Despite Broad Exemptions, Iran Sanctions Creating 'Widespread Confusion' for Industry, Former Treasury Official Says

Although the U.S. provides broad exemptions for humanitarian exports to Iran, the exemptions continue to be a source of confusion for industry, which is hindering humanitarian trade with Iran, said Katherine Bauer, a former senior policy adviser for Iran at the Treasury Department. The Treasury’s Office of Foreign Assets Control may issue guidance to clarify the exemptions, Bauer said, but the Trump administration is unlikely to make any major changes to its Iranian sanctions regulations.

The U.S. has taken several significant steps to ease humanitarian trade with Iran, Bauer added, such as a February general license that authorized certain transactions with the Central Bank of Iran and a U.S.-Swiss joint mechanism that can be used to export humanitarian goods (see 2002270017). But Bauer said the U.S.-Swiss framework, which has been criticized for onerous due diligence requirements (see 2003030015), exemplifies why OFAC needs to issue more guidance.

“If the existing authorizations for humanitarian trade were being effectively implemented, there wouldn't be a need for a mechanism such as this special humanitarian framework,” said Bauer, a fellow at the Washington Institute for Near East Policy, speaking during an April 13 webinar hosted by WINEP. While she said the U.S. does provide waivers for exports of medicine, medical devices and agricultural products, the strength of its Iranian sanctions has made any Iran-related transactions appear too risky. “There's widespread confusion and concern about running afoul of U.S. sanctions,” Bauer said, “and this stymies these activities.”

One of the largest obstacles to humanitarian exports to Iran are foreign banks, which often decline to process Iranian sanctions out of an “abundance of caution,” said Bauer, who worked in the Treasury’s Office of Terrorist Financing and Financial Crimes. Although law firms can write letters to banks assuring them that a certain transaction will not be subject to U.S. sanctions (see 2004100044), some still don’t want to take that risk. “You only need to look at the overwhelming response from both firms and financial institutions in Europe in particular … to see that [U.S. sanctions] do really serve as a deterrent to working with Iranians,” Bauer said.

Even though current and former lawmakers have called on the U.S. to clarify its humanitarian exemptions and broaden the scope of some waivers, Bauer said the administration is unlikely to make regulatory changes. It could, however, signal that it has “no intention” of sanctioning humanitarian trade. “It would not be unprecedented for the Treasury Department, OFAC in particular, to issue a new license that would consolidate the existing authorizations and provide clarity that such authorizations apply in the current crisis,” she said. “There clearly are things that can be done to reassure financial institutions that they can, legally and without fear of ensuing U.S. sanctions, participate in this kind of trade.” A Treasury spokesperson pointed to the agency's April 9 statement in which it underscored its commitment to humanitarian trade.

An April statement signed by members of the European Leadership Network and The Iran Project called on the U.S. to speed up its licensing process, hire more OFAC staffers and expand the scope of its licenses (see 2004070028). Patrick Clawson, research director at WINEP, said the statement was more of a criticism of the Trump administration instead of a call for substantive changes.

“If the real desire is to ease humanitarian trade, then I think what the statement would have said was, ‘here are the steps that have already been taken, and let's figure out ways to make them work better,’” Clawson said during the webinar. “And instead, the way the statement was written was that the Trump administration is doing nothing whatsoever and it's not being helpful and it's blocking humanitarian trade.” Clawson said that is “just not the case,” calling OFAC’s decision to issue a general license for the Central Bank of Iran a “considerable climb-down” from its previous stance.

While OFAC should heed industry calls for clarification, there is no need for it to cease all other sanctions actions during the COVID-19 pandemic, Bauer said, which has been suggested by some foreign officials (see 2003250010 and 2004060021). Some sanctions are necessary regardless of the state of the global economy, such as measures against Iranian proxies in Iraq who threaten U.S. interests, Bauer said. “I don't think it's necessary to withhold new sanctions actions as long as they're not interfering with the humanitarian response,” she said.