Politics & Policy

Obama’s Iran Sanctions Bait-and-Switch

Treasury secretary Jack Lew on Capitol Hill (Nicholas Kamm/AFP/Getty)

Last week, a fresh political scandal erupted on Capitol Hill over Iran. At issue was a new plan being considered by the Obama administration to provide Iran’s ayatollahs with limited access to the U.S. financial system as a sweetener for their continued compliance with their government’s 2015 nuclear deal with the nations of the P5+1.

Doing so would have effectively reneged on promises made by the White House last summer in selling the nuclear deal (formally known as the Joint Comprehensive Plan of Action, or JCPOA) to a skeptical Congress. Back in July, in testimony before the Senate Foreign Relations Committee, Treasury Secretary Jack Lew waved away congressional worries over the prospects of Iran’s regime being unjustly enriched as a result of the JCPOA. Lew pledged that — irrespective of the provisions of the new nuclear deal — Iran would “continue to be denied access to the world’s largest financial and commercial market.”

The plan would also have been a potential violation of federal law, since under the provisions of the 2012 National Defense Authorization Act the White House is required to “block and prohibit” Iranian assets if those funds “come within the United States, or are or come within the possession or control of a United States person.” (Similarly, the administration’s proposal would have fundamentally undermined one of the central pillars of post-9/11 counterterrorism law, the USA PATRIOT Act, by allowing Iran’s tainted money to permeate U.S. financial institutions.)

News of the new initiative drew outraged responses from key lawmakers, who promised — among other things — to penalize U.S. companies who used the opportunity to expand their business with the Islamic Republic. The pushback worked, and by the weekend the administration had walked back the dog on its proposed idea. “The administration has not been and is not planning to grant Iran access to the U.S. financial system,” a spokesperson deployed by the Treasury Department insisted to reporters on April 1.

That, however, isn’t the end of the story. While the White House may have stopped short of giving Iran direct access to the American financial system, it still appears to be mulling workarounds that would nonetheless allow the Islamic Republic to take advantage of the U.S. dollar.

#share#Prominent among these is the possibility of the U.S. government lifting prohibitions on Iran engaging in dollar transactions that take place offshore. “Treasury now appears poised to permit U.S. banks to provide dollars for an offshore clearing facility overseen by a foreign government or foreign bank,” explains sanctions expert Eric Lorber. “When transmitting payments between Iranian companies and non-U.S. companies, the foreign financial institution would use this offshore clearing facility to convert the transaction into dollars.”

The end result of this rather convoluted arrangement would be to facilitate greater opportunities for the Iranian regime to do business with foreign companies and foreign financial institutions, and to have those transactions buttressed by the credibility of the U.S. currency. It also paves the way for Iran’s re-entry into the global financial system without any evidence that Tehran has ceased its illicit financial activities. The White House, meanwhile, can technically stay within the letter of federal law (as well as its promises to Congress) by stopping short of giving Iran greater access to the U.S. market itself.

#related#Whether the plan upholds the spirit of American sanctions law, however, is another matter entirely. After all, the new nuclear deal was never intended to absolve Iran of responsibility for its rogue behavior, ranging from its pervasive support of international terrorism to its flagrant human-rights abuses, at which a large portion of existing U.S. sanctions are directed. In fact, those trends have gotten substantially worse since the passage of the nuclear deal last summer.

Last week, on the sidelines of the latest Nuclear Security Summit in Washington, D.C., President Obama waxed critical of Iran’s leaders for failing to live up to the “spirit” of the JCPOA by engaging in a range of recent “provocative actions” that undermine the trust of the international community. It was quite a peculiar comment, given that the president is currently in the process of doing much the same thing to the integrity and viability of U.S. sanctions.

Sadly, the Obama administration doesn’t seem to be aware of the irony.

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