Updates

Update from AIJAC

June 25, 2010
Number 06/10 #08

This Update features analysis of the increasing trend of announcements of additional autonomous sanctions directed against Iran’s nuclear program in the wake of the passage of the UN Security Council’s new sanctions resolution, earlier this month. As noted in previous Updates, this trend incorporates the US, the EU, and Australia as well, with an announcement last week by Foreign Minister Stephen Smith of additional autonomous sanctions against two financial entities and an individual (This comes on top of autonomous sanctions Australia imposed in 2008). 

However, the latest news on the autonomous sanctions comes from the US, where, after months of consideration, the US Congress has just overwhelmingly passed a tough new sanctions bill directed against Iran. As the report below from an Israeli paper indicates, the bill targets Iran’s energy sector, petroleum imports, the financial sector and the Revolutionary Guards, and is designed, in the words of  prominent Senator John McCain, to force foreign companies to decide “Do you want to do business with Iran, or do you want to do business with the United States?” The bill is expected to be signed by President Obama, and then, as the article below discusses, its effectiveness will depend in part on the willingness of the Obama Administration to actually punish violators – something past US Administrations have often failed to do. For the rest of the details on this important new set of sanctions, CLICK HERE.

Next up is Jonathan Schanzer, a former US Treasury intelligence advisor specialising in economic sanctions, who dissects the targeted financial sanctions against Iran announced by US Treasury Secretary Timothy Geithner last week. Schanzer finds the Treasury measures announced both “well-timed and strategic” and explores somewhat their relationship with the Congress sanctions measures. He looks in detail at how the various measures announced are supposed to work against Iran’s nuclear industry, missile program, Revolutionary Guards, financial sector and shipping industry. For all of Schanzer’s analysis of these important provisions, CLICK HERE.

Finally, author and analyst specialising in Iran Emanuele Ottolenghi looks at the sanctions guidelines announced by the European Union last week – and the possible pitfalls in actually implementing them. While he praises the measures proposed in the guidelines, which target “trade, the financial sector, shipping and air cargo, and, most crucially, the energy sector” he notes that the European states pressing for tough sanctions – principally Britain, France and the Netherlands, will come up against various other blocs which, for either commercial or ideological reasons, will be very reluctant to go very far in implementing new Iran sanctions. Ottolenghi argues that with the UN Sanctions resolution now providing a firm legal framework, the Europeans have no excuse to avoid tough and effective sanctions. For this detailed look at the debates likely to occur before actual EU autonomous sanctions measures are in put in place,
CLICK HERE.

Readers may also be interested in:

• Matthew Levitt, also a former Treasury official, looks at the provisions of the original UN sanctions resolutions and how they left many “hooks” for such autonomous sanctions.
• An interesting history of what is known about Iran’s nuclear weapons program from  Der Spiegel.
• Cliff May of the Foundation for the Defence of Democracies offers another argument why attempting to “contain” a nuclear Iran would be a bad idea.
• US Defence Secretary Robert Gates expresses strong determination to stop Iran’s illegal nuclear weapons program, and also talks about Afghanistan, in an interview.
• Interesting pieces, with differing views, on the firing by US President Obama of Afghanistan commander Stanley McCrystal and his replacement by General David Petreus –  from Max Boot, David Ignatius, Victor Davis Hanson, Jackson Diehl, Elliot Cohen, and the Washington Post.
• A trip inside Turkey’s IHH radical Islamic movement, responsible for the Gaza flotilla.

Congress approves new penalties against Iran

Senate, House in quick succession approve tough new sanctions that focus on powerful Revolutionary Guard, country’s imports of gas and other refined energy products

Associated Press

Ynet.com,  June 25

The US Congress on Thursday overwhelmingly passed tough new sanctions against Iran, sending a message to the Tehran government that notions of becoming a nuclear power could be accompanied by a steep economic price.
 
