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Iran: As Sanctions Tighten, US Exports Go... Up?

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But blacklisted banks mean American companies don't get paid.

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MINYANVILLE ORIGINAL An interesting thing has happened as economic sanctions on Iran have grown more restrictive: American exports to the Islamic Republic have gone up.

According to the US Census Bureau, shipments to Iran have reached $199.5 million since the beginning of 2012, an increase of 25% -- almost $50 million -- over the same period last year.

Iran bought $89.2 million worth of wheat and other grains from the US as they became increasingly isolated from the rest of the world and battened down the hatches, stockpiling food (plus $20.3 million worth of dairy products) from companies believed to include Cargill and Bunge Ltd.

And why would Ahmadinejad & Co. turn to the Great Satan for provisions?

"If they need something really quick and reliable, the US is there to do it," an American wheat trader told Reuters back in March. "You can only get so many cargoes out of Brazil or Germany quickly. Russia obviously still has some logistical issues and if they want more, and they want it in April or May at the latest, they're going to have to come to the US."

However, as the sanctions get tighter and tighter, companies exporting to Iran are finding it extremely difficult to get paid. And this, says Kate Gould, Legislative Associate for Middle East Policy with the Friends Committee on National Legislation, a Quaker peace lobby in Washington, DC, is causing a "de-facto humanitarian banking blockade." Though Gould describes the thought of a nuclear armed Iran as "disastrous," she tells me the current US sanctions "have had a broad, indiscriminate impact on the civilian population."

"Mega-corporations will likely continue to be able to export food and agricultural goods to Iran, but it's the ordinary Iranians that don't have mega-resources that are falling through the cracks," she says. "They are bearing the brunt of indiscriminate US sanctions against Iran, by not being able to make the necessary purchases for life-saving medicines and other humanitarian goods."

Indeed, under the Trade Sanctions Reform and Export Enhancement Act of 2000, the export of licensed medicines, medical devices, agricultural commodities, and food are exempt from sanctions. And although Congress makes clear distinctions between restricted transactions and humanitarian ones, the current tangle of sanctions in place have essentially curtailed any interaction with Iran's banks -- causing shortages of drugs used to treat life-threatening conditions including heart disease, multiple sclerosis, and hemophilia.

Thomas Pickering, former US ambassador to the United Nations and Under Secretary of State for Political Affairs, recently expressed his concern, saying, "we issue licenses for sales of food and medicine to Iran, but it is not legal for them to pay for it."

Unintended Consequences

It wasn't supposed to be this way, Cari Stinebower, former counsel and Programs Officer for the US Treasury's Office of Foreign Assets Control, tells me.

"In each of the pieces of legislation that have been passed each year, there's always a carve-out for certain humanitarian exports and an avenue for payments," she says. "I don't know anyone on the Hill who doesn't want to see humanitarian support for people. The problem is, you've got this web of sanctions in the US and EU and very aggressive Department of Justice and bank regulations groups within the US government, so the stomach for processing these transactions is very low in the financial services community."

To mitigate the risk of processing financial transactions through Iran, Stinebower, who is now an international trade lawyer with DC-based firm Crowell & Moring, says banks are required to institute compliance structures so extensive and cumbersome that "most don't see it as worth what little they will make off it."

That risk can come in many different shapes and sizes, one being the possibility of inadvertently receiving payment in hard currency via a blacklisted institution -- something many banks are not willing to do for fear of prosecution, even if the entity on the other end has not been sanctioned and the transaction is legitimate.

"There's plenty of business elsewhere," Stinebower says. "All the background noise, all the additional sanctions that keep being instituted, is scaring the pants off of people."

The Very Flexible Definition of "Humanitarian"

The Treasury Department wouldn't comment on specific companies currently licensed to do business with Iran, writing in an email that, "The Trade Secrets Act and other confidentiality restrictions prevent the Treasury Department from releasing the names of license applicants (without their consent)."

However, in August, Procter & Gamble (NYSE:PG) and Coca-Cola (NYSE:KO) both confirmed to the Wall Street Journal that they export legally to Iran.

Beyond these names, a Freedom of Information Act request filed by the New York Times in 2010 pried loose (after three years) a "heavily redacted" list of companies granted OFAC licenses. The files, wrote reporter Jo Becker, "offer a snapshot -- albeit a piecemeal one -- of a system that at times appears out of sync with its own licensing policies and America's goals abroad."

All this reveals a wildly flexible interpretation of what is deemed humanitarian. Philip Morris (NYSE:MO) received a license to sell cigarettes in Iran. Kraft Foods (NASDAQ:KRFT) was granted a license to sell, among other items, cheese, coffee, cake mix, and mayonnaise to Iran. And the American Pop Corn Company was permitted to export its Jolly Time brand under a humanitarian food-and-medical-aid exception.

