Today, The United States Department of the Treasury Under Secretary for Terrorism and Financial Intelligence, Stuart Levey, went before the House Committee on Foreign Affairs to report on the progress of sanctions against Iran. Levey discussed the efforts being made by the U.S. and its international partners to apply economic sanctions against Iran and the critical role the Comprehensive Iran Sanctions Accountability, Divestment Act of 2010 (“CISADA”) has played in those efforts. Furthermore, Levey discussed the efficacy of the sanctions being imposed against Iran.

As part of his testimony, Levey indicated that sanctions have had the effect of isolating Iran, by making it increasingly difficult for businesses in Iran or the Iranian government to engage in transactions in dollars or euros. Levey contends that this has lead to tension within the regime itself as well as a great deal of finger pointing amongst officials in an increasingly divided government. These statements coincide with what was reported on this blog earlier in the week when describing the conversation Levey had with Israeli officials in late 2008.

Levey also indicated that no one single sanctions program or measure would serve as a “silver bullet” and that over that past year the U.S. government has implemented various sanctions measures against Iran to exert pressure against the Islamic regime. This statement is truly accurate in that the past year as seen the passing of CISADA, the strengthening of the Iranian Transactions Regulations, and the promulgation of both the Iranian Financial Sanctions Regulations and a new sanctions program which blocks Iranian parties engaged in human rights violations.

However, the most telling statement made by Levey was this: “Many in the private sector are simply unable to distinguish between Iran’s legitimate and illicit transactions, and so they have opted to cut off Iran entirely. In this way, Iran’s own evasion and deceptive conduct is further increasing its isolation.” For years the question has been: do sanctions work? While the U.S. government has always maintained that these sanctions programs against Iran were effective it has only been recently where the efficacy of these programs can no longer be questioned.

In my practice, I am come across cases everyday where companies have thrown up their hands all together and given up on doing business with Iran or, in some circumstances, with companies that do business to Iran. There are still some doubts however, amongst the Iranian business community both in Iran and abroad as to whether or not these sanctions are targeting the right parties. On a recent trip overseas I met with quite a number of Iranian business people who believe the sanctions are working, but against the wrong targets. Those individuals claim that their businesses are being decimated by U.S. economic sanctions but that the effect is not impacting the government of Iran.

The traditional thinking on this has been that the effect on the people will naturally apply more pressure to the regime, who will be dealing with an unhappy citizenry, and endanger its stability. However, I believe this strategy fails to take into consideration a cost/benefit analysis. If these sanctions ultimately do lead to the collapse of the Islamic regime in Iran, what feelings will the people of Iran harbor towards the U.S. for imposing sanctions which have impacted them so severely for so long? Will they blame it on their former government? Or will they blame the U.S. for hurting them in an effort to exert foreign policy objectives against the former regime?

The author of this blog is Erich Ferrari, an attorney specializing in OFAC litigation. If you have any questions please contact him at 202-280-6370 at 202-351-6161 or ferrari@ferrari-legal.com.