More Dollars for the Ayatollahs

Review & Outlook

Wall Street Journal

April 1, 2016

In life you don’t get what you deserve, you get what you negotiate—or so we’ve read in airline magazines. But if you’re an Iranian mullah and you’re dealing with the Obama Administration, you can get more than you negotiated, and what you never deserved.

That’s the lesson we draw from the Obama Administration’s pending decision to give Iranian banks access to U.S. dollars, probably through offshore clearing houses, despite being under no obligation to do so under last year’s nuclear deal. As Treasury Secretary Jacob Lew told the Senate last year, “Iranian banks will not be able to clear U.S. dollars through New York,” or “hold correspondent account relationships with U.S. financial institutions, or enter into financing arrangements with U.S. banks.”

There’s a reason Tehran is under financial quarantine. The intergovernmental Financial Action Task Force on Money Laundering, or FATF, routinely issues warnings about doing business with Iran. In February it said it was “exceptionally concerned about Iran’s failure to address the risk of terrorist financing and the serious threat this poses to the integrity of the international financial system.”

That warning is a reminder that, even in the post-nuclear deal world, Iran continues to funnel hundreds of millions of dollars and arms to Hezbollah, Hamas, the Afghan Taliban and other groups with American blood on their hands. It’s also why, in selling the nuclear deal last year, President Obama insisted that he would “vigorously” enforce sanctions on Iran for supporting terrorism.

Or not. Supreme Leader Ali Khamenei last month accused Washington of “using roundabout paths to prevent the Islamic Republic from achieving its targets,” adding that “banking transactions come up against problems.” The White House got the message. On Wednesday Mr. Lew gave a speech in Washington insisting that “since Iran has kept its end of the [nuclear] deal, it is our responsibility to uphold ours, in both letter and spirit.”

That’s a funny way of reading Iran’s post-deal behavior, since only last month the Administration denounced Iran’s recent ballistic-missile tests as “inconsistent” with the nuclear deal and pushed (fruitlessly) for sanctions at the United Nations Security Council. Iran also continues to hold Americans as hostages, including recently arrested business consultant Siamak Namazi and his father Baquer, and perhaps former FBI agent Robert Levinson.

Mr. Lew argues that there is a risk of “sanctions overreach” that could drive foreign businesses away from the U.S., and that failure to give Iran full sanctions relief would “undermine our own credibility and damage our ability to use sanctions to drive policy change.”

Mr. Lew’s argument would have more weight if Iran gave some indication that it will change the behavior for which it has been sanctioned. As for the idea that foreign multinationals might drop their U.S. ties to get Iranian business, it’s worth remembering that Iran’s economy is about the size of Philadelphia’s.

The larger question is what leverage the U.S. will have with Iran once it can transact business in greenbacks. “The next President’s ability to target malign activities with non-nuclear sanctions will be much more difficult if billions of dollarized transactions are greenlighted,” says Mark Dubowitz of the Foundation for Defense of Democracies. Europeans and Asians will balk at pulling their businesses from Iran simply because a future Administration might object to, say, Iran funneling money to Hezbollah to bomb Jewish targets in Latin America.

It’s nice to see even some Congressional Democrats, like House Whip Steny Hoyer, who voted for the nuclear deal, balk at lifting the financial sanctions. But this latest Administration cave-in could have been predicted from every previous U.S. capitulation to the mullahs. Expect other concessions as Tehran takes the full measure of America’s present weakness.