November 17, 2016 | Foreign Policy

President Trump and the Iran Nuclear Deal

As President-elect Donald Trump prepares to take office over the coming months, one of the thorniest foreign policy questions he will have to address is what to do about the Iran nuclear deal. During the campaign, then-candidate Trump repeatedly criticized the Joint Comprehensive Plan of Action for being insufficiently tough and threatened to walk away from the agreement if elected.

Trump’s critiques of the deal have merit. While the deal has slowed Iran’s progress towards a fully realized nuclear program, the front-loaded nature of the sanctions relief means that Iran has enjoyed many of the benefits before fully living up to its obligations for the duration of the agreement. Similarly, the deal’s sunset provisions mean that the agreement at best delays Iran’s program and, in many ways, provides them with a patient pathway to the bomb.

Further, the promised vigorous enforcement of non-nuclear sanctions related to Iran’s continued support for terrorism, human rights abuses, and the development of ballistic missiles has yet to materialize, in large part because the Barack Obama administration appears reluctant to threaten the stability of the deal. And though Obama promised that sanctions could be “snapped back” into place if Iran was found in violation, in truth the triggering of such a mechanism would be politically difficult, particularly because many of our allies may no longer share the same concerns about Iran’s malign activities.

Yet, while the JCPOA is imperfect, tearing up the agreement during Trump’s first few weeks in office would carry significant consequences. Although the president could walk away from the agreement and re-impose sanctions, Iran has already received approximately $100 billion. Walking away would allow Iran to continue its work on the nuclear program while enjoying this significant financial windfall.

Likewise, it would be difficult to reconstitute the economic pressure campaign that brought Iran to the bargaining table in the first place. That campaign, which began in earnest in the mid-2000s, took ten years of legislative and executive action, outreach to foreign governments, and continued Iranian intransigence to have a significant impact. If the United States walked away from the agreement, our European and Asian partners have made clear that they would be unlikely to rejoin any such years-long campaign in the hopes of striking a better bargain. In such a situation, Iran would be freed from the constraints on its nuclear program but we would face a daunting — though not impossible — task of trying reconstitute the pressure campaign to help strike a better deal.

However, there are still actions Trump can take to strengthen U.S. leverage over Iran, which has become more aggressive since agreeing to the nuclear deal. On day one of his presidency, Trump can take at least three steps that will make it more difficult for Iran to continue its support of terrorism, engage in human right abuses, test ballistic missiles in contravention of United Nations sanctions, and ensure that, if Iran continues to see economic relief from the nuclear deal, such relief does not end up in the coffers of terrorist organizations like the Islamic Revolutionary Guard Corps (IRGC).

First, the Treasury Department could put further pressure on the Iranian economy and nefarious Iranian actors such as the IRGC by limiting foreign companies’ willingness to enter Iranian markets. Under U.S. law, foreign companies may be subject to penalties if they do business with an entity that is owned 50 percent or more by the IRGC (or any other designated parties, known as SDNs). As a matter of course, the IRGC often creates shell companies that fall below this 50 percent ownership threshold, meaning that foreign companies can do business with these IRGC minority-owned companies with limited worry about running afoul of U.S. sanctions. Given that the IRGC is deeply intertwined with upwards of 35 percent of the Iranian economy, foreign companies doing business with IRGC minority-owned companies are feeding profits, with little fear of sanctions, directly to an organization that is well known to engage in terrorism and support other malign actors like Hezbollah and Syrian President Bashar al-Assad.

On his first day in office, Trump could instruct the Secretary of the Treasury to change this 50 percent threshold in the case of the IRGC, lowering it to 25 percent, for example. Such a move would limit foreign companies’ ability to do business with IRGC minority-owned companies, limit the economic benefits the IRGC is seeing from the nuclear deal, and put pressure on Iran to cease supporting destabilizing activities in the region.

Second, the Treasury Department could clarify that — in the case of the Iran sanctions program — offshore dollarized transactions would be subject to U.S. jurisdiction. As part of the debate over the JCPOA last year, the Obama administration made clear that Iran would not be able to process dollars through the U.S. financial system. The administration asserted that if any Iran-related transactions touched the U.S. financial system, such activity would violate U.S. law. However, the administration also clarified in a recent FAQ its position that offshore transactions in U.S. dollars — such as dollarized transactions between an Iranian company and a European bank that did not clear through the United States — were outside of U.S. jurisdiction and therefore permissible. While the administration’s position is understandable, it also provides Iran with the benefits of — if not direct access to — the U.S. financial system and the dollar.

The administration should clarify in new, binding regulations that it will exercise jurisdiction over offshore U.S. dollars when involved in Iran-related transactions. While jurisdiction over such offshore transactions may not be merited in the case of other countries and sanctions programs, given Iran’s habitual abuse of the international financial system for proliferation and terrorism-related activities, it is justified here. Cutting off Iran’s access to the dollar will make it more difficult for the Islamic Republic to finance investment in the country and will put additional pressure on its economy in ways that could be used to bargain for additional concessions.

Third, the new administration could adopt a more aggressive enforcement posture towards foreign companies re-entering Iranian markets in ways that violate U.S. sanctions. During the JCPOA negotiations and since, the Obama administration has been reluctant to pursue enforcement actions against foreign companies for trading with Iran, for fear of upsetting the deal. To clearly signal that prohibited activity will not be permitted, the Trump administration could aggressively target — including through the use of remaining secondary sanctions authority — foreign companies that we have evidence are doing business with the IRGC and Mahan Air, for example. Likewise, the new administration could designate a range of actors known to operate on behalf of the IRGC and the Iranian Ministry of Defense and Armed Forces Logistics in supporting Iran’s terrorism-related activities.

In addition to pushing Iran over its continued support for terrorism, ballistic missile development, and human rights abuses, this added economic pressure would also increase Trump’s hand if he were to decide that the United States should push to renegotiate the JCPOA. While these changes in U.S. sanctions regulations and guidelines would not be in violation of the current nuclear agreement, as they were neither contained nor bargained for in the JCPOA, they could be used in future negotiations as bargaining chips to obtain additional concessions from Iran, either related to its nuclear program or its continued support for terrorism.

While scuttling the nuclear deal carries certain risks, the Trump administration will have many options to bring significant pressure to bear on Iran. In its first few days in office, it should think through how to best use them.

Eric B. Lorber is a senior advisor to FDD’s Center on Sanctions and Illicit Finance.