Iran suffers from deep-rooted problems in its banking, including a phenomenon called “unidentified account holders" in Iranian banks.
According to the Iranian semi-official Mehr News Agency, there are an estimated one million accounts with unknown holders only with Bank Melli Iran, one of the 41 Iranian banks.
“Bank Melli Iran is one of the most credible banks in the country. You can imagine how the condition is with other banks”, banking expert Mohammadreza Arab-Moghaddam told Mehr News Agency in Iran.
There are no international banks operating in Iran. Following the Iranian revolution in 1979, all the private banks were confiscated by the new regime. It took two decades until the appearance of the first post-revolution “private banks” in Iran. However, they are not “private” by international standards. All state-owned and so-called private banks are under the direct or indirect supervision of state organs and security services, including the fearsome Intelligence Organization of the Islamic Revolutionary Guard Corps (IRGC).
Sweden-based economist, Ahmad Alavi, believes that a part of the Iranian regime uses the dark accounts for its own benefit. “They would be only concerned if people outside the political system use these accounts… Iranian banks are isolated from the international banking system. They don’t follow the international banking standards,” Alavi told Radio Farda.
“These accounts are used for money laundering and tax fraud… the Islamic Republic and its banking system, more than anyone else, will suffer from the phenomenon, “Iranian Cyprus-based economic journalist, Roshanak Astaraki, told Radio Farda.
Iran has started a plan called “Regime for Validation of Customers' Identity in Banks” three years ago. According to the former Governor of the Central Bank of Iran, at the time, there was an estimated number of 300 million unidentified account holders in Iranian banks. Now, the number is significantly decreased but still high compared to international standards.
However, this is not just a domestic matter for the Iranian economy and politics. Malfunction of Iranian banks is also a serious issue for the international community and its financial watchdogs.
The Financial Action Task Force (FATF), a 38-member inter-governmental body which combats terrorist financing and money laundering, has repeatedly urged Iran to take strong steps to make sure its banking system is not used for illegal activities and does not pose a danger for the international economy.
In February 2009, the FATF called on its members and urged all jurisdictions to “apply effective counter-measures to protect their financial sectors from money laundering and financing of terrorism (ML/FT) risks emanating from Iran.”
This became a serious impediment for Iran’s banks to have financial relations with foreign banks, in addition to international sanctions being imposed to counter Iran’s nuclear program.
The counter-measures were in place until the JCPoA, commonly known as the Iran nuclear deal, was signed on July 14, 2015.
In the post-JCPoA era, Iran understood it cannot rejoin the international financial system without satisfying FATF’s demands.
In April 2016, Valiollah Seif, then Governor of the Central Bank of Iran, said he had some meetings with FATF officials. Only two months later, on June 24, 2016, FATF welcomed “Iran’s adoption of, and high-level political commitment to, an Action Plan.” The FATF suspended counter-measures for twelve months “in order to monitor Iran’s progress in implementing the Action Plan.” The suspension has been extended every three or six months so far. The next deadline is October 2019.
However, both FATF and the U.S. government expressed their impatience to see progress by Iran, which in 2017-18 accepted some FATF requirements but refused to pass any meaningful legislation to counter terror-financing.
In June 2019, the FATF said it will reactive the counter-measures if Tehran fails to meet an October deadline for "adequately criminalizing terrorist financing" and "identifying and freezing terrorist assets."
The United States believes Iran intentionally moves slowly to address FATF demands. During the latest meeting of the Financial Action Task Force in June 2019, U.S. Treasury Secretary Steven Mnuchin, called out "Iran's willful failure to address its systemic money-laundering and terrorist-financing deficiencies." He said the FATF would call for Tehran to be fully black-listed if it “does not make further progress."
"The FATF expects Iran to proceed swiftly in the reform path to ensure that it addresses all of the remaining items," the task force June 2019 statement said.
Iran’s economy has been hit hard by fresh U.S. sanctions following President Trump’s withdrawal from JCPoA in 2018, and the country would suffer more if additional banking restrictions were imposed.
The Islamic Republic has only a few weeks to meet the FATF deadline. In the meantime, the key question is: “Will Iran satisfy the multinational task force with its step towards the implementation of the FATF Action Plan?”