Parsian Bank CEO: US Treasury Made ‘Mistake’ in Iran Sanctions Designation

The CEO of Iran’s Parsian Bank, which was sanctioned last week by the US Treasury, has described the designation of the bank as a Specially Designated Global Terrorist (SDGT) a “mistake.” The unprecedented move against one of Iran’s leading private sector banks by US authorities has many in Iran’s banking sector worried, especially with regards to the ongoing viability of humanitarian trade.

On October 16, the US Treasury Office of Foreign Assets Control (OFAC) designated twenty Iranian entities as SDGTs for allegedly providing support to Bonyad Taavon Basij, a holding company associated with Iran’s Basij paramilitary force. Several banks and financial institutions were among the targeted entities—the most prominent among them was Parsian Bank, a private sector financial institution.

Parsian was designated "for assisting, sponsoring, or providing financial, material, or technological support for, or financial or other services to or in support of, Andisheh Mehvaran Investment Company", itself one of several intermediaries ultimately linked back to Bonyad Taavon Basij.

The designation of Parsian seemed to confirm growing concerns that the Trump administration intends to target Iranian banks previously exempt from secondary sanctions as part of its “maximum pressure” policy on Iran.

According to Parsian Bank’s CEO, Kourosh Parvizian, US authorities have exaggerated a financial link in order to designate the bank. "Parsian was sanctioned because one company, Andisheh Mevaran, bought and sold less than 0.3 percent of the total shares of the bank in the stock market," Parvizian told Bourse & Bazaar, adding that such a small shareholder would have no influence over the management or operations of the bank, meaning that any financial link fell well below OFAC’s typical concern with the “control” of Iranian companies by sanctioned entities.

The number of shares purchased by Andisheh Mehvaran even falls below the normal threshold for regulatory oversight by the Central Bank of Iran. The markets regulator only requires approval for share purchases when real or legal persons are seeking to purchase more than 5 or 10 percent of the firm's total outstanding shares respectively. Parsian Bank has 23.7 billion shares currently outstanding on the Tehran Stock Exchange and counts over 70,000 shareholders.

By either deliberately or negligently misconstruing the bank as beholden to Andisheh Mehvaran, US treasury officials made a “mistake at the expense of over 70,000 shareholders and 6.5 million customers of a bank that handles the transactions behind the majority of imports of foodstuffs, medicine and other humanitarian trade items for the Iranian people," Parvizian said.

The belief that Parsian Bank’s designation is a result of a "mistake" runs counter to the views of many sanctions attorneys, who believe that the Trump administration is trying to send signal of zero-tolerance to Iranians banks and their international partners.

Adam Smith, of law firm Gibson Dunn & Crutcher, told the Wall Street Journal’s Samuel Rubenfeld that the designation of Parsian Bank “will make it more difficult to get financing for humanitarian projects.” Smith, a former Treasury Department official, is “very nervous” about how a more hardline sanctions policy from the Trump administration could impact humanitarian trade.  

Iran's Foreign Minister Javad Zarif seemingly agrees that the designation of Parsian Bank was intended to send a signal, slamming the Trump administration’s “addiction to sanctions” in a tweet. Zarif specifically pointed to the eight degrees of separation between Parsian Bank and Bonyad Taavon Basij, the primary target of the sanctions action.

Iran’s foreign minister also decried the disregard for the ruling earlier this month from the International Court of Justice (ICJ) which called on the US to lift restrictions on humanitarian trade. Likewise, Parvizian stated, “The designation [of Parsian] runs counter to remarks made by senior US officials that foodstuffs and medicines will not be targeted by sanctions.”

In the aftermath of the designation, Parsian Bank has sought to reassure its customers and shareholders. Shortly after Parsian was added to the SDGTs list, the bank released statements both for the general public and for its shareholders declaring that operations will not be significantly impacted since the bank had already halted all dollar-denominated transactions years ago due to sanctions. Parvizian added, "I cannot say the sanctions won't have any effects, but those effects won't be what the US wants.”

But in some respects, the damage has already been done. Parvizian is understandably upset that his customers and shareholders will bear the brunt of the designation. They had put their trust in the bank being spared from the full extent of sanctions since Parsian was among the Iranian banks that enjoyed a favorable position relative to the wider Iranian financial system prior to the JCPOA nuclear deal. "On top of everything, the designation has considerably increased our reputational risk," he said.

