Deterring European Attempts to Evade U.S. Sanctions on Iran
On May 8, 2018, President Trump announced a U.S. withdrawal from the Joint Comprehensive Plan of Action (JCPOA) alongside the re-imposition of all U.S. sanctions that were suspended during the JCPOA. European capitals today are reaffirming their commitments to the JCPOA, vowing to maintain trade and investment with Iran despite the re-imposition of U.S. sanctions. Last week, the International Crisis Group published a report outlining ways in which European governments could help their banks and businesses evade U.S. sanctions. Given the enormous legal complexity and financial risk associated with devising schemes to circumvent the most powerful and far-reaching economic sanctions ever imposed on another country, American policymakers should take the following steps to deter any global entity from attempting to evade U.S. sanctions against Iran: 1)Make clear to European interlocutors that any attempt to respond to the re-imposition of U.S. sanctions through tariffs will negatively impact the ongoing negotiations over steel and aluminum tariffs – with a likely U.S. escalation targeting Europe’s strategic economic sectors. The message: keep trade negotiations separate from the issue of Iran sanctions – the consequences of mixing the two issues could be devastating for Europe. 2)Make clear to European interlocutors that the U.S. will not make exceptions to its sanctions outside of those prescribed by law (e.g. the “significant reduction” exception to the FY12 NDAA). In general, U.S. law does not allow for non-enforcement of sanctions without the issuance of a national security waivers, as applicable. Diplomatically, we cannot issue waivers for allies in Europe without issuing waivers for allies throughout the world. Soon, nothing would be left of our sanctions architecture and the pressure on Iran would evaporate. The credibility of U.S. sanctions is on the line. Re-imposed sanctions – and future sanctions – must be fully enforced. 3)Remind European governments that U.S. financial sanctions apply to all “foreign financial institutions,” which the Treasury Department has previously interpreted to include “central banks or foreign state-owned or -controlled banks,” not just private banks. Countries that consider shifting their payment processing from private institutions to central banks will put their financial systems at serious risk.
4)Impose sanctions on the first bank or company found to be in violation of U.S. sanctions. This will create a global chilling effect on further attempted violations. 5)In addition to communicating with governments and financial institutions, U.S. policymakers should remind the insurance/re-insurance industry that under the Iran Freedom and Counter-Proliferation Act, companies that provide insurance, reinsurance or underwriting services for Iran-connected projects are at serious risk of violating U.S. sanctions. The combination of financial and insurance sanctions makes a European attempt to build a sanctions evasion architecture unsustainable and unaffordable, if not impossible. 6)Communicate with the all members of the board of SWIFT, including Chairman Yawar Shaw (Citigroup), Deputy Chairman Stephan Zimmerman (UBS AG) and other board member banks like RBS, Unicredit, Clearstream, J.P. Morgan, Danske Bank, RBC, Deutsche Bank, Commerzbank, BNP Paribas, OCBC Bank, Bank of Tokyo-Mitsubishi UFJ, Bank of China, Lloyds Banking Group, Credit Suisse and others, to inform them that they are all subject to U.S. sanctions under the Iran Threat Reduction and Syria Human Rights Act of 2012 if, by November 4, 2018, SWIFT does not disconnect the Central Bank of Iran and any other Iranian banks that are re-designated by the Treasury Department. 7)Finally, key European partners – particularly those threatened by both Russian aggression and Iranian missiles – should be reminded of America’s role as a political and security umbrella. The countries most threatened by Russian expansionism and Iranian missiles have far more to lose by supporting a confrontational posture toward the United States inside the EU Council than by simply suspending relatively insignificant trade with Iran.