The Senate and House in quick succession approved the penalties that focus on Iran’s powerful Revolutionary Guard and the country’s imports of gas and other refined energy products.
 
Senator John McCain, R-Ariz., said the legislation, coming after a year in which the Obama administration’s direct diplomacy efforts were largely rebuffed by Iran, represented “the most powerful sanctions ever imposed by the Congress on the government of Iran.”
 
Foreign companies will be given a choice, McCain said. “Do you want to do business with Iran, or do you want to do business with the United States?”
 
One provision added in final House-Senate negotiations specifies that foreign banks interacting with the Revolutionary Guard or certain Iranian banks will be shut out of the US financial system. That measure alone has “the potential to be a game changer” in Iran’s defiance of international criticism of its nuclear program, said House Foreign Affairs Committee Chairman Howard Berman, D-Calif.
 
The Senate vote was 99-0. The House vote was 408-8.
 
The House passed its original version last December, and the Senate in March. But at the urging of the White House, Democratic leaders put off a final vote as they waited for diplomatic talks to play out.
 
Those talks culminated two weeks ago with the UN Security Council approving a fourth round of sanctions against Iran. The European Union is considering its own package of penalties and last week the Treasury Department added three dozen more companies and individuals to those blacklisted because they contribute to Iran’s nuclear program or help Iran evade existing sanctions.
 
The Tehran government has shrugged off the latest UN penalties and says its nuclear program is for peaceful purposes.
 
The congressional legislation would:
 

• Expand the scope of the 1996 Iran Sanctions Act by penalizing foreign companies that assist Iran’s energy sector. While Iran is a major exporter of oil, it relies heavily on imports for its refined products such as gasoline.

• Ban US banks from dealing with foreign banks doing business with the Revolutionary Guard or aiding Iran’s nuclear program.

• Ban foreign companies from US government procurement contracts if they provide Iran with technology used to restrict the free flow of information. Iranians involved in human rights abuses would be barred from obtaining visas and be subject to having their assets in the United States seized.

• Provide a legal framework for US states, local governments and other investors to divest their portfolios of foreign companies involved in Iran’s energy sector.

‘One of our last best hopes’
Lawmakers from both parties stressed that the bill will be ineffective if the Obama administration, like past administrations, chooses not to punish violators in order to avoid confrontations with other countries.
 
“We have been profoundly unhappy over the years that successive administrations failed to implement the 1996 Iran Sanctions Act,” Berman said.
 
The legislation represents “one of our last best hopes to force Iran to end its nuclear weapons program,” said Rep. Ileana Ros-Lehtinen of Florida, top Republican on the Foreign Affairs Committee. If it is ignored as in the past, she said, “then we will have failed the American people.”
 
Senate Banking Committee Chairman Chris Dodd, D-Conn., the top Senate negotiator on the bill, acknowledged the weak response of past presidents, but he said the new bill, while still containing waiver provisions, states “in no uncertain terms” that the president must investigate if there is credible evidence of a violation and ultimately impose sanctions.
 
There were other misgivings. Rep. Earl Blumenauer, D-Ore., who voted against it, said sanctions don’t always have the desired effect. “Not one member of the Iranian elite will lack for gasoline while ordinary Iranians will go without,” he said.
 
Fariborz Ghadar, a scholar and Iran expert at the Center for Strategic and International Studies, said he didn’t think the new penalties would have a substantial economic impact. He said Iran’s oil industry has already been hit by restrictions on direct investment and that Iran, in anticipation of sanctions on gas sales, has taken steps to reduce domestic consumption and cut dependence on gas imports from 40% of total use to less than 30%.

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Treasury’s New Iran Sanctions

Jonathan Schanzer

Weekly Standard,  June 18, 2010 |

On Wednesday, the U.S. Treasury announced targeted financial sanctions on a formidable list of Iranian companies, persons, and entities. Some of the designations specifically target Iran’s nuclear and missile programs, while others target the country’s energy sector, which has kept its economy on life support. Others target the Iranian Revolutionary Guard Corps (IRGC), a terrorist organization tied to both the nuclear program and the energy sector.

