May Gain Access to U.S. Financial System
By Tzvi Kahn
March 30, 2016
The growing prospect that the Obama administration will
offer Iran access
to the American financial market threatens to subvert an already weakened U.S.
sanctions regime and ultimately encourage future Iranian aggression. The move
likely marks yet
another White House effort to incentivize Tehran to adhere to the nuclear
agreement, but will almost certainly achieve the opposite result by reducing the
economic leverage America needs to enforce it.
The proposed measure, which would enable Iranian companies to conduct business using the U.S. dollar, directly contradicts the Obama administration’s pledges last summer. “Iranian banks will not be able to clear U.S. dollars through New York, hold correspondent account relationships with U.S. financial institutions, or enter into financing arrangements with U.S. banks,” said Treasury Secretary Jacob J. Lew on July 23. “Iran, in other words, will continue to be denied access to the world’s largest financial and commercial market.” Adam J. Szubin, acting under secretary for terrorism and financial intelligence, echoed these sentiments. “Iran,” he declared on September 16, “will not be able to open bank accounts with U.S. banks, nor will Iran be able to access the U.S. banking sector, even for that momentary transaction to, what we call, dollarize a foreign payment.”
If the Obama administration now reverses this policy, it would effectively terminate U.S. sanctions on Iran, which rely on America’s ability to isolate the country from its financial system. Moreover, as Mark Dubowitz and Jonathan Schanzer of the Foundation for Defense of Democracies note, the prospective concession disregards the warnings of the Financial Action Task Force, an inter-governmental body devoted to combatting terrorist financing, which has stated that Tehran’s illicit financial activities jeopardizes “the integrity of the international financial system.”
Leading members of Congress have also expressed concern. “Such an effort would benefit Iran’s terror financiers while fundamentally undermining the USA PATRIOT ACT 311 finding that Iran’s entire financial sector is a jurisdiction of primary money laundering concern,” said Sen. Mark Kirk (R-IL). According to Rep. Ron DeSantis (R-FL), “Further sanctions relief would mark the death knell for U.S. sanctions and would represent a boon to the Iranian regime and its Revolutionary Guard Corp.”
Equally alarmingly, the move would send Iran the message that negotiations over the nuclear agreement, formally known as the Joint Comprehensive Plan of Action (JCPOA), hardly ended upon the deal’s formal conclusion in July 2015. Rather, the pact remains subject to continuous renegotiation in accordance with Iran’s whims.
In practice, Tehran has long recognized this potential. For example, in the months after the deal, the regime repeatedly declared that any U.S. or international effort to reimpose nuclear-related sanctions, or to impose new non-nuclear sanctions, would constitute a violation of its terms — directly contravening the Obama administration’s interpretation of the agreement. By repeatedly threatening to withdraw from the JCPOA should America spurn its evolving demands, Iran has effectively transformed the nuclear deal itself into a bargaining chip that empowers the regime to extract further concessions from the United States.
Iran’s potentially reentry into the U.S. financial system marks only the latest example of this ploy. The regime long understood that the nuclear agreement would not offer the country access to the dollar. But on March 20, Iran’s supreme leader — frustrated that U.S. sanctions had deterred many European banks from pursuing meaningful investments in Iran, and mindful that a U.S. reversal would stymy America’s ability to punish Tehran for its non-nuclear aggression — suddenly objected. “We have a problem conducting different financial transactions which require the assistance of banks,” said Ayatollah Ali Khamenei. “And when we pursue the matter, follow it up and ask about it, it becomes clear that they are afraid of the Americans.”
In response, the administration not only has indicated that it will consider more one-sided accommodations, but has expressed fear over the “risks of overuse” of Iran sanctions. As Treasury Secretary Jacob J. Lew stated in a speech this morning, “If foreign jurisdictions and companies feel that we will deploy sanctions without sufficient justification or for inappropriate reasons — secondary sanctions in particular — we should not be surprised if they look for ways to avoid doing business in the United States or in U.S. dollars.”
Lew’s statement echoes arguments the Obama administration advanced during the JCPOA’s congressional review period. If Congress rejected the deal, President Obama warned on August 5, the United States “would have to sanction, for example, some of the world’s largest banks,” which could “raise questions internationally about the dollar’s role as the world’s reserve currency.” Such a prospect, asserted Secretary of State John Kerry, would challenge American credibility as a global leader. “There will be an increase in this notion,” he said on August 11, “that there ought to be a different reserve currency because the United States is misbehaving and not, in fact, living by the agreements that it negotiates itself.”
These claims do not withstand scrutiny. The dollar remains the world’s strongest currency; no alternative currently exists that can compete with it. In recent years, it has withstood enormous strains without losing its primacy, including a global financial crisis and downgraded U.S. credit ratings. In this context, foreign banks continue to regard U.S. markets as far more lucrative than Iranian markets. “To say the U.S., or the U.S. dollar is going to lose its reserve currency status is really to say that the U.S. is going to no longer be the world’s largest economy,” said Cris Sheridan, senior editor for Financial Sense, last September. Iranian access to the dollar would prove far more destabilizing to the global financial system by comparison.
The White House probably imagines that its flexibility incentivizes Iran to comply with the nuclear deal. In reality, the U.S. approach removes any reason for Tehran to fear the consequences of further aggression. Ironically, in its desperation to preserve the deal, the administration may end up dismantling it.