Iran took a major hit Friday when the FATF returned it to a blacklist of countries in bed with financing terror.

The result could be a new set of strong pressures on Iran’s access to the international banking system, interruptions of Iranian trade with big supporters China and Russia and severing it from the EU in a much more serious way.

The Financial Action Task Force (FATF) moved the Islamic Republic from a blacklist to a sort of gray-list in 2016 which meant much greater access to the international banking system, but a ticking clock to come into compliance with anti-terrorism financial measures.

After more than three years of Tehran ignoring threats that time was running short on its chance to come into compliance with combating terror financing, the FATF issued a last ultimatum in October 2019.

FATF told Iran that if it did not come into full compliance by Friday, that it would be returned to blacklist.

Foreign Minister Israel Katz praised the decision of “returning Iran to the black list.”

“The decision of a professional and respected body encapsulates the danger Iran presents to the international financial system,” said Katz, adding that steps he expected FATF’s worldwide membership to take would hopefully “defend the world economy from the dangers of terror financing and money laundering which come from the Iranian regime.”

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The Israeli delegation to the FATF plenum was led by Dr. Shlomit Wagman-Ratner and other representatives of the Money Laundering and Terrorist Prohibition Authority in the Ministry of Justice.

Wagman-Ratner served during the meeting as chairman of the organization's operative working group, in a first for an Israeli representative.

She said that,"Today's decision to call on the world’s countries to impose effective economic sanctions on Iran represents an important and courageous decision, demonstrating the organization's professionalism and determination to fight global-terrorist financing risks," she said. "I would like to thank the dedicated authority staff, and the coordinator of the International Division's delegation, headed by Adv. Elad Vader, for their significant contribution to Israel's excellent professional activity in the organization, which is highly regarded internationally."

Toby Dershowitz, senior VP for government relations at the non-partisan Foundation for Defense of Democracies in Washington, told The Jerusalem Post that “FATF is sending a clear message to bank and corporate risk managers and all those responsible for ensuring their institutions are not exposed to Iran’s illicit activities that they must reassess ties to Iran’s entire financial sector.”

“Given Iran’s willful failure to uphold international anti-money laundering and terror finance standards, doing business with any Iranian bank, insurance or other financial institution, whether sanctioned or not, comes with heavy risks and high costs that will deter even more entities from transacting with Iran,” she said.

She added that, “The goal is to ensure all those who are part of the financial sector do not get entangled in a web of malign actors that could put the integrity and safety of their own interests at risk.”

Entering the FATF conference last week, the Islamic Republic was stuck in the same spot of partial compliance which it has been in for years.

Although Iran has passed some laws and moderates like Iran President Hassan Rouhani and Iran Central Bank Governor Abdolnasser Hemmati have made public promises, the parliament has failed to pass key legislation.

Within the Iranian parliament, many officials have blocked the new legislation for years and as late as January, Iran Chairman of the Expediency Council Ayatollah Sadeq Amoli Larijani called the new legislation “dangerous.”

Hemmati explained in December that if Iran was placed back on the FATF blacklist, they would finally be somewhat separated from their key economic allies Russia and China.

Though Russian and Chinese economic support have been a major reason why the ayatollahs running Iran have survived the US’s “maximum pressure” campaign, Hemmati said that those countries banks would have trouble working with Iran if there was an FATF ban.

Trying to do damage control after the decision, Hemmati changed his tune, telling the state news agency IRNA, “"The global dirty money watchdog's decision to place Iran on its blacklist will have no impact on [the country's] foreign trade."

"The decision is politically motivated and not a technical decision... I can assure our nation that it will have no impact on Iran's foreign trade and the stability of our exchange rate," Hemmati said.

Iran Foreign Minister Javad Zarif had also condemned the decision even before it came out, accusing the FATF of being part of the US “maximum pressure” campaign.

The FATF may end talks between Iran and the EU about exploiting the INSTEX vehicle for promoting trade in a way that circumvents US sanctions.

It is also expected to generally widen the expanding chasm between Tehran and the EU, pushing Europe closer to the US in the nuclear standoff.

Those like Larijani who opposed the legislation required by the FATF made multiple points.

They said that committing to the legislation would require Iran to expose how it is circumventing US sanctions.

Since Iran views US sanctions as immoral, it does not feel the obligation to reveal this information which is keeping its economy on life support.

In addition, those opposing the legislation link the FATF’s threats to the US and say that such a move would be condoning (what they view as the unfair) US maximum pressure campaign.

Finally, those against the legislation say that until US sanctions are removed, whether Iran is blacklisted or not is a secondary issue. They cite the fact that the Islamic Republic survived being blacklisted from around 2009-2016, with the point at which the country’s economy really struggled being related to other global sanctions, not the FATF.

Going into the conference, a leading Iranian parliamentary official who had supported passing the new legislation to help join the FATF was even disqualified from running, appearing to send a clear message that Tehran will not bend more at this time.

The FATF, also known by its French name, Groupe d’action financière, is an intergovernmental organization founded in 1989 on the initiative of the G7 to develop policies to combat money laundering.

In 2001, its mandate expanded to include terrorism financing. After years of campaigning and modernizing its financial counter-terrorism apparatus, Israel joined the FATF in December 2018.