Sanctions and the Iran Deal

Jeffrey Lewis 0:04

You are listening to a joint edition of the Arms Control Wonk podcast, the leading podcast on arms control disarmament and nonproliferation, and the Sanction Law podcast, the only podcast dedicated to economic sanctions. It's a joint comprehensive podcast of action. I am Jeffrey Lewis, founding publisher of the Arms Control Wonk blog and a scholar at the Middlebury Institute of International Studies at Monterey in California.

Aaron Stein 0:29

And I'm Aaron Stein. I'm an associate fellow at the Royal United Services Institute in London, a doctoral fellow at the Geneva Center for Security Policy, and a non-resident fellow at the Rafiq Hariri Center with the Atlantic Council in Washington, D.C.

Sam Cutler 0:45

And I am Sam Cutler. I am the editor-in-chief of Sanction Law and the policy advisor at Ferrari and Associates.

Aaron 0:56

So guys, my windows are open again, so you may get taken again to the Harley-Davidson Club of Geneva, Switzerland.

Sam 1:08

Are they that big in Geneva?

Aaron 1:10

You wouldn't think so, but every time I get on the podcast... Parked outside of Aaron's house.

Sam 1:14

Parked outside of my house. It's a heat wave. Hey, you never know. I had a former landlord who used to ride motorcycles with the King of Jordan. Because apparently you need a special permit to ride motorcycles in Jordan. And as an American, he received one of like 10 or something like that. Oh, wow. That's the story I was told.

Jeffrey 1:33

Where did they ride? I mean, I've been to Jordan. I mean, it's... Beautiful, but I guess you just ride around, huh?

Aaron 1:42

I guess. Yeah, probably not as nice as where you're living, Jeffrey, down Highway 1.

Jeffrey 1:47

No place is as lovely as this. This is the most beautiful place on Earth. I hate you all. I'm in D.C. I've got a view of the ocean from my office.

Aaron 1:56

Yeah, we're just going to stop talking now because you've beaten us all. Yeah, it's nice.

Jeffrey 2:02

You want to talk about sanctions?

Aaron 2:03

We've got to talk about sanctions. It's the other half of the Iran deal we didn't talk about last week. You don't sound excited about it.

Jeffrey 2:10

Well, I love sanctions, so. Well, that's why we have Sam. Sam's excited about sanctions.

Sam 2:15

I'm the only one, other than maybe my boss, Eric, who gets excited about sanctions.

Aaron 2:20

Well, I mean, you spent the whole first day of the Iran deal, you said that, you know, basically describing aspects of it. So you might as well just go into it here on the podcast.

Sam 2:28

True, true. Well, I spent my whole first day discussing one specific aspect of the Iran deal. I thought that with all this – all the complexity and the significant economic ramifications of the deal that I'd be getting questions about that. But instead I spent the whole day answering questions about when Qasem Soleimani gets off the sanctions list.

Off the one of maybe seven other sanctions lists. I mean he's on – he is the most sanctioned man in the world.

Jeffrey 3:01

Wait. So you mean he's not going to accept our invitation to keynote our next conference?

Sam 3:08

No, I don't think so. It would be very difficult to pay an honorarium to Qasem Soleimani.

Aaron 3:17

Could he get on an airplane and fly off to the U.S. and only be turned around at Customs Patrol? I mean, he only goes three places.

Sam 3:24

I don't think he would get turned around.

Jeffrey 3:25

Yeah, we wouldn't let him.

Sam 3:30

I said he was the most sanctioned man in the world. It's very interesting if you look. He looks remarkably like the Dos Equis most interesting man in the world. I mean, like, really, after we're done with this, you should go take a look.

Jeffrey 3:43

Although he surely drinks non-alcoholic beer.

Sam 3:48

Yeah, of course. I don't know. It's Iran. You never know what people do behind closed doors.

Jeffrey 3:54

I was trying to find the Iranian carbon fiber plant, and there was an industrial park I was looking at that was actually not the right industrial park, but there was a big facility, and it had a name painted on the roof. And I asked what the name was, and somebody in Iran said, oh, that's the major producer of non-alcoholic beer.

Yeah.

Aaron 4:19

Yeah.

Jeffrey 4:21

Yeah. I mean, you know, it could have been a, it could have been a carbon fiber plant where they just painted a, you know, the, the, the gradient equivalent of Budweiser across the top. But but I, I don't think so.

Aaron 4:31

Yeah. Well, go ahead.

Jeffrey 4:33

I was going to say, Sam, do you want to explain for listeners who he is and why people were Exercised about the fact that one of the reasons for his travel ban would be lifted.

Sam 4:48

So Qasem Soleimani is the head of the Iranian Revolutionary Guards Corps' Quds Force, which is their external action terrorism arm. And he's responsible for a lot of the Bad things, however you want to put it. Bad things that Iran does abroad, whether it's support for proxies or terrorism or what have you. So anytime his name gets mentioned, there's a whole big stink about it.

I know – I think it was Dexter Filkins did a New Yorker profile of him a few years ago that called him the shadow commander. Though he's not very shadow anymore considering there's all sorts of Facebook and Instagram pictures with him in Iraq. Yeah. Directing Shia militias. But, I mean, people got exercised because his name appears in one part of one of the annexes of people who are getting off the sanctions lists.

There are four attachments to Annex 2, and I'm sorry if I get too technical sometimes. But anyway, with different timelines about when they get off the list. Qasem Soleimani, the IRGC commander, not to be confused with Qasem Soleimani, I forget the exact title of his, but he worked at an Iranian mine and was listed in one Security Council resolution.

So there are two Qasem Soleimani's.

Jeffrey 6:21

Oh, no. That other guy has the worst luck.

Aaron 6:26

He can't get a US entry visa either. No, no. I'm not that guy.

Sam 6:32

It's probably – if he gets mistaken for him in Iran, he probably gets things bought for him all the time. But Qasem Soleimani is getting off the EU slash UN sanctions list in eight years' time because the EU sanctions, which are predicated on UN listings – Or some of them are predicated on UN listings, or since the Security Council resolutions are going away in eight years, then Qasem Soleimani's designation goes away.

What I think a lot of people forgot to point out was that Qasem Soleimani is sanctioned in the EU for other reasons, including terrorism and Syria. Qasem Soleimani's name is going nowhere from the US sanctions list and he is subject as a member of the IRGC and also having a terrorism designation to extraterritorial sanctions or secondary sanctions.

So anyone that does business with him or conducts significant financial transactions with him or anything that provides support to him can be sanctioned. Well, it's so –

Aaron 7:36

It sort of speaks to a larger issue, the status of the IRGC after this deal. There's a lot of talk going on about this $150 billion windfall that Iran is expected to get after the conclusion of this deal. One of the criticisms of the deal is that this money will simply just go in one bank account and then be pushed out the other to fund the IRGC and Mr. Soleimani's activity in Iraq, Syria, Lebanon, you name it.

I mean, what is the status of that $150 billion windfall? I mean, how would you describe it?

Sam 8:14

So there's a common misconception that the term usually used to describe it is Iran's frozen funds. The vast majority of this is not frozen. The better term would be restricted. So in – started in 2012, Congress passed – Sanctions as part of the National Defense Authorization Act, which required countries to reduce their purchases of Iranian oil. Eventually, this made it so that the only countries continuing to import Iranian oil were China, India, Turkey, South Korea, Japan, Taiwan.

Then later in 2012, Congress passed the Iran Threat Reduction in Syria Human Rights Act, Which required countries that were importing Iranian oil to place the payments due to Iran for that oil in special accounts in the importing countries that could only be used for either bilateral trade with Iran or for humanitarian purchases. So because these countries, Iran just simply cannot, even with China, cannot find enough goods to buy, the money simply accumulates in these bank accounts.

