The U.S. Treasury Department sanctioned 50 Iranian banks as well as their foreign and domestic subsidiaries on Monday as part of “its largest ever single-day action” targeting the Islamic Republic. All together, Treasury added more than 700 entities, individuals, ships, and aircraft to the Specially Designated Nationals (SDN) sanctions list in an effort to target the financial networks that support the full range of the regime’s malign activities. As Treasury Under Secretary Sigal Mandelker explained, Tehran and its Islamic Revolutionary Guard Corps “leverage their access to the global financial system to fund proxies fighting in Syria, Iraq, and Yemen, subsidize the proliferation of WMD or their means of delivery, and arm those who abuse the human rights of Iranian citizens.”
Treasury designated 25 Iranian banks and their subsidiaries specifically for their role in supporting terrorism and the proliferation of weapons of mass destruction and their delivery systems. Under U.S. law, the Brussels-based SWIFT global financial messaging service must remove all of these banks, as well as the Central Bank of Iran, from its network or face penalties.
European governments worked hard to preserve Iranian access to SWIFT, since it is a vital gateway to the international financial system. Yet SWIFT announced on Monday that it was “suspending certain Iranian banks’ access to the messaging system,” likely because of Treasury Secretary Steven Mnuchin’s explicit threat to impose sanctions if the Iranian banks remained connected.
Prior to the nuclear deal, SWIFT disconnected in 2012 the Central Bank of Iran and 15 other banks from its network. Technically, this decision was a response to EU regulatory action, yet the main driver was legislative action by the U.S. Congress. Washington had designated 13 of the 15 banks removed by SWIFT for supporting terrorism and WMD proliferation. Yet SWIFT did not disconnect another 11 banks designated for ties to Tehran’s nuclear program and terrorism. This time around, Treasury will need to work closely with SWIFT to ensure that the financial messaging service removes all designated financial institutions so as not to be vulnerable to Iranian abuse.
Another significant aspect of Monday’s action against Iranian banks was Treasury’s targeting of numerous entities owned or controlled by sanctioned Iranian banks. These designations may not have been a legal necessity, since sanctions automatically extend to any so-called “shadow SDN,” or institution in which a designated entity or person has a stake of 50 percent or more. Nonetheless, Treasury’s tranche of designations on Monday helped expose the vast networks of Tehran’s illicit financial activities. By continuing to explicitly identify entities owned by Iranian banks, Treasury will assist the private sector in quarantining dirty money.
While an important first step, these designations may not be sufficient to prevent the Islamic Republic from exploiting the global financial system. For example, Treasury did not use its proliferation or terrorism authorities to target Bank Refah, which the department previously sanctioned in 2011 for providing financial services to Iran’s Ministry of Defense and Armed Forces Logistics. While SWIFT disconnected Bank Refah in 2012, the absence of a current designation for terrorism or proliferation may enable it to remain connected in the present day. Moreover, in 2014, FDD scholars identified four Iranian banks allowed to remain on the SWIFT system, which facilitated a vast sanctions-busting scheme. While Treasury sanctioned one of these banks for terrorist financing in October, the Department did not impose nuclear or terrorism sanctions on Monday on the rest, thus they are likely to maintain their access. As the Trump administration implements its maximum pressure strategy, it will need to plug the gaps that the Islamic Republic will no doubt attempt to exploit to evade sanctions.