Since a landmark nuclear deal went into effect January 16, Iranians are increasingly frustrated that while they have fulfilled their part of the bargain, they have yet to see significant economic benefits.
The Barack Obama administration lifted so-called secondary sanctions impeding foreign companies from returning to business with Iran. But remaining restrictions — particularly on banking and dollar transactions — as well as foreign fears of new sanctions under the next US administration, are keeping many memorandums of understanding from being implemented.
While no government can force private businesses to take actions they consider risky, there are five steps the Obama administration could take to facilitate transactions that are legally allowed under the so-called Joint Comprehensive Plan of Action (JCPOA).
The first is to permit Iranian banks to have tangential contact with the dollar when converting large sums of foreign currencies into euros.
US officials have ruled out so-called u-turn transactions, in which Iran could move dollars through a New York clearing bank. But the US Treasury Department’s Office of Foreign Assets Control (OFAC) could expressly permit the use of the dollar as an accounting tool to calculate the value of billions of previously frozen Iranian oil revenues currently held in currencies such as Indian rupees, Omani riyals and Chinese yuan. Without this change, Iran will continue to experience difficulty accessing its money in foreign banks – something it was promised under the JCPOA.
Secondly, OFAC could issue a general license permitting American citizens who work for foreign banks in senior positions to supervise Iranian compliance with international banking regulations and norms.
George Kleinfeld, a lawyer and sanctions expert at the Clifford Chance law firm in Washington, told this analyst at a recent conference in Zurich that one of the reasons big European banks have been reluctant to return to Iran is that many have Americans in top executive positions and it is hard to “wall them off” from Iran business as specified by the JCPOA. He said that OFAC could address this by issuing “a general license that would permit foreign financial institutions to involve U.S.-person employees” in legal Iran-related business.
A third step was suggested in testimony last week before the House Foreign Relations Committee by Elizabeth Rosenberg, a former Treasury Department official who is now a senior fellow at the Center for a New American Security. Rosenberg told the hearing that US technical experts should be allowed to advise Iran on ways to improve “its financial transparency and accountability” to help it prevent money laundering and terrorist financing.
Iran’s failure to meet international standards in this area is one reason why Iranian banks have been designated by the Financial Action Task Force, a Paris-based body, as a “high-risk” jurisdiction for money laundering and “non-cooperative” in countering financial terrorism. As Rosenberg testified, such US help “will support US policy interests in achieving greater transparency in the Iranian financial industry, and it will clearly demonstrate that the United States is not the roadblock to economic reform.” She added that this could also “help to reinvigorate private business in Iran to better challenge the insidious control of the IRGC [Islamic Revolutionary Guards Corps] over significant parts of the Iranian economy. ”
A fourth step would be to allow US banks to directly handle transactions with Iranian banks for purposes that are expressly permitted by the JCPOA.
These include the provision of humanitarian goods such as food and medicine and sales of civilian aircraft to Iran. Without such explicit permission from OFAC, it is hard to see how large deals can be struck. An Iranian agreement to buy Airbus planes is currently hung up in part over issues of financing; similar problems could afflict any potential sales by Boeing. The Atlantic Council’s Iran Task Force proposed three years ago that a direct banking channel be set up between the U.S. and Iran for humanitarian trade. This suggestion that should be implemented now.
The final change that the Obama administration could make is to reauthorize lending to Iran by international financial institutions such as the World Bank.
For many years now, the US has prevented the Global Environmental Facility from loaning money to Iran for important environmental projects such as carbon sequestration, promoting natural resources management and conserving biodiversity. There was no good reason for blocking these funds in the past and there certainly is no good reason for blocking them now. Iran is facing an environmental crisis of epic proportions because of climate change, poor water management and the actions of neighbors such as Afghanistan.
Critics of the JCPOA argue that Iran’s failure to reap major benefits from the deal so far is the fault of the Islamic Republic. Iran must clean up its banking sector, push the IRGC out of the economy and stop funding groups that are on the US State Department’s list of terrorist organizations, these critics would say.
While these are all laudable aims, they were not part of the nuclear bargain Iran struck with the United States, the other permanent members of the UN Security Council and Germany.
Iran has carried out its obligations to slash the number of operating centrifuges, cap enrichment, preclude plutonium production and permit more intrusive international monitoring of its program. The growing perception in Tehran that Iran is not getting what it was promised in return risks sabotaging the nuclear agreement and bolstering the very forces in the Iranian political system that are carrying out policies critics abhor.
Barbara Slavin is Acting Director of the Future of Iran Initiative at the Atlantic Council’s South Asia Center.