IRAN

U.S. and International 

Sanctions Have 

Adversely Affected the 

Iranian Economy 

Report to the Chairman, Committee on 

Homeland Security and Governmental 

Affairs, U.S. Senate 

February 2013 

GAO-13-326 

United States Government Accountability Office

GAO 
 United States Government Accountability Office 

Highlights of GAO-13-326, a report to the 

Chairman, Committee on Homeland Security 

and Governmental Affairs, U.S. Senate 

February 2013 

IRAN

U.S. and International Sanctions Have Adversely 

Affected the Iranian Economy

Why GAO Did This Study 

Since 1987, the United States has 

implemented a broad range of 

sanctions targeting Iran to deter it from 

developing its nuclear program, 

supporting terrorism, and continuing its 

human rights abuses. Beginning in 

2010, Congress has enacted additional 

financial sanctions which generally 

restrict Iranian access to the U.S. 

financial system. In addition, the United 

Nations and the European Union have 

adopted several sanctions to compel 

Iran to suspend its nuclear program. 

However, concerns have been raised in 

Congress and by the United Nations 

about the impact of these sanctions, 

including the effect of recent financial 

sanctions on exports of humanitarian 

goods to Iran. The export of certain 

humanitarian goods to Iran is allowed 

by U.S. law, under certain conditions. 

In this report, GAO (1) describes 

recent laws and executive orders that 

have added to Treasury’s authority to 

implement financial sanctions targeting 

Iran, (2) describes U.S. efforts to 

administer and enforce the financial 

sanctions, and (3) analyzes evidence 

of the effect that recent U.S. and 

international sanctions have had on the 

Iranian economy. GAO reviewed U.S. 

public laws, executive orders, and 

agency guidance; met with U.S. 

agency officials; and analyzed trade 

and economic data from the 

International Monetary Fund, European 

Union, and others, as well as forecasts 

of Iran’s future economic performance. 

What GAO Found 

Since 2010, congressional legislation, such as the Comprehensive Iran 

Accountability, Sanctions, and Divestment Act of 2010 (CISADA), as well as a 

number of executive orders, have established additional U.S. financial sanctions 

targeting Iran. For example, CISADA authorized the imposition of sanctions on 

foreign financial institutions that facilitated certain activities or financial 

transactions by entities including Iran’s Islamic Revolutionary Guard Corps. 

According to an Under Secretary of the Treasury, CISADA “set a new 

precedent,” because “[i]t gave the Secretary of the Treasury the authority for the 

first time to require U.S. banks to terminate correspondent banking relationships 

with foreign banks that knowingly engaged in significant transactions with 

designated Iranian banks.” 

The Department of the Treasury (Treasury)–along with other U.S government 

agencies–administers and enforces U.S. financial sanctions targeting Iran. 

Treasury administers the sanctions by developing regulations, conducting 

outreach to domestic financial regulators and foreign banks, identifying apparent 

sanctions violations, and assessing the effects of the sanctions. State 

administers some investment and trade sanctions, principally energy sanctions, 

targeting Iran. U.S agencies and federal and state banking regulators have taken 

a range of actions to ensure compliance with financial sanctions. Specifically, in 

recent years, Treasury and the Department of Justice (Justice) have taken 

actions against banks for systematic and willful violations of sanctions laws, 

including violations of U.S. financial sanctions regulations targeting Iran. For 

example, in 2012, Justice announced that both HSBC Holdings, PLC and HSBC 

Bank USA NA had agreed to forfeit $1.256 billion to the United States in 

connection with violations of sanctions targeting Iran, among other countries. 

The combination of U.S. and international sanctions has adversely affected the 

Iranian economy and its future outlook. According to GAO’s analysis, the Iranian 

economy has consistently underperformed the economies of comparable peer 

countries across a number of key economic indicators since 2010, when recent 

sanctions were enacted. In contrast to its peers, Iran’s oil production, oil export 

revenues, and economic growth estimates have fallen, and its inflation has 

increased. For example, Iran’s oil export revenues fell by 18 percent from 2010 to 

2012, while its peers’ oil export revenues increased by 50 percent. In addition, 

professional and International Monetary Fund forecasts of the Iranian economy 

were downgraded to reflect deterioration in Iran’s expected economic 

performance after the implementation of recent sanctions. Some experts have 

stated that Iran’s recent economic deterioration has resulted from a combination 

of sanctions and Iranian economic mismanagement. GAO’s analysis of European 

Union and U.S. exports to Iran of humanitarian goods indicates that exports of 

these goods, such as agricultural goods and medicines, increased in the first 10 

months of 2012 compared with 2011. UN reports have raised concerns about the 

availability of such goods in Iran. According to open sources, the government of 

Iran has tried to adapt to the sanctions through various means, including using 

alternative payment mechanisms such as barter agreements and changing its 

trading partners. However, these recent agreements have thus far not fully offset 

the reduced exports of oil to the European Union and others. 

View GAO-13-326. For more information, 

contact Thomas Melito at (202) 512-9601 or 

melitot@gao.gov. 
Page i GAO-13-326 Iran 

Letter 1 

Background 3

From 2010 through 2012, the United States Established Additional 

Financial Sanctions Targeting Iran 9

U.S. Agencies Administer and Enforce U.S. Financial Sanctions 

Targeting Iran 16

U.S. and International Sanctions Have Adversely Affected the 

Iranian Economy, and Iran Is Attempting to Adapt to Them 27

Agency Comments 44

Appendix I Scope and Methodology 45 

Appendix II Selected U.S. and International Sanctions Targeting Iran 50 

Appendix III Econometric Analysis of Iran Economic Indicators 51 

Appendix IV IAEA Reports on the Development of the Iranian 

Nuclear Program 56 

Appendix V GAO Contact and Staff Acknowledgments 58

Tables 

Table 1: U.S. Entities Involved in the Administration and 

Enforcement of Recent U.S. Financial Sanctions 

Targeting Iran 17

Table 2: Banks against Which the Department of Justice Has 

Pursued Charges for Transactions with Sanctioned 

Entities, Including Iran, 2009-2012 24

Table 3: EU and U.S. Exports of Humanitarian Goods to Iran for 

the First 10 Months of 2011 and 2012 39

Table 4: Aggregate Average Quarterly Exports to Iran by Country, 

January 2008 to June 2012 43

Table 5: Peers for the Iranian Economy 52

Contents 
Page ii GAO-13-326 Iran 

Table 6: Inflation Difference-in-Difference Model 54

Table 7: Oil Production Difference-in-Difference Model 54

Figures 

Figure 1: Selected U.S. and International Sanctions Targeting Iran 7

Figure 2: Oil Production for Iran and Peers, January 2000 through 

June 2012 29

Figure 3: Oil Export Revenue for Iran and Peers, 2000 through 2012 31

Figure 4: GDP for Iran and Peers, January 2010 through July 2012 32

Figure 5: Consumer Price Inflation for Iran and Peers, January 2005 

through July 2012 33

Figure 6: Forecasts of Iran’s GDP Before and After Recent U.S. and 

International Sanctions 35

Figure 7: Forecasts of Iranian Inflation Before and After Recent 

U.S. and International Sanctions 36

Figure 8: Forecasts of Iranian Unemployment Before and After 

Recent U.S. and International Sanctions 38

Figure 9: EU Exports of Humanitarian Goods to Iran, First Quarter 

2004 through Third Quarter 2012 40

Figure 10: U.S. Exports of Humanitarian Goods to Iran, First 

Quarter 2004 through Third Quarter 2012 41

Figure 11: Selected U.S. and International Sanctions Targeting Iran 

1984 through 2007 50
Page iii GAO-13-326 Iran 

Abbreviations 

CISADA Comprehensive Iran Sanctions, Accountability, and 

Divestment Act of 2010 

EU European Union 

FinCEN Financial Crimes Enforcement Network 

GDP gross domestic product 

IAEA International Atomic Energy Agency 

IEEPA International Emergency Economic Powers Act 

IFSR Iranian Financial Sanctions Regulations 

IMF International Monetary Fund 

ISA Iran Sanctions Act of 1996 

Justice Department of Justice 

NDAA National Defense Authorization Act for Fiscal Year 2012 

OFAC Office of Foreign Assets Control 

State Department of State 

SWIFT Society for Worldwide Interbank Financial 

Telecommunication 

TRA Iran Threat Reduction and Syria Human Rights Act of 2012 

Treasury Department of the Treasury 

TSRA Trade Sanctions Reform and Export Enhancement Act of 

2000 

UN United Nations 

UNSC United Nations Security Council 

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Page 1 GAO-13-326 Iran 

United States Government Accountability Office

Washington, DC 20548 

February 25, 2013 

The Honorable Thomas R. Carper 

Chairman 

Committee on Homeland Security 

 and Governmental Affairs 

United States Senate 

Dear Mr. Chairman: 

Since 1987, the United States has imposed a broad range of sanctions 

targeting Iran, such as financial, trade, and investment sanctions, that are 

intended to deter it from expanding its nuclear program, supporting 

terrorism, and continuing its human rights abuses. From July 2010 to 

December 2012, Congress passed legislation that imposed additional 

financial sanctions that restricted Iran from accessing the U.S. financial 

system. The Department of the Treasury (Treasury), Department of State 

(State), and Department of Justice (Justice) administer and enforce these 

U.S. financial sanctions, and federal and state banking regulators ensure 

effective compliance with the sanctions programs by the banks that they 

regulate. The United Nations (UN) and the international community have 

also been concerned about Iran’s nuclear program since the discovery in 

2002 that Iran had concealed its nuclear activities for years in breach of 

its international obligations. Since 2006, the UN has adopted sanctions 

targeting Iran in an effort to compel it to suspend the development of 

uranium enrichment and the expansion of its nuclear program. However, 

concerns have been raised in Congress about the impact of U.S. and 

international financial sanctions on Iran’s economy. In addition, the UN 

has reported concerns about whether sanctions have limited exports of 

food and medicine to Iran. U.S. law and regulations allow the export of 

certain agricultural commodities, food, medicine, and medical devices 

(which we refer to as “humanitarian goods” in this report) to Iran under 

certain conditions.1

 

1

22 U.S.C. § 7201-7211. See also, 31 C.F.R. § 560.530 

 
 

Page 2 GAO-13-326 Iran 

In response to your request that we examine financial sanctions targeting 

Iran enacted since 2010, this report (1) describes the recent laws and 

executive orders that have added to Treasury’s authority to implement 

financial sanctions targeting Iran; (2) describes U.S. efforts to administer 

and enforce these financial sanctions; and (3) analyzes evidence of the 

effect that recent U.S. and international sanctions have had on the Iranian 

economy. (In addition, as agreed with your staff, app. IV provides opensource information on Iran’s nuclear program.) 

To describe the recent laws and executive orders that have added to 

Treasury’s authority to administer financial sanctions targeting Iran, we 

reviewed the public laws and executive orders that define these sanctions 

as well as the regulations developed to implement them. We also 

reviewed the financial sanctions targeting Iran that the UN, European 

Union (EU), and other countries have enacted. To review U.S. agencies’ 

efforts to administer and enforce recent U.S. financial sanctions targeting 

Iran, we reviewed Treasury regulations and guidance establishing the 

process for administering the sanctions. We interviewed banking 

regulators and bank representatives to determine the process required for 

banks to comply with financial sanctions.2

 We also reviewed data on the 

enforcement of financial sanctions, including enforcement actions and the 

designation of entities owned or controlled by or acting on behalf of Iran. 

To analyze evidence of the effect of recent U.S. and international 

sanctions have had on the Iranian economy, we interviewed U.S. 

government officials, as well as academic and independent experts, 

regarding the extent to which sanctions targeting Iran have affected the 

 

2

For the purposes of this report, we use the term “regulators” to refer collectively to the 

federal regulators of depository institutions, including banks, thrifts, and federally 

chartered credit unions. The federal banking regulators are the Office of the Comptroller of 

the Currency, the Board of Governors of the Federal Reserve System, the Federal 

Deposit Insurance Corporation, and the National Credit Union Administration. The federal 

banking regulators are responsible for overseeing the various banking entities operating in 

the United States, including foreign branch offices of U.S. banks. The regulators are also 

charged with chartering (Office of the Comptroller of the Currency and National Credit 

Union Administration), insuring (Federal Deposit Insurance Corporation), regulating, and 

supervising banks. The specific regulatory configuration depends on the type of charter 

the depository institution chooses. Banks are regulated at the federal level alone if they 

are chartered by a federal regulator, such as the Office of the Comptroller of the Currency, 

or by federal and state banking regulators if they are state-chartered institutions. State 

banking regulators supervise commercial and savings banks with state bank charters, 

while the Board of Governors of the Federal Reserve System or the Federal Deposit 

Insurance Corporation, or both, serves as the primary federal regulator for these 

institutions. 
 

Page 3 GAO-13-326 Iran 

Iranian economy and government and have affected trade with Iran. To 

assess the performance of the Iranian economy, we analyzed data for 

several key macroeconomic variables from international trade, energy, 

and financial data sources, and we compared Iran’s performance with 

that of a select group of peer countries. In addition, we reviewed 

independent forecasts of the Iranian economy, developed in 2010 and 

2012, to identify changes in the predicted future performance of the 

Iranian economy. In most instances we did not attempt to isolate the 

impact of U.S. financial sanctions. The contemporaneous implementation 

of many sanctions, including U.S., UN, and EU financial and non-financial 

sanctions, would make attributing certain outcomes to any particular 

sanction very difficult. We met with several business officials in Dubai, 

United Arab Emirates–a significant exporter of goods to Iran–to discuss 

the effect that sanctions have had on business with Iran and the resulting 

impact on Iranian citizens. We also analyzed trade data to assess 

changes in Iranian trade since 2010 and the effect of sanctions on 

exports of humanitarian goods to Iran from select countries. Appendix I 

contains a more detailed description of our scope and methodology. We 

conducted this performance audit from February 2012 to February 2013 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. 

The U.S. government has imposed numerous sanctions targeting Iran 

since 1987, in part to deter Iran from supporting terrorism and developing 

its nuclear program. U.S. laws and executive orders have established a 

U.S. trade and investment ban targeting Iran, have been used to impose 

sanctions against foreign entities that support Iranian terrorist 

organizations or proliferation activities, and have imposed financial 

sanctions targeting Iran.3

 According to a Treasury official, the U.S. trade 

 

3

Exec. Order No. 13059, 62 Fed. Reg. 44531 (Aug. 19, 1997); Exec. Order No. 13224, 66 

Fed. Reg. 49079 (Sept. 23, 2001); Exec. Order No. 13382, 70 Fed. Reg. 38567 (June 28, 

2005); Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010, Pub. 

