US allows businesses to flout trade sanctions

Published on Saturday 25 December 2010 11:43

THE US government has allowed American companies to do billions of dollars of business with Iran and other countries blacklisted as state sponsors of terrorism despite sanctions and trade embargoes, an investigation has found.

At the behest of a host of companies - from Kraft Food and Pepsi to some of the nation's largest banks - a little-known office of the Treasury Department has granted nearly 10,000 licences for deals involving countries cast into eco-nomic purgatory, supposedly beyond the reach of American business.

Most of the licences were approved under a decade-old law mandating that agricultural and medical humanitarian aid be exempted from sanctions. But the law, pushed by the farm lobby and other industry groups, was written so broadly that allowable 'humanitarian aid' has included cigarettes, Wrigley's gum, Louisiana hot sauce, weight-loss remedies, bodybuilding supplements and sports rehabilitation equipment sold to the institute that trains Iran's Olympic athletes.

Hundreds of other licences were approved because they were deemed to serve US foreign policy goals.

In an interview, the Obama administration's point man on sanctions, Stuart A Levey, said that focusing on the exceptions "misses the forest for the trees." Indeed, the exceptions represent only a small counterweight to the overall force of America's trade sanctions, which are among the toughest in the world. Now they are particularly focused on Iran, where on top of a broad embargo that prohibits most trade, the United States and its allies this year adopted a new round of sanctions that have effectively shut Iran off from much of the international financial system.

"No one can doubt that we are serious about this," Mr. Levey said.

But as the administration tries to press Iran even harder to abandon its nuclear programme some diplomats and foreign affairs experts worry that by allowing the sale of even small-ticket items with no military application, the United States muddies its moral and diplomatic authority.

"It's not a bad thing to grant exceptions if it represents a conscious policy decision to give countries an incentive," said Stuart Eizenstat, who oversaw sanctions policy for the Clinton administration when the humanitarian-aid law was passed. "But when you create loopholes like this that you can drive a truck through, you are giving countries something for nothing, and they just laugh in their teeth." I think there have been abuses."

Enforcement of America's sanctions rests with Treasury's Office of Foreign Assets Control, which can make exceptions with guidance from the State Department.

In some cases, licensing rules failed to keep pace with changing diplomatic circumstances.For instance, US companies were able to import cheap blouses and raw material for steel from North Korea because restrictions loosened when that government promised to renounce its nuclear weapons program and were not recalibrated after the agreement fell apart.

Mr Levey, a Treasury under secretary who held the same job in the Bush administration, pointed out that the US did far less business with Iran than did China or Europe; in the first quarter of this year - 0.02 per cent of American exports went to Iran. And while it is "a fair policy question" to ask whether Congress's definition of humanitarian aid is overly broad, he said, the exception has helped the United States argue that it opposes Iran's government, not its people.