While the mainstream focused on healthcare reform this week, the Trump administration and both chambers of the U.S. Congress were busy moving new regulatory and legislative product on Iran. If you guessed sanctions, you’d be right.
By way of follow up to new economic sanctions announced March 21, the Trump administration blacklisted yesterday several foreign entities pursuant to the Iran, North Korea, and Syria Nonproliferation Act (INKSNA) for transfers of sensitive items to Iran’s ballistic missile program. The March 24 list is available at this State Department post. This new set of targets builds upon President Trump’s campaign promise to crack down on Iran and, likely, setting the stage for more enhanced,financial, targeting this summer. Foggy Bottom was busy, but so were the folks on Capitol Hill.
Members in both the House and the Senate introduced legislation this week to fine tune, as well as impose new economic sanctions on Iran. These were expected. At the start of every Congress during the past few years, sanctions proposals are introduced to address deficiencies, perceived or otherwise, in the administration’s ongoing targeting of Iranian entities. I had read drafts late last year that would’ve been introduced to set the stage for this year, however, the Trump win afforded legislators much-needed time to whip up a more targeted legislative roadmap.
Senate Foreign Relations Committee Chairman Sen. Bob Corker (R-Tenn.) and a bipartisan coalition of more than 12 Senators introduced The Countering Iran’s Destabilizing Activities Act of 2017 (S. 722). If enacted, the bill would impose new economic sanctions on Iran for “ballistic missile development, support for terrorism, transfers of conventional weapons to or from Iran, and human rights violations.” According to the Committee, the key provisions of this bill include:
- Imposing mandatory sanctions on persons involved with Iran’s ballistic missile program and those that transact with them.
- Apply terrorism sanctions to the Islamic Revolutionary Guard Corps (IRGC) and codifies individuals who are currently sanctioned due to Iranian support for terrorism.
- Requiring the president to block the property of any person or entity involved in specific activities related to the supply, sale, or transfer of prohibited arms and related material to or from Iran.
A companion measure was introduced in the House of Representatives by the House Foreign Affairs Committee Chairman, Rep. Ed Royce (R-Calif.), also with strong bipartisan support. Similar to the Senate measure, minus the human rights component and a few others, The Iran Ballistic Missiles and International Sanctions Enforcement Act (H.R. 1698) would among other things:
- Mandate that the President fully investigate potential violations of all ballistic missile and conventional weapons sanctions on Iran;
- Add the transfer of ballistic missile technology and destabilizing types of conventional weapons to existing U.S. nonproliferation sanctions on Iran;
- Impose mandatory sanctions on persons involved with Iran’s ballistic missile program and those that transact with them;
- Deny or cancel U.S. visas to persons found in violation of U.S. economic sanctions.
The House bill is embedded at the end of this post.
If one or both of the measures are enacted, the hyper-targeting of Iran’s ballistic missile technology supply chain can serve to chill even further the Obama-era engagement policy with the Iranian regime. While advocates of strong economic sanctions wanted an even tougher measure that was introduced this week, these bills are rather broad in scope and will touch economic transactions that are not directly related to Iran’s ballistic missile program.
For example, the House bill requires that the Trump administration provide the Congress a report of the “foreign and domestic supply chain in Iran that directly or indirectly significantly facilitates, supports, or otherwise aids” Iran’s ballistic missile program. What does ‘significantly facilitates’ mean? Who knows. It is not defined in the bill. If this language sounds familiar it is because it is. It somewhat amplifies authorities already contained in law, specifically INKSNA, Executive Order 13382, and others.
If you spend any appreciable amount of time advising on U.S. economic sanctions, then you’ll have a general idea what ‘significantly facilitates’ mean; however, that could be clearer. Since under current law, there are other standards such as known or should’ve known. As is the case with prior Iran sanctions bills, the Congress affords the agency flexibility to define such terms and, possibly, the drafters are relying on agency guidance as well as certain regulations already in force such as 31 C.F.R. § 561.504, et. seq.
While both bills specifically target the Iran’s ballistic missile program, the focus on supply chain and specific funding streams could be an attempt to better target Iranian Revolutionary Guard Corp entities and/or their affiliates, specifically cooperatives (ta’avoni) that are used to masquerade illicit activities but also used to attract foreign investment. Money is generated from these legitimate businesses is then diverted to the ballistic program and other programs of proliferation concern.
Frankly, a lot of what these bills target is already a prohibited activity by persons subject to U.S. law. And while the bills do tighten the transactions noose and, in theory, will make it harder for persons subject to U.S. law to engage in transactions with Iran, well, Iran is not the most transparent of governments. By design they hide stuff, especially financial transactions. They lie, cheat, and go to great lengths to hide money flow. Which brings me to this curious exemption that grants the President, and just about defangs prior sections:
The President may not impose sanctions … with respect to a foreign person or a United States person if the President determines that the person has exercised due diligence in establishing and enforcing official policies, procedures, and controls to ensure that the person does not sell, supply, or transfer to or from Iran materials the sale, supply, or transfer of which would subject a person to the imposition of sanctions.
This exemption could, potentially, weaken existing law that has a know or reason to know standard. The executive already has that power, in fact, there are plenty of cases an enforcement actions that talk about what is, what is not “due diligence,” in a given transaction. Does this exemption mean that compliance officers will carry an even heavier the burden, or be used as scapegoat, by companies found to be in violation? Is this exemption being inserted because of recent enforcement actions? Will compliance officers be held personally liable? The lawyers?
Let’s leave the nitpicking for later as I’m certain there will be many lawyers and policy experts weighing on this in the weeks ahead. Both bills are part of what I expect will be a lot of Iran-related sanctions product moving this year in the Congress as well as via executive orders and other executive action for Iran and other regimes.