The logo of the FATF (the Financial Action Task Force) is seen during a news conference after a plenary session at the OECD Headquarters in Paris, France, Oct. 18, 2019. Photo: Reuters / Charles Platiau.

A global dirty money watchdog is likely to place Iran on its blacklist on Friday after it failed to comply with international anti-terrorism financing norms, a move that would further isolate the country from financial markets, two diplomats said.

The decision comes after more than three years of warnings from the Paris-based Financial Action Taskforce (FATF) urging Tehran to enact terrorist financing conventions or it would see its suspension from the blacklist lifted and some counter-measures applied.

It will mean more scrutiny of transactions with Iran, tougher external auditing of financing firms operating in the country and add pressure on the few banks and businesses still operating with Iran.

“It will be placed on the blacklist today,” said a Western diplomat. “The consequence of (Iran’s) inaction is higher costs of borrowing and isolation from the financial system.”

A second diplomat also said Iran would be placed on the list.

However, the two diplomats and a third European official, who did not confirm Tehran would be placed on the blacklist, said countries would be called to implement counter-measures relevant to their economies, leaving them with a choice on what to implement.

“It’s a middle solution. A sort of a fudge to leave the door open for the Iranians,” said one the diplomats.

Foreign businesses say Iran’s compliance with FATF rules is key if Tehran wants to attract investors, especially since the United States re-imposed sanctions on Iran in 2018 after withdrawing from a 2015 nuclear deal with Iran and other world powers.

Washington has since pushed a policy of “maximum pressure,” saying a broader deal should be negotiated on nuclear issues, Iran’s missile program and Iranian activities in the Middle East.

France, Britain and Germany have tried to salvage the deal, but have faced growing pressure from the United States to join its efforts against Iran.

“The United States was pushing for the toughest position, while other countries like China and Russia preferred something more flexible,” said a European official. “The Europeans were looking for something in between.”

US sanctions have crippled Iran’s economy, slashing its oil exports and increasingly isolating it from the international financial system.

Iran’s leaders have been divided over complying with the FATF. Supporters say it could ease foreign trade with Europe and Asia when the country’s economy is targeted by US penalties aimed at its isolation.

Hardline opponents argue that passing legislation toward joining the FATF could hamper Iran’s support for its allies, including Lebanon’s Hezbollah.

Iran’s action plan to meet with the FATF requirements, implemented in 2016, expired in January 2018.

Foreign Minister Mohammad Javad Zarif this week appeared resigned to the FATF blacklisting, accusing the United States using its maximum pressure campaign to exert influence at the FATF.