United States Institute of Peace

The Iran Primer

Kerry: Euro Banks Free to Deal with Iran

On May 10, Secretary of State John Kerry said that European businesses “should not use the United States as an excuse” for not dealing with Iran. He arrived in London to meet representatives of European banks and discuss implementation of the nuclear deal and implications for financial transactions. “I think it’s important to have clarity, and the clarity is that European banks, as long as it’s not a designated entity, are absolutely free to open accounts for Iran, trade, exchange money, facilitate a legitimate business agreement, bankroll it, lend money,” he told reporters.
 
On May 12, Kerry met with nine executives from leading European banks. British Foreign Secretary Philip Hammond, secretary of state for business Sajid Javid and trade envoy to Iran, Norman Lamont, also attended the meeting, a British official told Reuters. Deutsche Bank, HSBC, Credit Suisse, Santander, Royal Bank of Scotland, Societe Generale, and Barclays were represented, as well as Standard Chartered and BNP Paribas, which have both been fined billions of dollars for sanctions violations in previous years. After the meeting, Standard Charted and Societe Generale said they had no plans to resume commercial activities with Iran. 
 
Iranian officials have argued that the United States has fallen short of its obligations under the nuclear deal. “The United States needs to do way more. They have to send a message that doing business with Iran will not cost them [European banks],” Foreign Minister Mohammad Javad Zarif told The New Yorker in April. Zarif and Kerry met in New York on April 22 to discuss disagreements related to implementation of the deal. The following is an excerpted transcript of Kerry’s remarks to the press in London. 
 
Roundtable Discussion
May 10, 2016
 
QUESTION: Why is it our job as America to be trying to sell people on doing business in Iran given the fact that their financial system is still not up to par and that they’re still doing a whole lot of other concerning activities?
 
SECRETARY KERRY: Well, it’s not our job to sell them on doing business. It’s our job to make clear to them what the rules are, that’s all. I mean, we’re not telling people what to go do, but we are telling people what they’re allowed to do, and there seems to be some confusion about that. So it’s very simple.
 
And it’s clarifying that an agreement was reached in which the sanctions affecting European banks, particularly, and businesses were lifted. And some people don’t – aren’t clear about what is lifted, what is not, and that clarity has to be drawn. And the reason you do that is because if you make an agreement, you live up to an agreement. It’s very simple. It’s – Iran has a right to the benefits of the agreement they signed up to, and if people by confusion or misinterpretation or, in some cases, disinformation are being misled, it’s appropriate for us to try to clarify that.
 
With respect to the banks overall, et cetera, we’re simply responding to inquiries that people have about what the limits are of their – of the permissiveness within which they’re operating. And since we were the principal designer, implementer, enforcer of the sanctions themselves, and obviously a key player in the negotiations, I think it’s important for us to answer those inquiries. Any legitimate business that has a question, we have an obligation to answer.
 
QUESTION: And in terms of the possibility that this could change dramatically in a different direction?
 
SECRETARY KERRY: Well, I don’t believe that. I just don’t believe that a new president regardless – is going to suddenly say, “Let’s go have a war in the Middle East,” and give up the restraint on a nuclear weapon. And I just don’t think the advisors to that president or anybody are going to suggest that that makes sense.
 
QUESTION: When you talk to bankers, do they raise those kinds of concerns with you?
 
SECRETARY KERRY: No. They have concerns about our secondary sanctions and the alternative – we do maintain sanctions on certain designated entities as a result of arms activities or missile activities, but there really shouldn’t be any confusion – and in some ways, there is. But it’s not a – it’s just not as complicated as some people make it. There are a clear list of designees who have been lifted and there’s no game being played here. There’s a – Iran gave up its nuclear weapon chase, so to speak.
 
QUESTION: In the oil and gas sectors, for example, like the IRGC, it can be hard to – in some instances to see where the ties sort of end and begin –
 
SECRETARY KERRY: I don’t think it’s that hard.
 
QUESTION: -- based on what’s spelled out in the U.S. sanctions.
 
SECRETARY KERRY: I really don’t think it’s that hard, and that’s what – it’s OFAC’s job, obviously, to clarify to people. And OFAC has said if you have a question, come to us and they’ll clarify it. So it really shouldn’t be complicated. It’s not a – it’s not incomprehensible or undefinable. It’s clearly defined and when people have a question, we are available to answer those questions. And we’ve encouraged people, if you have a question, come to us.
 
