The Financial Action Task Force (FATF) reinstated its full penalties on Iran after the country failed for several years to improve its legal framework to combat terrorism financing.

The move, announced Friday after FATF completed its latest plenary session, further isolates Iran from the global financial system. 

Abdolnasser Hemmati, governor of the Central Bank of Iran (CBI), said the decision will have no impact on the country’s foreign trade, calling the decision by FATF “politically motivated,” according to a report on state news agency IRNA cited by Reuters. CBI was sanctioned by the U.S. in November 2018 and designated again in September under counterterrorism authorities.

FATF, the Paris-based standards body for global anti-money laundering and counter-terrorism financing (AML/CFT) policy, said Iran had committed in June 2016 to addressing deficiencies. In response, FATF suspended its full penalties on Iran, giving the country space to enact AML/CFT changes under an agreed-upon action plan. The action plan expired in 2018; FATF said Friday that Iran still had yet to complete the work despite multiple extensions of its deadline. 

“Until Iran implements the measures required to address the deficiencies identified with respect to countering terrorism-financing in the action plan, the FATF will remain concerned with the terrorist financing risk emanating from Iran and the threat this poses to the international financial system,” the body said in a statement.

Countries that fail to enact FATF standards are labeled by the body as “high risk jurisdictions,” a designation also known as the “blacklist.” FATF calls on other countries to “apply countermeasures to protect the international financial system...from risks emanating“ from blacklisted countries. Iran and North Korea are the only two countries on the FATF blacklist. 

FATF said Friday that Iran has, among other things, failed to adequately criminalize terrorism financing; identify and freeze terrorist assets in line with United Nations Security Council resolutions; implement an adequate customer due diligence regime; and implement international anti-terrorist financing agreements. 

FATF had warned in October that penalties would be reinstated if Iran didn’t enact changes by the February deadline. A member of Iran’s Expediency Council, a policy-advisory panel appointed by Supreme Leader Ayatollah Ali Khamenei, said last month that the council’s deadline for approving FATF-related legislation passed by parliament had ended, and the bill was deemed as rejected, according to a report by Radio Farda.

FATF urged all jurisdictions to “apply effective countermeasures” on Iran in line with Recommendation 19, without directing them on which action to take. Recommendation 19 of the FATF standards provides a number of examples of potential countermeasures to use, including enhanced due diligence and reporting mechanisms, as well as limiting business relationships or financial transactions with the identified country, or people in the country. 

“Countries should be able to apply appropriate countermeasures when called upon to do so by the FATF. Countries should also be able to apply countermeasures independently of any call by the FATF to do so. Such countermeasures should be effective and proportionate to the risks,” the statement said.

The U.S., which had pushed for the resumption of the FATF penalties on Iran as part of its “maximum pressure” campaign, welcomed the move. Iran’s economy has struggled since the U.S. reimposed sanctions after exiting the nuclear deal. 

“The [Iranian] regime needs to adhere to the basic standards that virtually every other country in the world agrees to,” Secretary of State Mike Pompeo said in a statement. 

FATF also addressed a number of other countries and issues during the plenary session.

It added seven countries, including Myanmar and Nicaragua, to its “gray list” of countries with strategic AML/CFT deficiencies. Both countries have made progress to address their deficiencies, and agreed to work on their action plans, according to the FATF. Myanmar had been removed in 2016 from the FATF list.

Pakistan notably remained on the FATF gray list, despite some recent improvements. The body continues to be concerned with the country’s failure to complete its action plan before the deadline and in light of the terrorism financing risks emanating from the jurisdiction, FATF said. The body “strongly urges” Pakistan to complete its work by June, threatening penalties if the country fails to do so.

FATF agreed to re-rate the U.S. on one of its standards based on the country’s “current level of technical compliance,” it said. The re-evaluation concerns the U.S. Treasury Department’s Customer Due Diligence (CDD) rule and new beneficial ownership requirements, both of which went into effect in 2018, two years after the U.S. was last examined by the FATF, Treasury said.

FATF also discussed combating the laundering of proceeds linked to the illegal wildlife trade, adopted a new guidance paper on digital identity and talked about progress on the implementation of new FATF requirements to combat illicit finance risks associated with digital assets, according to a readout of the weeklong plenary session.