Argument

The Obama Administration Needs to Stand Strong on Iran Sanctions

Washington has already made unparalleled concessions to Tehran. And if President Obama has forgotten that Iran is still a rogue state, thank God that banks still remember.

khamenei

Iran’s demands are escalating. The supreme leader is sounding the alarm about American mendacity. An anxious U.S. secretary of state is practically begging companies to return to Iran. Cautious banking executives and a distrustful and angry Congress are pushing back. Welcome to the fallout from the nuclear deal, which merely signaled the beginning of negotiations with the Islamic Republic.

Last summer’s Joint Comprehensive Plan of Action was objectively a very good deal for Tehran: It preserved essential elements of the country’s nuclear infrastructure and placed only temporary, limited restrictions on its nuclear ambitions, which start expiring in 2023. In exchange, Iran got the complete dismantlement of many of the most impactful U.S. and international economic sanctions.

In January, the accord proceeded as scheduled. Iran mothballed some of its nuclear infrastructure and got the coveted seal of approval from the International Atomic Energy Agency. Following that, Washington and the Europeans terminated or suspended a slew of punishing economic sanctions and even agreed to hand over access to a whopping $100 billion in blocked Iranian assets.

But then President Barack Obama’s administration went even further. After committing to “actively encourage” state and local government to lift their own sanctions, the administration sent letters to all 50 governors urging them to reconsider all Iran-sanctions measures.

Even this was not enough for the Islamic Republic. “On paper the United States allows foreign banks to deal with Iran, but in practice they create Iranophobia so no one does business with Iran,” thundered Supreme Leader Ali Khamenei.

This is the same Iran that, in case anyone has forgotten, remains the leading state sponsor of terrorism and is still engaged in a wide variety of sanctionable financial illegalities. These include financing Hezbollah and Syrian President Bashar al-Assad’s government, paying for the illicit procurement of parts for its missile program, and money-laundering and sanctions-evasion schemes to hide these crimes.

Iran has found a way to bully the world into forgetting its bloody track record. The Obama administration opened the door to this strategy when it agreed to the nuclear deal: Under the terms of the accord, the United States and the European Union committed to “refrain from any policy specifically intended to directly and adversely affect the normalisation of trade and economic relations.” Iran has interpreted this to mean that the United States or EU cannot implement terrorism or other non-nuclear sanctions — even if they’re entirely justified. Iranian officials also argue that the United States must go further, pushing skittish multilateral companies and global banks back into Iran.

Of course, a tough-minded American administration would argue that there’s a big difference between not interfering with commercial relations and actively advocating for banks and companies to enter the Iranian market. The latter would turn Washington into the trade-promotion agent for a rogue state.

But this current administration is acquiescing. Secretary of State John Kerry rushed overseas on an international invest-in-Tehran “road show.” Banks simply need to “do their normal due diligence and know who they’re dealing with,” Kerry told reporters. But the banks know that there is no “normal due diligence” in a country as corrupt as the Islamic Republic.

In an attempt to assuage their concerns further, Kerry’s aides briefed State Department reporters on a plan to issue a license to permit these foreign banks to use dollars when processing transactions with their Iranian counterparts — a concession never explicitly negotiated as part of the nuclear deal. This prompted a backlash in Congress that had Treasury Department officials scrambling to issue guidance that they were not permitting Iranian access to the U.S. financial system, even as they left open the possibility of offshore dollar clearing. Kerry’s attempt to green-light Iranian use of the greenback simply does not line up with statements from the global anti-money laundering and anti-terror finance standards body, the Financial Action Task Force, which regularly warns members about Iranian money laundering and terror-financing risks.

Foggy Bottom is also ignoring the reality of how financial sanctions work. After a decade of Treasury warnings, which were backed by sanctions on Iran for its nuclear and weapons proliferation, terror financing, regional aggression, and money laundering, the private sector has a clear view of the risks of doing business in Iran. Banks are “driven by the financial-crime risks and the underlying conduct,” HSBC Chief Legal Officer Stuart Levey, who was once Obama’s Treasury undersecretary for terrorism and financial intelligence, reminded the U.S. government in a Wall Street Journal op-ed recently. “No one has claimed that Iran has ceased to engage in much of the same conduct for which it was sanctioned.”

It boils down to a simple question: After decades of U.S. government efforts to enhance global financial transparency, is this the right time for financial institutions to rush back into a country that still remains designated by the U.S. government as a “jurisdiction of primary money-laundering concern”?

The truth is that no matter how many meetings Kerry holds in financial capitals around the world or what deal sweeteners the White House tries to provide Iran, responsible global banks will keep the Islamic Republic at arm’s length. The nuclear deal hasn’t changed the Iranian regime’s malign foreign and economic policies, which have had a remarkable consistency over the years. As Foreign Minister Mohammad-Javad Zarif wrote in his memoir, tending to the country’s economic welfare was not enough for Iran’s leaders: “We have also defined a global vocation … we do not exist without our revolutionary goals.”

In an odd irony, the world’s bankers appear to have more understanding of the Islamic Republic’s potential for trouble than the American secretary of state.

Majid Saeedi/Getty Images

Mark Dubowitz is executive director of the Foundation for Defense of Democracies, where he heads its Center on Sanctions and Illicit Finance.

Annie Fixler is a policy analyst at the Foundation for Defense of Democracies’ Center on Sanctions and Illicit Finance.

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