Treasury Notes

 Under Secretary Cohen on Using Financial Pressure to Isolate Iran

By: Hagar Hajjar Chemali

Earlier this month, Under Secretary for Terrorism and Financial Intelligence David S. Cohen delivered a speech to the New York University School of Law about 
the law and policy of Iran sanctions.  His remarks focused on the Treasury Department’s innovative use of financial pressure to isolate Iran from the international financial system and compel Iran’s leadership to change its calculus about its nuclear program.  Under Secretary Cohen highlighted how these sanctions are affecting Iran today:

“Put simply, Iran’s economy is struggling.  In part, this is due to the Iranian government’s continued gross mismanagement of its domestic economy.  And in part, it is due to the effect of sanctions pressure.  Sanctions have hit Iran’s oil sector – by far its most important industry – hard over the past year.  Historically, oil exports comprised 80 percent of the Iranian government’s foreign exchange earnings and provided about two-thirds of its budget revenue...As a result of actions taken since the beginning of this year, Iran’s crude exports have plummeted to approximately one million barrels per day, a dramatic 55 percent decrease.  This decrease in exports is costing Iran up to $5 billion a month, forcing the Iranian government to cut its budget because of a lack of revenue.” 

Under Secretary Cohen also walked through the arc of the financial sanctions effort against Iran and the variety of tools at Treasury’s disposal: the near-total U.S. embargo on financial and commercial relationships with Iran, a U.N. sanctions framework that imposed multilateral sanctions on Iran, and a targeted conduct-based sanctions strategy.  He discussed the Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA), which President Obama signed into law on July 1, 2010.  Under Secretary Cohen reflected on how effective this law has been:   

“The impact was dramatic.  Nearly everyone we spoke with readily recognized that there really was only one choice – to terminate relationships with designated Iranian banks.  And those that did not appear to recognize this – like Kunlun Bank in China and Elaf Islamic Bank in Iraq, both of which have now been cut off from the United States banking system – have learned that we are quite serious about the choice to be made under CISADA.” 

He also discussed how Treasury’s November 2011 finding under Section 311 of the USA PATRIOT Act against the entire jurisdiction of Iran and its Central Bank paved the way for other countries to follow and set the stage for additional action here at home: 

“The same day we acted, the UK and Canada took action to forbid almost all financial transactions between their banks and all Iranian banks, including the CBI.  The campaign to isolate the CBI was well underway.  Then, a little more than one month later, the President signed the National Defense Authorization Act for Fiscal Year 2012 (the “NDAA”), which set the stage for additional pressure against the CBI and Iran’s oil revenues… As we did after the enactment of CISADA, we have spent a great deal of time over the past nine months meeting with foreign counterparts in both the public and private sectors to explain Section 1245 [of the NDAA] and – along with colleagues from the State and Energy Departments – to encourage importers of Iranian oil to protect their banks from sanctions by significantly reducing their imports.  And as in the aftermath of CISADA, the response has been quite positive.  Every country that imported oil from Iran as of the beginning of this year has taken steps to significantly reduce the volume of their Iranian oil imports – driving down Iran’s oil revenues.”  

Looking at the path ahead, Under Secretary Cohen concluded by laying out the important stakes and consequences that are involved in these negotiations:

“The combined impact of the sanctions adopted over the last several years by the U.S. and our partners around the world clearly got the attention of Iran’s leadership.  Taking aim at Iran’s oil revenues, combined with squeezing Iran’s access to the international financial system ever more tightly, created a dynamic that encouraged Iran to come to the negotiating table earlier this year… [L]et’s be clear: The onus is on Iran.  And as we have clearly signaled all along, if Iran is not prepared to negotiate meaningfully about its nuclear program, we will increase the cost of Iran’s intransigence.  And that is precisely what we have done… We will continue to devise new and enhanced sanctions – so long as Iran refuses to address in a meaningful and productive way the very serious concerns with its nuclear program.  And the impact from sanctions will only increase over time – as the financial sanctions continue to bite, the oil-related sanctions continue to drive down Iran’s oil sales, potential workarounds are stymied, and our partners continue to take complementary action.” 

​Hagar Hajjar Chemali is the Acting Spokesperson for Terrorism and Financial Intelligence at the U.S. Department of the Treasury.​​​
Posted in:  Terrorism and Financial Intelligence
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