Iran’s difficulties in re-entering the world financial system have been laid bare in a row over whether local banks should refuse to deal with the sanctioned but still very powerful Revolutionary Guards.

The global Financial Action Task Force (FATF) agreed a deal with the Central Bank of Iran (CBI) in June to suspend certain financial restrictions on Tehran as part of the agreement to let Iran move from pariah to a normal functioning financial partner. The Financial Action Task Force (FATF) is an inter-governmental group founded in the 1980s by the G7 group of industrialised countries to develop policies to counter money laundering and funding of terrorism. 

The FATF has already removed several key Iranian institutions – including the central bank – from an international sanctions list which in theory enables them to conduct financial deals with global players.

But as part of the FATF, Iranian banks must decline to do business with sanctioned groups, including the Revolutionary Guards Corps (IRGC), an Iranian political-economic group which controls large swathes of the country’s economy, and has been sanctioned by several countries for their purported support of terrorist activities. Within Iran they report only to the supreme leader, currently Grand Ayatollah Sayyid Ali Hosseini Khamenei.

Several of the country’s largest banks have subsequently refused to deal with the Revolutionary Guards, enraging conservatives who oppose the President Hassan Rouhani government’s policy of reintegration with the international system.

On September 3, the Kayhan newspaper, supposedly Supreme Leader Khamenei’s favoured publication, reported that Bank Mellat and Sepah, two partially government-owned banks, declined to do business with the Revolutionary Guards. In the article, the newspaper accused the current administration and the Central Bank of Iran  of “self sanctioning”. 

This rift has since played out across the country, with different sections of the Islamic Republic publicly accusing each other of kyboshing any progress or giving away too much since most of the West’s financial sanctions began being removed in January.

Finally, CBI governor Valiollah Seif stepped in, saying that no Iranian entity will have financial restrictions put on them. Following this statement, both banks issued a statement that there was no restriction on them doing business with the Revolutionary Guards, or its commercial subsidiary Khatam al-Anbia, which is currently running several million-dollar infrastructure projects across the country.

Even so, the criticism of the administration continued at Friday prayers in Tehran, with Ahmad Jannati, head of the Supreme Leader's Guardian Council, slamming theirt move to stop doing bsuiness with the Revolutionary Guards.

“How did they dare to sign this confidential agreement?” he said, speaking of President Rouhani's top banking officials, CBI governor Seif and Minister of Economy Ali Tayebnia. “They want to deliver our financial and banking intelligence to the enemy under the excuse of fighting money laundering. They want us to impose sanctions on ourselves.”

Mohammad Javad Jamali, a member of the presiding board of the Iranian National Security and Foreign Policy Commission, warned that the agreement between Tehran and the FATF was a threat to national security, according to Tasnim News Agency. He said he was concerned that the deal would further interfere with the internal affairs of the Islamic Republic, claiming “they are trying to secretly monitor Iran’s banking system and financial exchanges with other countries”.

“If the deal is implemented, the security of the Islamic establishment will be threatened,” the MP said.

Mohsen Rezai, a national security chief and owner of Tabnak, a popular news website, waded into the debate on September 10, saying that the government should exercise restraint in dealing with the FATF and avoid “over-hasty decisions”.

He noted: “The diplomatic efforts waged are usually devoid of the skills and expertise expected and the lack of information infests all such efforts, hence, no tangible outcome would be enjoyed by the country.”

For now Tehran's reactionary factions appear to have the upper hand, but it is not yet clear how the banks seeking international legitimacy will in fact co-operate with the Revolutionary Guards.