L. No. 111-195, 124 Stat. 1312. 

Background 

U.S. Government 

Sanctions Targeting Iran 

from 1987 to 2010 
 

Page 4 GAO-13-326 Iran 

and investment ban was aimed at making it more difficult for Iran to 

procure U.S. goods, services, and technology, including those that could 

be used for terrorism or proliferation. In 1987, the United States enacted a 

ban on imports of Iranian goods and services, and in 1995, executive 

orders banned specified U.S. exports and investment in Iran.4

 These 

prohibitions apply to U.S. persons, including U.S. companies and their 

foreign branches.5

 In 1996, Congress enacted the Iran Sanctions Act of 

1996 (ISA), which authorized the imposition of sanctions on foreign firms 

that make certain investments in Iran’s energy sector.6

 In ISA, Congress 

declared that it is the policy of the United States to deny Iran the ability to 

support acts of international terrorism and to fund the development and 

acquisition of weapons of mass destruction and the means to deliver 

them by limiting the development of Iran’s ability to explore for, extract, 

refine, or transport by pipeline its petroleum resources.7

The UN and EU, as well as other countries, have also imposed sanctions 

to pressure Iran to suspend the development of its nuclear program and 

end its support for terrorism.8

 In 2002, the International Atomic Energy 

Agency (IAEA) confirmed allegations that Iran was building facilities that 

could produce fissile material for the development of a nuclear weapon.9

After Iran failed to suspend its uranium enrichment program in 2006 

pursuant to UN Security Council (UNSC) resolution 1696,10 the UNSC 

 

4

Exec. Order No. 12163, 52 Fed. Reg. 41940 (Oct. 29, 1987), enacted the ban on imports 

of Iranian goods and services. In March 1995, the President issued Exec. Order No. 

12957, 60 Fed. Reg. 14615 (Mar. 15, 1995) prohibiting U.S. involvement with petroleum 

development in Iran. Exec. Order No. 12959, 60 Fed. Reg. 24757 (May 6, 1995) banned 

specified exports and investment. 

5

In August 1997, the President signed Exec. Order No. 13059, 62 Fed. Reg. 44531 

(Aug. 19, 1997), which consolidated prior executive orders and prohibits virtually all trade 

and investment activities with Iran by U.S. persons, wherever located. 

6

The act was previously known as the Iran and Libya Sanctions Act of 1996. Pub. L. 

No. 104-172, 110 Stat. 1541. 

7

Pub. L. No. 104-172, § 3. 

8

Other countries, such as Australia, Canada, and the United Kingdom, have passed 

unilateral sanctions targeting Iran. 

9

IAEA is an independent agency affiliated with the UN that was established to control and 

promote the use of atomic energy. 

10S.C. Res. 1696, U.N. Doc. S/RES/1696 (2006). 

Selected UN and 

International Sanctions 

and Actions Targeting Iran 

from 2002 through 2012 
 

Page 5 GAO-13-326 Iran 

adopted resolutions that imposed several sanctions targeting Iran 

between 2006 and 2010.11 Following a UNSC determination that Iran had 

not suspended the development of its nuclear program, the UNSC 

adopted additional resolutions that imposed sanctions on Iran, including, 

among others, 

 a proliferation-sensitive nuclear and ballistic missile programs-related 

embargo; 

 a ban on the export or procurement of any arms and related material 

from Iran and a ban on the supply of seven categories, as specified, 

of conventional weapons and related material to Iran; and 

 a travel ban and an assets freeze on designated persons and entities. 

The assets freeze also applies to any individuals or entities acting on 

behalf of, or at the direction of, the designated persons and entities, 

and to entities owned or controlled by the designated persons or 

entities. 

In addition to the UN, the EU has expressed serious and deepening 

concerns over the Iranian nuclear program, and has imposed sanctions 

targeting Iran since 2007. Recent sanctions that the EU enacted in 2012 

imposed, among other things, restrictive measures on the energy sector, 

including a phased embargo of Iranian crude oil imports into the EU and 

financial sanctions against the Central Bank of Iran.12 Specifically, 

recalling the potential connection between Iran’s revenues derived from 

its energy sector and the funding of its proliferation-sensitive nuclear 

activities as underlined in USCR 1929, the sanctions prohibited the 

import, purchase, and transport of Iranian crude oil and petroleum 

products by member states. In addition, the EU has enacted targeted 

financial measures to freeze the assets of persons and entities 

associated with Iran’s nuclear activities.13 The Council of the European 

 

11The UNSC resolutions 1737 (2007), 1747 (2007), 1803 (2008), and 1929 (2010) 

imposed sanctions against Iran in response to the proliferation risks presented by Iran’s 

nuclear program in light of Iran’s continuing failure to meet the requirements of IAEA and 

to comply with the provisions of earlier Security Council resolutions. S.C. Res. 1737, U.N. 

Doc. S/RES/1737 (2006); S.C. Res. 1747, U.N. Doc. S/RES/1747 (2007); S.C. Res. 1803, 

U.N. Doc. S/RES/1803 (2008); and S.C. Res. 1929, U.N. Doc. S/RES/1929 (2010). 

12Council Decision 2012/35/CFSP, 2012 O.J. (L 19) 22. 

13Id. 
 

Page 6 GAO-13-326 Iran 

Union decided on March 15, 2012, to prohibit the provision of specialized 

financial messaging services to certain persons and entities that are 

designated by the UN or EU, or have engaged in, supported, or been 

associated with Iran’s proliferation-sensitive nuclear activities or the 

development of nuclear weapon delivery systems.14 In response to the 

council’s decision, on May 17, 2012, the Belgium-based Society for 

Worldwide Interbank Financial Telecommunication (SWIFT) announced it 

would end all transactions with Iranian banks that had been designated 

by the EU.15 Figure 1 identifies selected U.S. and international actions 

targeting Iran. 

 

14Council Decision 2012/152/CFSP, 2012 O.J. (L77) 18. 

15SWIFT is a member-owned cooperative that provides secure international financial 

messaging services connecting more than 10,000 banking organizations, securities 

institutions, and corporate customers in 212 countries. The service enables users to 

exchange automated, standardized financial information. According to SWIFT, it is 

incorporated under Belgian law and must comply with EU decisions, as confirmed by the 

Belgian government. 
Page 7 GAO-13-326 Iran

Interactive graphic Figure 1: Selected U.S. and International Sanctions Targeting Iran

• Click button for desired date range. In “Print” dialog box, choose “Current view,” then “OK.” Repeat for each view.

Print instructions • A print version of this graphic, showing both date ranges, is available in appendix II.

Directions:

Click button to view desired date range.

Source: GAO analysis of U.S. laws and executive orders, as well as UN documents, including UN Security Council resolutions.

• Mar: UNSC resolution 1803, among its other provisions, required members to 

generally prevent certain persons designated as providing support for Iran’s 

proliferation sensitive nuclear activities from entering into, or transiting through, 

their territories; called upon members to exercise vigilance over the activities of 

financial institutions in their territories with all banks domiciled in Iran; required 

members to prevent the supply of certain items related to nuclear programs to Iran; 

and called upon members to inspect, consistent with law and agreements, certain 

cargoes to and from Iran. 

• Sept: UNSC resolution 1835 called upon Iran to comply with prior resolutions to 

suspend all enrichment-related and reprocessing activities fully and without delay. 

2008

• June: UNSC resolution 1929, among its other provisions, required that members 

prevent the transfer of ballistic missile technology to Iran; froze the funds and 

assets of the Islamic Revolutionary Guard Corps and the Islamic Republic of Iran 

Shipping Lines; called on members to prohibit Iranian banks from opening new 

branches in their territories if they have reasonable grounds to believe that these 

activities could contribute to Iran’s nuclear activities; and requested the creation of 

a Panel of Experts to assist in implementing measures in resolution 1737.

• July: The EU, in implementing resolution 1929, adopted a council decision 

establishing restrictions on the transfer of funds to and from Iran and restrictions on 

the establishment of branches and subsidiaries of Iranian banks.

2010

2009

• July: The Comprehensive Iran Sanctions, Accountability, and Divestment Act of 

2010 added Iranian sanctions in the areas of refined petroleum sales, serious 

human rights abuses, and access to the U.S. financial system and revoked 

general authorization to import certain foodstuffs and carpets from Iran.

• Sept: EO 13553, among its other actions, blocked the property of certain 

persons with respect to serious human rights abuses by the government of Iran.

• Jan: The European Union (EU) adopted a council decision establishing an oil 

embargo on Iran and freezing the assets of the Iranian Islamic Revolutionary 

Guard Corps.

• Mar: The EU adopted a council decision prohibiting the provision of specialized 

financial messaging services to sanctioned Iranian banks. 

• June: The United Nations Security Council (UNSC) resolution 2049 renewed the 

mandate of the Panel of Experts established by resolution 1929 for 13 months.

• Oct: The EU adopted a council decision that broadened the restrictive measures 

against Iran adopted in July 2010.

2012

2013

• Feb: Executive Order (EO) 13599 blocked the property of the government of 

Iran and Iranian financial institutions.

• Apr: EO 13606 blocked the property, and suspended entry into the United 

States, of certain persons with respect to grave human rights abuses via 

information technology by the governments of Iran and Syria. 

• May: EO 13608 prohibited certain transactions with, and suspended entry into the United 

States of, foreign sanctions evaders of foreign sanctions with respect to Iran and Syria.

• July: EO 13622 authorized additional sanctions with respect to Iran, including 

sanctions on a foreign financial institution that has knowingly conducted any 

significant transaction for the purchase of petroleum from Iran.

• Aug: The Iran Threat Reduction and Syria Human Rights Act of 2012 (TRA) was 

enacted to strengthen Iran sanctions laws for the purpose, among others, of compelling 

Iran to abandon its pursuit of nuclear weapons and other threatening activities.

• Oct: EO 13628 authorized the implementation of certain sanctions set forth in the 

TRA and imposed additional sanctions with respect to Iran, including prohibiting a 

foreign firm that is owned or controlled by a U.S. person from engaging in certain 

activities in which the U.S. person is prohibited from engaging. 

• Jan: The National Defense Authorization Act of Fiscal Year (FY) 2013 imposed, 

among its other provisions, new sanctions on the energy, shipping, and 

ship-building sectors of Iran as well as financial sanctions targeting Iran.

• May: EO 13574 authorized Department of the Treasury (Treasury) to implement 2011

2011 certain sanctions as set forth in the Iran Sanctions Act of 1996, as amended.

• Nov: EO 13590 authorized the imposition of certain sanctions with respect to the 

provision of goods, services, technology, or support for Iran’s energy and 

petrochemical sectors.

• Dec: The National Defense Authorization Act for FY 2012, Section 1245, 

designated Iran’s financial sector a primary money-laundering concern and directed 

the President to block the assets of Iranian financial institutions.

2013

to

2008

Selected U.S. government sanctions Selected international actions
 

Page 8 GAO-13-326 Iran 

U.S. law allows the export of certain agricultural goods, medicine, and 

medical devices to Iran under certain conditions.16 The Trade Sanctions 

Reform and Export Enhancement Act of 2000 (TSRA) required the 

President to terminate any unilateral agricultural or medical sanction.17 In 

addition, some of the laws and executive orders authorizing U.S. 

sanctions targeting Iran include language that allows for certain 

exceptions to the sanctions, such as for agricultural goods or medicine.18

For the purposes of this report, we refer to agricultural goods, medicine, 

and medical devices that are authorized for export to Iran as 

“humanitarian goods.” 

Treasury’s Office of Foreign Assets Control (OFAC) issues licenses that 

authorize the export and reexport of humanitarian goods pursuant to 

TSRA. OFAC indicated that it provides exporters with an efficient and 

expedited process to export humanitarian goods. 

 

16Trade Sanctions Reform and Export Enhancement Act of 2000, Pub. L. No. 106-387, 

Title IX, 114 Stat. 1549, 1549A-67 – 1549A-72 (codified as amended at 22 U.S.C. §§ 

7201-7211). 

1722 U.S.C. § 7202(b). TSRA defined agricultural commodities by referencing the meaning 

given to that term in section 102 of the Agricultural Trade Act of 1978, and defined 

medicine and medical devices by adopting the definitions of drug and device set forth in 

section 201 of the Federal Food, Drug, and Cosmetic Act. 

18For example, National Defense Authorization Act for Fiscal Year 2012, Pub. L. No. 

112-81, § 1245, 125 Stat. 1298, 1647-1650 (2011) and Exec. Order No. 13622, 

§ 1(d), 77 Fed. Reg. 45897 (Aug. 2, 2012). 

U.S. Law Allows Exports 

of Humanitarian Goods to 

Iran 
 

Page 9 GAO-13-326 Iran 

Recent congressional legislation and a number of executive orders 

enacted since 2010 have established additional U.S. financial sanctions 

targeting Iran.19 According to Treasury, recent U.S. financial sanctions 

targeting Iran are authorized by, and outlined in, four laws and a number 

of executive orders. The discussion below provides examples of some of 

the financial sanctions authorized by these laws and executive orders 

from 2010 through 2012.20 According to an Under Secretary of the 

Treasury, the new legislation that Congress has enacted has increased 

financial and economic pressure on Iran. 

In 2010, Congress passed the Comprehensive Iran Sanctions, 

Accountability, and Divestment Act of 2010 (CISADA) to amend the Iran 

Sanctions Act of 199621 and to enhance U.S. diplomatic efforts with 

respect to Iran by expanding economic sanctions targeting Iran.22

According to an Under Secretary of the Treasury, “CISADA set a new 

precedent” because “... [i]t gave the Secretary of the Treasury the 

authority for the first time to require U.S. banks to terminate 

correspondent banking relationships with foreign banks that knowingly 

 

19Our description focuses mainly on those financial sanctions targeting Iran found in laws, 

regulations, or executive orders that either (1) block the property of designated entities, or 

(2) target a financial transaction as an action that can result in the prohibition of the 

opening or the prohibition or imposition of strict conditions on the maintenance of a 

correspondent or payable-through account in the United States by a foreign financial 

institution. We generally focus on Treasury’s authorities to implement financial sanctions 

targeting Iran. However, we recognize that the authorities we discuss do not represent an 

exhaustive list of all such financial sanctions regarding Iran. 

20Although the scope of our review of financial sanctions targeting Iran spans from 2010 

through 2012, we note that on January 2, 2013, the President signed the Iran Freedom 

and Counter-Proliferation Act of 2012 into law as part of the National Defense 

Authorization Act for Fiscal Year 2013. Pub. L. No. 112-239, §§ 1241-1255. This act 

authorizes further sanctions targeting Iran including adding sanctions for foreign financial 

institutions that facilitate financial transactions on behalf of certain specially designated 

nationals. 

21In the Iran Sanctions Act of 1996 (previously known as the Iran-Libya Sanctions Act of 

1996, or ILSA) Congress declared that it is the policy of the United States to deny Iran the 

ability to support acts of international terrorism and to fund the development and 

acquisition of weapons of mass destruction and the means to deliver them by limiting the 

development of Iran’s ability to explore for, extract, refine, or transport by pipeline its 

petroleum resources. Pub. L. No. 104-172, § 3. Under the Act, the President shall 

sanction parties that engage in a number of activities including knowingly making an 

investment of $20 million or more that directly and significantly contributes to the 

enhancement of Iran’s ability to develop its petroleum resources. 

