The Cabinet had approved the bill for making amendments to the CFT law on Oct. 29, 2017, and after a great deal of tug of war, thanks to the “government’s continued efforts” (as acknowledged by most members of the Financial Action Task Force and reflected in FATF's Public Statement), amendments to the CFT law were finalized and passed, according to Financial Tribune.
These amendments were one of the main pillars of Iran’s Action Plan, followed by amendments to the AML law and accession to Palermo and CFT conventions. The purpose of this article is to evaluate the new law vis-à-vis international standards on combating financing of terrorism.
However, before dealing with technical issues, facts about the Iranian legislation should be stipulated:
Firstly, the laws in Iran are not usually amended soon after their ratification. Laws dating back 90 years are still in force. However, Iran’s CFT law was passed only one year and nine months before the Cabinet started the process for its amendment, which is rather unprecedented in the history of the country’s legislation. This was carried out in order to show Iran’s good faith and determination in combating the financing of terrorism.
Besides, it should be mentioned that the legislation procedure in Iran is focused on writing concise and succinct laws, followed by several bylaws, directives, etc. Usually, the important and general points are covered by the law and details are left for executive regulations. However, in the exceptional case of the CFT law, sufficient details were included to ensure Iran’s CFT law is in compliance with international standards.
It is possible that there might still be some details missing, which will be covered in the related implementing regulations. At this point, it should be noted that there are very few countries whose CFT laws have managed to meet all the required international standards and get the “Compliant” rating in FATF's assessment.
Reviewing the FATF assessment reports of countries (updated in July 2018 and available on FATF's website) indicates that out of 50 countries, only 11 countries have been “compliant” with FATF recommendation 5 (criminalizing terrorist financing, the main pillar of CFT law), while the other 39 members of FATF and FSRBs have not managed to get a rating better than “Partially Compliant” or “Largely Compliant”.
Considering the above, it is worth taking a look at FATF recommendation and Iran’s amendments to the CFT law.
FATF's recommendation 5 and its interpretative notes stipulate that: “Terrorist financing offences should extend to any person who willfully provides or collects funds or other assets by any means, directly or indirectly, with the unlawful intention that they should be used, or in the knowledge that they are to be used, in full or in part: (a) to carry out a terrorist act(s); (b) by a terrorist organization; or (c) by an individual terrorist”.
It also adds: “Terrorist financing offences should extend to any funds or other assets, whether from a legitimate or illegitimate source”.
Article 1 of the amended CFT law reads as follows (unofficial translation):
“Providing or collecting funds or assets, by any means, whether from a legitimate or illegitimate source and or using financial resources derived from [some examples are mentioned here: author] in full or in part, for carrying out any economic activity by oneself or another to carry out the following activities [a list of terrorist activities are mentioned in the law: author], or to provide them to terrorist individuals or terrorist organizations is considered financing of terrorism and is a crime”.
As can be seen, the main core of this law, which is to criminalize the financing of terrorism, is in line with FATF standards. The objection raised by FATF over the former law was the phrase “providing and collecting” that has now been amended to “providing or collecting”. The other issue was that FATF inferred from the former law that only financing of terrorists who carry out terrorist activities was criminalized and they asked for financing of terrorism offence not to be linked to any specific terrorist acts. Specifying the three categories of “terrorist activities”, “terrorist individuals” and “terrorist organizations” has totally removed any ambiguity, which meets the requirement of the FATF Action Plan.
Furthermore, FATF requests countries to criminalize financing of terrorism on the basis of Article 2 of the Terrorist Financing Convention that states:
“Any person commits an offence within the meaning of this Convention if that person by any means, directly or indirectly, unlawfully and willfully, provides or collects funds with the intention that they should be used or in the knowledge that they are to be used, in full or in part, in order to carry out:
(A) An act which constitutes an offence within the scope of and as defined in one of the treaties listed in the annex;
This item refers to nine conventions and each of these conventions reflects one category of terrorist activities (like unlawful seizure of aircraft, taking of hostages, unlawful acts against the safety of maritime navigation, etc.). Iran has already joined eight of these conventions (many countries have joined fewer conventions) and have introduced these terrorist activities in paragraphs (b) and (c) of Article 1 of its CFT law.
