Memo: The Iranian Revolutionary Guards Corps Economic Exclusion Act (H.R. 5132)

If passed in its current form, H.R. 5132 – the Iranian Revolutionary Guards Corps Economic Exclusion Act – threatens to violate the JCPOA, undermine current long-term restrictions on Iran’s nuclear program, and splinter the United States from its European allies and other international partners. This bill threatens the JCPOA and ordinary Iranians, not the IRGC.

Key provisions of the bill appear targeted not at the heavily-sanctioned IRGC, but at deterring companies from doing business with Iran’s private sector in violation of U.S. commitments under the JCPOA. The Iran nuclear deal not only maintains the already extensive sanctions in place on the IRGC, it implicitly opens opportunities for economic competitors to the IRGC in Iran’s private sectors by enabling them to receive the benefit of sanctions relief. Contrary to this approach, H.R. 5132 would accrue to the benefit of the IRGC and undercut ongoing trends that are diminishing their economic influence, including the Iranian Supreme Leader’s direction – under popular pressure – that the IRGC must divest many of its holdings.

This legislation also comes amid Trump’s reckless threats to unilaterally terminate the JCPOA, an outcome which Europe and many in Congress are seeking to prevent. This is the wrong bill at the wrong time; Members of Congress should be restraining this President from killing this key nonproliferation agreement and moving toward war, not coaxing him forward.

Turning Iran into a “No Fly Zone”?

Section 5 of the bill would trigger a process to designate Iran Airports Company – which reportedly owns and controls all of Iran’s civilian airports – as a Specially Designated Global Terrorist under E.O. 13224 as a result of its reported facilitation of Mahan Air flights. If so designated, all of Iran’s civilian airports would likewise be constructively blocked under the U.S.’s Global Terrorism Sanctions Regulations (GTSR)s, placing all international flights to Iran at the risk of future designation. The U.S. already bans Iranians from visiting their families in the U.S. under Trump’s Muslim ban, this bill now threatens to ban all civilian flights into Iran. Moreover, such a designation would also jeopardize U.S. commitments under the JCPOA to license the sale of civilian aircraft to Iran.

Reimposing Sanctions Lifted Under JCPOA

Section 4 of H.R. 5132 threatens to re-impose sanctions on Iranian financial institutions that were delisted under the JCPOA, which would be a clear violation of U.S. sanctions-lifting obligations under the nuclear agreement. By requiring the President to identify any Iranian financial institutions that have facilitated transactions even tangentially linked to the IRGC, the bill could subject Iran’s central bank and other major financial institutions to secondary sanctions.  The lifting of these sanctions was central to the relief promised Iran under the JCPOA; the reimposition of such sanctions would effectively nullify any benefit to Iran from agreeing to long-term restrictions on its nuclear program.

Additionally, the bill defines Iranian financial institutions to include all financial institutions located in Iran. Under this definition, branches or representative offices of non-Iranian, foreign financial institutions that are located in Iran would be reported as “Iranian financial institutions.” Even if such institutions have not engaged in transactions with the IRGC, the inclusion of their name on mandated U.S. government reports – which may be publicized – would act as an effective deterrent to opening or maintaining branches or representative offices in Iran. This is anathema to the U.S.’s JCPOA commitment to agree on steps to facilitate Iran’s access to finance.

Moreover, in mandating the administration to report on all foreign entities on the Tehran stock exchange and all foreign persons operating major businesses in Iran, the bill may undermine its own goals of increasing sanctions pressure. The Obama administration set a precedent by threatening to veto the Iranian Leadership Asset Transparency Act (H.R. 1638), indicating that similar reporting requirements under that bill would:

“incentivize those involved to make their financial dealings less transparent and create a disincentive for Iran’s banking sector to demonstrate transparency. These onerous reporting requirements also would take critical resources away from the U.S. Department of the Treasury’s important work to identify Iranian entities engaged in sanctionable conduct.”

The Obama administration also indicated in its veto threat that JCPOA participants would view the public reporting requirement as hedging on U.S. JCPOA commitments. Given the breadth of reporting requirements the bill would impose on the Treasury Department, H.R. 5132 would almost certainly raise similar concerns.

Coaxing Trump to Violate JCPOA

Section 6 of the bill declares that it shall be U.S. policy to prevent Iran’s accession to the World Trade Organization and similar international bodies, which is contrary to U.S. obligations under the JCPOA to facilitate Iran’s access to trade and finance. This risks undermining efforts by international bodies to facilitate changes to Iran’s economic and financial character in ways that advance U.S. foreign policy objectives.

Broad Sectoral Sanctions Stifle Communication and Violate the JCPOA

Section 2 of the bill requires the President to determine whether major Iranian entities, including those in Iran’s telecommunications, construction, engineering, and mining sectors, should be sanctioned as under the effective ownership or control of the IRGC. In doing so, this bill seeks to sanction broad sectors of the Iranian economy in ways that are even more aspirational than those sanctions pre-dating the nuclear agreement. Doing so would be not only anathema to U.S. obligations under the JCPOA to facilitate Iran’s access to trade and finance, but would effectively nullify any benefit to Iran from agreeing to long-term restrictions on its nuclear program.