22Pub. L. No. 111-195, 124 Stat. 1312. 

From 2010 through 

2012, the United 

States Established 

Additional Financial 

Sanctions Targeting 

Iran 

Comprehensive Iran Sanctions 

Accountability and Divestment 

Act 
 

Page 10 GAO-13-326 Iran 

engaged in significant transactions with designated Iranian banks.” 

Among other actions, section 104(c) of CISADA required the Secretary of 

the Treasury to prescribe regulations to prohibit or impose strict 

conditions on the opening or maintaining in the United States of a 

correspondent account or a payable-through account by a foreign 

financial institution found to have knowingly engaged in certain activities 

or facilitating a significant transaction by entities such as Iran’s Islamic 

Revolutionary Guard Corps (IRGC).23 Furthermore, section 104(d) of 

CISADA required Treasury to “prescribe regulations to prohibit any 

person owned or controlled by a domestic financial institution from 

knowingly engaging in...transactions with or benefitting the [IRGC],” its 

agents, or its affiliates whose property or interests in property are blocked 

pursuant to the International Emergency Economic Powers Act (IEEPA).24

This provision in CISADA also extends certain monetary penalties under 

IEEPA (50 U.S.C. § 1705(b)) to domestic financial institutions if a person 

owned or controlled by the domestic financial institution violates the 

regulations and if the domestic financial institution knew, or should have 

known, about the violation.25

In 2011, Congress enacted the National Defense Authorization Act for 

Fiscal Year 2012 (NDAA).26 The act required the President to block the 

property and interests in property, which is subject to U.S. jurisdiction, of 

all Iranian financial institutions, including the Central Bank of Iran.27 In 

addition, the act required the President to prohibit the opening, and 

prohibit or impose strict conditions on the maintenance, of a 

correspondent or payable-through account in the United States by a 

foreign financial institution found to have knowingly conducted or 

facilitated any significant financial transaction with the Central Bank of 

Iran or another designated Iranian financial institution.28 This sanction 

 

23Pub. L. No. 111-195, § 104(c) (codified as amended at 22 U.S.C. § 8513(c)). Although 

the law uses the term “Iran’s Revolutionary Guard Corps,” Treasury refers to the IRGC as 

the “Iran’s Islamic Revolutionary Guard Corps.” 

24Pub. L. No. 111-195, § 104(d). 

25Id. 

26Pub. L. No. 112-81, 125 Stat. 1298 (2011). 

27See Pub. L. No. 112-81, § 1245(c) (codified as amended at 22 U.S.C. § 8513a). 

28Pub. L. No. 112-81, § 1245(d). 

National Defense Authorization 

Act for Fiscal Year 2012 
 

Page 11 GAO-13-326 Iran 

applies to foreign central banks, only insofar as the transactions are 

related to the sale or purchase of petroleum or petroleum products to or 

from Iran.29 Moreover, the sanction applied to transactions related to the 

purchase of petroleum or petroleum products from Iran only if the 

President has made a determination that there is a sufficient supply of 

petroleum or petroleum products from countries other than Iran.30

However, if the President does determine that there is a sufficient supply 

of petroleum and petroleum products, the financial sanctions will not 

apply if the President determines that the country with primary jurisdiction 

over the foreign financial institution has significantly reduced its volume of 

crude oil purchases from Iran in a specific period.31 The President 

delegated the authority to determine whether a country has significantly 

reduced the volume of Iranian crude oil purchases in a specific period to 

the Secretary of State, in consultation with the Secretary of the Treasury, 

the Secretary of Energy, and the Director of National Intelligence.32

In 2012, Congress passed the Iran Threat Reduction and Syria Human 

Rights Act of 2012 (TRA) to strengthen Iran sanctions laws for the 

purpose of compelling Iran to abandon its pursuit of nuclear weapons and 

other threatening activities and for other purposes.33 TRA expanded 

sanctions in a number of areas including sanctions relating to Iran’s 

energy sector.34 For example, the TRA amends CISADA by requiring the 

Secretary of the Treasury to revise the regulations prescribed under 

CISADA section 104(c) to apply, to the same extent that they apply to a 

foreign financial institution found to knowingly engage in an activity 

described in CISADA section 104(c)(2), to a foreign financial institution 

 

29Pub. L. No. 112-81, § 1245(d)(3). This restriction only applies to transactions that were 

conducted or facilitated on or after June 28, 2012. As originally enacted, this restriction 

applied to foreign financial institutions owned by a foreign government, including foreign 

central banks. The TRA later amended this restriction to apply only to foreign central 

banks. See Pub. L. No. 112-158, § 504. 

30Pub. L. No. 112-81, § 1245(d)(4). Additionally, transactions involving exports of food, 

medicine or medical devices are excepted from the imposition of these sanctions. Pub. L. 

No. 112-81, § 1245(d)(2). 

31Pub. L. No. 112-81 § 1245(d)(4)(D). 

32Exec. Order No. 13599, § 11. 

33Pub. L. No. 112-158, 126 Stat. 1214. 

34Pub. L. No. 112-158, Title II. 

Iran Threat Reduction and 

Syria Human Rights Act of 2012 
 

Page 12 GAO-13-326 Iran 

that the Secretary of the Treasury finds (1) knowingly facilitates, or 

participates or assists in, an activity described in section 104(c)(2) of 

CISADA; (2) attempts or conspires to facilitate or participate in such an 

activity; or (3) is owned or controlled by a foreign financial institution that 

the Secretary finds knowingly engages in such an activity.35 Moreover, 

section 312 of the TRA also amended CISADA to require Treasury to 

determine whether the National Iranian Oil Company or the National 

Iranian Tanker Company is an agent or affiliate of the IRGC.36 On 

September 24, 2012, Treasury made a determination that the National 

Iranian Oil Company is an agent or affiliate of the IRGC.37 Although the 

National Iranian Oil Company was already subject to sanctions under 

Executive Order 13599 (see below), according to Treasury, the 

determination that the National Iranian Oil Company is an agent or 

affiliate of the IRGC carries additional consequences. According to 

Treasury, as a result of the TRA section 312 determination, the National 

Iranian Oil Company is now an agent or affiliate of the IRGC, as 

described by CISADA section 104(c), whose property or interests in 

property are blocked pursuant to IEEPA. Furthermore, foreign financial 

institutions determined to have knowingly facilitated a significant 

transaction for the National Iranian Oil Company could have prohibitions 

or the imposition of strict conditions placed on their opening or 

maintenance of correspondent or payable-through accounts in the United 

States.38

IEEPA granted the President a number of authorities, including the 

blocking of a foreign country’s or foreign national’s property, to respond to 

any unusual and extraordinary threat to the national security, foreign 

policy, or economy of the United States.39 Administrations have invoked 

authority provided by IEEPA, as well as other authorities, to issue 

 

35See Pub. L. No. 112-158, § 216. 

36Pub. L. No. 112-158, § 312 (amending section CISADA section 104(c)). Treasury was 

required to make this determination by September 24, 2012. 

37Although the law uses the term “Iran’s Revolutionary Guard Corps,” Treasury refers to 

the IRGC as the “Iran’s Islamic Revolutionary Guard Corps.” 

3822 U.S.C. § 8513(c). 

3950 U.S.C. §§ 1701 -1706. 

Executive Orders under IEEPA 
 

Page 13 GAO-13-326 Iran 

executive orders that provide for sanctions targeting Iran.40 The executive 

orders have imposed a number of sanctions, including a comprehensive 

trade and investment ban on Iran, and have been used to freeze the 

assets of parties designated for their engagement in proliferation or 

terrorism-related activities involving Iran.41 Recently, the Obama 

administration has issued the following executive orders for additional 

steps to increase the sanctions on financial transactions relating to Iran: 

 Executive Order 13599 (February 5, 2012).

42 This executive order 

blocked the property, and interests in property, of the government of 

Iran, and any Iranian financial institutions, including the Central Bank 

of Iran, that are in the United States. According to the executive order, 

this was done “in light of the deceptive practices of the Central Bank 

of Iran and other Iranian banks to conceal transactions of sanctioned 

parties, the deficiencies in Iran’s anti-money laundering regime and 

the weaknesses in its implementation, and the continuing and 

unacceptable risk posed to the international financial system by Iran’s 

activities.” As a result of this blocking, no property of the government 

of Iran that is under the jurisdiction of the United States can be 

transferred, paid, exported, withdrawn, or otherwise dealt in. 

 Executive Order 13608 (May 1, 2012).

43 This executive order 

authorized sanctions on a foreign person who has been determined to 

have facilitated deceptive transactions for or on behalf of any person 

subject to U.S. sanctions concerning Iran or Syria. The order defined, 

“deceptive transaction” as any transaction where the identity of any 

person subject to United States sanctions concerning Iran or Syria is 

 

40For examples, see Exec. Order No. 12170, 44 Fed. Reg. 65729 (Nov. 14, 1979); Exec. 

Order No. 12957, 60 Fed. Reg. 14615 (Mar. 15, 1995); and Exec. Order No. 13059, 62 

Fed. Reg. 44531 (Aug. 19, 1997). 

41For example, Exec. Order No. 13059 (clarifying Executive Orders 12957 and 12959 and 

confirming that virtually all trade and investment activities with Iran by U.S. persons, 

wherever located, are prohibited). Under authorities granted in Executive Orders 13224 

and 13382, Treasury has designated parties that engage in proliferation or terrorismrelated activities involving Iran as subject to financial sanctions that freeze their assets 

and reduce their access to the U.S. financial system. Exec. Order No. 13224, 66 Fed. 

Reg. 49079 (Sept. 23, 2001) and Exec. Order No. 13382, 70 Fed. Reg. 38567 (June 28, 

2005). 

4277 Fed. Reg. 6659 (Feb. 8, 2012). 

4377 Fed. Reg. 26409 (May 3, 2012). 
 

Page 14 GAO-13-326 Iran 

withheld or obscured from other participants in the transaction or any 

relevant regulatory authorities.44 Pursuant to the executive order, 

Treasury may prohibit all transactions or dealings, whether direct or 

indirect, involving a foreign person that it has determined to have 

facilitated deceptive transactions for, or on behalf of, any person 

subject to the requisite U.S. sanctions. According to Treasury, “[w]ith 

this new authority, Treasury now has the capability to publicly identify 

foreign individuals and entities that have engaged in these evasive 

and deceptive activities, and generally bar access to the U.S. financial 

and commercial systems.” 

 Executive Order 13622 (July 30, 2012).

45 This executive order 

authorized three new sanctions to be implemented by Treasury. First, 

the executive order authorized new sanctions on foreign financial 

institutions determined to have knowingly conducted or facilitated 

specified significant financial transactions with the National Iranian Oil 

Company or Naftiran Intertrade Company.46 Second, the executive 

order authorized sanctions against foreign financial institutions found 

to have knowingly conducted or facilitated significant transactions for 

the purchase or acquisition of petroleum, petroleum products, or 

petrochemical products from Iran. Under the executive order, foreign 

financial institutions that engage in the two aforementioned activities 

could be prohibited from opening or maintaining correspondent or 

payable-through accounts in the United States.47 Third, the executive 

order authorized Treasury to block the property of any person 

determined to have materially assisted, sponsored, or provided 

financial, material, or technological support for, or goods or services in 

support of, (1) the National Iranian Oil Company, the Naftiran 

Intertrade Company, or Central Bank of Iran or (2) the purchase or 

 

44Exec. Order No. 13608, § 7. 

4577 Fed. Reg. 45897 (Aug. 2, 2012). 

46Exec. Order No. 13622, § 1(a). The sanctions shall not apply with respect to sales of 

refined petroleum products to the National Iranian Oil Company or to the Naftiran 

Intertrade Company that are below a certain dollar threshold. 

47Exec. Order No. 13622, § 1(b). Sanctions regarding signification transactions with the 

National Iranian Oil Company or the Naftiran Intertrade Company or for the purchase or 

acquisition of petroleum or petroleum products shall not apply with respect to transactions 

for the sale of agricultural commodities, food, medicine, or medical devices when the 

underlying transaction has been authorized by Treasury. Exec. Order No. 13622, § 1(d), 

as amended by Exec. Order 13628. 
 

Page 15 GAO-13-326 Iran 

acquisition of U.S. bank notes or precious metals by the government 

of Iran.48 According to the executive order, these actions were taken 

“in light of the government of Iran’s use of revenues from petroleum, 

petroleum products, and petrochemicals for illicit purposes; Iran’s 

continued attempts to evade international sanctions through deceptive 

practices; and the unacceptable risk posed to the international 

financial system by Iran’s activities.” 

 Executive Order 13628 (October 9, 2012).

49 This executive order, 

among other things, blocked a person’s property and interests in 

property in the United States or under the possession or control of a 

U.S. person once Treasury, in consultation with State, determines that 

the person has engaged in certain specified conduct.50 For example, 

the executive order blocked the property of a person determined to 

have knowingly transferred or facilitated the transfer of goods, or 

technologies to Iran or any Iranian entity for use by the government of 

Iran to commit serious human rights abuses against the people of 

Iran. The executive order also prohibited any entity that is owned or 

controlled by a U.S. person and established outside the United States 

from knowingly engaging in any transaction with the Iranian 

government if that transaction would be prohibited under specified 

executive orders if it were engaged in by a U.S. person or in the 

United States.51

 

48Exec. Order No. 13622, § 5. 

4977 Fed. Reg. 62139 (Oct. 12, 2012). 

50Exec. Order No. 13628, §§ 2-3. 

51Exec. Order No. 13628, § 4. 
 

Page 16 GAO-13-326 Iran 

U.S. government agencies and regulators administer and enforce U.S. 

financial sanctions targeting Iran with banks’ assistance. Treasury has 

primary responsibility for administering financial sanctions. State 

administers some investment and trade sanctions, principally energy 

sanctions, targeting Iran. Banks play an important role in the sanctions 

process by blocking transactions that are required to be blocked by U.S. 

law and reporting apparent violations to Treasury.52 The federal and state 

banking regulators ensure effective compliance with these sanctions 

programs by the banks that they regulate. Treasury and other U.S. 

agencies have enforced sanctions through a variety of actions including 

issuing enforcement actions against entities that violate the sanctions. 

Specifically, since 2005, Treasury and Justice, in coordination with State 

and federal regulators, have taken actions against banks, assessing large 

financial settlements for systematic and willful violations of sanctions 

laws, including violations of Iran financial sanctions regulations. Table 1 

lists the various U.S. entities involved in the administration and 

enforcement of U.S. financial sanctions targeting Iran, along with their 

respective roles and responsibilities. 

