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Iran sanctions.

October 23, 2014

Summary

Strict sanctions on Iran's key energy and financial sectors harmedIran's economy and arguably contributed to Iran's acceptance of at least temporary restrictions on expanding its nuclear program in exchange for modest sanctions relief. The interim nuclear "standstill" agreement (Joint Plan of Action, JPA) has been extended until November 24, 2014, to allow time to translate it into a comprehensive agreement on Iran's nuclear program. The economic pressure of sanctions included the following:

* Oil exports fund nearly half of Iran's government expenditures and sanctions reduced Iran's oil exports in 2013 to about 1 million barrels per day--far below the 2.5 million barrels per day Iran exported during 2011.

* During 2012-2013, the loss of revenues from oil, coupled with the cut-off of Iran from the international banking system, caused a sharp drop in the value of Iran's currency, the rial; raised inflation to over 50%; and cut off Iran's access to most of its hard currency held outside the country. Iran's economy shrank by about 5% in 2013 as many Iranian firms reduced operations and loans became delinquent.

Sanctions have also slowed somewhat Iran's nuclear and missile programs and reduced its military power by hampering its acquisition of foreign technology and weaponry. However, the sanctions have not halted Iran's provision of arms to the Assad government in Syria, the Iraqi government, or to other pro-Iranian factions in the Middle East. Nor have sanctions altered Iran's repression of dissent or monitoring of the Internet.

The JPA has provided Iran about $14 billion in sanctions relief, including about $7 billion ($700 million per month during January-November 2014) in access to hard currency from oil sales since implementation began on January 20. The relief has been made possible by waivers and suspensions of provisions of several U.S. sanctions laws and executive orders. This relief has halted further economic deterioration but not stimulated any dramatic economic rebound, to date. Some assess that Iranian leaders need a comprehensive nuclear deal to achieve the sanctions relief and economic improvement demanded by the population.

By all accounts, a comprehensive nuclear agreement, if reached, will entail significant easing of U.S. and third country sanctions on Iran--particularly those sanctions imposed since 2010 that reduce Iran's oil exports and limit its access to the international financial system. The Administration has said that substantial sanctions relief under a comprehensive deal would be provided, but that comprehensive sanctions relief would be stepwise as Iran fulfills the terms of an agreement. Although it might be able to act on its own authority to suspend most sanctions on Iran, the Administration has said it would work with Congress on long-term sanctions relief in the event of a final nuclear deal. Most observers assess that additional U.S. sanctions are likely to be proposed, and perhaps enacted, if negotiations on a comprehensive settlement break down and Iran expands its nuclear work. See also CRS Report RL32048, Iran: U.S. Concerns and Policy Responses, by Kenneth Katzman; CRS Report R43311, Iran: U.S. Economic Sanctions and the Authority to Lift Restrictions, by Dianne E. Rennack; and CRS Report R43492, Achievements of and Outlook for Sanctions on Iran, by Kenneth Katzman.
Contents

Overview and Objectives

Blocked Iranian Property and Assets
   Executive Order 13599 Impounding Iran-Owned Assets

Sanctions Against Iran's Support for International Terrorism and
Regional Activities

   Sanctions Triggered by Terrorism List Designation: Ban on U.S. Aid,
   Arms Sales,
      Dual-Use Exports, and Certain Programs for Iran
         No Ban on U.S. Humanitarian Aid
   Executive Order 13224: Sanctioning Terrorism Supporting Entities
   Sanctioning Iranian Involvement in the Region

Ban on U.S. Trade and Investment with Iran

   Codification of the Ban and U.S.-Iran Trade Figures
      What U.S.-Iran Trade Is Allowed or Prohibited?
      Application to Foreign Subsidiaries of U.S. Firms

Energy and Other Sector Sanctions: Iran Sanctions Act (ISA) and
Related Laws and Executive Orders