QUESTION: It’s just since almost every transaction, especially in banking, it touches the U.S. financial system at least briefly, and you’ve maintained this restriction on the U.S. dollar. What are you telling these banks about how they can do those kinds of transactions and not –
 
SECRETARY KERRY: Banks in Europe are allowed to open accounts for Iran, banks in Europe are allowed to do business, banks in Europe can fund programs, lend money. That’s absolutely open for business as long as it’s not a designated entity, period, very simple. And they shouldn’t use us as an excuse. Businesses should not use the United States as an excuse if they don’t want to do business or if they don’t see a good business deal. They shouldn’t say, “Oh, we can’t do it because the United States.” That’s just not fair. That’s not accurate. And we sometimes get used as an excuse in this process. So I think it’s important to have clarity, and the clarity is that European banks, as long as it’s not a designated entity, are absolutely free to open accounts for Iran, trade, exchange money, facilitate a legitimate business agreement, bankroll it, lend money – all of those things are absolutely open, permissible.
 
Remarks by Secretary of State John Kerry and Foreign Secretary Hammond
May 12, 2016
 
SECRETARY KERRY:  I want to thank Secretary Hammond for hosting key bankers from around Europe in order to answer questions that the banking community has had regarding the impact of lifting of sanctions and questions that they have about what this really means and how does it really work.  And in some cases there have been – there has been a reluctance in some places to take risk or to – what they think is a risk.
 
So what we’ve been trying to do here today with the representation of the Treasury Department and our officials who are dealing with this is clarify and put to rest misinterpretations or mere rumors about how this is applied.  We want to make it clear that legitimate business, which is clear under the definition of the agreement, is available to banks.  As long as they do their normal due diligence and know who they’re dealing with, they’re not going to be held to some undefined and inappropriate standard here.
 
We also will be continuing to hold Iran accountable to live to up to the agreements and the standards that Iran needs to meet.  So this was really an effort to listen to the bankers, to hear from them what their perceptions are, the hurdles that they see to moving, and to be able to address those as directly as we can and define for them our interpretation of the law and of the standards so that there’s a clarity going forward and, hopefully, an ability to be able to do those things that are meant to be done under the agreement.
 
Both sides have an obligation to live up to this agreement and both sides need to get the benefit of the agreement.  Our benefit is that we see a nuclear program that is now visible, open to inspection, understandable, restrained, and living up to the standards of the IAEA.  And they have an expectation that the sanctions that were supposed to be lifted are in fact lifted and that the implementation is appropriate.  That’s the agreement and that’s what we’re trying to do.
 
FOREIGN SECRETARY HAMMOND:  What we’re trying to address is a gap between the undoubted political commitment of the United States to make this agreement work in practice, to allow Iran to access the world’s trade system and the world’s financial system, and the reality of what the European banks are finding in practice.  We’re trying to bridge that gap; we’re trying to understand where those disconnects are between the political intention and the banking world reality and work out together how we can bridge them to allow these European and global banks to support European businesses in resuming normal trade and investment patterns with Iran.  That’s what all of us want in order to deliver the dividend from the JCPOA that Iran expects and deserves. 
 
And if we’re going to achieve our strategic objective, which is drawing Iran back into the international community – normalizing relations, including trade and investment relations with Iran – we have to succeed in this.  It’s – essentially it’s the first hurdle in the race, and if we fall at this one, then we’ll never get the chance to demonstrate all the other benefits that can flow from this agreement that we spent so much time and energy delivering last year. 
 

Lawmakers Petition Rouhani on Nuclear Deal

On May 9, more than a third of the Members in Iran’s outgoing Parliament submitted a petition to President Hassan Rouhani demanding that the government end compliance with the nuclear deal. The petition called for resumption of research and development of Tehran’s nuclear program if the United States fails to fulfill its obligations. “America denies its lack of commitment and in practice sabotages Iran by blocking the lifting of sanctions, banking exchanges, and the returning of assets,” the letter said. It was signed by 103 Members of Parliament. 
 
 
The petition specifically cited Central Bank chief Valiollah Seif, who recently said that that the United States and its partners in diplomacy have not done enough to implement the accord. During a visit to Washington in April, Seif said that “almost nothing” has happened four months after the deal went into effect. Foreign Minister Mohammad Javad Zarif has also urged the United States to be more proactive. “The United States needs to do way more. They have to send a message that doing business with Iran will not cost them [European banks],” he told The New Yorker in April.
 
Ebrahim Karkhaneh, a conservative lawmaker who is critical of the nuclear deal, organized the petition. With a new parliament due to convene on May 27, hardliners in the outgoing Majlis are running out of time to challenge Rouhani’s foreign policy. Rouhani’s supporters— a loose group of reformists, centrists and moderate conservatives —will outnumber hardliners in the new Parliament, which will convene on May 27. The following is an excerpted translation of the letter.
 