 

52For the purposes of this report, we use the term “bank” to refer to an agent, agency, 

branch, or office within the United States of commercial banks, savings and loan 

associations, thrift institutions, credit unions, and foreign banks supervised by federal and 

or state banking regulators. For the purposes of the report, we use the term “apparent 

violations” to refer to apparent violations of OFAC sanctions regulations. 

U.S. Agencies 

Administer and 

Enforce U.S. 

Financial Sanctions 

Targeting Iran 
 

Page 17 GAO-13-326 Iran 

Table 1: U.S. Entities Involved in the Administration and Enforcement of Recent 

U.S. Financial Sanctions Targeting Iran 

Administration of Sanctions 

Entities Roles and responsibilities 

Department of the Treasury Develop and publish regulations to administer 

legislation and executive orders authorizing Treasury 

to administer financial sanctions. Conduct outreach 

with foreign governments and financial institutions. 

Analyze banking and financial information to identify 

the impact of the sanctions. 

Department of State Administer and enforce some investment and trade 

sanctions targeting Iran, principally energy sanctions 

targeting Iran. Is authorized to grant certain 

exceptions for countries reducing the volume of 

Iranian crude oil purchases. 

Banks Report blocked transactions to the Office of Foreign 

Assets Control (OFAC). Establish OFAC compliance 

programs. May report apparent violations to 

Treasury. 

Federal and state banking 

regulators 

Provide guidance on and examine banks’ OFAC 

compliance programs. 

Enforcement of Sanctions

Entities Roles and responsibilities 

Department of the Treasury Designate entities, impose sanctions, and apply 

enforcement actions for violations of financial 

sanctions laws and regulations. 

Department of Justice Pursue cases against persons, banks, and other 

financial institutions for criminal violations of financial 

sanctions laws and regulations. 

Federal and state banking 

regulators 

Issue enforcement actions related to OFAC 

compliance. 

Source: GAO analysis of U.S. government agency documents. 

Treasury has primary responsibility for administering the finance-related 

provisions of recent U.S. sanctions authorities by developing regulations, 

conducting outreach to domestic and foreign financial regulators and 

financial institutions, and identifying apparent sanctions violations. 

Treasury also assesses the effects of financial sanctions on the Iranian 

economy. 

Regulations. OFAC developed and issued the Iranian Financial Sanctions 

Regulations to administer the financial sanctions enacted in July 2010 

Treasury, with State and 

Regulators, Is Responsible 

for Administering 

Financial Sanctions, with 

Assistance from Banks 
 

Page 18 GAO-13-326 Iran 

pursuant to CISADA.53 Treasury has amended the Iranian Financial 

Sanctions Regulations to implement additional legislation, such as 

Section 1245 of NDAA.54 While drafting, and before publishing 

regulations, OFAC solicited input on the proposed regulations from other 

Treasury officials and State. All U.S. persons must comply with the OFAC 

regulations, including all U.S. citizens, all persons and entities within the 

United States, and all U.S.-incorporated entities and their foreign 

branches. 

Outreach. According to Treasury, since 2010, Treasury officials have 

conducted outreach to more than 145 foreign financial institutions in more 

than 60 countries as well as to foreign governments, regulators, and other 

trade groups and associations. U.S. embassy consulate staff in Dubai 

informed us that Treasury officials made several trips to the United Arab 

Emirates to conduct outreach with financial institutions. Financial officials 

we met with in Dubai confirmed that Treasury had provided them with 

information on the new sanctions regulations under CISADA. According 

to Treasury officials, Treasury conducted this outreach to raise 

awareness of U.S. financial sanctions. 

Identification of violations. According to Treasury, OFAC continually 

compiles evidence and reviews information regarding potential sanctions 

violations from a variety of sources, including intelligence and public 

sources. Treasury officials stated that OFAC identifies potential violations 

through a variety of means, including financial irregularities from bank 

reports, referrals from federal bank regulators, and self-disclosures of 

potential violations by banks.55 According to Treasury officials, when 

OFAC designates an entity because of its engagement in sanctionable 

 

53Iranian Financial Sanctions Regulations, 75 Fed. Reg. 49836 (Aug. 16, 2010) (codified 

as amended at 31 C.F.R. pt. 561). 

54Iranian Financial Sanctions Regulations, 77 Fed. Reg. 11724 (Feb. 27, 2012) (amending 

and reissuing the Iranian Financial Sanctions Regulations in their entirety). 

55Federal banking regulators, as well as many state banking regulators, have entered into 

a Memorandum of Understanding with OFAC to facilitate the exchange of information 

between the regulators and OFAC. For example, officials from the Board of Governors of 

the Federal Reserve indicated that the agreement provides that the agency will notify 

OFAC when it is determined that there are “significant deficiencies” in a bank’s OFAC 

compliance program, as well as notify OFAC of any specific violations of OFAC sanctions 

regulations that are found during the review of a bank’s OFAC compliance program. 
 

Page 19 GAO-13-326 Iran 

activity, OFAC declassifies and uses a portion of the evidence in order to 

make the designation public. 

Assessments. Treasury regularly assesses the administration of 

sanctions and their impact on Iran. According to Treasury officials, 

Treasury gathers various sources of information to monitor and assess 

the impact of U.S. sanctions targeting Iran. Treasury officials indicated 

that they rely on Iranian press reports, input from banks and other 

financial institutions, Iranian economic indicators, and intelligence 

information, among other sources. According to U.S. consulate officers in 

Dubai, they monitor Iranian events and the Iranian economy, collecting 

information on trade, real estate, gold, and the volume of transactions in 

exchange houses in Iran. Treasury develops classified quarterly reports 

on the impacts of sanctions on Iran’s economy, trade, and other sectors. 

State is responsible for administering the significant reduction exception 

set forth in section 1245 of the NDAA of 2012.56 The act requires the 

President to prohibit the opening, and prohibit or impose strict conditions 

on the maintenance, of a correspondent or payable-through account in 

the United States by a foreign financial institution found to have knowingly 

conducted or facilitated any significant financial transaction with the 

Central Bank of Iran or another designated Iranian financial institution.57

The sanction applies to foreign central banks only insofar as the 

transactions are related to the sale or purchase of petroleum or petroleum 

products to or from Iran.58 The sanction applies to transactions related to 

the purchase of petroleum or petroleum products from Iran only if the 

President has made a determination that there is a sufficient supply of 

petroleum or petroleum products from countries other than Iran. However, 

if the President does determine that there is a sufficient supply of 

petroleum and petroleum products, the financial sanctions will not apply if 

the President determines that the country with primary jurisdiction over 

the foreign financial institution has significantly reduced its volume of 

 

56Pub. L. No. 112-81, § 1245(d)(4). 

57Pub. L. No. 112-81, § 1245(d). 

58Pub. L. No. 112-81, § 1245(d)(3). This restriction only applies to transactions that were 

conducted or facilitated on or after June 28, 2012. 

State 
 

Page 20 GAO-13-326 Iran 

crude oil purchases from Iran in a specific period.59 The President 

delegated the authority to determine whether a country has significantly 

reduced the volume of Iranian crude oil purchases in a specific period to 

the Secretary of State, in consultation with the Secretary of the Treasury, 

the Secretary of Energy, and the Director of National Intelligence.60 The 

Secretary of State’s determinations are based on an assessment of each 

country’s efforts to reduce the volume of crude oil imported from Iran. 

According to State, the Secretary of State considers various factors, 

including the quantity and percentage of the reduction in purchases of 

Iranian crude oil over the relevant period; termination of contracts for 

future delivery of Iranian crude oil; and other actions that demonstrate a 

commitment to substantially decrease such purchases. On the basis of 

the assessment led by State, the Secretary of State granted exceptions to 

20 countries, including China, Japan, the Republic of Korea, and India, for 

“significantly” reducing their volume of crude oil purchases from Iran since 

the enactment of the NDAA.61

Banks play an important role in the sanctions process by blocking 

property or interests in property that are required to be blocked under 

U.S. law and by reporting apparent violations to Treasury. Iran sanctions 

regulations generally require banks to block transactions that (1) are by, 

or on behalf of, a blocked individual or entity; (2) are to, or go through, a 

blocked entity; or (3) are in connection with a transaction in which a 

blocked individual or entity has an interest.62 Banks holding, receiving, or 

 

59Pub. L. No. 112-81 § 1245(d)(4)(D), codified as amended at 22 U.S.C. § 8513a. 

Effective February 6, 2013 section 504 of the Iran Threat Reduction and Syria Human 

Rights Act of 2012 amended the significant reduction exception. The modifications do not 

impact this report’s discussion of the exception. See Pub. L. No. 112-158, § 504 for the 

full amendment. 

60Exec. Order No. 13599, § 11. 

61Between March 2012 and December 2012, the Secretary of State granted exceptions to 

20 countries–Belgium, China, Czech Republic, France, Germany, Greece, India, Italy, 

Japan, Malaysia, the Netherlands, Poland, Republic of Korea, Singapore, South Africa, 

Spain, Sri Lanka, Turkey, Taiwan, and the United Kingdom–for reductions in the volume of 

their crude oil purchases from Iran. 

6231 C.F.R. § 560.211. OFAC defines blocking or “freezing” as a form of controlling assets 

under U.S. jurisdiction. According to OFAC, while the title to blocked property remains with 

the designated country or national, the exercise of the powers and privileges normally 

associated with ownership is prohibited without authorization from OFAC. OFAC also 

states that blocking immediately imposes an across-the-board prohibition against transfers 

or transactions of any kind with regard to the property. 

Banks 
 

Page 21 GAO-13-326 Iran 

blocking transfers of blocked property must report to OFAC within 10 

days of the property becoming blocked.63 Banks must place the assets or 

funds in a segregated interest-bearing account.64

In addition, banks may report apparent violations to Treasury. Treasury 

officials stated that once a bank discloses an apparent sanctions violation 

to Treasury, the bank often engages in a thorough review of its own past 

conduct and provides information to OFAC. According to OFAC officials, 

the bank generally presents an overview of its transactions and the 

context in which they occurred, and OFAC provides direction on where 

additional review is needed from the banks. After the disclosure, OFAC 

asks the bank to identify other recipients of the information of the 

transactions. After OFAC’s review, OFAC then makes a determination on 

the possibility of enforcement. The civil penalty for violating the Iran 

financial sanctions regulations may be as much as $250,000 per violation 

or twice the amount of the transaction, whichever is greater.65

Designating entities. As part of its enforcement efforts, Treasury has used 

a range of actions to enforce sanctions targeting Iran, including 

designating entities for engaging in sanctionable activity related to Iran, 

imposing sanctions on financial institutions, and issuing enforcement 

actions against financial entities. For example, according to Treasury, 

OFAC publishes a list of individuals and entities that have been 

designated for engaging in certain conduct, as well as a list of individuals 

and entities owned or controlled by, or acting for or on behalf of those 

previously listed individuals and entities. OFAC also identifies individuals 

and entities that are officials of; are owned or controlled by; or act on 

 

6331 C.F.R. § 501.603. 

6431 C.F.R. § 560.213. 

6531 C.F.R. §§ 560.701 and 561.701. 

Multiple U.S. Agencies 

Enforce Financial 

Sanctions 

Treasury Has Designated 

Entities, Imposed Sanctions, 

and Applied Enforcement 

Actions for Violations of 

Financial Sanctions 
 

Page 22 GAO-13-326 Iran 

behalf of certain countries.66 OFAC blocks the assets of these entities and 

individuals and generally prohibits U.S. persons from dealing with them. 

According to Treasury, as of January 2013, OFAC had designated more 

than 360 individuals and entities–including banks, energy companies, and 

businesses–linked to Iran’s weapons-of-mass-destruction program and 

support for terrorism under various Iran-related executive orders. These 

designations included actions taken under Treasury’s executive order 

authorities related to the proliferation of weapons of mass destruction or 

delivery systems for weapons of mass destruction and international 

terrorism.67

Imposing sanctions. In July 2012, Treasury imposed sanctions under 

CISADA on two foreign financial institutions—the Bank of Kunlun (China) 

and Elaf Islamic Bank (Iraq)—for knowingly facilitating significant 

transactions and providing significant financial services for designated 

Iranian banks. According to Treasury documents, the action against the 

two banks effectively barred the banks from directly accessing the U.S. 

financial system. In addition, financial institutions may not open 

correspondent or payable-through accounts for Bank of Kunlun or Elaf 

Islamic Bank in the United States, and any financial institutions that held 

such accounts were required to close them within 10 days of the 

imposition of the sanction. 

Applying enforcement actions. OFAC has also issued enforcement 

actions against banks for violations or apparent violations of Iran 

sanctions regulations. From 2005 through 2012, OFAC imposed 45 civil 

penalties against banks for facilitating transactions in apparent violation of 

Iran sanctions regulations.68 The penalty and settlement amounts for 

apparent violations varied significantly. For example, in May 2006 OFAC 

announced a settlement with a bank for $3,352 in connection with an 

unauthorized funds transfer involving Iran. In June 2012, OFAC 

 

66As part of its enforcement efforts, OFAC publishes a list of individuals and companies 

owned or controlled by, or acting for or on behalf of, targeted countries. It also lists 

individuals, groups, and entities, such as terrorists and narcotics traffickers designated 

under programs that are not country-specific. Collectively, such individuals and companies 

are called “Specially Designated Nationals” or “SDNs.” 

67Exec. Order No. 13224 and Exec. Order No. 13822. 

68OFAC published its enforcement procedures for banks because banks play a unique 

role in implementing OFAC sanctions programs and because of the nature of the 

transactions in which banks engage. 
 

Page 23 GAO-13-326 Iran 

announced a $619 million settlement with ING Direct Bank N.V. to 

address, in part, apparent violations of the Iranian Transaction 

Regulations, among other sanctions programs, over a number of years 

and involving a total of $1.6 billion in transactions. All enforcement actions 

published to date involve violations of Iran sanctions regulations that were 

enacted before 2007. 

Federal and state banking regulators have imposed enforcement actions 

concurrently, or in close coordination, with OFAC in cases of significant 

failures to comply with OFAC regulations. For example, in 2005 the 

Federal Reserve, FinCEN, the New York State Banking Department, the 

Illinois Department of Financial and Professional Regulation, and OFAC 

announced the assessment of penalties against the Dutch bank ABN 

AMRO based, in part, on OFAC violations.69 The agencies jointly 

assessed $75 million in penalties against the bank on the basis of 

findings that it participated in transactions that violated U.S. sanctions 

laws, as well as findings of the bank’s failures related to U.S. anti-money 

laundering laws and regulations and other banking laws.70

In a recent case, federal and state banking regulators did not impose 

enforcement actions at the same time. In August 2012, the New York 

State Department of Financial Services announced that Standard 

Chartered Bank had agreed to a settlement of $340 million and the 

implementation of remedial actions in connection with the omission of 

Iranian customer information from U.S. dollar payment messages sent to 

U.S. financial institutions with respect to 59,000 transactions that totaled 

approximately $250 billion. The regulator determined that the bank’s 

policies and procedures during the relevant period prevented examiners 

 

69In October 2007, a consortium of banks led by the Royal Bank of Scotland Group PLC 

acquired ABN AMRO. In October 2011, the State of New York abolished the New York 

State Banking Department and the New York State Insurance Department, and their 

authorities transferred to the New York State Department of Financial Services. 

