FPI Conference Call: Implications of Granting Iran Access to U.S. Financial Market

On April 7, 2016, the Foreign Policy Initiative (FPI) hosted a conference call about the implications of the Obama administration’s plan to grant Iran access to the U.S. financial system. Mark Dubowitz of the Foundation for Defense of Democracies and Eric Lorber of the Financial Integrity Network offered their perspectives on the evolving situation.

In addition to the full audio and transcript of the event, FPI believes the following quotes will be helpful for policymakers, lawmakers, and the general public to understand the significance of the prospective U.S. move and its likely impact on Washington’s relationship with Tehran.

The Risks of Resuming Business in Iran

“We know based on sanctions relief most non-U.S. business activities are generally now allowed in Iran, but companies looking to do business there can’t find global banks to bank their business. The question of course is why are those banks so risk-averse, and the answer is that frankly they’ve been hit heavily before with fines. … And as a result, these Western banks who have been dinged on this before really have no desire to reenter Iranian markets or bank on behalf of Iranian clients. … Iran for them is a no-go zone regardless of JCPOA or successful implementation or not.” – Eric Lorber
“[A]s a matter of law and as it currently stands, I do think it’s an open question whether a dollarized transaction that doesn’t actually touch the U.S. financial system would violate current U.S. sanctions post-Implementation Day. So I think that such transactions could actually be permissible under U.S. law, but even if they are, because it’s such a gray area, the banks are so risk averse that they’re not willing to go in and provide transactions or financing. … And I think that the administration thinks that allowing or signaling to these banks that dollarized transactions are actually OK, though again probably not through the U.S. financial system as administration officials keep saying, it’s a way to assure these banks that it’s OK to do business again with clients who are doing business in Iran consistent with the JCPOA.” – Eric Lorber
“When [foreign banks] look at Iran, they see a country whose economy in the key strategic sectors that they care about are dominated by the Revolutionary Guard, which are still designated under U.S. law and is still involved in a series of malign activities. They look at Iran, and they worry about Iran’s missile activity and terrorism activity, the fact that Iran continues to take U.S. hostages, that it’s involved in supporting designated Shiite militias in Iraq, that it’s involved in supporting the Houthi rebels in Yemen, and that it has been providing significant support to Bashar al-Assad’s slaughter of the Syrian people.” – Mark Dubowitz

The Purpose of Iran Sanctions

“How were these financial sanctions put in place in the first place, and why were they put in place? … These financial sanctions were not being put in place because of Iran’s nuclear program. These sanctions were being put in place because the Iranian financial sector represented a threat to the integrity of the global financial system. …

“[U.S. officials told international banks that] Iran represents a unique threat to your bank and to the integrity of the financial system. And that threat is on the basis of its proliferation-sensitive financing, nuclear financing, missile financing, but also terror financing, money laundering, and sanctions evasion.” – Mark Dubowitz

The Importance of Leverage

“Access to the U.S. financial system, access to dollarized transactions, is a significant coercive tool that we have in our toolkit. And if we allow it to be basically given away without concessions on Iran’s ballistic missile program or support for terrorism, I think we’re losing a lot, and we’re giving up something in effect for nothing. And let me explain sort of how this works. …
“So let’s say that we give Iran access to U.S. dollars, there’s a general license that’s issued allowing them access, and six months down the road Iran engages in a wide range of missile tests. And so we want to pull their access to U.S. dollars as a way to punish them for these activities and change their behavior. If we do that, Iran is going to say that the dollar access was granted as part of the nuclear agreement, as evidenced by the fact that the U.S., when it was saying that it needed to fulfill its obligations under the JCPOA, provided this general license.” – Eric Lorber

Iran’s Strategy

“Now, the Iranian strategy is to legitimize themselves as a responsible financial actor, and what could be the best way to do that than to get the United States government to effectively greenlight the greenback? To say to the global financial community, the world’s most important currency, the U.S. dollar, which represents something like 87% of global trade and 60-70% of foreign exchange reserves, the currency that everyone needs in order to do oil trades and financial activities and foreign direct investment — that we are going to greenlight the greenback. … Their broader strategy is to be legitimized as a global financial actor, and to come out of the penalty box, as it were.” – Mark Dubowitz
“[Iran is] setting the stage for the next steps, where they can begin to erode coercive leverage on the one hand, and begin to legitimize themselves as a quote-unquote ‘responsible’ financial actor without doing anything to actually demonstrate that they’ve turned the corner on the money laundering, and the threat finance, and financing of terror concerns that the international community has.” – Mark Dubowitz

How America Should Respond

“The fact that we would offer a unilateral concession to Iran, especially one with such far-reaching consequences, especially one that actually allows Iranians to leverage our currency in order to not only conduct business, but to legitimize themselves as a legitimate financial actor, seems to me to be a mistake. We should require that, if Iranians want access to the U.S. dollar, then they’ve got to start to address all of the other non-nuclear malign activities that many of us are concerned about. …
“Instead, we’re seeing reports of the opposite. The administration trying to figure out what I would call a bait-and-switch, which is we’re not going to give Iran quote-unquote ‘access’ to the financial system, but we’re going to now give Iran the benefits of dollarized transactions with respect to trade and with respect to this legitimization which I’ve talked about.” – Mark Dubowitz

