Washington – The United States is expanding its use of targeted sanctions aimed at halting nuclear proliferation, terrorism and money laundering, and encouraging other countries to do likewise, U.S. officials say.

However, persuading other countries to join with the United States in applying financial enforcement measures and other innovative tools against proliferators and international criminals remains a significant challenge, said Patricia McNerney, principal deputy assistant secretary of state for international security and nonproliferation.

She and other officials testified at an April 18 hearing conducted jointly by two panels of the U.S. House of Representatives.

The U.S. government also needs more cooperation and expertise from the private sector in preventing rogue regimes and entities from gaining access to dangerous weapons and financial resources, McNerney said.

She said that targeted financial sanctions used to combat terrorist networks now are being applied successfully against proliferation activities in North Korea, Syria and Iran.

U.S. designations of certain entities and individuals as proliferators, combined with diplomatic efforts, have prompted many banks and other financial institutions around the world to scale down or terminate completely their dealings with proliferators, McNerney said.

Bush administration officials have met with officials from more than 40 banks worldwide to discuss the threat Iran poses to them and the international financial system, Treasury Department representatives told the subcommittees.

In some cases, the U.S. government shared information about Iran’s deceptive financial behavior and made banks aware about the risks to their finances and reputation associated with doing business with that country, said Treasury Department officials Daniel Glaser and Adam Szubin in joint prepared testimony.

Glaser is assistant secretary for terrorist financing and financial crimes and Szubin is director of the Office of Foreign Assets Control.

This and other forms of partnerships with the private sector have made banks less likely to work around sanctions, they said.

According to officials, Iran already has experienced difficulties in obtaining official export credits from countries such as France, Germany and Japan, and in conducting its transactions through major banks.

McNerney said many proliferators have been forced to reconstitute their networks, looking for banks willing to handle their transactions.

“It is for this reason that we must remain vigilant to ensure that entities engaged in proliferation and illicit activities are denied financial services worldwide,” she said.

SMART SANCTIONS

Another State Department official, Paul Simons, said targeted, or “smart,” sanctions make the international fight against criminal and dubious operations more effective because they limit the potential for unintended consequences.

Simons is deputy assistant secretary in the Bureau of Economic, Energy and Business Affairs.

He said the U.S. and other governments still can use more comprehensive sanctions in a way that shows their focus is on the regime rather then on people; for example, by licensing sales of certain products to countries under sanctions.

But the United States has favored “smart” sanctions focused on specific bad behavior, and entities engaged in such a behavior, as a more effective way of bringing pressure on regimes and networks to change course, Simons said.

He said gaining international support, a crucial element in ostracizing rogue regimes, is easier for targeted sanctions than for embargoes.

A sustained multilateral sanction strategy also is the best way for blocking Iran’s acquisition of nuclear weapons, Simons said.

He said U.S. government’s sanctions have played a role in successfully discouraging investment in Iran despite that country’s rich oil and natural gas resources.

However, Brad Sherman, chairman of the House Foreign Relations Subcommittee on Terrorism, Nonproliferation and Trade, told government witnesses that the U.S. government’s failure to use extraterritorial sanctions available under U.S. law against foreign corporations still doing business with Iran has led to a continued flow of investment into Iran’s energy sector. According to Congressional Research Service numbers cited by Sherman, foreign investment in that sector totaled more than $100 billion since 1999. 

Simons said the focus of U.S. sanctions should be on Iran, not on U.S. allies.

“It is vital that we maintain the unprecedented coalition that has come together to address Iran’s problematic nuclear activities,” he said.

U.S. officials acknowledged that the impact of sanctions is limited but added that sanctions can influence the decisionmaking process of a regime by changing cost-benefit calculation of its actions.

That is why the success of sanctions should be measured by the degree of international isolation rather than by the amount of regime’s assets frozen in its foreign accounts, Szubin said.

The full text of testimonies as prepared for delivery is available on the House Foreign Affairs Committee Web site.