Exceptional (22 page)

From 2003 to 2005, the EU-3 offered the Iranians many opportunities and incentives to maintain a peaceful program while ending the activities that were clearly aimed at producing a weapon. Iran was offered, for example, light-water reactors and the feedstock needed to fuel them. The Iranians weren't interested. There simply was no benefit or “carrot” the international community could propose that was more valuable to Tehran than a nuclear weapon.

On August 3, 2005, Mahmoud Ahmadinejad assumed office as Iran's new president. On August 10, Iran
broke the IAEA seals on their uranium enrichment facility at Isfahan. In January 2006, they broke the seals on three more facilities and restarted uranium enrichment
at Natanz. The IAEA reported Iran's ongoing violations to the United Nations Security Council, which adopted UN Security Council
resolution 1696 demanding that Iran halt all enrichment activity or face sanctions.

The EU-3 negotiations broke down and attention turned to imposing costs on Iran for continuing to pursue a nuclear weapons program. It was not immediately evident what additional steps America could take. Beginning with the 1979 seizure of the U.S. embassy in Tehran, America had imposed a series of ever-expanding sanctions on the Iranian regime. By 2005, the conventional wisdom was that Iran was “sanctioned out.” That turned out not to be true. The brilliant work of a few dedicated public servants in the United States Treasury Department made it clear that there were additional and painful costs that could be imposed on the Iranian regime.

Stuart Levey, undersecretary of the Treasury for terrorism and financial intelligence, is probably the most important player you've never heard of in the effort to stop Iran's nuclear program. In the aftermath of 9/11, the Treasury Department used new authorities, granted through statute and executive order, to track and stop terrorist financing. Treasury could use the same approach, Levey deduced, to target and block the illicit activities of rogue regimes like North Korea, Iran, and Libya. The real innovation was to engage the private sector in the effort, actively and aggressively.

In the past, the United States had focused on convincing foreign governments to cut off potentially lucrative commercial activity with a sanctioned country, but the private sector frequently resisted and put pressure on their governments not to support the American efforts. Levey, Secretary of the Treasury Hank Paulson, and a team that included Assistant Secretary of the Treasury Juan Zarate and other experts realized they could turn this approach on its head.

America's global financial power is such that any bank operating
in international markets is likely to need access to the American financial system. Any transaction denominated in dollars, for example, must at some point pass through a dollar-clearing account,
most often in New York. Banks that are cut off from America's networks find it hard to survive.

Section 311 of the Patriot Act gives the United States Treasury the power to isolate banks that traffic in illicit activities by designating them as “primary money laundering concerns.” “No number strikes fear into bankers' hearts,” the
Economist
reported in June 2015, “like 311. . . . For firms badly behaved or unlucky enough to be targeted, a 311 designation is more often than not
a death sentence.”

Iran's vulnerability was due in part to the fact that the regime regularly mixes illicit with legitimate financial activity in order to hide the illicit activity. The IRGC has so thoroughly infiltrated Iran's economic and financial systems that it is nearly impossible to be sure any transaction involving Iranian businesses is free of taint.

In 2006, after attempts at diplomacy had failed and the Iranians had relaunched their uranium enrichment efforts, President Bush undertook a multitrack approach to stop their nuclear program. On one track, Secretary of State Condoleezza Rice announced that the United States would join direct negotiations between the Europeans and the Iranians, if the Iranians suspended their enrichment and reprocessing activities. When the Iranians rejected the offer, action moved to the United Nations Security Council, where the United States would secure
four resolutions over the next two years, including three that were unanimous, demanding that Iran halt its uranium enrichment and plutonium reprocessing efforts and imposing sanctions when Iran failed to comply.

