Iran’s leaders are sounding the alarm over mounting economic isolation — not just from U.S. sanctions, but the nation’s ongoing blacklisting by the Financial Action Task Force, an intergovernmental organization that focuses on anti-money laundering and counter-terrorist financing. Iran’s opaque financial system and appetite for financing global terrorism have earned the nation an on-again, off-again spot alongside North Korea on the FATF “High Risk Jurisdiction” or “blacklist” since 2008.
In an October 28 interview, Iranian Foreign Minister Javad Zarif made it clear that he is looking to jumpstart progress on ratifying the necessaryconventions to meet FATF’s requirements while admonishing fundamentalists causing Iran’s “self-sanctioning.”
And last month, Iran’s Supreme Leader Ayatollah Ali Khamenei approved the revival of these bills, possibly anticipating the incoming Biden administration. FATF granted Iran temporary reprieve from the counter-measures of the blacklist with a one-year action plan in 2016 following the implementation of the Iran nuclear deal. After four years of Iranian legislative failure, FATF members voted to return the nation to its familiar spot on the blacklist this February.
While it is ultimately up to individual states and firms how to respond to FATF’s decision, Iran’s economic lifelines — China, Russia, and Europe — appear to be heeding FATF’s call to reduce exposure to the nation’s troubled financial system. As the incoming Biden administration considers its approach to reviving the JCPOA, an increasing alignment of Iran’s economic partners on FATF issues presents an opportunity to mitigate the corruption and money laundering plaguing the Iranian financial system. Even under a fully functional nuclear deal, the Iranian people saw that sanctions relief cannot yield widespread economic betterment if foreign firms will not risk exposure to unsavory characters lurking in Iran’s deficient financial system.
Further, the incoming Biden administration continues to raise the profile of cracking down on illicit finance, which complements President-elect Biden’s promise “to bring transparency to the global financial system.” Separate from efforts to bring Iran back into compliance with key limits in the nuclear deal, the Biden administration should work in concert with China, Russia, European allies, and Congress to encourage necessary Iranian financial reform.
The administration can do so by coordinating a campaign outlining the limits of U.S. sanctions relief and incentivizing FATF compliance with European export credits and development assistance, which would make for more permanent change.
Political establishment versus the shadow state
Cleaning up Iran’s underground economy is part of an internal power struggle over its revolutionary identity and its future reintegration with the global financial system. Most recently, Iran’s parliament passed several FATF-related bills in 2018 that included legislation to ratify the Terrorist Financing Convention. Fundamentalists in the Supreme Leader’s Guardian Council staunchly opposed these financial transparency measures and relegated the bills to legislative purgatory in the Expediency Council. Opponents of FATF compliance claim that timely reforms would infringe on the nation’s financial sovereignty.
In reality, hardliners are likely more concerned with maintaining institutional financial networks through which hundreds of millions of dollars are transferred annually to Iranian Revolutionary Guard Corps allies like Hamas and Hezbollah. While the IRGC could use less efficient, informal means of funneling money to its terrorist proxies, FATF compliance poses an even greater threat to the paramilitary group’s domestic legitimacy. Under the shadow of sanctions and lax regulation, the IRGC has enriched itself while using opaque holding companies to surreptitiously takecontrol of key Iranian industries. Widespread financial reform will reduce the IRGC’s power and perhaps achieve some financial justice for Iranians.
Reining in Iran’s foreign financial risk
Even the nations fighting to rescue the JCPOA have enacted counter-measures against Iran’s delinquent financial system. While China has financial deficiencies of its own, it is highly motivated to seek transparency to avoid unwittingly running afoul of sanctions or a reprimand from FATF, which could degrade its standing with European economic institutions. Beijing’s concerns could threaten a still-unsigned 25-year strategic partnership agreement that promises $400 billion dollars of direct investment that Tehran desperately wants. While experts are skeptical a final deal was ever forthcoming, evidence of the deal’s unraveling has been sprinkled in Iranian media.
