Policy Memo: Why are U.S. sanctions blocking medicine for Iranians and how can we fix this?


Beginning in 2012, there have been widespread reports that U.S. and European sanctions on Iran have contributed to shortages of life-saving medicine in Iran, including drugs needed to treat cancer, hemophilia, multiple sclerosis, and other severe ailments.

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Beginning in 2012, there have been widespread reports that U.S.
and European sanctions on Iran, in addition to Iranian government
mismanagement, have created shortages of life-saving medicine in Iran,
including drugs needed to treat cancer, hemophilia, multiple sclerosis,
thalassemia and some other severe ailments.  While humanitarian trade is
technically exempt from sanctions, in practice humanitarian transactions are
deterred or blocked by far-reaching sanctions that have walled off
necessary financial channels and heavily penalized sanctions violators.

This problem has apparently persisted despite attempts to
address it.  As Financial Times reported in December,
“torturous procedures…have constricted commercial transactions even for those
western suppliers whose products – such as drugs and food – are exempt from
sanctions on humanitarian grounds.”  On January
28, CNN detailed how many Iranians
have turned to the black market to obtain treatment for cancer due to shortages
of vital American and European drugs.  Further, in recent weeks thousands of Iranians (including former
reformist President Mohammad Khatami and prominent Iranian artists) have
petitioned UN Secretary General Ban Ki-Moon protesting the effect of sanctions
in contributing to Iranian medical shortages. 

Sanctions and Exemptions

There are several Executive Order sanctions under which Iran’s
international banks are sanctioned, notably Executive Order 13224 (terrorism)
and Executive Order 13382 (proliferation).
Any financial institution, foreign or domestic, risks being cut off from the
U.S. financial system if it does any business with these banks.

• While Congress has consistently exempted medicine from
  legislative sanctions, and the Treasury has issued a general license exempting the sale of medicine and
  medical devices from Iran trade sanctions, the exemption does not
  apply to financial transactions directly or indirectly involving banks
  designated under these executive orders.
• If a prohibited Iranian bank is indirectly involved in any
  permitted transaction, such as by providing foreign currency to the Iranian
  bank carrying out the transaction, there is a strong risk of incurring
  sanctions. Therefore, the general licenses for food and medicine are
  effectively superseded by the Executive Orders that block transactions with
  Iran’s international banks.
• Additionally, if financial institutions facilitate any
  authorized transactions that involve Iran, these banks are now required to
  publicly report this to the U.S. Securities and Exchange Commission—incurring
  potential negative publicity related to perfectly legal, humanitarian
  transactions.
• The sanctions and reputational risks have deterred all U.S.
  banks and nearly all foreign financial institutions from facilitating even
  authorized humanitarian transactions.  

Additionally, Executive Order 13599 was
implemented to enforce the 2012 National Defense Authorization (NDAA), which
required the president to block transactions with all Iranian
financial institutions. Accordingly, EO 13599 adds all Iranian financial
institutions to the U.S. Treasury Department’s sanctions blacklist (the Specially Designated Nationals
List,
or “SDN” list).

• Humanitarian trade is still authorized with the small Iranian
  financial institutions that became sanctioned under Executive Order 13599.
  However, the inclusion of these institutions on the SDN list has led most
  international banks to cut all transactions with them anyway.
• The result is that, because all humanitarian trade with Iran
  carries risk for foreign financial institutions, only the biggest and most
  lucrative transactions are carried out.  Even the banks most willing to
  facilitate humanitarian transactions simply view transactions that are not for
  tens of millions of dollars as inviting too much risk for too little potential
  reward. 

Joint Plan of Action: 

The Joint Plan of Action (JPOA) struck
between the P5+1 and Iran includes an agreement to establish “establish
a financial channel to facilitate humanitarian trade for Iran’s domestic needs
using Iranian oil revenues held abroad.” Such a channel could ameliorate the
pressing humanitarian needs of the Iranian people if fully implemented. 

However, recent statements from the
administration have signaled that a direct channel will not be
established.  Rather, efforts from the
administration will largely consist of working with the Iranians to issue reassurances to banks, exporters
and Iranian importers that humanitarian transactions are exempt from sanctions.
While the administration has pledged to redouble efforts, this approach has
been tried before to negligible effect. 
It is doubtful that additional assurances from the administration will
be sufficient to overcome difficulties in identifying viable financial channels
or the hesitancy of banks and exporters to conduct any trade with Iran.  As a result, medical shortages and the
Iranian people’s suffering are likely to continue barring more aggressive
action.

Potential Solutions:

The agreement in the Joint Plan of Action to establish a
financial channel for humanitarian trade would go a long way to resolving this
problem if fully implemented.  However, the administration’s efforts will
apparently consist of assurances rather than a direct channel and may well
prove insufficient to counter the deterrent effect and over-enforcement of
financial sanctions.  Additional steps
will be needed to solve the crisis:

• The Administration should open banking channels for authorized transactions
  by providing domestic and third country banks a blanket waiver that they
  will not be sanctioned for facilitating legitimate humanitarian transactions.
• Alternatively, the Administration could heed the recommendation
  of a recent Atlantic Council report by
  “[d]esignating a small number of US and private Iranian financial
  institutions as channels for payment for humanitarian, educational, and public
  diplomacy-related transactions carefully licensed by the US Treasury’s Office
  of Foreign Assets Control.” This measure would completely cut out the need
  to use foreign banks as intermediaries and ensure a clear and legitimate
  financial channel to facilitate transactions.