Iranian Bankers Fear IRGC Terrorism Designation Dooms Vital Financial Reforms

Reform-minded Iranians, especially those inside the ailing banking system, are worried that the US government’s step to designate Iran’s Islamic Revolutionary Guard Corps (IRGC) as a terrorist organization has doomed a years-long effort to get the Islamic Republic off a consequential global blacklist.

The administration of Iranian President Hassan Rouhani has been working hard to meet the requirements of the action plan set by the Financial Action Task Force (FATF), the intergovernmental organization established with the mandate of combatting money laundering and terrorism financing.

The required reforms have caused deep political divisions, with opponents arguing that Iran will be compromising its sovereignty should it appease the FATF, while porposents argue that failing to pass the required legislation will eliminate final links Iran maintains with foreign financial institutions while under US sanctions.

Undaunted even as death threats were made against them, a majority of Iran’s parliament voted to pass all four FATF bills over the course of several months. The supervisory Guardian Council then ratified two of the laws, while two others were considered deficient. The council and parliament have failed to find a consensus on adjustments to these two bills, which pertain to regulations that deter terrorist financing and organized crime. Now the powerful Expediency Council must vote to break the deadlock on ratification.

Meanwhile, the clock is ticking for Iran to show progress on the FATF action plan. At the end of its February plenary sessions, the FATF announced, “If by June 2019, Iran does not enact the remaining legislation in line with FATF Standards, then the FATF will require increased supervisory examination for branches and subsidiaries of financial institutions based in Iran.”

When the Trump administration took the controversial move to designate the IRGC a Foreign Terrorist Organization (FTO), the first time the FTO designation had been applied to a part of a foreign state, the condemnations in Iran came swiftly.

As Rohollah Faghihi reports for Al Monitor, hardliners opposed to engagement with the West pointed to the FTO designation to show the futility of the FATF reforms. The day after the FTO designation was announced, Expediency Council member Gholamreza Mesbahi-Moqadam said the designation has decreased the chances that the FATF bills woild be ratified. “The move has strengthened the council’s [unfavorable] stance about the FATF and the chances of the bills not being approved has increased,” he said. Others have even placed the chances of ratification at zero.

Members of Iranians banking community, who have been advocating for FATF reforms for years as part of a larger drive for modernization of the financial sector, share in this pessimism. A senior Iranian banker speaking to Bourse & Bazaar on condition of anonymity agreed that the FTO designation has harmed the odds of the bill passing, by shifting the environment away from constructive discussion and cooperation towards sloganeering.

“The designation has major political implications, the full scope of which has yet to become clear, but I find it unlikely that the bills will be approved under current circumstances,” the banker said. “Essentially whenever the situation gains an emotional aspect, decisions also become largely emotional.”

Several high-level Iranian officials have also confirmed that the FTO designation will have an impact on the FATF bills. Secretary of the Expediency Council Mohsen Rezaei, who counts himself among those opposed to the bills, has said the FTO designation will be factored in forthcoming decisions based on “national interests.”

Meanwhile, Laya Joneydi, Iran’s Vice President for Legal Affairs, suggested it was a mistake to conflate decision-making about the FATF bills and the FTO designation since the two issues are “fully separable.” She did, however, point out that the designation will prompt the Rouhani government to consider any new “reservations” about the two bills.

A source inside the Central Bank of Iran also confirmed to Bourse & Bazaar on condition of anonymity that the IRGC designation should be expected to have an impact on the FATF bills.

“The central bank has always been in favor of having the bills pass into law, but we have already concluded all expert reviews of the bills and now everything depends on the views of the Expediency Council. At at the moment it seems the number of council members opposed to the bills is higher,” the source said.

Central Bank Governor Abdolnasser Hemmati has on multiple occasions voices his support for enacting the bills into law, saying Iran needs to do more to comply with international financial standards. In his latest remarks in early March, he said safeguarding and strengthening what little international banking ties Iran retains is a “necessity.”

