IRAN
Summary
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Sanctions

UN, EU and US sanctions are in force.

FAFT AML Deficient

Yes

Higher Risk Areas

 

Compliance with FATF 40 + 9 Recommendations (mutual evaluation not yet undertaken)

US Dept of State Money Laundering assessment

Weakness in Government Legislation to combat Money Laundering

Supporter of / Safe Haven for International Terrorism

Not on EU White list equivalent jurisdictions

Corruption Index (Transparency International & W.G.I.)

World Governance Indicators (Average Score)

Failed States Index (Political Issues)(Average Score)

 

 

ANTI-MONEY LAUNDERING

 

FATF Status

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 - 24 February 2017

In June 2016, the FATF welcomed Iranís adoption of, and high-level political commitment to, an Action Plan to address its strategic AML/CFT deficiencies, and its decision to seek technical assistance in the implementation of the Action Plan. Accordingly, in June 2016, the FATF suspended counter-measures for twelve months in order to monitor Iranís progress in implementing the Action Plan. If the FATF determines that Iran has not demonstrated sufficient progress in implementing the Action Plan at the end of that period, FATFís call for counter-measures will be re-imposed. If Iran meets its commitments under the Action Plan in that time period, the FATF will consider next steps in this regard.

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 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 to business relationships and transactions with natural and legal persons from Iran, consistent with FATF Recommendation 19. The FATF urges Iran to fully address its AML/CFT deficiencies, in particular those related to terrorist financing.

The FATF will continue to engage with Iran and closely monitor its progress.

 

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.

OVERVIEW

 

Iran has a large underground economy, spurred by uneven taxation, widespread smuggling, sanctions evasion, and currency exchange controls. There is also pervasive corruption within Iranís ruling and religious elite, government ministries, and government-controlled business enterprises. Although Iran is not currently a financial hub, with the lifting of nuclear-related sanctions against Iran under the Joint Comprehensive Plan of Action (JCPOA), Iran could expand its regional financial significance, as investors and companies explore opportunities for new investment in and trade with Iran. To increase its financial standing, however, Iran must implement significant reforms in its financial sector, which is opaque and poorly regulated.

 

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 for domestic consumption or transport to consumers in Russia and Europe. 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, Iranís Minister of Interior estimated the combined value of narcotics trafficking and sales in Iran is $6 billion annually.

 

On November 21, 2011, the U.S. Government identified Iran as a state of primary money laundering concern pursuant to Section 311 of the USA PATRIOT Act. The FATF has repeatedly warned of Iranís failure to address the risks of terrorist financing, urging jurisdictions around the world 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 its strategic AML/CFT deficiencies. In response, although Iran remains on FATFís Public Statement, FATF suspended its call for countermeasures for 12 months while Iran implements its action plan.

 

VULNERABILITIES AND EXPECTED TYPOLOGIES

 

Iranís merchant community makes active use of MVTS, including hawala (sarrafi in Persian) and moneylenders. Leveraging the worldwide hawala network, Iranians are able to easily, securely, and inexpensively make both legitimate and illegitimate money transfers to Europe, North America, and beyond. Counter-valuation in hawala transactions is often accomplished via trade; thus TBML is a prevalent form of money laundering. Many hawala owners and the traditional Iranian merchant class have ties to the regional hawala hub of Dubai. An estimated 400,000 Iranians reside in the United Arab Emirates (UAE), with up to 50,000 Iranian-owned companies based there. According to media reporting, Iranians have invested billions of dollars in capital in the UAE, particularly in Dubai real estate. Money launderers also use Iranís real estate market to hide illicit funds.

 

In 1984, the Department of State designated Iran as a State Sponsor of Terrorism. Iran continues to provide material support, including resources and guidance, to multiple terrorist organizations and other groups that undermine the stability of the Middle East and Central Asia.

 

KEY AML LAWS AND REGULATIONS

 

Iran has criminalized money laundering and has adopted KYC and STR requirements. Additionally, Iran has put in place a regulation to institute cross-border currency declarations for amounts over the equivalent of $10,000 in any currency.

 

Iran is not a member of either a FATF-style regional body or of the Egmont Group.

 

AML DEFICIENCIES

 

In October 2007, the FATF issued its first public statement expressing concern over Iranís lack of a comprehensive AML/CFT framework. Beginning in 2009, the FATF urged all jurisdictions to apply effective countermeasures to protect their financial sectors from the money laundering/terrorist financing risks emanating from Iran, and it also stated that jurisdictions should protect against correspondent relationships being used to bypass or evade countermeasures or risk mitigation practices. As a result of Iranís high-level commitment to the FATF to implement an action plan to address its strategic AML/CFT deficiencies, on June 24, 2016, the FATF continued to include Iran on its Public Statement but suspended its call for countermeasures for 12 months while Iran implements its action plan.

 

ENFORCEMENT/IMPLEMENTATION ISSUES AND COMMENTS

 

For nearly two decades, the United States has undertaken targeted financial actions against key Iranian financial institutions, entities, and individuals that include legislation and more than a dozen Executive Orders (E.O.s). One noteworthy action taken against Iran includes designating one state-owned Iranian bank (Bank Saderat and its foreign operations), designated for funneling money to terrorist organizations (E.O. 13224).

