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Transcript: U.S.-Iran Sanctions Strategy Going Forward

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  • Mark Dubowitz, Executive Director, Foundation for Defense of Democracies
  • Adam J. Szubin, Acting Under Secretary for Terrorism and Financial Intelligence, Foundation for Defense of Democracies

DUBOWITZ:  Thank you for your patience.  We like to create anticipation at FDD.  So, what is it -- keep you hanging.  Again, my name is Mark Dubowitz and I'm the executive director of FDD and I also head up our center on sanctions illicit finance.  It really is my privelege to intro Adam Szubin today.  Adam is the acting under secretary of the treasury for terrorism and financial intelligence.

And we at FDD have always been great fans of Treasury's work.  We actually, we just presented the George Schultz award for distinguished service to General Ray Odierno.  But back in 2012, we actually presented the first George Schultz award to the team at the office of terrorism and financial intelligence including Adam Szubin and now CIA Deputy Director David Cohen for their remarkable work. 

It was interesting because at the time the office was called quote on quote "a little-known bureau familiar to the only plugged-in financial intelligence wonks."  And we were those wonks and we were very familiar with their work.  But then over the past few years, under Adam's leadership, and the team's leadership, it's now reportedly President Obama's quote "favorite non-combatant command," which is quite remarkable to go from "little-known bureau" to "favorite non-combatant command" in only a few years. 

And it's a lot of credit to Adam and his team.  They have executed smart sanctions policies.  They've used American financial and economic power to protect the global banking system from money laundering and other illicit financial activities. And to combat the threats using peaceful coercion that is represented by regimes and their terrorist surrogates. 

As the Islamic State rose by on the scene, officials throughout Washington turned to Treasury to identify what economic tools we should deploy. When Russia annexed Crimea and invaded Eastern Ukraine, TFI developed innovative strategies that targeted Russia's strategic vulnerabilities. While also very importantly protecting U.S. allies from blowback.

FDD deeply appreciates the many conversations that we've had with Adam with these (ph) Treasury team on Iran.  All of us at FDD have greatly respected his thoughtful analysis and we believe that the head of Treasury sanctions office must be treated as a position of utmost importance to national security.

We greatly respect Adam's professionalism, his intellect, his thoughtfulness, and, most of all, his integrity.  Adam is truly one of the finest people in Washington, DC and we're proud to have him speak to you.  He shares our concerns about Iran's record of terror financing and regional aggression.

And ladies and gentlemen, please join me in a very warm FDD welcome to Adam Szubin.


SZUBIN:  Thank you all for having me.  Special thank you to Mark, for that very warm and kind introduction. I am honored to be here among so many valued colleagues and old friends. And as Mark rightly noted, FDD has long had a keen appreciation for the work that the really dedicated public servants in my office do.  And had an understanding before many of the impact that this kind of work can have.

Today, I'd like to take stock of our Iran sanctions program, and describe how it helped to pave the way to the Joint Comprehensive Plan of Action or the JCPOA - the diplomatic achievement that we reached with our key partners and Iran.

I'm going to begin with a brief overview of our Iran nuclear sanctions, describing what has really been a decade-long effort to determine whether diplomacy could prevent Iran from obtaining a nuclear weapon.  I want to lay out what made this a sanctions success story, explaining how our persistent sanctions and diplomatic efforts helped to remove the threat posed by Iran's nuclear program and I'll close by outlining the role sanctions continue to play in our approach to Iran.

So first, a brief history.

Since I started at Treasury, about 12 years ago, preventing Iran from acquiring a nuclear weapon has been a national security priority of the highest order.  By the time we reached the JCPOA, that meant convincing Iran to fully and transparently restrain, re-orient its nuclear program in a way that cuts off all potential pathways to a bomb.

A key first step was designing a sophisticated, targeted sanctions regime.

We began by exposing and sanctioning the banks that Iran had been using to advance its nuclear program.  In response, Iran soon moved its illicit activity to other banks and front companies.

Our sanctions followed.  By 2008, our own sanctions list included more than a hundred targets linked to Iran's nuclear program.