The second track was Treasury's. Levey began traveling the world meeting directly with the CEOs and compliance officers of financial institutions and warning them about Iran's illicit financial activities.
Levey's weapon in these meetings was information. He would begin his briefings with an overall view of Iran's economic structure and financial system, explaining, among other things, the infiltration of the IRGC across Iran's economy and its use of front companies to hide illegal transactions. These transactions might involve financing for terrorism or the acquisition of goods necessary for Iran's military or nuclear program. Levey would conclude his briefings by providing specific information to the bank CEO about such mattters as illicit Iranian activity in accounts held in
that very bank.

Former assistant secretary Juan Zarate explained, “These meetings were not intended to be an accusation of complicity . . . but a wake up call to lift the veil of Iranian financial activity and
raise suspicions.” The Treasury Department was “exposing Iranian behavior” and, in Zarate's words, signaling “that it would not be ignored, especially if Iranian money was flowing through the banking system.”

No other nation in the world has the financial power to do what Levey and the U.S. Department of the Treasury did. Their message to foreign governments and financial institutions was not political. It was about safeguarding the American and, by extension, the international financial sector by blocking tainted transactions. Following these meetings, banks often closed questionable accounts and began limiting their exposure
to Iranian businesses.

The Treasury Department also used its authorities to directly target Iranian banks and cut them off from the international financial system. In September 2006, Bank Saderat, which was used by the Iranian government to funnel funds to Hezbollah, Hamas, and other terrorist organizations, was designated as a
terrorist-financing institution. In January 2007,
Bank Sepah was designated for its role in funding proliferation activities. In October 2007,
Bank Mellat was designated for providing financial services for Iran's efforts to acquire
nuclear materials. In December 2008,
Bank Melli and its affiliates were similarly designated.

Other governments followed America's lead. In June 2008, the European Union targeted Bank Melli and froze its assets. In September 2008, Australia imposed sanctions on Bank Melli and Bank Saderat. Banks across the Arab world also cut back their dealings with Iran,
as did the Chinese.

At the same time, Iranian businesses most closely tied to terror financing or nuclear proliferation activities were targeted. These included Iranian shipping and insurance concerns. In October 2007, the United States designated the
IRGC and Iran's Ministry of Defense, cutting them off from the international financial system for their role in attempting to acquire nuclear capabilities and supporting terror.

By the time Barack Obama took office in January 2009, the Bush administration had put in place an unprecedented series of sanctions targeting Iran. The Treasury Department had magnified the impact of the formal designations through Undersecretary Levey's work with private financial institutions and businesses around the globe. President Obama wisely asked Undersecretary Levey to continue to serve at the Treasury Department in the new administration. Then he told him to put his
work isolating Iran on hold.

President Obama was going to try a different approach. He had campaigned on a policy of engagement, and continuing to squeeze the Iranians financially was inconsistent with an outstretched American hand. The problem with our Iran policy, as the Obama administration saw it, was not the Iranians. “When we took office, let me remind you,” Vice President Biden explained, “. . .
we were the problem.” The theory seemed to be that an American lack of willingness to engage was causing the Iranians to pursue a nuclear weapons program.

Engagement, of course, had been tried. In October 1979, after the Islamic Revolution but before the Iranians stormed our embassy and took our diplomats hostage, President Carter's national security advisor, Zbigniew Brzezinski, met with a delegation of Iranian officials in Algiers. Brzezinski told the delegation that America would recognize the new regime and could form an alliance with them. We shared a common enemy in the Soviet Union, he explained, and we were prepared to sell the new Iranian regime the weapons we had planned to sell the shah. The Iranians rejected all Brzezinski's offers. Three days later the American embassy in Tehran
was overrun.

Twenty-one years later, on March 17, 2000, the Clinton administration made its own public effort at reconciliation. The Iranian regime had long demanded an apology from the United States for the CIA's alleged role in the 1953 coup that overthrew Iranian prime minister Mohammad Mosaddeq. Calculating that fulfilling this request would open the door to a new era of cooperation, Secretary of State
Madeleine Albright apologized. Calling the coup “a setback for Iran's political development,” Albright said, “it is easy to see now why many Iranians continue to resent this intervention by America in their internal affairs.” She also indicated we had been wrong to support the shah and invoked President Clinton in asserting that “the United States must bear its fair share of responsibility for the problems that have arisen in U.S.-Iranian relations.” It was a remarkable statement, suggesting America's conduct had been on a par with that of a nation that had held our citizens hostage and carried out terrorist attacks against us.