Over the years, the bank’s reputation has benefited from its investments in raising managerial standards, including improving anti-money laundering (AML) and combating financing of terrorism (CFT) compliance procedures as well as know your customer (KYC) due diligence. Parvizian believes that US authorities are fully aware of Parsian’s efforts in these areas.

"For instance, during our non-dollar dealings with Iraq, even the Central Bank of Iraq made an inquiry with US authorities about Parsian and they had answered positively," he said.  

That Parsian serves as an example for other banks in compliance standards is especially important given the intense debate that has surrounded Iran’s progress on instituting the reforms required by the Financial Action Task Force (FATF) action plan.

Last Friday, the global standard-setting body extended Iran's deadline to complete its action plan until February, a victory over US and several of its allies have long sought to blacklist the Islamic Republic. The push for financial reforms will be harder to justify if banks like Parsian, which are among the closest to meeting FATF standards in their international operations, will nonetheless be targeted with new US sanctions.   

As relayed by Parvizian, the history of private sector banking in Iran is a story of overcoming adversity. This episode is no different. The bank, which had not been contacted or otherwise informed by the OFAC prior to its designation, is now working through "defined channels" to explore whether it can appeal to have the designation reversed.

Photo Credit: Ibena.ir

Iran Sanctions Policy Increasingly Throttles Free Trade in Ideas

This article was originally published in LobeLog.

In 1988, as legislators were creating the legal basis for the modern use of economic sanctions as a tool of American foreign policy, an important amendment was added to two laws, the Trading With the Enemy Act (TWEA) and the International Emergency Economic Powers Act (IEEPA). The so-called Berman Amendment was devised to withdraw the president’s authority to use sanctions to prohibit the import or export of informational materials, whether directly or indirectly.

Former Representative Howard L. Berman (D-CA), who put forward the amendment, felt that support for access to information was a cornerstone of American foreign policy and should not be undermined by any program of economic sanctions. He stated: “The fact that we disapprove of the government of a particular country ought not to inhibit our dialog with the people who suffer under those governments…. We are strongest and most influential when we embody the freedoms to which others aspire.” In 1994, the provisions in the Berman Amendment were expanded in the Free Trade in Ideas Act in response to the fast changing media landscape. The definition of “informational materials” came to apply “regardless of format or medium of transmission” to “any information or informational materials.”

Since then, American sanctions policy has generally sought to ensure that the targeting of commercial and financial channels does not inhibit the transmission of information. This is perhaps best exemplified in the case of the sanctions regime levied on Iran, the most extensive ever devised. Even in the case of Iran, exemptions exist in the sanctions regulations for activities such as, publishing, journalism, Internet communications, and even organizing events. In addition, more specific permissions are granted in the form of so-called General Licenses issued by the U.S. Treasury’s Office of Foreign Assets Control (OFAC). These include General License D-1, which permits the use of certain software or hardware for personal communications, and General Licence G, which licenses the export or import of educational services to and from Iran. Companies can also apply for specific licenses, which have been awarded to enable publishing, research, and communications activities that may be more commercial in nature, but are still consistent with the notion of “free trade in ideas.”

However, recent developments suggest that American regulators have lost sight of the absolute importance of protecting informational exchange. On October 13, the U.S. Treasury designated Iran’s Islamic Revolutionary Guard Corps (IRGC) as a “Specially Designated Global Terrorist” (SDGT) As several sanctions designations had already blocked the IRGC, the new action made little difference to the prohibitions around commercial and financial dealings with the Guards. But the push for a terrorism designation did have one new and substantive outcome.

In the FAQ note issued to clarify the new designation, OFAC explains that the new designation draws upon a counterterrorism authority, Executive Order 13224, which was not previously applied to the IRGC. As a result of this new authority, the IRGC “may not avail themselves of the so called ‘Berman exemptions’ under the International Emergency Economic Powers Act (IEEPA) relating to personal communication, humanitarian donations, information or informational materials, and travel.”

