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U.S. Urges Financial Sanctions On Iran

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    U.S. Urges Financial Sanctions On Iran White House Tries to Enlist Europe, Japan By Dafna Linzer Washington Post Staff Writer Monday, May 29, 2006; A01
    Message 1 of 1 , Jun 2, 2006
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      U.S. Urges Financial Sanctions On Iran
      White House Tries to Enlist Europe, Japan
      By Dafna Linzer
      Washington Post Staff Writer
      Monday, May 29, 2006; A01
      http://www.washingtonpost.com/wp-dyn/content/article/2006/05/28/AR2006052800999_pf.html


      The Bush administration is pressing Europe and Japan to impose
      wide-ranging sanctions designed to stifle the Iranian leadership
      financially if diplomatic efforts fail to resolve an impasse over the
      country's nuclear program, according to internal government memos and
      interviews with three U.S. officials involved.

      Developed by a Treasury Department task force that reports directly to
      Secretary of State Condoleezza Rice, the economic measures go far
      beyond the diplomatic pressure exerted by the Bush administration to
      date, both in scope of action and in objective.

      The plan is designed to curtail the financial freedom of every Iranian
      official, individual and entity the Bush administration considers
      connected not only to nuclear enrichment efforts but to terrorism,
      government corruption, suppression of religious or democratic freedom,
      and violence in Iraq, Lebanon, Israel and the Palestinian territories.
      It would restrict the Tehran government's access to foreign currency
      and global markets, shut its overseas accounts and freeze assets held
      in Europe and Asia.

      The United States, which has imposed unilateral sanctions on Iran for
      nearly three decades, would shoulder few of the costs of its ambitious
      new proposal. But internal U.S. assessments suggest that the sanctions
      could not hurt Tehran without causing significant economic pain for
      Washington's friends. That calculation has made the plan a difficult
      sell, especially in capitals such as Rome and Tokyo, which import
      significant quantities of Iranian oil.

      "I have been very open with people about the costs that could fall on
      them," said Stuart Levey, Treasury undersecretary for terrorism and
      financial intelligence, in a recent interview.

      U.S. intelligence agencies have spent months trolling through the
      personal accounts of Iranian leaders in foreign banks, analyzing
      Iranian financial systems and transactions and assessing how the
      government does its banking. They have calculated the amount of
      foreign investment at stake and even which charities have connections
      to the Tehran government.

      Decades of stand-alone U.S. sanctions on Iran, North Korea and Cuba
      have failed to bring down those countries' leaders or modify their
      behavior. But U.S. officials believe that if other Western allies join
      in a sanctions pact, it could magnify pressure on Iran in much the
      same way that some Bush administration officials believe U.N.
      sanctions helped persuade Libya to give up its nuclear weapons program
      in 2003.

      With Britain, France, Germany, Italy and Japan on board, collective
      sanctions would "isolate the Iranian regime" and see it "shunned by
      the international financial community," according to one internal Bush
      administration memo.

      Under the plan, the major allies involved would freeze Iranian
      government accounts and financial assets in their countries, much as
      the United States did after Iranian students took over the U.S.
      Embassy in Tehran in 1979. Iranian officials who appear on lists being
      drawn up by U.S. officials would be prevented from opening accounts,
      trading on foreign markets or obtaining credit.

      U.S. officials said in interviews that it is their hope the allies
      will carry out the punitive measures if Iran refuses a package of
      incentives the Europeans are preparing to offer in coming weeks.

      So far, potential partners have not jumped at the plan, raised again
      last week in London by senior diplomats from Washington and European
      capitals. European officials who spoke on the condition of anonymity
      attributed their reluctance to a reliance on Iranian oil, domestic
      legal constraints and the fear of being dragged toward another
      conflict in the Middle East.

      In an effort to minimize financial risks, the plan does not include
      oil or trade embargoes. But, according to a Treasury Department
      assessment, it could jolt world oil prices nonetheless if Iran
      responds by limiting exports. The internal assessment also predicts
      additional economic repercussions for Western allies, such as trade
      loss, and adverse effects for the Iranian people as their government
      is squeezed out of global markets and foreign banks stop taking their
      business.

