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«Implications of a Nuclear Agreement with Iran Mark Dubowitz Executive Director Foundation for Defense of Democracies Center on Sanctions and Illicit ...»

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(http://www.reuters.com/article/2012/03/15/us-nuclear-iran-idUSBRE82E15M20120315) “Joint Comprehensive Plan of Action,” Vienna, July 14, 2015, paragraph 19(iv). (http://eeas.europa.eu/statementseeas/docs/iran_agreement/iran_joint-comprehensive-plan-of-action_en.pdf) On Implementation Day, the EU will lift sanctions on the Central Bank of Iran and Bank Mellat, Bank Melli, Bank Refah, Bank Tejarat, Europaische-Iranische Handelsbank (EIH), Export Development Bank of Iran, Future Bank, Onerbank ZAO, Post Bank, and Sina Bank. On Transition Day, the EU will also lift sanctions on Ansar Bank, Bank Saderat, Bank Sepah and Bank Sepah International, and Mehr Bank. See Attachment 1, parts 1 and 2 and Attachment 2, parts 1 and 2. (http://eeas.europa.eu/statementseeas/docs/iran_agreement/annex_1_attachements_en.pdf) The Council of the European Union, “Council Regulation (EU) No 267/2012 of 23 March 2012 Concerning Restrictive Measures against Iran and Repealing Regulation (EU) No 961/2010,” Official Journal of the European Union, March 24, 2012. (http://eur-lex.europa.eu/legalcontent/EN/TXT/?qid=1406807228342&uri=CELEX:32012R0267) Foundation for Defense of Democracies www.defenddemocracy.org Mark Dubowitz July 23, 2015 The nuclear deal also lifts U.S. sanctions on 21 out of the 23 Iranian banks designated for proliferation financing—including both nuclear and ballistic missile activity. 60 The designation of Bank Saderat for terrorist financing will remain in place, but the sanctions against the Central Bank of Iran will be lifted. Twenty-six other Iranian financial institutions blacklisted for providing financial services to previously-designated entities (including NIOC which is being de-listed on Implementation Day) or for being owned by the government of Iran will also be removed from Treasury’s blacklist. 61 The Obama Administration is assuming that the SWIFT sanctions (and other economic sanctions) can be reconstituted either in a snapback scenario or under non-nuclear sanctions like terrorism. However, the JCPOA notes that Iran may walk away from the deal and abandoned its nuclear commitments if new sanctions are imposed: “Iran has stated that if sanctions are reinstated in whole or in part, Iran will treat that as grounds to cease performing its commitments under this JCPOA in whole or in part.” 62 This gives Iran an effective way to intimidate the United States, and in particular, Europe into not reinstating sanctions, except for the most severe violations.

The threat of this “nuclear snapback” will prevent a response to technical and incremental violations for fear that Iran will walk away from the agreement and escalate its program, provoking a possible military crisis. It will also be used to make it very difficult for the United States and EU to ever reimpose SWIFT sanctions, which the Iranian government is likely to see as an act of economic or financial war, and will threaten to retaliate accordingly. This nuclear snapback will be discussed in greater detail in a subsequent section.


The IRGC stand to be the greatest beneficiary from the economic relief granted under the JCPOA through both an improvement in Iran’s overall macroeconomic environment and through the dominance of the Revolutionary Guards in key strategic areas of the Iranian economy. Already, the sanctions relief provided as part of the Joint Plan of Action (JPOA) enabled Iran to move from a severe economic recession to a modest recovery. During the JPOA negotiations, $11.9 billion in direct sanctions relief, sanctions relief on major sectors of Iran’s U.S. sanctions on Ansar Bank and Mehr Bank are scheduled to remain in place. Sanctions on Arian Bank, Banco International de Desarollo, Bank Kargoshaee, Bank of Industry and Mine, Bank Melli, Bank Mellat, Bank Refah, Bank Sepah, Bank Tejarat, Europaisch-Iranische Handelsbank, Export Development Bank of Iran, First East Export Bank, First Islamic Bank, Future Bank, Iranian-Venezuela Bi-National Bank, Kont Investment Bank, Moallem Insurance Company, Persia International Bank, Post Bank, Sorinet Commercial Trust Bankers, and Trade Capital Bank (aka Bank Torgovoy Kapital ZAO) as well as the Central Bank of Iran (aka Bank Markazi Jomhouri Islami Iran) will be lifted on “Implementation Day.” See Attachment 3. (http://eeas.europa.eu/statementseeas/docs/iran_agreement/annex_1_attachements_en.pdf) Over the past decade, the Treasury Department has designated 51 banks and their subsidiaries inclusive of the 23 banks designated as proliferators, Bank Saderat which was designated for financing terrorism, and the Central Bank of Iran. With the exception of Bank Saderat, Ansar Bank, and Mehr Bank, all Iranian financial institutions will be de-listed on implementation day. Note, there is an inconsistency in Attachment 3. The Joint Iran-Venezuela Bank is listed as the same entry as Iran-Venezuela Bi-National Bank. On the SDN list, the two are listed with unique entries and different designations. FDD assumes, however, that both banks are being de-listed.

