Canceling the Mullahs' Credit Card

How to sever Iran's financial lifeline.

The Society for Worldwide Interbank Financial Telecommunication, better known as SWIFT, is a member-owned cooperative that provides some 10,000 financial institutions worldwide with the means to exchange secure electronic financial messages. If you've ever transferred funds from one bank account to another, you've probably used SWIFT's ubiquitous secure messaging system. But on Feb. 2, the network will receive a different kind of message from the U.S. Congress: Stop facilitating Iranian financial transactions that violate U.S. and European laws.

The Senate Banking Committee is now hard at work on an amendment to new sanctions legislation making its way through Congress known as the Iran Sanctions, Accountability and Human Rights Act, filed by Sen. Robert Menendez (D-N.J.), and Sen. Roger Wicker (R-Miss.). Sen. Mark Kirk (R-Ill.), now recovering from a recent stroke, inspired the amendment, and in the spirit of bipartisanship, his colleagues are carrying it forward.

Based just outside Brussels and overseen by the National Bank of Belgium, SWIFT is the electronic bloodstream of the global financial system. It is composed of the most powerful financial institutions in the world. While other companies can enable secure financial transactions, SWIFT is the clear market leader. In other words, this legislation could have far-reaching ramifications.

Tehran uses SWIFT's technology to conduct business with its trading partners, to sell its oil, to raise capital for its energy sector, to procure energy-related equipment and technology, and to buy and sell other goods and services. Indeed, 19 Iranian banks and 25 Iranian entities reportedly used SWIFT more than 2 million times in 2010. These transactions, the Wall Street Journal noted in a recent editorial, amounted to $35 billion in trade with Europe alone. And they almost certainly violate existing sanctions laws. Cutting off this source of cash could be hugely consequential for those who seek to peaceably halt the Islamic Republic from developing a nuclear weapon.

SWIFT represents one of Tehran's last entry points into the world financial system. In recent years, the United States and the European Union have sanctioned scores of banks, energy companies, and other entities under the control of Iran's Islamic Revolutionary Guard Corps (IRGC) -- which Washington has designated a terrorist organization -- for their connections to nuclear proliferation and terrorist activities. This includes banks like Mellat, Sepah, Saderat, Post, and the Central Bank of Iran.

Opponents of further Iran sanctions will argue that eliminating Iran's access to SWIFT will destroy the Iranian economy. This was a common refrain during the legislative battle over Congress's bid to sanction the Central Bank of Iran, the Treasury Department's designation of 23 IRGC-controlled banks, and the 2010 congressional legislation imposing secondary sanctions on financial institutions that transact with the designated banks.

But even though this concern has not yet come to pass, it should not be dismissed out of hand. Like the Central Bank sanctions that President Barack Obama signed into law in December 2011, any new legislation should allow Iranian banks access to SWIFT to buy food, medicine, and medical devices. It should also allow Iran to sell some of its oil to mitigate the risk of a spike in global oil prices, as long as those sales meet guidelines on oil trades governed by existing U.S. law.

But for all of the warnings against sparking a humanitarian crisis in Iran, it's important to remember that there's an equally strong humanitarian justification for sanctions that deter the most dangerous state sponsor of worldwide terrorism from crossing the nuclear threshold. One can only imagine the humanitarian crises an Iranian nuclear strike could precipitate.

In today's uncertain economy, some Wall Street purists may also find it unsettling that a system so vital to the global financial system could be denied to anyone -- even the violent, repressive regime in Tehran. There are also concerns that SWIFT could become a political football in regional conflicts. China, for example, could use this precedent to agitate for the expulsion of Taiwanese banks from the SWIFT system. U.S. administration officials also may fear the rise of a SWIFT competitor that would cater to the needs of China and other countries and that would place less of a priority on preventing money laundering, nuclear proliferation, or terrorism finance.

These potentially troubling scenarios are not to be taken lightly. But they should not absolve SWIFT of its responsibility to abide by its own bylaws, which require that "its services should not be used to facilitate illegal activities" and that can prohibit access if a "user is subject to sanctions." Moreover, senior executives of the global financial institutions that form the board of SWIFT have the power to expel a user who "has adversely affected … SWIFT's reputation, brand, or goodwill."

That is an authority that SWIFT's executives should exercise if they are concerned about their reputations and that of this important cooperative. Indeed, SWIFT's integrity and reliability have made it the unquestioned market leader over the years. Adhering to its own rules will only serve to reinforce the image of transparency it seeks to project.