For instance, the chairman of the Iran-China Chamber of Commerce said in August that Chinese and Russian banks are unwilling to transact with Iran because of money laundering suspicions. A member of Iran’s Expediency Council, where the financial reform bills are held up, went a step further, telling Iranian outlet Entekhab that Iran’s 25-year cooperation agreement with China cannot be implemented without resolving FATF issues.
That China and apparently Russia — Iran’s closest partners in the nuclear deal — are limiting their financial exposure to Iran speaks to the power FATF recommendations can have when major economic players act decisively. China has fought to keep Pakistan, where it has already invested billions in an economic corridor project, off the blacklist at the past two FATF plenaries. Perhaps motivated by the prospect of losing Chinese investment, Pakistan, while still stuck on the task force’s “grey list,” has made recent progress to address its terrorism financing deficiencies.
Leveraging incentives to progress in Iran is vital as European banks begin pulling away from the nation. At a recent press conference, administration spokesperson Ali Rabiee claimed that British and German banks are now refusing Iranian customers and even closing accounts, citing money-laundering and terrorism financing concerns. The United States and Europe can create clear economic incentives for FATF compliance, in the hope of shedding light on the parasites of the Iranian financial system and building up the private sector.
Expanding economic relief
Increased financial transparency could also help Tehran manage its other international challenges. The U.S. Congress has previously acknowledged FATF’s call for counter-measures in crafting secondary sanctions on Iran’s financial system in the bipartisan 2010 Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA). The U.S. Congress would clearly welcome meaningful Iranian financial reform, and it may garner more support for the easing of sanctions in concert with other security guarantees.
Even with a U.S. move to lift secondary sanctions on Iranian banks, there is an opportunity to catalyze Chinese, Russian, and European financial isolation measures to collectively motivate Iran to enact long-term reforms.
First, the Biden administration should coordinate a direct messaging campaign with not only our European partners, but also Russian and Chinese officials, making clear that any U.S. return to compliance with the JCPOA will not entail significant economic relief unless Tehran improves its FATF standing. In recent days, Iranian state media has published articles to the same effect. It is important for Iran’s leaders to hear from their economic partners in unambiguous terms that FATF inaction will lead to continued financial isolation, regardless of relief from U.S. sanctions.
Second, the U.S. Departments of State and Treasury should educate and encourage European firms to engage Iran private industry under a more transparent financial system without running afoul of ongoing U.S. sanctions. European governments cannot force skeptical banks to engage with Iranian private industry. Therefore, the United States can support European governments’ efforts to offer export credits to promote financial engagement and cover risk with Iranian private industry, and tie further development assistance to Tehran’s standing with the FATF.
Third, the Biden administration can expand on this point of agreement and work with Congress to build clear, codified rewards for Iranian compliance with important international norms into the legislation authorizing the U.S. sanctions program. Legislation that creates a permanent incentive for Iranian FATF compliance will give Iran a path toward more stable sanctions relief under future negotiations.
The Biden administration stands to inherit a maximum pressure campaign that has reached its upper limit, with current national security adviser Robert O’Brien acknowledging that “there’s very little left for us to do.” While unilateral options to achieve U.S. policy objectives in Iran have run dry, a convergence of U.S. interests and independent pressures from Iran’s partners presents a unique window of opportunity to clean up Iran’s murky financial system.
In the absence of Iranian financial integrity, sanctions relief will continue to disappoint the Iranian people, heightening cynicism about incentives to cooperate. Successfully pushing Iran toward FATF-recommended reforms would benefit the U.S. desire to reduce the IRGC’s malign regional and domestic influence while setting a better path for responsible foreign investment and economic recovery for the Iranian people.
Samuel M. Hickey is the Paul A. Castleman Policy Fellow at the Center for Arms Control and Non-Proliferation. He is also a Ph.D. student at the University of Maryland's School of Public Policy and a research associate at the Center for International & Security Studies at Maryland. Hickey's research is focused on the intersection of science and policy in the field of international security.
