugarcane, fruits, nuts, cotton; dairy products, wool; caviar
petroleum, petrochemicals, gas, fertilizers, caustic soda, textiles, cement and other construction materials, food processing (particularly sugar refining and vegetable oil production), ferrous and nonferrous metal fabrication, armaments
Exports - commodities:
petroleum 80%, chemical and petrochemical products, fruits and nuts, carpets, cement, ore
Exports - partners:
China 22.2%, India 9.9%, Turkey 8.4%, Japan 4.5% (2015)
Imports - commodities:
industrial supplies, capital goods, foodstuffs and other consumer goods, technical services
Imports - partners:
UAE 39.6%, China 22.4%, South Korea 4.7%, Turkey 4.6% (2015)
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