The White House appears poised to give Iran access to the
U.S. financial system. Watch out.
By MARK DUBOWITZ and JONATHAN
SCHANZER
The bruising battle between the president and Congress
surrounding the Iran nuclear deal is over. The Joint Comprehensive Plan of
Action, despite its many troubling flaws, is already being implemented. Yet now
another nasty battle is brewing.
Even as Washington prepared to release an estimated $100
billion in restricted Iranian oil assets and paved the way for Tehran to regain
access to the Swift network (Society for Worldwide Interbank Financial
Telecommunication)—allowing it to transfer funds across the global electronic
banking system—the Obama administration vowed that the Islamic Republic would
never get the ultimate prize: access to the U.S. financial system or dollar
transactions.
Treasury Secretary Jacob
Lew was
adamant during a congressional grilling last July. “Iranian banks will not be
able to clear U.S. dollars through New York,” he told the
Senate Foreign Relations Committee, or “hold correspondent account
relationships with U.S. financial institutions, or enter into financing
arrangements with U.S. banks.”
Yet as Rep. Ed Royce (R.,
Calif.) noted in a March 22 letter to the White House, Mr. Lew, during a
Financial Services Committee hearing earlier that day, “appeared to
leave the door open” to Iran getting access to the U.S. financial system. Mr.
Royce reminded Mr. Lew of what he said last year, then said he had “received
reports from the administration that it is now considering providing Iran with
access to the U.S. financial systems.” He repeatedly pressed Mr. Lew:
“Specifically, are you considering permitting Iranian banks to clear
transactions in dollars with U.S. banks or foreign financial institutions
including offshore clearing houses?”
Mr. Lew avoided a direct answer, instead stating that the
administration continues to explore ways “to make sure Iran gets relief” from
sanctions. With this non-answer, Congress is getting ready for a fight.
It’s not hard to understand why. The Financial Action
Task Force, a global antiterrorism finance body, maintains a severe warning
about Iranian financial practices. Last month it warned that Iran’s “failure to
address the risk of terrorist financing” poses a “serious threat . . . to the
integrity of the international financial system.” The Treasury Department also
recognizes the danger, in 2011 labeling the Islamic Republic a “jurisdiction of
primary money laundering concern.” That finding, which remains in place, cites
Iran’s “support for terrorism,” and “illicit and deceptive financial
activities.”
What explains this possible reversal? Most likely, Iran
demanded it. Secretary of State John
Kerry and
Foggy Bottom, always fearful that Tehran will walk away from the nuclear deal,
may be ready to comply.
Don’t expect the White House to admit this; the
administration is more likely to offer a feeble claim that its ability to
oversee Iranian dollar transactions could yield better intelligence.
In 2008, however, the Treasury Department banned U.S.
financial institutions from processing “U-turns”—temporary dollar transactions
between non-U.S. banks and Iranian banks. Treasury determined that the risks
simply outweighed the intelligence benefits. Four years later Treasury pushed
to ban several Iranian banks, including the central bank, from the Swift
messaging system. The threat to the integrity of the global financial system
from Iranian banks, it again determined, was too grave, despite the
intelligence that could be gathered.
The administration might claim that Treasury could
capture dollar-denominated assets when Iran violates the nuclear agreement or
uses the greenback to finance terrorism or ballistic missiles. This wouldn’t be
realistic. Iran knows the U.S. can freeze transactions that are even
temporarily converted to dollars, making it unlikely that they would hold
registered dollar accounts in sufficient quantities in banks where U.S.
authorities have reach. If anything, they will keep their dollar holdings in
offshore accounts or in pallets of cash. If the regime contemplates a nuclear
violation or gets wind of new sanctions, it would dump whatever traceable
dollar assets it holds.
We may also hear via the administration that we need to
provide economic incentives for Tehran to comply with the nuclear deal. Yet
during last summer’s debate, administration officials claimed that denying Iran
access to the dollar and the U.S. financial system would provide Washington
with leverage after the deal was done. Why throw away that leverage in exchange
for no new concessions?
The Europeans are permitting Iranian banks to rejoin
Swift. That’s their decision. But until Congress can get the intelligence
community to verify that Iranian banks have stopped financing terrorist groups
such as Hezbollah and Hamas—not to mention money laundering and other financial
crimes—you can bet that Congress will oppose Iran’s access to the U.S.
financial system.
Messrs. Dubowitz and Schanzer
are, respectively, executive director and vice president for research at
Foundation for Defense of Democracies and its Center on Sanctions and Illicit
Finance.
