Feb.20, 2010, 4:11pm EST

"What arrogance! And why? Because we have relations with Iran. That's it," Rafael Correa said at his weekly town hall meeting. "This is imperialism in its most base form. ... This has nothing to do with the struggle against money laundering."

The Paris-based Financial Action Task Force, or FATF, comprising governments and regional organizations, named Ecuador this week among Iran and others as nations failing to comply with international regulations against money laundering and financing terrorism.

Under the leftist Correa, Ecuador has strengthened diplomatic and commercial ties with Iran, which has opened an embassy in Quito and is forging wider relations across Latin America despite the concerns of Washington.

The United States and its European allies have been trying to pressure Iran to suspend its disputed nuclear program, which the West fears is a cover to build bombs. Tehran says it is for peaceful purposes.

"We have been blacklisted along with Iran, Ethiopia, Angola and North Korea. We are the financiers of terrorism in the world!" Correa said indignantly.

"It's a stick so you don't misbehave, naughty boy. You didn't do what I said, don't get involved with Iran. So because you went ahead, we'll put you on the blacklist, that's all."

The FATF said in its report, released on Thursday, that Ecuador had not "constructively engaged" with it and had "not committed" to global standards on money crimes.

'HUGE LIE'

The combative and charismatic Correa, 46, has run the small South American nation since 2007 and is part of a regional alliance of leftist leaders including Venezuela's Hugo Chavez.

While enjoying high popularity for his social policies, Correa has had difficult ties with foreign investors, defaulting on more than $3 billion debt in 2008 and ordering the renegotiation of contracts with oil companies.

Correa said Ecuador's two dozen banks had perfectly adequate legislation to protect against laundering and terrorism financing and dismissed the report as "a huge lie."

Drawing cheers from his audience, Correa asked why nobody had mentioned Brazil, which also has growing ties with Iran and hosted President Mahmoud Ahmadinejad late last year.

He said international authorities should put pressure instead on rich nations like the United States and Switzerland over money laundering in their financial systems.

The Ecuadorean leader was speaking in his weekly televised address, this time in the highland town of Sangolqui outside Quito. He arrived and departed in a wheelchair, waving to the crowd, after a knee operation in Cuba last week.

Ecuador's private bank association also said on Friday it thought the Iran factor was behind the nation's inclusion on the FATF list. It noted a 2009 agreement between Ecuador's Central Bank and some Iranian financial institutions.

"But you know how much money we have received from Iran up to now? Zero," said Correa, insisting Ecuador would maintain relations with whomever it wanted.

In a three-hour speech punctuated by jokes and music, Correa played a clip from the U.S. ambassador in Ecuador praising the nation's record on fighting drugs.

He vowed to seek regional support against the FATF in next week's Rio Group summit in Mexico.