Now, there is other funds that are sort of scattered throughout the world, but it's not like it's sitting at the Federal Reserve. In fact, the Treasury Department has to publish how much Frozen Iranian money is in the United States, and as of the last report, it was $2 billion out of that $150 billion, or $100 billion. It's unclear exactly how much they have.

And you can look back to, there was a report in 2012 from Reuters that $22 billion of that, which is probably more by now, is sitting in a Chinese bank called Bank of Kunlun, which is already under sanctions. So I mean if you're comparing sort of the no-deal scenario that's presented as a potential alternative, you have to consider what countries, if there's no deal, could do with this money.

It sort of goes without saying that – Not everyone shares our foreign policy and economic policy goals. We wouldn't need extraterritorial sanctions if everyone just agreed with us. If, for instance, Congress were to detonate some agreement – China in particular might determine that, well, its interests are best served in promoting its economic interests in Iran, either accepting payments from that source, from Kunlun or from other sources.

For services that would normally come out of the Iranian budget or for investment. So at the base level, sort of the, the, the idea that it's either all this money stays abroad if there's no deal or all of it comes back to Iran. If there is a deal that starting point is wrong. That money is already – there's already sort of been reporting some of that money is bled out.

I mean there was a piece a few years ago or a year ago from Reuters that money – Iranian oil proceeds from Kunlun were going to an IRGC front company in China. Turkey engaged in significant sanctions busting through its energy trade with Iran. Massive sanctions busting. Massive sanctions busting. So sort of this – Sort of dual choice, whether it's Iran gets money or it doesn't get money is wrong.

Then, I mean, others can probably speak better than I can about Iran's economic needs, but I don't think the administration's entirely off base in saying that Iran has significant economic needs that don't involve supporting terrorism abroad.

Jeffrey 12:21

Yeah.

Aaron 12:21

Sam, is that

Jeffrey 12:23

Is the nature of the restriction on that money and then the ability to you know, shift money through sanctions busting. Is that what underlies this report, which I think I saw in, Oh, I think it was the LA times arguing that there's what I'm going to guess is a new NIE, although maybe it's a different kind of intelligence product suggesting that most of that money is not going To result in funding for militant groups?

Sam 12:57

Partly. I mean, I think I saw Twitter talk about that. I mean, I think it's the idea that Iran has been suffering from sanctions for a number of years and desperately needs investment that has nothing to do with terrorism. I mean, I think it's also partly that That it's not like these banks, even if, even for instance, Kunlun that's under sanction is necessarily going to want to, I mean, they're, they're not going to just send money straight to Hezbollah or send money straight to the IRGC or even just send money straight back to, to the central bank of Iran.

I think Iran has even said that it tends to keep much of that money abroad for economic reasons. So I don't doubt that Iran will have greater ability to divert money to the IRGC. I think it's probably a good bet that they'll need to do some paying off of the IRGC for keeping quiet about the nuclear agreement.

But the idea that this – This radically shifts the amount of resources that Iran is going to be able to divert to terrorism I don't think is entirely accurate. I mean it also I think should be pointed out that this stuff is three years old. I mean was Iran sort of so much – Are the descriptions of what Iran will be able to do with this money now commensurate with how Iran was described three years ago when it had access to all of its international funds or most of its international funds and was exporting two million barrels a day in oil?

So I think there's definitely some overblown critiques going on on that issue.

Jeffrey 14:48

Wait a second. In Washington? You mean to tell me?

Sam 14:52

I know. It's extremely surprising.

Jeffrey 14:57

I had one more question. Sorry to bump you, Aaron. I mean, which gets to my favorite topic, which is the foolish grandstanding of the United States Congress. I get the sense they want to do something, anything, because they don't want to – Either approve the deal just as it is or people who, I don't know, want to argue in favor of it.

They want to argue that they got something to show that this entire farce of the review act was worth doing. And so the idea I've heard kicked around is some kind of reporting requirement on those assets abroad. Having treasury department report back and say, well, this is how we think that that this is what we think happened to that money.

And this is how we think it's being, being spent. You think that's a, is that a, is that a good idea? Is that a bad but harmless idea? Or is that just a bad idea?

Sam 15:54

I mean, I don't, I don't see it as, as, as particularly onerous. I mean, I think that the treasury department probably has a pretty good handle on, on where these funds are already and how much they are. They've had to engage with many of these financial institutions already on the subject of these accounts just so that the banks that are holding them know what they're allowed to do and what they're not allowed to do.

Also, in some cases, not with the Chinese banks, but with the Indian banks or Japanese banks, they've had to release some of these funds as part of the JPOA. So there's already sort of this relationship between the banks and the Treasury Department. So I don't think it would be particularly difficult or onerous. If that makes Congress sleep better at night, I don't really have a problem with that.

It might even be a good idea.

Jeffrey 16:53

I'm always looking for harmless ways to let them grandstand. They're very sensitive. They don't like to be excluded.

Sam 17:03

They don't like to be in control either.

Jeffrey 17:06

They want to be included in a way in which they bear no responsibility, so it's a very special problem.

Aaron 17:11

You mean like writing sanctions legislation with a presidential waiver and then objecting to the presidential waiver?

Sam 17:16

Yes, but then making it nearly impossible for them to take away the presidential paper. I'm sorry, I'm digressing, but I mean we don't, we don't think very much of the leadership in the United States. No, we don't. I was going to say just sanctions, sanctions legislation in general, because if it doesn't work, then you say, oh well, it's because they didn't, the administration didn't enforce them strong enough, or they didn't go as far as we wanted to go. And if they work, then they take full credit for it. And well, I mean, it was, it was congressional sanctions that got us To the table as if the power of sanctions enforcement flows exclusively from the pen of the staffer that wrote the legislation itself.

Aaron 17:54

Even if it was a staffer who wrote the legislation and not somebody else. But anyway, I'm not going to go there. But, you know, there's also this thing that, you know, the sanctions, it will just be a one-stop, one-shop deal. Like, you know, the money, these assets will be transferred in one go. But my understanding is that, you know, it will not be immediate, but rather, you know, there's a sequence, the way in which the sanctions will be peeled back, you know, in addition to sort of the unfreezing of these assets.

Sam 18:21

Right? Right. Well, I mean just at the very basic level, we need to wait until Iran is IEA certified in compliance with its commitments under the deal. Jeff and Aaron, maybe you guys can tell me how quickly can Iran sort of do all the things that it's required to do under the JPOA? I mean we just had adoption day yesterday or is it today?

I don't know. It's either yesterday or today when the sort of official – Resolution adoption happens. So 90 days, or no, sorry, we had adoption day is 90 days from today. And then after that, we have to wait for implementation day. Oh yeah, we should explain this for listeners.

Jeffrey 19:04

We have finalization day. Right. Which I think is the resolution, the UN Security Council resolution. Which was today.

Aaron 19:18

We're reporting this on Tuesday, July 21st.

Jeffrey 19:22

Right. And then 90 days later, we have adoption day. And then. Yeah, go ahead.

Sam 19:30

So on adoption day, they'll – the US government will publish – I mean the EU will do its own thing. But the administration through the Treasury Department and state departments will publish the waiver – the text of the waivers that will be used to suspend US secondary extraterritorial sanctions on Iran that will only go into legal effect on implementation day over to you.

Jeffrey 19:59

Right. Right. Which is when and there has been some shocking there has been some incorrect descriptions of this. The Iranians have to implement a series of nuclear related measures spelled out the annex. I think not all of them, but the bulk of them. And and I guess it's a judgment call, but I would say the most important ones are.

