UK Treasury warns of money-laundering risks in Iran

The UK Treasury has warned UK firms about the risks posed by unsatisfactory money-laundering controls in Iran, Pakistan, Uzbekistan, Turkmenistan, Azerbaijan, and São Tomé and Príncipe.

The Treasury endorses the concerns of the Financial Action Task Force (FATF), which has drawn attention to deficiencies in these countries. The UK fully supports the work of the FATF and agrees with its assessment of the dangers of doing business with the listed countries, Treasury officials say.

Iran remains a major concern and all firms “should treat transactions with Iran as situations that can present a higher risk of money laundering or terrorist financing, and which therefore require increased scrutiny, enhanced due diligence, and ongoing monitoring, particularly where correspondent relationships are involved, which have been highlighted as a particular risk”, the Treasury says.

The Treasury has also called on financial firms to cease all business relationships and transactions with Bank Mellat and Islamic Republic of Iran Shipping Lines.

The FATF has been concerned about Iran’s lack of co-operation, and its failure to address ongoing weaknesses in its money laundering (AML) and financial crime regime. It says firms should apply effective countermeasures to protect their financial sectors from risks emanating from Iran and protect themselves against the use of correspondent banking relationships that might bypass or evade countermeasures and risk-mitigation practices. 

The Treasury says firms should take this advice into account in respect of their systems and controls to counter financial crime and take appropriate actions to minimise risks.

UK AML regulations require firms to put in place policies, procedures and systems to prevent money laundering or terrorist financing. They must apply enhanced customer due diligence and enhanced ongoing risk monitoring in “any situation which by its nature can present a higher risk of money laundering or terrorist financing”.

"The Treasury notice imposes a higher duty of vigilance and greater customer due diligence on FSA firms and approved persons when dealing with these jurisdictions," says Harvey Dyson, an associate in commercial litigation at international law firm Stephenson Harwood.

"There is now a greater requirement for FSA-regulated firms to tighten AML systems and controls when dealing with these jurisdictions. The cost and practicalities of this – and the risk of getting it wrong – means some firms might be questioning whether to continue doing business with some of these jurisdictions," he says.