A senior U.S. Treasury Department official has told a Congressional subcommittee that U.S. has “engaged extensively with European countries on the significant risks” of providing Iran with a special facility for trade.
Under Secretary of U.S. Treasury Sigal Mandelker, the head of Treasury’s Office of Terrorism and Financial Intelligence (TFI) told the U.S. House Appropriations Subcommittee on Financial Services on March 12, the U.S. continues “to maximize economic pressure on the regime to combat its weapons proliferation, terrorism, and regionally destabilizing activities”.
Mandelker also told lawmakers that the Treasury has formed a unit called The Iran Finance Fusion Cell, which “is an intra-TFI and interagency group that is building out our knowledge of Iran’s malign activities and considering new ways to take action against Iran and Iranian-backed illicit actors”.
Mandelker detailed U.S. actions since the reimposition of full U.S. sanctions on Iran in November 2018. She said that currently 927 entities, individuals, vessels and aircraft are on U.S. sanctions list.
But Washington’s European allies have adopted a different approach, while trying not to directly breach U.S. sanctions.
When in May 2018 President Donald Trump announced his decision to withdraw from the 2015 nuclear agreement with Iran, European countries pledged to take steps to preserve the deal. The main issue was Iran’s demand to continue to enjoy economic benefits for abiding by the nuclear agreement, which was weakened by the U.S. withdrawal.
Europe promised a Special Purpose Vehicle to facilitate barter trade with Iran. After months of wrangling, in January Europe announced the Instrument In Support Of Trade Exchanges (INSTEX) to run a payments channel that would allow goods to be bartered between European and Iranian companies without the need for direct financial transactions. This would eliminate banking transactions that would violate U.S. sanctions.
The U.S. has cautioned Europe on doing business with Iran but has refrained from directly challenging INSTEX as a sanctions-busting mechanism.
The European trade mechanism is still not operational. Iran has been asked by the international financial watchdog, the Financial Action Task Force (FATF) to amend its legal safeguards against money laundering (AML) and financial support for terrorism (CFT), as a precondition to preserve normal banking ties with the world.
So far Iran has not fully met FATF’s requirements and this seems to be an issue for Europe, which in turn has not operationalized INSTEX. Iranian officials seem to be signaling that they won’t enact legislation to comply with FATF requirements until Europe allows trade. And although European countries have not categorically conditioned trade with the need for financial safeguards, but the two are probably linked.
After Iran failed to meet an FATF deadline in February, the multilateral agency extended the deadline to June 2019.
Mandelker in her testimony mentioned Iran’s reluctance to adopt the internationally required financial safeguards, telling the subcommittee, “we have engaged extensively with European countries on the significant risks of launching a special purpose vehicle for a country that has repeatedly failed to adopt international AML/CFT safeguards.”