And that, at least that's the plan. And that then, when the IAEA verifies that Iran has implemented those commitments, then we are, that is implementation day. And then we have, what, is it transition day? Which is eight years from now.

Sam 20:47

Yeah, transition day.

Jeffrey 20:49

Which maybe we'll do a podcast on in about six years from now. And termination day.

Aaron 20:57

Right.

Jeffrey 20:58

Which is 10 years away, so we'll just not think about that at the moment.

Aaron 21:02

Well, that's the famous sunset. Yeah, for some of the measures, although not all of them, right? Right, yeah. Anyways, and then – go ahead, Jeffrey.

Jeffrey 21:12

But, well, what I wanted to say is, I mean, the reason we have all of these complicated names is because the Iranians had insisted that sanctions be lifted immediately. And the U.S. had insisted that they be lifted conditionally. And so by creating this incredibly confusing calendar, it's possible for the U.S. to say, I think correctly, that Iran has to implement commitments before receiving sanctions relief.

And the Iranians can say that as soon as the deal is implemented, they get sanctions relief.

Aaron 21:46

Yeah, it was the grand bargain and the easy bargain.

Jeffrey 21:49

Yeah, so now we have this very confusing terminology, but the value in the confusing terminology is Is, is it serves to make, I think, what is it, basically a bitter pill for the Iranians go down a little bit, a little bit more smoothly? Yeah. And wrapped up in this too is that, you know, the, the associated issues with the IAEA also have to be wrapped up, correct? Right. And so, you know, I don't know how long it's going to take them to do all this stuff, you know, like You know, like for example, just as a very practical example for, to get to implementation day just for the Iraq heavy water research reactor, which is like the simplest thing they have to do paragraphs three, right.

And paragraphs 10. And so like paragraph three is pouring concrete into the Calandria so that it's disabled. Like, and then And paragraph 10 is basically a stopping of production of fuel and fuel pins, uranium pellets, fuel assemblies, and putting those under safeguards. And so like – I don't know. There's a lot of measures like that where in theory you could do them pretty quickly.

But there are a lot of them and the IAEA has to verify them and they probably got to talk them out. And so I think the U.S. estimate had been something like six months ago. And whenever the US said that, Zarif would get very angry and say, why six months? It could be six weeks. But I think that the truth is probably kind of – I don't know.

I would say on the order of months, not years, but not weeks. What do you think, Aaron? Aaron Ross Powell

Aaron 23:42

I think that's right. I mean, the U.S. has been consistent from the beginning that this should take around six months. I've seen somewhere six months, somewhere eight months. And exactly as you said, Zarif always fires back and says, no, we can do this in six weeks. So my estimate is always between six weeks and eight months. And a lot of it will depend on how fast the Iranians decide to do this and then when the agency can get in there and take a look at it.

And then the reporting mechanism works its way out. My guess is that this was discussed at length, both at Lausanne and then in Vienna, and that they've come to a rough estimate, and that's what you see in the JCPOA.

Sam 24:15

You're not helping the sanction law listeners who are trying to plan their reentry into the Iranian market.

Aaron 24:20

I think that's the point, though.

Sam 24:22

Six weeks and eight months.

Aaron 24:24

But isn't that the point? It is, it is. Is that there's so much uncertainty that some of this talk about sanctions relief – And the gold rush is a bit overstated. This idea that companies will feel comfortable to immediately go back into Iran because there is still a lot unclear about the way forward and about how long each thing will take.

Sam 24:47

And it's not just beyond the strict legal nuclear issue and the agreement. There are so many other things that a company that's considering – I mean, import-export is one thing, but especially something like investment that they're going to have to take into account. I mean – You hear a lot of the enthusiasm for going back into Iran coming from these sort of companies that are trying to sell things.

You don't hear a lot of it from the banks that are going to be needed to process these payments. The banks that have been – have suffered probably more than any other entity under sanctions with the billions in dollars in fines that they've paid to various regulators in the United States. They remain spooked about dealing with Iran.

Just because there's a nuclear deal doesn't mean that the Financial Action Task Force anti-money laundering blacklist that Iran is under right now just magically goes away. And just on the anti-money laundering issue more broadly, I mean, they're The AML CFT controls in Iran are in pretty bad shape. Whoa, whoa, whoa. Anti-money laundering, counter-terrorist finance. Thank you.

Jeffrey 26:09

Oh, yeah. And listeners thought verification was hard. By the way, not to interrupt you, but did you see James Atkins open on his last foreign policy piece?

Aaron 26:23

I did. He talked about picking up chicks.

Jeffrey 26:25

Yeah, basically how hard it is to pick up girls when all you can talk about is your job and verification.

Aaron 26:31

Yeah, but now he's a sexy guy on the hill. And happily married. And happily married. Hi, James. Sorry, back to you, Sam.

Jeffrey 26:38

What were you saying?

Sam 26:41

I'm not sure an opening line about sanctions would be much better. Anyway, but the concerns that financial institutions – I want to unfreeze your assets. Anyway, where was I?

Jeffrey 27:01

Lift your travel ban.

Sam 27:10

You can keep going if you want. I'm not stopping you.

Aaron 27:15

Can I jump in with another question too? You mentioned Turkey at the beginning as being this massive sanctions buster. My other podcast deals with Turkey and yes, they were a massive sanctions buster. But one thing that I've always found interesting is that before the big 2012 sanctions came in, they really did try to do business with Iran and they had a terrible time of it.

And so I'm curious if you could just use this as an example for perhaps what US or European companies will face. So beyond the sanctions issue, beyond the banks being hesitant, is that Iran has a terrible reputation as a place to do business.

Sam 27:51

Yeah, and I don't think even the EU companies that had pre-existing operations in Iran sort of Thought this was paradise or that there wasn't issues. I think that there are – doing business in Iran is not like doing business in London. It's a very, very difficult environment to operate in regardless of any restrictions or banking issues or remaining sanctions.

I don't think we've discussed this yet but the entire sanctions Architecture surrounding the Revolutionary Guard Corps remains in place. And I would think that the Treasury Department will be under intense pressure from Congress to enforce that, those remaining sanctions. And as 8 million news articles over the past couple of years have made clear that the Iranian Revolutionary Guard Corps has significant stakes in the Iranian economy, Both sort of overt and under the table.

And any company looking to go back into Iran is going to have to do substantial due diligence to make sure that they're not dealing with the IRGC. There's a bit of a sort of a A little bit of an issue in that the only penalty for an EU company or an Asian company or whoever for dealing with an IRGC that the US can impose is a designation of an asset freeze, cutting off from the US financial system, which is a bit of an extreme penalty that – Will not be swallowed too easily by many foreign governments.

I mean, it all is sort of fact-specific. But one of the arguments that I've been hearing in favor of allowing U.S. companies to get more involved in Iran going forward and also perhaps even something like reinstituting, and I will define this afterwards, but the U-turn license, which before 2008, Foreign financial institutions were allowed to process dollar transactions on behalf of Iranian clients so long as the transaction began and ended with a foreign financial institution.

But if you allow sort of dollar payments – I mean – You can limit it however you want. But to allow dollar payments or US investment gives that jurisdictional hook that US regulators can go in and then issue monetary penalties, which are painful but short of a death penalty. And that's what you saw for these big bank cases.

It wasn't just BNP Paribas, a French company, doing business with an Iranian or a Sudanese bank. It was the fact that they were doing this business through New York and gave sort of – and it's the same – actually the same principle as much as the FIFA indictment.

Jeffrey 30:48

That's exactly what I was going to ask about.

