Monthly Sanctions Compliance Roundup

Monthly Sanctions Compliance Roundup

In 2018, President Donald Trump’s administration saw to it that the United States pulled out of the 2015 Joint Comprehensive Plan of Action (or the “Iran Deal” as it has infamously come to be known) one of the key pieces of foreign policy brought forth by his predecessor at the helm of the United States government, Barack Obama. In this agreement, the severe, international economic sanctions that had been instituted against Iran by the world powers coined the P5+1 (a group that includes the U.S., UK, France, China, Russia and Germany) were lifted in exchange for the Western Asian country agreeing to several large-scale downshifts of its nuclear development program. These measures included an almost complete reduction of Iran’s stockpile of uranium, a limit placed on its total number of active nuclear centrifuges (machinery that can be used to enrich uranium for the purposes of creating a devastating nuclear weapon), and the shutdown of multiple nuclear facilities throughout the land. Additionally, the country was to be subjected to increased monitoring by the International Atomic Energy Agency (IAEA) to verify their compliance with these demands. The catch, one that clearly worked in Iran’s favor and one that was not overlooked by the current Commander in Chief, was that the majority of these nuclear provisions were set to expire after a period of 10-15 years, meaning that while Iran’s nuclear program would be limited in the short-term, they would be free to rebuild and reload, with a significant economic boost mind you, after little more than a decade. All told, in the eyes of President Trump, the deal was nothing more than a “good faith” agreement, and one of negligible benefit to the United States. Upon seceding from the deal, Trump opted to play hardball with Iran by re-imposing previous sanctions and even increasing the dexterity of the measures, specifically in regards to the Iranian oil sector, to further stifle Iran’s economy and hinder any potential follow-up efforts to nuclearize. By upping the ante, the current administration has been attempting to drive Iran’s leaders into a corner and foster a deal where their ballistic missile program would too face severe restrictions, in addition to those of the nuclear variety.

             The next chapter in the ongoing saga began to take shape this past week, as the Trump administration once again opted to push forward with additional sanctions on Iran, this time targeting a larger scope of their economic interests, while also keeping waivers in place for non-U.S. companies to continue non-proliferative work in the republic. This latest effort led by the American government also includes the support of seven Gulf members of the Terrorist Financing Targeting Center (including Saudi Arabia, the United Arab Emirates and Qatar) in jointly sanctioning 25 targets associated with Iran’s Islamic Revolutionary Guard Corps and the Shia militant group, Hezbollah. In what is considered to be the largest action ever taken by the group, U.S. Treasury Secretary Steven Mnuchin stated, “The TFTC’s coordinated disruption of the financial networks used by the Iranian regime to fund terrorism is a powerful demonstration of Gulf unity.”⁶  Mnuchin added his belief that “this action demonstrates the unified position of the Gulf nations and the United States that Iran will not be allowed to escalate its malign activity in the region.”⁵  

              U.S. Secretary of State Mike Pompeo recently announced that his department made the determination that Iran’s Islamic Revolutionary Guard Corps (IRGC), a group designated by the States as a foreign terror organization, was controlling the Iranian construction sector. Reuters notes that the new sanctions include a stipulation that states “the sale of raw and semi-finished metals, graphite, coal, and software for integrating industrial purposes will be sanctionable if the materials are to be used in Iran’s construction sector,” as the state department also identified “stainless steel 304L tubes; MN40 manganese brazing foil; MN70 manganese brazing foil; and stainless steel CrNi60WTi ESR + VAR (chromium, nickel, 60 percent tungsten, titanium, electro-slag remelting, vacuum arc remelting)” as materials that have been used in connection with the country’s nuclear/ballistic/military programs.² Despite these measures, the United States will reportedly allow companies from Europe, China and Russia to continue to operate at Iranian nuclear facilities without facing sanctions themselves, in hopes of making it more difficult for the country to develop nuclear weapons. The work covered by these waivers includes denuclearization by modification of Iranian reactors and centrifuges, with the proposed modifications intended to render these entities unable to produce bomb-grade plutonium. On the surface, it is fairly apparent that President Trump’s strategy is to continue to hammer Iran with more sanctions while, at the same time, leaving a window open for diplomacy by keeping these waivers in place. This tactic is believed by many to be a means for the U.S. to demonstrate to Iran that the U.S. will release its economic stranglehold if they commit to shifting their stance on nuclear development.

              Following the announcement, the President faced his fair share of criticism from the party his opposite, as expected. However, several prominent Republican officials, including Senators Lindsey Graham (R-SC) and Ted Cruz (R-TX) too have criticized Trump, stating that by leaving the waivers intact, the President has empowered the embattled country to strengthen its nuclear program once again. In a joint statement released late last week, the two Senators called the move “disappointing and another lost opportunity to tear up the catastrophic Obama-Iran nuclear deal once and for all.”³  With the 2020 election fast approaching, a breakthrough in negotiations with Iran, in conjunction with further progress with North Korea, would be huge victory for the Trump administration. The year ahead will tell us more on if Trump’s strategy of tough negotiation brings Iran to the table or pushes them even further away from potential resolution.

