Follow us on social

Shutterstock_1512330623-scaled

Trump administration pressures global financial watchdog to 'blacklist' Iran

The designation gives the Trump administration another justification for its "maximum pressure" campaign.

Analysis | Middle East

The Financial Action Task Force (FATF), a global body that sets standards to combat money laundering and terrorist finance, has placed Iran back on its infamous “blacklist,” following the failure of Iranian policymakers to enact two key bills in accordance with an action plan set in 2016.

The FATF statement, issued on Friday at the conclusion of the body’s latest plenary meeting, calls on members to “to apply effective countermeasures” following Iran’s failure to implement “the Palermo and Terrorist Financing Conventions in line with the FATF Standards.”

Such countermeasures include increase monitoring, reporting, and auditing of Iran-related financial transactions for all financial institutions worldwide. While members can decide how to reimpose the countermeasures, the decision taken by FATF serves as a kind of external validation of the Trump administration’s claims that the Iranian financial system is regularly used to facilitate money laundering and terrorist finance on a massive scale. This characterization is a principle justification for the administration’s “maximum pressure” sanctions campaign and U.S. officials had been dogged in pressuring FATF to call “time out” on Iran’s reform process.

The FATF decision will be deeply disappointing to many officials in the Rouhani administration who had expended extraordinary political capital to try and get the necessary legislation enacted, succeeding in getting four key bills passed by parliament, but only managing to have two bills enacted into law. Opposition by hardliners had been fierce — the FATF issue was linked to the slow-rolling crisis around the nuclear deal and the Trump administration’s sanctions campaign. The politicization of the action plan reforms — both in Tehran and in Washington — was perhaps unprecedented in the history, putting “the task force is between a rock and a hard place,” as Tom Keatinge, as RUSI Director of the Centre for Financial Crimes and Security Studies, has recently observed.

The FATF’s decision could have a significant impact on Iran’s economy, but likely indirectly. Iranian officials who advocated for implementation of the action plan insisted that failure to do so would lead to international banks, including banks in Russia and China, to cut ties with Iran. More precisely, the reimpositon of countermeasures means that it will be exceedingly difficult for Iran to open any new cross-border financial channels. But the countermeasures set to be reimposed, including FATF’s exhortation of its members to impose enhanced supervision and reporting requirements for financial institutions handling Iran-related payments reflect a level of oversight already adopted by the few global financial institutions that continue to transact with Iran. For example, European officials do not expect the FATF decision to interfere with the operationalization of INSTEX, the mechanism established to support European trade with Iran, given the longstanding policies of the banks on which INSTEX will rely.

Existing banking channels are unlikely to be constricted for the express reason that Iran is back on the blacklist — although this does not preclude that the FATF decision will be used as a timely excuse to stop handling Iran-related payments by some banks.

The more likely damage to Iran’s economy will arise from the setback that FATF’s decision represents for the wider push for financial transparency reforms in Iran, which including everything from calls for greater fiscal transparency to the adoption of international standards for accounting. In May of last year, I wrote about how this broad campaign was suffering under the pressures of a “financial war” waged by the Trump administration. Although “transparency has become a discourse and ongoing demand” in Iran, to use the words of one reformist parliamentarian, a pervading paranoia got in the way of reforms, including those required by the FATF.

As I wrote at the time, many Iranians increasingly feared that when sanctions were being applied too aggressively, any increase in financial transparency was “akin to exposing the location of a piece of critical infrastructure and leaving it vulnerable to attack.” The Trump administration sought to actively stoke this paranoia through its use of public messaging and sanctions designations, causing a significant rift with European partners engaged in a technical dialogue with the Rouhani administration over the reform process.

I have been closely following the FATF issue for three years, during which time I have had the opportunity to discuss the action plan and its implementation with American, European, and Iranian officials as well as business leaders engaged in trade between Europe and Iran. There remain many unknowns about the economic impact and the damage the countermeasures will have. But what is profoundly clear is how easy it was for the Trump administration to seek to interfere with the apolitical work of FATF and the fragile process of financial transparency reforms in Iran, even though that process was driven in large part by the concerns of the Iranian electorate around systemic corruption.

In this way, the FATF experience offers a cautionary tale. To whatever extent the current nuclear deal will remain resilient in the face of the Trump administration’s maximum pressure and reduced compliance from Iran, and to whatever extent a new deal may be strengthened to avoid a repeat of the current crisis, any diplomatic reset with Iran will require greater protection of the myriad technical processes of reconnection and reform that will be necessary to ensure that promises are delivered. We promised to give Iran a chance. We failed those who tried to take it.


Analysis | Middle East
Sens. Paul and Merkley to Trump: Are we 'stumbling' into another war?
Top photo credit: Sen. Rand Paul (R-Ky) (Gage Skidmore /Creative Commons) and Sen. Jeff Merkley (D-Ore.) )( USDA photo by Preston Keres)

Sens. Paul and Merkley to Trump: Are we 'stumbling' into another war?

QiOSK

Senators Rand Paul (R-Ky.) and Jeff Merkley (D-Ore.) have co-written a letter to the White House, demanding to know the administration’s strategy behind the now-18 days of airstrikes against the Houthis in Yemen.

The letter calls into question the supposed intent of these strikes “to establish deterrence,” acknowledging that neither the Biden administration’s strikes in October 2023, nor the years-long bombing campaign by Saudi Arabia from 2014 to 2020, were successful in debilitating the military organization's military capabilities.

keep readingShow less
Bernie Sanders Chris Van Hollen
Top image credit: U.S. Senator Bernie Sanders (I-VT) speaks during a press conference regarding legislation that would block offensive U.S. weapons sales to Israel, at the U.S. Capitol in Washington, U.S., November 19, 2024. REUTERS/Elizabeth Frantz
Will Senate vote signal a wider shift away from Israel?

Can Bernie stop billions in new US weapons going to Israel?

Middle East

Secretary of Defense Pete Hegseth and National Security Advisor Mike Waltz have been roundly criticized for the security lapse that put journalist Jeffrey Goldberg into a Signal chat where administration officials discussed bombing Houthi forces in Yemen, to the point where some, like Sen. Mark Warner (D-Va.) have called for their resignations.

But the focus on the process ignores the content of the conversation, and the far greater crime of continuing to provide weapons that are inflaming conflicts in the Middle East and enabling Israel’s war on Gaza, which has resulted in the deaths of over 50,000 Palestinians, most of them civilians.

keep readingShow less
Friedrich Merz
Top photo credit: German Prime Minister-in-waiting Friedrich Merz (Shutterstock.Penofoto)

German leaders miscalculated popular will for war spending

Europe

Recent polls show the center right Christian Democrats (CDU-CSU) headed by prospective chancellor Friedrich Merz losing ground against the populist right Alternative for Germany (AfD), even before the new government has been formed.

The obvious explanation is widespread popular dissatisfaction with last month’s vote pressed through the outgoing parliament by the CDU-CSU and presumptive coalition partner the SPD (with the Greens) to allow unlimited increases in defense spending. This entailed disabling the constitutional “debt brake” introduced in 2009 to curb deficits and public debt.

keep readingShow less

Trump transition

Latest

Newsletter

Subscribe now to our weekly round-up and don't miss a beat with your favorite RS contributors and reporters, as well as staff analysis, opinion, and news promoting a positive, non-partisan vision of U.S. foreign policy.