How U.S. sanctions financially squeeze Tehran
Fox News, October 28, 2007
Alireza Jafarzadeh
Today, the United States
imposed stiff sanctions against the Iranian regime,
targeting the Iranian military structure and a number of
Iranian banks and individuals it accuses of backing nuclear
proliferation and terror-related activities.
The Islamic Revolutionary Guard Corps (IRGC), its elite unit
engaged in terrorism known as the Qods force and nine other
IRGC-affiliated entities, the Ministry of Defense and Armed
Forces, three of Iran's largest state-owned banks, five
IRGC-affiliated individuals, and three individuals
affiliated with Iran's Aerospace Industries Organization (AIO)
are now designated under Executive Orders 13382 and 13224.
"What this means is that no U.S. citizen or private
organization will be allowed to engage in financial
transactions with these persons and entities," Secretary of
State Condoleezza Rice said in a joint announcement with
Treasury Secretary Henry Paulson. "In addition, any assets
that these designees have under U.S. jurisdiction will be
immediately frozen," she added.
"Iran funnels hundreds of millions of dollars each year
through the international financial system to terrorists,"
Treasury Secretary Henry Paulson said. "Iran's banks aid
this conduct using a range of deceptive financial practices
intended to evade even the most stringent risk management
controls."
Last month, representatives of world powers announced that
unless a November report shows a "positive outcome" of talks
with Iran about its uranium enrichment program, they will
move ahead with plans for a resolution imposing additional
sanctions on the country.
The U.N. Security Council has repeatedly demanded that Iran
suspend enrichment of uranium and has imposed limited
sanctions on Tehran for refusing to comply. The European
Union is weighing its own unilateral sanctions.
The sudden fall of Ali Larijani, Iran’s chief nuclear
negotiator, from the grace of the Supreme Leader Ali
Khamenei, and his replacement with another former IRGC
commander close to Ahmadinejad, settles one core issue in
the nuclear standoff with Tehran: negotiations are at a dead
end.
The key question, however, is about the effectiveness of
international sanctions to halt Tehran’s drive to get the
A-bomb.
The short answer is that, while not sufficient by
themselves, an array of multilateral punitive financial
measures within and outside of the United Nations Security
Council have put measurable squeeze on Tehran’s financial
chokeholds. Equally decisive, they have been instrumental in
fueling further political disarray within the regime. The
new designation of the IRGC and its affiliated organizations
would make life even more miserable for the regime.
Sepah Bank, the fifth largest state-owned bank in Iran with
1,700 branches, and described by a U.S. Treasury Department
official as “the financial linchpin of Iran’s missile
procurement network," has been seriously hurt by the UN
action. The bank has reportedly lost approximately $4
billion by being shut out of Europe.
The latest annual report of Bank Sepah International Plc (BSIP),
the company’s fully owned subsidiary in London, laments that
“the operating environment for the bank became increasingly
difficult” in 2007.
Other state-run banks have been feeling the pressure too.
Iran’s Central Bank has routinely tried to shield Sepah Bank
from sanctions by hiding its identity when making deals for
proliferation-related projects. This ploy is now haunting
the Central Bank and other Iranian financial institutions,
as news about the abusive practices is driving foreign banks
away.
The October 25 designation of Iran's Melli, Mellat and
Saderat Banks by the Treasury Department, resulting from
their involvement with Iran's proliferation activities or
its support for terrorism, will further financially squeeze
Tehran.
Since 1980, the United States has imposed an array of
different sanctions targeting a variety of Tehran’s outlaw
behavior ranging from sponsorship of terrorism and
long-range missiles development, to WMD and nuclear
proliferation. The measures put in place by the Treasury
Department’s Financial Crimes Enforcement Network (FinCen)
that target Iran’s banking and business sectors are among
the most effective of these sanctions.
FinCen has warned U.S. banks that Iran is now stepping up
its “deceptive” tactics for evading sanctions such as
funneling transactions through front companies. Stuart Levey,
the undersecretary for terrorism and financial intelligence
at the Treasury Department, has already convinced 40 banks
to stop doing business with Iran.
Meanwhile on the other side of the Atlantic, with almost a
U-turn shift in France’s approach toward Tehran’s nuclear
program after new President Nicolas Sarkozy took the helm
last summer, there is a new and much needed energy for the
efforts to beef up the existing punitive sanctions.
France has recently called on the European Union to
implement its own sanctions independent of the UN. Despite
EU’s reluctance to follow France’s call, there are
increasing European punitive actions against Tehran. The
French banking industry is exiting Iran; 50 percent of its
banks in Iran have shut down, including BNP Paribas,
France’s second-largest bank. Others include Credit Lyonnais,
Société Générale SA and French Bank of General Development.
