Document Type : Original Article from Result of Thesis
Highlights
Introduction
The Islamic Republic of Iran’s geopolitical and geoeconomic position, energy resources, and location along major transit routes give it considerable potential for regional cooperation. The Shanghai Cooperation Organization (SCO) can provide a framework for expanding Iran’s economic, political, and security relations with Asian powers and regional states. Nevertheless, the practical use of these opportunities depends not only on formal membership or political proximity to other members, but also on the compatibility of Iran’s financial and banking structures with internationally accepted standards. Iran’s placement on the Financial Action Task Force (FATF) list of high-risk jurisdictions during 2018–2022 intensified banking and credit restrictions and reduced its ability to transform the political opportunities arising from cooperation with the SCO into sustainable economic and security gains.
The research problem arises from the gap between Iran’s geopolitical potential within the SCO and its constraints in the international financial system. On the one hand, Iran regards the SCO as an instrument for strengthening multilateralism, reducing the effects of sanctions, and developing regional trade. On the other hand, incomplete compliance with FATF recommendations exposes economic actors in member states to legal, reputational, and financial risks. The main question is how Iran’s non-compliance with FATF requirements has affected its economic, political, and security opportunities within the framework of its relations with the SCO. Drawing on neoliberal institutionalism, the study examines the proposition that international institutions influence state behavior by producing rules, increasing transparency, and reducing uncertainty, and that non-compliance with the standards of one institution can restrict a state’s ability to benefit from another institution.
Methodology
This applied qualitative study uses a descriptive-analytical method. The data were collected through documentary and library research using scholarly articles, specialized reports, FATF documents, and sources related to the SCO. The study covers 2018–2022, marked by the intensification of United States sanctions, growing banking restrictions, and Iran’s simultaneous effort to upgrade its position in the SCO. The material was analyzed across economic, political, and security dimensions. The analysis examined banking restrictions on trade, investment, transfers, and joint projects; their consequences for credibility and regional trust; and their effects on information exchange, anti-money-laundering cooperation, counter-terrorist financing, and security relations. Neoliberal institutionalism was employed to explain the relationship among financial transparency, mutual trust, and the sustainability of multilateral cooperation.
Results and Discussion
The economic findings indicate that Iran’s placement on the FATF list of high-risk jurisdictions has restricted its access to international banking networks and increased the cost of foreign transactions. As a result, part of Iran’s financial exchanges is conducted through indirect and intermediary channels. This situation not only raises transfer costs but also increases the likelihood of delays, interruptions, or the blocking of financial resources. These conditions reduce the willingness of SCO banks, companies, and investors to participate in long-term projects in Iran. Even where political will exists, concerns about secondary sanctions, reputational risk, and difficulties in financial settlement may slow or prevent the implementation of agreements. Consequently, opportunities such as the International North–South Transport Corridor, the development of transportation infrastructure, oil and gas cooperation, and the expansion of trade with SCO members cannot be fully activated. Dependence on intermediaries also increases the final cost of transactions.
In the political sphere, Iran’s continued high-risk status weakens its credibility and increases the caution of foreign partners. Membership in the SCO creates an opportunity to strengthen multilateral diplomacy and reduce political isolation, but it cannot by itself eliminate legal and banking barriers. When the implementation of economic agreements is accompanied by uncertainty and high costs, the gap between announced political cooperation and its practical realization widens. This condition weakens Iran’s image as a predictable economic partner and adversely affects its bargaining power. Financial restrictions may also divert joint projects toward small-scale and low-impact initiatives and prevent the emergence of durable economic interdependence between Iran and other SCO members. The SCO therefore cannot substitute fully for the global financial system. Close relations with China and Russia likewise cannot neutralize all the costs associated with Iran’s banking and reputational risks.
In the security dimension, incomplete compliance with anti-money-laundering and counter-terrorist-financing standards may restrict financial and security information exchange between Iran and SCO members. Effective responses to terrorism, organized crime, narcotics trafficking, and illicit financial flows require rapid cooperation among financial intelligence units and security institutions. Differences between Iran and some SCO members concerning the definition of terrorism, the conditions for information disclosure, and the confidentiality of sensitive data can reduce mutual trust. Under such circumstances, governments may avoid sharing sensitive information because of concerns about sanctions or security consequences. This weakens prevention of transnational threats and regional security cooperation.
Taken together, the findings confirm that FATF-related restrictions are not merely a banking issue. Their effects extend to political credibility, the implementation of joint projects, security trust, and Iran’s geoeconomic position. From the perspective of neoliberal institutionalism, institutions facilitate cooperation only when participants are able to provide a minimum degree of transparency, predictability, and reciprocal confidence. Political convergence within the SCO cannot automatically compensate for institutional incompatibility with international financial standards. Iran’s experience shows that regional membership and economic integration are distinct processes. Political participation may expand diplomacy, but economic integration requires transparent, secure, and cost-effective transactions.
Conclusion
The study concludes that there is a direct relationship between Iran’s FATF status and the extent to which it can benefit from the capacities of the Shanghai Cooperation Organization. Continued designation as a high-risk jurisdiction has increased the cost of economic cooperation with Iran, restricted investment and trade flows, delayed joint projects, and weakened political and security trust between Iran and its regional partners. Therefore, membership in the SCO, without reform of the country’s financial and banking structures, will remain primarily political and symbolic and will not automatically result in Iran’s economic integration into the Eurasian space.
Iran’s approach to FATF requirements should consequently move beyond an exclusively political dispute and be evaluated as a technical, legal, economic, and security matter. Improving banking supervision, increasing transaction transparency, strengthening the independence and effectiveness of the Financial Intelligence Unit, completing anti-money-laundering and counter-terrorist-financing legislation, and establishing clear safeguards for sensitive information and national security interests can reduce the risks of cooperation with Iran. A realistic, phased, and national-interest-based approach toward the Palermo Convention and the International Convention for the Suppression of the Financing of Terrorism, combined with stronger financial diplomacy toward SCO members, would enable Iran to use the organization’s trade, transit, energy, and security opportunities more effectively. Ultimately, the success of Iran’s Look East policy depends not only on the political willingness of regional partners but also on coordination between region-oriented diplomacy and domestic institutional reform.
