Yesterday, the Treasury Undersecretary for Terrorism and Financial Intelligence David Cohen spoke to a group at New York University School of Law on Iran Sanctions law and policy. For those that don’t know, Undersecretary Cohen has under his supervision the Office of Foreign Assets Control (OFAC), the primary federal agency responsible for administering U.S. economic sanctions programs.

During his talks Undersecretary Cohen made a few interesting points on Iran sanctions and policy. Here are the more interesting (to me at least) tidbits and my thoughts on them:

Undersecretary Cohen: “[W]e made clear that if Iran refused the offer of engagement we, along with our partners in the international community, would steadily yet rapidly apply increasingly powerful and sophisticated sanctions on Iran.”

Yes and no. There is no doubt that the rhetoric from the administration has been in favor of pushing for tougher sanctions; however, a lot of the tougher sanctions we have seen applied by OFAC and the Obama Administration resulted from legislative mandates forced by Congress. The Comprehensive Iran Sanctions Accountability, Divestment Act of 2010 and Section 1245 of the National Defense Authorization Act of 2012 are two examples of that phenomenon. While I don’t think the Obama Administration has been weak on Iran or soft in regards to their imposition, implementation, or enforcement of sanctions, a lot of credit for the incredibly strict sanctions targeting Iran that we see today belongs to Congress.

Undersecretary Cohen: “This decrease in [oil] exports is costing Iran up to $5 billion a month, forcing the Iranian government to cut its budget because of a lack of revenue.”

True, but is it just a reduction in budget or also a reallocation of budget? Is there any data to support that decreased oil revenues have led to across the board cuts to all Government of Iran programs and operations? Or are certain budgets, for example those for social services and subsidies that affect the civilian population, being reduced while military and nuclear research budgets remain the same? I don’t know the answer to this, so if anyone wants to email me some statistics that could answer this question I would be interested in seeing them.

Undersecretary Cohen: “Moving beyond our appeal to foreign banks’ enlightened self-interest, we took a series of actions that conditioned foreign banks’ direct access to the U.S. financial market on their agreement not to deal with Iran’s designated banks.”

Yes, indeed they did. This is a concept referred to as secondary boycotting and is all the rage in sanctions world these days. Essentially, it stands for the principal that if a foreign financial institution carries out significant financial transactions in relation to certain activities or with certain parties in Iran, that they will be sanctioned. In the case of Iran this means they could lose their access to the U.S. financial system by being barred from maintaining correspondent accounts at U.S. depository institutions.

Undersecretary Cohen: “Take a moment to ponder that evidentiary standard – “reasonable grounds to believe” that financial services “could contribute” to Iran’s proliferation activities. As an abstract matter, that is not a terribly difficult standard to meet.”

Cohen made this statement in regards to a U.N. resolution which called upon Member States to not allow Iranian banks to open branches in their countries if there was reasonable grounds to believe that the services of that branch could contribute to Iran’s proliferation activity. Undersecretary Cohen is right, its not a difficult standard to meet. In fact, it is so easy to meet I would hardly call it a standard at all. This “reasonable cause to believe” standard is the same one employed by OFAC in making their Specially Designated Nationals (SDN) designations and is one that most lawyers I have spoken to the world over are appalled by. I am surprised Undersecretary Cohen seemingly celebrated this standard in a room full of lawyers, but I guess when you are the boss of U.S. sanctions you have the liberty to speak freely on the issue.

All and all, I thought Cohen’s remarks were concise and on point. He didn’t fill them with too much fluff and did offer some telling statistics. Undersecretary Cohen had big shoes to fill once Stuart Levey left Treasury. His remarks at NYU School of Law and the information he provided shows that he has handled the job well.

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