In 2020, the FATF announced that Iran had failed to fulfill or agree to comply with a number of its financial transparency standards. Writes Dr. Mohammed Al-Sulami
A host of international institutions regularly release reports that gauge the level of political, economic and social stability worldwide and how far nations have progressed or regressed in the recent past. In an isolated country like Iran, the significance of such reports is apparent, especially in regard to revealing even part of the country’s economic and financial situation, the levels of transparency, the ease of doing business, the extent of corruption, and other important considerations for foreign investment. We will shed light on the most salient considerations.
With regard to Iran’s financial transparency and financing of terrorism, the Financial Action Task Force placed Iran on its blacklist, which currently includes only two countries — Iran and North Korea — in 2020. The FATF outlines important standards that are agreed upon internationally, seeking to prevent illegal activities and thus curb the economic and social harm arising from them. Nearly all the world’s 196 nations comply with its regulations. Iran, however, fails to comply with the financial transparency recommendations approved by the FATF despite being in negotiations with the organization since 2016. These negotiations have led to nothing, but Iran begrudgingly accepted some recommendations while rejecting others due to its fears that full compliance would expose its dubious financial transactions.
In 2020, the FATF announced that Iran had failed to fulfill or agree to comply with a number of its financial transparency standards. These included: Appropriately criminalizing the financing of terrorism, including rescinding the right to finance certain groups like those that are supposedly, according to Iran, attempting to end foreign occupation; specifying terror-related assets and freezing them in compliance with UN Security Council resolutions; clarifying how unauthorized money transfer service providers are identified and sanctioned; ratifying the UN Convention Against Transnational Organized Crime and the Terrorist Financing Convention; and ensuring that the appropriate financial institutions verify that any cash transfers contain full information about the source and beneficiary of payments.
When it comes to corruption, the Corruption Perceptions Index released last month revealed that Iran was among the world’s most corrupt states in 2021, ranking it 150th out of 180 nations. Iran’s ranking has been tumbling since 2017, bringing it into the same category as countries like Guatemala and Guinea and close to countries deemed to suffer from the highest levels of corruption, such as North Korea, Yemen and Afghanistan.
Swiss institution the Basel Institute on Governance placed Iran in first position out of 146 countries in regard to money laundering and terror financing crimes in 2017. It seems that this ranking once again reflects the Iranian regime’s catastrophic failure to improve the situation in this respect — even when there were no sanctions in 2017, as the nuclear deal was still in place.
Regarding economic and investment freedoms, the Heritage Foundation issued a 2022 report that shed light on the economic freedoms in 177 countries, including Iran. Tehran was ranked 170th. It was rated as having a worse status than countries such as North Korea, Venezuela, Cuba and Sudan.
Meanwhile, the Fragile States Index issued by US think tank the Fund for Peace and Foreign Policy magazine since 2005 tells us that Iran occupies a dangerous or alarming position, ranking 43rd out of 179 countries in 2021, compared to a better position in 2007, when it was ranked 57th.
It is not surprising that, with access to all the aforementioned international reports and indexes, foreign investments do not amount to the level that Iran needs — and they didn’t even after it signed the nuclear deal in 2015. We find that the foreign investments that flowed into Iran in 2017 amounted to $5 billion, and that they had declined again to $1.3 billion in 2020, according to the UN Conference on Trade and Development.
The investments Iran needs in just one sphere — the oil industry — have been estimated at $200 billion, according to a comment made by a former oil minister in 2016. The $5 billion that entered Iran in 2017 represented the largest inflow of capital into the country over the past 20 years. It is a very modest figure compared to other Middle Eastern countries — in 2007, Saudi Arabia attracted $24 billion, Turkey $22 billion, Egypt $11.5 billion and Iran $2 billion.
The dismally low figure of foreign capital attracted by Iran in the absence of sanctions or under presidents affiliated with the reformist movement reflects several important issues, such as the nature of the Iranian regime, which appears ultraconservative to the West, and the hesitation of foreign investors to enter the country. This is in addition to the increasing pace of capital flight, with rising real estate investments in Turkey and other neighboring countries, as well as the existence of restrictions that discourage foreign capital, such as red tape, corruption, frequent protests, the Islamic Revolutionary Guard Corps’ control over the country’s resources, and many other issues we discussed in detail in the first part of this article.
We do not oppose the flow of foreign investment into Iran. It is vital for ordinary Iranians to improve the quality of their lives, reduce the cost of production, lower prices and maybe create some jobs. But foreign investment could also essentially serve the different agendas of the regime and the IRGC, increasing the regime’s resources and prolonging its dictatorial rule and subversive roles overseas.
We also notice that most of the regime’s investment disbursements are confined to sectors that need intensive capital injections, such as the oil industry, which swiftly generates much-needed revenues, rather than labor-intensive sectors such as agriculture. The latter needs genuine support to curb the soaring price of food items in Iran and to reduce the rising poverty rates.
Experience tells us that the picture is not bright when it comes to the intensiveness of foreign investment in Iran in case a nuclear deal is reached soon. Amid the hard-liners’ current control of all branches of power in the country, there will be no obstacle to issuing laws restricting foreign investments in the country in the future should the IRGC feel there is any competition with or threat to its own interests.
There is also no guarantee that the nuclear deal — if it is resurrected — will not face a new setback if the current US administration is replaced in three years’ time.
All these factors will make potential foreign investors, particularly those from Europe, deeply cautious, especially after having been forced to leave the Iranian market twice before.
Dr. Mohammed Al-Sulami is president of Rasanah, the International Institute for Iranian Studies.
