Exploring the Efficacy of Sanctions Against Iran: An Industry Response & National Security Perspective

Abstract

The present research investigates the efficacy of economic sanctions that were imposed on Iran by the U.S. and the UN (United Nations) beginning in 1979. In doing this, the research looks at macroeconomic trends over time (from 1979 to present day), data about Enforcement Actions and Settlements reported by OFAC over the years (earliest year is 1985, latest is 2017), and information obtained through interviews with FBOs, bank regulators/government organizations, and financial consultants—otherwise known as ‘industry representatives.’ With this diverse set of evidence, results will offer readers a better understanding of the effectiveness of sanctions from a national security/world peace, humanitarian, and also an industry perspective. Studying macroeconomic trends sheds light on the success of the targeted and secondary sanctions in achieving their goals of financially squeezing Iran into changing its policy decisions for the betterment of society—particularly curbing illicit behavior, like nuclear weapons development or terrorism. The macroeconomic data explored here also reveals that as the stakes (size of fines imposed on banks) increased, the level of compliance with sanction regulations also increased. Industry interviews offer a different take on sanctions as they highlight how sanctions are received in practice. That is to say, interviews with FBOs revealed both how banks are impacted by sanctions and the role banks play in sanctions compliance. While they are often forced to dramatically make costly improvements to their compliance programs, either after being fined or to avoid being fined, more and more banks are recognizing how crucial this investment is for world peace and security. On the other hand, interviewing regulators and governmental bodies highlighted the important role banks play as the first line of defense when it comes to combating sanctions evasion and other financial crimes, as well as the essential partnership between banks, law enforcement, regulators, and technology. After analyzing the various data, I offer two main policy implications to which I apply and connect current U.S. dealings with North Korea and Russia. While every case is different and there is no one-size-fits-all solution in sanctioning strategies, the use of sanctions against Iran was a success, overall, and thus parts of the strategy can be applied to the world’s current issues: 1) Financially isolating Iran through the use of targeted and secondary sanctions proved effective and 2) Developing a more uniform, holistic, and proactive global approach to sanctions is key to its success.