And that was only the start.  We needed to persuade our partners to join us in this effort.  And at President Obama's direction, we traveled the world to enlist support for a global approach to Iran's nuclear program, including sanctions and a viable path to a diplomatic solution, clarifying both our willingness to negotiate with Iran and the limited but critical objective of the JCPOA negotiations: namely, preventing Iran from obtaining a nuclear weapon. 

We found that the prospect of an Iranian nuclear weapon was seen as a serious security threat all over the globe.  Not just by our traditional allies, but also by China, Russia, and others with close business ties to Iran.

And so by 2010, the State Department and our talented team at the United Nations had secured four UN Security Council resolutions to address Iran's non-compliance with its international obligations.  With those resolutions as a foundation, and buttressed by a sustained diplomatic campaign, many other countries adopted their own domestic sanctions that applied even greater pressure on Iran.  We saw strong sanctions imposed by the EU, Canada, Australia, Japan, South Korea, and on and on.

With the international community behind us, Congress then passed -- with overwhelming bipartisan support -- the Comprehensive Iran Sanctions, Accountability, and Divestment Act -- which we know as CISADA -- in 2010.  The resulting secondary sanctions first went after Iran's financial sector, and forced foreign banks to choose:  they could do business with U.S. banks, or Iran.  But not both.  For almost all foreign banks, the choice was clear.

The pressure increased after 2010, as Iran continued to expand its nuclear activities without adequate international oversight, despite calls from the UN Security Council and IAEA.

We continue to work with our international partners to cooperate on tighter sanctions, including the EU embargo on Iran's oil exports.  Congress complemented this approach by expanding secondary sanctions targeting Iran's energy sector, restricting Iran's ability to generate revenue through oil sales -- it's key revenue source.

As the international community remained united in applying and expanding this pressure, we ultimately reached a critical turning point in November 2013 with Iran's agreement to the Joint Plan of Action.

The JPOA halted progress on Iran's nuclear program, rolled it back in many respects, and provided for enhanced inspections of Iran's nuclear facilities.  In exchange, Iran received limited and reversible sanctions relief.

Most importantly, the JPOA gave us time and space to negotiate a comprehensive agreement to deal with Iran's nuclear program in its entirety.

And after nearly two more years of tough negotiations - and with the tremendous leadership of our colleagues from the White House, the State Department, the Energy Department, and the rest of the P5+1 - we arrived at the JCPOA.

It is worth reviewing this history because it demonstrates some essential points about sanctions.

First, sanctions are not meant as punishments, or as ends in and of themselves.  They are specific, targeted efforts to enhance our national security by helping to change another country's calculations about its actions. They are a means to an end. Some of our sanctions on Iran were aimed at preventing Iran from obtaining a nuclear weapon.  Those are the sanctions that we used to reinforce our diplomatic efforts in pursuit of the JCPOA, and those are the sanctions that we relieved on Implementation Day.

I'll talk about our additional sanctions programs in a moment.

Second lesson, our sanctions regimes are more effective, by far, when they are part of a broad international effort with clear support from partners around the world, rather than a unilateral step taken by the United States alone.

So, to the JCPOA.

Our nuclear-related campaign and sanctions against Iran was as unprecedented as it was effective.  It combined clear objectives, the broadest possible international coalition, and an investment in the resources necessary to implement those sanctions across the globe.

This effort, as I noted, coupled with serious diplomacy, worked.

The JCPOA represents a tremendous diplomatic breakthrough - a peaceful means of effectively cutting off all of Iran's potential pathways to a nuclear weapon.  We've seen Iran reduce its stockpile of enriched uranium by 98 percent; removed 2/3 of its centrifuges; disabled its reactor at Arak, the heavy wayer reactor, filling it with concrete; and accepted robust and comprehensive transparency regime.

In January, on Implementation Day, the IAEA verified that Iran had done all of this, pushing its breakout time from less than 90 days to beyond one year.  We know that Iran has kept its commitments under the deal - not taking their word for it - but by verifying their compliance through unprecedented access and inspections.

None of this was preordained.  In fact, in the early days of our Iran sanctions program - I'm thinking back to 2006, 2008 - many questioned whether sanctions would be able to have any real impact on Iran's strategic calculus.

Later, many said that Iran would never actually negotiate in good faith, or comply with commitments that it made under the interim deal, the JPOA.  And most recently, as we neared a final agreement, many predicted that Iran would never really agree to shut down its centrifuges; to disable its plutonium reactor; to ship out its uranium; or to allow for real-time monitoring of its nuclear sites.     

