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Iran: in the Crosshairs?

[Transcript of Presentations]

MR. SCOTT BATES:  I’m Scott Bates.  I’m the vice president of the Center for National Policy.  I’m very glad to be with you today.  In the last year, I’ve traveled to the Middle East about eight times.  I’ve traveled from Beirut to Bahrain, a lot of different places.  And the first question I get, no matter if it’s from parliamentarians or if it’s from policymakers or professors or even cab drivers, the question is, “Will the United States go to war with Iran,” as if I have an answer for that question, but they always ask that. 

And this open question, and our relationship with Iran, does affect U.S. policy on Iraq, on Afghanistan, and the Middle East peace process.  And this open question of will the U.S. go to war with Iran, across the region, exposes sectarian fault lines, creates tensions in the Gulf States that I mentioned and plays havoc with world oil markets, amongst other things.  So today at CNP, we take a hard look at America’s very complex relationship with Iran and try to answer a few questions.

Does the new NIE bring clarity or confusion?  What should America’s goals be regarding Iran?  And what options do we have to accomplish our ends? 

We’re fortunate to have with us today two leading experts on Iran and our policy options, and they’re with us to help answer some of these questions. 

Gary Sick served on the National Security Council under presidents Ford, Carter, and Reagan.  He was the principal White House aide for Iran during the hostage crisis.  No one in the foreign policy community, in my view, has more insight on matters regarding Iran that does Dr. Sick.  And we’re very pleased to have you here today. 

Dr. Sick has been responsible for foreign policy programming at the Ford Foundation and served on the board of Human Rights Watch.  Gary is the author of All Fall Down: America’s Tragic Encounter with Iran and also the author of October Surprise.  Professor Sick is a senior research scholar at Columbia University School of International Public Affairs.  And I suppose most important to me, as the son of a former Coast Guard officer, he, himself, Dr. Sick, is a former captain in the United States Navy, who served in the Persian Gulf and the Med as well.  So thank you very much for being here, Dr. Sick. 

And Michael Jacobson, to my right, has served America as a member of the staff of the 9/11 Commission and the Congressional Joint Inquiry into the attacks of September 11th.  Mr. Jacobson has served at the U.S. Treasury Department and as an FBI analyst.  In all of these roles, Mr. Jacobson has specialized in using financial intelligence to track terrorist activity. 

Currently, Michael is a senior fellow at the Washington Institute for Near East Policy, where his areas of study include sanctions and financial measures to combat national security threats.  He’s the author of dozens of articles about Iran and the Gulf region, and is an expert in sanctions regimes that are being applied not just to Iran, but to Syria and Sudan.  And we thank you for coming with us here today, Michael. 

And so without further ado, I’d like to get started because I know you all will have a lot of questions.  And Dr. Sick, please. 

DR. GARY SICK:  Thank you very much.  I really appreciate it.  I very much appreciate the offer to be here.  It’s actually being a very useful return for me.  I don’t spend that much time in Washington and this is a great opportunity for me to come back and see old friends and enjoy myself a little bit, and also get some real work done, and I’m getting a lot of work done, actually. 

I had actually planned to talk to you about several things before the NIE story broke the other day.  That happened just as I was getting ready to come down here.  I had planned to answer the question, is Iran really building a nuclear weapon?  The NIE has basically answered that.  Whether one believes them or not, that’s what they say.  Two, is the United States likely to attack Iran?  I was going to say, no, they’re not very likely.  And now that’s the conventional wisdom.  Everybody believes it anyway.  And third, I was going to say, do we need to engage with Iran in a more active way?  And that’s becoming the conventional wisdom also now, even including some of the hard-line Neocons that are making this argument. 

So I don’t have anything to talk about.  (Laughter.) 

MR. BATES:  Well, thank you for coming, everyone.  (Laughter.) 

DR. SICK:  So what I’m going to talk about is the little that's left over.  First of all, I would like to talk a little bit about Iran’s broader role in the Middle East, what I think Iran wants to accomplish with its nuclear policy, the nuclear program that it has; a lot – as little or as much as time as I have time on the internal politics of Iran; and then I’ll leave the comments that I would have about the policy options, a negotiating strategy for the United States because Michael’s going to discuss that, and I will hold off and then pick up in questions if people want to ask questions about that. 