SWIFT should also abide by local laws. As a SWIFT spokeswoman told the Wall Street Journal, "all decisions on the legitimacy of financial transactions under applicable regulations … rest with financial institutions and the competent international and national authorities." In the United States and the European Union, the laws are quite clear about the responsibilities of international institutions for dealing with a great many Iranian financial institutions.

The European Central Bank's own guidelines are particularly specific about the grounds for denying access to Target2, the system that settles transactions in euros through the SWIFT gateway. These guidelines bar access to those engaged in "money laundering and the financing of terrorism, proliferation-sensitive nuclear activities and the development of nuclear weapons delivery systems." This language describes the Iranian regime to the letter.

The Obama administration has sought to persuade key legislators that it is better positioned to pursue this matter quietly. After all, it was former Treasury Undersecretary Stuart Levey who adopted this successful approach in persuading scores of financial institutions to terminate their ties to IRGC banks. And there may be some lingering sensitivities between SWIFT and the U.S. government that could complicate Washington's reported reliance on SWIFT for important information.

But if the past few years have taught us anything, it is that sanctions against Iran often don't move forward without congressional pressure and that legislation is useful leverage in persuading international companies, not to mention their governments, to pass and enforce their own sanctions. The Obama administration, for example, initially resisted sanctions against the Iranian Central Bank and various oil-market sanctions, but after legislators passed them into law, the administration embraced them with enthusiasm. The Central Bank sanctions, co-authored by Menendez and Kirk in December 2011, have had an immediate impact. In January, Europe imposed a voluntary embargo on Iranian oil -- another factor that likely led to the Iranian rial dropping by 50 percent, forcing the regime to make painful budget choices.

There are reasonable concerns about SWIFT sanctions. With any luck, the looming congressional debate will address them and result in well-crafted legislation. Like its precedents, whatever new law emerges should be flexible in both design and application by providing the administration with the ability to issue waivers and exceptions.

An even better outcome would be for SWIFT's board of directors to take action themselves. The smartest sanctions, after all, are those that encourage people to change course on their own.



The Monitor, Merrimac, and Middle East

American presidents love to describe the U.S. commitment to Israeli security as "ironclad." But do they mean it?

"Our ironclad commitment -- and I mean ironclad -- to Israel's security has meant the closest military cooperation between our two countries in history."

President Barack Obama has a new favorite adjective to describe the U.S.-Israeli relationship. In an apparent effort to silence any doubters about his administration's commitment to Israel, he invoked the word "ironclad" not once, but twice, in a key passage of his State of the Union address in January. One can almost envision the ayatollahs in Tehran throwing their hands up in surrender when they heard the second "ironclad" -- something like: "Mahmoud, forget about building the A-bomb. Two 'ironclads' -- Obama must be really, really serious!" 

But before the mullahs voluntarily mothball their enrichment plants they might want to ask a few basic questions: What does ironclad mean? How have presidents used the term in the past? And how strong, really, is an "ironclad commitment"?

The word "ironclad," as is commonly known, harkens back to mid-19th century naval shipbuilding, when the vulnerability of wooden ships set off a race among European powers to develop hulls that could survive the more powerful weaponry of the industrial age. The first of these new, well-protected vessels were old boats with metal plates installed on their hulls -- hence "iron clad." The French can claim the first ironclad, but it was the British who excelled in designing fast, powerful versions of these new type of ships, and soon transformed their entire fleet into ironclads.

Still, "ironclad" is forever associated with the United States, home of the first-ever maritime battle between such ships -- the legendary Civil War clash between the Union's Monitor and the Confederacy's Virginia (formerly, the Merrimac). That's the context of the first of 52 presidential uses of the term "ironclad" -- an April 5, 1862, executive order by Abraham Lincoln affirming the secretary of war's commendation for the "skillful and gallant movements" of Union troops and seamen that led to the "destruction of the rebel ironclad steamer Merrimac." (Data used throughout this article is taken from the indispensable American Presidency Project of the University of California at Santa Barbara.)

For the next 67 years, successive presidents always used the term "ironclad" the way Lincoln did -- to refer to a type of ship. But in the early years of the 20th century, when ironclads gave way to dreadnoughts, the term was unmoored from its nautical roots and evolved into a general description of something firm and solid.

In 1929, just weeks after the Great Crash, Herbert Hoover offered the first non-naval presidential usage of the term when he referred to "exact ironclad proposals" for improvements to the judicial system. Except for a fleeting reference by the former naval submariner Jimmy Carter, never again did a president use the word "ironclad" to refer to a boat.

