Iran’s latest bid to escape the terror-financing blacklist has collapsed after a global watchdog rejected Tehran’s conditional approval of its anti-terror conventions, crushing reformist hopes for economic relief just as UN sanctions snap back into force.
On October 22, President Masoud Pezeshkian formally promulgated Iran’s long-delayed ratification of the UN Convention for the Suppression of the Financing of Terrorism (CFT) – one of the key benchmarks of the Financial Action Task Force (FATF) for delisting countries accused of funding terror.
But just a day later, FATF’s plenary session in Paris ruled that Iran’s ratification came with unacceptable caveats – most notably, Tehran’s insistence on redefining “terrorism” according to its own domestic laws.
That definition seeks to shield Iran-aligned groups like Hezbollah and Houthis from FATF’s radar, defying Western classification of the groups as terrorists.
As Iran’s economy buckles under an ever-growing wave of Western pressure, Tehran is now facing an impossible fork: either relax ideological rigidity towards its ‘resistance network’ or brace for deeper isolation that may even disrupt its eastern partnerships.
Terrorist or not terrorist, that’s the question
Iran has been on the FATF blacklist since 2020 for what the watchdog calls “strategic deficiencies” in countering money laundering and terror financing.
To be removed, Tehran must fully implement two UN conventions: The Palermo Convention on transnational organised crime and the CFT – both in line with FATF standards.
The FATF, a G7-backed body, sets global rules to curb illicit financial flows. Blacklisted countries face sweeping countermeasures, including limited banking access, stifled trade, and deeper isolation.
For Iran’s sanctions-strangled economy, delisting would have offered an aperture to breathe.
Iran’s parliament passed the CFT back in 2018, but the bill stalled for years amid hardline fears that it would constrain Tehran’s backing of ‘resistance’ groups – the backbone of its regional influence and a tool to defy Israel’s Western allies in the Middle East.
In early October, Iran’s Expediency Council, a top body tasked with arbitrating disputes over controversial bills, finally approved the CFT, after greenlighting the Palermo Convention in May.
But Iran’s ratification came with seven binding conditions placing domestic law above FATF standards whenever they conflict.
At the heart of it lies Iran’s refusal to recognise Israel. But the main holdout is Iran’s demand to define “terrorism” on its own terms – distinguishing between terror groups like Daesh or al Qaeda and “resistance movements that fight for freedom”.
That proved the dealbreaker.
In its October 23 statement, FATF said Iran had “failed to implement the Palermo and CFT conventions in line with FATF standards,” keeping Tehran on the blacklist and urging global countermeasures to mitigate financial risks.
Tehran dismissed the decision as politically motivated.
“Our laws align with international norms against groups like al Qaeda and ISIS (Daesh) while respecting legitimate resistance movements recognised under the UN Charter,” Foreign Ministry spokesperson Esmail Baghaei said, calling the rejection a result of US pressure and Western selective approach.
Related
Economic woes as the main drive
The FATF decision comes just days after the 2015 nuclear deal’s snapback mechanism resurrected UN sanctions, reinstating arms embargoes and asset freezes targeting Tehran.
For President Pezeshkian’s government, FATF compliance was a chance to open limited trade channels and signal pragmatism to global markets to partly offset the impacts of UN bans.
“After the snapback, Iran resorted to the CFT to prevent escalation and send a positive signal to global markets,” Hadi Mohammadi, journalist and Iran affairs expert, tells TRT World.
President Pezeshkian’s failed attempt to secure FATF clearance has reignited a political firestorm in Tehran, mirroring the rancour that surrounded the collapse of the Iran nuclear accord, known as the JCPOA.
Reformists see FATF compliance as essential to breaking isolation and reviving trade ties. Hardliners, however, view it as deja vu – another bitter lesson in “trusting the West,” after April’s failed nuclear talks with Washington and the subsequent US and Israeli strikes in June, plus the recent JCPOA collapse.
Tasnim, the Revolutionary Guards-affiliated news agency, slammed President Pezeshkian’s Western outreach: “After the humiliating failure of the JCPOA, Iran’s pro-Western camp repeated the same logic and promises with FATF. Trusting the West has never solved anything; it is, in fact, part of the crisis itself.”
Anger has now turned towards the officials who led Iran’s FATF outreach. Deputy Finance Minister Hadi Khani, who represented Iran at the FATF plenary in Paris, has faced calls to resign for what hardliners call “misleading promises”.