So let me begin.  First of all, I think that Iran is actually becoming a new pivot of Middle East policy.  They are emerging as the pillar of regional politics in the East to match Israel’s pillar in the West, curiously enough.  And what’s, of course, ironic to all of us is that these two countries that are emerging as the arbiters of what happens in Middle East politics are not Arab.  They’re not Sunni.  And then none of them speak Arabic. 

So it’s really kind of an interesting – and you’ve got all of these countries in between, the Saudi Arabias, the Jordans, the Egypts, who are quite accustomed to firing shots.  These are the countries that really have the history of making decisions in the Middle East.  They’re left out of this, somehow, and they don’t like it.  They’re nervous about it.  They don’t trust the Iranians.  They certainly don’t trust the Israelis.  And they’re watching this happen. 

How did Iran come to this point?  You may recall that after 9/11, we invaded Afghanistan and we scattered the Taliban, which was Iran’s worst enemy to the East.  That was the principal threat.  They had almost gone to war with the Taliban not long before.  Then before we’d even finished that job, we turned around and invaded Iraq and got rid of Saddam Hussein, who was their worst enemy to the West, and who had fought an eight-year war with them.  And in his place, we helped to install a Shi’a government in Baghdad for the first time in history.  And that government, of course, since Iran is the home of the Shi’a religion, was inevitably going to be more friendly to Iran than Saddam Hussein or any of his people ever would have been. 

And then at the end of the day we ask, “Gee, how come Iran is getting so strong?  What’s – how did this happen?”  We've got this 800-pound gorilla suddenly emerging in the region.  Well, the Iranians that I’ve talked to say, “We’re really grateful.  Thank you so much.  You really helped us out enormously.  We’re not going to say that publicly, but it really has been very helpful to us.” 

And in fact, that’s exactly what the Arabs think too.  And there are a lot of conspiracy theories in the Arab world that we did this deliberately, that in fact, Iran is our real choice as the leader in the region, and that we basically – otherwise, why would we have put them in such a leadership position and downplayed the regular Arab world so much? 

Well, I don’t agree with that.  You don’t have to be completely conspiratorial to understand why they would be perturbed about the turn of the events that have taken place.  Of course, we’re now trying to deal with it by creating – by, in effect, saying Iran is everybody’s worst enemy, so let’s get a coalition together between the Arabs and the Israelis to hold Iran as our principal enemy.  And that is – that coalition-building process is, in fact, what’s underway today with some success. 

What does Iran want from its nuclear program?  I’m not going to go into a lot of detail, but if you – I’ve been interested in the fact that the – the shah had a policy on Iran.  I have a favorite professor when I was working on my – completing my graduate work in Columbia – who had a series of aphorisms and one of them, which I like particularly is that revolutions revolve 360 degrees.  And that’s what happened in Iran. 

The shah had a set of policies.  The Iranian – the revolution came long, overthrew all of those, threw out the shah, broke the policies down, and gradually have now reassumed all the policies that the shah originally had.  It’s looking more and more like the old days.  And nuclear policy is one of the places where it does. 

The shah, now we know, had a very clear policy because all advisors, his closest advisors, have now all written their memoirs, so we know what was going on inside.  What was going on inside?  The shah said he wanted a, quote, “surge capacity.”  By that, he meant not our surge, but he meant having enough of a nuclear infrastructure that they could take a decision to go for a bomb and get it within, say, 18 months.  That was his objective.  I can’t prove it, but I think that’s what Iran's doing today. 

They want to have an infrastructure, a capability, that would give them the ability to decide that they were going to go for a bomb.  And stop and think about.  It is – if you’re looking for a political clout in the region, having the potential threat of a nuclear weapon is almost as useful, and perhaps more useful, in terms of leverage, than actually having a bomb that makes you a target. 

They’re really better off to say, “Okay, if you don’t want to play ball with me, if you want to make my life difficult, if you want to attack me, I have this capability and I’ll exercise it.  You ought to think about that before you adopt your policies with regard to me.”  I really believe that that is, in fact, what Iran is doing.  They have actually – another thing – what you need to remember, that there are about 40 countries in the world that have that capability, that have a nuclear infrastructure that would, in fact, give them the capacity to build a bomb in greater or lesser amounts of time. 

The experts that I talked to say they believe that, for instance, Japan could do it over a long weekend, that basically, they are so close to having everything that they need, that they’re practically there.  Other countries, say, Brazil, Argentina, Taiwan, many, many, Sweden, a lot of other countries in the world that have this capability are further away and would probably take longer, some quite a long time. 