 

Although U.S. nuclear-related secondary sanctions against Iran were lifted on JCPOA Implementation Day in January 2016, the United States continues to enforce sanctions targeting Iranís support for terrorism, destabilizing regional activities, ballistic missile activities, and human rights abuses. Thus, post-JCPOA Implementation Day, there are more than 200 Iran- related persons and entities remaining on the Department of the Treasuryís List of Designated Nationals.

 

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SANCTIONS

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.

 

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BRIBERY & CORRUPTION

 

Index

Rating (100-Good / 0-Bad)

Transparency International Corruption Index

29

World Governance Indicator Ė Control of Corruption

32

 

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INVESTMENT CLIMATE

Iran's economy is marked by statist policies, an inefficient state sector, and reliance on oil, a major source of government revenues. Price controls, subsidies, and other distortions weigh down the economy, undermining the potential for private-sector-led growth. Private sector activity is typically limited to small-scale workshops, farming, some manufacturing, and services. Significant informal market activity flourishes and corruption is widespread. New fiscal and monetary constraints on Tehran, following the expansion of international sanctions in 2012 against Iran's Central Bank and oil exports, significantly reduced Iran's oil revenue, forced government spending cuts, and fueled a 60% currency depreciation. Economic growth turned negative in 2012 and 2013, for the first time in two decades. Iran continues to suffer from double-digit unemployment and underemployment. Lack of job opportunities has convinced many educated Iranian youth to seek jobs overseas, resulting in a significant "brain drain." However, the election of President Hasan RUHANI in June 2013 brought about widespread expectations of economic improvements and greater international engagement among the Iranian public, and early in Ruhani's term the country saw a strengthened national currency and a historic boost to market values at the Tehran Stock Exchange.

 

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FURTHER REPORTS

IMF Report: Islamic Republic of Iran: Selected Issues Ė Extract (February 2017)

In June 2016, Iran made a formal high-level commitment to FATF to implement its action plan to strengthen its AML/CFT framework. As a result, although FATF decided to keep Iran on the public statement (the ďblack listĒ), it called for a suspension of countermeasures for a period of twelve months. Full implementation of the plan will allow Iran to be considered for complete removal from FATF listing. However, if the FATF determines that Iran has not demonstrated sufficient progress, the call for countermeasures will be re-imposed.

The suspension of the countermeasures eased Iranian banks reconnection to the small and medium size banks. Countermeasures comprise, among others, enhanced due diligence on the quality of respondent institutionís AML/CFT controls; restrictions on opening of correspondent accounts; and not allowing Iranian banks to open subsidiaries in foreign jurisdictions. FATF maintained its call on members to apply enhanced due diligence to business relationships and transactions with natural and legal persons from Iran. Each member country can continue imposing countermeasures based on its own assessment of risks and independently of any call by the FATF.

Most of the items under the action plan are related to legislation and regulations. The action plan with the FATF includes 10 items with deadlines between May 2017 and January 2018 that are intended to rectify Iranís strategic AML/CFT deficiencies. They are related to the proper criminalization of the money laundering and terrorist financing offenses, confiscation and provisional measures, freezing of terrorist financing assets in line with relevant United Nations Security Council Resolutions, ensuring proper AML/CFT requirements (preventive measures and customer due diligence) for the financial sector, enhancing the role of the financial intelligence unit and the reporting of suspicious transactions, ratifying relevant United Nations Conventions (Palermo convention on transnational organized crime, 2000; New York convention for the suppression of the financing of terrorism, 1999), and improving international cooperation in regulating alternative remittance systems, wire transfers, and cash couriers.

However, the Iranian AML/CFT framework needs further strengthening as a matter of priority. Iran needs to adopt significant reforms to bring its framework in line with international standards and improve its effectiveness. This will take time as the authorities have to develop an effective framework to address and mitigate underlying inherent risks, which will allow correspondent banks to improve the risk profile of Iran. In addition to meeting the action plan with the FATF, reforms should prioritize improving the understanding of ML/TF risks, enhancing the regulatory and supervisory frameworks, and bolstering entity transparency:

a. Iranian authorities should improve their understanding of ML/TF risks by conducting a national risk assessment in line with the FATF standards.

b. AML/CFT regulation and supervision should be built around a forward-looking risk-based assessment. The CBI should enhance the risk-based supervision of banks and impose corrective actions and sanctions when relevant.

c. Mechanisms need to be developed to ensure entity transparency. This would improve compliance with international standards and lower the cost of compliance for correspondent banks. A public registry for beneficial ownership would allow timely access to adequate, accurate, and current information on beneficial ownership of all types of entities in Iran. In June 2016, the United Kingdom launched a public register for beneficial ownership information of companies to enhance their transparency. This made the information available and accurate, and easily accessible.

d. Iranian banks should continue improving their compliance to enhance their relationship and bolster trust with correspondent banks. This could be done by investing in AML/CFT internal controls including by upgrading compliance systems and training staff, specializing in low risk business, and getting external certification or third part audit of their AML policies and procedures. Correspondent banks can provide technical assistance to clarify their risk tolerance policies to Iranian banks as well as help build their capacities.

Finally, continued strengthening of the framework in line with international standards will help mitigate the risks related to ML/TF and underlying offenses (e.g., corruption, tax crimes).

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