March 31, 2016 | Policy Brief

Don’t Politicize Sanctions

March 31, 2016 | Policy Brief

Don’t Politicize Sanctions

In a speech yesterday before the Carnegie Endowment for International Peace, Treasury Secretary Jack Lew argued that sanctions are an effective instrument to address illicit activities, but they must be lifted when the illicit behavior changes:

“Since the goal of sanctions is to pressure bad actors to change their policy, we must be prepared to provide relief from sanctions when we succeed. If we fail to follow through, we undermine our own credibility and damage our ability to use sanctions to drive policy change.”

This is an important principle, but the commentary surrounding these remarks misses a crucial detail: Iran has not addressed the underlying behavior that prompted many of the U.S. sanctions.

Over the past decade, Treasury’s efforts have focused on quarantining from global markets the financing of nuclear and missile proliferation, terrorism, money laundering, and corruption. As David Cohen, then-under secretary of the Treasury and current deputy director of the CIA, explained in 2012, the purpose of sanctions is to “protect the integrity of the U.S. and international financial systems.”

When Treasury banned Iran’s last access point to the U.S. financial system in 2008 by prohibiting Iran from transacting in dollars, it noted that the purpose was “to further protect the U.S. financial system from the threat of illicit finance posed by Iran and its banks.”

These threats have not subsided. Just last month, the Financial Action Task Force (FATF), the global anti-money laundering and anti-terror finance standards body, warned that Iran’s “failure to address the risk of terrorist financing” poses a “serious threat … to the integrity of the international financial system.”

Iran is a hub of illicit finance and money laundering. Transparency International ranks Iran 130 out of 168 counties on its corruption perception index. In its annual Anti-Money Laundering Index report, the Basel Institute on Governance ranked Iran as the worst country in the world with regard to risks from money laundering and terrorism financing, using indicators from FATF, Transparency International, the World Bank, and the World Economic Forum.

In recent weeks, reports have come to light that the Obama administration is considering reversing the effect of the 2008 Treasury ban on dollarized Iranian transactions, which was further strengthened in 2011 by Treasury’s Section 311 USA PATRIOT ACT finding that Iran was a jurisdiction of “primary money laundering concern.” Permitting Iranian dollarized transactions now would be unwise. Iran’s illicit finance continues, and efforts to isolate this activity from the international financial system should continue as well.

De-coupling the lifting of sanctions from a change in the behavior that prompted sanctions in the first place risks undermining the very arguments that make sanctions an effective tool of national security policy. Sanctions work not when the U.S. merely imposes them on Iranian companies, but when foreign businesses stop doing business with these Iranian entities because they believe that Treasury is using objective measures to determine which entities pose illicit finance risks. When companies see Treasury’s actions as political rather than merit-based maneuvers, that’s when sanctions as a credible instrument of coercive statecraft will be damaged beyond repair.

Mark Dubowitz is executive director of the Foundation for Defense of Democracies where he focuses on Iran and directs FDD’s Center on Sanctions and Illicit Finance. Follow him on Twitter, Facebook, and LinkedIn

Annie Fixler is a policy analyst at the Center on Sanctions and Illicit Finance. Find her on Twitter: @afixler


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