To me, the key question is not whether we can keep Iran from joining that club.  I would argue that for all practical purposes, they’ve already joined it.  We’ve tried to stop them.  We originally said we would – we've had a series of redlines.  Initially, it was, we don’t want Iran to have any nuclear technology at all.  Well, a country with 70 million people, without much oil, and some very smart folks, you just couldn’t stop them from getting access to nuclear technology. 

Then we said, okay, but no nuclear power plants.  You can’t do that because the output of the nuclear power plant could be used to produce material that could then eventually be used to build a bomb.  And so we did everything in our power to stop them from getting a nuclear power plant. 

They found the Russians were going to sell them one and they’ve got one largely built, though not yet in operation.  So we said, well, that’s not so bad, but no enrichment – under any circumstances, will we permit Iran to have enrichment.  Well, folks, you all know, as we speak, they are enriching uranium at Natanz.  And they’ve got some 2,000 or 3,000 centrifuges coming over, turning out low enriched uranium, which is good enough for a fuel – to fuel a reactor.  And people say, “Well, why would they want that?  They’ve only got one reactor, and besides, we'll promise to give you all the fuel that you need, just stop enriching." 

And the Iranians say, for what it’s worth, “We also remember the Iran-Iraq war, when you had all said (handwriting?) was solemnly declared that the world would not permit anybody to use weapons of mass destruction, chemical weapons.  And then Saddam started using them all the time.  And not only didn’t you say anything or try to stop him, but you helped him.  Now, you’re telling us, oh, never mind about that.  Trust us.  We'll give the fuel that you need to run your reactors.”  Needless to say, whatever you think about the argument, that’s not very persuasive and they do have a case about why they should do it themselves, rather than rely on other people to do it for them. 

The other one key point that I want to make, and I know many of you will have questions, and with many of the things, I’m trying to be provocative.  I probably will succeed.  The other key point that I think is worth making is that most countries that have gone for a bomb covertly, that have gone out to create – to build a bomb covertly, South Africa, India, Pakistan, Israel, from the time they made their decision until they actually had a nuclear device in hand, was five or six years, or something like that.  Even that industrial powerhouse, Pakistan, was able to get a bomb within that very limited period of time. 

Iran made its decision to go for a nuclear infra – a nuclear capability in 1985.  We’re now after 22 years and counting, and Iran has maybe 3,000 centrifuges, maybe running well, and maybe not.  Now, is that because the Iranians are just stupid, because they’re incompetent, or maybe, God forbid, is it because they’re actually going slowly, that they’re really not in that much of a hurry to produce this thing?  It’s a possibility and to try to explain why it has taken them so much longer than anybody else is at least an interesting intellectual question that I think we can’t overlook. 

Let me switch to the question of Ahmadinejad.  When – during Ahmadinejad’s recent visit to New York, I had the pleasure, or non-pleasure, of spending more than four hours' face time with the guy.  I was there at Columbia, when we had the celebrated event, and I won’t go into that.  And then the next night, Ahmadinejad hosted at his hotel a round table meeting for about 40 people, which included academics, think-tank people, a lot of media poohbahs.  And the event was supposed to go for an hour and a half, but we were all given an opportunity to make comments and ask questions. 

And then he – when our time was about to run out, he hadn’t even answered anything at that stage.  And we all figured, well, this was a waste of time completely.  And then he made a command judgment and the meeting was extended for another hour and half, in which he basically talked and answered all of the points that had been made.  So at least I had a chance, over that period of time, to see some body language, to see how he handles himself in – under a certain amount of questioning and all. 

It was a very fascinating process and this was actually my second year because the previous year, he had also held one of these events with about the same number of people, and I had had a chance to watch him there.  So I’ve at least seen him in action over a considerable period of time. 

My conclusions out of this are not – I’m not a psychologist, and I do not pretend to be a part of his inner circle or his inner thinking, but it was clear to me that one – this is a guy who – he is absolutely certain that he’s the smartest guy in the room.  He is tremendously arrogant.  He really is convinced that he’s smarter than anybody around, that he really doesn’t need to listen to other people giving him advice.  He has surrounded himself with a lot of people who certainly defer to him in every possible way.  So he has made a point of surrounding himself.  He loves publicity and basically – think about it:  He was in New York for about four or five days.  There were 60 other heads of state in New York for the UN General Assembly at the same time.  How many of those did you read about on the front page? 