These predictions were simply wrong.  For two years, Iran has complied with the terms of the JPOA.  And, in the time since we finalized the Joint Comprehensive Plan of Action, Iran has complied with all of the nuclear-related commitments made by its negotiators.     

This is a massive accomplishment.  It's a sea change in terms of both what Iran's nuclear program looks like, and what we know about it through inspections and real-time access.  And it is the most powerful example we've got of how a persistent and broad-based effort, coupled with serious diplomacy, can succeed.

From the outset of the negotiations, we were clear - with Iran, and with our international partners - that our nuclear-related sanctions would be lifted if Iran meaningfully and transparently reoriented its nuclear program under a verifiable agreement. 

Lifting nuclear sanctions was the incentive for Iran to change its strategic calculus on the nuclear issues.  And since Iran has kept its end of the deal, we must uphold ours, not just in letter but in spirit.

We've done so by lifting the sanctions we promised to lift, once Iran delivered on its nuclear-related commitments - first with the JPOA, and then again with the JCPOA.  We've issued guidance to banks and governments around the world explaining the scope of the sanctions relief we have provided to Iran under the JCPOA, so that they understand what is currently permissible and what is not.

It is important to keep our promises, and to ensure that the Iranian people see the economic benefits of the deal.  To do otherwise would undermine not just Iran's incentive to stick to the deal and undermine its long-term viability, but also our own international credibility, and our corresponding ability to use sanctions to help change behavior in the future.

We have been, and will continue to be, very careful to deliver on the promises we made to Iran throughout the negotiations.  That means proactively providing clear guidance about the type of commerce that is now permitted.

Let me reiterate what Secretary Lew, Secretary Kerry, and the President have all made clear: we are not standing and will not stand in the way of permissible business activities involving Iran or the kinds of transactions that Iran is entitled to under the JCPOA.  What that means is very clear in the JCPOA itself and in the regulatory documents, public guidance, and FAQs that we have issued.

We understand, though, that many questions persist - in part because of the remaining primary embargo and non-nuclear sanctions on Iran, which I will address in a moment.

When governments and companies come to us with questions, we answer them honestly, and with precision.  That's what we do for all of our sanctions programs - it's our responsibility as a transparent regulator.  It's what we have done specifically on Iran since Implementation Day, and what we'll continue to do.

More than that, in the context of an international agreement, it is especially important that the sanctions relief we agreed to is well understood around the world.  It is not in our interest to create artificial barriers to transactions that we agreed in good faith to allow so long as Iran is upholding its end of the deal.

For example, we issued General License I to allow civil aviation firms to explore business opportunities with less regulatory burden.

We have also seen indications that some foreign banks lack an understanding about the scope of U.S. sanctions with regard to Iranian funds that were formerly restrained.  We will continue to take steps to clarify our policy as necessary.  We aren't blocking Iran's access to these funds, and we are not encouraging banks or other partners to do so.  We will continue to work in good faith with Iran, foreign banks, and other partners to ensure that Iran has practical access to the funds unblocked by the JPOA and JCPOA.

The JCPOA needs to work for all participants. It's in our national security interest that the JCPOA is in effect and is adhered to by everyone.

Some misinformation persists.  For example, claims that Iran would receive a $150 billion or $100 billion windfall.  Those have proven wrong, as we had said they would.  And more recent claims that we are about to provide Iran access to the U.S. financial system are also untrue.  We will not provide Iran access to the U.S. financial system and we will not restore the "U-turn" authorization.

In terms of the way forward, we did not guarantee economic outcomes, or a flood of immediate business into Iran.  Nor could we.  That outcome depends on the business judgment of thousands of market participants.  Ultimately, the JCPOA is an international arrangement, not a cashier's check.

It's worth remembering that our nuclear-related sanctions were not the only impediment to international business returning to Iran.  As President Obama said recently:  "Iran has to understand what every country in the world understands, which is businesses want to go where they feel safe, where they don't see massive controversy, where they can be confident that transactions are going to operate normally."

If Iran wants to take full advantage of its economic potential, it's up to Iran to cure systemic problems in its markets.

