After Iran Sanctions, U.S. Faces A Huge Task: Compliance

Most Western companies and banks pulled out of Iran ahead of new Trump administration sanctions, fearing a loss of access to the U.S. economy. But the rest of the world may be more difficult for American officials to convince.

Facing a host of nations reluctant to back Washington’s pressure campaign, the administration says it is on high alert, ready to punish those that don’t comply.

“If a company evades our sanctions regime and secretly continues sanctionable commerce in the Islamic Republic, the United States will levy severe, swift penalties on it, including potential sanctions,” Secretary of State Mike Pompeo said Monday.

Administration officials recently have traveled to 32 countries seeking to coax compliance. The administration has also fired warning shots, levying sanctions against companies and individuals accused of helping Iran’s government.

The administration’s tough posture comes after it pulled out of the 2015 nuclear accord between Iran and other major powers earlier this year, triggering the re-imposition of U.S. sanctions against Iran. The administration said the deal didn’t adequately curb Tehran’s ability to make nuclear weapons, development of missiles and its support for armed conflict in the region.

Sanctions are intended not just to disrupt operations but to deter others. Among those hit were currency-exchange houses in the United Arab Emirates, shell companies in Turkey and a bank in Iraq.

There have been some signs of cooperation. The U.A.E. backed U.S. action against the exchange houses. And a Chinese bank that handled banned Iranian oil sales in the past is now waving off its old Iranian clients.

But Iran has vowed to break the sanctions, and there are many governments whose opposition to the U.S. Iran policy is expected to give silent license to firms and individuals in those countries who see an opportunity in Iran’s isolation.

Intelligence officials and Iran analysts say they expect companies and banks in Russia, China, Oman, Iraq and elsewhere to help Iran defy sanctions. Turkey’s president asserted Tuesday that his country wouldn’t abide by the U.S. sanctions.

Under particular scrutiny are businesses in the emirate of Dubai, which was a conduit for trade with Iran in the past. After a recent visit by Treasury Secretary Steven Mnuchin to the United Arab Emirates to spur compliance, U.S. officials said the trade hub wouldn’t be a channel for illicit Iranian commerce this time.

But while many Dubai-based companies and exchange houses used in past sanctions-busting have been shut, the infrastructure—currency-exchange houses, trade companies, individuals, boats and other elements of evasion—is still widely available.

Abu Dhabi, whose emir acts as president of the U.A.E., has shown more willingness to cooperate with the U.S. than have Dubai’s leaders, analysts say. They also point to a stream of cash and commodity flows between Dubai and Iran.

U.A.E. officials didn’t respond to a request for comment. A U.S. security official said the Dubai government has reassured the U.S. that it won’t allow activity that violates sanctions again. Officials at the Turkish, Chinese, Iraq and Russian embassies in the U.S. didn’t respond to requests for comment.

In Dubai, dozens of currency-exchange houses line the streets of the bustling Deira market district, a short walk from one of several Dubai branches of Saderat Bank—an institution the U.S. accused in the past of serving as a conduit for Tehran’s illicit funding activities. The U.S. has accused such exchanges of helping connect Iran to financial networks.

Saderat was one of dozens of banks blacklisted on Monday as Treasury sanctioned more than 700 financial institutions, companies, individuals and aircraft.

Dubai also is home to an estimated 500,000 Iranian expats. Iran’s Mahan Air, sanctioned nearly a decade ago for ferrying Iranian fighters and weapons to Syria and other conflict zones, and still blacklisted by Washington, continues to fly several times a day between Tehran and Dubai.

And a fleet of boats, each holding 140 tons of cargo—much of it now banned by the U.S. sanctions—load their wares daily on docks 50 feet from the Dubai customs house for a short voyage across the Strait of Hormuz to Iran.

Most of the black-market goods are for consumers. On a recent Saturday, it was “Barbie” bubble gum, Sony TVs and Somali limes. But analysts say the stream of boats represents much larger cash and commodity flows moving between the two countries.

“Cooperation with, and buy-in from, local authorities to expose and disrupt illicit Iranian activities is essential,” said Behnam Ben Taleblu, a fellow at the Foundation for Defense of Democracies, a think tank backing tougher Iran sanctions.

U.S. officials also are concerned about the use of gold as a substitute for cash transactions, including in Turkey, where intelligence officials say thousands of Iranian companies are registered.

Over the past several months, companies in Turkey bought more than 21 tons of gold with a market value of nearly $1 billion from Iran’s ally Venezuela, up from virtually none last year. The gold could be used to repatriate oil-export profits, former U.S. officials say.

The U.S. certainly will be vigilant in trying to plug holes in the sanctions net, said Dennis Ross, the former top Middle East adviser to President Obama.

“But the fact is, we’re not going to be joined by too many others,” Mr. Ross said.

Author: Ian Talley

Source: WSJ