I’ve outlined (below) a summary of what’s behind Treasury’s actions and what sort of impact can be expected. In the end, Treasury’s actions are well timed and strategic. Unfortunately, these designations will not, by themselves, derail the Iranian nuclear program. However, they expose much more of the Iranian nuclear network, impede Iran’s existing supply chain, lay the groundwork for future domestic and international sanctions, and even provide new targets for the U.S. military, should this standoff ultimately come to blows.

Strategic Timing: The designations come on the heels of U.N. Security Council Resolution 1929, which lacked teeth, but demonstrated a sincere desire to prevent Iran from going nuclear. The UNSC resolution established the necessary preconditions for the European Union sanctions, which were announced yesterday. The Treasury designations now indicate that the White House may be finally prepared to assume leadership on the Iran crisis. Indeed, Treasury Secretary Timothy Geithner unveiled them personally, marking the first time he has assumed an overtly public role in the Iran sanctions saga. When the U.S. takes the lead, others follow.

The timing of Treasury’s designations will appear even more strategic if Congress finally passes the energy sanctions bill that has languished in conference committee since April. Some of these Treasury designations provide definitive targets for Congressional sanctions.

Exposing Nodes of Iran’s Nuclear Program: Treasury designated Javedan Mehr Toos, a procurement broker for the Atomic Energy Organization of Iran (AEOI), and Javad Karimi Sabet, a company that carried out activities on behalf of the AEOI. Don’t expect Treasury to capture any funds here, but don’t discount the impact of the “name and shame” factor, either. Iran now knows that U.S. intelligence is on to its secret procurement network. More importantly, the Department of Defense has now added a few military targets to its growing list.

In a bold step, the Treasury also designated Ahmad Vahidi, Iran’s minister of defense, for his role in the nuclear program. Vahidi might now think twice about traveling abroad.

Focusing on Iran’s Missile Program: Treasury also targeted the IRGC Air Force and IRGC Missile Command. These are two key elements in the development of Iran’s ballistic missile capability. Treasury also hit the Naval Defense Missile Industry Group (a.k.a. the Cruise Missile Industry Group). This designation was a long time coming; the U.N. had already imposed its own sanctions against the group in 2007 for developing and producing Iranian cruise missiles. Here, Treasury has effectively warned the IRGC and the Iranian military-industrial complex that the White House views them as equal partners in the nuclear program.

Weakening Iran’s “Gestapo”: The IRGC component of this designation list is particularly noteworthy. In October 2007, Treasury designated the IRGC for engaging in international terrorist activities, and illicit nuclear proliferation. Treasury has now put faces to the organization by designating Mohammed Ali Jafari and Mohammad Reza Naqdi. It’s a fair bet that Treasury will go after other high level officials of the IRGC, which is commonly identified as the “Gestapo” of the Iranian regime.

Treasury also went after Rah Sahel and Sepanir Oil and Gas Engineering Co., two subsidiaries of Khatam al-Anbiya, an IRGC construction company that generates income and funds Revolutionary Guard operations. Unfortunately, these are only two of many companies that generate billions of dollars in business for the IRGC.

Squeezing the Iranian Financial Sector: The designation of the Post Bank of Iran should come as an immediate body blow to Iran’s illicit financial dealings. A number of the mullahs’ state-owned banks are already facing hardships, thanks to U.S. and international sanctions. Treasury identified this bank as the key instrument the Iranians had been using to sidestep these sanctions. As Treasury stated, “Post Bank facilitated business on behalf of Bank Sepah [designated in 2007] between Iran’s defense industries and overseas beneficiaries.” This included numerous transactions with North Korean arms dealers.

Don’t expect checks from Post Bank to clear anywhere now (except maybe Syria, Sudan, or North Korea).