“While the Islamic Republic of Iran has implemented all of its commitments, the agreement according to sections 7, 13, and 14 of Annex 5 of the JCPOA [Joint Comprehensive Plan of Action] was that the opposing side would implement its commitments in sections 16 and 17 of the same annex on Implementation Day. The sabotage and prevention of the implementation of the JCPOA by the Americans over the past three months is explicitly contrary to section 3 of the “The Proportional and Reciprocal Plan of Action for the Implementation of the Joint Comprehensive Plan of Action.”
 
“America denies its lack of commitment and in practice sabotages Iran by blocking the lifting of sanctions, banking exchanges, and the returning of assets. According to the governor of the Central Bank – because of the Americans’ sabotage – there have scarcely been any economic gains for the people of Iran. The current situation requires urgent deadlines to be demanded of the Americans. The continuation of sabotage, the non-normalization of financial transactions and banking, and the failure to return frozen assets of the Islamic Republic of Iran and new sanctions will result in the stopping of voluntary proceedings and the Islamic Republic of Iran will resume all of its activities, like before, under the framework of the NPT.”
 

Katayoun Kishi, a research assistant at the U.S. Institute of Peace, provided the translation.  

 

Report: Iranian Economy at Crossroads

Iran’s political elite is divided on what direction to take Iran’s economy. One camp, consisting of President Hassan Rouhani and his centrist and reformist supporters, prioritize economic growth through greater cooperation with the outside world. “The second force, as represented the hardliners, the ruling clergy and the Islamic Revolutionary Guards Corps (IRGC), would prefer to retain the current economic structure, as these forces maintain a significant stake in the economy,” according to Zubair Iqbal, a scholar at the Middle East Institute. The following are excerpts from his new paper.
 
Iran’s Economy Post-Sanctions
 
The Iranian economy is at a crossroads. Hard choices will have to be made in the wake of changing international conditions and the global oil outlook. The lifting of sanctions following the nuclear agreement has the potential to reinvigorate growth. Steps taken over the past few years have helped contain inflation, reduce some subsidies, and achieve a degree of exchange rate stability with some growth. However, the economy remains weak.
 
Unemployment, especially among the younger generation, remains high. Prospects for the current year look better in light of the easing of financial constraints following the release of large official foreign exchange reserves, higher oil production, and improved market confidence leading to higher investment. Iran’s fiscal position will likely be consolidated further if planned revenue measures, including an increase in VAT and elimination of tax exemptions and a reduction in subsidies,  are implemented, which, combined with higher domestic production and imports, could further reduce inflation.
 
However, the Iranian economy is confronted with a dramatic fall in oil prices. It is compounded by the requirements of time-consuming and expensive investments in reviving output toward its pre-sanctions level of about 4 million barrels per day and rising domestic demand. While an increase in oil output and related investment would help increase GDP, lower export prices will likely further weaken the external position and the budget. With limited prospects, at present, of any meaningful supply restraint agreement among the major oil producers, oil revenues for the next 3-4 years could be up to 30 percent lower than those projected on the assumption of a strong recovery in 2016. Similarly, there would be little accumulation of foreign exchange reserves that have served as a cushion against future uncertainties. In this event, there would be little room for expansionary policies to reinvigorate growth. Thus, downside risks to growth have increased.
 
At the same time, the Iranian economy is saddled with significant structural distortions that continue to constrain its growth outlook. Critical prices, including exchange rate and interest rates, are still out of line; the financial sector is burdened with large nonperforming loans; the private sector faces weak demand and inadequate availability of credit; and government arrears have accumulated while subsidies remain large. Public sector entities control a significant share of the economy and access to bank credit. Governance of the private sector and the business environment is inadequate and nontransparent, undermining private investment. Increased regional instability as well as uncertainty with respect to the implementation of the nuclear agreement further compound downward risks.
 
