RBI issues warning on banking transactions with Iran

New Delhi, Jan 18 (PTI) Perceiving a threat of moneylaundering and terror-financing in banking transactions withIran, the Reserve Bank of India (RBI) has asked banks andother financial entities to be cautious in their dealings withentities and funds from the Middle East country.

The RBI circular issued to banks and other entitiesoperating payment systems in India contained a global marketcaution notice issued by the Financial Action Task Force(FATF) on Iran.

The FATF is an inter-governmental body responsible formaking policies at national and international levels to combatmoney laundering and terror-financing.

As per the FATF warning, all financial institutions havebeen advised "to give special attention to businessrelationships and transactions with Iran, including Iraniancompanies and financial institutions."

The FATF has also warned against efforts to bypass orevade counter-measures and risk mitigation practices and urgedfinancial institutions to take into account the risk of moneylaundering and terror-financing when considering requests byIranian financial institutions to open branches andsubsidiaries in their jurisdiction.

A similar circular has been issued by market regulatorSebi to the stock exchanges, with the objective of ensuringthat Indian markets are not used by Iran-based firms for moneylaundering or terror-financing activities.

In turn, the stock exchanges have asked brokers to ensurecompliance with the Sebi circular.

India became a member of FATF last year. Following thenation''s accession into the global body, it is required tofollow the global standards prescribed by the FATF to checkmoney laundering and terror-financing activities.

Paris-based FATF informs the central government of itsmember countries about all its cautionary notices andpolicies, which in turn are forwarded to the concernedenforcement and regulatory agencies.

The latest caution notice on Iran was issued by the FATFto the Indian government late last year. The notice was laterforwarded to Sebi, based on which the regulator issued acircular to market intermediaries.

Iran has been subjected to various sanctions by the USand some European countries to thwart the flow of fundsallegedly used to finance the country''s nuclear weaponambitions and sponsor terror-related activities. There havebeen demands in the US for all listed companies to mandatorilydisclose their links with Iran.

In its latest notice, FATF has named Iran as a''jurisdiction'' for which the countries need to apply counter-measures to protect the international financial system fromsubstantial money laundering and terror financing risks.

FATF said it will consider asking its members tostrengthen counter-measures in February, 2011, if Iran failsto take any concrete steps in this regard.