   The Iran Sanctions Act, Amendments, and Related Applications
      Key "Triggers"
      Mandate and Time Frame to Investigate ISA Violations
      Clarification of Responsibilities: Executive Order 13574
   Interpretations and Administration of ISA and Related Laws
      Application to Energy Pipelines
      Application to Crude Oil Purchases
      Application to Natural Gas Purchases from Iran/Shah Deniz
      Exception
      Application to Liquefied Natural Gas Development
      Application to Private Financing but Not Official Credit
      Guarantee Agencies
      Application to Iranian Energy Institutions/NIOC and NITC
   Sanctions Imposed Under ISA
   Sanctions on Oil and Other Payments to Iran's Central Bank
      Implementation: Exemptions Issued
      Sanctions on Paying Iran with Hard Currency

Proliferation-Related Sanctions

   Iran-Iraq Arms Nonproliferation Act and Iraq Sanctions Act
   Iran-North Korea-Syria Nonproliferation Act
   Executive Order 13382
   Foreign Aid Restrictions for Suppliers of Iran
   Sanctions on "Countries of Diversion Concern"

Financial/Banking Sanctions

   Early Efforts: Targeted Financial Measures
   CISADA: Sanctioning Foreign Banks That Conduct Transactions with
   Iran
      Implementation of Section 104: Sanctions Imposed
   Iran Designated a Money-Laundering Jurisdiction

Promoting Divestment

Sanctions and Sanctions Exemptions to Support Democratic Change/Civil
Society in Iran

   Expanding Internet and Communications Freedoms
      Sanctions and Administrative Actions Against Iran's Internet
      Censorship
   Measures to Sanction Human Rights Abuses and Promote the Opposition
      Sanctions Against Iranian Human Rights Abusers and Related
      Equipment
      Sanctions Against Iranian Broadcasting and Profiteers
      Separate Visa Ban

U.N. Sanctions

International Implementation and Compliance

   Europe
   Japan/Korean Peninsula/Other East Asia
      North Korea
      Singapore and Taiwan
   India
   Pakistan
   China and Russia
   Turkey/South Caucasus
      Caucasus: Azerbaijan, Armenia, and Georgia
   Persian Gulf and Iraq
   Afghanistan
   Latin America
   Africa
   World Bank Loans
   Private-Sector Cooperation and Compliance
      Foreign Firms Reportedly Remaining in the Iran Market

Effectiveness of Sanctions on Iran

   Effect on Iran's Nuclear Program Decisions and Capabilities
   Effects on Iran's Strategic Programs and Regional Influence
   General Political Effects
   Human Rights-Related Effects
   Economic Effects
      Sources of Economic Strength and Coping Strategies
   Effect on Energy Sector Long-Term Development
      Effect on Gasoline Availability and Importation
   Humanitarian Effects/Air Safety

Post-JPA Sanctions Debate

   Permanent Sanctions Easing?
   Possible Additional Sanctions
      H R. 850 and S. 1881
   Other Possible U.S. and International Sanctions

Tables

Table 1. ISA Sanctions Determinations

Table 2. Top Energy Buyers From Iran and Reductions

Table 3. Summary of Provisions of U.N. Resolutions on Iran Nuclear
Program (1737, 1747, 1803, and 1929)

Table 4. Comparison Between U.S., U.N., and EU and Allied Country
Sanctions

Table 5. Post-1999 Major Investments/Major Development Projects
in Iran's Energy Sector

Table 6. Firms That Sold Gasoline to Iran

Table 7. Entities Sanctioned Under U.N. Resolutions and
U.S. Laws and Executive Orders

Contacts

Author Contact Information


Overview and Objectives

U.S. sanctions have been a major feature of U.S. Iran policy since Iran's 1979 Islamic revolution, but U.N. and worldwide bilateral sanctions on Iran are a relatively recent (post-2006) development. Many of the U.S. sanctions reinforce U.N. and multilateral sanctions put in place in recent years by European and some Asian countries. Successive Administrations have sought to ensure that U.S. sanctions do not hamper cooperation with key international partners whose support is needed to isolate Iran.

