July 30, 2012 | Quote

Iran Sanctions Test

Nearly everyone in Congress agrees that crippling sanctions ought to be imposed on Iran. Or at least they claim to agree. We're about to find out who means it.

House and Senate conferees are now working to reconcile two new Iran sanctions bills before the August Congressional recess. The bills seek to close various loopholes by expanding the list of Iranian entities subject to sanctions. They also call on the Obama Administration to impose penalties on foreign companies doing business with Iranian energy and financial companies.

Unfortunately for this approach, the Iranians are pros when it comes to creating hundreds of new front companies to replace those on the sanctions' list. So it has been, for instance, with the National Iranian Tanker Company (NITC) and the Islamic Republic of Iran Shipping Lines (IRISL), which have been reflagging ships from Cyprus to Malta to Tanzania to Tuvalu.

Tehran is also adept at opening new and creative financial channels that circumvent existing sanctions. This includes using shady foreign-exchange houses and forfeiting companies to obtain hard currency, or selling their oil for (Turkish) gold.

In April, the Journal reported on the Bank of Kunlun, which does a brisk business with Iran and is controlled by China's National Petroleum Company. Because Kunlun maintains no correspondent banks or payable-through accounts in either the U.S. or the European Union, it is effectively immune to Western sanctions.

All of this means that the current U.S. approach to sanctions, which depends on the ability and willingness of the Administration to go after individual Iranian or foreign companies, is destined to become increasingly ineffective over time. It also doesn't help that the Administration is waging a behind-the-scenes campaign to water down existing sanctions by granting nearly every available waiver to countries that continue to buy Iranian oil.

There is a better way. Congress could follow the bipartisan lead of Senator Mark Kirk (R., Ill.) and Congressmen Ted Deutch (D., Fla.) and Bob Dold (R., Ill.) and blacklist Iran's entire energy industry—or, to use fancy terminology, designate it a “zone of primary proliferation concern.” As Mark Dubowitz of the Foundation for Defense of Democracies notes, “if you can't keep up with the entity, you need to prohibit the activity.”

The U.S. Treasury will never be able to sanction Iranian companies faster than Iran can invent new ones. But it can avoid playing whack-a-mole by putting every company that buys, trades, ships or otherwise traffics in Iranian oil on notice that it is running afoul of American law.

Congress could also put the Kunlun banks of the world on notice by demanding that Swift, the Belgian bank consortium that provides financial communications and clearing systems, cut off any financial entity facilitating Iran's oil trade. If Swift refuses, Congress could impose sanctions against the consortium's board of directors, who can be named and shamed and moved to act.

We hear the Administration opposes this move for fear that it might prompt such banks to create their own versions of Swift. Yet there aren't many banks that would want to be cut off from the international financial system, much less place themselves in a basket of outlaw or shady banks.

Congress can also curtail the Administration's practice of granting sanctions' waivers to countries that have modestly cut back their imports of Iranian energy. That means setting a threshold—say, a 40% reduction—for any country that finds it still must import Iranian oil.

The Administration will resist these stiffer penalties, as it has consistently resisted previous Congressional attempts to impose the harshest possible sanctions. But that's all the more reason for the conferees to present the President with the toughest bill possible, and see where he really stands.

If Mr. Obama is a pretender on sanctioning the mullahs, then you can be sure he isn't inclined to stop their nuclear program by other means. The Israelis will draw their own conclusions, if they haven't already.

Read the full article here.


Iran Iran Sanctions