He dominated the news totally from the time he arrived until after he left.  And that was not a chance occurrence.  His people had spent months lining up appointments with every media outlet that counted, as far as the – (unintelligible) – perspective.  He had everything laid out in advance.  And this guy, you should also know, doesn’t sleep.  He is absolutely indefatigable.  He just goes and goes and goes. 

The night I was there, his staff was looking like they were about to fall over, and he was wide awake, going strong, and he was up early the next morning meeting with another delegation of religious people that he had set up.  And, in fact, two other meetings the next morning before – and he had addressed to UN General Assembly that afternoon.  It was just an incredible performance all the way around.  But he didn’t really say anything in all of these talks, including the ones that are sort of off the record. 

This is not a man where you pose a question to him and he says, “That’s a really interesting thought.  Let me think about that,” and then sort of discusses it with you.  Instead, he’s got a snappy retort.  He’s a debater.  And he’s basically showing that he knows it all and he’s not interested in engaging with you.  And to me, that was a huge loss, but it does say something about him. 

One final word, because there’s just not enough time to go into it, but I do want to say that he right now – I do believe that the New York experience was extremely important to him.  He really felt that while he was in New York, and with great justification, given the way that he was dealt with by the U.S. media, he came back feeling that he was the top fan, sort of astride the world stage, that everybody in the world was looking to him for leadership.  Everybody was admiring him and watching him.  His picture was everywhere.  He was being quoted at all stages.  And he got back to Tehran and immediately started, what I think is an astonishing – an astonishingly new process of challenging the existing leadership in Iran. 

He, as you probably know, a few weeks ago, fired the representative of the supreme leader to the nuclear talks with Europe and replaced him with his own man.  There’s no evidence whatsoever that that was cleared in advance.  No president that I know of in Iranian history has, since the revolution, has ever done that. 

Then, Mr. Putin was there visiting from Russia and he had – he met with Khamenei, the supreme leader and they had a discussion.  And Khamenei’s personal spokesman came out after the meeting and said, “Among other things, Mr. Putin made an interesting proposal and we’re going to be looking at it very carefully.”  The next day, Ahmadinejad said, “The Russians didn’t make any proposal.  Our policy is set.  We’re going in the same direction and we’re not thinking of deviating from it.” 

Now, that’s amazing.  When you go back and look at the way other presidents, given the power that the presidency has, I see him making a serious play for power, and I don’t know that he’s going to succeed.  I think there – and I have a lot of thoughts about how he may think he is going to do that, but I don’t have – I don’t want to take up more than my time.  But I think that – to be dramatic about it – I think you could make a case that there may be a kind of slow-motion coup underway in Iran.  And we’re seeing a guy who doesn’t play by the ordinary rules of Iran, looking at this leadership and they suddenly realize that they’ve got a tiger by the tail, and they’re not sure what to do about it.  And they are trying to do something about it, but this next year may be one of the most critical, in terms of Iranian domestic politics since the revolution. 

I’ll stop there. 

MR. BATES:  Thank you, Dr. Sick.  Your profile of the president of Iran sounded very much, with one exception – the lack of sleep – it sounded very much like another president that I know of.  So think about it. 

Michael, thank you. 

MR. MICHAEL JACOBSON:  Thanks for having me here.  It’s a pleasure to be here speaking about this important topic. 

The big issue of the day, obviously, right now is the National Intelligence Estimate, which came out earlier in the week, which could have a major impact on Iran policy over the next year.  Very broadly, as Dr. Sick mentioned, observers believe that it’s taken the military option off the table for the time being.  I think it’s already complicated efforts to bring the next round, the third round of sanctions at the UN against Iran. 

I think it’ll also have an impact on U.S. efforts to ratchet up financial pressure against Iran outside of the UN framework as well.  I’ll be touching on the NIE today and its likely aftereffects, but will focus my remarks more specifically on the U.S. efforts to ratchet up the financial pressure against Iran over the last two years. 

I think it’s important to understand this strategy and what’s behind it, even after the release of the NIE, particularly since the U.S. is likely to continue to use this strategy over the next year. 

