By Richard Goldberg and Mark Dubowitz
October 1, 2020
According to an exclusive Bloomberg report this week, the Trump administration may be considering a sanctions designation of Iran’s financial sector in its entirety pursuant to Executive Order (E.O.) 13902, which authorizes the secretary of the treasury, in consultation with the secretary of state, to impose sanctions on entire sectors of Iran’s economy. While members of the U.S. House and Senate recently urged the administration to take this action, Bloomberg reports that some officials fear a financial sector designation “could complicate the provision of humanitarian assistance to Iran.”
A follow-on Bloomberg article citing a number of sources supportive of the Islamic Republic further claimed that such a designation “could sharply hinder [Iran’s] ability to secure supplies of food and drugs as it struggles to contain a resurgence of the worst coronavirus outbreak in the Middle East.” However, as indicated by the text of E.O. 13902 along with steps taken by the Treasury Department to operationalize a Swiss humanitarian channel with Iran, a designation of Iran’s financial sector would not impact humanitarian trade. Claims to the contrary, including the headline of the second Bloomberg article, are simply not true.
E.O. 13902 – like most sanctions imposed by the United States on Iran – includes an outright exemption for humanitarian trade, and therefore, a financial sector designation issued pursuant to that authority would not interfere with the established Swiss channel.
Today, most humanitarian trade with Iran is facilitated by the Central Bank of Iran (CBI). That might surprise most analysts for two reasons: The CBI is subject to U.S. sanctions for its role in financing terrorism, and the bank was disconnected by SWIFT in November 2018 following the re-imposition of U.S. sanctions on Iran. How, then, can the CBI conduct humanitarian trade? In February, the Treasury Department’s Office of Foreign Assets Control issued General License 8, authorizing certain humanitarian trade transactions with the CBI, alongside updated Frequently Asked Questions, which encouraged the use of a new Swiss humanitarian channel in connection with the General License. Treasury has separately issued comfort letters to foreign banks seeking to process transactions through the Swiss channel – the sanctions equivalent of “get out of jail free” cards.
Given its built-in humanitarian exemption, a designation of Iran’s financial sector under E.O. 13902 would not layer any new restrictions on the Treasury-approved Swiss channel or the CBI. Even if SWIFT disconnects the remaining Iranian banks on its system following the designation, what little humanitarian trade is conducted through these non-CBI banks would still be permitted.
The U.S. government has gone above and beyond in working to facilitate humanitarian transactions despite Iran’s continued abuse of its financial system. Foreign banks and companies are afraid to do business with Iran because of the well-documented conduct of its regime, not just because of U.S. sanctions. The Trump administration has done a great deal to overcome this very rational, market-based fear. Arguments that U.S. sanctions create a general chilling effect on humanitarian trade and therefore should be lifted go too far; humanitarian trade continues, while sanctions have made it more difficult for the regime to fund terrorist groups and ballistic missile development, among other malign activities.
While a designation of Iran’s financial sector serves the purposes of the Trump administration’s maximum pressure campaign, the designation itself is fully justified based on Iran’s conduct. Between the final PATRIOT Act 311 rule issued by the Financial Crimes Enforcement Network, which declared Iran’s financial sector to be a primary jurisdiction for money laundering concern, and this year’s re-imposition of countermeasures on Iran’s financial sector by the international Financial Action Task Force, a designation of Iran’s financial sector under E.O. 13902 is long overdue. This designation should only be repealed when Iran changes its behavior and stops using its financial system for money laundering and terror finance.
Foundation for Defense of Democracies