Sam 30:50

Exactly, yeah. So that – These illicit payments were going through the United States or there were U.S. companies involved or U.S. persons involved. And it doesn't take the Department of Justice that much or OFAC that much to find that hook. But if it's there, it is something that maybe the OFAC or the administration should think about, maybe not immediately but going forward.

Jeffrey 31:16

So I'm impressed not just by the FIFA reference but the fact that you only chuckled as I continued to text sanctions pickup lines to you.

Aaron 31:29

Yeah, I noticed that. You only slightly caught your breath.

Jeffrey 31:32

Listeners should know it was a good one. Can I finance some illicit activities? I think it's a good one.

Aaron 31:41

Yeah. There's something in there to be said about snapback. Exactly. There's a snapback. Oh, I was actually talking about the pickup lines. Oh, you're not too clever.

Jeffrey 31:52

You know, it's definitely a seductive topic of conversation, which is the snapback. The problem is it makes it hard for me to listen because I'm sitting here thinking of nothing but sanctions-related pickup lines. But there is actually something about snapback because – so one of the reasons then that If I understand you correctly, I mean there are so many risks associated with transferring money in and out of Iran through the U.S. financial system that you just – Sam, don't expect an enormous gold rush, right?

Sam 32:27

Well, not even just the US. I mean for any – even foreign financial institutions, particularly for EU financial institutions that have been the ones that have been hit the hardest. It will take time and I think what will probably need to happen is major multinational clients who want to deal with Iran will have to go to them and be like, I realize that you have problems dealing with Iran and there are risks involved but we make a lot of money for you.

So you need to do this for us. And this has sort of been, we've seen this Before any of the dealing but with regards to payments for humanitarian, for ag med from US companies where the banks have not wanted to do this but big companies like Cargill have said, well, but you need to because we're Cargill and they will reluctantly do it.

But if you're Joe Schmo trying to sell some medical device to Iran second hand or Not secondhand, but as a middleman, banks are just going to laugh at you and say, well, don't bring this to us. Or don't bring this to us without a direct authorization from OFAC that you can do it. But OFAC doesn't give direct authorizations.

They don't give specific licenses for activities that are generally licensed. So you're basically SOL.

Aaron 33:49

So you're telling me that big companies will be cautious about going back into Iran.

Sam 33:54

Yes, they'll be cautious and it will sort of – especially with the banks, it will be like pulling teeth at least for the near to intermediate term.

Jeffrey 34:03

It reminds me a little bit about like the Banco Delta Asia aftermath where the treasury department just issued a notification that suggested that the bank was involved in illicit activities because it was holding North Korean money and then there was a run on the bank and the bank collapsed. And then the North Koreans like gave in, right?

They agreed to what we wanted and we couldn't get them the money back.

Sam 34:28

Right. We had to funnel everything through the Federal Reserve.

Jeffrey 34:30

Right. And then to a bank in Russia and like the bank insisted on a letter. I don't remember if it was signed from the secretary of the treasury, but it was basically like we are only – like yes, we are asking you as a matter of US policy to take this dirty money. And it was so interesting to me because it was a, it was a case where like, yes, you, we can talk about sanctions being on or off.

Can you hear my dog barking in the background? It's almost as bad as Aaron's motorcycles. You know, the sanctions, you can talk about them coming on or off, but like as a private business, there's this whole universe of risk that may not get addressed fully in the policy framework. It's one of the reasons I think, by the way, Like I see all these Iranians like jubilant in the streets and that's okay.

You guys should maybe calm down a little bit.

Sam 35:20

Oh, well at least you're not getting the emails from, from I am assuming Iranian Americans in, in Los Angeles saying, well, I am now have this investment fund for Iran. Or I want to sell the X product to Iran. Please give me money. Notwithstanding the fact that all of it will most likely continue to be illegal. Even under the best reading of what U.S. businesses will be allowed.

So there's a lot of people that are trying to sort of push this much farther than it will go and are going to run up against a wall very quickly.

Jeffrey 35:57

And I presume you call these people clients.

Sam 36:01

No, no, no, no.

Aaron 36:03

Will I be able to buy a carpet?

Sam 36:06

We call them prospective future clients when they get a subpoena from OFAC or an investigation from the Department of Justice. Yes.

Jeffrey 36:15

At that point, it's better call Saul except for it's Sam Cutler and you guys don't break any laws.

Sam 36:22

Exactly.

Jeffrey 36:23

By the way, did you see the deal, Aaron? You laugh about carpets. But the deal – it singles out – I guess if it does three, it's not singling out. But it specifically identifies carpets.

Aaron 36:37

The three Cs. Yeah.

Jeffrey 36:39

Go ahead.

Aaron 36:40

Carpets, caviar, and how do they get the pistachios under a C?

Sam 36:45

Yeah, I have no idea how pistachios is a C. They sort of ignore the pistachios. I mean it's foodstuffs in general. I'm so excited about the carpets. No, no, but the deal literally says –

Jeffrey 36:56

The deal literally says carpets, caviar and pistachios, which I love. Like they went and those are given as the examples of the goods.

Sam 37:10

So part of that is because I mean, until when was the year that that was ended? Until I think maybe 2008, those specific items did have carve-outs from the sanctions law that you could import Iranian-origin carpets and caviar and pistachios. The third C, commercial passenger aircraft, was not there. That's a big one. Of all the sanctions relief for US companies, that is the one that will be the most valuable to Boeing.

Aaron 37:41

Jeffrey, what do you think about that? Because that sort of brings us back into our world. The concern was that some of the technology could then be misappropriated for a cruise missile or ballistic missile.

Jeffrey 37:51

Yeah, you know, I'm fine with it. You know, one of the big challenges that I think I struggle with when I look at issues is to try to balance, I try to balance the desire to restrict any technology that can find its way into military systems with the recognition that, you know, whatever our disagreements are, there are human beings who live in these countries and So many of the technologies that are involved in systems are necessary for everyday life.

I don't want Iranian civilian airliners falling out of the sky.

Aaron 38:29

I'm with you. The marginal benefits, the sort of guidance systems or some of the ancillary guidance systems could be used on cruise missiles weighed against Iranian passage jets flying from the sky just seemed inhumane to me from the outset.

Jeffrey 38:44

And I feel the same way about food aid, especially now that we have nutritional assistance. No matter how awful I think the DPRK is, I just – I think it's unethical to use food as a policy tool. Although I do understand the problem of diversion, so I'm pretty excited about things like Plumpy Nut. Do you know about Plumpy Nut?

I don't know about Plumpy Nut.

Sam 39:07

I don't know about Plumpy Nut.

Jeffrey 39:08

Is that a pickup line? Yeah. I actually do have a plumpy nut joke, but the problem is nobody knows what plumpy nut is, and so the joke isn't funny, which I guess doesn't really distinguish it from my other jokes. So plumpy nut is a form of nutritional assistance that's kind of gross. And the advantage of that – well, like if you're a starving five-year-old, it's fine, right?

You are hungry and you need nutrition and it's gross, but it's not like – Foul. And so, you know, you'll eat it you know, in the way that like my kids are willing to eat just a, just a plain hot dog, you know. But what's great about it is it's gross enough that if you're a military unit, you're very unlikely to try to divert that food beyond subsistence levels, right? It's not good enough. It's not like, like if you give the, if you give the North Koreans rice Right, you give it to the five-year-old, but then the guy with the gun comes along and thinks like, actually, I'd like a second bowl of rice, please. all over twist with an AK-47, right? But, but, but if no one wants a second bowl of Plumpy Nut, well, that's right. Yeah, it's just not that good. Although I have to say, like my running joke, which nobody thinks funny, is like I imagine, you know, like Kim Jong-un, who's, you know, a little portly, like with his face smeared with Plumpy Nuts, right, which

Strikes me as like the most indulgent thing you could possibly imagine because you're like stealing it from a child that doesn't even taste good. But to then like go back to that fundamental point. I mean, when you ask me about the aircraft, generally speaking, I really struggle with that. We had a we had a very similar challenge with Melissa Hannum's project here.

