August 25, 2020 | The Wall Street Journal
How the U.S. Can Finally Cut Off Tehran’s Financial Oxygen
Blacklist the 14 Iranian banks that are still allowed to do business with foreign customers.
August 25, 2020 | The Wall Street Journal
How the U.S. Can Finally Cut Off Tehran’s Financial Oxygen
Blacklist the 14 Iranian banks that are still allowed to do business with foreign customers.
The Islamic Republic of Iran is entering the late rounds of an increasingly desperate fight to stave off economic collapse amid President Trump’s maximum pressure campaign. To land a 12th-round economic knockout, it’s time for Mr. Trump to throw one more punch: Blacklist the entire Iranian financial industry.
While the U.S. Treasury has imposed sanctions on the Central Bank of Iran and many other Iranian financial institutions—and forced their disconnection from the Swift financial messaging network—at least 14 Iranian banks remain open for business with foreign customers. These banks are Tehran’s financial lifeline.
They are also capitalized by the central bank, which was designated by Treasury in 2019 for its role as a chief financial sponsor of terrorism in the world. The American Financial Crimes Enforcement Network declared Iran’s entire financial industry a primary jurisdiction for money laundering. Even the Financial Action Task Force—an international watchdog—unanimously urged institutions to protect the global financial system from Iran’s financial industry and its terror-financing risk. If these determinations have any meaning, all Iranian banks need to be banned from global finance.
Iran’s leaders are burning through their available cash reserves to cope with the compounded economic stress of U.S. sanctions, the novel coronavirus and the crash of global oil prices. For the first time since 1998, Tehran is running a current-account deficit, which is forecast for 2020 to be minus-4.1% of gross domestic product. Its foreign exchange reserves have dropped by almost 40% to roughly $70 billion, much of which is inaccessible due to American sanctions locking funds in foreign-held escrow accounts. The market has responded to this liquidity crisis by driving the rial-dollar exchange rate from 38,400 when Mr. Trump took office to 234,500 as of Aug. 25.
But despite its overwhelming loss of oil revenue and a 40% drop in petrochemical and other non-oil exports, Iran has managed to stay afloat—barely. Tehran has the financial oxygen it needs to survive because of the Trump administration’s decision to leave the last 14 or so Iranian banks connected to Swift available for sanctions-free transactions with China, the United Arab Emirates, Turkey, India and Germany. These banks act as fronts for the central bank, which is otherwise cut off from the global financial system.
Fortunately, the White House can close this loophole in U.S. sanctions law. In January, Mr. Trump issued an executive order authorizing the Secretary of State and Secretary of the Treasury to impose sanctions on any part of Iran’s economy—at any time and for any reason.
If the president instructs Secretary of State Mike Pompeo and Treasury Secretary Steven Mnuchin to add Iran’s financial sector to the list, his administration will automatically extend the power of American sanctions to all Iranian banks and compel Swift to disconnect them immediately. Mr. Trump can then instruct Treasury to update its sanctions list so that international firms know that all Iranian-affiliated banks are blacklisted. These moves will freeze most of the regime’s hard currency held in foreign banks and shut down most of Iran’s exports and imports, save for humanitarian trade.
Why hasn’t this already happened? Administration officials likely feared that designating Iran’s entire financial industry at the outset of the pandemic would bolster the regime’s propaganda blaming U.S. sanctions for hampering its coronavirus response. But this argument, always weak, certainly no longer holds given the Trump administration’s proven willingness to facilitate humanitarian trade through a special Swiss financial channel. That channel doesn’t need 14 Iranian banks to work; it only needs one. Designating Iran’s financial industry and blacklisting the other 13 banks, with a waiver for the one bank devoted solely to humanitarian trade, would squeeze the regime while allowing food and medicine sales to continue.
This would be a major blow to a regime struggling to stay on its feet, and the president has nothing to lose. If anything, it would play to Mr. Trump’s advantage in 2020, showcasing another high-profile decision to cut off terror-financing banks—a move former Vice President Joe Biden would find difficult to criticize.
Best case: Iran agrees to negotiate on America’s terms either before or shortly after a Trump re-election. Worst case: Mr. Trump further constrains the regime’s ability to fund malign activities and leaves behind a legacy of the most powerful pressure campaign in history against the world’s leading state sponsor of terrorism.
The Islamic Republic’s theocracy is in an economic spiral. Its only hope is to exploit sanctions loopholes while praying that Mr. Biden wins the presidential election and lifts U.S. sanctions. Now is the time for President Trump to do everything he can to put the mullahs flat on their backs.
Mr. Dubowitz is chief executive of the Foundation for Defense of Democracies, where Mr. Goldberg, a former National Security Council official, is a senior adviser. Follow them on Twitter @mdubowitz and @rich_goldberg.