“Joint Comprehensive Plan of Action,” Vienna, July 14, 2015, paragraph 37. (http://eeas.europa.eu/statementseeas/docs/iran_agreement/iran_joint-comprehensive-plan-of-action_en.pdf) Foundation for Defense of Democracies www.defenddemocracy.org Mark Dubowitz July 23, 2015 economy such as the auto and petrochemical sectors, permission to trade in gold, and President Obama’s decision to de-escalate the sanctions pressure by blocking new congressional sanctions, rescued the Iranian economy and its rulers, including the IRGC, from a rapidly deteriorating balance of payments.63 In 2014, Iran’s exports to Europe increased 48% year-over-year. Overall, between March 2014 and February 2015, Iran’s non-oil and gas exports increased 22%.64 The JPOA facilitated imports from the EU through a relaxation of the bloc’s banking restrictions which increased the authorization thresholds for “non-sanctioned trade” ten-fold, from €40,000 to €400,000. Iran had better access to European goods, including spare parts for its automotive industry. The JPOA also suspended petrochemical sanctions; these exports rose 32% to $3.17 billion. 65 Economic forecasts prior to the announcement of the JCPOA based on expectations of the sanctions relief assessed that Iran’s economic growth would likely stabilize around 2.6% in FY2015/16, and then accelerate to about 4% in FY 2016/17.66 In the second half of the decade, Iran’s economic growth would likely average 3.5-4%. Depending on Iran’s economic policy choices, in FY 2017/18, growth could reach 5-6%.

In addition to the improvement in Iran’s macroeconomic picture, which reduces threats to the political survival of the regime, the big winner from the unraveling of European and American sanctions will be the IRGC, which will earn substantial sanctions relief. The IRGC not only directs Iran’s external regional aggression, its nuclear and ballistic missile programs, and its vast system of domestic repression; the Guards also control at least one-sixth of the Iranian economy. 67 Their control over strategic sectors of the Iranian economy—banking, energy, construction, industrial, engineering, mining, shipping, shipbuilding, amongst others—means that any foreign firms interested in doing business with Iran will have to do business with the IRGC.

In anticipation of the sanctions relief in a final nuclear deal, President Rouhani’s 2015 budget rewards the IRGC. It includes a 48% increase on expenditures related to the IRGC, the intelligence branches, and clerical establishment. Iran’s defense spending was set to increase by Jennifer Hsieh, Rachel Ziemba, & Mark Dubowitz, “Iran’s Economy: Out of the Red, Slowly Growing,” Foundation for Defense of Democracies & Roubini Global Economics, October 2014.

(http://www.defenddemocracy.org/content/uploads/publications/RoubiniFDDReport_Oct14.pdf); Jennifer Hsieh, Rachel Ziemba, & Mark Dubowitz, “Iran’s Economy Will Slow but Continue to Grow Under Cheaper Oil and Current Sanctions,” Foundation for Defense of Democracies & Roubini Global Economics, February 2015.

(http://www.defenddemocracy.org/content/uploads/publications/RoubiniFDDReport_FEB15.pdf) Emanuele Ottolenghi & Saeed Ghasseminejad, “Iran Sanctions Relief Sparks Growing Trade with Europe, Asia,” Foundation for Defense of Democracies, March 27, 2015. (http://www.defenddemocracy.org/media-hit/Iransanctions-relief-sparks-growing-trade-with-Europe-Asia/) Ibid.

