Panelists:

Skip Fischer
Will Huntington
Don MacDonald
Tim Morrison

Moderated by the Wisconsin Project on Nuclear Arms Control

Introduction

Over the past several years, Congress has considered a variety of measures aimed at restraining Iran's nuclear program and its support for terrorism. The 111th Congress is again weighing such measures - just as the time to halt Iran's nuclear progress is growing shorter.

Past bills have chosen among several tactics: encouraging divestment from companies doing business with Iran, penalizing foreign energy companies for investing in Iran, and making it more difficult for Iran to obtain U.S.-origin goods via transshipment hubs like the United Arab Emirates and Malaysia. One sanctions effort that included many of these measures, the Iran Counterproliferation Act (H.R. 1400), passed the House overwhelmingly in September 2007. More recent bills have targeted foreign companies that supply refined petroleum products to Iran.

To discuss these proposals and gauge their prospects in the 111th Congress, the Wisconsin Project on Nuclear Arms Control hosted a bi-partisan roundtable discussion in Washington D.C. on April 24, 2009. The panelists were Skip Fischer, a professional staff member for the minority on the Senate Committee on Banking, Housing, and Urban Affairs, Will Huntington, legislative assistant for Representative Edward Markey (D-MA), Don MacDonald, staff director for the majority on the House Foreign Affairs Subcommittee on Terrorism, Nonproliferation and Trade, and Tim Morrison, national security policy advisor for Senator Jon Kyl (R-AZ).

The panelists concluded that, in the short term, Congress will defer to the Obama administration's new Iran policy, and will therefore be reluctant to preempt this policy by passing sanctions legislation. One exception is likely to be a bill authorizing states to divest from companies doing business with Iran. Other, stronger measures may be introduced and discussed, but will not advance immediately. The panelists agreed that this "wait and see" period would not be indefinite; Congress is prepared to act if it becomes clear that the administration's efforts to engage Iran have stalled.

In such a case, there would be support for a bill that combined a number of measures. These would include holding U.S. parent companies responsible for violations of the U.S. trade embargo on Iran by their foreign subsidiaries; strengthening the Iran Sanctions Act to penalize firms pursuing energy development in and refined petroleum sales to Iran; and controlling trade with destinations of concern for illicit transshipment to Iran. The panelists predicted that Iran would be discussed in the context of the "123 Agreement" on nuclear sales to the United Arab Emirates, which was submitted to Congress by the administration on May 21. Overall, the panelists found that the U.S. sanctions enacted so far have restrained Iran's freedom of action and should be expanded. Such sanctions are a useful tool between accepting Iran's status and military strikes.

The Democratic majority in Congress is in a honeymoon period with the Obama administration; it will be reluctant to push for sanctions opposed by the administration. However, Congress will not wait indefinitely.

The situation in Congress has shifted dramatically with the inauguration of Barack Obama. Congress is prepared to give the new administration far more leeway than it did the Bush administration. Candidate Obama campaigned on a promise to change the tone of U.S. foreign policy, and President Obama's actions so far confirm this change. This can be seen in his Nowruz video message, and his decision that the United States will now participate directly in international talks over Iran's nuclear program. The administration is also in the midst of a comprehensive Iran policy review, the results of which are expected shortly. The panelists agreed on a bipartisan basis that U.S. policy towards Iran's nuclear program has to date been a failure and that a shift in policy is necessary. The panelists concluded that it would be seen as premature for Congress to pass an Iran sanctions bill now - before the administration has had a chance to test its new policy.

The panelists nevertheless agreed that the groundwork for more economic sanctions should be laid now. Such action would serve a double purpose. First, it would demonstrate to Iran, and to companies and governments investing in Iran, the consequences that would ensue should talks fail. By playing "bad cop" - introducing sanctions legislation and holding hearings - Congress would deliver this message. Second, laying the groundwork now would allow the United States and like-minded powers to implement sanctions quickly in the event that talks fail.

With Iran's nuclear program progressing, pressure is building in Congress for action. In a March 26 letter to the President, top House Democrats said that engagement with Iran must be "serious and credible, but it cannot be open-ended." They go on to say that unless Iran suspends uranium enrichment within "at most a few months" after direct negotiations with the United States begin, the President should "immediately […] increase economic pressure on the Iranians." Disagreement may well emerge between Congress and the administration over the timing of increased pressure. The debate will be over how long sanctions should be delayed. How long is too long? President Obama may well be reluctant to support sanctions that tie his hands or alienate allies, even if, as a Senator, he supported such measures.

Sanctions measures that warrant serious consideration include those:

• authorizing state divestment initiatives,
• enforcing more strictly the U.S. trade embargo,
• penalizing energy firms investing in Iran, and
• targeting countries that serve as transshipment hubs for Iran.

Several sanctions bills have been introduced already in the 111th Congress. The panelists agreed that legislation authorizing states to divest from firms that conduct business activities with Iran has the best chance of passing. A similar bill passed the House twice in the previous Congress, once on its own and once as part of a sanctions package that was ultimately defeated in the Senate. The version currently under consideration, H.R. 1327, sponsored by Rep. Barney Frank with bipartisan support, is a relatively passive bill that provides states with a legal cover if they choose to divest from certain firms because of activities in Iran. The bill also shelters asset managers from liability should they divest. More than ten states now have divestment policies related to Iran, with more likely to follow. The panelists found it likely that Congress would seek to protect these states from lawsuits attacking such policies. Another proposal would have required the federal government to list companies investing in Iran and then require state pension funds to divest from those companies. The panelists also pointed out that even a more passive bill could help publicize the issue: states are already using divestment investigations to get information from U.S. companies about the activities of their foreign subsidiaries in Iran. Such information then becomes public. As a result, it will be increasingly difficult for companies to quietly pursue trade and investment with Iran.