70ABN AMRO also volunteered to pay $5 million to the Illinois Bank Examiners’ Education 

Foundation. The Board of Governors of the Federal Reserve System, the New York State 

Banking Department, and the Illinois Department of Financial and Professional Regulation 

announced the issuance, together with De Nederlandsche Bank N.V (the regulator of 

Dutch banks) of a Consent Cease and Desist Order against ABN AMRO and its branches 

in New York, New York and Chicago, Illinois. The order incorporated and largely 

superseded a 2004 written agreement among ABN AMRO, its New York Branch, the 

Federal Reserve Bank of New York, the Federal Reserve Bank of Chicago, the New York 

State Banking Department, and the Illinois Department of Financial and Professional 

Regulation. 

Federal and State Banking 

Regulators, with OFAC, Have 

Imposed Enforcement Actions 
 

Page 24 GAO-13-326 Iran 

from performing complete safety and soundness examinations, and from 

identifying suspicious patterns of activity that could, among other things, 

allow regulators to assist law enforcement authorities. In December 2012, 

OFAC announced a settlement with Standard Chartered for $132 million 

for apparent violations of U.S. sanctions laws and regulations. In a 

separate action, also in December 2012, the Federal Reserve also 

imposed a $100 million civil money penalty against the bank and its New 

York branch, a portion of which related to unsafe and unsound banking 

practices associated with the insufficient oversight of its compliance 

program for U.S. sanctions. 

From 2009 to 2012, Justice, through its Criminal Division, National 

Security Division, and U.S. Attorney’s Offices, pursued criminal 

investigations against seven banks for potential violations of sanctions 

laws that involved transactions with Iran. All seven cases involved banks’ 

potential violations of IEEPA, under which it is criminal to violate, or 

attempt to violate, regulations issued under those statutes. Criminal 

investigations against banks for sanctions violations were resolved 

through settlements that involved monetary forfeitures and deferred 

prosecution agreements (see table 2).71

Table 2: Banks against Which the Department of Justice Has Pursued Charges for 

Transactions with Sanctioned Entities, Including Iran, 2009-2012 

Year Bank Forfeiture Amount

2012 HSBC Bank USA N.A. $1.256 billiona

2012 Standard Chartered Bank $227 millionb

2012 ING Bank N.V. $619 millionc

2010 Barclays Bank PLC $298 milliond

2010 ABN AMRO Bank N.V. $500 million

2009 Credit Suisse AG $536 millione

2009 Lloyds TSB Bank PLC $350 millionf

Source: GAO analysis of court documents. 

 

71Deferred prosecution agreements between Justice and banks have involved agreement 

by prosecutors to defer prosecution of the banks for a specified time and agreement by 

the banks to, among other things, admit publicly the facts of their misconduct, cooperate 

fully with prosecutors, and implement certain corrective actions. 

Justice Has Pursued Cases 

against Banks for Violations of 

Financial Sanctions Laws 
 

Page 25 GAO-13-326 Iran 

a

The HSBC Holdings, PLC and HSBC Bank USA N.A. (together, HSBC Group) agreement to forfeit 

$1.256 billion also addressed Bank Secrecy Act violations. Separately HSBC Group also agreed to 

pay $665 million in civil penalties–$500 million levied by OCC and $165 million levied by the Board of 

Governors of the Federal Reserve–for anti-money laundering program violations. The OCC penalty 

also satisfied a $500 million civil penalty for FinCEN. HSBC Holdings, PLC is a United Kingdom 

corporation that is headquartered in London. In December 2012, the United Kingdom’s Financial 

Services Authority pursued separate legal action against HSBC Holding, PLC.

b

Standard Chartered Bank’s agreement to forfeit $227 million also settled forfeiture claims by Justice 

and New York State. The payment also satisfied the Bank’s $132 million settlement agreement with 

OFAC.

c

ING Bank N.V. agreed to pay $309.5 million to the United States and an additional $309.5 million, 

pursuant to a deferred prosecution agreement with the District Attorney of the County of New York, 

resulting in an overall total forfeiture amount of $619 million. 

d

Barclays Bank PLC agreed to forfeit $149 million to the United States and $149 million pursuant to a 

contemporaneous deferred prosecution agreement with the District Attorney of the County of New 

York, resulting in an overall total amount of $298 million. 

e

Credit Suisse AG agreed to forfeit $268 million to the United States and a separate and additional 

$268 million pursuant to a contemporaneous deferred prosecution agreement with the District 

Attorney of the County of New York, resulting in a total forfeiture of $536 million. 

f

Lloyds TSB Bank PLC agreed to forfeit $175 million to the United States. Pursuant to a 

contemporaneous deferred prosecution agreement with the District Attorney of the County of New 

York, Lloyds TSB Bank also agreed to pay separately $175 million to the State of New York. 

Senior law enforcement officials cited threats to both national security and 

the integrity of the U.S. financial system posed by the banks’ misconduct. 

Furthermore, in each investigation, the bank systematically removed or 

obscured payment data that would have revealed the involvement of 

sanctioned countries and entities, including Iran. For example, in 2009, 

Credit Suisse AG agreed to a one-count filing in federal court that 

charged the bank with violating IEEPA. Justice determined that from 1995 

through 2006, Credit Suisse AG in European locations deliberately 

removed material information, such as customer names, bank names, 

and addresses, from payment messages so that the wire transfers would 

pass undetected through filters at U.S. banks. Credit Suisse AG also 

provided its Iranian clients with a pamphlet that provided detailed 

payment instructions on how to avoid triggering U.S. OFAC filters. The 

scheme allowed U.S.-sanctioned countries and entities to move hundreds 

of millions of dollars through the U.S. financial system. 

In another investigation, Justice indicated that beginning in the early 

1990s until 2007, ING Bank N.V. violated U.S. law by moving more than 

$2 billion illegally through the U.S. financial system–via more than 20,000 

transactions–on behalf of entities subject to U.S. economic sanctions, 

including Cuba and Iran. According to Justice, bank staff intentionally 
 

Page 26 GAO-13-326 Iran 

manipulated financial and trade transactions to remove references to Iran 

and other sanctioned countries to avoid detection by software filters used 

by unaffiliated banks in the United States.72

Similarly, in December 2012, both HSBC Holdings, PLC and HSBC Bank 

USA N.A. entered into a deferred prosecution agreement with Justice for 

violations of IEEPA and the Trading With the Enemy Act in connection 

with Iran and other sanctioned countries.73 Court documents indicated 

that from the mid-1990s through September 2006, HSBC Holdings, PLC 

allowed approximately $660 million in OFAC-prohibited transactions to be 

processed through U.S. financial institutions, including HSBC Bank USA 

N.A. According to an official from the Federal Reserve, HSBC Holdings, 

PLC permitted subsidiaries in Europe and the Middle East to follow 

instructions from sanctioned countries, including Iran, to omit and 

otherwise obscure their names from U.S. dollar payment messages sent 

to HSBC Bank USA N.A. and other financial institutions located in the 

United States. 

According to a senior Justice official, prosecutors sought to obtain the 

appropriate dispositions of cases against banks for criminal violations of 

financial sanctions laws. Federal guidelines regarding prosecution of 

business organizations direct prosecutors to consider additional factors to 

those normally considered in prosecuting individuals. The guidelines 

direct federal prosecutors to consider factors including the timely and 

voluntary disclosure of the wrongdoing by the business and its willingness 

to cooperate in the investigation, among others. In announcing the 

deferred agreements, Justice officials cited the banks’ remedial actions, 

willingness to accept responsibility, and significant cooperation during the 

investigations. 

 

72ING Bank N.V.’s settlements with Justice and the New York County District Attorney’s 

Office satisfied a settlement reached with OFAC. 

73The $1.256 billion forfeiture and deferred prosecution agreement also addressed 

violations of the Bank Secrecy Act, involving approximately $881 million. The forfeiture to 

Justice satisfied a $375 million settlement with OFAC. HSBC Holdings, PLC. also agreed 

to pay $665 million in civil penalties–$500 million levied by the Office of the Comptroller of 

the Currency and $165 million by the Board of Governors of the Federal Reserve System–

for anti-money laundering program violations. The Office of the Comptroller of the 

Currency penalty also satisfied a $500 million civil penalty for FinCEN. HSBC Group is a 

United Kingdom corporation that is headquartered in London. As of January 2013, the 

United Kingdom’s Financial Services Authority was pursuing a separate action. 
 

Page 27 GAO-13-326 Iran 

The combination of the various U.S. and international trade, investment, 

and financial sanctions has adversely affected the Iranian economy and 

its future outlook. Our analysis indicates that the Iranian economy has 

consistently underperformed comparable peer countries across key 

economic indicators since the enactment of U.S. and international 

sanctions between 2010 and 2012. Furthermore, professional and 

International Monetary Fund (IMF) forecasters revised their projections of 

the Iranian economy after the enactment of sanctions to reflect 

deterioration in its expected performance. U.S. and EU exports of 

humanitarian goods to Iran increased in the first three quarters of 2012 

compared with 2011, according to our analysis of trade data. According to 

open source reports, the government of Iran is attempting to adapt to the 

sanctions through various means, including using alternative payment 

mechanisms such as barter agreements, but thus far these agreements 

have not fully offset Iran’s reduced oil exports. 

U.S. and international sanctions have adversely affected the Iranian 

economy. Experts and U.S. officials have indicated that the sanctions 

have created a number of difficulties for the Iranian economy and that the 

financial sanctions have limited Iran’s ability to conduct trade and finance. 

Following the enactment of sanctions beginning in 2010, Iran’s oil 

production, oil export revenue, and gross domestic product (GDP) have 

declined relative to comparable countries, and inflation has increased. 

Moreover, IMF and professional forecasters downgraded their projections 

of Iranian economic performance to reflect a deterioration of the Iranian 

economy, specifically with regard to GDP, inflation, and unemployment, 

since the enactment of recent sanctions. 

U.S. and international sanctions have created a number of difficulties for 

the Iranian economy. Some experts stated that the deterioration in Iran’s 

recent economic performance resulted from a combination of sanctions—

including U.S. and international sanctions—and economic 

mismanagement by the government of Iran. The recent sanctions are 

likely to have reduced Iran’s ability to ship and sell oil, an important 

component of the economy and historically a key source of foreign 

currency earnings and government revenue. U.S. financial sanctions 

have made receiving payment for oil and other exports more difficult. U.S. 

officials and representatives from financial institutions said that U.S. 

financial sanctions have increasingly denied Iran access to U.S. and 

international financial institutions, limiting its ability to finance trade and 

conduct other financial transactions, and increasing transaction costs. For 

example, according to officials from some international financial 

U.S. and International 

Sanctions Have 

Adversely Affected 

the Iranian Economy, 

and Iran Is Attempting 

to Adapt to Them 

U.S. and International 

Sanctions Have Adversely 

Affected the Iranian 

Economy 

Sanctions Have Created a 

Number of Difficulties for the 

Iranian Economy 
 

Page 28 GAO-13-326 Iran 

institutions, many foreign banks are unwilling to process transactions for 

Iranian businesses and citizens even when it was not clear that these 

transactions would trigger sanctions. In addition, as already noted, in 

2012 Iranian banks designated by the EU were cut off from the largest 

financial messaging service, SWIFT, which processed more than 2 million 

financial messages for 29 Iranian financial institutions in 2011. 

To help isolate economic changes that are unique to Iran we identified a 

set of comparable countries (peers) to serve as benchmarks for Iranian 

economic performance. We identified 23 peers that were either countries 

in the same region as Iran or countries with a similar share of oil in their 

exports.74 We used this combined peer group to assess the performance 

of Iran’s oil market, GDP, and inflation. 

Oil production. Iranian oil production sharply diverged from peer oil 

production beginning in 2011 (see fig. 2). 

 

74The combined peer group allows us to isolate economic changes that are unique to Iran 

but does not necessarily identify the impact of sanctions. The peer group includes the 

IMF’s Middle East and North Africa (MENA) region, neighbors not included in MENA, and 

oil export dependent countries outside the region. We excluded certain countries 

experiencing significant instability due to civil unrest or other conflict. The peer group 

comprises Algeria, Angola, Armenia, Azerbaijan, Bahrain, Djibouti, Egypt, Equatorial 

Guinea, Gabon, Jordan, Kuwait, Mauritania, Morocco, Oman, Panama, Republic of 

Congo, Qatar, Saudi Arabia, Tunisia, Turkey, Turkmenistan, United Arab Emirates, and 

Venezuela. For a complete description of our peer group selection and analysis, see 

appendix III. 

The Iranian Economy Has 

Consistently Underperformed 

Peer Economies since 2010 
 

Page 29 GAO-13-326 Iran 

Figure 2: Oil Production for Iran and Peers, January 2000 through June 2012 

Note: The oil production shown for peers is based on the combined production of all peers. 

Iranian oil production has fallen by more than 16 percent since July 2010, 

while production by peers concurrently increased by roughly 4 percent 

according to our analysis of data from the Energy Information 

Administration. However, significant deterioration in oil production and 

exports did not occur until 2012. According to our econometric analysis, 

oil production dropped by a statistically significant 26 percent more than 

expected (on an annualized basis) in 2012.75 Several aspects of the 

sanctions have reduced Iran’s ability to produce oil. U.S. officials and 

 

75We controlled for historical trends in oil production in the Iranian economy as well as 

contemporaneous changes in peers’ economies. Although this approach helps isolate 

economic changes that are unique to Iran, concurrent events such as economic policies in 

Iran imply that factors in addition to sanctions may be affecting its economy. See appendix 

III for more information about our econometric analysis. 
 

Page 30 GAO-13-326 Iran 

independent experts stated that U.S. and international sanctions have 

limited foreign investment in Iran’s oil and gas sectors. Furthermore, EU 

sanctions, including an embargo on Iranian oil imports as well as 

prohibitions on insurance for shipping of Iranian oil and petrochemicals, 

were adopted in January 2012.76 According to State, 20 countries 

reduced their volume of crude oil purchases from Iran after the passage 

of NDAA. 

Revenue from oil exports. Since 2010, Iranian oil export revenue has 

declined while peers’ revenue has increased. According to our analysis of 

IMF data, Iranian oil export revenue is estimated to have declined by 

approximately 18 percent between 2010 and 2012, while peers’ combined 

oil exports revenues are estimated to have increased by more than 50 

percent over the same time period (see fig. 3). This reflects a large 

estimated decrease in oil export revenue in Iran in 2012 relative to peers. 