To its credit, Iran has publicly recognized that its financial transparency measures lag behind international standards, and has begun an attempt to improve them.  But it's only just begun; and problems remain.

We also have not promised to change the primary U.S. embargo on Iran - which long predates our concerns with Iran's nuclear program - beyond what was agreed in the JCPOA with regard to the sale of civil aviation goods and services and the purchase of food and carpets as well as our longstanding humanitarian exemptions.

Finally, and crucially, we have not promised to lift any non-nuclear sanctions, those that are designed to counter Iran's actions that concern us outside of the nuclear file.  Quite the contrary:  as we made clear to Iran from the beginning, the JCPOA did not affect our non-nuclear sanctions.

Unfortunately, those sanctions remain necessary.

Iran continues to support terrorist groups and militant proxies in the region.  It continues to abuse human rights at home.  And it continues to conduct ballistic missile tests, in defiance of UN Resolution 2231.

Under our current sanctions regime, more than 200 Iran-linked firms and individuals remain sanctioned for these non-nuclear grounds.  That number includes the IRGC, the IRGC-Qods Force, their subsidiaries and senior officials.  It includes Mahan Air, one of Iran's largest airlines, which acts on behalf of the IRGC-Qods Force and carries deadly weapons to Hezbollah.  And it includes major Iranian defense entities, like MODAFL, DIO, and AIO - which have done much of Iran's ballistic missile work.

Ballistic missile testing is a key example.  Shortly after we lifted nuclear-related sanctions in line with the JCPOA, we imposed sanctions on 11 individuals and firms for supporting Iran's ballistic missile program.  And, after we saw Iran conduct yet more ballistic missile tests last month, we imposed additional sanctions against entities involved in the missile program.

Thanks to the President and Congress, we have the sanctions authorities we need already in place to address Iran's destabilizing activities.  We will continue to use existing sanctions as a tool, among others at our disposal, to oppose Iranian actions that threaten our interests.  Along these lines, new mandatory non-nuclear sanctions legislation would needlessly risk undermining our unity with international partners.  As Secretary Lew has recently stated, it is important to make sure our sanctions tools remain effective and that they are not overused.   We must continue to balance the costs and benefits of our sanctions regime in our favor.

We are clear-eyed about the nature of the threats posed by Iran, and we will continue to combat these threats - including by enforcing existing sanctions, and by designating new targets when appropriate.

As we do so, we always keep in mind that such sanctions are not mere means to punish or vent frustration.  They are intended to push Iran toward a shift in policies - on terrorism, regional destabilization, on ballistic missiles, and on human rights.

We don't expect to see this shift overnight.  But remember, we didn't get to the JCPOA overnight either.  We spent more than a decade building a sustained, global campaign targeting Iran's illicit nuclear activity, and then we used hard-nosed diplomacy to achieve our national security objective.

I want to be clear.  We don't relish these sanctions.  In fact, as someone who's spent his career designing and enforcing sanctions against Iran, I hope to one day see a world where we have no need for sanctions targeting its conduct - because that conduct has changed.

I might be out of a job in this scenario - although something tells me many of you would help us find plenty of other sanctions targets elsewhere in the world.  But I'd be thrilled.  Because this scenario would mean that Iran had chosen to step off the destructive path of destabilization, and to instead continue down the path of progress that we see in the JCPOA. 

That choice is Iran's to make.

Let me close by turning back to the JCPOA.

At nearly every major turning point in our long and winding negotiation history, some questioned whether Iran would fully and transparently restrain and re-orient its nuclear program without our need to use force.  The JCPOA is a resounding answer.  It shows that a defined and determined sanctions program can be sophisticated, can be powerful, and - when done right - can help us achieve important and difficult national security objectives even with long-time adversaries.

In the case of Iran's nuclear program, we got that policy right.  We combined a clear strategic objective with strong sanctions and deft diplomacy, which resulted in a deal that removed the threat posed by an Iranian bomb - a most destabilizing threat in an already unstable region.

That is a testament to the importance of knowing when and how to use sanctions as foreign policy tools. And it is also a testament to the importance of meaningful sanctions relief as a foreign policy tool.  While Iran continues to implement its commitments, we will continue living up to the letter and spirit of our commitments under the JCPOA.

Thank you all again for hosting me today. And I hope you enjoy the rest of your conference.