Congressional efforts to close a major loophole in the U.S. embargo on Iran will be more controversial. At present, foreign subsidiaries of U.S. companies exploit the loophole, which allows them to do business with Iran - including sales of U.S. goods - despite the embargo. Panelists cited a number of U.S. companies whose subsidiaries carry on this activity, including Honeywell, Schlumberger, General Electric and Halliburton.

U.S. parent companies either claim no knowledge of the activity, or an inability to control the activities of their foreign subsidiaries. There was consensus among the panelists that U.S. parents must nevertheless be held responsible for these activities. Various ways of doing so have been considered in the past: stronger measures would hold the parent responsible if a foreign subsidiary circumvented the embargo, while others would penalize the parent only if it had set up or maintained the subsidiary specifically for that purpose. The panelists predicted that the House would probably settle on fairly strong language to close this loophole; Senate support is less certain.

The panelists also discussed measures to shore up the embargo short of, or pursued in conjunction with, legislation. For instance, campaigns to publicize the activities of U.S. companies in Iran could help deter such activity. Congress could use its investigative powers to fuel such campaigns. Another option would be to approach parent companies on a one-on-one basis, discuss ways in which their foreign subsidiaries may be violating the embargo and work with these companies to end the activity. Such an approach would be modeled on the way in which the U.S. Department of the Treasury has convinced a number of foreign banks to end or reduce business with Iran. However, the responsible offices in Treasury themselves, the panelists agreed, do not have the resources to undertake such an outreach mission at present. Companies seeking U.S. government contracts could also be queried about their links to entities working in Iran. A self-certification question could be added to the paperwork that companies must complete as part of the contracting process. A similar question could be put to companies, both U.S. and foreign, seeking Export-Import Bank loans, or insurance from the Overseas Private Investment Corporation. Companies with ties to Iran would not be eligible for government contracts, loans or insurance.

Most panelists found that while these non-legislative measures may have some impact, they would not be sufficient on their own. Companies, motivated by profit, are likely to resume Iran activity as soon as public attention wanes. The activity itself must be made illegal in order to have a lasting effect.

Measures that penalize foreign companies for activities that violate U.S. law have been unpopular with the executive branch because they cause friction with foreign governments. Congressional efforts to tighten existing statutes targeting foreign investment in Iran's energy sector enjoy wide congressional support, but historically have been opposed by both Democratic and Republican administrations. The Iran Sanctions Act (ISA), for example, which became law in 1996, authorizes sanctions on entities that, "with actual knowledge," invest over $40 million a year in the development of Iran's petroleum resources. While a number of companies appear to have violated this Act, the sanctions it authorizes have never been applied. Still, the panelists found that the ISA has had a deterrent effect; foreign energy companies continue to sign contracts with Iran but the execution of the contract has been delayed.

Proposals to amend the ISA have circulated for years; several bills have been introduced already this year, including S. 908, H.R. 1985, H.R. 2194, and H.R. 1208. These bills would, to varying degrees, lower the dollar amount that could trigger sanctions, and broaden the application of sanctions to catch entities contributing to Iran's ability to produce or to import refined petroleum products, including shippers, insurers, financiers and brokers. Many of these bills also tighten executive branch reporting requirements, so that the President would be required to make a determination that a company had violated the Iran Sanctions Act, even if the sanctions were then waived. The panelists agreed that ISA amendments will probably be incorporated into a larger sanctions package, though the timing of such a bill is uncertain.

Provisions to stop transshipment to Iran are also likely to be included in such a package. Countries such as the United Arab Emirates and Malaysia, with weak or nonexistent export control laws, have long served as routes through which Iran has been able to procure banned items. Imposing additional license requirements on U.S. exports to such destinations has been proposed as a means of preventing, or at least reducing, diversion. While the panelists agreed that such measures might have an effect, some worried about the political implications of punishing U.S. exporters for poor enforcement abroad. Additional requirements of this sort would be unpopular with U.S. exporters.

The United Arab Emirates remain a particular concern for transshipment to Iran, of both weapon-useable technology and U.S.-origin goods in violation of the embargo. At U.S. insistence, the UAE has enacted an export control law and has reported some interdictions of controlled goods destined for Iran. However, for now, these measures are largely cosmetic; there appears to be no regulation implementing the law and no functioning export licensing authority.

The panelists agreed that the role of the UAE in supplying Iran will be part of the debate when Congress considers an agreement on nuclear cooperation with the UAE - the so-called "123 Agreement" concluded by the Bush administration, which was submitted to Congress on May 21. Congress may try to condition the agreement on improved export controls in the UAE. The agreement could also provide a hook for a number of Iran-related amendments. However, panelists warned that the strategic interplay between blocking the agreement and restraining Iran is not widely appreciated. And there is another hurdle. Congress is required to act in order to block the agreement; if Congress does not do so, the agreement enters into force 90 days after it is submitted by the administration. The panelists concluded that the debate over the agreement would publicize Iran's reliance on the UAE for illicit procurement, but that Congress is unlikely to attach amendments to the agreement.

Conclusion

The panelists found that economic sanctions, coupled with positive inducements, remain the best way to convince the Iranian government to end its efforts to develop a nuclear weapon capability. Unilateral U.S. sanctions have restrained Iran's freedom of action even if they haven't stopped its nuclear program. Therefore, as long as Iran pursues sensitive nuclear work and obstructs international inspections, Congress should be expected to try to increase these sanctions - despite opposition from industry and possibly the administration. In doing so, Congress will have to balance the merits of pushing sanctions that involve the extraterritorial application of U.S. law, which is unpopular with allies, and the need to win support from those allies for further multilateral sanctions.