February 24, 2014

Policy Memo: Why are Sanctions Blocking Medicine for Iranians and How Can We Fix This?

While humanitarian trade is technically exempt from sanctions, in practice humanitarian transactions are deterred or blocked by far-reaching sanctions that have walled off necessary financial channels and heavily penalized sanctions violators.

This problem has apparently persisted despite attempts to address it.  As Financial Times reported in December, “torturous procedures…have constricted commercial transactions even for those western suppliers whose products – such as drugs and food – are exempt from sanctions on humanitarian grounds.”  On January 28, CNN detailed how many Iranians have turned to the black market to obtain treatment for cancer due to shortages of vital American and European drugs.  Further, in recent weeks thousands of Iranians (including former reformist President Mohammad Khatami and prominent Iranian artists) have petitioned UN Secretary General Ban Ki-Moon protesting the effect of sanctions in contributing to Iranian medical shortages.

Sanctions and Exemptions

There are several Executive Order sanctions under which Iran’s international banks are sanctioned, notably Executive Order 13224 (terrorism) and Executive Order 13382 (proliferation). Any financial institution, foreign or domestic, risks being cut off from the U.S. financial system if it does any business with these banks.

  • While Congress has consistently exempted medicine from legislative sanctions, and the Treasury has issued a general license exempting the sale of medicine and medical devices from Iran trade sanctions, the exemption does not apply to financial transactions directly or indirectly involving banks designated under these executive orders.
  • If a prohibited Iranian bank is indirectly involved in any permitted transaction, such as by providing foreign currency to the Iranian bank carrying out the transaction, there is a strong risk of incurring sanctions. Therefore, the general licenses for food and medicine are effectively superseded by the Executive Orders that block transactions with Iran’s international banks.
  • Additionally, if financial institutions facilitate any authorized transactions that involve Iran, these banks are now required to publicly report this to the U.S. Securities and Exchange Commission—incurring potential negative publicity related to perfectly legal, humanitarian transactions.
  • The sanctions and reputational risks have deterred all U.S. banks and nearly all foreign financial institutions from facilitating even authorized humanitarian transactions.

Additionally, Executive Order 13599 was implemented to enforce the 2012 National Defense Authorization (NDAA), which required the president to block transactions with all Iranian financial institutions. Accordingly, EO 13599 adds all Iranian financial institutions to the U.S. Treasury Department’s sanctions blacklist (the Specially Designated Nationals List, or “SDN” list).

  • Humanitarian trade is still authorized with the small Iranian financial institutions that became sanctioned under Executive Order 13599. However, the inclusion of these institutions on the SDN list has led most international banks to cut all transactions with them anyway.
  • The result is that, because all humanitarian trade with Iran carries risk for foreign financial institutions, only the biggest and most lucrative transactions are carried out.  Even the banks most willing to facilitate humanitarian transactions simply view transactions that are not for tens of millions of dollars as inviting too much risk for too little potential reward.

Joint Plan of Action: 

The Joint Plan of Action (JPOA) struck between the P5+1 and Iran includes an agreement to “establish a financial channel to facilitate humanitarian trade for Iran’s domestic needs using Iranian oil revenues held abroad.” Such a channel could ameliorate the pressing humanitarian needs of the Iranian people if fully implemented.

However, recent statements from the administration have signaled that a direct channel will not be established.  Rather, efforts from the administration will largely consist of working with the Iranians toissue reassurances to banks, exporters and Iranian importers that humanitarian transactions are exempt from sanctions. While the administration has pledged to redouble efforts, this approach has been tried before to negligible effect.  It is doubtful that additional assurances from the administration will be sufficient to overcome difficulties in identifying viable financial channels or the hesitancy of banks and exporters to conduct any trade with Iran.  As a result, medical shortages and the Iranian people’s suffering are likely to continue barring more aggressive action.

Potential Solutions:

The agreement in the Joint Plan of Action to establish a financial channel for humanitarian trade would go a long way to resolving this problem if fully implemented.  However, the administration’s efforts will apparently consist of assurances rather than a direct channel and may well prove insufficient to counter the deterrent effect and over-enforcement of financial sanctions.  Additional steps will be needed to solve the crisis:

  • The Administration should open banking channels for authorized transactions by providing domestic and third country banks a blanket waiver that they will not be sanctioned for facilitating legitimate humanitarian transactions.
  • Alternatively, the Administration could heed the recommendation of a recent Atlantic Council report by “[d]esignating a small number of US and private Iranian financial institutions as channels for payment for humanitarian, educational, and public diplomacy-related transactions carefully licensed by the US Treasury’s Office of Foreign Assets Control.” This measure would completely cut out the need to use foreign banks as intermediaries and ensure a clear and legitimate financial channel to facilitate transactions.


Back to top