WASHINGTON—More than 90 U.S. senators signed a letter to President Barack Obama pressing him to sanction Iran’s central bank, with some threatening legislation to force the move, an outcome that would represent a stark escalation in tensions between the two countries.
Such a measure, if effectively implemented, could potentially freeze Iran out of the global financial system and make it nearly impossible for Tehran to clear billions of dollars in oil sales every month, said current and former U.S. officials.
Many American officials view the blacklisting of Bank Markazi as the “nuclear option” in Washington’s financial war against Tehran. Some Iranian leaders have said they would view such a move by the Obama administration as an act of war.
The letter was co-sponsored by Sens. Mark Kirk (R., Ill.) and Charles Schumer (D., N.Y.) in a sign of the bipartisan support for tougher financial measures against Iran. The U.S. fears Iran is developing nuclear weapons, a charge Tehran denies.
“In our view, the United States should embark on a comprehensive strategy to pressure Iran’s financial system by imposing sanctions on the Central Bank of Iran,” said the letter that was viewed by The Wall Street Journal and will be delivered to the White House on Tuesday. “If our allies are willing to join, we believe this step can be even more effective.”
A senior U.S. official said the Obama administration is studying all measures to increase pressure on Iran, including potential moves against Bank Markazi.
“We are working really hard on the Iran challenge and have made unprecedented progress in mobilizing international pressure and sanctions,” the official said.
Last year, Congress passed legislation barring from the U.S. financial system any foreign firm doing business with sanctioned Iranian banks, Iran’s energy sector, or the businesses of Tehran’s elite military unit, the Islamic Revolutionary Guard Corps. The law also has a provision allowing the White House to sanction Bank Markazi, a step that President Obama has so far decided not to take.
In an interview, Mr. Kirk said he would introduce a law by year’s end to enforce sanctions on Bank Markazi if the White House doesn’t move independently.
“The administration will face a choice of whether it wants to lead this effort or be forced to act,” Mr. Kirk said.
Mr. Schumer said the White House needed to utilize current legislation.
“It’s time for the administration to use the tools Congress has provided and choke off the money spigot,” he said in a statement.
Both the Obama and George W. Bush administrations have discussed the merits of targeting Iran’s central bank going back at least four years, according to current and former U.S. officials.
The U.S. and European governments believe Bank Markazi has facilitated trade for sanctioned Iranian banks and businesses by masking the names of the parties involved in international transactions.
U.S. officials also worry Iran’s central bank has provided funds to organizations designated as terrorist groups by Washington, such as Hezbollah in Lebanon and Hamas in the Palestinian territories.
Iranian officials have said in recent interviews that they view all U.S. and United Nations sanctions as illegal and that their country is entitled to conduct international trade.
Current and former U.S. officials who have taken part in the sanctions debate said that targeting Bank Markazi presents significant hurdles.
In recent years, American allies in Europe and Asia have worried that any blacklisting of Iran’s central bank will inhibit their ability to purchase Iranian oil and potentially lead to higher global energy prices. Iran is the third-largest oil exporter among the Organization of Petroleum Exporting Countries.
Nations including China, South Korea and India have experienced trouble purchasing Iranian oil.
New Delhi alone has been unable to pay Iran $5 billion for oil purchases, according to Indian officials.
U.S. officials have worried that unilateral Americans sanctions against Bank Markazi might not be respected by even some American allies. This could place Washington into the difficult position of either backing down or theoretically trying to ban important foreign companies and governments from using the U.S. financial system.
An American official involved in the discussions said any U.S. decision would require months of prior discussions with countries such as South Korea, Japan and Saudi Arabia in order to get their buy-in.
Congress and the Obama administration have tussled over the issue of Bank Markazi for a number of months. Senators placed holds on the confirmation of two key U.S. officials—Deputy Secretary of State William Burns and Under Secretary of Treasury David Cohen—seeking assurances the White House would take steps to sanction the bank.
Mr. Kirk said in the interview these holds were eventually lifted because both Messrs. Burns and Cohen offered assurances the issue was being seriously studied. “They cited an August to September point of action,” Mr. Kirk said, acknowledging there were no promises made.
Officials at the State Department and Treasury Department said they couldn’t comment on private conversations held with members of Congress.
Write to Jay Solomon at jay.solomon@wsj.com
Senators’ Letter to President Obama
August 9, 2011
President Barack Obama
The White House
Washington, D.C.
Dear Mr. President:
Following the latest report of the International Atomic Energy Agency on Iran’s nuclear program and recent Iranian missile tests, we remain seriously concerned that Iran continues to accelerate its uranium enrichment and ballistic missile programs. Meanwhile, the regime refuses to answer questions posed by the United Nations’ nuclear watchdog regarding evidence Iran is working toward the development of nuclear weapons.
We must do more to increase the economic pressure on the regime. In our view, the United States should embark on a comprehensive strategy to pressure Iran’s financial system by imposing sanctions on the Central Bank of Iran (CBI), or Bank Markazi. If our key allies are willing to join, we believe this step can be even more effective.
As you know, the Iranian regime continues to pursue avenues to circumvent both U.S. and multilateral sanctions. In the banking sector, the Central Bank of Iran lies at the center of Iran’s circumvention strategy. In May, Under Secretary of the Treasury for Terrorism and Financial Intelligence David Cohen stated that “the activities of the Central Bank of Iran (CBI) have been, and continue to be, a focus of the Treasury Department. Treasury has noted previously that the CBI and Iranian commercial banks have requested that their names be removed from international payment messages to make it more difficult for intermediary financial institutions to determine the true parties to the transaction, and we remain concerned that the CBI may be facilitating transactions for sanctioned Iranian banks.”
The time has come to impose crippling sanctions on Iran’s financial system by cutting off the CBI. There is strong bipartisan support in Congress for the imposition of sanctions on the CBI. As recently as consideration of the FY10 National Defense Authorization Act, the Senate unanimously supported an amendment urging you to impose such sanctions. We urge you to strongly consider imposing U.S. sanctions against the CBI and to encourage key allies to join us in this important action.
8 August 2011
The Wall Street Journal