April 5, 2020 | Memo
Should the United States Lift Sanctions on Iran to Address Its Coronavirus Outbreak?
Contents
- Introduction
- U.S. Sanctions Do Not Preclude Iran’s Access to Humanitarian Assistance
- Iran Has Significant Financial Resources Available to Fight Against Coronavirus
- Iranian Officials Assert Sanctions Have Not Affected Iran’s Coronavirus Response
- Iranian Regime has a History of Diverting Resources Intended for Humanitarian Purposes
- The Iranian Regime Mismanaged Iran’s Coronavirus Response
- Iran’s Illicit Activities Continue Despite Coronavirus Outbreak
- Download
April 5, 2020 | Memo
Should the United States Lift Sanctions on Iran to Address Its Coronavirus Outbreak?
Iran is the epicenter of the coronavirus outbreak in the Middle East. The Islamic Republic’s leadership has engaged in a massive campaign aimed at lifting sanctions imposed on it for its malign activities, claiming sanctions hinder efforts to address the COVID-19 public health crisis. This memo, however, assesses that lifting sanctions would be ill-advised. The Iranian population suffering from COVID-19 deserves much needed medical assistance but that should be funded though reliable NGOs, bypassing the regime and not through the transfer of funds to the regime, which has ample financial resources estimated at over $300 billion for economic stimulus and humanitarian aid.
On April 2, 2020, Iran’s President Hassan Rouhani admitted that the regime’s public relations campaign ultimately aims to convince the world to lift sanctions on Iran using coronavirus as a pretext. Speaking at his cabinet’s economic meeting, Rouhani said U.S. sanctions have not curbed Iran’s ability to cope with the COVID-19 outbreak. Numerous Iranian health officials have confirmed this assessment. Rouhani added that Iran has “a good reserve of essential commodities for the next months and agriculture and trade ministers have given very promising reports for the situation during the coming months.”
Rouhani also told his colleagues that Iran’s Central Bank Governor said, “Iran has no problem in providing foreign currency until the end of the [Iranian] year,” which is March 2021.
The United States has no sanctions targeting humanitarian goods. Washington has established a banking channel with Switzerland to facilitate humanitarian trade for Iran while retaining oversight against Tehran’s long-standing abuse of humanitarian exemptions to U.S. sanctions laws. Several Iranian banks remain on the SWIFT financial messaging system to process humanitarian transactions. Tens of billions of dollars in Iranian oil escrow accounts exist around the world available for this trade.
Trade data and Iranian government officials confirm that Iran is receiving billions of dollars in essential goods that it needs to address its health crisis. Economic stimulus packages similar to what governments around the world have implemented should come from the regime’s over $300 billion in financial holdings not from any sanctions relief. The United States should only consider suspending or lifting sanctions when the regime ends its malign activities.
U.S. Sanctions Do Not Preclude Iran’s Access to Humanitarian Assistance
The United States has no sanctions targeting humanitarian goods. On the contrary, such goods are specifically exempted from all Iran sanctions. Sanctions targeting the Central Bank of Iran, as required by Section 1245 of the National Defense Authorization Act of 2012, exempt transactions related to food, medicine, medical devices and agricultural commodities. Sector-based sanctions imposed by statute and executive orders likewise exempt such transactions. Moreover, the Trade Sanctions Reform and Export Enhancement Act (TSRA) of 2000 exempts medicine, medical devices, and food from U.S. sanctions writ large.
- TSRA implementation created a general license to allow the export of certain agricultural items, medicines, and medical devices to Iran.
- In December 2016, OFAC amended the general license to include most medical devices, decreasing the number of OFAC-specific licenses to Iran. The OFAC general license authorizing the export of medical and food products to Iran is found in 15 CFR 560.530(a)(3) of OFAC’s Iranian Transactions and Sanctions Regulations.
- Secretary of State Mike Pompeo said, “There is no sanction on medicines going to Iran, there is no sanction on humanitarian assistance going into that country. They’ve got a terrible problem there and we want that humanitarian, medical assistance to get to the people of Iran.” Many U.S. companies and their non-U.S. affiliates continue to export humanitarian items to Iran in an OFAC-compliant manner.
