May 10, 2024 | The National Interest

Why the Biden Administration’s Iran Sanctions Waivers Are Futile

The Islamic Republic also has a history of diverting resources intended for humanitarian purposes.
May 10, 2024 | The National Interest

Why the Biden Administration’s Iran Sanctions Waivers Are Futile

The Islamic Republic also has a history of diverting resources intended for humanitarian purposes.

After years of fighting in the shadows against Israel, Iran’s Islamic Revolutionary Guard Corps (IRGC) crossed the threshold. On April 13, the IRGC undertook an overt and direct attack from its own territory against Israel, launching over 300 projectilesincluding one-way attack drones, land-attack cruise missiles, and even nuclear-capable medium-range ballistic missiles. The IRGC’s barrage raises the urgency of cracking down on any form of financing that underwrites the Guard Corps’ capabilities.

Only a few days prior to the attack, a Biden administration appointee publicly acknowledged the regime’s exploitation of humanitarian funds for nefarious purposes. On April 9, U.S. Treasury Deputy Secretary Wally Adeyemo testified that Tehran exploits fungible humanitarian assistance and noted that “any dollar they have will go towards violent activity before they deal with their people.” Adeyemo’s attestation raises serious concerns over the Biden administration’s policy of retaining several Iran sanctions waivers.

Almost all statutory sanctions measures have waivers, allowing for transactions that would otherwise be prohibited should they meet certain requirements. In the Iranian context, one reason these waivers are issued is to ensure that there are economic arteries to purchase and deliver humanitarian aid. However, the issuance of waivers can be as political as it is technical because waiver issuance can indirectly ease sanctions and macroeconomic pressure on a target and impact foreign policy towards a third-party country.

For example, from 2018 to 2023, the State Department issued sanctions waivers allowing Iraq to import electricity from Iran provided that all payments were kept in an escrow account in Baghdad, thereby denying Iran access to the revenue. But last summer, the Biden administration changed that waiver to allow Iraq to transfer $10 billion to Iran and to deposit future payments into Iranian bank accounts in Oman. The new policy also allowed Iran to convert the money from Iraqi dinars to euros. Iran could then process euro-based transactions for imports and debt payments out of the accounts in Oman.

Prior to this, in the fall of 2023, the Biden administration unfroze $6 billion of Iranian assets in South Korea that were converted to euros before being sent to Qatar. The administration claimed that this money would only be available for humanitarian transactions.

The allegation that America’s Iran sanctions cause humanitarian suffering has long been a staple talking point by opponents of pressure on the Islamic Republic despite evidence to the contrary. For example, during the height of COVID-19 in Iran, many Western media outlets citing sanctions skeptics claimed that U.S. sanctions exacerbated humanitarian challenges in Iran by directly contributing to drug shortages across the country. Even international bodies such as the United Nations and the European Union (EU) have reaffirmed this notion that U.S. sanctions inhibit Iran’s ability to import medical goods.

In contrast to these claims, U.S. law specifically exempts humanitarian aid. For instance, sanctions targeting the Central Bank of Iran, as stipulated by Section 1245 of the National Defense Authorization Act of 2012, exempt “transactions for the sale of food, medicine, or medical devices.” Sector-based sanctions imposed by statute and executive orders likewise exempt such transactions. Similarly, the Trade Sanctions Reform and Export Enhancement Act (TSRA) of 2000 exempts medicine, medical devices, and food from U.S. sanctions as well.

Despite assertions that U.S. sanctions exacerbated the COVID-19 epidemic in Iran, trade data indicated that sanctions did not restrict Iran’s ability to import pharmaceutical goods. Moreover, the U.S. and EU took various measures to maintain the humanitarian trade, such as establishing a Swiss banking channel that facilitates the flow of humanitarian goods into Iran. In 2019, Human Rights Watch published a report blaming the maximum pressure campaign for the shortage of drugs in Iran. However, FDD’s research showed that Iran’s imports of pharmaceutical products from the European Union declined only 5 percent in 2019 compared to 2018.

The Islamic Republic also has a history of diverting resources intended for humanitarian purposes. In July 2019, President Hassan Rouhani’s administration reported that $186 million in hard currency allocated for importing medicines and essential goods was spent on cigarettes and tobacco. In 2018, a Treasury Department investigation demonstrated that the regime fronted an Iranian medical and pharmaceutical company (Tadbir Kish) to facilitate the IRGC Quds Force’s illicit payments to Hamas, Hezbollah, Syria, and Russia.

In the years leading up to the 2015 Iran nuclear deal, Turkish banks helped channel billions of dollars in illicit transactions using fraudulent invoices for fictitious humanitarian goods and even foodstuffs to bypass sanctions. Earlier in 2012, Iran’s health minister complained that subsidized Iranian government monies were spent on luxury car imports rather than on meeting medical import needs. Her criticism of Iran’s banking policies cost the minister her job.

In light of this track record, coupled with recent statements from the Treasury Department, it is increasingly apparent that Tehran will continue to divert funds gleaned from sanctions waivers to bolster the IRGC indirectly. The Biden administration should, therefore, take this opportunity to work with, rather than against, Congress and restrict Iranian access to frozen funds and ensure that any waivers issued are not being used by the regime to fund its terrorist apparatus.

Janatan Sayeh is a research analyst at the Foundation for Defense of Democracies focused on Iranian domestic affairs and the Islamic Republic’s regional malign influence. Follow him on X: @JanatanSayeh.

Behnam Ben Taleblu is a senior fellow at FDD, where he focuses on Iranian security and political issues. Behnam previously served as a research fellow and senior Iran analyst at FDD. 

Dr. Saeed Ghasseminejad is a senior Iran and financial economics adviser at FDD specializing in Iran’s economy and financial markets, sanctions, and illicit finance. Follow him on X: @SGhasseminejad.

All of the authors contribute to FDD’s Iran Program and the Center on Economic and Financial Power (CEFP). FDD is a Washington, DC-based, non-partisan research institute focusing on national security and foreign policy.

Issues:

Iran Iran Global Threat Network Iran Human Rights Iran Missiles Iran Nuclear Iran Politics and Economy Iran Sanctions Iran-backed Terrorism Israel Israel at War Military and Political Power U.S. Defense Policy and Strategy