Treasury Deputy Secretary Kimmitt's Washington Institute Speech: Is the Administration Too Soft on Iran Sanctions?

By Victor Comras

In yesterday's speech at the Washington Institute, Deputy Treasury Secretary Robert Kimmitt presented an overview of Treasury’s new role in combating national security threats. The Treasury Department has taken the lead (apparently away from the State Department) when it comes to encouraging other countries to join with us on applying economic and financial pressure on Iran and other proliferating and terrorism supporting states. But, despite the upbeat tone of his presentation, the strategy Kimmitt describes still falls far short when it comes to the international measures actually being adopted to pressure Iran.

There is much in the speech, and in the work being done by Treasury that warrants praise. Treasury has adopted a new activist approach when it comes to using and leveraging our preeminent role in the international financial community. Our actions against Iran’s Bank Sepah and Bank Saderat, and warnings to banks overseas to drop handling dollar transactions for Iran, for example, have had a very significant impact. These are the kinds of measures that work and need to be replicated. Yet, I am concerned that Treasury is stepping back from the use of broader economic and financial sanctions on Iran which will inevitably be critical to convincing Iran to change course.

Taking a quote from a group of American experts during the cold war period, Kimmitt makes the point that "Two things are of significance above all others: one, {Sanctions} haven't worked; two, they can't work." Rather, he said, Treasury now pursues “targeted financial pressure to isolate individuals, entities, and regime elements engaged in illicit finance in support of terrorism or WMD proliferation.” Here, I think, Kimmitt is simply wrong. General economic and trade sanctions have, in fact, been considerably more effective than narrowly focused sanctions against specific individuals and entities. Most sanctions experts agree that general sanctions were critical in bringing down Rhodesia UDI, getting South Africa to abandon apartheid, toppling the Cedras regime in Haiti, getting Milosevic to Dayton, and then to the Hague, and convincing Gaddafi to turn over the PanAm bombers for trial. They also deprived Saddam of the oil benefits of his invasion of Kuwait, stopped him from re-arming and fortifying before Desert Storm, and kept him in his box for the decade following. These sanctions all had a broad impact on vulnerable sectors of the country's economy. While sanctions didn't do these things alone, they made a significant contribution in achieving these objectives.

Of course, we should always seek to limit collateral damage resulting from sanctions and targeted sanctions make sense in specific contexts. But, that should not be confused with targeting only a very specific few individuals or entities, as in the case of Iran, when it remains quite easy for them to circumvent the sanctions, and dissipate any pressure on them. Targeted sanctions can only work when they actually have an impact sufficient to force change. This is not the case now with the UN sanctions on Iran. The current sanctions do little more than freeze the overseas assets of some 3 dozen individuals and entities, most of whom have no assets overseas. As for the travel ban, cited also in Kimmitt’s remarks, its negligible impact was demonstrated by the recent visit to Moscow of the head of Iran’s Deputy Interior Minister Gen. Mohammad Basqer Zolqadr, a Iranian Revolutionary Guard general who figures prominently on the Security Council’s designation list.

Kimmitt also used his Washington Institute speech to call on Congress to desist from legislation that would curtail the ability of foreign subsidiaries of American companies to do business in Iran, or would promote divestment from overseas companies doing business with Iran. He also opposed legislation that would have the US government identify, "name and shame" firms – both domestic and foreign -- that do business with Iran. His concern is that such measures “may be seen by our allies as extraterritorial U.S. Government action and could affect our ability to obtain their cooperation on mutual action with respect to Iran.” This may have been the case during the 1970’s Soviet Pipeline controversy, when our allies wanted to see the pipeline built and we didn’t. I don’t think they would object in the same way now. Like us, they want Iran to halt its Uranium enrichment program.

It seems to me that Kimmitt’s concerns about European reaction to “extraterritorial measures,” would also suggest that Treasury desist from using Section 311 and other regulatory authorities to pressure foreign banks doing business with Iran. It would have us curtail our stringent re-export licensing requirements that now severely impact Europe’s trade with Iran. I'm sure this is not what Secretary Kimmitt intends.

On the other hand, Treasury Department leaders should consider that it simply makes no sense for the Administration to force US companies out of the Iran market, as we have done since 1995, if we intend to sit idly by watching foreign companies, including foreign subsidiaries of US companies, step in to fill the slack. And frankly, I don’t think our European friends or allies will give a hoot whether a Halliburton foreign subsidiary based in Dubai is allowed or not to work in Iran's oil fields. The same is true for the other 35 US foreign subsidiaries still doing business in Iran.

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