"I don't see us supporting the ayatollahs. I don't think the Revolutionary Guard -- that soldiers would take microwaveable popcorn in their backpacks when they go to war," said American Pop Corn food products export manager Henry Lapidos told the Times. "Popcorn has fibers, which are helpful to the digestive system. So it could be considered humanitarian, though it's pushing the envelope."

Unfortunately for companies in the export trade, what is permissible for one may not be for another.

According to the Times' research, an outfit called Hollywood USA Brands was granted permission to export a weight-loss supplement called NatureFit.

"Iranians absolutely love American products," said the company's owner, Rocky Hadzovic.

Be that as it may, in September, the owner of a company called Muscle Gauge Nutrition was fined a total of $84,500 for attempting to ship $93,000 worth of protein powder to Iran.

Confused? So must be anyone trying to export diapers (which are not allowed), though the wood pulp used to make the absorbent padding in them, is. Sending corn to Iran? Perfectly legal. Western red cedar? You'll need additional authorization from the US Department of Commerce.

Empowering Those We Don't Want to Empower

Not surprisingly, the lives of the Iranian power structure continue undisturbed.

"Of course," Gould says, "ordinary Iranians bear the brunt. There's a push to just eviscerate entirely the Iranian economy. Proponents of the sanctions say, 'Yes, that's the point, that's what is necessary to get people to rise up against the regime.' But similar logic was used for Iraq, even though Saddam Hussein never missed a meal."

Gould tells me that "certainly there is a lot that gets through via the black market." However, this only serves to "embolden and empower those whom we do not want to embolden and empower."

We may see articles about grey market Apple (NASDAQ:AAPL) iPhones imported from Dubai being "all the rage in Tehran," she says, "but all that does is solidify control of the Revolutionary Guard Corps, who control larger and larger parts of the legitimate economy as well as much of the black market."

"We shouldn't turn the Iranian people into charity cases," says Gould. "The idea is to make sure they have access to the international market, to get food and medicine on their own."

It's not, says Cari Stinebower, for lack of trying.

"The whole conceit of smart sanctions, post-September 11, is that they're supposed to be fine-tuned enough that you don't hurt the people themselves," she tells me. "In a practical sense, it isn't working that way."

Is There a Solution?

Mahmoud Ahmadinejad's ceaseless Holocaust denials, relentless calls for Israel's destruction, and abject disregard for his own peoples' liberty make it difficult for many to accept the possibility of rapprochement.

On the other hand, there are numerous national security experts that believe the only path to a non-nuclear Iran is a diplomatic one:

"You want to try to make sure and work hard to have an official channel that is really open for dialogue, so that the ambiguity at least can be addressed." --General James Cartwright, Former Vice Chairman of the Joint Chiefs of Staff

"Past talks have suffered[…]because they have been a series of one-night stands, meetings that took place over one day, where one side or the other, either Iran or the United States, had a proposal, and the other side rejected it. They went away and then spent another six to eight months negotiating a resumption." --Ambassador Thomas Pickering, former Under Secretary of State for Political Affairs and former US Ambassador to the United Nations

"The winner of November's election should do what every president since Jimmy Carter has failed to do -- create a direct channel between Washington and Tehran and begin an extended one-on-one negotiation with all issues on the table. The United States should aim for the sustained and substantive talks it has not had in the three decades since American diplomats were taken hostage in Tehran…. To attack a country before we have had our first meaningful discussions since 1979 would be shortsighted, to say the least." --Ambassador Nicholas Burns, professor of the practice of diplomacy and international politics at Harvard's Kennedy School of Government, former US Under Secretary of State for Political Affairs


In the near-term, the financial services sector also has a part to play, maintains Cari Stinebower. A good start, according to Senate Banking Committee Chair Tim Johnson, would be for the government "to make it clear that no US sanctions will be imposed against third-country banks that facilitate OFAC-licensed or exempted humanitarian trade."

"If people really do want to get into relief work in Iran, the administration is not opposed," she says. "If the industry could come up with a clean banking channel, and prove to the US government that it's free of Revolutionary Guard loopholes, I don't think it's out of the realm of possibility that it would be implemented."

In sum, Gould believes there "is a loss of perspective" about what the Iranian sanctions are meant to achieve.

"This logic of punishing civilians as the solution to the nuclear crisis doesn't make any sense," she says. "At the end of the day, there is widespread agreement about what it would take to reach a deal. Diplomacy is the answer."

Let's hope she's right.

Follow Justin Rohrlich on Twitter: @chickenalaking

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