Sanctioning Iran

Sanctioning Iran

An Interview with U.S. Treasury Undersecretary Stuart Levey

Stuart Levey Summer 2007

On April 13, inFocus editor Jonathan Schanzer interviewed Undersecretary of the U.S. Treasury Stuart Levey. Since 2004, Mr. Levey has directed Treasury's efforts to block financial support to international terrorists, enforce economic sanctions against rogue nations, and combat the proliferation of weapons of mass destruction. Mr. Levey previously served in senior posts at the U.S. Department of Justice, and spent 11 years at the Washington law firm Miller, Cassidy, Larroca & Lewin LLP (now Baker Botts, LLP).

iF: You have been quoted as saying that Iran is the “Central Banker of Terror.” Why did you say that and what are you trying to convey?

SL: Iran has, for a long time, been the primary supporter, financial and otherwise, of a number of terrorist groups. It is the primary financial supporter of Hezbollah, which it sends hundreds of millions of dollars a year. It is also a primary funder of other terrorist groups including the Palestinian Islamic Jihad (PIJ), Hamas, and other groups. With respect to PIJ, Iran is not only sending money, but also it is actually conditioning its money on PIJ conducting terrorist attacks.

Photo: Roy Riley
Photo: Roy Riley

When we think about fighting terrorist financing, a lot of effort has been put into stopping the flow of money to terrorists from individual donors and NGOs around the world. A lot of people are familiar with the effort we’ve made there. But when it comes to Hizbullah and solving the problem of terrorism, state sponsorship is a huge challenge, and of those, Iran is by far the biggest challenge.

iF: What about the Mahdi Army or other Iranian-sponsored Shi’ite groups in Iraq?

SL: It is very clear that Iran’s IRGC Quds Force is now involved in activities that are targeting civilians and American soldiers in Iraq. The Quds Force is the arm of the Iranian government that is exporting terror to Hizbullah, the Palestinian Islamic Jihad (PIJ), and Hamas. It exports terror, in a similar way, to these groups in Iraq.

iF: How is the U.S. Treasury approaching the problem of Iran?

SL: I think of Iran as a multifaceted problem. It’s exporting terror, but it’s also pursuing a nuclear program that is a danger to the world community. Iran is also a destabilizing influence in the Middle East. So, we’ve looked at the problem holistically and we’ve done a number of things. We’ve taken measures that are specifically aimed at terrorism. The most significant of those is when we acted against one of Iran’s state-owned banks, Bank Saderat. We cut it off from the U.S. financial system in September 2006. But we didn’t just cut it off – we explained why we cut it off, and that’s what made it particularly effective. We explained that Iran, through its own central bank, was using Bank Saderat to funnel money through a Saderat subsidiary in London to Bank Saderat’s branch in Beirut for distribution to Hizbullah fronts. Money was then funneled from those organizations to Hamas, PIJ and the Popular Front for the Liberation of Palestine – General Command (PFLP-GC). We made all that public, and the effect was that banks around the world were put on notice as to what Bank Saderat was engaged in. And when you do that, banks are much more likely to cooperate. This amplifies the effect of our measure. Banks around the world have cut back dramatically in their business with Bank Saderat.

On the weapons of mass destruction (WMD) side, there’s been an ongoing diplomatic effort in the United Nations to pursue formal sanctions against Iran for its pursuit of a nuclear program. There have been targeted measures through the U.N. against entities that are involved in Iran’s nuclear program.

But separately from that, beginning in June 2005, we started taking action ourselves against some of these entities. President Bush issued an executive order at that time which gave the Treasury the ability to designate and freeze the assets of those who are engaged in the proliferation of WMD just the same way that we take action against those who are promoting and providing material support to terrorism. When we did that, we designated a number of Iranian entities, as well as some North Korean and Syrian entities, but we focused very much on Iran’s WMD program and designated a number of those entities.

iF: What was Treasury’s biggest designation?

SL: A number of the entities that we designated ended up on the U.N. list, and that’s very powerful. You have the Atomic Energy Organization of Iran and some of the subsidiaries of the Aerospace Industries Organization. These are key entities within Iran that are pursuing their nuclear and missile program. But I think the one that has had the most effect and the most potential for effect in the future is that we identified in January of 2007 the bank of choice for Iran’s missile entities, and that’s Bank Sepah.

Again, we made the evidence public and explained how it was facilitating transactions for these missile entities. As a result, when the Security Council passed a follow-on resolution in March, Resolution 1747, Bank Sepah is one of the entities that was designated at the U.N. as an entity that every member state has to freeze the assets of, and stop doing business with. That is a very powerful message – that a state-owned bank, and a significant financial institution like Bank Sepah, has been identified and called out as a proliferator.

iF: Are designations effective?

