Enforcing Existing Sanctions on the Central Bank of Iran

In recent years, the United States has imposed a punishing sanctions regime on Iran’s banking sector. To further increase Tehran’s level of financial pain, a great number of Congressional and advocacy groups have repeatedly called on the White House to blacklist the Central Bank of Iran (CBI). Doing so, the thinking goes, would seriously hamper the Islamic Republic’s ability to abuse international markets in its pursuit of nuclear weapons. Yet unbeknownst to most lawmakers and Washington policymakers, the U.S. Treasury actually has blacklisted the CBI, and not once but twice in recent years. The real question is why the U.S. government has not enforced its own sanctions regime.

The CBI has been accused of helping fund Iran’s nuclear weapons program, facilitate money transfers to terrorist organizations, and proliferate weapons of mass destruction. The U.S. Treasury Department has publicly declared that between 2001 and 2006, the CBI facilitated a $50 million payment for Hezbollah. Treasury also disclosed that the bank engaged in “deceptive practices,” including helping Iran’s Sepah and Melli banks, two financial institutions blacklisted by the UN, EU, and United States for their role in facilitating illicit international transactions.

The United States maintains a number of so-called “blacklists” sponsored by different agencies, including but not limited to the Departments of State, Treasury, and Commerce. The Specially Designated Nationals List (SDN) list is a broad compilation of individuals and entities, a “list of lists” administered by Treasury’s Office of Foreign Assets Control (OFAC). Those on the SDN list include not only individuals and entities involved in terrorism, but also weapons proliferators, drug traffickers, and those designated under country-specific sanctions programs.

Today, the SDN list has over 6,000 entries, including the Central Bank of Iran. Unless specifically exempted, all U.S. persons and entities must block any property in which an SDN has an interest and report the action to OFAC. Blocked property may not be “transferred, withdrawn, exported, paid, or otherwise dealt in” without prior authorization from OFAC. If OFAC believes that an individual or institution has violated the law, it has several options at its disposal, including cease-and-desist orders, civil penalties, suspension or revocation of licenses, and criminal charges.

The Treasury Department’s web page clearly shows that the Central Bank of Iran appears on the SDN list of June 16, 2010, under the Iran country sanctions program. Treasury’s Financial Crimes Enforcement Network (FinCEN) also took action against the CBI; in March 2008, it issued a banking advisory that fingered the bank for the “money laundering threat involving illicit Iranian activity.”

Treasury Secretary Timothy Geithner recently wrote to Congress that “all options to increase the financial pressure on Iran are on the table, including the possibility of imposing additional sanctions against the CBI.” But the United States does not need new sanctions; it just needs to implement the existing regime, which could be a very potent tool for pursuing Iranian financial activity around the globe.

At this point, concerned parties should advocate for a number of measures. The United States should ask banks that provide services of any kind to the Central Bank of Iran to cease doing so immediately. If they refuse to comply, the U.S. government should take immediate legal action in accor dance with the PATRIOT ACT and 18 USC 981, freezing any U.S.-based assets they hold and blocking their access to American markets.

Moving against the Central Bank would necessitate indirect action, since it does not appear to possess assets in America. However, the U.S. government does have the power to freeze the funds deposited in a foreign bank on behalf of the Central Bank if the foreign bank maintains an account (known as an “interbank” or “correspondent account”) at a U.S. financial institution or has actual operations or property in the United States.

Washington should begin implementing the SDN as soon as possible. At a minimum, Treasury should designate one or a number of the biggest offenders among those engaging in business transactions with Iran’s Central Bank. This would likely cause many, if not most, of the companies and banks currently doing business with, or on behalf of, the Central Bank to cut their ties.

Policymakers in Washington are now keenly interested in imposing greater financial costs on the Iranian regime in an effort to derail its nuclear program. To do so, the need to target Iran’s Central Bank should be readily apparent. So, too, should the fact that levying real pressure on Iran’s most important economic construct is simply a matter of enacting already-existing restrictions and penalties. The Obama administration should do so without delay.

Avi Jorisch, a former Treasury Department official, is Senior Fellow for Counterterrorism at the American Foreign Policy Council in Washington, DC.

Originally published in the Washington Times, 7 November 2011

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