In fact, I think one likely aftereffect of the NIE is that this may even be – this track may even be more of a focus, since the military option appears to be off the table, and since the NIE gives additional hope that this track, the financial track, might work.  But I’ll be happy to talk more about the NIE during the questions and answers. 

Last month, before the NIE, the U.S. Treasury Department designated a number of Iranian entities.  It was the Islamic Revolutionary Guard Corps, some of its officials, three Iranian banks, and designated them all on one day for their terrorist activities and for their involvement in Iran's WMD-related activities.  And this really was the latest step begun gone about two years ago to ratchet up the financial pressure against Iran.  And it really was an effort to try drive up the cost for Tehran of its nuclear program, of its terrorist-related activities and to try to persuade them to abandon this course of action. 

Today I’ll be discussing not only these recent enforcement actions, but what is behind the broader strategy, how effective it’s been, what obstacles the U.S. has run into, and what further steps are needed. 

First, why wasn’t this strategy needed two years ago?  The U.S. had had comprehensive sanctions against Iran for – since really 1995, so for about 10 years by that point, which severely limited business ties between the two countries.  It was really a question at the time as to how much the U.S. could even do more on this front.  Putting additional restrictions on U.S. businesses with their ties to Iran didn’t seem like it would have much effect at all. 

And so to have an impact, the U.S. then designed a strategy that first, foreign government viewed as more than just politically driven.  Foreign governments didn’t like this comprehensive sanctions approach, which they viewed as really a politically-driven strategy.  And telling them they should be doing no business with Iran across the board did not go over very well.  The U.S. had to find another way. 

Second, the U.S. had to find a way to bring non-U.S. banks and non-U.S. companies on board, which was a really difficult challenge, considering the lack of U.S. jurisdiction over these entities. 

And third, the U.S. had to find a strategy that would use the UN Security Council where possible, but not get caught up and locked in this construct, and to still be able to move forward if it bogged down. 

The strategy that the Treasury Department, largely in cooperation with State Department, designed was really designed to achieve these three goals that I mentioned and to build international support, was focused on Iran illicit conduct.  They tried to keep the focus, over the past two years, on the illicit activity, on their terrorist activity, on their WMD-related activities.  And this Treasury strategy really had two separate components. 

First is the use of targeted financial measures, which I’ll talk – which I’ll define more shortly – to blacklist individual Iranian entities that were involved in illicit activities.  And the second was outreach to global non-U.S. financial institutions to try to leverage market forces against Iran, to persuade them that it was bad business to be doing business with Iran.  And the Treasury tried to make clear along the way that these actions were not being taken for political reasons, but to protect the integrity of the global financial system. 

As a side note, one reason why there was cause for optimism at Treasury Department, and I think more broadly throughout the government, that this strategy had a hope of working, was the experience with North Korea.  In September 2005, the Treasury Department had taken an enforcement action against a small bank in Bakau that was accused of facilitating North Korea’s illicit conduct for about 20 years by that point.  This was, as I mentioned, a small bank with a small amount of money at stake, but the implications were much greater than anyone anticipated.  The North Koreans walked away from the Six-Party Talks and refused to return to the Six-Party Talks until that money was actually deposited back in their bank accounts. 

So I think that the U.S. officials hope that the BDA case, would – not only demonstrated the power of these financial tools, by sending an important message to Tehran that what they were in for if they didn’t back down. 

First, just a brief definition of what I mean when I say targeted financial measures that the Treasury Department has been using, and how they differ from traditional sanctions.  When you’re referring to sanctions, most people are talking about the broad-based sanctions against a country that had been used for years.  The Iraq sanctions of the ‘90s are really what come to mind.  And these kinds of sanctions have a bad rap.  They are – critics charge they paint with too broad a brush, that they cause humanitarian crises and they don’t actually effectively target the people they’re trying to target. 

Targeted financial measures, which are really also known as smart sanctions, are really a type of financial sanctions.  They’re tended to focus more on the individuals, the entities, the companies instead of entire countries.  And you try to go after these entities for specific conduct.  For example, instead of banning all financial interaction with Iran, you would designate a specific Iranian bank that was involved in support for terrorism.  And for the U.S., and I think what the U.S. has found, is it’s a much easier sell to foreign audiences when you’re focusing on conduct, instead on focusing on a regime writ large, or on trying to bring comprehensive sanctions against a country. 