The Debate in Congress

“I’ve seen sort of different hooks for these legislative proposals. Things like Iran’s support for terrorism; things like Iran’s support for ballistic missiles; et cetera. And I think that, when thinking through these issues, as to what the purpose of preventing the dollarized clearing transaction mechanism is, that Congress should think through … what exactly they’re trying to pressure Iran on. Obviously, there’s an impetus to prevent Iran from having this ability, but they should think through what impact this mechanism is going to have on Iran’s support for terrorism, or Iran’s support for ballistic missiles, and whichever one they think it might have the most impact on, that’s the one they should sort of hang the hook of the legislation on.” – Eric Lorber

“The administration has said repeatedly that we need to have leverage in order to get Iran to stop supporting terrorism or firing long range ballistic missiles. I think there’s an opportunity here to use the demand for dollarization as leverage to extract meaningful concessions. … I think that Congress should block this license entirely and have a mechanism of secondary sanctions against any global financial institution that engages in dollarized clearing and then use that leverage to try and go demand from Iran to end its support for terrorism. And as long as it is a state sponsor of terrorism, global financial entities will be prevented from dollarizing transactions both because it will be a unilateral concession for Iran that still remains the leading state sponsor of terrorism and because we have decades of history that have demonstrated … that we are in the business of protecting the financial integrity of the global financial system. …
“Indeed, I would throw in another requirement, which is that I would put a tax on any dollarized transaction where any proceeds from that transaction tax were paid into the victims fund that Congress has established for victims of Iranian terrorism. There are billions of dollars that the Iranians refuse to pay that they are challenging in the Supreme Court of the United States and yet we are going to permit them the greenback and permit back billions of dollars and transactions with our currency when victims or Iranian terrorism have not been compensated. Again, this is an opportunity for Congress to exert some leverage.” – Mark Dubowitz

Speaker Biographies

Mark Dubowitz is the executive director of the Foundation for Defense of Democracies (FDD), a Washington, D.C.-based nonpartisan policy institute, where he leads projects on Iran, sanctions, and nonproliferation. A former venture capitalist and technology executive, Dubowitz heads FDD’s Center on Sanctions and Illicit Finance. He co-leads The Iran Task Force and is co-chair of the Project on U.S. Middle East Nonproliferation Strategy. Widely recognized as one of the key influencers in shaping the Iran sanctions architecture of the past decade, Dubowitz has advised U.S. administrations and lawmakers and testified nineteen times before Congress and foreign legislative committees on Iran sanctions and nuclear issues. He is the author or co-author of over twenty studies on economic sanctions and Iran's nuclear program. Dubowitz teaches courses on sanctions and international negotiations at the University of Toronto's Munk School of Global Affairs, where he is a senior fellow.

Dubowitz has written for The New York Times, The Wall Street Journal, The Washington Post, The Los Angeles Times, Foreign Policy, The Atlantic, USA Today, Forbes, Slate, The Weekly Standard, The Globe & Mail, and The National Post, and appeared on CBS Evening News, CNN, Fox News, NPR, PBS, BBC and CBC. Dubowitz has a masters in international public policy from Johns Hopkins University's School of Advanced International Studies, and law and MBA degrees from the University of Toronto. Raised in Toronto, and a proud American citizen, he has lived in Washington, D.C. since 2003.

Eric B. Lorber is a senior associate at the Financial Integrity Network, where he advises financial institutions on issues related to economic sanctions, anti-money laundering, and regulatory compliance.  He is also an adjunct fellow at the Center for a New American Security and a senior advisor at the Center for Sanctions and Illicit Finance at the Foundation for Defense of Democracies, where he focuses on issues related to economic sanctions and financial security.

Prior to joining FIN, he was an associate in the Washington, D.C. office of Gibson, Dunn & Crutcher, where he advised clients in the areas of international trade regulation, compliance, and anti-corruption, with particular emphasis and experience assisting clients in complying with the economic sanctions and embargo regulations administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC).  Prior to working at Gibson Dunn, Eric worked in the Office of Chief Counsel at OFAC and in the Office of Terrorist Financing and Financial Crime at the Treasury Department.  

His commentary on sanctions and related issues has appeared in Foreign Affairs, Foreign Policy, The National Interest, Lawfare, Cato Unbound, The Journal of Conflict Resolution, Middle East Policy Journal, The Wall Street Journal, Bloomberg, and Reuters, among others.  He has also testified on these issues before the United States Senate. Mr. Lorber graduated from the University of Pennsylvania Law School, where he received the Noyes E. Leech Award for highest achievement in international law.  He graduated from Columbia University, where he earned a Bachelor of Arts in Political Science, magna cum laude and with departmental honors, and was awarded the Charles Beard Prize for academic achievement.  He is a Term Member of the Council on Foreign Relations and a Next Generation National Security Fellow at the Center for a New American Security.

Mission Statement

The Foreign Policy Initiative seeks to promote an active U.S. foreign policy committed to robust support for democratic allies, human rights, a strong American military equipped to meet the challenges of the 21st century, and strengthening America’s global economic competitiveness.
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