 

76Council Decision 2012/35/CFSP. 
 

Page 31 GAO-13-326 Iran 

Figure 3: Oil Export Revenue for Iran and Peers, 2000 through 2012 

Note: The export revenue shown for peers is based on the combined oil revenues for all peers. 

According to open source reports, the International Energy Agency stated 

that Iranian oil exports declined from about 2.5 million barrels per day in 

2011 to about 1.3 million barrels per day in November 2012.77 Declining 

export revenue is principally driven by lower estimates of oil exports, but 

lower prices may also be a factor. According to one expert we spoke with, 

Iran may be offering as much as a 10 percent discount from its official 

selling price to some customers. Revenue from oil exports is an important 

component of government revenue in Iran and IMF estimates that Iran 

 

77The International Energy Agency is an international organization composed of 28 

member nations of the Organisation for Economic Co-operation and Development that, 

among other things, collects energy data and produces data on the supply, 

transformation, and consumption of major energy sources. 
 

Page 32 GAO-13-326 Iran 

ran its largest budget deficit since 1998—almost 3 percent of GDP—in 

2012. 

GDP. GDP—an aggregate measure of an economy’s production of goods 

and services—has increased less in Iran relative to peers since 2010 (see 

fig. 4). 

Figure 4: GDP for Iran and Peers, January 2010 through July 2012 

Note: The GDP shown for peers is based on an index set to 100 in the fourth quarter of 2002. The 

index grows at the median growth rate of Iran’s peers each quarter. For 2012 estimates, we adjusted 

quarterly GDP growth in Iran to be consistent with a consensus annual estimate based on the 

average of IMF, IHS Global Insight, and Economist Intelligence Unit annual estimates. 

Because official estimates of GDP have not been available since 2010, 

we averaged estimates from IMF and two private economic information 

services. The resulting consensus estimates indicate that the Iranian 

economy grew by 1.9 percent in 2011 and shrank by 1.4 percent in 2012. 
 

Page 33 GAO-13-326 Iran 

In contrast, Iran’s median peer economy grew by 4.2 percent in both 2011 

and 2012.78

Inflation. Annual inflation in Iran, which has historically been higher and 

more volatile than inflation in peer countries, increased from almost 8 

percent in 2010 to 27 percent in late 2012, while median peer inflation 

remained lower, between 4 and 6 percent (see fig. 5). 

Figure 5: Consumer Price Inflation for Iran and Peers, January 2005 through July 2012 

Note: The inflation shown for peers is based on median annual (year-on-year) inflation for Iran’s 

peers. We omitted certain countries because of a lack of available data at the time of our analysis. 

We obtained similar results when we calculated peer inflation using a simple average or an average 

weighted by peer GDP. 

According to our econometric analysis, inflation increased by a 

statistically significant 12.6 percentage points more than expected (on an 

 

78We obtained similar results when we calculated peer GDP growth using a simple 

average or an average weighted by peer GDP. We did not attempt to adjust for 

differences in fiscal-year and calendar-year reporting across Iran and its peers. 
 

Page 34 GAO-13-326 Iran 

annualized basis) in 2012.79 As recently as 2010, Iran had reduced 

inflation to below 10 percent, down from nearly 30 percent in 2008. 

Higher inflation may also have been driven in part by higher transaction 

costs resulting from U.S. financial sanctions that made processing 

payments for imports more costly. One measure of the Iranian rial-dollar 

market exchange rate depreciated almost 70 percent from July 2010 to 

October 2012. The depreciating exchange rate increased the price of 

certain imported goods, which also likely contributed to the increase in 

inflation.80 In December 2010, the government of Iran introduced a reform 

of energy subsidies that increased energy prices and hence also had an 

impact on inflation. One expert has suggested that excessive money 

growth by the Central Bank of Iran also contributed to higher inflation.81

Three forecasters—IHS Global Insight, IMF, and the Economist 

Intelligence Unit—have downgraded their forecasts of the Iranian 

economy to reflect a deterioration in Iran’s expected economic 

performance after the enactment of recent U.S. and international 

sanctions. We compared the forecasts performed before and after the 

latest round of sanctions, and found that the forecasts predicted poorer 

performance on key macroeconomic indicators, such as Iranian GDP, 

inflation, and unemployment, between 2012 and 2016 than was 

previously expected. For example, according to IHS Global Insight, Iran 

will continue to face declining oil output, plunging exports, surging prices, 

and a sharply weaker currency after 2012. 

Real GDP. Before recent sanctions were enacted from July 2010 through 

2012, the three forecasters predicted that between 2012 and 2016, the 

Iranian economy would grow, on average, by about 3.2 to 4.3 percent per 

 

79We controlled for historical inflation trends in the Iranian economy as well as 

contemporaneous changes in peers’ economies. Although this approach helps to isolate 

economic changes that are unique to Iran, concurrent events such as economic policies in 

Iran imply that factors in addition to the sanctions may be affecting its economy. See 

appendix III for more information on the econometric analysis. 

80If the desire to move savings out of Iran (capital flight) is driving the depreciation of the 

exchange rate, then the depreciation itself would cause inflation by making imports more 

expensive. However, in the absence of, or in addition to, capital flight, higher inflation 

could be driving the depreciation, given that the purchasing power of the rial has fallen. 

81These policy responses may have been driven in part by the sanctions. For example, 

IHS Global Insight has argued that sanctions played a major role in the Iranian 

government’s implementation of subsidy reform. 

Forecasters Have Downgraded 

Projections for the Post-2012 

Iranian Economy 
 

Page 35 GAO-13-326 Iran 

year. However, in their updates, published in October and November 

2012, all three forecasters predicted that Iran’s annual GDP would grow, 

on average, by -0.5 to 0.8 percent for the same period (see fig. 6). 

Figure 6: Forecasts of Iran’s GDP Before and After Recent U.S. and International Sanctions 

According to IHS Global Insight, the U.S. and EU sanctions that target 

Iranian oil exports and the Central Bank of Iran are harsher and more 

punitive than previously enacted sanctions, and will likely push the Iranian 

economy into recession. In particular, after updating its forecast in August 

2012, IHS Global Insight expected the Iranian economy to contract by 2.0 

percent in 2012 and by 1.3 percent in 2013. According to the IMF’s 

Regional Economic Outlook for the Middle East and Central Asia of 

November 2012, Iran’s oil production has declined owing to tightened 

U.S. sanctions and the EU oil embargo, lowering the country’s growth 

outlook. All three forecasters predicted that Iran’s crude production and 

exports would continue their downward trend as a result of the sanctions 

and that Iran would be heavily reliant on its Asian and Middle Eastern 

trading partners to purchase crude oil available for exports. Furthermore, 

the IMF’s Regional Economic Outlook projected that Iran’s gross official 
 

Page 36 GAO-13-326 Iran 

reserves would decline from $101.5 billion in 2011 to $89.2 billion in 2012 

and $84.6 billion in 2013. Based on the IMF’s projections of Iran’s annual 

imports of goods and services in 2012 and 2013, the anticipated reserves 

will be less than Iran’s annual imports. Although the forecasters projected 

that the negative trend of real GDP would likely reverse in or after 2013, 

the Economist Intelligence Unit, for example, did not take into account 

any future changes in current sanctions or the possible enactment of new 

sanctions. 

Inflation. The forecasters revised the projected inflation rate for Iran to 

reflect predicted future economic environment that was worse than 

originally projected (see fig. 7). 

Figure 7: Forecasts of Iranian Inflation Before and After Recent U.S. and International Sanctions 

Before recent sanctions were enacted, the average annual inflation rate 

predicted by IHS Global Insight, IMF, and the Economist Intelligence Unit 

ranged between 10.0 and 16.3 percent for the period from 2012 to 2016. 

However, the revised forecasts predicted that inflation would average 

19.0 to 21.0 percent for the same period. According to the three 
 

Page 37 GAO-13-326 Iran 

forecasters, the near-term inflation outlook for Iran has deteriorated in 

light of subsidy cuts, the collapsing value of the Iranian rial, and additional 

EU and U.S. sanctions. For example, according to the Economic 

Intelligence Unit, inflation will remain high, driven by the removal of 

subsidies and by sanctions, which are leading to a dramatic weakening of 

the unofficial value of the rial and surging prices for imports. Since Iran is 

a major consumer of refined petroleum, a domestic production shortage 

means that the country needs to import refined petroleum to meet 

demand, exacerbating the vulnerability to import price inflation. 

Furthermore, the Economic Intelligence Unit anticipated that in the face of 

declining government revenue, there is a risk that the authorities will print 

money to fund spending, which could feed an inflationary spiral. IHS 

Global Insight projected higher inflation over the next 5 years to reflect the 

move to further reduce—and ultimately eliminate—potentially costly 

government subsidies on food, utilities, education, and other goods and 

services. 

Unemployment. In addition to expecting the economy to shrink in the near 

term, the forecasters also revised their projections of the employment 

outlook for Iran (see fig. 8). 
 

Page 38 GAO-13-326 Iran 

Figure 8: Forecasts of Iranian Unemployment Before and After Recent U.S. and International Sanctions 

Before the enactment of the recent U.S. and international sanctions, the 

three forecasters projected from 2012 through 2016, the unemployment 

rate would average between 14.6 and 15.2 percent. After the enactment 

of recent U.S. and international sanctions from 2010 through 2012, the 

forecasters predicted a higher average unemployment rate for 2012 

through 2016, ranging from an average of 15.0 to 16.6 percent. All three 

forecasters anticipated a sustained high unemployment rate of 15 percent 

or higher. For example, the IMF forecast predicts an increase of 

unemployment to almost 19 percent in 2016. 

Our analysis indicates that EU and U.S. exports of humanitarian goods to 

Iran increased by about 35 percent in the first 10 months of 2012, from 

$1.671 billion in the first 10 months of 2011 to $2.258 billion in the first 10 

months of 2012 (see table 3). The increase is largely due to U.S. exports 

of wheat and EU exports of wheat and barley. Medicine and medical 

devices have remained relatively stable for the EU, but U.S. exports of 

those goods declined by approximately 11 percent in the first 10 months 

EU and U.S. Exports of 

Humanitarian Goods to 

Iran Increased During 2012 
 

Page 39 GAO-13-326 Iran 

of 2012. However, the United States has not been a major supplier of 

humanitarian goods to Iran. U.S. exports of humanitarian goods to Iran 

are about 10 percent of the EU humanitarian exports to Iran. 

Table 3: EU and U.S. Exports of Humanitarian Goods to Iran for the First 10 Months of 2011 and 2012 

(In millions of dollars) 

January-October 2011 January-October 2012 

Agricultural 

goods 

Medicine and 

medical devices Total

Agricultural 

goods

Medicine and 

medical devices Total

EUa exports 417 1,107 1,524 924 1,143 2,066

U.S. exports 101 46 147 150 41 192

Total exports 518 1,153 1,671 1,074 1,184 2,258

Source: GAO analysis of U.S. and EU trade data. 

a

The EU data includes all 27 current member states. We used the Iranian Transactions Regulations 

as of October 2011 to define agriculture goods as including items that are intended to be consumed 

by and provide nutrition to humans or animals in Iran, including vitamins and minerals, bottled 

drinking water, and seeds that germinate into items that are intended to be consumed by, and provide 

nutrition, to humans or animals in Iran. These agricultural goods do not include alcoholic beverages, 

cigarettes, gum, or fertilizer. Medicines and medical devices consist of medical supplies, equipment, 

instruments, ambulances, and medicines, which include prescription and over-the-counter medicines 

for humans and animals. We use a U.S. Census-defined concordance between the North American 

Industry Classification System used by the United States and the Harmonized Commodity Description 

and Coding System used by the EU. For a more detailed discussion of our methodology, see 

appendix I. 

Since the enactment of recent U.S. and international sanctions from 2010 

through 2012, the annualized growth rate in EU exports of humanitarian 

goods to between 2010 and 2012 Iran nearly tripled to 18.5 percent from 

the historical average of 6.6 percent in 2004 through 2009 (see fig. 9). In 

addition, from 2010 through the third quarter of 2012, EU exports of 

medicine and medical devices grew at an annualized rate of about 11.2 

percent, compared with about 0.6 percent from 2004 through 2009. 

Moreover, EU exports of agricultural goods grew at an annualized rate of 

31 percent from 2010 through the third quarter of 2012. In addition, U.S. 

humanitarian exports to Iran increased at an annualized rate of about 10 

percent since 2010 (see fig. 10). EU and U.S. agricultural exports 

increased in the second half of 2008, owing to increased wheat exports 

that assisted Iran in coping with a drought that had affected its agricultural 

sector. 
 

Page 40 GAO-13-326 Iran 

Figure 9: EU Exports of Humanitarian Goods to Iran, First Quarter 2004 through Third Quarter 2012 

Note: The EU data includes all 27 current member states. We used the Iranian Transactions 

Regulations as of October 2011 to define agricultural goods and medicines and medical devices. We 

used a U.S. Census-defined concordance between the North American Industry Classification 

System used by the United States and the Harmonized Commodity Description and Coding System 

used by the EU. For a more detailed discussion of our methodology, see appendix I. 
 

Page 41 GAO-13-326 Iran 

Figure 10: U.S. Exports of Humanitarian Goods to Iran, First Quarter 2004 through Third Quarter 2012 

Note: We used the Iranian Transactions Regulations as of October 2011 to define agricultural 

commodities and medicines and medical devices. We used a U.S. Census-defined concordance 

between the North American Industry Classification System used by the United States and the 

Harmonized Commodity Description and Coding System used by the EU. For a more detailed 

discussion of our methodology, see appendix I. 

Official UN and open source reports have raised concerns regarding the 

availability of humanitarian goods in Iran as a result of the U.S. and 

international sanctions. According to a 2012 UN report, the sanctions 

targeting Iran have had significant impacts on the general population, 

including causing a shortage of necessary items, such as medicines.82

The UN also reported that some nongovernmental organizations 

operating in Iran have reported that people do not have access to lifesaving medicines. In addition, a report published by the Wilson Center in 

 

82UN General Assembly, “Situation of human rights in the Islamic Republic of Iran: Report 

to the Secretary-General,” A/67/327 (Aug. 22, 2012), accessed February 15, 2013, 

http://www.unhcr.org/refworld/docid/50a107f02.html. 
 

Page 42 GAO-13-326 Iran 

February 2013 stated that sanctions are “causing disruptions in the 

supply of medicine and medical equipment in Iran.”83 Foreign financial 

and business officials in Dubai informed us in September 2012 that 

sanctions may have adversely affected some Iranian citizens and 

businesses. Some of these officials stated that sanctions may have 

limited the export of some humanitarian goods, such as food and 

medicine, to Iran. For example, one business official indicated that the 

recent financial sanctions had significantly limited his ability to export food 

to Iran because foreign banks were unwilling to process transactions for 

Iranian business. Some open source reports have noted that economic 

mismanagement and insufficient funding for medicines by the Iranian 

government have exacerbated the shortage of medicines in Iran. 