In late February, Rouhani mounted his strongest support yet for the bills, saying “we cannot give the country to 10-20 people and say we follow your decisions”. The president called on the Expediency Council to facilitate passage of the bills lest Iran lose its already tenuous link to the global financial system.

But not everyone inside Iran’s isolated banking system is pessimistic about salvaging the FATF action plan.

“The bills will certainly face delays, but we predict that they will ultimately be signed into law,” a senior member of a banking sector association told Bourse & Bazaar on condition of anonymity.

The official likened the situation surrounding the issue to the Iran nuclear deal, noting that many analysts thought such a multilateral agreement could never be reached given opposition from hardliners.

“I believe some members of the Expediency Council harbor doubts about some of the contents of the FATF bills but are not opposed to them outright. Those doubts will be cleared in time,” the official said.

The question remains whether the FATF will continue to show patience as Iran’s complex domestic politics slow the pace of reform even further.

Photo: IRNA

Political Risks Outweigh Legal Impact of IRGC Terrorism Designation

This article was originally published by The Black List.

The Trump administration announced the designation of the Islamic Revolutionary Guards Corps (IRGC)—a branch of Iran’s armed forces—as a Foreign Terrorist Organization (FTO) pursuant to section 219 of the Immigration and Nationality Act (INA).  In the White House press statement, President Trump called the designation “unprecedented,” underscoring that it represents “the first time that the United States has ever named a part of another government as a FTO.”   

Trump underlined that the designation “will significantly expand the scope and scale of our maximum pressure on the Iranian regime.” Secretary of State Mike Pompeo echoed those remarks in his own press conference announcing the designation, noting that the designation “will help starve the regime of the means to execute [the IRGC’s] destructive policy.” Helping amp up the designation action, US officials (dubiously) argued that the designation will target more than 11 million people comprising the IRGC’s network.

Hyperbole aside, the practical effect of the FTO designation is negligible at best. Considering the multiple sanctions programs under which the IRGC is currently designated, the FTO designation appears entirely superfluous, exerting no additional substantial pressure against the IRGC.  

On the other hand, the risks to the US from the designation could be severe. As long reported, the Department of Defense and the CIA have been steadfastly opposed to designating the IRGC an FTO—viewing the designation as fraught with consequences for US troops and without material benefit for the United States. Their opposition appears to have been overcome, however, by those in the White House and State Department who have rallied to increase the pressure-in substance or rhetoric-against Iran regardless of the potential consequences.

Legal Authority for FTO Designation and the Sanctions Consequences

12 U.S.C. § 1189 authorizes the Secretary of State to designate an organization an FTO if the Secretary finds that the organization is a foreign organization that engages in terrorist activity that threatens US nationals or US national security. The Secretary’s intent to designate a foreign organization an FTO is first communicated to members of the Congress, along with the findings and factual basis for the Secretary’s decision to designate the organization, which explains the apparent delay between President Trump’s announcement and the formal designation of the IRGC as an FTO.  

The immediate consequences of an FTO designation are limited in scope.  Pursuant to 12 U.S.C. § 1189(2)(C), the Secretary of Treasury is given discretionary authority to require US financial institutions to block all financial transactions involving assets of an FTO. In addition, all members of an FTO are prohibited from entering the United States under 12 U.S.C. § 1182(a)(3). This latter provision could be used to block Iranian persons who performed mandatory military service in Iran from entering the United States. This could explain the “11 million people” claim by members of the Trump administration.

Preexisting US Sanctions Targeting IRGC

The IRGC is already designated under multiple U.S. sanctions authorities—most of which cover the ground of an FTO designation. For instance, the IRGC is designated under:

• E.O. 13224 as a Specially Designated Global Terrorist;

• E.O. 13382 as a WMD Proliferator;

• E.O. 13553 as a human rights abuser; and

• E.O. 13606 as a human rights abuser as well.