Somali National Army soldiers march during the 57th Anniversary of the Somali National Army held at the Ministry of defence in Mogadishu on April 12, 2017. AMISOM Photo / Ilyas Ahmed. Original public domain image from Flickr
On February 15, the U.S. government signed a Memorandum of Understanding with the government of Somalia to construct up to five military bases for the Somali National Army in the name of bolstering the army’s capabilities in the ongoing fight against the militant group al-Shabaab.
This is a troubling development that not only risks further militarizing Somalia and perpetuating endless war, but comes with the potential of exacerbating geopolitical rivalries at the expense of the needs and interests of ordinary Somalis.
According to statements by U.S. officials, the bases are intended for the Danab (“Lightning”) Brigade, a U.S.-sponsored Special Ops Force that was established in 2014. Funding for Danab initially came from the U.S. State Department, which contracted the private security firm Bancroft Global to train and advise the unit. More recently, Danab has received funding, equipment, and training from the Department of Defense.
U.S. support is made possible by the 127e program, a U.S. budgetary authority that allows the Pentagon to bypass congressional oversight by allowing U.S. special operations forces to use foreign military units as surrogates in counterterrorism missions. The Intercept has documented similar 127e operations in multiple African countries, primarily in locations that the U.S. government does not recognize as combat zones, but in which AFRICOM troops are present on the ground.
But this MoU is about much more than the U.S. government’s proclaimed commitment to help Somalia defeat al-Shabaab. It is a clear indication of the growing geopolitical significance of the Horn of Africa, and comes at a time of mounting concerns (mostly attempts by Yemen’s Houthis to disrupt global shipping in solidarity with Palestinians in Gaza) about securing the flow of international commerce via the Red Sea. It also coincides with a growing awareness that rising tensions in the Middle East could force the U.S. out of Iraq.
The U.S. government’s plan to train Somali security forces at newly-established military bases in five different parts of the country (Baidoa, Dhusamareb, Jowhar, Kismayo, and Mogadishu) is a back-door strategy not only to expand the U.S. military’s presence in Somalia, but to position itself more assertively vis-à-vis other powers in the region. Indeed, the 127e program is not the only policy that allows for the training and equipping of foreign forces as proxies: section 1202 of the 2018 National Defense Authorization Act further expands the ability of the U.S. to wage war via surrogate forces in places where it has not formally declared war, with the broader objective of countering the influence of adversaries like China and Russia.
While much ink has been spilled attempting to analyze great power competition on the continent, we have yet to adequately scrutinize the growing influence of middle powers like Turkey, Saudi Arabia, the United Arab Emirates, and Qatar who are each attempting to negotiate their own sphere of influence, and whose involvement in the Horn points to uncertain, if not waning, U.S. power.
Turkey maintains its largest foreign military presence in Mogadishu, has trained Somali security forces, and more recently has worked closely with the Somali government in conducting drone strikes against Al-Shabaab. Further underlining deepening Turkish engagement in the country, Somalia and Turkey signed defense and economic agreements earlier this month. Qatar and the United Arab Emirates have trained, and continue to train, local security forces as part of a broader strategy to secure access to regional markets and to assert their control over vital shipping lanes in the Red Sea.
With the drawdown of the African Union sponsored “peacekeeping” mission — previously known as AMISOM but renamed ATMIS in 2022 — analysts have expressed apprehension about the expansive nature of foreign actor involvement in Somalia and the risk of Cold War-style competition fueling instability. Indeed, the foreign-sponsored training of multiple “elite” contingents of the Somali National Army (Danab, Waran, Gashaan) has prompted internal divisions within the security establishment in Somalia as it raises chain of command issues and questions about the loyalty of these units.