The targeted financial measures that I mentioned against the IRGC, again the Iranian banks that the Treasury took last month, were unilateral in nature.  They just showed up on the Treasury list.  The legal impact was only on U.S. entities and entities under U.S. jurisdiction, but the intended impact was much greater.  The hope is these types of measures against Iran, the audience is really, in many cases, a foreign audience.  As one of the seated Treasury officials said, “Our unilateral sanctions are anything but.” 

And why is this the case?  There are a few reasons why this is the case and you find banks and companies throughout the world using the Treasury list and paying attention to the Treasury list, even though they don’t legally have to. 

First is the reputational risk idea that these banks, these companies, don’t want to associate with people who’ve been identified as specific bad actors.  And the second is a business decision, is that they don’t want to risk the ability to do business in New York.  As the same seated Treasury official said, quote, “All financial roads lead to New York.” 

The 2005 fine against a Dutch bank of $80 million, a bank named ABN AMRO, for its involvement in various Iran and Libya-related transactions, also caught the attention of the international banks.  And the idea of being next on that list, more for reputational risk reasons than the actual monetary fine, but was something that people were really, really trying to avoid. 

So in terms of the U.S. unilateral authorities, the U.S. now has the ability to go after Iranian entities involved in terrorism and WMD-related activities.  The WMD-related power came in 2005.  And the bulk of the Treasury strategy to this point, most of the Iranian officials and companies and individuals that they’ve designated, have been for WMD-related activity, not for terrorism.  They’ve had about 25 people, companies, et cetera, designated for WMD-related activity.  And most of the designations I referred to at the start were under this authority, the Iranian banks and the IRGC who were targeted for WMD-related activity. 

And I think going after Iran for WMD-related activity has been – who knows how it will play after the NIE, but to this point, it’s been a strategy that made sense.  There was broader international consensus and concern about Iran’s WMD-related activities than there was about its support for terrorism. Obviously, the European – the fact that they have not designated Hezbollah, which is one of the primary recipients of Iranian funding, I think illustrates the difficulties in going after Iran for its terrorist-related activity. 

That being said, there have been a few Iranian entities, such as Bank Saderat, one of the largest state-owned banks, which was designated for its terrorism-related activities for providing – it was $15 million over a period – a five-year period to Hezbollah, and they also has provided support to other terrorist organizations as well. 

Where possible, the Treasury and the State Department have tried to then multilateralize these sanctions to the UN.  And if you actually look at the two UN resolutions that were passed on Iran, 1737, 1747, they include a number of the entities that had been previously been unilaterally designated by the U.S.

So in other words, the U.S. has tried to avoid getting locked down by the U.S. construct, but to use it where possible.  The difficulty, though, in getting the third resolution, which I think will just be complicated by the NIE, illustrates, though, that this is a strategy, I think, that makes sense. 

The second part of the strategy that I mentioned has been private sector outreach by Treasury Department.  And this is really more of an approach of persuasion than coercion.  Treasury officials had been going around the world, meeting with the heads of some of the largest non-U.S. banks, and making the case that they should not be doing business with Iran.  They shared information about various Iranian deceptive financial practices, such as Iranian banks asking that their name be taken off transactions, about some of these banks' involvement in Iran’s terrorism and WMD-related activities, and Iran's extensive use of front companies. 

And the Treasury argument has been that when you’re dealing with Iran, you don’t really know who you’re dealing with, and that as the IRGC has assumed a growing role in the Iranian economy, there really is the growing danger that when you’re dealing with a company in Iran, that it’s actually an IRGC front.  And so – and that, I think, has gotten the private sector’s attention. 

I think Treasury’s outreached in the foreign private sector is somewhat unusual, and not always appreciated by the foreign governments, which believe that these institutions are actually under their jurisdiction, not the U.S. Treasury’s.  But in some ways, it can actually be more effective than going to governments.  You obviously have to do both, but there are some advantages of going to the private sector. 

When you ask – when you go to a foreign government and ask them to take certain action, there’s a lot of foreign policy calculations that come into play.  What else is on the plate with the U.S.?  What do they think of the U.S.?  Do they think the U.S. is acting extraterritorially?  Is this going to set a bad precedent, et cetera? 

When you go to banks and they ask them to take a certain action, they’re going to look at this as a business decision.  What they think of the U.S. and all those other calculations are not going to be part of their equation.  They’re going to look at it, is this a bad business decision?  Is there reputational risk, et cetera.  And so in some ways, the private sector has been more forward-leaning than governments in many cases in shying away from business with Iran.  And I think that the private sector, with the release of the NIE, could become even more important. 

