The global dirty money watchdog blacklisted Iran on Friday after failing to comply with international counter-terrorism standards. This will deepen the country's isolation from the financial markets.
The decision was made after more than three years of warning from the Paris-based Financial Action Task Force (FATF) asking Iran to either adopt terrorist financing conventions or to remove the blacklist and to take some countermeasures.
"Given Iran's failure to adopt the Palermo and Terrorist Funding Conventions in accordance with FATF standards, the FATF has fully suspended countermeasures and urged its members and urged all jurisdictions to take effective countermeasures." The group's 39 members said in a statement after a week-long plenary session.
This would mean a closer examination of the transactions with Iran, a stricter external examination of the financing companies operating in the country and additional pressure on the few foreign banks and companies that still have to do with Iran.
"The consequence of the (Iranian) inaction is higher borrowing and isolation costs from the financial system," a Western diplomat told Reuters.
The United States praised the task force's action after Tehran failed to meet FATF standards.
Iran "must have consequences if it continues to disregard international standards," said Secretary of State Mike Pompeo in a statement.
The Iranian central bank chief rejected the FATF's decision. "(It) is politically motivated and not a technical decision," quoted the state news agency IRNA Abdolnasser Hemmati. "I can assure our nation that this will have no impact on Iran's foreign trade and the stability of our exchange rate."
The FATF appeared to be leaving the door open to engagement with Iran, saying in its statement: "Countries should also be able to take countermeasures regardless of whether the FATF requests it."
"It is a medium solution. It is a kind of fudge to leave the door open for the Iranians," said one of the diplomats.
Foreign companies say Iran’s compliance with FATF rules is crucial if it wants to attract investors, especially since the U.S. again sanctioned Tehran in 2018 after it canceled a 2015 nuclear deal with Iran and other major powers ,
The Iranian leaders were divided over the approach to the FATF.
Cooperation advocates say this could facilitate foreign trade with Europe and Asia and offset US sanctions. Hardliners argue that passing laws to join the FATF could hamper Iran's support for its allies, including Lebanese Hezbollah.
Washington has since pursued a "maximum pressure" policy on Iran, declaring that a broader agreement should be negotiated that includes nuclear issues, Iran's ballistic missile program and Iranian support for Middle East proxy agents.
France, Britain and Germany have tried to save the nuclear deal, but have been increasingly pressured by the United States to join their efforts to isolate Iran.
"The United States pushed for the toughest position (from the FATF), while other countries like China and Russia preferred something more flexible," said a European official. "The Europeans were looking for something in between."
US sanctions have paralyzed the Iranian economy, decimated its oil exports and largely isolated it from the international financial system.
"Until Iran takes the necessary measures to address the identified shortcomings in the fight against terrorist financing … the FATF will continue to deal with the risk of terrorist financing posed by Iran and the associated threat to the international financial system," said the FATF.
The Iranian action plan implemented in 2016 to meet the FATF requirements expired in January 2018.
Secretary of State Mohammad Javad Zarif appeared resigned to the FATF's blacklist this week and accused Washington of using his campaign at maximum pressure to influence the FATF.
In another important decision on Friday, the FATF granted Pakistan an additional four months to meet the anti-terrorist funding standards and initially kept Islamabad on its "gray list" of countries that do not adequately comply with its rules.
(Except for the headline, this story was not edited by NDTV staff and published from a syndicated feed.)