Weekly Roundup

U.S. Creates New Humanitarian Trade Channel with Iran

              Given Iran’s current status as a jurisdiction of significant money laundering concern as well as one of most significant state sponsors of terrorism in the world, increasing transparency in regards to the country’s economic dealings has remained an area of much-needed improvement for the United States and its allies. As such, a new mandate from the U.S. Department of the Treasury and Department of State has aimed to improve the ability of the greater international community to perform due diligence on Iranian trade. In creating what has been coined a “humanitarian mechanism” to ensure increased oversight in this regard, the U.S. government hopes that they will be able to “ensure that funds associated with permissible trade in support of the Iranian people are not diverted by the Iranian regime to develop ballistic missiles, support terrorism, or finance other malign activities.”⁷ Creating such a framework is crucial in that it will provide a structured tool for the American government, as well as that of its overseas counterparts, to engage in trade that will benefit Iranian citizens, rather than having the proceeds be diverted for illicit means.

              In a press release announcing these developments, the Treasury writes that the new mechanism “will require foreign governments and financial institutions that choose to participate in the mechanism to conduct enhanced due diligence and provide to Treasury a substantial and unprecedented amount of information, with appropriate disclosure and use restrictions, on a monthly basis, as described in guidance provided by OFAC outlining specific requirements.”⁷ It will also reportedly include safeguards to protect entities from being sanctioned for dealings with members of OFAC’s Specially Designated Nationals and Blocked Persons (SDN) list. While more details will undoubtedly need to be ironed out to avoid potential misuse of the mechanism, the new process should bode well for the people of Iran in terms of gaining access to vital resources that until this point had not been available to them.

UK Sanctions Telecom Giant Over Sanctions Violations

              Last Monday, the United Kingdom’s (UK) Office of Financial Sanctions Implementation (OFSI), a wing of Her Majesty’s Treasury, announced its imposition of a financial penalty on Swedish telecommunication services company Telia Carrier for violating current sanctions on Syria. According to reports, the fine was issued in response to the facilitation of international telephone calls to a Syrian entity designated under the Syria (European Union Financial Sanctions) Regulations 2012, with that designated entity being mobile network provider SyriaTel. An OSFI press release published following the decision reads that as a result of Telia indirectly facilitating these calls, “the company repeatedly made “funds and economic resources indirectly available to the designated entity over an extended period of time.”¹ SyriaTel’s 2011 designation by the European Union (EU) and the United States was made due to the company being owned by Syrian businessman Rami Makhlouf, who is also a relative of the country’s incumbent president Bashar al-Assad.

              The latest penalty marks the third issued by the OSFI for sanctions violations in 2019 alone, with Telia Carrier now facing a penalty of  £146,341. Telia exercised its right to a Ministerial review after initially being notified of these findings, which reduced the penalty from what was originally set at £300,000 to the aforementioned amount.

U.S. To Recoup $1 Billion from 1MDB Fugitive

              The United States Justice Department (DOJ) recently announced that it has agreed to a deal to recover $1 billion of the reported $4.5 billion in funds siphoned by Malaysian fugitive Jho Low and other high-level members of the 1-Malaysian Development Berhad (1MDB) fund scandal from several years ago. Reuters writes that since 2016, “the Justice Department, in the biggest ever case in its anti-kleptocracy program, has filed civil lawsuits seeking to seize about $1.7 billion in assets allegedly bought with stolen 1MDB funds” making the latest chapter in the saga something of a landmark development. As part of Wednesday’s forfeiture, Low agreed to give up several luxury pieces of real estate that he owned in the United States and London, a private jet, and other highly valued assets. This is in addition to his previous forfeitures of a $126-million yacht and another $140 million in additional assets. Malaysian Prime Minister Mahathir Mohamad has stated that he intends to file a claim on the assets forfeited by Low in the coming weeks.

              Altogether, the American government has been applauded in the international community for being able to reach an agreement with Low on their own terms. U.S. Attorney Nicola T. Hanna of the Central District of California summed up the general sentiment of many when he stated that “the message in this case is simple: the United States is not a safe haven for pilfered funds“ – a welcomed change in the realm of anti-money laundering.⁴

Citations

1. “Imposition of Monetary Penalty – Telia Carrier UK Limited.” Office of Financial Sanctions Implementation, HM Treasury, 28 Oct. 2019.
2. Mohammed, Arshad. “U.S. Imposes New Iran Sanctions, but Waives Others.” Reuters, Thomson Reuers, 1 Nov. 2019.
3. Mortazavi, Negar. “Trump Renews Sanctions Waivers to Allow Russia, China and Europe to Continue Nuclear Work in Iran.” The Independent, Independent Digital News and Media, 1 Nov. 2019.
4. Prentice, Chris. “In Record Deal, U.S. to Recover $1 Billion from Malaysian Fugitive Jho Low.” Reuters, Thomson Reuters, 31 Oct. 2019.
5. Rubenfeld, Samuel. “Gulf Countries Sanction Iranian, Hizballah-Linked Networks.” Kharon, 30 Oct. 2019.
6. Talley, Ian. “U.S., Gulf Nations Sanction Iranian Financial Network in Joint Action.” The Wall Street Journal, Dow Jones & Company, 30 Oct. 2019.
7. “U.S. Department of the Treasury.”Treasury and State Announce New Humanitarian Mechanism to Increase Transparency of Permissible Trade Supporting the Iranian