EU trade data shows that Iran has not had difficulty maintaining its imports of pharmaceuticals from Europe. Even so, the United States has taken additional steps to ensure the continuation of humanitarian trade. These steps include the establishment of a special Swiss banking channel to give companies confidence in conducting such transactions in a manner that reduces the risks associated with selling humanitarian goods to a regime that uses front companies to divert products to the black market.
- During the first full year after the re-imposition of U.S. sanctions in 2018, total EU exports to Iran fell by nearly half, while pharmaceutical exports fell by just over 5 percent. A recent FDD analysis of pharmaceutical trade between Europe and Iran shows little change between 2011 and 2019 despite periods of imposition, suspension, and return of sanctions. The single-digit decline in Iranian pharmaceutical purchases in 2019 may just be noise in the data with no relationship to the return of sanctions.
- The United States announced in January 2020 that it had completed the first shipments of medicine through a special U.S.-Swiss channel for humanitarian trade with Iran.
- In addition, on February 27, 2020, the U.S. Treasury Department’s Office of Foreign Assets Control provided a general license authorizing certain humanitarian trade transactions with the Central Bank of Iran (CBI), even though CBI remains designated for financing terrorism.
Iranian Regime has a History of Diverting Resources Intended for Humanitarian Purposes
International aid to Iran should bypass the regime and go through non-governmental organizations and international human rights organizations not subservient to the regime.
- The Islamic Republic has a well-documented record of diverting humanitarian goods to fund its terror operations. In 2018, the Treasury Department exposed that the regime used an Iranian medical and pharmaceutical company to facilitate illicit payments to Russia in a scheme to help Syria finance purchases of oil. The oil-for-terror network involved Central Bank of Iran officials facilitating the movement of hundreds of millions of dollars to support oil shipments to Assad. The putative medical and pharmaceutical company at the center of the scheme was Tadbir Kish Medical and Pharmaceutical Company, which was used to cover up these payments as part of an offsetting scheme ultimately funding Hizballah and Hamas through the Qods Force.”
- In the years leading up to the 2015 Iran nuclear deal, Turkey’s Halkbank helped facilitate billions of dollars in illicit transactions using fake invoices for fictitious humanitarian goods. Gold trader Reza Zarrab, ringleader of the Turkish scheme, testified before a federal jury in the Southern District of New York in 2017 about these Turkish efforts to help Iran evade U.S. sanctions. His testimony made clear that Turkey’s sanctions-busting scheme came at the expense of Turkish businesspeople as well as needy Iranian citizens. The Iranian funds placed in escrow at Halkbank could have been used to make legitimate purchases of food and medicine. Instead, Zarrab’s front companies and fake exports generated commissions that went into bribing corrupt state officials. The scheme used up funds slated to meet Iranians’ humanitarian needs, redirecting that money instead to bankrolling corrupt Iranian mullahs, the nuclear program, and the Syrian war.
- In January 2019, the E3 and Iran created a special purpose trade vehicle called INSTEX. FDD analysis shows that the eight Iranian shareholders of the Special Trade and Finance Instrument (STFI), which Tehran created as a counterpart to INSTEX, are sanctioned entities because of malign activities, including support for terrorism, money laundering, and illicit finance. Banks and other companies may expose themselves to U.S. sanctions if they use channels like INSTEX to process transactions that may be connected to terror finance, the IRGC, and other money laundering schemes.
- In July 2019, President Rouhani’s chief of staff Mahmoud Vaezi wrote in a letter that one billion euros in hard currency allocated for importing medicines and essential goods “has disappeared.” The letter, addressed to the ministers of industry, agriculture, and public health, demanded an explanation about what has happened to the imports pledged by the recipients of the hard currency.
- In July 2019, Deputy Health Minister Alireza Raisi said the Iranian government allocated $170 million at a subsidized rate to import tobacco and another $16 million to import cigarette paper. According to Raisi, the subsidized rate of foreign currency was meant to be spent on importing essential medical supplies.
- The IRGC is reportedly hoarding medical supplies and selling them on the black market, an accusation the State Department reported on March 23, 2020. The diversion of humanitarian goods intended for the Iranian people is sanctionable under The Iran Freedom and Counter-Proliferation Act of 2012 as well as Executive Order 13846.