A few days later Ayatollah Khamenei delivered the Iranian response. He mockingly noted that the Americans had finally admitted to their terrible sins, but why should he be impressed? “An admission years after the crime was committed,” he said, “while they might be committing similar crimes now, will not do the Iranian
nation any good.”

On Friday, March 20, 2009, President Obama launched his own outreach effort. In a video greeting on the occasion of the Persian
holiday of Nowruz, the president offered a reinterpretation of thirty years of U.S.-Iranian relations. Gone were America's objections to the storming of our embassy, the holding hostage of our diplomats, the killing of our soldiers, the Iranian-sponsored terrorist attacks on our people and interests. In their place, according to Obama, we just had “serious differences.” In this view, there wasn't any moral distinction between the way America and Iran had operated on the world stage, there were just matters on which we seriously didn't agree. Addressing his remarks directly to the regime in Tehran, the president said:

So, in this season of new beginnings, I would like to speak clearly to Iran's leaders. We have serious differences that have grown over time. My administration is now committed to diplomacy that addresses the full range of issues before us, and to pursuing constructive ties among the United States, Iran, and the international community. This process will not be advanced by threats. We seek instead engagement that is honest and grounded in mutual respect.

You, too, have a choice. The United States wants the Islamic Republic of Iran to take its rightful place in the community of nations. You have that right—but it comes with real responsibilities, and that place cannot be reached through terror or arms, but rather through peaceful actions that demonstrate the true greatness of the Iranian people and civilization.

The next day, Iran's supreme leader, Ayatollah Khamenei, responded. He told a crowd chanting “
Death to America!” that the United States was hated around the world for its arrogance.

The president continued to pursue engagement, keeping the Treasury Department financial sanctions program on hold and providing valuable time for the Iranians to pursue their nuclear program. Building and maintaining the international pressure brought to bear through private banks cutting off business relationships with Iran required constant tending. The longer the program was on hold, the less effective it would be and the harder to reinvigorate.

In April 2009, Secretary of State Clinton announced the United States was prepared to join Britain, France, Russia, and China in directly negotiating with Iran. There were no preconditions. In May 2009, President Obama
sent a letter to Iran's supreme leader. According to press accounts, the president's letter stressed that America sought “cooperation in regional and bilateral issues” and a resolution of disagreements about Iran's nuclear program.

Two months later, Iran held a presidential election. On Saturday, June 14, massive protests erupted in the streets of Tehran when the Interior Ministry announced that President Ahmadinejad had been reelected with
62.6 percent of the vote. Supporters of former prime minister Mir Hossein Mousavi charged that the election had been rigged and took to the streets. The mullahs, faced with the most significant challenge to their legitimacy in the thirty-year history of their rule, responded with violence to crush the protests. President Obama's initial response was silence, followed by tepid criticism of the mullahs' actions. Any support he expressed for the protesters could put his efforts to court the regime
in jeopardy.

In September 2009, French president Nicolas Sarkozy, British prime minister Gordon Brown, and President Obama announced the discovery of a secret Iranian uranium enrichment facility on an Iranian military base
outside Qom. The Iranians claimed the facility was for peaceful purposes, and Ahmadinejad declared, “I don't think Mr. Obama is
a nuclear expert.”

In a pattern that would be repeated many times over the course of the next six years, Iranian cheating was met with the offer of a deal. The Obama administration proposed a swap: if the Iranians agreed to ship 80 percent of their enriched uranium to Russia, they would receive the fuel they needed for the Tehran Research Reactor. The Iranians went along for a while, buying time while they continued to enrich, but then the supreme leader publicly criticized the offer,
ending the round of negotiations.