Where after the US accidentally sent live anthrax to a bunch of laboratories around the world, including in South Korea, right? The North Koreans had Kim Jong-un go on a tour of a BT factory, right? And the B in BT is bacillus, which is the same as bacillus anthracis. They showed off a civilian facility that actually could be used to make anthrax.

And The sad thing is that capability, right? And there was a pilot plant, a different facility, but this one was the industrialized version of the pilot plant was given to them by a UK NGO. I don't know if they're registered in the UK. They're a European NGO funded by the Swiss government that gave them this capacity to make BT because they said they wanted, it was a Integrated pest management.

They wanted to farm organic cabbage to make kimchi. This is a great story. You know, and it's... And there's nothing like wrong with, you know, I mean, it's a little incredible to imagine that the North Koreans are, you know, against pesticides because context, but... But you know, they wanted to make the organic kimchi for you need the organic cabbage and you got to kill the moths and you can't use pesticides.

And so you use the stuff BT. And of course they're like Euro hippies. So the easiest thing to do is to splice the gene in. And so, but that's a GMO and you know, no Franken foods. So, so, so they built them an anthrax factory. You know, it's like, you know, guys, you could have just sent them the BT and Or, you know what we could have done?

We could have sent them all the frickin' organic kimchi they want. But it's a little hard because, like, these are good people who actually really care about making life at DPRK better.

Sam 42:46

I was going to say, I can't even get organic cabbage at my giant near my house.

Jeffrey 42:51

You know, and they, like, yes, they want to do this good thing. But the problem is then when the DPRK industrializes that capability, which they say is for BT... But they kind of announce it in the middle of an anthrax scare, which I think is more than a little pointed. And so whether it's the aircraft or integrated pest management in North Korea, it is really hard because these technologies I don't think are easily separated.

So that's a really long-winded way of saying I understand the fundamental tradeoffs involved with the aircraft and I'm okay with it.

Aaron 43:30

Yeah, I have to be careful about that because one of the governments involved pays my current salary. So I'm just going to exit myself from that conversation.

Sam 43:37

Yeah, I mean, at the end of the day, if Boeing doesn't sell them, Airbus is going to sell the same planes. So it's not like holding back U.S. Or sorry?

Jeffrey 43:55

Or Antonov?

Sam 43:57

They don't really like Russian planes.

Jeffrey 43:59

They have a tendency to fall out of the sky. No, no, no. We already have one of those. We don't need another one.

Sam 44:07

I think it was within the last two years, I think it was an Antonov plane that crashed outside of Tehran or Mashhad, I forget which one, and killed like 60 people. We want them. They want Airbus and Boeing planes. They don't want Russian – if I'm remembering correctly, for a while there might have even been a ban on Russian planes flying, like Iranian airlines flying in Iran because there were such safety concerns.

This was compared to the 40-year-old Boeings that Iran Air was flying.

Aaron 44:46

That's not good. I mean – well, anyway, I just think the point is that there are certain elements that are I think what you're hinting at is that there's not going to be a massive gold rush going into Iran. But nevertheless, there will be some interest in trying to sniff around by the larger companies of getting back involved in the Iranian market, which brings us to sort of the snapback issue.

There's concern about the way the snapback clause is written and the grandfather issue, if you will.

Jeffrey 45:19

The term we hate. We hate snapback.

Aaron 45:22

We don't like snapback.

Sam 45:23

It's funny that you came to that conclusion independent of us because much of the sanctions bar, sanctions community, people who deal with this also hate the term snapback.

Aaron 45:35

So I came up with another term on the last podcast that Jeffrey also hated. So what do you guys call it over in the sanctions community?

Sam 45:43

The sad thing is we still call it snapback. We just haven't come up with a better way to – You know what I call it.

Jeffrey 45:49

I call it the so-called snapback. That's good. I like that. I use it, but just take no moral responsibility for its terribleness.

Aaron 46:00

The so-called snapback, if I can accurately summarize, and the concern, and so I'll lay out the concern, the argument against it.

Jeffrey 46:07

I can't even come up with a snapback pickup line.

Aaron 46:10

There should be one with the word snapback. You will. Don't worry.

Jeffrey 46:13

Okay, you guys talk. I'll think.

Aaron 46:16

It's this idea that, you know, like, The deal will be implemented for a while. Sanctions will start to come off. Companies will go back in, and then Iran will cheat, and then sanctions will snap back. But the entities that have come back will then be grandfathered in so that Iran will benefit from sanctions relief and get to cheat without facing any real consequences.

Jeffrey 46:43

Can you answer that? I got it.

Sam 46:45

So before any discussion of the UN snapback mechanism, I think it's important to keep in mind that the UN sanctions have little to no economic impact on Iran. So regardless of what happens with UN sanctions snapping back, the US and the EU have Maintain the ability to reimpose or whatever – it is the US and EU reimposition and probably – I mean if it's a total breakdown, expansion of sanctions that makes Iran hurt economically.

So we can get into all these big debates about Russia and China and the snapback mechanism and the – how do you determine a violation? But – Really, it's whether the US or EU determine that there needs to be – they need to really reimpose their own sanctions, which sort of goes back – brings me to the grandfather clause, which says that UN sanctions that are lifted under the deal will not be imposed retroactively for companies that were – got back into Iran and were acting consistently with sanctions relief under the JPOA.

Jeffrey 47:58

So like Boeing makes a contract for a bunch of planes. The Iranians cheat sanctions snap back on, but the contract is signed. Right, exactly.

Sam 48:09

So UN sanctions will not be applied to Boeing for continuing to deal with Iran. My reading of this is that has no bearing on whether the US government is then going to say, that's fine. All your prior dealings with Iran were consistent with the JCPOA and are fine. But you need to stop this contract within 30 to 120 days or your activities will be sanctionable.

Which is – I mean there's usually a grace. For most sanctions bills and sanctions imposition the US has done over the past couple of years, there's a grace period of some time.

Jeffrey 48:48

They don't have to do it but it's a – Right.

Sam 48:52

Yeah, it would be bad. It would look very bad to international business if the US were just like – I know you just invested 10 years in trying to get back into Iran, but if you're not out by tomorrow, then we're going to cut you off from the US financial system. There's an understanding that it takes a little bit of time to wind down operations.

But I don't see this sort of – this grandfather clause as having – the only important part of that from my perspective is sort of the statement at the end where Iran says that if sanctions are reimposed, it will cease or it will see it as grounds to cease performing its commitments under the JCPOA, which I mean makes sense if – The US is no longer – Iran has cheated and the US is no longer upholding its commitments because it snapped sanctions back.

I mean the whole framework has exploded and Iran is going to – The deal is off. Yeah, the deal is off. The deal is off and the US is going to sanction and the Iranians are going to ramp up and we're going to be back in a place – I mean it all depends. I mean I don't know if we'll be back where we are today but we'll be back sort of having similar discussions.

Yeah. But in terms of – I know there's also been sort of some concern that once particularly European companies go back in, it's going to be impossible to sort of get them to come out. But I think that the recent Russia example has proven that – Major European companies are able and U.S. companies are able to very quickly wind down operations in sanctioned jurisdictions.

I mean remember the whole saga with the exploratory well that – No, I don't remember the saga with the exploratory well. Well, you got to tell us.

Jeffrey 50:49

And I'm just sitting here on my – I'm sitting on my snapback pickup line.

