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The Trump administration, a few days before imposing sanctions on the heart of the Iranian economy, is faced with a crucial decision for its pressure campaign: how difficult it is to push the European allies to cut the country to the system global banking.
Treasury Secretary Steven Mnuchin said the US could not force Belgium-based financial messaging service Swift to disconnect Iranian banks from the global banking network. The secretary told foreign governments that the United States could take a less confrontational approach, according to people who were informed about it by government officials.
But other powerful voices close to the president, including national security adviser John Bolton, are ready to punish Swift if he ignores Washington's call to disconnect Iranian institutions, they say. The National Security Council did not respond to a request for comment regarding Mr. Bolton's position and the decision-making process of the administration.
US Treasury Secretary Steven Mnuchin showed Sunday that the United States may not attempt to force the Swift banking network to completely disconnect from Iran.
Photo:
ronen zvulun / Reuters
Addressing the Wall Street Journal during a visit to the Middle East this week, Mnuchin suggested keeping some Iranian banks on Swift, while allowing room for maneuver for a final decision including providing for Forced disconnection of Swift.
"Our goal is to make sure that financial institutions do not deal with sanctioned transactions," he said.
His office "has very specific discussions with Swift," he said. "I will use all the tools in my power to ensure that sanctioned transactions do not occur." Humanitarian transactions will be allowed, he said.
Swift, a cooperative used by most of the world's banks for cross-border credit transfers, said it wanted to seek clarification from governments on both sides of the Atlantic. "Our mission remains to be a global and neutral service provider for the financial sector," he said.
The problem embodies Washington's dilemma of trying to convince allies and other nations to enforce a pressure campaign that many oppose. This decision is one of many uncertainties about the sanctions regime that could escalate tensions already with the Allies.
In May, President Trump withdrew the United States from a multinational agreement that lifted sanctions in exchange for restricting Iran's nuclear activity. While the United States has started reimposing sanctions, its European partners in the nuclear pact are looking for ways to get around them.
A first round of US sanctions in August targeted Iran's foreign exchange trade, the auto industry and other sectors; a second round to take effect in early November targets Iran's economic lifeline, including its energy sector and financial system.
In August, the European Union banned its companies from complying with the new sanctions imposed by the United States on Iran, although this measure seems difficult to apply.
Some members of the Treasury Department fear that forcing Europe by threatening sanctions against Swift – which would risk penalizing members of its board of directors – could undermine its wider efforts to get Europe to support its strategy for Iran. Two members of Swift's board of directors represent US institutions, Citibank and
JP Morgan
.
Those worried about Swift targeting say that Iranian revenues will already be reduced if the Treasury can ensure that banks do not handle prohibited transactions with Iran, even if Swift is not not out of reach. Some officials also believe that the ability to monitor Swift's activity is of interest to intelligence.
Defenders of Iran's separation from Swift are skeptical of the authorities' ability to detect sanctioned flows, calling into question Europe's banking supervision and talking about multi-billion dollar escape and punishment schemes under the sanctions regime of the Obama administration.
Federal officials plan to impose fines on one of Turkey's largest banks,
Halkbank
,
for his role in the record violation operations. Some of them have been disguised as humanitarian traders, prosecutors said.
At the same time, Europe claims that the continent's banks are largely reluctant to interact with Iranian banks and suggests that the United States may be creating alternative messaging systems.
The EU is considering setting up a special government institution that could protect EU companies from US sanctions.
The quick question is not the only Iranian to the impact of the sanctions on the allies. Some European diplomats said they lacked clarity on key questions such as: Will Washington give European companies and banks the assurance that they will not be targeted if they are not? 39 engage in humanitarian trade, sale of medicines and food products?
There are also doubts about the possible exemptions granted to companies for work to make Iran's nuclear facilities less dangerous.
Diplomats said this uncertainty further erodes confidence, making European capitals more reluctant to collaborate with Washington on other Iran-related goals.
"We are still waiting for the answers from the United States on all these issues," said a top European diplomat earlier this week. "Zero clarity."
The Trump administration has legal leeway to make this decision. The president may waive sanctions against Swift and the government determines which Iranian banks are designated for Swift disconnection. At present, only the Central Bank of Iran and a handful of other banks are designated.
But there are dozens of others on a special list that the Treasury could blacklist.
"It's a miracle," said a senior government official as to whether the Treasury would reapply the Obama era sanctions against the list of hundreds of banks and other Iranian companies.
The Treasury Department has taken a step forward in looking for an alternative solution to force Swift to act last week. He sanctioned several Iranian banks which, he said, would belong to a vast network of companies owned or managed by an elite unit of the Revolutionary Guards Corps Revolutionary US and sanctioned by the EU .
This strategy could allow the United States to sanction many Iranian banks, threatening to penalize any foreign bank that does business with them. Over the past year, the Treasury Department has been trying to show how the IRGC is integrated into the Iranian economy, including its banking sector.
The Iranian mission to the United Nations has not responded to a request for comment.
The Treasury Department has already linked the Parsian Bank, which has reported carrying out humanitarian transactions under the Obama sanctions regime, at the IRGC unit. The bank said on its website that it had made agreements with European and Asian countries to keep its cross-border connections open despite new sanctions.
Write to Ian Talley at [email protected] and Laurence Norman at [email protected]