These designations have significant U.S. secondary sanctions consequences. For instance, 31 C.F.R. § 561.201 exposes foreign financial institutions that conduct a significant financial transaction with, or provide significant financial services for or on behalf of the IRGC or a person designated pursuant to E.O. 13224 or E.O. 13382, to correspondent or payable-through account sanctions. In addition, the Iran Freedom Counter-Proliferation Act subjects foreign banks to correspondent or payable-through account sanctions, and foreign persons to menu-based sanctions, for engaging in significant transactions with Iranian persons, which would include the IRGC.

Due to the serious secondary sanctions consequences inherent in dealing with the IRGC, OFAC has long given the IRGC its own program tag “[IRGC]” to aid foreign persons seeking to comply with U.S. sanctions targeting the group.  

In addition, multiple US statutory authorities require the President to identify officials, agents, or affiliates of the IRGC and to impose sanctions with respect to them. These reporting requirements ensure that the U.S. remains hyper-focused on the IRGC and its activities and prepared to impose additional designations as warranted.

Practical Consequences of FTO Designation

Amidst this veritable labyrinth of US sanctions targeting the IRGC, the designation of the IRGC as an FTO has limited, if any, immediate practical consequence.  For instance, the blocking of the IRGC’s assets is already mandated by the executive authorities under which the IRGC is designated—some of which also impose visa requirements.  Iranian persons who formerly served in the IRGC have long been subject to intensified scrutiny from US immigration authorities and have often been denied entry on these grounds.

The sole possible additional consequence arising from an FTO designation is the extraterritorial criminal jurisdiction afforded over foreign persons acting outside the United States that knowingly provide material support to an FTO.  18 U.S.C. § 2339B states that persons who knowingly provide material support or resources to an FTO or attempt or conspire to do so are subject to fine or imprisonment of not more than twenty (20) years (unless death results from the prohibited act). Material support is defined broadly to include any property or service.

18 U.S.C. § 2339B(d)(1) expressly provides for extraterritorial criminal jurisdiction, stating that there is jurisdiction over an offense “if . . . after the conduct required for the offense occurs an offender is brought into or found within the United States, even if the conduct required for the offense occurs outside the United States.” This means that foreign persons providing material support to an FTO are subject to criminal prosecution in the United States, even if the foreign person has no legal status in the United States; acted outside of the United States; and the conduct did not touch or otherwise have effects within the United States.

This provision could lead foreign parties conducting business with Iran to exercise even more heightened due diligence with regard to their dealings. Yet, the consequences of dealing with the IRGC are already especially dire, and foreign parties doing legitimate trade with Iran are likely to have taken steps to ensure the absence of IRGC-related parties.       

So What’s the Purpose...?

Considering the negligible benefits of an FTO designation, the Trump administration appears to have two things in mind through its designation of the IRGC: (1) to invite an Iranian response that could collapse the nuclear deal and risk a broader conflict with the United States; and (2) to use the threat of criminal prosecution to deter even legitimate business with Iran, as members of the Trump administration have long claimed that the IRGC controls broad sectors of the Iranian economy. This latter element could also be used to constrain a future President from re-entering the Iran nuclear accord and complying with its terms, considering the potential political pitfalls inherent in rescinding the FTO designation.

Indeed, chief proponent of the FTO designation and close adviser to the Trump administration Mark Dubowitz of the Foundation for Defense of Democracies stated that the designation “just layers on top of all of the current sanctions an additional and more expansive, punitive measure that will deter more business and . . . diminish current business that’s still ongoing between the Europeans and the Iranians, and the Asians and the Iranians.” The purpose of this, he earlier wrote, is to “make the case for dismantling these sanctions [hard],” thereby “block[ing] [the next administration] from delivering sanctions relief to Iran” consistent with the Iran nuclear accord.

Such motivations—if accurately depicting internal deliberations by the administration—would prove a grave abuse of the FTO designation process and the broader use of US sanctions authorities to target activities anathema to US security interests.   

Photo Credit: IRNA