Moreover, by targeting Iran’s telecommunications sector, the bill could prevent outside telecommunication vendors from working in Iran. Such vendors are crucial for the cell phone, Internet, and other communication infrastructure that the Iranian people rely on to communicate freely, both internally and with the outside world.

Former Official Highlights Risks of Iran Sanctions Bill S. 722

Colin Kahl, former Deputy Assistant to the President and National Security Advisor to the Vice President under the Obama administration, highlighted his concerns with Iran sanctions bill S. 722 (the ‘Countering Iran’s Destabilizing Activities Act of 2017’) in a panel discussion at the Center for Strategic and International Studies this morning.

Additionally, later in the afternoon, Kahl joined with six other former Obama administration officials – Antony J. Blinken, Avril Haines, Jeff Prescott, Jon Finer, Philip Gordon and Robert Malley – to warn against the bill in an article published on Foreign Policy. The officials cautioned that “[a]ny marginal benefit of this legislation is outweighed by the risk of giving an impulsive president license to take steps that could undermine a deal that is working, isolate the United States, and put U.S. troops at risk.”

At the panel discussion at CSIS, Kahl noted: 

  • The language in section 4 is “overly broad” and risks complicating JCPOA implementation and dividing the P5+1 coalition;
  • Section 5 “effectively designates the IRGC a terrorist organization,” which would be “gratuitous” and could risk putting U.S. troops in harm’s way;
  • Section 8 would complicate sanctions lifting on Transition Day, conveying that the U.S. is ”unilaterally renegotiating the terms of the agreement.”
Critically, Kahl warns that the bill risks loosening the restraints on the Trump administration to avoid activities that would explicitly undermine the deal, as the administration would be able to point to consensus in Congress to justify its activities:
 
Section 4 – ballistic missile sanctions:
 
“The problem there is how overly broad the sectors or the contributions to the ballistic missile program that could be sanctionable are, and there’s a real risk that it could be so overly broad it could complicate the execution of say, the procurement channel that’s part of the JCPOA, or it could run sideways from European interests in a way that splits the P5+1 coalition.”
 
“As staff and Members of Congress tweak the legislation, they should make sure that any steps they take on the ballistic missile front aren’t so overly broad that it unintentionally runs sideways from basically our commitments under the deal or consensus that underlies the implementation of the deal.”
 
Section 5 – IRGC designation:
 
The concern there is that it effectively designates the IRGC as a terrorist organization, and the problem with that is not that the IRGC are good folks and we shouldn’t be mean to them. We can already designate and sanction any member of the IRGC and the IRGC as an organization under existing authorities, so the bill actually does nothing beyond being a symbolic gesture to basically rub it in the nose of the IRGC, so it’s gratuitous.” 
 
“And, I understand politics and the need to show that you’re tough on Iran, but in this case the symbolism could have the inadvertent effect of triggering a response by the IRGC, and if that response by the IRGC is something that actually puts our troops, our men and women, in harm’s way – it strikes me that’s a price that’s not worth paying for a symbolic or political thing that won’t make any difference to our ability to actually do what we can already do against the IRGC. In areas like this, I get the politics but politics should not be the reason to do it.”
 
Section 8 – Transition Day:
 
“Section 8 of the bill, which I think in some ways is the most problematic as it relates to the JCPOA…the problem there is it puts a new condition on us lifting sanctions on Transition Day.”
 
 
The problem with the bill is it adds a new condition – it says you can’t lift those sanctions unless the administration at the time can certify that actors are not engaged in objectionable behavior in non-nuclear areas, which is again completely unnecessary because if they’re engaged in non-nuclear malicious activities – cyber, terrorism, human rights violations – we can designate them under other authorities…So it doesn’t get us anything, but what it does do is it conveys that we are unilaterally renegotiating the terms of the agreement and that we are looking for a way, a loophole to not lift nuclear related sanctions by recasting them as non-nuclear sanctions. And I worry that Iran will say, ‘Well, screw us, then screw you – here are all our conditions for us living up to’ – and they’ll start unilaterally renegotiating the deal.”
 
“I agree with Mike that the deal is imperfect, that there are problems with when it sunsets and how long it is and what the constraints are and there are things that are outside the four corners of the deal – but you don’t solve that problem by putting unilateral conditions and unilaterally renegotiating the terms that were negotiated in the deal. You solve that by actually sitting with our European allies…plus the Chinese and the Russians – and the Iranians – and trying to figure out ways to smooth out or clarify the ambiguities and make some corrections.
 
“So I am very worried about this…In the Obama administration, you could almost be assured that they would use the national security waivers if they thought that implementing things that Congress did would run sideways from the implementation of the deal. The Trump administration is not going to use those waivers, and in fact they may see this as a bipartisan permission slip to be even more assertive, because in a world where the Trump administration owns the failure of the deal, then they may be restrained in pushing past the boundaries of the deal. In a world where they think they have permission from the Congress on both sides of the aisle to dial up enforcement and other activities against Iran to 11, then suddenly they can say look it’s not us, there’s a bipartisan consensus…I say this to my Democratic friends, you will own this too, if you sign up to this and things go sideways.”