      The potential side effects have led European officials to turn the
      pressure back on Washington to hold direct talks with Iran.

      "The sanctions could make Iran miserable, and Iran can respond by
      making everyone miserable back," said one senior Western official, who
      consulted on the issue recently with Rice. "In the end, the whole
      world is miserable and Iran gets to keep its nuclear program."

      Although sanctions would not be directed "at the country or people of
      Iran," the measures "can be expected to bear second-order consequences
      for the people of Iran," according to a footnote on a Treasury
      Department task force memo sent to Rice last month.

      The task force, made up of financial investigators, analysts and
      intelligence officers, is part of a growing government effort -- at
      the White House, the State Department, the CIA and the Pentagon --
      focused on Iran. While some parts of the administration are studying
      prospects for negotiations with Iran -- an ally turned enemy nearly 30
      years ago -- others are preparing for increased isolation and the
      possibility of a military strike against nuclear installations.

      For four years, President Bush has sought to isolate Iran and roll
      back its nuclear energy program, which could provide the Islamic
      republic with a pathway to a nuclear bomb. Over that time, Iran's
      capabilities and nuclear expertise have only advanced, while soaring
      crude prices have brought the oil-rich nation additional hard currency.

      The situation has emboldened the Iranians and left the White House
      searching for leverage. Bush administration officials believe that one
      approach may be to prevent Tehran from spending money on the open market.

      European governments have spent months considering travel bans and
      arms embargoes on Iran, both of which would be largely symbolic. U.S.
      officials now hope the Europeans will impose sharper sanctions on
      Iran, at some cost to themselves, as diplomacy fails to yield results.

      In interviews, U.S. officials described the plan as a new approach to
      international sanctions and said they believe it could succeed if
      implemented correctly.

      "I would argue that targeted sanctions are designed to have minimal
      effects on people," Levey said, "and more designed to have effect . .
      . on the government and the people in the government. We are trying to
      design things that are not intended to inflict harm on the people."
      Undersecretary of State R. Nicholas Burns and Levey first briefed
      their Western counterparts on aspects of the proposal at a meeting
      last month in Moscow.

      But the impact on U.S. allies could be steep as well. A Treasury
      Department memo recently predicted that Britain, which does not import
      Iranian oil, faces a low level of financial risk if it agrees to
      implement the sanctions plan. Germany, which imports 1 percent of its
      oil from Iran, and France, which gets 6 percent, are deemed at medium
      financial risk, whereas Italy and Japan would be taking the largest
      risks. The assessment is considered internally "an initial -- first
      blush -- estimate based on each country's overall volume of exports to
      Iran, dependence on Iranian oil and degree of investment in Iran oil
      projects," according to the Treasury memo.

      Japan exports nearly $1.3 billion worth of goods to Iran, has nearly
      $2 billion worth of oil projects there and gets about 12 percent of
      its oil from the country, which is approximately equivalent to what
      the United States buys from Saudi Arabia. Italy buys 9 percent of its
      oil from Iran, and has $3.2 billion in oil investments in the country
      and $2.7 billion worth of exports to Iran.

      Originally, U.S. policymakers discussed plans for sanctions through
      the U.N. Security Council, but that has proved more difficult than
      convincing a handful of allies.

      The new plan would operate outside the council's authority and would
      "not depend on recalcitrant countries," identified in one government
      document as China and Russia, which have resisted the idea of U.N.
      sanctions. But if they did not participate, Beijing and Moscow would
      also be spared any financial burden and be free to pick up lost
      European business with Iran.

      In the hopes of encouraging other governments to act, the Treasury
      Department has pursued a secondary path, approaching private-sector
      banks in Europe and Japan, one by one, in the hopes that they will
      reject Iranian business on their own.

      A similar strategy was successfully employed with a bank in Macau, off
      mainland China, that was doing business with North Korea.

      So far, four financial institutions have signed on to the U.S. effort.
      "These institutions are looking at which way this is headed and are
      asking themselves if they want to get in front of this wave," Levey said.

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