April 14, 2016

Top U.S. Sanctions Official: Iran Must See Promised Sanctions Relief

Washington, DC – As analysts warn that some U.S. sanctions continue to deny Iran the practical benefits of sanctions relief under the nuclear deal, the Treasury Department’s top sanctions enforcer made the case on Wednesday for why the U.S. must ensure Iran receives promised relief.  

“It is important to keep our promises, and to ensure that the Iranian people see the economic benefits of this deal,” said Acting Under Secretary for Terrorism and Financial Intelligence Adam Szubin. “To do otherwise would undermine not just Iran’s incentive to stick to the deal and undermine its long-term viability, but also our own international credibility and our corresponding ability to use sanctions to help change behavior in the future.”

Reports recently surfaced that the Obama Administration was considering a mechanism to reduce obstacles Iran faces in accessing recently unrestricted funds and receiving payment for its oil sales in euros. The deliberations were met by an outcry on Capitol Hill and organizations who waged a campaign to block any such action. Szubin delivered his comments before the group who led that charge, the Foundation for the Defense of Democracies (FDD), which lobbied strenuously against the Iran deal and has advocated for Congress to gradually dismantle the accord by stymying sanctions relief. 

Szubin addressed the reports that the Obama Administration had been considering licensing an offshore dollar-clearing system to enable Iran to participate in transactions involving U.S. dollars. Some believe such a move may be necessary in order for Iran to access its formerly restricted oil revenues locked in overseas accounts, though Treasury officials have more recently argued that no license is required as non-U.S. banks are not prohibited from clearing dollars so long as it does not pass through the U.S. financial system. Whether banks can be sufficiently reassured to engage in such permitted transactions remains to be seen.

For his part, Szubin assured the audience that Iran would not be granted access to the U.S. financial system but also spoke bluntly about the need for the U.S. to address ongoing challenges in lifting sanctions so that Iran is not denied “the benefit of its bargain” under the nuclear accord. He also discussed efforts by Iran that could resolve some of the fundamental concerns about allowing Iranian access to U.S. financial system. “To its credit,” Szubin said, “Iran has publicly recognized that its financial transparency measures lag behind international standards, and has begun an attempt to improve them.”

The controversy about the Obama Administration’s supposed efforts to enable Iran to participate in dollar-based transactions spurred a bevy of legislative proposals by members of Congress who opposed the Iran deal and sought to block the Administration from any such effort. The proposals, such as the “Preventing Iran’s Access to United States Dollars Act of 2016,” introduced by Senators Mark Kirk (R-IL) and Marco Rubio (R-FL), would not just complicate sanctions relief efforts but would also very likely violate the deal. The proposals have been introduced exclusively by Republican opponents of the Iran agreement and are therefore unlikely to pass unless they garner Democratic support. In a telling sign of Democratic opposition, the top Democrat on the Foreign Relations committee, Senator Ben Cardin (D-MD) warned the legislative efforts risked violating the agreement. “[I]f it’s a matter where [Iran is] entitled to relief under the JCPOA, and if effectively you only do that through [dollar] conversion, then legislating they can’t do conversions could be a violation of the JCPOA.” Cardin voted against the Iran deal but has said violating the agreement now that it has been implemented would undermine U.S. interests.

However, the mere introduction of all these measures—and the threat that they could be attached to must-pass spending legislation or perhaps a renewal of the Iran Sanctions Act that expires at year’s end—may have a “chilling effect” that convinces foreign banks and companies that the political environment in Washington is too volatile to risk dealing with Iran. Such efforts to undermine the sanctions relief don’t just put the nuclear deal in jeopardy but also risk dashing hopes that the nuclear deal and the economic reintegration of Iran into the global economy could encourage broader shifts in Iran’s posture.

Former US Ambassador to Oman Richard Schmierer discussed this reality at a Capitol Hill conference this week. “To this point, I would say there’s no evidence of any fundamental change in [Iran’s] behavior, but it is still a bit early, and in fact one of the concerns I heard when I was in Oman and generally in the region recently was the fact that Iran still doesn’t really have access to the economic benefits of the nuclear deal because of continuing US banking sanctions,” he said. “So I think that anything that could be done to help those in Iran who are seeking to move Iran in the direction of focusing on a domestic economic development and closer ties to the region and to the global community, those kinds of steps in themselves I think will lead to modified and better Iranian behavior.”

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