Domestic Vs. Regional Priorities
 
Broadly, Iran aims to accelerate economic growth under the existing political structure while simultaneously strengthening its regional strategic position. Within the Iranian political elite, however, lies two competing strands. One, as represented by the reformists and the technocratic government of President Hassan Rouhani, prioritize economic growth. As such, they are more inclined to seek a regional strategic balance and greater cooperation with outside powers in order to serve their economic agenda. If the authorities choose to liberalize the economy through widespread economic reforms, and reduce the role of the inefficient public sector, domestic political power would likely shift in their favor.
The second force, as represented the hardliners, the ruling clergy and the Islamic Revolutionary Guards Corps (I.R.G.C.), would prefer to retain the current economic structure, as these forces maintain a significant stake in the economy. …

Iran’s Policy Options
 
Iranian authorities could pursue three broad strategies in the current circumstances: (a) maintain the status quo, (b) implement widespread and coordinated reforms, or (c) implement mild politically-neutral reforms. The third option would ease some constraints on private sector investment and fiscal consolidation in response to lower oil earnings, but leave the economic and political structure broadly unchanged. …

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U.S. Repatriates 73 Artifacts to Iran

In another sign of a gradual diplomatic thaw, the United States has returned 73 ancient artifacts to Iran. The artifacts are all terracotta sealings dating from 224 to 641 A.D., during the Sasanian Empire, the last great Persian Empire before the advent of Islam.
 
Bullae are small clay or bitumen sealings, and were commonly attached to documents or parcels to show identity of the author or owner of merchandise, and were likely used to seal goods like ceramic vessels or even doors in houses during the period between the third and seventh centuries.  
 
U.S. law enforcement seized the artifacts, which had been illegally imported, in 2005. In March 2016, the U.S. Mission to the United Nations handed the items over to the Iran’s Mission in New York, during Nowruz (Persian New Year). They were then turned over to the National Museum in Tehran.
 
“U.S. experts assessed the artifacts were of Iranian origin and of significant cultural value to Iran,” said an official familiar with the repatriation. “There were no negotiations between the two countries about the items, and it is unclear if Iran was aware that the items were in U.S. possession.” 
 
This is not the first time that the United States has returned items of cultural heritage to Iran. In September 2013, the United States repatriated a silver griffin-shaped cup from the seventh-century B.C. to Iran. It had been seized in 2003 from an art dealer attempting to smuggle it into the United States. The State Department said that the return of that item reflected “the strong respect the United States has for the Iranian people.” 
 

US Report: Iran's Religious Freedom Abuses

Religious freedom conditions continued to deteriorate in Iran in 2015 and 2016, according to a new report by the U.S. Commission on International Religious Freedom. President Hassan Rouhani has fallen short on his campaign promises to improve the status religious minorities. The commission found that government actions “continued to result in physical attacks, harassment, detention, arrests, and imprisonment.”
 
The commission also recommended Iran’s re-designation as a “country of particular concern,” or CPC. The State Department first designated Iran as a CPC on religious freedom in 1999. The United States has imposed restrictions on imports and exports to Iran under the International Religious Freedom Act since 2011. The following are excerpts from the report, followed by a link to the full text.

Key Findings
 
Religious freedom conditions continued to deteriorate over the past year, particularly for religious minorities, especially Baha’is, Christian converts, and Sunni Muslims. Sufi Muslims and dissenting Shi’a Muslims also faced harassment, arrests, and imprisonment. Since President Hassan Rouhani was elected president in 2013, the number of individuals from religious minority communities who are in prison because of their beliefs has increased, despite the government releasing some prisoners during the reporting period, including Iranian-American pastor Saeed Abedini. The government of Iran continues to engage in systematic, ongoing, and egregious violations of religious freedom, including prolonged detention, torture, and executions based primarily or entirely upon the religion of the accused. While Iran’s clerical establishment continued to express anti-Semitic sentiments, the level of anti-Semitic rhetoric from government officials has diminished in recent years. …
 
Religious Freedom Conditions 2015–2016

Muslims
 
Over the past few years, the Iranian government has imposed harsh prison sentences on prominent reformers from the Shi’a majority community. Authorities charged many of these reformers with “insulting Islam,” criticizing the Islamic Republic, and publishing materials that allegedly deviate from Islamic standards. Dissident Shi’a cleric Ayatollah Mohammad Kazemeni Boroujerdi continued to serve an 11-year prison sentence, and the government has banned him from practicing his clerical duties and confiscated his home and belongings. He has suffered physical and mental abuse while in prison. According to human rights groups and the United Nations, some 150 Sunni Muslims are in prison on charges related to their beliefs and religious activities. In October 2015, an Iranian court sentenced to death a Sunni cleric, Shahram Ahadi, who was arrested in 2009 on unfounded security related charges. More than 30 Sunnis are on death row after having been convicted of “enmity against God” in unfair judicial proceedings. Leaders from the Sunni community have been unable to build a mosque in Tehran and have reported widespread abuses and restrictions on their religious practice, including detentions and harassment of clerics and bans on Sunni teachings in public schools. Additionally, Iranian authorities have destroyed Sunni religious literature and mosques in eastern Iran.
 