Making Waves on the High Seas: Treasury designated five front companies of the Islamic Republic of Iran Shipping Lines (IRISL), designated in 2008 for acting on behalf of the Iranian military. In addition to the front companies, Treasury banned 27 ships connected to IRISL. Treasury also provided updated information on 71 IRISL ships that have already been blocked, but were renamed in an attempt to skirt international sanctions. This will hopefully hinder Iran’s supply chain, particularly if cooperating countries block these Iranian vessels from docking at their ports. It could even lead to a few seized cargoes.

Deferred Gratification on the Energy Sector: It’s important to note that 22 energy sector listings were not actually designations. Treasury added these insurance, petroleum and petrochemicals companies to the Iranian Transactions Regulations (ITR), a list of entities with which American businesses are barred from doing business. They include dominant players in the Iranian energy sector, operating both inside and outside of Iran.

This may not have the immediate impact of blocking Iranian assets, but it will undoubtedly have a chilling effect on publicly traded multinational companies that don’t want to be fingered as financial enablers of the Iranian regime. Once the U.S. Congress passes its own energy sanctions (expected later this month), multinational companies will likely be forced to choose between working with these companies and doing business here in the United States.

The Transatlantic Relationship: The designation of the energy sector companies may also demonstrate a high degree of cooperation between the U.S. and the United Kingdom. From Kala Naft London to the Iranian Oil Company, Treasury listed about one dozen UK-based companies. Treasury could not have listed these entities without the full cooperation of Her Majesty’s Treasury and British intelligence. Whether these entities are ultimately banned in the UK remains to be seen, but the listings suggest a high degree of intelligence cooperation.

Jonathan Schanzer, a former intelligence analyst for the United States Department of the Treasury, is vice president for research at the Foundation for Defense of Democracies.

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Iran and the European Moment

The Continent has no more excuses not to act against Tehran.

By EMANUELE OTTOLENGHI

Wall Street Journal (Europe), June 21

Last week, only days after a U.N. Security Council Resolution introduced new sanctions against Iran, Europe’s leaders approved guidelines to expand their scope. Given that Europe is Iran’s main trading partner, a bold move now could have devastating implications for Ahmadinejad, Khamenei & Co. But will Europe go far enough? Scepticism seems in order. Everything will depend on the details that must be worked out before next month’s meeting of foreign ministers.

After years of fruitless engagement, the U.N. resolution offers a basis for those European Union countries pushing for tougher sanctions—chiefly France, Great Britain and the Netherlands—to convince their reluctant partners to finally hit the Islamic Republic where it will hurt.

Unlike the U.N. measures, which were significantly watered down to keep Russia and China on board, Europe’s guidelines sound tough. In addition to visa bans and asset freezes on Tehran’s stalwarts, governments called for new restrictions on trade, the financial sector, shipping and air cargo, and, most crucially, the energy sector. Specifically, the guidelines push for barring “new investment, technical assistance and transfers of technologies, equipment and services related to these areas, in particular related to refining, liquefaction and LNG [liquefied natural gas] technology.”

But EU decision-making is cumbersome and consensual. The last time the U.N. passed sanctions against Iran, in March 2008, it took the EU five months to pass its own set of implementation rules. Although those rules went beyond the U.N. measures, it was a case of the mountain bringing forth a mouse.

Why would it be different this time? EU diplomats have been working for months to overcome all objections, have obtained the political agreement of their leaders, and have a draft of specific measures ready to pass before the EU goes on holiday in mid-July. Old divisions, though, remain.

The EU’s newcomers from eastern and central Europe are fence-sitters. Their economic relations with Iran are negligible. But in some cases, such as the Czech Republic, skepticism about sanctions stems from a belief that Iran, like all tyrannies, is impervious to sanctions. If anything then, the tougher the measures, the more enthusiastic this group’s support would be.

The real contest is among western Europeans. First, there are the “shipping” states (Cyprus, Malta, and Greece); their revenues from port services make them strong opponents of any measure to expand the scope of U.N. sanctions against Iran’s shipping lines.