(B) Any other act intended to cause death or serious bodily injury to a civilian, or to any other person not taking an active part in the hostilities in a situation of armed conflict, when the purpose of such act, by its nature or context, is to intimidate a population, or to compel a government or an international organization to do or to abstain from doing any act”.
With regard to this item, item (a) of Article 1 of Iran’s CFT Law reads as follows:
“Committing or threatening to commit any violent act, including murder, violent act causing serious bodily injury [with some elaboration on the level of seriousness: author], unlawful seizure and taking of hostage and/or knowingly committing a violent act against a population or endangering their lives or freedom in order to influence the policies, decisions and measures of the Islamic Republic of Iran, other countries and or international organizations”.
Financing such measures are considered financing of terrorism. In the former law, reference was made to international organizations that had an office in Iran. This limitation has now been removed. Therefore, this requirement of the FATF Action Plan has also been met.
Comparing FATF standards and their interpretive notes and Article 1 of Iran’s CFT law indicates that Iran is complaint with recommendation 5, which underpinned some of the items of the FATF Action Plan.
FATF's interpretive note to Recommendation 5 stipulates that:
“It should also be an offence to attempt to commit the offence of terrorist financing … Terrorist financing offences should not require that the funds or other assets were actually used to carry out or attempt a terrorist act(s)”.
Notes 1 and 2 of Article 1 of the CFT law cover these issues, which state that any person who collects or provides funds or assets for the purposes mentioned at the outset of the article, and before these funds and assets are put to use or presented to terrorist individual/s and organization/s, the intention is suspended due to factors beyond one's control [that person] is considered the financer of terrorism. Note 2 determines the punishment for such a person.
Besides, it should be noted that the issue of attempting a crime has been extensively covered by Iran’s Penal Code, Section Three (Crimes), Chapter 1 (Attempting Crimes) and this chapter applies to all crimes defined in all other laws, including the CFT law.
Furthermore, the interpretive note to Recommendation 5 reads as follows:
“Terrorist financing offences should apply, regardless of whether the person alleged to have committed the offence(s) is in the same country or a different country from the one in which the terrorist(s)/terrorist organization(s) is located or the terrorist act(s) occurred/will occur."
This has been covered in note 3 of Article 1 of CFT law, which states: Prosecution under the title of financing of terrorism against natural and legal persons will be carried out based on this law, regardless of the place where the crime is committed or where the offender is located and what his/her nationality is.
In the former law, note 2 of Article 1 stated that the acts of liberation groups fighting against foreign occupation, etc. are not considered financing of terrorism. In the amended law, the focus is on introducing terrorists rather than the exceptions.
Based on United Nations Resolution 1373, a national committee shall be established, which will publish the national list of terrorists and decide about related details. The national committees of each country have their own criteria for their designations at the national level and Iran’s Supreme National Security Council will act accordingly based on the Iranian Constitution and its Article 154.
The interpretive note to Recommendation 5 asserts that:
“Effective, proportionate and dissuasive criminal sanctions should apply to natural persons convicted of terrorist financing.”
Article 2 of Iran’s CFT law introduces a range of punishments starting from the harshest penalty to imprisonment, fines and confiscation of funds and assets. An important point is that as per the FATF Action Plan, “confiscation of the property of corresponding value” has also been covered in this article, which meets one of the items of the Action Plan.
The interpretive note to Recommendation 5 also points out that:
“Criminal liability and sanctions, and, where that is not possible …, civil or administrative liability and sanctions, should apply to legal persons. Such measures should be without prejudice to the criminal liability of natural persons.”
Article 4 of the CFT law mentions that legal persons who commit these crimes will be punished as per the Penal Code. In the Penal Code, there is a thorough range of punishments, including dissolution, confiscation of property, lifetime prohibition on pursuing certain occupational and social activities, fines, etc. for legal persons. It has also been expressly mentioned that this does not preclude punishment of natural persons.