As Colin D. Robinson and Jahara Matisek, both regional and military experts, have said, “The only thing worse is that various Somali units become more loyal and dependent on their foreign patron, short-circuiting the political logic of having security forces that look more like hired proxies than locally organized for self-defense. This may contribute to the growing perception of Somalia becoming a hyper-competitive arena; a republic of militias if you will.”
Equally significant is the recently announced Memorandum of Understanding between Ethiopia and Somaliland, a separatist region in northwestern Somalia. According to the terms of this yet-to-be signed agreement, in exchange for Somaliland granting 20km of much coveted sea access for the Ethiopian Navy for a period of 50 years, Ethiopia would formally recognize the Republic of Somaliland as an independent nation. The MoU has elicited a wave of anger among Somalis who view Ethiopia as meddling in their internal affairs — and it is precisely this history of meddling that has in the past contributed to al-Shabaab’s support base as it positions itself as the defender of Somali nationalism and autonomy.
While the U.S. State Department called for respect for Somalia’s sovereignty and territorial integrity and urged dialogue in response to the Ethiopia-Somaliland MoU in the name of de-escalating tensions in the region, the February 15 announcement that the U.S. intends to ramp up its involvement in Somalia is hardly an indication of a neutral stance. Rather, it is an indication of U.S. positioning in an increasingly militarized jockeying by foreign powers in this strategic but troubled country and region.
In Mogadishu, many Somalis are welcoming the U.S. announcement, perhaps in some cases hoping for job opportunities, and in others viewing the U.S. military support and presence as a potential buffer against Ethiopia. But if the past several decades of U.S. mis-adventures in Somalia are any indication, expanding U.S. involvement risks perpetuating rather than minimizing further conflict.
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SOUTH CHINA SEA (Feb. 9, 2021) The Theodore Roosevelt and Nimitz Carrier Strike Groups steam in formation on scheduled deployments to the 7th Fleet area of operations. (U.S. Navy photo by Mass Communication Specialist 3rd Class Elliot Schaudt/Released)
The U.S. will have almost half of its aircraft carriers deployed in the Pacific in the coming weeks.
The South China Morning Post reported on February 14 that five of America’s 11 aircraft carriers would all likely soon be deployed there at the same time. Two of the carriers, the USS Carl Vinson and USS Theodore Roosevelt have been participating in a military exercise with Japan in the Philippine Sea, the USS Ronald Reagan is in port at Yokosuka, the USS Abraham Lincoln departed San Diego earlier this month, and the USS George Washington is expected to relieve the Reagan in a few weeks.
This is an unusual concentration of America’s naval power in one region at once, and it is being widely interpreted as a show of force meant for China and North Korea.
The Biden administration has made a point of making more shows of force in East Asia over the last year to reassure Asian allies that the U.S. has not forgotten about them. That isn’t surprising given the importance that the administration attaches to the “Indo-Pacific” and an active U.S. role in it, but in doing this it may also be contributing to increasing tensions with both Beijing and Pyongyang. We have already seen some of this in the back-and-forth between the U.S. and North Korea since last summer as North Korea has answered U.S. naval deployments to South Korea with additional missile tests and more bellicose rhetoric.
While these carrier deployments are presumably intended to signal American resolve and commitment to its regional allies, they could easily encourage China and North Korea to engage in their own reciprocal demonstrations of strength. They are also a reminder that the U.S. approach to East Asia is still very much a “military-first” approach that gives short shrift and devotes relatively few resources to economic statecraft and diplomacy. International relations scholar Van Jackson warned about the dangers of this approach more than two years ago, and since then the U.S. has only ramped up its military spending and deployments.
Because Washington’s attention has been focused so intently for the last four months on the war in Gaza and the other conflicts in the Middle East connected to it, it seems that the administration wants to show that it isn’t neglecting East Asia. The carrier deployments in the Pacific appear to be an attempt to “make up” for the continued massive over-investment of energy and resources in the Middle East.