Then, there are the “U.N. states” (Austria, Belgium, and Sweden), who, having turned peaceful multilateralism into an article of faith, shun confrontation at all costs. For them, EU sanctions were unthinkable before a U.N. resolution; even now, they remain unpalatable, for philosophical reasons. Expanding them is a hard act to swallow, especially because some of these countries’ U.N. worship is augmented by profitable business deals with Iran.

Which brings us to the “energy states,” (Denmark, Spain, Italy, and once more Austria), whose national energy companies’ exposure and interests in Iran make their governments less enthusiastic about additional sanctions that could target Iran’s natural gas or petrochemical sectors.

Then there are the “Chamber of Commerce states” (Germany, and again, Austria and Italy), whose industries enjoy lucrative trade deals with Iran, making them a powerful lobby against sanctions.

Finally, there is Sweden. Its economic involvement inside Iran may not be significant but according to diplomatic sources, its foreign minister, Carl Bildt, still seems to resent the fact that he was not appointed to be the EU’s foreign policy chief. EU diplomats say that Mr. Bildt has stalled the process out of pure spite. It’s worth noting also that, during Sweden’s EU presidency, the country refused to endorse even the mildest sanctions in response to Iran’s arrest of the British embassy’s non-diplomatic personnel in Tehran. Sweden’s ambassador was also one of a handful of Western diplomats in attendance at Mahmoud Ahmadinejad’s inauguration last year. Despite Sweden’s general support for the U.N. on virtually any other topic, Mr. Bildt has even criticized the latest round of U.N. sanctions.

That leaves France, Britain, and the Netherlands with a formidable challenge. One argument they might offer is that, if tough new sanctions against a regime like Iran’s are beholden to economic interests, philosophical scepticism, and ego, how can anyone ever rely on the European Union to deliver?

They could also note the U.N. resolution’s reference to “the potential connection between Iran’s revenues derived from its energy sector and the funding of Iran’s proliferation-sensitive nuclear activities,” as well as its point that “chemical process equipment and materials required for the petrochemical industry have much in common with those required for certain sensitive nuclear fuel cycle activities.” Given the EU’s stated commitment to fighting proliferation, the resolution thus gives reluctant policymakers a strong prompt to impose energy sanctions.

That could lead the EU to deliver the most far-reaching measure possible: By banning exports, investments, and transfers of technology in strategically critical areas of Iran’s energy sector, they could set back for years Iran’s efforts to modernize its technologies, and cut the regime’s financial lifeline at a time when it is particularly vulnerable internally.

Similarly, thanks to the U.N.’s broad references to Iran’s Revolutionary Guard companies, the EU could expand the U.N. list and add dozens more, especially those with procurement branches in European jurisdictions. U.N.-mandated vigilance on Iranian banks, including Iran’s Central Bank, could also pave the way for heavier EU banking restrictions against Iran, that could ultimately push the Islamic Republic outside the euro zone. So too could a U.N. embargo on heavy weaponry sales give the EU the excuse to ban the kind of light weaponry the regime needs for internal repression. And the U.N.’s “enhanced vigilance” on shipping and air cargo, coupled with an EU ban on such companies and the services they need, could cripple Iran’s procurement efforts.

Ultimately, France, Britain, and the Netherlands must convince the rest that nuclear weapons in the hands of Iran’s leaders, and the arms race in the Middle East that would likely follow, would be a menace to all they cherish. Only then will they sacrifice their narrow economic interests to enact tough sanctions against the Islamic Republic.

The language and the legal framework so paramount for Europeans as a cover for this kind of action have now been provided. Europe no longer has a valid excuse not to act, and its responsibility to do so has never been greater.

Mr. Ottolenghi is a senior fellow at the Foundation for Defense of Democracies and the author of the forthcoming book “Iran: The Looming Crisis” (London, Profile Books: 2010).

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