NIAC Action Memo: IRGC Economic Exclusion Act (S. 925)

S. 925 — the Iranian Revolutionary Guard Corps (IRGC) Economic Exclusion Act — would have minimal sanctions impact on the already heavily-sanctioned IRGC, Iran’s primary military force that has historically thrived amid broad sanctions on the Iranian economy. However, S. 925 would have a deleterious impact on the Iranian people while restricting a successor administration’s ability to de-escalate tensions with Iran.

The bill seeks to preempt efforts to return the United States into compliance with the Joint Comprehensive Plan of Action (JCPOA)—the nuclear deal between the U.S., other major world powers, and Iran—by sanctioning all sectors of Iran’s economy, which would have a significant harmful impact on the livelihood of the Iranian people. In addition, the bill has the effect of undoing any benefit to Iran from adhering to the nuclear-related limitations outlined in the JCPOA, thus incentivizing Iran to halt its compliance with the accord and generating a new nuclear crisis in the Middle East. Proponents of diplomacy and the judicious but effective use of U.S. sanctions should reject this bill.

Disproportionate Harm to the Iranian People

S. 925 would have a significant deleterious impact on the livelihood of the Iranian people, as U.S. sanctions turn the Islamic Republic into an effective “hermit kingdom.” This bill:

  • Sets the groundwork for the effective closure of Iran’s airspace to civilian airlines; and
  • Cordons off Iran’s entire economy to the outside world, depriving an entire generation of Iranians social and economic opportunities

Meanwhile, the bill imposes little direct cost to the IRGC–its ostensible target. The IRGC is the most heavily-sanctioned entity in the entire world, and the U.S. has used multiple sanctions authorities to target it. Recognizing this, the bill targets Iranian parties with indirect, if not entirely attenuated, connections with the IRGC in the hopes of imposing additional costs. This includes broad sectors of the Iranian economy.

In doing so, however, this bill creates ripe opportunities for the IRGC to thrive, at the same time that its commercial competitors inside Iran are targeted for U.S. sanctions; cut off from the outside world; and forced into collapse. Sanctions have historically empowered hardline forces in Iran who use their proximity to the Iranian state to win state contracts, engage in smuggling operations, and direct sanctions evasion activities. If the U.S. wanted to impose direct costs on the IRGC, it would lift sanctions on Iran’s private sector and ensure their competitive edge, while maintaining sanctions on the IRGC.

The bill sets the stage for the effective closure of Iran’s airspace to civilian airlines.

Section 5 of the bill would add Section 315 to the Iran Threat Reduction Act so as to require the President to report on Iranian state-owned enterprises that engage in activities subject to sanctions under Executive Order 13224—the U.S.’s counter-terrorism sanctions authority. The bill notes that the Iran Airports Company—which is the holding and operating company for Iran’s civilian airports—is reported to facilitate activities for Mahan Air, an Iranian civilian airline that is sanctioned pursuant to E.O. 13224. As such, the bill argues that the Iran Airports Company is engaged in activities sanctionable under E.O. 13224 as a result of its support to Mahan Air and mandates the President to make a determination as to whether the Iran Airports Company should be designated under E.O. 13224. If designated, the effect would be the closure of Iran’s airspace to civilian air travel as foreign airlines would be at risk of sanctions for flying into civilian airports operating under the ownership or control of an entity designated pursuant to E.O. 13224.

Restraining a Successor Administration

The bill would undermine efforts for the United States to restore its credibility on the world stage by returning to compliance with the JCPOA. Specifically, the bill would impose terrorism-related authorities on broad sectors of Iran’s economy, all for the purpose of constraining a future administration from reaching diplomatic solutions with Iran.

The bill would block the President from being able to lift sanctions on certain designated Iranian parties, thereby negating the purpose of U.S. sanctions which is to effectuate a change of behavior.

Section 2 of the bill amends Section 301 of the Iran Threat Reduction Act so as to bar the President from waiving the application of sanctions with respect to a designated person unless the President makes certifications on IRGC activities. Unless the President certifies that the IRGC is reducing its material support to the Government of Syria or Hezbollah’s operations in Syria, the President would not be able to waive the sanctions. By amending the waiver provision in this manner, the bill conditions the lifting of sanctions with respect to a designated Iranian person not on the behavior of the sanctioned person itself but rather on the behavior of the IRGC. For instance, if an Iranian entity is determined to be owned or controlled by the IRGC and forces the divestment of the IRGC’s interest or control so as to remove the basis for its designation, this bill would prevent the President from lifting sanctions with respect to the Iranian entity unless the IRGC–as a whole–had reduced its material support to the Government of Syria. The likely effect of this amendment is not only to bar the President from waiving the application of sanctions but also to disincentive sanctioned parties from changing their behavior in ways that are otherwise consistent with U.S. interests.

The bill seeks to close off Iran’s telecommunications, mining, and manufacturing sector from the outside world.

Section 2 of the bill amends Section 301 of the Iran Threat Reduction Act to require the President to determine whether major operators in Iran’s telecommunications, mining, and manufacturing sectors are owned or controlled by the IRGC. If determined to be so, then such parties would be designated pursuant to multiple U.S. sanctions authorities and foreign parties and banks would be subject to U.S. secondary sanctions for dealing with them. In making such a determination, the bill permits the President to consider persons in which the IRGC has an ownership of less than 50 percent. The 50 Percent Rule—i.e., where sanctioned parties have a 50 percent or greater ownership interest—has long been OFAC’s governing standard as to whether a sanctioned party has a sanctionable interest in an entity, and adopting a new standard with respect to the IRGC threatens the judicious use of U.S. sanctions in the future.

The bill seeks to impose an effective boycott on any business—U.S. or foreign—with Iran.

Section 4 of the bill would add Section 313 of the Iran Threat Reduction Act, which requires the President to publish annual reports identifying (1) all foreign persons listed on the Tehran Stock Exchange, as well as a determination as to whether or not the IRGC or its officials, agents, or affiliates own or control the person; (2) foreign persons operating business enterprises in Iran valued at more than $100 million, as well as a determination as to whether or not the IRGC or its officials, agents, or affiliates own or control the person; and (3) Iranian financial institutions valued at more than $10 million, as well as a determination as to whether each Iranian financial institution has facilitated a significant transaction for or on behalf of the IRGC or whether the IRGC or its officials, agents, or affiliates own or control the Iranian financial institution. This bill is consistent with recent actions by the Trump administration in which Iranian parties have been designated for highly-attenuated connections with persons alleged to be affiliated with the IRGC. By requiring this report to be made public on U.S. government websites, the bill would also signal to foreign parties that all business with Iran is subject to sanctions risk, rendering Iran a no-go zone for the international business community.

New reporting requirements would limit the President’s discretion to impose sanctions in ways that undermine the Executive’s foreign policy prerogatives.

Section 3 of the bill requires the President to submit reports to Congress on a biannual basis regarding foreign persons determined to engage in transactions with designated Iranian persons. Sanctions are to be imposed with respect to any parties identified in the report. This reporting requirement is consistent with the Trump administration’s “maximum pressure” strategy under which the success of U.S. sanctions policy with respect to Iran is predicated on the total number of Iranian parties added to U.S. sanctions lists rather than whether U.S. sanctions have caused the Government of Iran to abandon policies deemed anathema to U.S. interests. This is a myopic view of U.S. sanctions that threatens the effective use of the sanctions tool in the future.

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