from Pressure Points and Middle East Program

Kerry Drums Up Business for Iran While Treasury Warns Against It

November 3, 2016

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On October 31, Secretary of State Kerry continued his remarkable campaign to drum up business for Iran. Speaking at Chatham House in London, here is part of what he said:

Iran deserves the credit of having met its part of the bargain, and it’s important for us and the rest of the world to meet ours, to make sure that the lifted sanctions are in fact not still impeding the ability to be able to do business, and to grant that Iran gets the benefit of the bargain that they made. And that is just plain, simple, good faith in international relations

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…. Because it’s important for people to understand that we have worked hard to make sure that we have lived up to every component of what is required of us here. And I wish that some of the larger banks were, in fact, ready to make loans and engage in opening accounts, because they can. They’re allowed to, but they’re still remaining somewhat risk averse for various reasons….

[W]e agreed to lift certain sanctions. So OFAC, the Office of Financial Accountability has come out and made it very, very clear that if you do due diligence in the normal fashion, no extra due diligence, just normal due diligence for whoever it is you’re opening an account or for ever – whatever lending you’re about to do, and later it turns out it was some unforeseeable entity that pops up, you will not be held accountable for that. And so what we’ve done is we’ve been trying to reduce the level of risk so that people will begin to engage in a broader range of lending. Why are we doing that? Because the deal we made was that sanctions would not continue to interfere with their ability to do a normal course of business, and regrettably because of some of the uncertainties about OFAC or some of the uncertainties about who’s doing what, it hasn’t been. And we’re trying to change that.

I must say though that we’ve made good-faith efforts way beyond what we agreed to do, I mean, like this meeting. I mean, I never anticipated I’d be sitting in the banks to try to get them to do this. But we have reached out way beyond what anything within the four corners of the agreement in order to try to make sure that it delivers in full.

Despite the innumerable ways in which Iran has demonstrated bad faith--from its continuing support for terrorist groups to its detention of American sailors in January to its arming of the Houthi rebels in Yemen with missiles with which they have attacked American ships--Kerry wants us to bend over backwards to help their economy. It isn’t enough to remove sanctions that prevent banks from lending to Iran; Kerry has become a cheerleader now urging banks to make more loans whatever the risks. This is not in fact giving Iran the benefit of the bargain it struck, which exists in the letter of the JCPOA agreement. It is going much further. In fact it is going so far that Kerry is now giving banks bad advice--advice that is directly contradicted by U.S. Treasury officials.

As the Treasury official who enforces sanctions, Adam Szubin, told The Weekly Standard in October:

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"You cannot do business with IRGC companies," Szubin said. "If you do, and you’re doing so knowingly, you are risking the most draconian sanctions in our toolkit, and that governs not just U.S. persons but actors all around the world. Szubin also said that the U.S. continued to ban and sanction "the vast majority" of dollar transactions that Iran would want to engage in, because they would have "to come through a U.S. bank." "That is not legal, that is not okay, and you better be careful," he said.

So Treasury is trying to enforce U.S. law, and Kerry is telling foreign banks to ignore it--or to do only "due diligence." In fact, that is an insufficient standard when it comes to Iran, as was explained by the man who used to be in charge of U.S. sanctions--Stuart Levey. Writing in The Wall Street Journal, he explained the problem:

Washington is pushing non-U.S. banks to do what it is still illegal for American banks to do.

This is a very odd position for the U.S. government to be taking.

On the one hand, Washington is continuing to prohibit American banks and companies from doing Iran-related business. In February, the FATF [Financial Action Task Force] reaffirmed its prior concerns about the “serious threat” Iran poses to the international financial system, urging countries to apply effective countermeasures. The U.S. Treasury Department’s designation of Iran, including its central bank and financial institutions, as a primary money-laundering concern also still stands. As part of that designation, Treasury determined that “the international financial system [is] increasingly vulnerable to the risk that otherwise responsible financial institutions will unwittingly participate in Iran’s illicit activities.”

On the other hand, Mr. Kerry wants non-U.S. banks to do business with Iran without a U.S. repudiation of its prior statements about the associated financial-crime risks. There are no assurances as to how such activity would subsequently be viewed by U.S. regulatory and law-enforcement authorities, which might seek to take enforcement action against banks that enter the Iranian market and run afoul of complicated U.S. restrictions. The State Department neither controls nor plays any meaningful role in the enforcement decisions of these authorities.

So, this seems complicated but is actually simple. Kerry is acting as a salesman for Iran, pressing banks to do business with entities there that present real dangers to the banks. In the past banks have been fined billions of dollars for such transactions. Treasury keeps reminding them of the dangers--and it is Treasury, not State, that is in charge of enforcement.

Iran is owed our compliance with the letter of the JCPOA and nothing--absolutely nothing--beyond it. Kerry has no business trying to enrich the Islamic Republic of Iran.  He is endangering banks, undermining sanctions on Iran’s non-nuclear conduct, and confusing State’s responsibilities with those of Treasury. Kerry’s unseemly cheerleading should stop now--not on January 20th when he leaves office.

UPDATE:

So off-base were Kerry’s remarks that the State Department itself has had to correct them. The Department has now agreed with Levey and Szubin, not with Kerry--a remarkable development, given that he is the Department’s top officer. Here is what The Weekly Standard just reported:

Kerry said Monday that banks could safely do business in Iran if they applied "no extra due diligence, just normal due diligence," weeks after Treasury Department Under Secretary for Terrorism and Financial Intelligence Adam Szubin told TWS that banks risked sanctions unless they used a higher, "enhanced level of due diligence."

TWS reported this week that Kerry’s comments sparked criticism that he was misleading banks about sanctions in order to encourage them to do business with Iran. The State Department subsequently told TWS that it accepted Szubin’s heightened standard as the U.S. norm.

"We expect banks and other businesses to exercise due diligence in any overseas investment or transaction, tailored to the particular environment," an official said. "For a high-risk jurisdiction like Iran, the norm is enhanced due diligence."

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