Rouhani urges anti-money laundering compliance to curb Iran isolation

By Davide Barbuscia

DUBAI (Reuters) - President Hassan Rouhani said on Monday Iran should stick to rules set by an anti-money laundering watchdog to protect ties between the sanctions-hit country and international banks, as a deadline for compliance looms.

Hit hard by reimposed U.S. sanctions since 2018 that limited its oil sales, Iran is scrambling for funds after having reduced its nominal expectations for oil revenue by as much as 70% with its 2020-2021 budget, according to analysts' estimates.

The Paris-based Financial Action Task Force (FATF), a global finance watchdog, last year gave Iran until February to comply with its rules, after which it said it would urge all its members to apply counter-measures.

"A bill, approved by the government and parliament cannot just hang there awaiting approval ... and cause problems in our interactions with international banks," Rouhani said in a speech broadcast live by his official website President.ir.

"Our national interests should not be ignored and we should not let (U.S. President Donald) Trump and those terrorists in the White House cut Iran's relationship with international banks."

Iran's oil revenues surged after a 2015 nuclear pact between Tehran and world powers ended a sanctions regime imposed three years earlier over its disputed nuclear programme.

But crippling sanctions reimposed following Washington's withdrawal from that deal have pressured the Iranian currency, disrupted its foreign trade and boosted annual inflation.

Foreign businesses, wary of U.S. penalties, say Iran's compliance with FATF rules is vital if Tehran wants to attract investors, but Iran's clerical rulers are divided on the issue.

Rouhani's powerful hardline opponents argue that passing laws enabling Iran's compliance with FATF rules could hamper Iran's support for its allies, including Lebanon’s Hezbollah. Rouhani and his allies say the laws could ease foreign trade with Europe and Asia, shielding Iran's economy from U.S. sanctions.

The president made his appeal ahead of parliament's expected approval of the country's budget for the fiscal year from March, submitted by Rouhani's administration to lawmakers last month.

Iran plans to partly offset an expected 70% fall in oil revenue with other energy exports to generate revenues in hard currency, said Henry Rome, an analyst at Eurasia Group.

But Iran was overestimating oil export revenue for the coming year: "U.S. pressure on oil purchasers will remain unrelenting in 2020, and not even China is likely to risk U.S. ire by significantly increasing purchases," he said in a report last month.

Iran's economy is set to fall deeper into recession this fiscal year and foreign reserves could drop to $73 billion (£55.9 billion) by March, a loss of almost $40 billion in two years, the Institute of International Finance said earlier this month.

Parliament has passed four bills required by FATF but two, which will link Iran to the Palermo and Terrorist Financing Conventions, have been held up by two powerful hardline bodies, the Guardian Council and the Expediency Council, despite initial approval by lawmakers.

Rouhani has warned of a risk of a severe financial crisis if Iran is blacklisted by the FATF, as that could endanger Tehran's trade even with friendly countries like China and Russia.

(Reporting by Davide Barbuscia; additional reporting by Parisa Hafezi, Editing by William Maclean)