The latter, under pressure from the United States, withdrew
from its commitment to invest some $1.8 billion for two
critical development phases of the South Pars oil and gas
field.
The Swiss ABN Amro Holding NV, Credit Suisse Group and UBS
AG, and the British Barclays PLC and HSBC Holdings PLC have
also reduced or ended their business in Iran.
Although the German government is dragging its feet to get
in line with France and the United States to adopt tougher
measures, three of the leading German banks, Deutsche Bank
AG, that country's largest, Commerzbank AG, the
second-largest, and Dresdner Bank, have terminated most of
their dealings with Tehran.
How does President Mahmoud Ahmadinejad, who has claimed
Tehran's nuclear dossier “is now closed” and has dismissed
the UNSC sanction resolutions as “worthless piece of paper,”
deal with the bad news about Iran’s fast growing financial
isolation and its impact on Iran’s economy? Simple; with
full backing of Supreme Leader Ali Khamenei, he purges his
top officials and resorts to desperate suppressive measures
to keep the restive population at bay.
Just in the past several months, Ahmadinejad has fired the
governor of the Central Bank and the oil minister — two key
cabinet posts, over Tehran’s eroding relationships with
foreign banks and failure to find investors to fund oil
projects. The sudden announcement of fuel rationing last
summer, turned Tehran and other major cities into the scene
of massive anti-regime protests where — far beyond the
regime’s energy policies — the totality of ayatollahs’
regime was targeted. The politically-suppressed,
socially-suffocated and economically-deprived people burnt
down hundreds of state-run fuel pumps, chanting death to
dictatorship.
After these riots, a state-run daily in Iran, Etemad,
acknowledged that growing bread and butter issues have
turned into a major national security matter for the regime.
“It does not matter what the event is; it could be the loss
of the national soccer team, sudden loss of electricity, the
cutting off of the drinking water, or the sudden and
unexpected rationing of the fuel ... They all can spark a
riot ... Although most of these riots are put down after the
security and military agencies intervene, every act of riot
adds to the collective memory of the people who will use it
as capital or a learned experience for the next uprising,”
the paper said.
It is therefore very evident that sanctions have a unique
impact on Tehran’s political and financial capabilities. But
the key question, far more important than the one about the
effectiveness of sanctions, is that would the sanctions
alone force Tehran to stop enriching uranium, come clean
about its entire nuclear program, and change its outlaw
behavior? Not likely.
However, weakened by series of dismissals and factional
rivalries, plagued by intrinsically dysfunctional theocratic
system, and faced with an increasingly defiant and
repression-resilient populace and an organized opposition
spearheaded by the Mujahedin-e Khalq (MEK), Tehran is
extremely vulnerable. A foreign correspondent reported last
summer from Tehran that “The launch of writing slogans on
the walls in big cities in favor of MEK brings back bitter
memories in mullahs’ minds … The Iranian rulers are very
concerned and alarmed. Not because of unfeasible foreign
military attack but because of peoples’ support for
Mojahedin-e-Khalq. Today, MEK is highly capable of
attracting the young people born and raised after the
revolution.”
Thanks to information obtained by its vast network inside
the country, this group has exposed the regime's secret
nuclear sites and uncovered secret terrorist training camps
and bomb-making factories that continue to ignite violence
in Iraq.
Crippling Tehran's financial lifeblood would further weaken
its internal terror machine, demoralize the financially
vulnerable IRGC, and heighten the internal conflict among
the warring factions ruling the country. At the same time,
removing restrictions from the main Iranian opposition would
act as a signal that the West recognizes the legitimate
right of the Iranian people to determine their own destiny
which, by all indications, is an Iran free of tyranny,
terrorism and nuclear weapons.
Alireza Jafarzadeh is a FOX News Channel Foreign Affairs
Analyst and the author of
"The Iran Threat: President Ahmadinejad and the Coming
Nuclear Crisis" (Palgrave Macmillan, 2007).
Jafarzadeh has revealed Iran's terrorist network in Iraq and
its terror training camps since 2003. He first disclosed the
existence of the Natanz uranium enrichment facility and the
Arak heavy water facility in August 2002.
Prior to becoming a contributor for FOX, and until August
2003, Jafarzadeh acted for a dozen years as the chief
congressional liaison and media spokesman for the U.S.
representative office of Iran's parliament in exile, the
National Council of Resistance of Iran.