Mark Dubowitz, Annie Fixler, & Rachel Ziemba, “Iran’s Economic Resilience Against Snapback Sanctions Will Grow Over Time,” Foundation for Defense of Democracies & Roubini Global Economics, June 2015.

(http://www.defenddemocracy.org/content/uploads/publications/Iran_economy_resilience_against_snapback_sancti ons.pdf) Parisa Hafezi & Louis Charbonneau, “Iranian Nuclear Deal Set to Make Hardline Revolutionary Guards Richer,” Reuters, July 6, 2015. (http://www.reuters.com/article/2015/07/06/us-iran-nuclear-economy-insightidUSKCN0PG1XV20150706) Foundation for Defense of Democracies www.defenddemocracy.org Mark Dubowitz July 23, 2015 one-third, to $10 billion annually—excluding off the books funding.68 The IRGC and its paramilitary force, the Basij, are set to receive 64% of public military spending, and the IRGC’s massive construction arm Khatam al-Anbiya (which will be delisted by the European Union and is the dominant player in key strategic sectors of Iran’s economy) will see its budget double.

Rouhani’s budget also included a 40% increase ($790 million) for Iran’s Ministry of Intelligence.69 Iran’s latest five-year plan, announced days before the JCPOA, calls for an additional increase in military spending to 5% of the total government budget.70 With access to additional revenue around the corner and with the termination of the arms embargo just over the horizon, Iran knows how it will spend its new cash.

My colleagues at the Foundation for Defense of Democracies Emanuele Ottolenghi and Saeed Ghasseminejad have done an extensive review of the sanctions relief and the entities that will be de-listed under the JCPOA. 71 The following is based on their analysis.

Access to Europe and the De-Listing of IRGC Entities With the lifting of EU sanctions under the JCPOA, Europe will increasingly become an economic free zone for Iran’s most dangerous people and entities. In addition to the lifting of specific types of economic and financial sanctions, the JCPOA requires the United States and Europe to remove numerous IRGC-linked entities from their sanction lists.

Europe will de-list significant IRGC entities and persons including the Quds Force. Some of these de-listings will occur on Implementation Day, but many more will fall off after eight years (assuming that they are even enforced over the next eight years).

Khatam al-Anbiya (KAA), a massive IRGC conglomerate, was designated by the United States as a proliferator of weapons of mass destruction.72 It is Iran’s biggest construction firm and, according to my colleagues’ estimates, “may be its largest company outright, with 135,000 employees and 5,000 subcontracting firms.”73 The value of its current contracts is estimated to be Emanuele Ottolenghi & Saeed Ghasseminejad, “Iran’s Repressive Apparatus Gets a Raise,” The Wall Street Journal, December 22, 2014. (http://www.wsj.com/articles/emanuele-ottolenghi-and-saeed-ghasseminejad-iransrepressive-apparatus-gets-a-raise-1419281552) Ibid.

Abbas Qaidaari, “More Planes, More Missiles, More Warships: Iran Increases Its Military Budget By A Third,” Al-Monitor, July 13, 2015. (http://www.al-monitor.com/pulse/originals/2015/07/khamenei-orders-increasemilitary.html) Emanuele Ottolenghi & Saeed Ghasseminejad, “The Nuclear Deal’s Impact on Iran’s Revolutionary Guards,” Foundation for Defense of Democracies, July 17, 2015. (http://www.defenddemocracy.org/media-hit/emanueleottolenghi-the-nuclear-deals-impact-on-irans-revolutionary-guards/) Department of State, Office of the Spokesman, “Fact Sheet: Designation of Iranian Entities and Individuals for Proliferation Activities and Support for Terrorism,” October 25, 2007. (http://2001state.gov/r/pa/prs/ps/2007/oct/94193.htm) Parisa Hafezi & Louis Charbonneau, “Iranian Nuclear Deal Set to Make Hardline Revolutionary Guards Richer,” Reuters, July 6, 2015. (http://www.reuters.com/article/2015/07/06/us-iran-nuclear-economy-insightidUSKCN0PG1XV20150706); Emanuele Ottolenghi & Saeed Ghasseminejad, “The Nuclear Deal’s Impact on Iran’s Revolutionary Guards,” Foundation for Defense of Democracies, July 17, 2015.