Sam 50:57

I'll move quickly. I'll move quickly. Tell the well story. Anyway, Exxon was drilling an exploratory well for I think Rosneft for a Russian energy company. Sanctions hit. Its activities became – it had to pull out. But for safety reasons, the US Treasury Department had to issue a license for Exxon to sort of cap the well and finish it.

But after that, I mean Exxon – Fulfilled its responsibilities under U.S. sanctions and pulled out. And there are a number of U.S. financial institutions that have had to drastically limit their operations in Russia because of it. I think we're living in a sanctions world now. And I think most companies are going to be very cognizant of the possibility that they're going to need to move very quickly with winding down business.

And I think it'll probably be built into contracts that they sign that Sort of a force majeure clause that if sanctions are reimposed, then they're free of all their commitments and they're going to move. At least if I was writing a contract for a party going back into Iran, I wouldn't recommend that because I'm not a lawyer.

Yeah. I would include clauses like that.

Aaron 52:10

Let me jump – because this stirred something Jeffrey brought up at the beginning. It's like what is that sort of intelligence thing? It's not an NIE, but it's some sort of intelligence finding about the way in which Iran will spend its money, which was in the LA Times.

Jeffrey 52:24

I don't know. Why can't reporters just report what kind of document it is? It would make my life so much easier.

Aaron 52:29

Yeah, I don't know what it is. But the point is – It's a community-wide product.

Jeffrey 52:35

It's just some guys at INR get high and write something. What is it? Sorry, Aaron.

Aaron 52:40

No, but doesn't that sort of create an incentive on the Iranian side to follow the deal? If you catch my – so if – Eventually companies come back. And by all accounts, they want these companies to come back because they need them. You know, does this become self-sustaining? And do you think that this could be driving some of the Obama administration's like sort of over the top, let's say, and I think a little farcical ways of trying to sell this deal.

But nevertheless, I think there may be some truth to this, that Iran may not spend all of this on Hezbollah because of the ancillary sanctions issue that you were talking about earlier. They have to disaggregate the IRGC from the overt businesses in order to attract foreign investment.

Sam 53:19

I mean I think it's more just the sanctions-induced economic needs in Iran. I mean Iran has suffered for years and is going to be under pressure from the population to deliver economic improvement and you're not going to get that if you're spending all this money on the IRGC. And I mean you can – I don't know. I have the statistics in front of me.

But there was one that said Iran needed something like $900 billion of investment over the next 10 years. And there was some other number that I can't even remember. But it's billions, hundreds of billions of dollars that the oil sector needs in investment. God damn you. Jeffrey is sending pickup lines via Skype chat.

Jeffrey 54:13

Well, you know, you're a young guy.

Aaron 54:15

You're in your 20s. I want to help you out.

Jeffrey 54:18

Aaron and I are married. Maybe you're married, but you're young enough that that shouldn't be an impediment for you.

Sam 54:23

All right. Well, I'm saving this conversation. I'll let you know if we ever do another joint podcast if any of those worked.

Jeffrey 54:38

I'm sorry, I couldn't help it.

Sam 54:40

My girlfriend would be very unhappy that I said that.

Jeffrey 54:46

Well, no, when she breaks up, you say, don't walk away, baby. I'm exercising my snapback provision.

Sam 54:55

There you go. It's the perfect situation for that.

Jeffrey 54:58

I'm freaking out for you.

Sam 55:04

Words of wisdom.

Jeffrey 55:06

The older, more experienced man. Yeah, exactly. Sorry. Could you, since I got distracted, remind me where we were?

Aaron 55:17

No, I think what you were saying is just like Iran needs hundreds of millions of dollars both to upgrade its economy and investment, but more importantly in the oil and gas sector. And that's probably the more simple answer to what's driving the administration's, let's say, slightly over-the-top approach. Characterization of the deal about how they're going to spend their money.

Sam 55:35

And to say, and I don't think the administration has said anything differently, but to say that Iran is not going to use any of the money to support nefarious activity or the IRGC or proxy groups, I don't think that's right. I mean, it's part of their foreign policy. It's part of their... National security policy. I, I think that they, that they will devote some money to that. Yeah though I would say, I would hope that our own experience has taught us that more resources don't necessarily translate into better results, right? I mean, Jeffrey, I mean, I think we were talking offline a little bit before this about sort of one of the criticisms of the deal. oh, I know exactly what you're gonna jump in. You take it. No, no, you say it. Let me work up my lather

Aaron 56:21

The criticism of the deal is that implicit in this is that in the so-called snapback is that either you kill the deal or the deal remains in place. So it incentivizes minute cheating around the edges in the best-case scenario. But in the worst-case scenario is that there's no escalatory method to pressure Iran should it sort of nibble around these edges in cheating.

Jeffrey 56:45

Yeah, and I think this is false. And I think that it is so obviously false – That the people who are saying it are very smart. And the people who are saying it are not unreasonable people. And so I don't understand why people say this. So, I mean, as I understand the agreement, the way that when you have a compliance concern, the way this works is, The IAEA, like, if they want to see a site, right, they ask if they talk to the Iranians, and there are, like, time limits.

And if you have a problem with seeing a site or some evidence that they're cheating in some other way, you go to this joint commission, right? And the joint commission, you know, is like a star chamber, except, well, I guess the star chamber was rigged, too. It's rigged in our favor, right, because you need five of eight votes, but there are five votes, the U.S., U.K., France, Germany, and the EU.

And if the joint commission... Does not settle the issue, or they settle the issue and the Iranians still don't comply, you go to the Security Council, which is where the snapback thing comes from, right? And the Security Council has 30 days to act. And so to me, there are escalatory, graduated escalatory options, which is what happens in the 30 days.

Because you say to the Russians and the Chinese and the other members of the Security Council, Look, we either get this problem resolved, and maybe that's a partial reintroduction of sanctions or that's a, you know, the Iranians must comply, or we're going to exercise the snapback provision. And so it seems to me that, you know, the whole point of the 30-day period is to give a future U.S. president the opportunity, right, To do smaller graduated things before snapback hits.

So when people say there's no escalatory mechanism, it's like, well, what do you think the 30 days is for?

Sam 58:39

So I would say even outside the 30 days, I mean there's nothing that says that you have to use the UN snapback mechanism. I mean if you want to go in the working group and say, well, Iran is engaged in these low-level violations that may not warrant a snapback, and while Iran does – State that it sees a re-imposition of some sanctions as grounds to cease performance of its commitments.

That doesn't necessarily mean that Iran will necessarily cease performance of its commitments.

Jeffrey 59:12

Well, it's in precisely the same position, right? I mean, because- Right, exactly. It's the exact same- It's like, hey, do you want to blow up the whole deal over this new redundant travel restriction on Qasem Soleimani? Sorry, go ahead.

Sam 59:28

No, I mean that was my main point was just that there are ways – that everything doesn't have to necessarily work within this – the framework of the JCPOA or the UN Security Council resolution. I would hope that there would continue – I mean we've had this dialogue with Iran now that we're not just going to stop talking to them except through UN Security Council committees.

Yeah. But there would be some sort of back and forth about low-level violations and what that meant and coordination with allies and other members of the P5-plus-1. Because again, I mean you don't – the UN Security Council resolutions, they have sort of propaganda value and they sort of give an overall legal basis for other countries to comply.

But they don't do a whole lot in practice. It's the US and the EU and particularly the US extraterritorial sanctions that – That have the bite and the US can respond to Iranian provocations with their own actions. That doesn't have to be a full snapback of UN sanctions.