This represents one of the first instances in an Iran sanctions designation in which OFAC has specifically clarified that the provisions of the Berman Amendment do not apply. Sanctions experts are quick to point out that, despite the new designation, OFAC will necessarily prioritize enforcing possible illicit financial support for the IRGC above the possible transmission of information, which could be as innocuous as usage of social media platforms or distribution of news media. But if the loss of the exemptions is the only substantive legal consequence of the new designation, then the stakes are actually quite high. As sanctions attorney Clif Burns sharply observed in a blog post, “It is now a federal crime for a U.S. person to give a copy of The Bible to anyone in the IRGC.”

American policymakers may not harbor any sympathies for members of the IRGC, but the manner in which the designation affects informational exchange is emblematic of a general failure in US sanctions policy to adequately consider or protect the free trade in ideas with people and entities, even those on the opposing sides of an adversarial relationship. Beyond the nefarious IRGC, members of Iranian civil society also see their access to information increasingly restricted. In August, Iranian apps were removed from both Apple’s App Store and Google Play, causing an uproar among Iranian users. In September, the online-course platform Coursera began to limit a wider range of content for users based in Iranian, citing sanctions regulations.

For now, the likes of Apple, Google, and Coursera are making voluntary decisions to limit their service provision to Iranian users. But the moves were likely spurred by the marked shift in Iran policy between the Obama and Trump administrations. These companies may have changed their policies in accordance with a stricter interpretation of General License D-1, which had previously been used to justify providing Iranian users access to these online platforms. During the Obama years, the “spirit” of OFAC’s enforcement mandate was clear and informational exchange was in fact encouraged within the scope of exemptions and general licenses.

It may seem tenuous to link the IRGC’s new designation with the recent experiences of Iranian Internet users. But in both cases, the overall disposition of American sanctions policy has clearly moved away from the political and ethical intentions behind the Berman Amendment. Even if the impact on information flows is so far inadvertent and primarily reflective of voluntary actions by the companies operating informational platforms, OFAC could absolutely be doing more to provide comfort around the general permissibility of informational exchange.

The consequences of any reduced “trade in ideas” with Iran will be profound. The United States is limiting its means to influence decisionmaking within the IRGC at precisely the same moment that it is undermining the ability of Iranian civil society to freely access informational services. It is unclear how removing the Berman exemptions for the IRGC weakens the organization. If anything, it may make it harder for Iranian and foreign stakeholders to help influence key reforms that would help mitigate the IRGC’s political and economic might.

For example, with the new designation, a non-governmental organization with a so-called U.S. nexus (such as funding that originates in the United States, or U.S. nationals on the staff) can no longer seek to treat IRGC affiliates as subjects in any research or technical-assistance programs. This is particularly concerning as Iran’s government seeks to push forward with a program of economic liberalization and attempts to induce the IRGC to sell assets and reduce their economic footprint. The Rouhani government needs foreign assistance to cleave the IRGC from its role in the economy, but that assistance may now be prohibited if the informational materials in question are ultimately earmarked for IRGC affiliates.

In March of this year, American University in Beirut agreed to pay a penalty of $700,000 to settle claims in a civil suit brought by the United States. The penalty was tied in part to the provision of “material support” to Jihad al-Binaa, an organization linked to the SDGT-designated Hezbollah, on a university database “for the stated purpose of connecting Non-Governmental Organizations (“NGOs”) with students and others interested in assisting them.” The IRGC has a much wider range of affiliated entities than most organizations designated under counterterrorism authorities, including commercial entities, welfare organizations, and educational institutions. If even listing these entities in a database can be seen as tantamount to material support, warranting an enforcement action, then the SDGT designation could significantly reduce the scope for responsible dialogue with the IRGC, whether direct or indirect.

Considering the fundamental role that both government-backed and independent research and technical assistance programs played in fomenting political and economic liberalization in formerly embargoed countries such as the former Soviet Republics, China, and Vietnam, any policy that blocks informational exchange will deprive the United States of some of its best foreign-policy tools.

There are times when blocking economic relations is necessary. But there is no situation in which the total denial of the free trade of ideas is sensible. The Berman Amendment is much more than a quirk of sanctions policy. It is among the most lucid formulations of liberalism in American foreign policy. In devising its approach to Iran, the Trump administration would do well not to lose sight of how the exchange of ideas has long made American foreign policy great.

Photo Credit: Rouzbeh Fouladi