Bourse and Bazaar | Esfandyar Batmanghelidj: On Tuesday, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) applied new sanctions on “at least 20 corporations and financial institutions” associated with the Bonyad Taavon Basij, encompassing activities in “Iran’s automotive, mining, metals, and banking industries.”
While the designation of bonyads, which are best understood as holding companies, has been a common feature of US sanctions policy for over a decade, yesterday’s action actually reflects a significant break with sanctions policy under the Obama administration. Included among the targeted entities is Parsian Bank, one of Iran’s leading private sector banks and a vital conduit for trade with Europe, especially humanitarian trade.
In the previous sanctions period, Parsian had been among the Iranian banks that were not subject to secondary sanctions despite being designated along with the rest of the Iranian financial system. This was due to the fact that the Treasury Department had no derogatory information at the time to suggest the bank was engaged or linked to terrorist financing. Indeed, Parsian, established in 2001, has a reputation as among the most trustworthy and well-managed Iranian banks.
Now, US authorities consider Parsian a Specially Designated Global Terrorist (SDGT), a kind of designation shared with the Qods Force of the Islamic Revolutionary Guard Corps (IRGC) among other state and quasi-state groups. The bank is now subject to secondary sanctions, meaning that non-US persons which conduct business with the bank are open to the risk of being sanctioned themselves.
In this way, the new sanctions designation has substantiated fears that had been rising among senior bankers in Iran. There was growing concern that the Trump administration would go beyond the designations of the previous US administration when placing Iran’s banks under secondary sanctions once again. Concerns first rose when OFAC issued its first guidance document following President Trump’s withdraw from the Iran nuclear deal on May 8. The guidance left it ambiguous as to how banks such as Parsian, previously exempt from secondary sanctions, would be treated.
Iranian bankers will also be dismayed that the new designation has come after Iran has made notable progress in passing legislation in accordance to the FATF action plan, which seeks to improve the integrity of Iran’s financial system. A crucial FATF plenary meeting takes place this week in Paris during which Iran’s progress will be evaluated. Further efforts on FATF reform will be hard to justify for domestic stakeholders if banks like Parsian are to be blacklisted by the US Treasury.
Alongside Pasargad Bank, Middle East Bank, and Saman Bank, Parsian was among the few Iranian financial institutions with standards reflective of FATF requirements for anti-money laundering and combatting terrorist financing procedures. These banks were therefore those entrusted by multinational companies to handle local banking needs. Even compliant trade would be impossible for these companies if all Iranian financial institutions are off-limit. A local bank is necessary for basic commercial operations.
According to Tyler Cullis, a sanctions lawyer with the Washington firm Ferrari & Associates, “Today’s designation action had everything to do with sending a signal to the world that all business with Iran is potentially sanctionable.”
In Cullis’ assessment, the links between Parsian and the entity at the heart of the new designations are unusually distant, suggesting a political motive “to inform the private sector that no amount of due diligence” is adequate—a departure from the more practical stance taken by OFAC in the past.
“Treasury designated Bank Parsian for providing material support to an Iranian entity that was seven layers removed from the Basij. It is unlikely that any reasonable amount of due diligence would have apprised Bank Parsian of the fact that it may have been engaged in sanctionable conduct under U.S. law,” Cullis notes.
The day before the new designation was issued, Special Envoy for Iran Brian Hook was in Luxembourg, meeting with European foreign ministers. On his agenda was a structured dialogue about humanitarian trade. Cognizant of the risks posed by returning US sanctions to their effort to keep Iran in the nuclear deal, European leaders have been seeking clarity on humanitarian trade since June. No concrete assurances have been issued to date. The issue has also caught the attention of the International Court of Justice, which recently ruled that unless the United States lifts restrictions on humanitarian trade with Iran, it will find itself in violation of international law.
While the State Department has given lip service to the issue of humanitarian trade, with Secretary of State Pompeo offering assurances that “sanctions and economic pressure are directed at the regime and its malign proxies, not at the Iranian people,” the designation of Parsian suggests that the Treasury Department is not on the same page. Not only is the Parsian designation peripheral to the action against Bonyad Taavon Basij, but eliminating the ability of the bank to engage in humanitarian trade surely outweighs the value of its designation from the standpoint of minimizing terrorist finance threats. Iranians are already suffering in the face of shortages of medicine, an area of trade in which Parsian was highly active.
Treasury Secretary Steven Mnuchin’s statement, issued alongside the new designations, does make reference to “real world humanitarian consequences” but only insofar as “business entanglements with the Bonyad Taavon Basij network… fuel the Iranian regime’s violent ambitions across the Middle East.”
All too aware of their own government’s malign activities, the Iranian people await the Trump administration’s reckoning with the true humanitarian consequences of its own policies.