By Annie Fixler

December 18, 2016

The 10-year extension of the Iran Sanction Act (ISA) – a 1996 law imposing sanctions on Tehran’s trade, energy, defense, and banking sectors over its nuclear program, ballistic-missile tests, support for terrorism, and other illicit activities – became law overnight. Although the administration said it would not veto the bill, it has called it “unnecessary,” even lobbying Senate Democrats to block the extension. The administration may now attempt to provide Iran with new sanctions relief to assuage Iranian threats to walk away from the nuclear deal in response.

While the bill’s extension does not violate the nuclear deal, Iran reacted angrily by announcing plans to build nuclear-powered submarines. The White House may be tempted to provide Tehran with a new unilateral concession to persuade it to stick with the deal. As long as Iran remains the leading state sponsor of terrorism and a threat to the international financial system, however, additional sanctions relief would be premature and undermine global anti-money laundering standards.

Under last summer’s nuclear deal, the president waived the components of the ISA that the White House deemed nuclear-related. Congressional action earlier this month did not impose new nuclear or non-nuclear sanctions, but rather preserved the ability of the president and Congress to re-impose sanctions if Iran violates the deal. Iranian Supreme Leader Ali Khamenei and Foreign Minister Mohammad Javad Zarif, however, have insisted that renewing the bill amounted to a violation of the nuclear agreement itself.

In response to previous Iranian protests over allegedly paltry sanctions relief, Secretary of State John Kerry repeatedly made clear to international banks that trade with Iran is permissible. Earlier this year, the State Department reportedly even tried to push Treasury to permit Iranian access to the U.S. financial system after Tehran complained about the slow realization of the benefits of sanctions relief.

This pattern of Iranian complaints and American reactions raises questions over the Obama administration’s course of action in its final weeks. Some who support the deal, for example, have argued that the White House should lift Tehran’s designation as a jurisdiction of primary money laundering concern under Section 311 of the USA PATRIOT Act.

Iran, however, has made only minimal efforts to address concerns over its status as an illicit-finance hub. Since the Financial Action Task Force (FATF), the global anti-money laundering standards body, agreed in June to temporarily suspend recommendations to impose countermeasures against Iran, Tehran’s efforts to tackle illicit finance have been meager. Iran excluded Hezbollah and Palestinian terrorist groups from its anti-terror-finance bill, and independent experts describe it as one of the world’s greatest money-laundering risks. In September, Iran canceled follow-up meetings with FATF – a further sign that it is not taking illicit-finance reforms seriously.

Lifting the Section 311 designation while Iran continues its illicit financial activities would undermine a critical tool in Treasury’s arsenal. Over the past 15 years, the leading players in the international financial system have internalized the importance of robust international countermeasures against illicit finance. If the White House were to lift the Section 311 designation against Iran but continue to press banks to combat financial crimes, banks would likely view the move as hypocritical – and rightly so.

Instead, the onus should remain on Iran to demonstrate a real change in its approach to terrorist and proliferation financing, money laundering, and other illicit financial actions. If Tehran is disappointed by the benefits it has thus far reaped from sanctions relief, it should consider cleaning its financial house before trying to squeeze Washington into lifting more sanctions.

Foundation of Defense for Democracies

About Track Persia

Track PersiaTrack Persia is a Platform run by dedicated analysts who spend much of their time researching the Middle East, in due process we fall upon many indications of growing expansionary ambitions on the part of Iran in the MENA region and the wider Islamic world. These ambitions commonly increase tensions and undermine stability.