According to open sources, the government of Iran has made efforts to 

adapt to U.S. and international sanctions in a number of ways, including 

using alternative payment mechanisms such as barter agreements and 

changing its trading partners. Open sources report that Iran is selling oil 

at a discount to a number of customers, and is accepting other countries’ 

currencies as payment, which may limit its ability to use the revenue for 

anything other than purchasing products in those countries. For example, 

open sources reported Iran has entered into barter agreements with 

countries including India, exchanging oil for food, medicine, and 

commercial products in lieu of using traditional payment methods. 

According to an international energy market expert, while the barter 

arrangements allow Iran to continue selling oil to other countries without 

accessing the international financial institutions, such arrangements may 

also limit Iran’s ability to receive the full market value of its oil.84

 

83Siamak Namazi, “Sanctions and Medical Supply Shortages in Iran,” Viewpoints 20 

(Washington, D.C.: Wilson Center, 2013). 

84According to Treasury, entities that engage in barter arrangements may be subject to 

U.S. sanctions to the extent that those arrangements involve entities such as a financial 

institution or the National Iranian Oil Company. 

Iran Is Trying to Adapt to 

Sanctions by Seeking New 

Payment Mechanisms and 

Changing Trading Partners 

Iran Is Reportedly Using Barter 

Agreements for Some Oil 

Exports 
 

Page 43 GAO-13-326 Iran 

Furthermore, as the EU and some countries, such as South Korea and 

Japan, have significantly reduced the purchase of Iranian oil in response 

to EU and U.S. sanctions, open source reports indicate that Iran has 

attempted to reach agreements with India, Pakistan, and other countries 

to purchase Iranian oil. However, these recent agreements have thus far 

not fully offset the reduced exports to the EU and others. According to 

open source reports, the International Energy Agency stated that Iranian 

oil exports declined from about 2.5 million barrels per day in 2011 to 

about 1.3 million barrels per day in October 2012. 

Although Iranian exports of oil have declined, trade data from certain 

countries show that their exports to Iran have increased since before 

2010. In 2008 and 2009, before the enactment of recent U.S. sanctions 

and international sanctions in 2010 through 2012, the average aggregate 

quarterly exports to Iran were about $15.5 billion. During the first half of 

2012, quarterly exports to Iran from the same countries were $20.4 billion 

despite the recent U.S. and international financial sanctions targeting 

Iran. Table 4 shows that the share of EU exports to Iran has decreased 

while the shares of Turkish and United Arab Emirati exports have 

markedly increased. The U.S. share of Iran’s imports has remained at 1 

percent or less. 

Table 4: Aggregate Average Quarterly Exports to Iran by Country, January 2008 to June 2012 

 2008-2009 2010-2011 2012a

 Dollar amount 

(millions) 

Share 

(percent)

Dollar amount 

(millions)

Share 

(percent)

Dollar amount 

(millions)

Share 

(percent)

European Union 3,900.6 25 3,486.0 17 $2,200.0 11

United Arab Emirates 3,112.6 20 5,841.1 29 6,778.3 33

China 1,996.3 13 3,236.8 16 2,571.7 13

South Korea 1,041.8 7 1,334.4 7 1,708.5 8

Russian Federation 762.6 5 828.9 4 444.7 2

India 532.5 3 635.5 3 600.3 3

Turkey 506.8 3 829.2 4 2,943.8 14

Japan 444.6 3 472.6 2 167.6 1

United States 120.6 1 54.7 0 79.7 0

All Others 3,105.7 20 3,349.2 17 2,915.0 14

Total 15,524.1 100 20,068.3 100 20,409.5 100

Source: GAO analysis of IMF’s Direction of Trade data. 

Note: Numbers may not sum to total and percentages may not sum to 100 percent because of 

rounding 

a

Data for 2012 cover the first two quarters of the year. 

Iran Trading Partners Have 

Changed as Overall Trade Has 

Increased since 2010 
 

Page 44 GAO-13-326 Iran 

We provided a draft of our report to Treasury, State, Justice, the Board of 

Governors of the Federal Reserve, the Office of the Comptroller of the 

Currency, and the International Monetary Fund for their review and 

comment. The agencies and organizations did not provide official 

comments on the report. The Departments of Treasury, the Board of 

Governors of the Federal Reserve, the Office of the Comptroller of the 

Currency, and the International Monetary Fund provided technical 

comments on the draft, which we incorporated in the report, as 

appropriate. 

We are sending copies of this report to interested congressional 

committees, the secretaries and agency heads of the departments 

addressed in this report, and other interested parties. In addition, the 

report is available at no charge on the GAO website at 

http://www.gao.gov. 

If you or your staff have any questions about this report, please contact 

me at (202) 512-9601 or melitot@gao.gov. Contact points for our Offices 

of Congressional Relations and Public Affairs may be found on the last 

page of this report. GAO staff who made key contributions to this report 

are listed in appendix V. 

Sincerely yours, 

Thomas Melito 

Director 

International Affairs and Trade 

Agency Comments 
Appendix I: Scope and Methodology 

Page 45 GAO-13-326 Iran 

To describe recent laws and executive orders that have added to the 

Department of Treasury’s (Treasury) authority to implement financial 

sanctions targeting Iran, we reviewed the public laws and executive 

orders that define these sanctions, as well as the regulations developed 

to administer them. We spoke with Treasury officials to identify laws 

enacted and executive orders issued from 2010 through 2012 that added 

to Treasury’s authority to administer and enforce financial sanctions 

targeting Iran. Treasury officials identified four primary laws and four 

executive orders that authorized the financial sanctions targeting Iran. We 

focused primarily on those financial sanctions targeting Iran that are 

defined in laws, regulations, or executive orders and that either (1) block 

the property of designated entities or (2) target a financial transaction as 

an action that can result in the prohibition of the opening or the prohibition 

or imposition of strict conditions on the maintenance of a correspondent 

or payable-through account in the United States by a foreign financial 

institution. We discussed the sanctions with officials from Treasury and 

the Department of State (State), and we reviewed official statements and 

press releases on the content and purpose of the sanctions. We also 

reviewed selected financial sanctions targeting Iran enacted by the United 

Nations (UN) and European Union (EU). 

To describe U.S. efforts to administer U.S. financial sanctions targeting 

Iran, we reviewed Treasury regulations and guidance establishing the 

process for administering the sanctions. We reviewed the Iranian 

Financial Sanctions Regulations,1

 Iranian Transactions and Sanctions 

Regulations,2

 and additional sanctions guidance and documents 

developed and published by Treasury. We spoke with Treasury officials to 

discuss the agency’s administration of financial sanctions through various 

activities, including its development of regulations, outreach to banks and 

financial institutions, review of financial transactions, identification of 

potential violations, and assessment of the impact of financial sanctions. 

We also interviewed State officials regarding the department’s process for 

granting exceptions under section 1245 of the National Defense 

Authorization Act of 2012.3

 To describe the efforts of the U.S. government 

and banks to ensure compliance with the financial sanctions targeting 

 

1

31 C.F.R. pt. 561. 

2

31 C.F.R. pt. 560. 

3

Pub. L. No. 112-81, § 1245(d). 

Appendix I: Scope and Methodology 
Appendix I: Scope and Methodology 

Page 46 GAO-13-326 Iran 

Iran, we reviewed the Bank Secrecy Act, as amended,4 and the 

examination procedures used by the regulators to assess banks’ 

compliance with Bank Secrecy Act and Office of Foreign Assets Controlrelated requirements, which includes guidance on the establishment and 

maintenance of an effective Office of Foreign Assets Control (OFAC) 

compliance program.5

 We also reviewed available data from the 

regulators on the numbers of Bank Secrecy Act examinations conducted 

during fiscal years 2010–2012, which generally included reviews of 

banks’ OFAC compliance programs. We interviewed officials from the 

Board of Governors for the Federal Reserve System and the Office of the 

Comptroller of the Currency to discuss the bank examination process 

regarding OFAC compliance programs. We also spoke with 

representatives from the American Bankers Association and the Institute 

of International Bankers to discuss the role that banks play in the 

administration of financial sanctions and the programs that banks 

establish to comply with OFAC reporting guidelines. 

To describe U.S. efforts to enforce financial sanctions targeting Iran, we 

interviewed officials from Treasury, State, the Department of Justice 

(Justice), and federal banking regulatory agencies to identify the methods 

and activities that the agencies used for enforcement. We reviewed the 

Specially Designated Nationals list, which Treasury publishes, to 

determine the number of entities that Treasury designated for violations of 

U.S. financial sanctions targeting Iran. We reviewed OFAC guidance on 

the enforcement of financial sanctions. We also reviewed documents on 

the federal banking regulators’ enforcement actions against banks 

involving OFAC compliance issues. We additionally reviewed court 

documents and press releases regarding enforcement actions taken by 

Justice in response to banks’ criminal violations of financial sanctions. 

To assess Iranian economic performance, we identified a group of peer 

economies, which helped us to isolate economic changes that are unique 

to Iran but not necessarily to identify the impact of sanctions. The peer 

group we identified includes the International Monetary Fund’s (IMF) 

Middle East and North Africa region, neighboring countries not included in 

 

4

12 U.S.C. §§ 1829b, 1951-1959; 31 U.S.C. §§ 5311 et seq. 

5

Federal and state banking regulatory agencies issued a Bank Secrecy Act/Anti-Money 

Laundering Manual that includes the regulators’ expectations regarding banks’ OFAC 

compliance programs. (www.ffiec.gov.bsa/bsa_aml_infbase/default.htm. pp.147-159) 
Appendix I: Scope and Methodology 

Page 47 GAO-13-326 Iran 

the Middle East and North Africa region, and oil export-dependent 

countries outside the region. The peer group is comprised of Algeria, 

Angola, Armenia, Azerbaijan, Bahrain, Djibouti, Egypt, Equatorial Guinea, 

Gabon, Jordan, Kuwait, Mauritania, Morocco, Oman, Panama, Republic 

of Congo, Qatar, Saudi Arabia, Tunisia, Turkey, Turkmenistan, United 

Arab Emirates, and Venezuela. The group excludes Afghanistan, Chad, 

Iraq, Lebanon, Libya, Nigeria, Pakistan, Sudan, Syria, and Yemen–– 

countries that were rated very high on the Fund for Peace Failed States 

Index or very low on the Institute for Economics and Peace Global Peace 

Index in 2011 or 2012. We assessed the performance of the Iranian oil 

market (oil production and oil export revenue), gross domestic product, 

and consumer price inflation against the peer group’s, using data from 

IMF databases (World Economic Outlook and International Financial 

Statistics), the Energy Information Administration (International Energy 

Statistics database), IHS Global Insight, and the Economist Intelligence 

Unit. We assessed the reliability of these data and found that they were 

sufficiently reliable for identifying peers for the Iranian economy and 

assessing Iran’s economic performance. For example, we corroborated 

data from multiple sources and spoke with cognizant officials and experts 

to confirm the reliability of the data. Because of concerns about Iranian 

economic data, we relied on third party data and estimates to a large 

extent, and considered the published views of the IMF on Iranian inflation 

data, whose original source was the Central Bank of Iran. If, as some 

suggest, Iranian official statistics underestimate inflation, our results with 

respect to inflation are conservative. In addition to conducting simple peer 

comparisons, we conducted a more rigorous econometric analysis that 

controlled for historical trends in Iranian oil production as well as 

contemporaneous changes in peers’ oil production. We interpreted the 

results of our analysis in light of expert views, contemporaneous events 

including U.S. and EU sanctions, and certain domestic policies in Iran. In 

most instances we did not attempt to isolate the impact of U.S. financial 

sanctions. The contemporaneous implementation of many sanctions, 

including U.S., UN, and EU financial and non-financial sanctions from 

2010 through 2012, would make attributing certain outcomes to any 

particular sanction very difficult. For a complete description of our peer 

group selection and econometric analysis see Appendix III. 

To assess the impact of the sanctions on the projected future 

performance of the Iranian economy, we reviewed the forecasts that three 

sources–the IMF’s World Economic Outlook, IHS Global Insight, and 

Economist Intelligence Unit–developed to predict the performance of 

Iran’s economy from 2012 through 2016. We reviewed the forecasts that 

each source developed before the enactment of the most recent U.S. and 
Appendix I: Scope and Methodology 

Page 48 GAO-13-326 Iran 

international sanctions, and we compared the results with forecasts 

published between September and October 2012 to identify changes in 

the predicted performance of the Iranian economy. To compile the 

original forecasts, we used IHS Global Insight data for June 2010 and the 

IMF World Economic Outlook estimates for April 2010, with the exception 

of predicted unemployment rate, which came from the September 2011 

World Economic Outlook database. We also averaged two forecasts 

developed by the Economist Intelligence Unit, from March 2010 and 

October 2010, to establish a baseline forecast of the performance of 

Iran’s economy before the enactment of the recent sanctions. For the 

updated forecasts, we used the November 2012 IHS Global Insight data, 

the October 2012 IMF World Economic Outlook database, and the 

November 2012 Economist Intelligence Unit forecasts. 

To identify the efforts of the government of Iran to adapt to the U.S. and 

international sanctions, we reviewed U.S. government statements 

regarding the impact of sanctions on Iran in publicly available testimonies, 

speeches, and other remarks made by U.S. officials from State, Treasury, 

and the White House. We reviewed these statements regarding the U.S. 

government’s position on the impact of sanctions on Iran, factors that 

might lessen their impact, the influence of international sanctions on the 

impact of sanctions, and for ways that Iran was adapting to the sanctions. 

We interviewed U.S. government officials, as well as academic and 

independent experts, regarding the extent to which sanctions targeting 

Iran have affected the Iranian economy and government and business 

with Iran. In addition, we reviewed open source and media reports 

regarding the effect of U.S. and international sanctions on Iran. 