Freezing, seizure and confiscation are very important issues for a successful combating financing of terrorism regime. These are mainly covered in Recommendation 4 and its interpretive note.
The quotations, reproduced below from Recommendation 4 (and other recommendations), are based on the latest version of FATF recommendations (2012). It should be pointed out that Iran’s Action Plan is based on the older version of recommendations. So complying with the former “special recommendations” should be technically adequate for Iran to claim it has met the requirements.
However, in order to have a more powerful and strong CFT law, Iran has attempted to align its CFT law with the latest version of standards. The former generation of recommendations included fewer details in this respect. For example, the Special Recommendation 3 asserted that:
“Each country should adopt and implement measures, including legislative ones, which would enable the competent authorities to seize and confiscate property that is the proceeds of, or used in, or intended or allocated for use in, the financing of terrorism, terrorist acts or terrorist organizations.”
Recommendation 4 (2012) asks countries to adopt legislative measures “to enable their competent authorities to freeze or seize and confiscate the following, …: (a) property laundered, (b) proceeds from, or instrumentalities used in or intended for use in money laundering or predicate offences, (c) property that is the proceeds of, or used in, or intended or allocated for use in, the financing of terrorism, terrorist acts or terrorist organizations, or (d) property of corresponding value."
Recommendation 4 continues:
“Such measures should enable the authority to: (a) identify, trace and evaluate property that is subject to confiscation; (b) carry out provisional measures, such as freezing and seizing …"
Article 5 of the CFT law makes it obligatory for the judiciary and law enforcement forces to: a) identify, b) detect, c) freeze, or seize: 1) funds used, 2) funds allocated for, 3) proceeds derived, 4) properties that are the subject of the law , 5) proceeds that, in full or in part, have been transferred into other property, 6) property and proceeds that have been intermingled with legitimate property.
As can be seen, most topics relating to financing of terrorism in the new recommendation have been covered in Article 5. It is also in line with the CFT convention, Article 8 of which states: “… identification, detection and freezing or seizure of any funds used or allocated for the purpose of committing the offences…” (Here, the emphasis is on item “b” above: “proceeds from, or instrumentalities used in or intended for use in money laundering or predicate offences.
As is evident, instrumentalities used in money laundering and predicate offences have been mentioned and the instrumentalities used or intended for use in terrorist financing have not been mentioned. The same has not been prescribed by the CFT convention either and shall not be included in Iran’s Action Plan as well.)
The interpretive note to Recommendation 5 asks countries to consider “organizing or directing others to commit an offence” as an offence. Article 7 of the CFT law has covered this issue with more severe punishments for such persons.
Recommendations 10, 11 and 20, which respectively deal with Customer Due Diligence, Record Keeping and Suspicious Transactions Reporting, are reflected in articles 13 and 14 of the CFT law.
Recommendation 35 of FATF states:
“Countries should ensure that there is a range of effective, proportionate and dissuasive sanctions, whether criminal, civil or administrative, available to deal with natural or legal persons …. that fail to comply with AML/CFT requirements."
Note 1 of Article 14 of the CFT law considers punishments for both natural and legal persons who fail to carry out their legal obligations.
Recommendation 14 dealing with “tipping off” has also been covered in note 2 of Article 14 of the CFT law.
The last issue covered by this article emphasizes on “including terrorist financing offences as predicate offences for money laundering”. This has been included in Article 15 of Iran’s amended CFT law.
More details can be covered in this article, but the comparisons made above give enough information to readers to get a sense of the amended law and how it complies with international standards. The related bylaws will cover more details.
Technically speaking, we should keep in mind that no law should incorporate all details of standards, otherwise this may indicate that it is not going to be implemented!
Considering the fact that Iran has been the victim of numerous terrorist activities and internationally known terrorists stalk its borders, Iran is determined to combating terrorism and financing of terrorism. This determination deserves the acknowledgment and appreciation of the international community.