States Considering Their Own Iran Sanctions The Bush administration has announced tough new financial sanctions against Iran, but it's not just the federal government taking action. States are, too. More than a dozen are considering or have found ways to divest public funds from companies that do business with Iran.

States Considering Their Own Iran Sanctions

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From NPR News, this is ALL THINGS CONSIDERED. I'm Andrea Seabrook.

This past week, in what seems to be an escalating Cold War with Iran, the Bush administration laid down tough, new financial sanctions. They target Iranian banks and Iran's Revolutionary Guard Corps - the government's powerful military organization - which runs many businesses itself.

The sanctions also label the Quds Force, that's an elite team within the Revolutionary Guard, as an official supporter of terrorism. Administration officials hope to increase international pressure on the Iranian government to stop pursuing nuclear technology and back off from fomenting violence in Iraq.

In a moment, we'll tackle the bigger questions of whether economic sanctions work and under what circumstances. But let's start by hearing from the Bush administration itself.

Nicholas Burns is the undersecretary of state for political affairs, the State Department's third-ranking official. I asked him how exactly these sanctions will work since American companies haven't had business dealings with Iran for 28 years.

Ambassador NICHOLAS BURNS (Undersecretary for Political Affairs, U.S. Department of State): What these sanctions do is cut off the ability of any Iranian implicated in the sanctions' measures from using the United States banking system. And this will, I think, create a situation in Europe and the Middle East where most of the European and Middle Eastern banks are not going to want to deal with these companies either because of their own relations with the American banking system.

SEABROOK: Mr. Secretary, have any other countries given you any indication that they might follow suit on these U.S. sanctions against Iran?

Ambassador BURNS: Well, I think we've seen a reaction mainly from the West European countries that is very positive. You've seen positive statements from Britain and France, in particular. I think we do have a lot of support out there. Now, there are critics. You've seen tough reactions from Russia and China. But, you know, we have a beef with Russia and China. They sell arms to Iran. They're - at least China is increasing its trade with Iran at a time when the United Nations say we should may be backing away from that. So I expected to see the criticism from Russia and China. I think it's important that we try to have an international community that's united. But we have to do this for our self interest.

SEABROOK: In fact, Russian President Vladimir Putin said, and I quote here, "why should we make the situation worse - corner Iran?" And he goes on, "Running around like a madman with a blade in one's hand is not the best way to solve such problems."

Amb. BURNS: That was an extraordinarily unwise statement. Russia is selling arms to Iran. That's irresponsible. That is stoking an arms race in the Middle East. But the point is this, for diplomacy to succeed, it often needs to be accompanied by initiatives like sanctions that will make the diplomacy effective and more tough-minded.

SEABROOK: But at the same time, Secretary Burns, doesn't it actually make it harder in some ways to negotiate with Iran, when you put a key part of its military under sanctions?

Amb. BURNS: I think in that part of the world, in the Middle East, this kind of action is understood. You have to be respected. You have to show a degree of seriousness of purpose, and toughness. Let's look at what Iran has done. The U.N. Security Council and the International Atomic Energy Agency say that Iran is seeking a nuclear capability. We all want it to stop, but it's not stopping. It's accelerating its nuclear research.

On the other hand, Iran is also funding and arming all of the Middle East terrorist groups in Gaza, in Lebanon, in Iraq, and Afghanistan that are currently disrupting the peace. So Iran is a state that is destabilizing the Middle East. There has to be some consequence from that.

And so, I don't think these steps are going to make it more difficult to talk to the Iranians eventually or to get their attention. In fact, they might do the reverse.

SEABROOK: That was Undersecretary of State Nicholas Burns. The Iranian government has reacted to the sanctions with defiance. The country's lead nuclear negotiator called them nothing new, and said they will have no effect on Iran's policies. The head of the Revolutionary Guard announced it is ready to respond fiercely to a U.S. attack on Iran.

So the question is, will these new sanctions work or could they serve to push the U.S. and Iran further apart? I put this to Daniel Drezner. He's a political economist at Tufts University and author of the book, "The Sanctions Paradox." One thing Drezner says is necessary for any international sanctions to work is that they have a clear goal.

Dr. DANIEL DREZNER (Associate Professor of International Politics, Tufts University; Author, "The Sanctions Paradox"): Part of the problem is that on tape, the Bush administration does seem to be relatively clear in saying we want Iran to stop its nuclear program. We want Iran to stop funding, declare terrorist groups like Hezbollah. But it's tough to separate the actually text of what the administration says on these sanctions from the larger rhetoric the Bush administration talks about with regard to Iran, which is they want regime change.

And if you want to change their country's government, that's going to make them a little less likely to concede on the sanctions because in their minds, why should they concede on specific demands if they think that the United States just wants to depose the regime more generally.

SEABROOK: I see. They'll never be good enough.

Dr. DREZNER: It will never be good enough exactly.

SEABROOK: In that case, sanctions could put the Iranian government into self-defense mode. That's why, Drezner says, sanctions often work better on one's allies or regimes that care about being isolated from the Western world, like South Africa's in the 1980s and unlike Iran's regime today.

The push to isolate Iran financially goes beyond the U.S. government. More than a dozen states have considered prohibiting their public funds from investing in companies with ties to Iran. Several have done it including California, a big state with big public pensions.

A new law which sailed through the state's legislature will yank up to $24 billion in state employee retirement funds from mainly European energy companies that deal with Iran. The state law was sponsored by Republican Assemblyman Joel Anderson, who notes U.S. law has long prohibited American companies from doing business in Iran.

Assemblyman JOEL ANDERSON (Republican, California): All we've done is set the bar of risk and we've aligned ourselves our investment policy with those sanctions.

SEABROOK: But Mr. Anderson, others might say that to keep Iran engaged, you keep your business ties with it. That when you break off business ties with a country like Iran, what incentive does it have to keep negotiating?

Assemblyman ANDERSON: The fact of the matter is when you motivate a person, they move. When you look over the last few months, in Iran, they were riding in the streets for the lack of gas. This is a cash-poor country. They are very responsive to this. And we need to use this tool so that we don't have to go to war. We never - we could actually bring them back to the peace table without ever firing a weapon. I think that's an important goal.

SEABROOK: Whether or not it works, divesting a huge pension fund of all shares with ties to one country is not easy in today's global marketplace.

Professor Drezner, the sanctions expert, notes that the thread of anyone's financial transaction is hard to unravel. Then, again, Drezner said, this is big money we're talking about.

Dr. DREZNER: CalPERS, for example, the Californian Public Employees' Retirement System, is a very large pension fund. And so if they start divesting from European companies, the European companies might actually pay attention to it. That said, again, you're talking about many layers through which the sanctions just supposed to have effects on Iran and it gets diluted with each step.

SEABROOK: So, Drezner says, action by the states probably won't have a huge effect but it's not for nothing either. And when you combine that with the new tougher federal sanctions on Iran, they could lessen the flow of money to the country. And money, says California Assemblyman Anderson, is the mother's milk of terrorism.

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