SL: I think they are effective, but you have to try to take a step back to understand why. It’s not because you put someone on a list, freeze their assets and then see how much we freeze. What’s going on here in a more general sense is that we make public who is engaged in Iran’s pursuit of a nuclear program, or who is facilitating terrorism. With all these kinds of dangerous activities, we are identifying who the actors are – individuals and entities, including banks. When Treasury does that, the financial system around the world reacts very powerfully. Banks around the world do not want to do business with these entities – and that’s not just because they are scared of Treasury. It’s because banks around the world tend to be run by people who are very responsible corporate citizens who don’t want to do business with terrorists, who don’t want to do business with money launders, and who don’t want to do business with proliferators.

We put people on these lists and we make public the behavior that they are engaged in, and they end up being isolated from the financial system. That has a big impact. When you apply it to Iran in particular, what we’ve seen in the last six or seven months, is that banks all over the world are pulling back from doing business with Iran because they are starting to see the kind of conduct Iran is engaged in. They have decided they don’t want to be the banker for Iran’s efforts to support terror or proliferation. As a result, a lot of financial institutions are completely cutting off their Iran business, or cutting back on it dramatically. That is starting to create a sense of isolation within Iran that has the potential to be very effective.

The one thing that we’ve done that is unprecedented is that we have made it a point to go around the world and visit with leaders in the private sector and talk to them about the way Iran is using deceptive conduct in the financial system, the way that Iran is taking steps that could involve their financial institutions or other companies in activities that they wouldn’t choose to be involved in if they knew. What I’m talking about is things like keeping their names off transactions in the international financial system or operating through front companies.

By engaging the private sector, which I think is an innovative approach, we’ve had much more effect than if we were only talking to governments. We’ve found that the private sector is willing to react, and they’re interested in knowing how to stay out of illicit activity. They can make decisions quickly. They can make adjustments quickly. We have found this to be a very effective tool and one that has allowed us to have more of an impact and faster than we otherwise could have.

iF: Can the U.S. Treasury Department force Tehran, when sanctions have already hobbled the Iranian economy, to halt its weapons program or cease sponsoring international terrorism?

SL: We have to think about this not so much as an effort to bring Iran to its knees or crush its economy. There are factors at play that make that very difficult to do. The obvious one is that Iran is a big oil producer. Right now, Iran is having a hard time attracting investment, so its long-term oil production is being called into question. But in the short term, it has a steady stream of income. It doesn’t mean that these efforts aren’t promising. I think they are quite promising.

What’s happening here is that people in Iran who are used to doing business around the world, dealing with the primary financial institutions and frontline institutions around the world, are all of the sudden realizing that people don’t want to deal with them. They don’t want to handle their business anymore. They’re starting to ask themselves why. The answer lies in the defiant policies that Iran is pursuing. They have a regime that is pursuing a nuclear program against the wishes of the international community, that’s funding terrorism around the world, that’s talking about wiping Israel off the map, and that’s denying that the holocaust occurred.

These are all working together so that financial institutions don’t want to handle business that they previously handled. And that is the kind of thing that can cause tension within Iran. People in Iran will start to question whether their regimes are in the long-term best interest of Iran. And that’s really where we have potential to succeed. It’s not a question of bringing the entire economy to its knees, but rather to persuade those in Iran that can make a change that the current policy being pursued is one that is not in their best interest.

iF: Please talk about how the rest of the world has, or has not, been following America’s lead with regard to Iran.

SL: One always wants maximum and total cooperation, so we’re always going to push. But we also have to step back and take a look at some things that have been very good. Having two unanimously-adopted Security Council resolutions at the U.N. is a very strong sign of international cooperation. As a practical matter, the United States cut off most of its economic relationship with Iran in 1979, and the rest of the world has continued to do business with Iran in a “normal way” for all these years.

On the one hand, when we go and talk to countries around the world about what businesses are doing and how they can be sure they’re not involved in illicit conduct, it’s a little difficult. They’re going to look at us and say, “all the cost is going to fall on us, rather than the United States, because the United States doesn’t do business with Iran anyway.”

I like to look at it differently. I think we’ve been bearing the cost of confronting this regime for a long time. Our businesses have already given up the opportunities that they have ceded to their competitors for all these years, and now it’s time for others to also help us in trying to change the policies of this regime.

And I think we’re making some progress. Many significant companies are delaying making decisions on whether to invest in Iran. And I think that is signaling that while they would like to invest in Iran because they want to make a profit, they are resistant to do so in the current environment where it is perceived, rightfully, that investing in Iran’s oil infrastructure could very well mean helping the regime pursue policies that are very counterproductive.

iF: How is cooperation with Sunni Arab states that are alarmed over the Shi’ite power play? Can Treasury ask them for increased cooperation?

SL: It’s certainly true that there is a lot of concern in the region about a nuclear-armed Iran and the potential for coercion and other problems that would result from it. So, I do think we do have the basis for cooperation with a number of Arab countries on this issue, and not just with the Treasury department. Our entire government is trying very hard to work in a collaborative fashion with all of those countries to try to resolve this.

iF: Thank you, Stuart.

SL: It was my pleasure.