I think you’re going to see a lot of other calculations come into play with foreign governments and our bilateral and multilateral relations after the release of the NIE, but the private sector will still be making the same calculations. 

I’m going to talk a little bit about whether or not the Treasury and State Department strategy is working.  And I think my bottom line is that it’s a mixed bag.  But before I get to the actual results, I want to touch on the NIE briefly. 

I think there are some who are saying that the NIE shows that sanctions are not needed, since Iran no longer has a covert nuclear program.  I think if you actually read the report, though, you could draw the opposite conclusion, which suggests that Iran is vulnerable to outside pressure on the nuclear issue.  The NIE noted that Iran’s nuclear decisions are guided by, quote, “a cost benefit approach rather than a rush to a weapon, irrespective of the political, economic, and military costs.”  And in fact, according to the Estimate, the decision to halt their covert nuclear program in 2003 was in response to, quote, “increasing international scrutiny,” which suggested that, quote, “Iran may be more vulnerable to influence on this issue than we judged previously.” 

And while Iran may no longer now have a covert nuclear program, I think this doesn’t mean that there’s no reason to worry.  As Dr. Sick outlined, they’re taking on this matter and I think it gives you a sense of why there still may be a reason to worry that they have not given up on a nuclear weapon. 

And I think what the NIE suggests is that Iran might modify its behavior on its nuclear activities in the face of the right mix of carrots and sticks.  I think the irony, though, of the NIE is that it may have the effect of making sanctions more difficult, at least in the short term.  As I mentioned, there’s been some difficulty.  Now Russia – after the NIE has made comments about the – perhaps the lack of need for a third round at the UN, so I think that that’s the irony of this, that it could make it more difficult on the financial front, even though the NIE says that this type of strategy could possibly – is an effective type of approach. 

In terms of the results today, I think as I mentioned, it’s a mixed bag.  The positives, we’ve seen a lot of the European financial institutions, in particular, ramping down their business with Iran, and this has been really arranged.  Some have really cut off all Iranian business.  Some have cut off new business.  Some have cut off business in dollars, but it's been – most of the banks, they take – there have been a lot of banks that have taken at least some action on this front. 

And I think if you look at the individual entities that have been designated – and this is really the point of targeted financial measures – particularly some of the banks that have been designated, they've really been hurt by the designation.  For example, Bank Sepah, one of the largest Iranian state-owned banks, they have – they’re really – their international business – they were designated by both the U.S. and then subsequently by the UN, and their international business, in particular, has really suffered in the wake of their designations. 

There’ve been other comments coming out of Iran that have been somewhat promising on this front, such as the former oil minister talking about the difficulty in financing projects, and there’s been reports about pessimism – the psychological impact of the sanctions, particularly the UN sanctions, and the pessimism in the Iranian business community.  I think we’ve seen exports fall off from the EU and which – where some of Iran’s most important trading partners are. 

The negative, though, I think there’s still a long way to go.  Some of the business that’s been dropped by the European has been picked up elsewhere.  We've seen China and the UAE particularly stepping forward in this regard.  And there’s been articles, for example, that China has really ramped up its shipments of even sensitive military technology to Iran in the wake of sanctions. 

There’s also reports that, as some of these really big financial institutions, the ones you’ve all heard of, are stepping out of Iranian business, smaller institutions, which may be less concerned about their reputations, and which probably don’t have the same presence in the U.S., that they are starting to step in.  And I do think that companies and banks which don’t do business I the U.S. are less concerned by the U.S. warnings. 

Just briefly in terms of what more needs to be done, I think the sanctions have demonstrated they can have an impact and they do have potential, but I think they still will need to be significantly toughened.  And as I mentioned, the NIE mentioned – the NIE assesses that this type of approach has the potential to work. 

I think at the UN, while it will be difficult – and I’ve heard mixed reports about whether and when a third round might occur – I think a third round would be very important.  I think if they do actually move forward in a third round, you’d want to have – probably the most important thing would be to have financial institutions included in there.  I think that’s been probably the biggest impact.  And it’s also – it’s not like when you designate a small company, which then can go and change its name easily.  I think it’s much harder for an established financial institution, with branches around the world, to react in a way to evade sanctions. 