Jeffrey 1:00:46

I just wanted to say two more things about this because I do think it's important. I do see this 30-day period as being the window that's created to do things below snapback. So I do see what I would consider an opportunity to do a graduated escalation. But two other things. One is, and I think we haven't talked about this enough, there was a kerfuffle in the spring, and I think we still don't agree within the United States non-governmental community about whether Iran violated the interim agreement by feeding uranium hexafluoride into the IR-5.

My reading of the documents that are available to me is it's not a violation. There were private understandings that the EU never made public. And so some people have asserted that it would be a violation, although the administration said it was not, and they presumably have access. But what I thought was so interesting about that, and this is going to happen even if all the parties actually want the deal to work, there will be questions of implementation.

You know, the Iranians knocked it off, right? It was like, okay, well, whether or not it's prohibited or not, this is going to kill the agreement. So like, don't do that. And they agreed. And so it strikes me that, you know, we have... Had experiences where the overall value of the deal is sufficient that when you have implementation questions, you can go back and you can get your concerns addressed.

The second thing, and this is just a pet peeve of mine, there are a lot of arguments against this deal that are arguments against any deal. And it makes me crazy when it's like, well, we don't have a spelled out escalatory mechanism. And it's like, you know why that is? That's because... Everything the U.S. does is on a case-by-case basis.

We never spell out enforcement in any treaty precisely because we have no capacity to predict how seriously we're going to take a particular issue, right? And we may want to take a molehill and blow it up into a mountain because we're worried about other stuff. And so it just – I don't know. This is a rant that Carl will probably have to train.

No, no.

Aaron 1:02:50

Let me jump in here one more time too. I completely agree with both of you. I mean I saw – when I saw that counterargument being made, I was like but you have 30 days in the Security Council to come to a resolution about this. And you always hear that in the position of a better deal, we need to negotiate from a position of strength.

You hear this all the time. The US needs to be in the position of strength and be ready to bring down the hammer. Isn't this the mechanism to do that? Because Iran says if sanctions are snapped back, the agreement goes out of force, then all of a sudden Iran is in noncompliance. And obviously, Jeffrey, we do not have the escalatory patterns in there, but the minimum we would have over a major issue would be more sanctions, and the maximum would be airstrikes over a major issue, like say a non-declared site, right?

Jeffrey 1:03:36

Sorry, Sam, but I promise it'll be short. We would not want to spell those things out. Of course not because they would say no. Well, and we don't want to tie our hands. I mean you cannot anticipate the situation. So the fact that there's 30 days is all I think that you want to commit yourself to in advance.

And so when people complain that there's no escalatory mechanism, it's like I don't want one. Like we're stronger if we can make a case-by-case decision. Like it's not in our interest. To have a mechanistic escalatory mechanism. I'm sorry, Sam, I'll let you go now.

Sam 1:04:13

No, I was, I mean, building on both those points, just the, I'm just trying to think of like the complexity of trying to create some sort of matrix for how you treat violations with procurement of certain dual use goods. I mean, how do you treat Illicit importation of carbon fiber versus some sort of missile component, and what sanctions get snapped back or get reimposed for that particular violation, and how do you determine the gut whether the government was culpable or it's just some Iranian guy who, who's doing import export out of Dubai and shipping things to Iran sort of tying ourself to some sort of, of, of Mechanism dependent on so much ambiguity seems kind of crazy to me.

But also, we talked about how we don't like the term snapback. One of the reasons I also don't like it is because I would have to think that in any sort of deal collapse situation, we're not just going to snap sanctions back. We're going to escalate. There are more Sanctions, provisions that could be used to put pressure on Iran.

I mean some of them are contained in legislation that is now dead in the water. But there's even stuff beyond that. I mean the US does retain the capability to – I mean it will be difficult and it's sort of – it's hard to predict however many years in the future what the situation is going to be like and how different countries react.

But it's not like Treasury is going to forget how to impose sanctions 10 years from now.

Aaron 1:05:52

Yeah, and again, that would be in the minimum. I just keep going back there. For a major violation, you want that 30 days because you only want this deal to collapse over a major violation. Or even if you don't want it to collapse over a major violation, you want to route back to – An off-ramp. And I think the snapback does it because I don't call this, you know, Jeffrey hates the term, but I think it's actually a U.S. virtual veto over the agreement.

And Jeffrey hates that. But, you know, I think it is a U.S. virtual veto over, no, you didn't do this thing right. You best better comply. Otherwise, you know, we can blow the agreement up. So I agree with both of you guys. But I think it, go ahead, Jeffrey.

Jeffrey 1:06:36

I think I've got one more rant in me.

Aaron 1:06:37

Oh, sorry.

Jeffrey 1:06:38

I'm going to wait quietly. It's on a totally different topic.

Aaron 1:06:41

No, I'm done. I'm done on that. I think we covered that.

Jeffrey 1:06:45

Well, I want to talk about it. Because I think it's the place to end, which is one of the things that makes me crazy about this discussion is lots of things make me crazy about this discussion. I guess I'm just nuts. Look, I keep hearing how we can Walk away from this deal because the sanctions regime is so great.

And, and so we can walk away and we'll come back and get a better deal. And I keep thinking, you know, we actually had a better deal once it was in Iraq and the level of access was simply imposed and the sanctions were tighter and they're the same people who don't like this deal. Didn't like that deal.

And in particular, what they said was the reason we have to invade the damn country is because the sanctions won't last forever. So why – I mean I know the answer why they pretend that the sanctions regime will last forever. But I kind of am interested in your opinion about how viable you think the sanctions regime is in the long term.

If the troublemakers are perceived to be the U.S. and the Europeans, not the Iranians?

Sam 1:08:05

Look, I mean, as I was saying before, I mean, each country has their own interests, and they don't like being told what their interests are, and they especially don't like having the threat of – Economic coercion hung over their head, telling them how their companies or their government should act. I mean, maybe I'm reiterating myself, but the Commerce Department has an office of anti-boycott compliance here in the United States.

Or if you're a U.S. company who, for instance, complies with the Arab League boycott of Israel, it's a crime. In Canada, you can be punished with a five-year prison sentence for complying with the US embargo of Cuba. How do they determine that you are doing it for ideological reasons rather than like you just don't like the price?

It's a good question. I don't know if they've actually ever enforced a – at least in the Canadian sense. Maybe you should talk to a Canadian sanctions lawyer. But I mean they do issue fines every once in a while on the US side for anti-boycott compliance. I've never been involved in a case like that, so I don't know exactly what the – The investigative process is.

But I mean you don't have to look too far back. I mean after the first Iran Sanctions Act, the EU issued a council resolution forbidding EU companies from complying with US extraterritorial sanctions on Iran and Cuba with the Helms-Burton Act. The way sanctions work is we use the US financial system as a weapon. You use that weapon too often and countries are going to want to have countermeasures to that and that can have significant ramifications on the US position in the global financial system.

Sort of a more country-to-country level, I mean, the Chinese on a low-level scale have used their own sanctions in the past, not sort of in an official way, but with regards to sort of, I think it was arms deal, EU arms dealing with Taiwan, basically saying, EU companies, hey, if you deal with Taiwan, you might have a much more difficult time doing business in China.

Yeah. I don't see it as that far-fetched that if – I mean for the US to blow up the deal and try and impose extraterritorial sanctions or enforce compliance with extraterritorial sanctions, you're in essence declaring economic war on US allies and trading partners. Some countries, smaller countries, probably there's not much they can do about that. But Especially the Chinese are not going to just take that sitting down and that could have impacts on US companies or it could simply just mean that the Chinese develop alternate routes to dealing with Iran.