But many chief executives liked the image that "ironclad" conjured up -- of something cast in stone. Harry Truman was proud of his "ironclad" budget," impervious to tinkering. Dwight Eisenhower wanted to negotiate "ironclad" arms control agreements, unbreakable accords that would be "self-enforcing." And Gerald Ford opposed across-the-board bans on abortion "so ironclad you couldn't under any circumstances have [the procedure]."

The notion of an "ironclad commitment" to a foreign nation -- Obama's terminology -- is an even more recent phenomenon, dating back only to Ronald Reagan. Despite the formation of great alliances to combat fascism in Europe and Asia, expansionism on the Korean peninsula, and communism throughout the world, presidents had never before characterized American guarantees to its allies as "ironclad." But once the Great Communicator used the word in 1982, it struck such a powerful chord that it soon became the most common presidential usage of the term. Of the 24 times that presidents have said the word "ironclad" over the last 30 years, nearly half have been in the context of an "ironclad commitment" to a foreign nation.

Even so, only three countries have earned "ironclad" presidential commitments -- a shoo-in for a 'Final Jeopardy' question one of these days.

In second and third place are Afghanistan and Poland, respectively. George W. Bush twice used this formulation regarding the government that replaced the Taliban, promising the Afghans an "ironclad and lasting partnership" in 2003, and an "ironclad commitment to help Afghanistan succeed and prosper" in 2004. And during a visit to Warsaw in 2011, Obama characterized the U.S.-Polish alliance as "cemented through NATO and the ironclad commitment that Article 5 of NATO" -- the mutual defense guarantee -- "represents."

In first place, far outstripping any other country to earn "ironclad" status, is Israel. American presidents have promised "ironclad commitments" to the Jewish state no fewer than seven times. And the usage is bipartisan -- Reagan was the first, employing the term in his landmark Sept. 1, 1982, speech laying out the "Reagan Plan" for Middle East peace, whereas Bill Clinton was the most frequent, promising an "ironclad commitment to Israel's security" four of the eight years of his presidency.

Interestingly, neither Bush -- not the father, who lost votes for being too critical of Israel, and not the son, who championed his status as Israel's best friend -- apparently ever used the phrase in the context of the Jewish state.

For decades, presidents of both parties have issued strong, powerful statements of friendship and support to Israel. The U.S.-Israel alliance is rightly viewed as a vital element of Israel's strategic deterrent. Still, when Israelis hear the term "ironclad commitment," should they take comfort? Not really.

First, with no disrespect to the Afghans or the Poles, Israel doesn't find itself in great company. Presidential promises notwithstanding, most Americans seem so eager to relegate the Afghan experience to history that it is difficult to imagine U.S. economic aid -- let alone a credible U.S. military commitment -- to Afghanistan a decade from now. And even with a rock-solid Article V commitment from NATO, poor Poland's track record of having been swallowed up by the Nazis and then the Soviets, despite Great Power promises, doesn't exactly inspire confidence.

Second, there has always been something conditional -- unspoken but still real -- about America's "ironclad commitment" to Israel's security. When Reagan introduced the phrase, it was designed to make the idea of Israeli withdrawal from the West Bank -- then still described as Palestinian "autonomy" -- more palatable to a Likud-led government. Menachem Begin, Israel's prime minister at the time, was not impressed, famously rejecting the Reagan peace plan with his "banana republic" tirade to then-U.S. ambassador Samuel W. Lewis.

Obama's appeal to an "ironclad commitment" was, like Reagan's, designed to offset a Likud-led government's fears about U.S. policy preferences in Israeli-Palestinian diplomacy. Obama first used the phrase just two days after Prime Minister Benjamin Netanyahu delivered his own version of a "banana republic" rebuke, when he reprimanded the president -- in the Oval Office, no less -- for calling on Israel to accept border negotiations based on the 1967 lines. So far, Obama's turn of phrase does not seem to have been any more successful than Reagan.

And then there are the fundamental drawbacks to the "ironclad" metaphor itself. Shielding boats with sheets of iron or steel was a tactic that worked for a limited time, and then was overtaken by the tide of change. What seemed invincible wasn't. Ironclads were sunk. That's why nobody builds them anymore.

If presidents want to signal the strength of American's commitment to Israel, they should consider scuttling the word "ironclad" and its has-been, so-last-century connotation and instead use timeless terms that emphasize the ends, not the means, of a policy. Three words that are long-time presidential favorites for signaling strength and constancy of purpose are unbreakable (92 presidential uses); unshakable (226); and unwavering (312) -- as in Jimmy Carter's "unbreakable ties of friendship with the Shah of Iran," Harry Truman's paean to the "unshakable unity" of the United Nations, and Lyndon Johnson's "unwavering" commitment to Vietnam. But that's another story.