United States Senators Mark Kirk (R-Ill.), Joe Manchin (D-W.Va.), Susan Collins (R-Me.), Bill Nelson (D-Fla.) and John Cornyn (R-Tex.) today introduced bipartisan legislation to block Iran's access to billions of dollars worth of foreign exchange reserves and limit the ability of designated Iranian entities like the Central Bank of Iran (CBI) and the National Iranian Oil Company (NIOC) to conduct transactions in foreign currencies, including euros.
The Iran Sanctions Loophole Elimination Act would require the President to impose sanctions on any foreign bank that knowingly conducts or facilitates a transaction in a non-local currency for or on behalf of the CBI or any entity within the blacklisted Iranian energy, shipping, shipbuilding and port operator sectors if such transaction occurs on or after tomorrow, May 9, 2013.
"We are putting financial institutions around the world on notice that, effective tomorrow, you must halt all foreign currency transactions on behalf of blacklisted Iranian banks and sectors or risk being cut off from the U.S. financial market," the Senators said. "If you are facilitating a transaction for the CBI, NIOC or a host of other blacklisted Iranian companies, and the transaction is not being conducted in your local country's currency, you will be held accountable."
The Iranian Government, including the Central Bank of Iran, maintains bank accounts around the world filled with foreign exchange reserves -- with the majority of those held in euros. Reports suggest that Iran uses these reserves to circumvent the total impact of American and European sanctions by converting them into local currencies in order to finance imports and stabilize the country's monthly budget. Under the legislation, such currency conversions would be prohibited effective tomorrow; any transactions conducted from that date forward would retroactively be subject to sanctions when the legislation becomes law. For example, a Chinese bank -- and its European correspondent -- would be prohibited from conducting a transaction with or for the Central Bank of Iran in euros; such a transaction would only be allowed in yuan effective tomorrow. Asian clearinghouses that bundle such euro transactions would also be subject to sanctions.
On February 25, 2013, 36 Senators (19 Democrats and 17 Republicans, including majorities of both the Senate Foreign Relations and Banking Committees) signed a bipartisan letter to the European Union urging the EU to take immediate action to close this "euro loophole" in our sanctions policy. On March 23, 2013, the U.S. Senate unanimously passed an amendment to the budget supporting efforts to block Iran's access to its foreign exchange reserves and limit the ability of designated Iranian entities like the Central Bank of Iran to conduct transactions in euros.
"With the EU having taken no action and talks with Iran continuing to drag on without progress, the time has come for the Senate to take action to close this sanctions loophole," the Senators said. "Closing the foreign currency loophole in our sanctions policy is critical in our efforts to prevent Iran from acquiring a nuclear weapons capability. We urge international financial regulators, including those from the European Union, to issue regulations to comply with this legislation."
While the Iran Sanctions Loophole Elimination Act would cut off Iran's access to foreign exchange reserves, the legislation would still allow Iran to purchase food and medicine for the Iranian people using local currency accounts. The measure is expected to be attached to Iran sanctions legislation in the House later this month.