The show of force may satisfy some allied governments, but it could also confirm the impression in both friendly and hostile capitals that the U.S. is overstretched and trying to take on too many tasks at the same time. The habit of reassuring allies so frequently has its own costs, including encouraging greater allied dependence, and when it is done too often it can have destabilizing effects on the wider region.
One of the principle weaknesses of U.S. foreign policy in East Asia is an overreliance on military deterrence. This tends to ratchet up tensions more than necessary and undermines credible assurances to adversaries. The U.S. excels at reassuring allies with its displays of military power, but because it often fails to strike a balance by giving adversaries assurances about its intentions, our government can feed the fears of Chinese and North Korean leaders and encourage them to assume the worst about what the U.S. is doing.
The carrier deployments suggest that the administration doesn’t understand the need for balancing deterrence and assurance. Failing to balance the two risks making conflict based on a miscalculation more likely. As the Quincy Institute’s Michael Swaine recently wrote about U.S. deterrence and Taiwan, “This balance is essential because, if the level of punishment or denial capability acquired is in fact seen as threatening the adversary’s most vital interests, the adversary, rather than being deterred from taking aggressive action, will become more inclined to undertake or threaten preemptive or punishing moves of its own in order to protect those interests, thus increasing, rather than decreasing, the chance of conflict.”
By relying so much on shows of force designed to intimidate China, the Biden administration increases the risk of a crisis.
The potential danger with North Korea is arguably even greater, since the North Korean government has a long history of responding to U.S. and allied pressure with its own provocations and threats. To the extent that Pyongyang perceives the deployment of so many carriers to the Pacific as directed even partly at North Korea, Kim Jong-un may conclude that he needs to show off his country’s own capabilities with additional missile tests and possibly even a new nuclear test.
Last year, North Korea reacted very angrily to the arrival of the USS Ronald Reagan in Busan, so it seems reasonable to expect an even harsher response if there are multiple carriers in the vicinity. Given the increasingly hostile rhetoric already coming from Pyongyang in the last few months, it would not take much for a new standoff between the U.S. and North Korea to begin.
The U.S. can ill afford a new crisis in East Asia on top of the other conflicts that it is involved in, but its overly militarized approach to the region is not the way to avoid it. If Washington wants to make conflicts in East Asia less likely, it will need to do a much better job of understanding its adversaries’ thinking and of offering them assurances that they can believe. Right now, the U.S. is doing far too little of both, and that is making the U.S. and its allies less secure than they could be.
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Left-to-right: Senator-elect Ted Budd (R-N.C.); Senator Mitch McConnell (R-KY), the Senate Minority Leader; Senator-elect Katie Britt (R-AL); and Senator-elect J.D. Vance (R-OH) pose for a photo before meeting in Leader McConnell’s office, at the U.S. Capitol, in Washington, D.C., on Tuesday, November 15, 2022. (Graeme Sloan/Sipa USA)
The so-called GOP “civil war” over the role the United States should play in the world made headlines earlier this week when the Senate finally passed a national security supplemental that provides $60 billion in aid for Ukraine and $14 billion for Israel.
The legislation, which was supported by President Joe Biden and the overwhelming majority of the Senate’s Democratic caucus, proved more controversial among Republicans. Twenty-two GOP Senators voted in favor of the legislation, while 27 opposed it.
An analysis of the votes shows an interesting generational divide within the Republican caucus.
Each of the five oldest Republicans in the Senate — and nine of the ten oldest — voted in favor of the supplemental spending package. Conversely, the six youngest senators, and 12 of the 14 youngest, opposed it.
Equally striking was the breakdown of votes among Republicans based on when they assumed their current office. Of the 49 sitting GOP Senators, 30 were elected before Donald Trump first became the party’s presidential candidate in 2016. Eighteen of those 30 supported the aid legislation. Of the members who came to office in 2017 or later, only four voted to advance the bill, while 15 voted against.