Iran’s government also continued to harass and arrest members of the Sufi Muslim community, including prominent leaders from the Nematollahi Gonabadi Order, while increasing restrictions on places of worship and destroying Sufi prayer centers and hussainiyas (meeting halls). Over the past year, authorities have detained dozens of Sufis, sentencing many to imprisonment, fines, and floggings. In June 2015, a criminal court sentenced Abbas Salehian to 74 lashes for “committing a haram act through advocating Gonabadi Dervish beliefs.” In May 2014, approximately 35 Sufis were convicted on trumped-up charges related to their religious activities and given sentences ranging from three months to four years in prison. Another 10 Sufi activists were either serving prison terms or had cases pending against them. Iranian state television regularly airs programs demonizing Sufism.
 
Baha’is
 
The Baha’i community, the largest non-Muslim religious minority in Iran, long has been subject to particularly severe religious freedom violations. The government views Baha’is, who number at least 300,000, as “heretics” and consequently they face repression on the grounds of apostasy. Since 1979, authorities have killed or executed more than 200 Baha’i leaders, and more than 10,000 have been dismissed from government and university jobs. Although the Iranian government maintains publicly that Baha’is are free to attend university, the de facto policy of preventing Baha’is from obtaining higher education remains in effect. Over the past 10 years, approximately 850 Baha’is have been arbitrarily arrested.
 
As of February 2016, at least 80 Baha’is were being held in prison solely because of their religious beliefs. These include seven Baha’i leaders – Fariba Kamalabadi, Jamaloddin Khanjani, Afif Naemi, Saeid Rezaie, Mahvash Sabet, Behrouz Tavakkoli, and Vahid Tizfahm – as well as Baha’i educators and administrators affiliated with the Baha’i Institute for Higher Education, some of whom were released during the reporting period. During the past year, dozens of Baha’is were arrested throughout the country. In January 2016, in the Golestan province, 24 Baha’is were sentenced to prison terms ranging from six to 11 years after being convicted for membership in the Baha’i community and engaging in religious activities. …
 
Christians
 
Over the past year, there were numerous incidents of Iranian authorities raiding church services, threatening church members, and arresting and imprisoning worshipers and church leaders, particularly Evangelical Christian converts. Since 2010, authorities arbitrarily arrested and detained more than 550 Christians throughout the country. As of February 2016, approximately 90 Christians were either in prison, detained, or awaiting trial because of their religious beliefs and activities.
 
Some Christians were released from jail during the year, including two long-serving prisoners of conscience, Saeed Abedini (released in January 2016) and Farshid Fathi (released in December 2015). Abedini’s early release was part of a prisoner swap between the United States and Iran. He had been serving an eightyear prison sentence for “threatening the national security of Iran” for his activity in the Christian house church movement. Fathi had been serving an extended prison term on trumped-up security charges related to his religious activities. …
 
Jews and Zoroastrians
 
Although not as pronounced as in previous years, the government continued to propagate anti-Semitism and target members of the Jewish community on the basis of real or perceived “ties to Israel.” In 2015, high-level clerics continued to make anti-Semitic remarks in mosques. Numerous programs broadcast on state-run television advance anti-Semitic messages. Official discrimination against Jews continues to be pervasive, fostering a threatening atmosphere for the Jewish community. In a positive development, the government no longer requires Jewish students to attend classes on the Sabbath. In recent years, members of the Zoroastrian community have come under increasing repression and discrimination. At least four Zoroastrians were convicted in 2011 for propaganda of their faith, blasphemy, and other trumped-up charges remain in prison.
 
Human Rights Defenders, Journalists, and Others
 
Iranian authorities regularly detain and harass journalists, bloggers, and human rights defenders who say or write anything critical of the Islamic revolution or the Iranian government. Over the past couple of years, a number of human rights lawyers who defended Baha’is and Christians in court were imprisoned or fled the country. In addition, in August 2015, a revolutionary court sentenced to death Mohammad Ali Taheri, a university professor and founder of a spiritual movement (Erfan Halgheh or Spiritual Circle), for the capital crime of “corruption on earth.” In October 2011, Taheri had been convicted and sentenced to five years in prison and 74 lashes for “insulting religious sanctities” for publishing several books on spirituality; reportedly, he has been held in solitary confinement since his conviction. Some of Taheri’s followers also have been convicted on similar charges and sentenced to prison terms ranging from one to five years. In December, the Iranian Supreme Court overturned Taheri’s death sentence. At the end of the reporting period, he and some of his followers remained in prison.
 

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