The United States responded to Iran’s recent attacks on Saudi oil facilities with sanctions against the Central Bank of Iran (CBI), the National Development Fund of Iran (NDF), and the private Iranian corporation Etemad Tejarate Pars Co.  The Trump administration called these the “strongest sanctions ever put on a country” and Treasury Secretary Stephen Mnuchin claimed, “We’ve now cut off all source of funds to Iran.”

The Road to the September Sanctions

The latest sanctions represent the culmination of a long economic campaign against Iran, which began when the U.S. withdrew from the Iran nuclear deal in May 2018.  The campaign, described by President Trump as “maximum pressure,” started with the reinstatement of sanctions that had been lifted under the Obama administration.  In the same week that President Trump withdrew from the nuclear deal, his administration designated the head of the CBI, Valiollah Seif, as a global terrorist in an unprecedented step.

The most recent U.S. sanctions on Iran have heightened pressure on other states to isolate Iran.  Sigal Mandelker, Under Secretary for Terrorism and Financial Intelligence, stated, “We are putting governments on notice that they are risking the integrity of their financial systems by continuing to work with the Iranian regime’s arm of terror finance, its Central Bank.”

France, Germany, and the UK have led efforts to salvage the nuclear deal with Iran, despite the U.S.’s withdrawal in May 2018.  However, these states have changed their rhetoric since Iran’s attack on the Saudi oil facilities.  The three countries released a joint announcement on September 26, 2019 that any further action in violation of the nuclear deal on the part of Iran would trigger the deal’s “dispute resolution mechanism.”  Under this mechanism, the EU, China, and Russia would have the option to reimpose economic sanctions on Iran that were formerly lifted.  If taken, this move might spell an end to the nuclear deal.

The Targets of the Latest Sanctions

In recent years, the CBI and NDF have coordinated to provide funds to the Islamic Revolutionary Guards Corps (IRGC)—a terrorist organization—as well as its Qods Force (IRGC-QF) and terrorist proxy, Hizballah.  Meanwhile, Etemad Tejarate Pars Co. has funded Iran’s Ministry of Defense and Armed Forces Logistics (MODAFL) in close coordination with CBI.

The CBI is responsible for providing the large majority of the IRGC-QF’s foreign funding, and CBI officials have collaborated with the officially designated terrorist organization’s leadership.  It was responsible for sending billions in both USD and euros to the IRGS-QD, as well as for coordinating the transfer of funds from other Iranian institutions, including the NDF, to officially designated terrorist organizations.  The NDF’s contributions to the IRGC-QF via the CBI totaled half a billion dollars in 2017 and hundreds of millions of dollars in 2018.

The NDF depends upon the CBI to transfer its funds and works closely with the CBI and Iranian government officials.  The board of trustees for the NDF include the governor of the CBI, Abdolnaser Hemmati, as well as Iranian President Hassan Rouhani.  It is the Board of Trustees that collectively determines the Executive Board at the helm of the organization.

The intended purpose of the NDF under Article 84 of the Fifth Development Plan of the Islamic Republic of Iran, enacted in 2011, is to redistribute national oil and energy revenue towards economic development in the states.  The Treasury Department claims it has erred from this goal in its support of terrorist organizations.

The CBI transferred funds to MODAFL for military purchases via the private Iranian organization Etemad Tejarate Pars Co.  The latter was also designated for sanctions last week.

The Effect and Efficacy of the Sanctions

The sanctions require U.S. persons to block and report to the Treasury Department’s Office of Foreign Assets Control (OFAC) any property these organizations hold within the U.S.  Furthermore, the Treasury Department warns,

In addition, persons that engage in certain transactions with the entities designated today may themselves be exposed to designation.  Furthermore, any foreign financial institution that knowingly facilitates a significant financial transaction or provides significant financial services for entities designated in connection with Iran’s support for international terrorism or any Iranian person on OFAC’s List of Specially Designated Nationals and Blocked Persons could be subject to U.S. correspondent account or payable-through account sanctions.

This means the new sanctions will be effective only if two conditions are met.  First, the designated groups must have significant holdings tied up in the U.S. for there to be an effect. Second, enforcement of these sanctions, meaning the flagging and sanctioning of individuals and even foreign entities cooperating with the designated groups, must be strict.

Since May, the European diplomats from France, Germany, and the UK have objected to the U.S.’s high pressure campaign on the basis that it leaves no bargaining chips aside from further sanctions and further escalates aggression between Iran and the West.  Several leading Member States of the EU remain unconvinced that further heightened sanctions will effect meaningful negotiation or peace in the coming months.