The difference in votes among those elected since 2016 is likely partly attributable to Trump’s unconventional approach to foreign policy. The Republican party establishment during the Cold War and Global War on Terror is often associated with hawkishness, including towards Russia. While the party has always carried some skepticism toward foreign aid, some of the most significant spending increases have taken place during the presidencies of Republicans Ronald Reagan and George W. Bush.
Trump, however, won in 2016 in part for his open disdain for mission creep after the GWOT, what he called the failed war in Iraq, and foreign aid he believed made countries dependents rather than reciprocal partners and allies.
“[Trump] certainly created the cognitive space,” Brandan Buck, a U.S. Army veteran and historian of GOP foreign policy, tells RS. “He's more of an intuitive thinker than a person of principle, but I think him being on the scene, prying open the Overton window has allowed for a greater array of dissenting voices.”
Others have argued that the trends are perhaps also indicative of the loyalty that Republicans who assumed their offices during the Trump presidency feel toward him. Trump spoke out forcefully against the legislation in advance of the vote.
“WE SHOULD NEVER GIVE MONEY ANYMORE WITHOUT THE HOPE OF A PAYBACK, OR WITHOUT “STRINGS” ATTACHED. THE UNITED STATES OF AMERICA SHOULD BE “STUPID” NO LONGER!,” the former president wrote on the social media platform Truth Social the weekend before the vote.
The vote cannot only be explained by ideology, as some typically hawkish allies of Trump, like Sen. Lindsey Graham (R-S.C.) ultimately voted against the package. Graham is a staunch supporter of Israel, has voted for previous Ukraine aid packages, and in the past called aid for Ukraine “a good investment” and “the best money we’ve ever spent.” By the time the vote on the most recent spending package came around, Graham was lamenting the lack of border security provisions and echoing Trump’s argument that aid to Ukraine should be a “loan.”
Meanwhile, Senators took note of the generational gap, and the debate spilled over into the public. .
“Nearly every Republican Senator under the age of 55 voted NO on this America Last bill,” wrote Sen. Eric Schmitt (R-Mo.), 48, on the social media platform X. “Things are changing just not fast enough.” Schmitt was elected in 2022.
“Youthful naivety is bliss, the wisdom of age may save the west,” retorted Sen. Kevin Cramer (R-N.D.) “Reagan may be dead, but his doctrine saved the world during less dangerous times than these. If the modern Marx (Putin for the youngsters) restores the USSR while we pretend it’s not our problem, God help us.” Cramer, 63, was sworn in in 2019, making him one of the handful of recently elected senators to support the aid legislation.
“I like Kevin, but come on, man, have some self-awareness,” Sen. J.D. Vance fired back. “This moment calls out for many things, but boomer neoconservatism is not among them.”
Vance, who at 39 is the youngest Republican member of the Senate, noted in his post that “the fruits of this generation in American leadership is: quagmire in Afghanistan, war in Iraq under false pretenses.” He said younger Americans were disillusioned with that track record.
Buck, who served several tours in the Afghanistan war, and whose research includes generational trends in U.S. foreign policy thinking, pointed out that there is strong historical precedent for believing that age and generation affect how members of Congress view America’s role in the world.
“It's certainly not unusual for there to be generational trends in foreign policy thinking, especially within the Republican Party,” Buck told RS. Following the end of World War II, he said, it took “a full churning” of the conservative movement to replace old-school non-interventionist Republicans and to get the party in line with the Cold War consensus. “I think what we're seeing now is something similar but in reverse with a generation of conservatives.”
He added that the failures of the War on Terror resulted in a deep skepticism of the national security state and the Republican party establishment. Opinion polling and trends show that the American public that grew up either during or in the shadow of the disastrous military campaigns in the Greater Middle East is generally opposed to military intervention and more questioning of American institutions.
“All the energy on FP [foreign policy] in the GOP right now is with the younger generation that wants fundamental transformation of USFP [U.S. foreign policy],” noted Justin Logan, director of defense and foreign policy studies at the Cato Institute, on X. “The self-satisfied, insular neocons who loathe their voters’ FP views are a dying breed.”