Expert: Failure to join FATF will not meet Iran’s interests

He said in an exclusive interview with ILNA news agency that the real value of being in the FATF is learning best practices on financial regulation, and providing a signal to others of a government’s willingness to collaborate internationally. Dane Rowlands received his Ph.D. in economics from the University of Toronto and is currently the Paterson Professor of International Affairs at Carleton University. He teaches and conducts research on international development, the IMF, conflict management and migration.

Q: What is your idea about FATF?

A: The FATF is really just a standards setting body that operates through mutual assistance and peer review regarding how and whether recommended procedures for preventing criminal money laundering, terrorist financing, and nuclear proliferation. It does not have its own investigative capacity, or its own enforcement or punishment capacity. That does not mean that countries (members or non-members) cannot impose sanctions or punishments for non-compliance, but that is a right reserved by all countries anyway.

Q: What are the benefits of joining the FATF?

A: There are two benefits. First, for countries seriously trying to control illicit financial flows (especially if they themselves deem themselves vulnerable to criminal or terrorist activity assisted by such flows), then being in the FATF provides a forum for discussing and reviewing how best to prevent or reduce such activities, and for coordinating with other states on these policies.

Second, it signals adherence to international norms regarding a serious problem. By contrast, non-membership and non-compliance is indicative of either lack of capacity or ability, or lack of interest and will.

Q: China and Russia will not be able to cooperate with Iran, if Iran does not join the FATF. Is it right?

A: I doubt that this is true. The FATF imposes no such obligation or right on states regarding financial punishments, and does not have any capacity to make recommendations regarding non-financial system matters. It is true that their financial systems may be discouraged from dealing with Iran’s, and may in turn be punished for doing so, but that could occur regardless of Iran joining FATF or not. Iran joining the FATF and fully complying might make it slightly harder (in theory) to put financial sanctions on China and Russia, but Iran’s membership in FATF is not likely to be an insurmountable obstacle for financial sanctions being imposed on those countries by the US and other US allies, as we have seen.

Q: Some critics of the Financial Action Task Force in Iran believe that accepting the treaty will block the way to circumvent the sanctions. What do you think about this?

A: The policies recommended by the FATF are implemented domestically and involves no treaty obligations. There is a peer review process that could lead to Iran receiving a negative assessment, but that would probably be better than being judged as uninterested in stemming money laundering and terrorist financing.

The peer review process and reporting requirements could lead to the disclosure of some information, but the FATF and the peer reviewing process has no real investigatory powers, and cannot compel the authorities in Iran to reveal anything they choose to keep hidden. So if the Iranian government operates financial arrangements to circumvent sanctions now, there is not much FATF can do besides give a negative finding on Iran’s regulatory structure. It is not clear that such a finding would be worse than not being a member. If you read the mutual assessment reports, they tend to be pretty tame.

Q: Conservatives in Iran believe that adherence to this convention will make information about individuals and financial institutions available to some foreign countries. Has something similar happened among the members of the FATF?

A: Not that I am aware of. The mutual assessment reports that are public have not provided specific information, and the lack of serious investigatory capacity limits what such reviews and country reporting can be discover without a state’s compliance.

Foreign governments will use their own financial intelligence and other intelligence gathering abilities to discover what they can about financial institutions and individuals, a process that is unlikely to be enhanced much, if at all, by the FATF process. However if I was in a government that felt it needed to keep certain financial activities out of the public eye, I would review carefully the details of the FATF reporting obligations.

Q: Some critics of FATF believe that accepting the terms proposed by this organization would have no concrete effect on Iran's economic situation and cannot improve it in practice. Is this interpretation correct?

A: Just as being an FATF member is unlikely to cause any serious difficulties or limit a state’s capacity to operate its financial system, it is equally unlikely to solve many problems. The FATF exists largely to provide technical assistance for countries genuinely interested in closing the money laundering and terrorism financing loopholes present in its financial system.

It does encourage membership and compliance, of course, and a country’s failure to engage with the FATF and abide by its norms can be used to justify punishment or be used to highlight a government’s uncooperative nature, but that is a matter of a signal, not a feature of the FATF’s rules. In other words, a non-complying country could be punished or condemned even if the FATF did not exist. What membership in the FTF could do is provide the government of Iran with assistance in closing loopholes it wished to, and could be a useful way to engage in a meaningful and cooperative way with other states and the international system. These might be very helpful in the long run, and could be used as a signal of good international behavior. However the Iranian government may legitimately choose not to send such a signal or wish to have such expertise and assistance, or it may see the risks of complying and reporting (which I think are quite low) as too high to bother joining if it is not really interested in full compliance and making use of the process. It is also true that other countries, especially the US might try and misuse the FATF system to somehow punish or condemn Iran, but as I indicated the FATF would not enhance much their capacity to punish Iran, and other members might be quite hostile to the US trying to divert FATF from its legitimate objectives.

Q: Iran has been a member of the United Nations Convention against Corruption for many years. How do you assess the need to join the FATF?

A: The FTAF is about identifying best practices regarding money laundering and terrorism financing, evaluating country’s efforts in implementation, and encouraging a system of global norms regarding financial practices. It is connected to dealing with corruption issues, but more on the detailed technical side of trying to prevent financial systems from facilitating corruption. I would view the FSTF as a useful supplement to the UNCAC, and indeed FATF calls on members to ratify the UNCAC and other UN conventions and agreements. 

Q: Can joining the Financial Action Task Force improve banking activity in Iran, which is currently under US sanctions?

A: I do not think the FATF membership will help Iran’s financial sector or international financial regulations extensively. If Iran is seen as seriously trying to abide by FATF regulations, then it might make it easier for other countries (e.g. European countries) to push back against US financial sanctions and restrictions, because they could show that Iran was seriously attempting to comply. However being a member of the FATF, even one in good standing, will not prevent the US or other countries from punishing Iran or imposing sanctions. It might make it more difficult to gain global support for the a policy of isolating Iran, but ultimately it cannot prevent such a policy.

The real value of being in the FATF is learning best practices on financial regulation, and providing a signal to others of a government’s willingness to collaborate internationally. It is really only helpful for states that wish to have both of these benefits. The FATF cannot dictate or limit a country’s ability to implement its foreign policy that much, if at all, but it can be a useful investment in establishing a framework of good will with the international system.

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