- The Washington Times - Wednesday, February 24, 2010

The Obama administration, having failed in its first year to reach an entente with Iran, will toughen U.S. policy by applying unprecedented pressures on that regime as it continues its quest to become a nuclear power.

Nonetheless, President Obama for now is ruling out an aerial bombing campaign against Iranian nuclear facilities and is choosing instead to further isolate Iran from the international financial system.

The first target likely will be Iran’s banks. Building on steps taken during the second term of the George W. Bush presidency, the Treasury Department likely will designate Iran’s central bank as a terrorist-supporting entity.

In 2005, Mr. Bush issued Executive Order 13382 to bar financial entities involved in nuclear proliferation from the U.S. financial and commercial system. The Treasury Department has designated 15 Iranian banks since 2007, a Treasury spokesman said Tuesday.

“The Iranian central bank is implicated in promoting the regime’s proliferation efforts and terrorist activities throughout the region. Given the sensitive nature of this institution’s activities, it would be a logical target of the Treasury Department designation efforts,” said Avi Jorisch, a former policy adviser on terrorist financing at the Treasury Department and the author of “Tainted Money.”

However, White House spokesman Tommy Vietor said that “even as we move toward the pressure track, the door to engagement is still open.”

Other prospects include trying to persuade European Union banks to bar transactions with Iran in euros.

Hossein Askari, a professor of international business and international affairs at George Washington University and specialist in Iran’s financial sector who has advised the Treasury Department, said the ultimate goal of this approach would be financial isolation.

“My view is that, ultimately, you’d like to be able to cut off all Iranian banks from the world financial system,” Mr. Askari said. “Once you do that, it means they cannot receive payments. If you manage to cut everyone off, when Iran sells something, they have to go to the entity to collect the money in a suitcase.”

This renewed focus on Iran coincides with the intelligence community’s work on revising the 2007 National Intelligence Estimate. On Sunday, Gen. David H. Petraeus, commander of the U.S. Central Command, which covers Iraq, Iran and Afghanistan, confirmed that the intelligence community was working on a new estimate for Iran.

The 2007 estimate drew protests from European allies and Republicans in Congress because the unclassified summary asserted that Iran had halted work on designing a warhead. Last week, the International Atomic Energy Agency (IAEA) released a report saying Iran had been conducting warhead-design work.

On Tuesday, Iran’s representative to the IAEA offered to ship out 1.2 tons of low-enriched uranium, but only if nuclear fuel rods were delivered inside the country, a condition the United States and the four other permanent members of the U.N. Security Council likely will reject.

Last week, Gen. Raymond Odierno, the commander of coalition forces in Iraq, called out Iran’s role in Iraq and said that the country was behind a plan to exclude some Sunni Arab politicians from running for elected office.

During its first year, the Obama administration was reluctant to publicize Iran’s negative role in Iraq.

The question for now is whether the international community, China in particular, will go along with new pressures on Iran’s economy.

The United States will need China at the very least to support a new Security Council resolution against Iran. China also could undermine financial sanctions with Iran by allowing its banks to write notes of credit for Iranian transactions.

Earlier this month, Vice President Joseph R. Biden Jr. said he was optimistic that China would sign on to new U.N. sanctions against Iran.

Israel announced this week that it would send the governor of the country’s central bank, Stanley Fischer, to meet with his counterparts in China to discuss financial pressures.

There may be some grounds to think that China will be changing its long-standing policy of neutrality on the Iranian nuclear program.

A little-noticed statement released Thursday from a coalition of 32 central banks, including China’s, promises to crack down on Iran’s banks if the Islamic republic does not meet the international standards of the global financial industry on money laundering and terrorism financing.

Patrick Clawson, the deputy director for research at the Washington Institute for Near East Policy, said the statement from the Financial Action Task Force (FATF) was significant.

“This is the harshest statement FATF has ever issued,” he said. “The Chinese signed on to this statement that unless Iran acts by June, there will be further restrictions on Iranian banks. That is a big deal, because the Chinese financial system is in a position to undercut any financial restrictions the U.S. places on Iran.”

Jonathan Schanzer, a former Treasury Department intelligence analyst and vice president for research at the Foundation for Defense of Democracies, warned that the task force is not a regulatory body.

“Even though the task force has put them on notice, whether the other countries, including China, will follow their word and do something about this is another matter, and it remains to be seen. The jury is out.”

On Friday, the Treasury Department issued a statement saying it welcomed “FATF’s renewed call today for its members and all jurisdictions to apply effective counter-measures to protect their financial sectors from the money laundering and terrorist-financing risks emanating from Iran.”

The increased pressures on Iran’s financial sector also may open some space for Iran’s opposition movement, which has opposed broad-based sanctions that would affect the population at large, but has supported targeted political sanctions.

Earlier this month, U.S. National Security Adviser James L. Jones said the sanctions, in combination with the democratic opposition, could topple the regime.

“We’re about to add to that regime’s difficulties by engineering, participating in very tough sanctions, which we support, not mild sanctions,” he said on “Fox News Sunday.” “These are very tough sanctions. And the combination of those things could well trigger regime change. It’s possible.”

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