To review the impact of sanctions targeting Iran on the availability of 

humanitarian goods to Iran, we reviewed official UN and open source 

reports about the access of such goods in Iran. In addition, since the United 

Arab Emirates is one of Iran’s largest trading partners, we met with several 

business officials in Dubai, United Arab Emirates, to discuss the effect that 

sanctions have had on business with Iran and the resulting impact on 

Iranian citizens and the availability of humanitarian goods. To analyze the 

export of humanitarian goods to Iran, we analyzed U.S. and EU trade data 

between January 2004 and October 2012. For the purposes of this report, 

we defined “humanitarian goods” as those goods authorized for exports by 

the Iranian Transactions Regulations as of October 2011. The regulations 

defined agriculture goods to include items that are intended to be 

consumed by and provide nutrition to humans or animals in Iran, including 

vitamins and minerals, bottled drinking water, and seeds that germinate 

into items that are intended to be consumed by and provide nutrition to 
Appendix I: Scope and Methodology 

Page 49 GAO-13-326 Iran 

humans or animals in Iran. Agricultural goods did not include alcoholic 

beverages, cigarettes, gum, or fertilizer. Medicine and medical devices 

consisted of medical supplies, equipment, instruments, and ambulances, 

and medicines which include prescription and over-the-counter medicines 

for humans and animals. We used a U.S. Census-defined concordance 

between the North American Industry Classification System used by the 

United States and the Harmonized Commodity Description and Coding 

System used by the European Union. We performed our selection of 

humanitarian goods at the two-, four- and five-digit levels of the harmonized 

system codes, as appropriate. For the trend analysis since January 2004, 

we also performed a sensitivity check by using the definition of authorized 

agricultural exports to Iran stated in the Export Administration Regulations 

as of July 2001. These regulations included tobacco and tobacco products, 

beer, wine and spirits, livestock, fertilizer and reproductive materials in the 

list of authorized agricultural exports. We found that those categories of 

products did not have a significant impact on our analysis, and we decided 

to use a consistent definition for our short-term 10-month comparison 

between 2011 and 2012 exports, as well as our longer-term trend analysis. 

In addition, the narrower scope of the authorized agricultural exports as 

stated in the updated regulations provided a more precise definition of 

humanitarian goods. To ensure that we did not overlook any authorized 

agricultural commodities and medicine and medical devices exported by 

the U.S. to Iran, we also reviewed OFAC data of export licenses issued to 

U.S. businesses that allowed the export of these goods to Iran between 

2009 and 2012. 

We conducted this performance audit from February 2012 to February 

2013 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives. 
Appendix II: Selected U.S. and International 

Sanctions Targeting Iran 

Page 50 GAO-13-326 Iran 

Figure 11: Selected U.S. and International Sanctions Targeting Iran 1984 through 2007

Appendix II: Selected U.S. and International 

Sanctions Targeting Iran 
Appendix III: Econometric Analysis of Iran 

Economic Indicators 

Page 51 GAO-13-326 Iran 

In this appendix we describe the process we used to identify peers for the 

Iranian economy, the econometric approach we used to determine the 

magnitude and statistical significance of recent changes in several 

economic indicators for Iran, and the results of this analysis. 

To help understand economic changes occurring uniquely in Iran we 

identified a set of peer countries to approximate a control group. We 

identified (1) regional peers, and (2) oil exporting peers, and then we 

pooled the two groups to form a single peer group. To identify regional 

peers, we chose countries in the International Monetary Fund’s (IMF) 

Middle East and North Africa peer group and other countries that 

bordered Iran but were not in the group. To identify countries whose 

dependence on oil exports is similar to Iran’s, we calculated Iran’s oil 

exports as a percentage of goods exports (roughly 86 percent), and then 

considered any country to be an oil exporting peer if its oil exports were 

more than 75 percent of goods exports. 

To remove certain countries that experienced significant instability 

associated with civil conflict or political violence (e.g., certain countries 

associated with the “Arab Spring”), we excluded countries from the peer 

group if they exceeded certain thresholds on the Fund for Peace Failed 

States Index or the Institute for Economics and Peace Global Peace 

Index in 2011 or 2012.1

 We then combined into a single peer group the 

countries that we had identified with both methodologies (see table 5). 

 

 

1

For the Failed States index, we excluded potential peers whose score exceeded 100 (out 

of 120). For the Global Peace Index, we excluded potential peers whose score exceeded 

2.5 (out of 5). Based on these criteria we excluded Afghanistan, Chad, Iraq, Lebanon, 

Libya, Nigeria, Pakistan, Sudan, Syria, and Yemen. 

Appendix III: Econometric Analysis of Iran 

Economic Indicators 

Peer Identification 
Appendix III: Econometric Analysis of Iran 

Economic Indicators 

Page 52 GAO-13-326 Iran 

Table 5: Peers for the Iranian Economy 

Peer country Type 

Algeria Regional and oil exporting peer 

Angola Oil exporting peer 

Armenia Regional peer 

Azerbaijan Regional and oil exporting peer 

Bahrain Regional peer 

Djibouti Regional peer 

Egypt Regional peer 

Equatorial Guinea Oil exporting peer 

Gabon Oil exporting peer 

Jordan Regional peer 

Kuwait Regional and oil exporting peer 

Mauritania Regional peer 

Morocco Regional peer 

Oman Regional peer 

Panama Oil exporting peer 

Qatar Regional and oil exporting peer 

Republic of Congo Oil exporting peer 

Saudi Arabia Regional and oil exporting peer 

Tunisia Regional peer 

Turkey Regional peer 

Turkmenistan Regional peer 

United Arab Emirates Regional peer 

Venezuela Oil exporting peer 

Source: GAO analysis of International Monetary Fund data. 

We estimated several panel data difference-in-difference models on the 

growth rates of two macroeconomic indicators: oil production and 

consumer prices. While the dependent variable varies, the independent 

variables are the same across models—an intercept and month and 

country fixed effects. We assume a robust covariance structure which 

allows for heteroskedasticity–volatility could vary over time or across 

countries–and serial correlation of the errors within a country. In addition, 

we estimate two variations based on different “sanctions dummies” for 

Iran that correspond to two key financial sanctions laws—Comprehensive 

Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA), 

passed in July 2010, and the National Defense Authorization Act for 

Econometric Approach 
Appendix III: Econometric Analysis of Iran 

Economic Indicators 

Page 53 GAO-13-326 Iran 

Fiscal Year 2012 (NDAA), passed in December 2011 (As a result, the 

post-sanction dummies are equal to 1 for observations on Iran from 

August 2010 to the present in the case of CISADA and from January 

2012 to the present in the case of NDAA). For the NDAA dummy in 

particular, we recognize that European Union (EU) sanctions related to 

insurance and an EU oil embargo are contemporaneous with NDAA 

financial sanctions. Furthermore, we recognize that we are not identifying 

the impact of sanctions based on this approach. We do not control for 

other macroeconomic or idiosyncratic (time-country specific) factors. We 

also recognize that we lack detailed institutional knowledge of 

idiosyncratic factors across all of the countries in our sample. However, 

we argue that other factors we might attempt to control for are likely to be 

endogenous to the sanctions. For example, one would typically include 

the growth of the money supply and the output gap in a regression 

designed to explain inflation. However, both of these factors could be 

influenced by the sanctions or by policy responses to the sanctions; 

therefore, by including them we could underestimate the role of sanctions. 

We estimated all models with data from February 2000 to the most 

recently available month at the time of the analysis (June 2012 or 

July 2012). 

Changes in the Iranian economic indicators we analyzed were 

consistently statistically significant during the time period associated with 

recent U.S. financial sanctions, and the measured effects (coefficients) 

were of magnitudes that were economically meaningful. The size of the 

effect is larger in the post-NDAA time period (which also includes EU 

sanctions related to oil and insurance) than in the post-CISADA period. 

Although this is not necessarily a measure of the impact of U.S. and 

international sanctions, it does indicate that the recent deterioration in the 

Iranian economy is larger than what one would expect relative to the 

historical trends and volatility of Iran and its peers.2

 

2

For our econometric analysis as well as graphical comparisons of Iran with peers, we 

included only countries for which data for the full time period were available at the time of 

our analysis. This resulted in the exclusion of some peers in each analysis or comparison. 

Results 
Appendix III: Econometric Analysis of Iran 

Economic Indicators 

Page 54 GAO-13-326 Iran 

The increase in the inflation rate is statistically significant and large, 

indicating that inflation is significantly larger than one would expect during 

the post-CISADA and post-NDAA time periods (see table 6). The effect in 

2012 (the post-NDAA period) is slightly larger: 12.6 percentage points 

versus 10.2 percentage points in the post-CISADA period. An energy 

subsidy program initiated in December 2010 is likely to have contributed 

to higher inflation during this time period. U.S. and international sanctions 

may have contributed to higher transaction costs, higher import prices, 

and a lower exchange rate, all of which could increase inflation. 

Table 6: Inflation Difference-in-Difference Model 

Sanctions period Coefficient (p-value) Annualized effect

Post-CISADA change 0.0082 (0.0001) 10.24%

Post-NDAA change 0.0099 (<0.0001) 12.57%

Source: GAO analysis of International Monetary Fund data. 

Note: In addition to indicators for Iran in the post-CISADA or post-NDAA time periods, models are 

estimated with an intercept, month and country fixed effects. CISADA and NDAA models estimated 

independently. 

The decline in oil production is also statistically significant and large, 

indicating that oil production fell significantly more than one would expect 

during the post-CISADA and post-NDAA time periods (see table 7). The 

effect in 2012 (the post-NDAA period) is much larger: 26 percentage 

points versus 9 percentage points in the post-CISADA period. U.S. and 

international sanctions, such as a European Union embargo on oil from 

Iran, may have made it more difficult to attract investment in Iran’s oil 

sector, more difficult to sell oil on international markets, and more difficult 

to receive payment for oil Iran was able to sell, all of which could 

decrease oil production. 

Table 7: Oil Production Difference-in-Difference Model 

Sanctions period Coefficient (p-value) Annualized effect

Post-CISADA change -0.0078 (<0.0001) -8.98%

Post-NDAA change -0.0244 (<0.0001) -25.64%

Source: GAO analysis of Energy Information Administration data. 

Note: In addition to indicators for Iran in the post-CISADA or post-NDAA time periods, models are 

estimated with an intercept, month and country fixed effects. CISADA and NDAA models estimated 

independently. 
Appendix III: Econometric Analysis of Iran 

Economic Indicators 

Page 55 GAO-13-326 Iran 

We estimated several additional models to assess the robustness of our 

results. In one instance, we allowed the Iran dummy variables 

representing the post-CISADA and post-NDAA time periods to vary over 

time, beginning in January 2010. The coefficients on the dummy variables 

were larger and more likely to be statistically significant during the postCISADA and, especially, post-NDAA time periods. We also estimated 

models with alternative error structures that allow for more general 

heteroskedasticity or for contemporaneous correlation across countries, 

respectively, and our results were substantively unchanged. 
Appendix IV: IAEA Reports on the 

Development of the Iranian Nuclear Program 

Page 56 GAO-13-326 Iran 

Iran’s initial efforts to develop nuclear energy technology began in the 

1950s with assistance from the United States through President 

Eisenhower’s Atoms for Peace program. Iran’s nuclear energy program 

accelerated during the mid-1970s through the efforts of Shah Mohammad 

Pahlavi.1

 However, not much was publicly known of the extent of Iran’s 

nuclear capability until 2002, when the International Atomic Energy 

Agency (IAEA) was informed of a previously undeclared nuclear 

enrichment plant in Natanz and a heavy water plant in Arak.2

 Subsequent 

IAEA inspections revealed that Iran had already made significant 

progress toward mastering the technology needed to make enriched 

uranium, a material that can be used to fuel nuclear weapons. IAEA 

inspectors reported that they were unable to conclude that Iran’s program 

was exclusively peaceful. Under the terms of the Paris Agreement, 

negotiated in 2004, Iran voluntarily suspended its uranium enrichment 

program. In August 2005, coinciding with President Ahmadinejad’s 

assumption of power, Iran resumed its enrichment program. In response, 

IAEA reported these actions to the UN Security Council (UNSC). This 

resulted in UNSC Resolution 1696, which demanded that Iran suspend its 

uranium enrichment and reprocessing activities, acting under Article 40 of 

the UN Charter.3

 The resolution requested that the IAEA complete a 

report by August 31, 2006, on whether Iran had suspended its enrichment 

activities. The August IAEA report concluded that Iran had not suspended 

its enrichment activities and had not addressed the outstanding 

verification issues–-a conclusion that IAEA reasserted in May 2007. 

In its follow-up inspection, IAEA reported that Iran had neither suspended 

its enrichment activities nor provided the necessary transparency to 

remove uncertainties associated with some of its activities. Iran continued 

to defy the UNSC resolutions and was sanctioned by a series of 

additional UNSC resolutions between 2006 and 2010 that, among other 

things, prohibited the sale of technology that could contribute to Iran’s 

 

1

In 1968, Iran signed the Nuclear Nonproliferation Treaty, which made the peaceful 

application of nuclear technology available to Iran, and Iran agreed to the specific 

safeguards and inspection treaty in 1974. 

2

In the Arak heavy water plant, heavy water is produced by extracting heavy water from 

regular water. Heavy water is water in which the hydrogen atom is replaced by the 

deuterium isotope and it is used in certain types of nuclear reactors where plutonium is 

bred from natural uranium. Plutonium is used in nuclear weapons and for nuclear power 

production. 

3

S.C. Res. 1696, U.N. Doc. S/RES/1696 (2006). 

Appendix IV: IAEA Reports on the 

Development of the Iranian Nuclear Program 
Appendix IV: IAEA Reports on the 

Development of the Iranian Nuclear Program 

Page 57 GAO-13-326 Iran 

enrichment activities and freeze financial assets of entities involved in the 

Iranian nuclear industry. 

Beginning in 2006, six countries formed a group, the “Permanent Five 

Plus 1,” to negotiate with Iran through a series of discussions.4

 The group 

has negotiated with Iran on several occasions, but, to date, has not 

achieved any breakthroughs or reached agreement with Iran. 

A November 2011 IAEA report cited credible information that led to 

serious concerns indicating that Iran carried out activities relevant to the 

development of a nuclear explosive device and was continuing to expand 

its inventory of enriched uranium. Most recently, the November 2012 

IAEA report stated that Iran had installed additional centrifuges and had 

continued to enrich uranium. In addition, the report reiterated IAEA’s 

inability to reach agreement with Iran on a “structured approach” to 

resolving outstanding questions regarding the potential military 

dimensions to Iran’s program that were cited in the November 2011 

report. 

 

4

The “Permanent 5 Plus 1” group includes the five permanent members of the UN 

Security Council (China, France, Russia, the United Kingdom, and the United States) and 

Germany. 
Appendix V: GAO Contact and Staff 

Acknowledgments 

Page 58 GAO-13-326 Iran 

Thomas Melito, (202) 512-9601 or melitot@gao.gov

In addition to the contact named above, Pierre Toureille (Assistant 

Director), Tetsuo Miyabara (Assistant Director), John F. Miller, Eddie 

Uyekawa, Emily Biskup, Grace P. Lui, Michael Hoffman, Tonita Gillich, 

Gergana Danailova-Trainor, Jennifer Young, Debbie Chung, and Bruce 

Kutnick made key contributions to this report. Additional technical 

assistance was provided by Joanna Berry, Gezahegne Bekele, Etana 

Finkler, Martin De Alteriis, Fang He, Reid Lowe, Elisabeth Helmer, Emily 

Gupta, Roberto Pinero, Courtney LaFountain, and Heather Latta. 

Appendix V: GAO Contact and Staff 

Acknowledgments 

GAO Contact 

Staff 

Acknowledgments 

(320896)
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