Currently, Iran does not have a functioning Anti-Money Laundering (AML) framework in place, according to the International Monetary Fund's (IMF) 2006 Article IV Consultation report (published in 2007) and a 2007 report by the U.S. Department of State (DoS). The IMF's Article IV report identified two key flaws: first, the lack of an AML framework; second, major shortcomings in Iran's framework for combating the financing of terrorism (CFT). The IMF report also notes that, although Iran has been working with the IMF to develop draft AML and CFT laws, the draft laws in their current form do not adequately address Financial Actions Task Force's requirements. The IMF's report makes three key recommendations: Iran should properly criminalize of money laundering, expand the number of entities covered by the AML framework, and establish a functioning Financial Intelligence Unit (FIU). According to the 2007 report by the U.S. DoS, the U.S. has designated Iran a State Sponsor of Terrorism.

General Overview

The IMF, in its 2006 Article IV report (published in 2007) points out that money laundering is not criminalized as a "specific offense" in Iran, and that an adequate AML framework is not currently in place. According to the report, the draft AML law is nearing completion and the government of Iran has requested further IMF assistance to help strengthen the current framework. At present, however, the IMF cautions that this draft law does not adequately address all Financial Actions Task Force (FATF) requirements. Further, the IMF adds that Iranian law does not consider the financing of terrorism to be an offense. The new legislation, therefore, needs to strengthen the legal framework in this regard. The IMF report makes three key recommendations: first, it recommends that the new law ensure the criminalization of money laundering; second, that Iran expand the number of entities covered by the AML framework; and, finally, that a Financial Intelligence Unit (FIU) be established.

According to the 2007 DoS report, the draft Anti-Money Laundering Law, which still awaits the Guardian Council's endorsement, will address FATF requirements for customer identification, mandatory record keeping, and the reporting of suspicious activities. The report also notes that Iran has notified the United Nations of its intent to establish an FIU, but had not yet provided any details to support this claim. The DoS report asserts that "money laundering in Iran encompasses narcotics trafficking, smuggling, trade fraud, counterfeit merchandise and intellectual property rights violations, cigarette smuggling, trafficking in persons, hawala, capital flight, and tax evasion." Some $11 billion in money laundering takes place via smuggling, and $6 billion by way of international criminal networks. In the same report, the DoS notes that, "Bonyads [charitable organizations] have been involved in funding terrorist organizations and serving as fronts for the procurement of nuclear capacity and prohibited weapons and technology." Bonyads were first created at the time of the 1979 Iranian Revolution to help the underprivileged.

The 2007 U.S. DoS report also notes that Iran is a signatory to the 1988 United Nations Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. The report adds that the U.S. Department of State has designated Iran as a State Sponsor of Terrorism. Based on information provided on the FATF website, Iran is neither a member of the FATF nor any of the regional FATF-style bodies.

The Principles

1. Legal Systems and Related Institutional Measures

NC

According to IMF's 2006 Article IV consultation report (published in 2007), money laundering is not criminalized as an offence in Iran. The draft framework law is close to completion, but the IMF has cautioned that the new law still needed to strengthen the legal and institutional framework by criminalizing money laundering, expanding the list of entities covered by the AML framework, and establishing and FIU. The report notes that the current draft law does not address the requirements of FATF recommendations, particularly with regard to combating the financing of terrorism. The 2007 U.S. DoS report notes that Iran has indicated the establishment of a FIU to the United Nations, but has provided no details to support this claim. According to the U.S. DoS report, "Iran is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. Iran has signed but not ratified the UN Convention Against Corruption. It has not signed the UN International Convention for the Suppression of the Financing of Terrorism."

2. Preventive Measures - Financial Institutions

II

According to IMF's 2006 Article IV consultation report (published in 2007), the Central Bank of Iran (CBI) has issued circulars to banks and other financial institutions under its regulatory authority, calling on them to report the accounts of designated terrorist groups. However, the CBI has no clear legal authority with respect to freezing or blocking accounts. The IMF report notes that the CBI is developing a draft CFT law to address this concern, but in its 2007 report, 2007 U.S. DoS warns that there are as yet no effective AML controls on Iranian banks. The DoS report also notes that the CBI's circulars calling for the reporting of suspicious activity are not implemented. Overall, there is insufficient information as to Iran's compliance with this Principle.

3. Preventive Measures - Designated non-Financial Business and Professions

II

According to the 2007 U.S. DoS report, Iran's real estate market is often used to launder money. The report adds that, "often times, real estate settlements and payment are made overseas. In addition, there are reports that a massive amount of Iranian capital has been invested in the United Arab Emirates, particularly in Dubai real estate." There is insufficient information as to Iran's compliance with this Principle.

4. Legal Person and Arrangements & Non-Profit Organizations

II

According to the 2007 U.S. DoS report, Bonyads (charitable institutions) were created to help the underprivileged during the 1979 Iranian revolution. However, the report states "Bonyads have been involved in funding terrorist organizations and serving as fronts for the procurement of nuclear capacity and prohibited weapons and technology." Nonetheless there is insufficient information as to Iran's compliance with this Principle

5. National and International Co-operation

II

According to the 2007 U.S. DoS report, "Iran is a party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. Iran has signed but not ratified the UN Convention Against Corruption. It has not signed the UN International Convention for the Suppression of the Financing of Terrorism." Thus, there is insufficient information as to Iran's compliance with this Principle.