I mean it's not that hard for them to balkanize their financial system or a small sliver of their financial system to deal with Iran so that the US has effectively no sanctions leverage over the Chinese companies and banks that are dealing with Iran. I mean – They said before the Chinese bank where much of the Iranian money is held is Bank of Kunlun, which is already under sanctions.

And there is literally nothing the US can do other than sort of diplomatic – Diplomatic pressure to keep the Chinese from doing whatever they want with that Iranian money.

Aaron 1:11:56

The Turks did the same thing. The Turks, besides surreptitiously breaking sanctions for years, what they did is they set up a public bank that was just disconnected from the U.S. financial system, simply to process payments for Iranian natural gas.

Sam 1:12:09

And we've managed to keep compliance fairly good because everyone's sort of working in the same direction in support of this agreement and negotiations regarding the nuclear program. But I mean sort of a side portion or maybe it's actually maybe a key portion of some of the arguments to pull up a deal is Iran's regional behavior. I mean there you're trying to get countries like Russia and China to sanction Iran for – Bad behavior with regards to their neighbors.

Last time I checked, the Russians and the Chinese were not the best neighbors and probably would be pretty opposed to setting a norm where international sanctions are going to be applied for Russia. For meddling in, in, in their neighbors affairs. So in some, I, I think that the argument that we can just simply with the stroke of a pen, blow up a deal, say you're either with us or against us, you're going to deal with the U S financial system, or you're going to deal with Iran.

It, You can set up a system where some people are dealing with Iran and not the US financial system and other people are dealing with the US financial system and not Iran. And it's not an optimal situation, but it allows the Iranians to get – certainly allows the Iranians to get by. And then you get into the whole debate about sort of – Timelines and military action and levels of enriched 20% enriched uranium and your, your, your guy's world.

But yeah, so I, I just don't see, see a unilateral snapback of extraterritorial sanctions as a viable alternative.

Jeffrey 1:14:01

I've, I've got, I've got, you know, this makes me think of It makes me think of the Munchgorsk.

Sam 1:14:07

Do you guys remember this, either of you? Yes, I do.

Jeffrey 1:14:14

That sounds like a rueful memory. The M.D.

Sam 1:14:18

Munchgorsk.

Jeffrey 1:14:19

Yeah. I guess it was a Russian flag?

Sam 1:14:24

I believe so, yes.

Jeffrey 1:14:28

Yeah, it had a Russian captain named Smirnoff. I actually wondered if like – I actually wrote at the time. I was like, what, Captain Morgan was taken? So it was a Russian ship that was en route from Iran to Syria with conventional arms. This is – the reason I bring this up is because people who talk about how important the arms embargo was were like nowhere to be found on this like really important issue.

So the US pressures the Cypriots, right? To interdict it. Maybe it had either transited through Cyprus or maybe it had a Cypriot flag with a Russian crew, now that I think about it. But the Cypriots didn't want to interdict it because they knew the Syrians would be angry at them. And the U.S. leans on the Cypriots, gets them to interdict the shipment, and then this fascinating fight ensues where the Cypriots don't want to hold on to the goods, but they don't want to dispose of them because the Syrians and the Iranians are putting all kinds of pressure on them.

And so what they desperately wanted was for the UN to order them to cough up the goods and then to take it away from them. And Western governments were willing to take the stuff, but they weren't willing to do it through the UN. And that just didn't solve the Cypriot problem because what they really wanted to do was to be able to look at the Syrians and say, it's not our fault.

We had to do this, right? And so we never worked it out. And so the stuff just sat there in the hot sun. Until it exploded and killed a bunch of people and for a while knocked out the island's main power plant. It was a total disaster. And what struck me about that story is the result of that is the Cypriots are never going to interdict another Iranian cargo ship again.

We totally hosed them over. I just think it's so interesting because there is this sort of abstract attention to sanctions when they get lifted in exchange for a deal. But with these same people, when you write articles talking about how important it is to put in place UN mechanisms to make the sanctions work, they're nowhere to be found, which just, I guess, makes me inherently skeptical about how much they care about sanctions.

Sam 1:16:41

I have a very related point in that every time I complain about how underfunded the Office of Foreign Assets Control is, I mean, the entire budget of OFAC costs less than one F-35, right? It might even be half of 1F35. For all the work that – I mean all the significant role that US sanctions play in our current foreign policy toolkit, they don't even get the money for 1F35 and they have trouble buying new furniture for their offices.

And all the money that they bring in for the US government, I mean with all these massive settlements – And they remain understaffed and overworked. And you can hear when undersecretaries of terrorism and financial intelligence, whether it's David Cohen or Adam Zubin, go to the Hill and they're asked this question about resources. They sort of play the good soldier and they're like, ha, ha, ha, we're working very, very, very hard.

Wink, wink. But the budget just – if it goes up at all, it goes up in very sort of small percentages that just don't fit the current workload that they're being asked to do. But the same people that are sort of talking about how railing at how we need to be better at enforcing sanctions and doing more – To sanction once it's time to cough up the funds to actually fund this, it just doesn't happen.

Jeffrey 1:18:10

You were going to say cough up the dough, which would have had our foreign listeners. I was going to say cough up the dough. Totally baffled.

Aaron 1:18:15

Is the moral of the story don't blow up the deal like the island of Cyprus?

Jeffrey 1:18:22

Oh, that's – Yes. That's – That's terrible, and I'm now trying to work it into a pickup line. Maybe you're blowing up like some illicit cargo in the hot Cypriot sun.

Aaron 1:18:38

Yeah.

Jeffrey 1:18:39

That's terrible.

Aaron 1:18:41

Yeah.

Jeffrey 1:18:41

Carl, you're going to have to cut that one out.

Aaron 1:18:44

No, Carl, keep it.

Jeffrey 1:18:46

Remotely funny.

Aaron 1:18:48

But, you know, just I think in closing here, when I actually look at the deal and I – I try to work my way into how – maybe where the drafters skip some steps. I actually think it's very well drafted. So I guess just final words on this. That's on the nuclear side. From our conversation today on the sanctions side, would you say that is true?

Final words on this. Did they do a good job with the way the sanctions relief is structured within the deal? Yeah.

Sam 1:19:20

In some cases, yes. In other cases, it's as are most sanctions provisions that the U.S. does. I know this is multilateral, but it's very vague. So we are waiting for adoption day to actually see what happens. I mean, one example of that is the foreign subsidiary provision from Annex II, which we have no idea what it means for U.S. companies.

It could be Have very broad effect or it could have very little effect. We just don't know. So we'll have to have you back on. I think we'll know a lot more on adoption day when treasuries actually and state are going to have to issue legal guidance about what sanctions relief is going to look like in practice.

Aaron 1:20:09

So with that, I mean I think we're going to close this podcast here on the sanctions relief. That was really good because it helped me work through some of the things that I have questions about. So thanks. It was your idea to do the joint arms control sanction law podcast. So thanks for that.

Jeffrey 1:20:25

Yeah, totally. Thanks for saying that.

Sam 1:20:26

Well, I always learn so much when I listen to you guys. So I thought it would be not only interesting but fun to – To do a little joint effort.

Jeffrey 1:20:37

Well, and now you have some pickup lines.

Sam 1:20:39

I was going to say, so thank you for coming on.

Aaron 1:20:41

And for the listeners, you've got some good pickup lines. Sam, go ahead and use them. Or don't. Or don't. It's special in your back pocket. And thanks, everybody, for listening. And if you like both shows, the Sanctioned Law Podcast or the Arms Control Podcast, leave us both reviews on iTunes. They really help out. So thank you, everybody.

Jeffrey 1:20:59

Yes, please do. But leave us a better one than Sam.

Aaron 1:21:01

Yeah. Thank you, everybody, and thanks for listening.