I think some of the IRGC entities that I mentioned, particularly those involved in the oil and gas sectors, which were designated by the U.S., those would be good candidates for the UN action as well.  And I think some of the loopholes from the first two resolutions should be closed – for example, the one-way arms embargo and the lack of a mandatory travel ban on some of the Iranian officials. 

But I think that the UN track aside, there's also a lot that can be done outside of that track.  And I think the track outside of the UN will become even more important should the efforts of the UN continue to stall, and they’ve really been trying to work on a new resolution in the third round since May.  So it’s probably about seven months at this point they’ve been trying to get this third round done. 

I think the pressure needs to be stepped up significantly on Asia and on the UAE.  There’ve been some reports over the last few weeks indicating that there might be at least some progress on this front.  There was a report today, a newspaper story today, about Chinese banks for the first time starting to shy away from Iranian business, which I think would be a very big step, and some reports about the UAE, for example, passing for the first time a national security law allowing them to restrict exports for national security reasons.  And since so much of the trade takes place through Dubai, this also, if properly implemented, could be a big step. 

I think, though, the Europeans could also do more.  As I mentioned, trade has fallen.  They have taken quite a few steps, but there’s more they can do.  In the absence of another round at the UN, additional EU sanctions would be a strong step forward.  They’ve already gone further than the UN in their last two rounds of EU sanctions, and they could still go further at this point.  And I think even if the EU is not willing to act collectively, because you have to get all 27 countries to agree, individual member states should move forward on their own, in concert with the U.S. if possible, but together, if not.  And France and Britain, they’ve already spoken about the need and the promise of such an approach. 

I think the U.S. also should still move forward on its individual designations, unilaterally where necessary.  Obviously, you want to try to convince other countries to join on board when you do the designations, and in some cases, you might have to be creative about this.  For example, there are some countries out there, Canada, Australia, the Netherlands, which actually are concerned about Hezbollah, and have actually taken steps to designate Hezbollah as a terrorist organization.  So those kind of – those countries might be concerned and willing to go along with a terrorism-related designation against Iran than others. 

So I think you have to find ways to be creative to try to make this more than unilateral.  But the U.S., I think, if they can get there, I think should still continue to designate unilaterally, to point out to the financial institutions who the bad actors are in Iran. 

I think the U.S. should also use congressional pressure to its advantage.  Congress, they’ve been talking about sanctioning foreign companies involved in Iran’s energy sector.  I think that the administration is understandably nervous about the effect this could have on their efforts to build consensus, but I think the administration could argue to the foreign countries that the best way to forestall this congressional action, which some of our European partners are particularly leery of and it could end up, I think, sparking a trade war, but the best way to avoid this is to move forward aggressively and to show that the current strategy is achieving success. 

I think where Congress can be particularly useful is in some of the naming and shaming.  I think when you see companies actually shut down their Iranian presence, U.S. companies with subsidiaries, because of media pressure and congressional hearings, and I think more could be done on that front. 

I think, finally, other countries' finance ministries should be more engaged.  I think Treasury at this point is the only finance ministry in the world with its own intelligence office.  And I think that’s something that really helps inform the policymakers when they’re making these decisions. 

I think to truly understand the risk that Iran poses to the integrity of the global financial system means that your finance policy people have to understand what – have to have access to and understand the intelligence.  And I think if they are cut out from that loop and if they’re not fully informed, I think they are going to make decisions – the senior policymakers in those countries are going to make decisions that are not fully informed. 

I think we’re at a critical stage.  I think the effort to this point has had some impact, as I indicated, and I think does have potential, I think, as the NIE suggests.  I think both the U.S. and the UN sanctions have been done – I didn’t really talk about this – but in a graduated fashion to this point, instead of all at once, but for graduated sanctions to be effective, Iran needs to feel that there’s something else coming, that they’re not sure what, but there’s more on the horizon.  And I think then, not only the economic impact of this can hurt, but the psychological impact as well.  I think they must feel like they are isolated in this regard. 

I think what’s currently in place, the financial pressure currently in place, the sanctions currently in place, are not enough.  I think this is not a strategy that is guaranteed to have success at all, but it’s, I think, a potentially enough promising strategy that this track should continue.  And I think if they continue to build on what’s already in place, it’s a strategy that just could work.  Thank you. 

MR. BATES:  Thank you, Michael, and thank you for really boring in on the financial aspect of our sanction policy.