Research

Aaron Arnold, Associate with the Project on Managing the Atom at the Belfer Center, writes in The Hill that while Iran will soon be getting sanctions relief as the nuclear accord with the P5+1 is enacted, it has not yet taken steps to update its banking system and bring it up to international money laundering and counter-terror financing. He also suggests that in order to balance the competing political and financial concerns at play with sanctions, the international community led by the United States should make clear conditions for both exclusion and rejoining of the international financial system.

Aaron Arnold, Associate with the Project on Managing the Atom at the Belfer Center, and Nikos Passas, Professor of Criminal Justice at Northeastern University, argue in The Conversation that Iran's reintegration into the global financial system may in fact make it easier, not more difficult, to monitor Iranian financial activities for illicit transactions. They point to the fact that banks can monitor transactions for entities designated as involved in terrorist or weapons of mass destruction activities by the U.S. Treasury. They also suggest that Iran may adopt stricter money laundering standards in order to increase economic integration. While challenges remain, they suggest that building a public-private partnership between banks and regulators will ensure that Iran will be caught in any illicit financial actions after the nuclear deal.

Aaron Arnold, Associate of the Project on Managing the Atom at the Belfer Center for Science and International Affairs, writes that while Iran may receive sanctions relief as part of a final nuclear deal, it needs to take actions to strengthen its financial laws and regulations in order for it to truly be integrated into the global economy. He argues that Iranian financial laws, specifically those relating to money-laundering, terrorism financing, and proliferation financing, remain weak and do not meet the standard of the international financial community. These legal weaknesses have caused Iran to remain designated by the U.S. Treasury as a "jurisdiction of primary money-laundering concern," making it much harder for the Iranian financial sector to operate using American currency or the American financial system, which, despite recent developments such as the launch of the Asian Infrastructure Investment Bank, maintains the dominant role in global finance. He concludes that without these reforms to Iran's banking sector, its benefits from the ending of sanctions will be much smaller than desired by Iranian policymakers.

Aaron Arnold, Associate with the Project on Managing the Atom at the Belfer Center, and Nikos Passas, Professor of Criminal Justice at Northeastern University, argue in The Bulletin of the Atomic Scientists that an important, and generally overlooked, aspect of any deal with Iran is the role of banks and financial institutions in monitoring proliferation related transactions and keeping Iran from cheating on the agreement. They point out that banks are necessary for the monitoring and verification of a nuclear agreement because they provide the information used by sanctions enforcers to track illicit proliferation financing. At this point, several holes exist in detecting proliferation financing, including the lack of a clear template for banks and regulatory agencies to be searching for, and the lack of binding regulations for all forms of financial institutions, such as money remitters. They suggest that the Iranian nuclear deal offers a chance for these systematic holes to be plugged by centralizing analysis of data for proliferation financing and seeking reforms in the Iranian financial system.

News broke yesterday that three prominent senators—Menendez (D-NJ), Kirk (R-IL), and Schumer (D-NY)—may introduce legislation this year that would impose new sanctions against Iran with a “deferred trigger.” That is, the new sanctions can be averted only if the Obama administration provides specific and difficult certifications every 30 days including that Iran is implementing the terms of the November 24 Joint Plan of Action and negotiating “in good faith” toward a final deal. Based on an advance copy of the “Nuclear Weapon Free Iran Act of 2013,” I summarize the substance of the draft legislation, including both the new proposed sanctions and the complicated set of presidential certifications and notifications to waive existing sanctions and suspend the additional sanctions.  In a second post, I examine the current legislative state of play and the likely administration objections to the draft legislation.

In the near term, the Obama administration does not yet need to engage Senators Menendez, Kirk, and Schumer on the details of their proposed Nuclear Weapon Free Act of 2013. The upcoming congressional recess and the protection of friendly senators (including Senate Majority Leader Harry Reid and Chairman of the Senate Banking and Finance Committee Tim Johnson) are likely to delay consideration of the bill for the time being. However, congressional support for sanctions legislation against Iran has strong bipartisan support, and pressure for additional legislation is likely to grow if – as seems likely – it becomes apparent in coming months that negotiations between the P5+1 and Iran on a final agreement are not faring well. In the event that the Obama administration is forced to enter into negotiations with Congress on new sanctions legislation, the White House is likely to have several objections to the proposed Senate legislation, especially on the certification requirements to waive or suspend sanctions.