(http://www.defenddemocracy.org/media-hit/emanuele-ottolenghi-the-nuclear-deals-impact-on-irans-revolutionaryguards/) Foundation for Defense of Democracies www.defenddemocracy.org Mark Dubowitz July 23, 2015 nearly $50 billion, or about 12% of Iran’s gross domestic product.74 KAA has hundreds of subsidiaries in numerous sectors of Iran’s economy including its nuclear and defense programs, energy, construction, and engineering. The company is also is also involved in “road-building projects, offshore construction, oil and gas pipelines and water systems.”75 EU sanctions against the company will be lifted after eight years, whether or not the IAEA concludes that Iran’s nuclear program is peaceful.

Similarly, the IRGC Cooperative Foundation (aka Bonyad Taavon Sepah), the IRGC investment arm, was designated by the U.S. Treasury as a proliferator of weapons of mass destruction, 76 but is slated to be de-listed by the EU after eight years as a result of the JCPOA. It is not listed among the entities that the United States will de-list. The portfolio of IRGC Cooperative Foundation controls more than 20% of the value of the Tehran Stock Exchange.77 Ansar Bank and Mehr Bank, which are both IRGC-linked and were designated by the Treasury for providing financial services to the IRGC, 78 will also be de-listed by the EU (but not by the United States). They will be allowed back onto the SWIFT system and may open branches, conduct transactions, and facilitate financial flows for the IRGC. Other IRGC-linked banks, like Bank Melli, 79 will be de-listed by both the United States and Europe upon Implementation Day and allowed back onto SWIFT.

The Quds Force, the IRGC’s external arm, will also be a beneficiary of sanctions relief. In addition to the EU de-listing, the JCPOA will lift both U.S. and EU sanctions on Iran’s commercial airline Iran Air, on which the Quds Force depends to “dispatch weapons and military personnel to conflict zones worldwide. … The Quds Force will have access to newer, larger, and more efficient planes with which to pursue its strategic objectives.”80 The JCPOA also de-lists several IRGC military research and development facilities. For example, EU sanctions on the Research Center for Explosion and Impact will be lifted after eight years. This entity was designated by the EU for connection to the possible military dimensions of Benoît Faucon & Asa Fitch, “Iran’s Guards Cloud Western Firms’ Entry After Nuclear Deal,” The Wall Street Journal, July 21, 2015. (http://www.wsj.com/articles/irans-guards-cloud-western-firms-entry-after-nuclear-dealIbid.

Department of the Treasury, Press Release, “Fact Sheet: Treasury Designates Iranian Entities Tied to the IRGC and IRISL,” December 21, 2010. (http://www.treasury.gov/press-center/press-releases/Pages/tg1010.aspx) Emanuele Ottolenghi & Saeed Ghasseminejad, “The Nuclear Deal’s Impact on Iran’s Revolutionary Guards,” Foundation for Defense of Democracies, July 17, 2015. (http://www.defenddemocracy.org/media-hit/emanueleottolenghi-the-nuclear-deals-impact-on-irans-revolutionary-guards/ Department of the Treasury, Press Release, “Fact Sheet: Treasury Designates Iranian Entities Tied to the IRGC and IRISL,” December 21, 2010. (http://www.treasury.gov/press-center/press-releases/Pages/tg1010.aspx) Department of the Treasury, Press Release, “Fact Sheet: Designation of Iranian Entities and Individuals for Proliferation Activities and Support for Terrorism,” October 25, 2007. (http://www.treasury.gov/press-center/pressreleases/Pages/hp644.aspx) Emanuele Ottolenghi & Saeed Ghasseminejad, “The Nuclear Deal’s Impact on Iran’s Revolutionary Guards,” Foundation for Defense of Democracies, July 17, 2015. (http://www.defenddemocracy.org/media-hit/emanueleottolenghi-the-nuclear-deals-impact-on-irans-revolutionary-guards/)

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