Iranian President Ebrahim Raisi (Raeesi) Monday criticized the previous administration for insisting on Iran’s accession to the Financial Action Task Force (FATF). In a speech to families of those killed in the Iran-Iraq War (1980-1988), he suggested his government might prefer to focus on relations with "neighbors and friendly countries," including presumably China and Russia.

Iran has been on the FATF blacklist, along with North Korea, since February 2018 for failing to pass legislation introducing transparency measures designed to combat money-laundering, corruption, and financing of ‘terrorism.’ FATF members – who host most of the world’s financial centers – are required to undertake enhanced diligence and countermeasures against blacklisted states.

Many analysts, politicians and former government officials in Iran say that failure to join the FATF would be detrimental to economic relations with the world, including Russia and China as foreign banks would still be wary over transactions with Iran.

Hardliners supporting Supreme Leader Ali Khamenei and the Revolutionary Guard say Iran should “Look East” and build closer ties with China and Russia as a counterweight against the United States and conduct trade with those countries, avoiding dollar transactions as much as possible.

While the amount of dollars in global central bank reserves fell from 71 percent in 1999 to under 60 percent in late 2020, according to the International Monetary Fund, the use of the dollar in Russia-China trade dropped from 90 percent in 2015 to 46 percent in early 2020.

However, FATF is a multilateral organization and whether a country trades in US dollars or not, its financial transparency rules still apply. That leaves Iran with the option of trading in Chinese or Russian currencies or enter barter deals. This would deny the country hard currencies, which it needs to invest in its economy to remain competitive and and less dependent on oil exports.

SCO: expanding non-$ trade

Raisi highlighted the Shanghai Cooperation Organization, which includes Russia, China, India. Iran’s full membership was approved last week. The SCO aims to expand non-dollar bilateral trade and investment, and plans to issue bonds in national currencies.

"Certain people had conditioned vaccine imports and even joining the Shanghai Cooperation Organization (SCO) to approval of FATF," Raisi said in his speech. Legislation passed two years ago by a mainly reformist parliament was rejected by the watchdog Guardian Council and has languished at the Expediency Council, which arbitrates disputes between state bodies.

Raisi said that faster vaccine imports since he took office in August and accession to the SCO both resulted from the realization of "neighbors and friendly countries" that Iran was no longer "focused on the West." Critics have responded that this means Russia and China were using the Covid crisis as a tool to put pressure on Iran.

The previous government of President Hassan Rouhani argued that being blacklisted by the FATF stymied efforts to import Covid vaccines, including those distributed through the World Health Organization (WHO) Covax program.

China: main trade partner

Critics of joining the FATF also argued accession would hamper Iran’s links with regional allies the US and Europe have declared ‘terrorists,’ including Lebanon’s Hezbollah and Palestinian militant groups. More than 40 principlist members of parliament signed a letter April 6 calling on the government, the parliament and the Expediency Council to condition Iran's joining the FATF on the lifting of all US sanctions.

Economist Kamal Tayyebi told the reformist Shargh newspaper Tuesday that without joining the FATF, Iran would get little from SCO membership. “We shouldn't expect Chinese companies to circumvent [US] sanctions for the sake of cooperating with Iran now that Iran has become a member of the SCO," he said.

China, a full member of the FATF, is judged compliant with seven of the organization's 40 recommendations on money-laundering and largely compliant on 18.

Hossein Marashi, spokesman of the centrist Kargozaran (‘Executives of Construction’) Party in July told Eghtesad News that Raisi's government needed an agreement on the nuclear issue and approval of FATF accession to increase economic growth to 5 percent and lower inflation.