The Corner

The one and only.

Nyet and Reset


Vladimir Putin has given a loud “no” to any possibility of Russian support for sanctions on Iran. What motivates Russia’s position? I speculated about how the Kremlin believes itself in a win-win strategy, here

It is now time for Obama strategists to understand that their strategy isn’t working and reset. They should have learned several lessons.

(1) Unilateral concessions do no beget unilateral concessions and advance diplomacy. Rather, they signal weakness and forfeit leverage.

(2) Multilateralism can bestow greater international legitimacy upon actions, but it is not a panacea. Rather, accomodating recalcitrant regimes with opposite interests often waters down policy to the point of ineffectiveness. Sometimes unilateralism — or, dare I say it, “Coalitions of the Willing,” work.

This does not mean that the United States should pursue kinetic strategies against the Islamic Republic. I’ve written elsewhere about the drawbacks of military options. While bombing would force a delay, it would be an abuse of the U.S. military to simply use the U.S. Air Force to kick the can down the road. Ultimately, the question returns to the nature of the Iranian regime rather than the Iranian people. Here, as a long-term strategy, Obama and the Europeans can ratchet up support for independent trade unions, forcing the Islamic Republic to become more accountable to the regime.

Of course, long-term strategies are of limited utility when the clock is ticking on the Islamic Republic’s nuclear-weapons capability. Here, Obama has a huge number of highly effective, even if unilateral financial strategies. Quoting from the Bipartisan Policy Center’s Iran report:

In addition to the Executive Orders, the U.S. Congress has empowered the U.S. government to undertake further economic coercion against the Islamic Republic or its business partners. The Iran Sanctions Act, the successor to the Iran-Libya Sanctions Act of 1996, empowers the United States to act against private companies investing in Iran.  The law requires the President to impose sanctions on foreign (or U.S.) investment of more than $20 million in one year in Iran’s energy sector.  These sanctions have succeeded in impeding a number of projects, including Lukoil’s exploration of the Anaran oil field. Given the potential sensitivities of our European allies, consultations with them on such legislation should take place as part of our intensive efforts to proceed on a common course.

In 2006, Congress amended the law to make exports to Iran of weapons of mass destruction or advanced conventional weapons technology sanctionable, and to call for, but not mandate, a 180-day time limit for the Administration to determine whether a project violates the Iran Sanctions Act.  No projects have actually been sanctioned under Iran Sanctions Act, and only one–a 1997 investment by Total SA, Gazprom, and Petronas of Malaysia–was determined to have violated it, although Clinton waived sanctions on the grounds of national interest. In the subsequent decade, more than a dozen investment agreements with Iran–many of which are now operational and producing oil or gas–have helped Iran slow deterioration of its energy export sector.  However, the Islamic Republic would have attracted far more investment if the Iran Sanctions Act had never been enacted. One major project that Iran believes would help its gas export sector considerably is a proposed gas pipeline from Iran through Pakistan to India.

The U.S. government has other tools at its disposal. Section 311 of the Patriot Act of 2001 authorizes the Treasury Department to designate a foreign jurisdiction, financial institution, class of transactions, or type of account as being of “primary money laundering concern.” This enables the Treasury Department to impose one or more of five special measures:

    1. Requiring additional recordkeeping or reporting for particular transactions;

    2. Requiring the identification of the foreign beneficiary owners of certain accounts at U.S. financial institutions;

    3. Requiring the identification of customers of a foreign bank who use an interbank payable-through account opened by that foreign bank at a U.S. bank;

    4. Requiring the identification of customers of a foreign bank who use an interbank correspondent account opened by that foreign bank at a U.S. bank; and

    5. After consultation with the Secretary of State, the Attorney General, and the Chairman of the Federal Reserve Board, restricting or prohibiting the opening or maintenance of certain interbank correspondent or payable through accounts.

The net impact of Section 311 denies access to the U.S. financial system to entities designated as “special concerns.” While the authority has been invoked seven times since the passage of the Patriot Act, it has yet to be applied to an Iranian entity.

The U.S. Treasury Department has not implemented Section 311 on Iranian interests for fear that the financial community may deem such action as too political, a judgment that might erode the specter of Section 311 action in other cases. Ironically, this self-restraint benefits the Islamic Republic in two ways. First, it allows Tehran to engage in deceptive financial behavior without consequence. Second, it undercuts the effectiveness of U.S. diplomacy as other states conclude that Washington’s failure to implement Section 311 suggests the United States is not as serious as it claims.

In addition, there are a number of informal defensive measures that the U.S. government can apply to undercut any bank’s cooperation with Iranian institutions. U.S. officials can warn both U.S. and foreign banks of the risks inherent in business dealings with Iran. These dangers include reputation risk and fiduciary obligation to shareholders. Because the Islamic Republic engages in illicit and deceitful financial activities, transactions that the best international due diligence practices may consider legitimate may turn out to be illicit. When any bank’s participation in illicit Iranian activity becomes public, the bank is likely to face fines and damage to its reputation.


Sign up for free NR e-mails today:

Subscribe to National Review