The objectives of U.S. sanctions have evolved over time. In the mid-1980s, U.S. sanctions were intended to try to compel Iran to cease supporting acts of terrorism and to limit Iran's strategic power in the Middle East more generally. Since the mid-1990s, U.S. sanctions have focused increasingly on persuading or compelling Iran to limit the scope of its nuclear program to ensure purely civilian use. Since 2006, and particularly since 2010, the international community has joined U.S. sanctions in pursuit of that goal.

This report analyzes U.S. and international sanctions against Iran and, in so doing, provides examples, based on a wide range of open source reporting, of companies and countries that conduct business with Iran. CRS has no way to independently corroborate any of the reporting on which these examples are based and no mandate to assess whether any entity is complying with U.S. or international sanctions against Iran.

Implementation of some of the sanctions is subject to interpretation. On November 13, 2012, the Administration published in the Federal Register (Volume 77, Number 219) "Policy Guidance" explaining how it implements many of the sanctions. (1) The guidance provides examples of specific products and chemicals that are included in the definitions of such terms as "petroleum," "petroleum products," and "petrochemical products" that are used in the laws and executive orders discussed below.

The sections below are grouped according to functional theme, in the chronological order in which these themes have emerged in U.S. sanctions policy toward Iran. Most U.S. sanctions against Iran have multiple objectives and were enacted to address different perceived threats from Iran at the same time. It is so indicated if a certain sanctions provision is being suspended as a consequence of the JPA.

Blocked Iranian Property and Assets

Some U.S. sanctions began at the time of the U.S.-Iran hostage crisis of 1979-1981 in the form of Carter Administration executive orders blocking Iranian assets held in the United States. The assets were unblocked by subsequent Orders when the crisis was resolved in early 1981 under the "Algiers Accords." Iranian leaders continue to assert that the United States is holding Iranian assets dating from that time.

The Algiers Accords established a "U.S.-Iran Claims Tribunal" at the Hague continues to arbitrate cases resulting from the 1980 break in relations and freezing of some of Iran's assets. Major cases yet to be decided center on hundreds of Foreign Military Sales (FMS) cases between the United States and the Shah's regime, which Iran claims it paid for but were unfulfilled. A reported $400 million in proceeds from the resale of that equipment was placed in a DOD FMS account and may remain in this escrow account, although DOD has not provided CRS with a precise balance. In addition, about $50 million in Iranian diplomatic property and accounts remains blocked--this amount includes proceeds from rents received on the former Iranian embassy in Washington, DC, and 10 other properties in several states, along with related bank accounts. (2) Including Iranian assets blocked under Executive Order 1399 of February 2010, discussed below, about $1.95 billion in Iranian assets is blocked, according to the 2013 "Terrorist Assets Report."

Other past financial disputes include the mistaken U.S. shoot-down on July 3, 1988, of an Iranian Airbus passenger jet (Iran Air flight 655), for which the United States paid Iran $61.8 million in compensation ($300,000 per wage earning victim, $150,000 per nonwage earner) for the 248 Iranians killed. The United States did not compensate Iran for the airplane itself, although officials involved in the negotiations told CRS in November 2012 that the United States later arranged to provide a substitute, used aircraft to Iran.

In late 2009, the U.S. Attorney for the Southern District of New York seized the assets of the Assa Company, a UK-chartered entity. Assa allegedly was maintaining the interests of Bank Melli in an office building in New York City. An Iranian foundation, the Alavi Foundation, allegedly is an investor in the building.

Some of Iran's assets have been held against legal judgments ordering Iran to compensate U.S. victims of Iranian-backed terrorism. Among recent terrorism victim judgments, on July 6, 2012, a U.S. federal judge ordered Iran to pay $813 million to the families of the 241 U.S. soldiers killed in the October 23, 1983, bombing of the U.S. Marine barracks in Beirut. That brought to $8.8 billion the total amount awarded, in eight judgments against Iran, for that bombing, which was perpetrated by elements that formed Lebanese Hezbollah. For more information, see CRS Report RL31258, Suits Against Terrorist States by Victims of Terrorism, by Jennifer K. Elsea.

Executive Order 13599 Impounding Iran-Owned Assets

Several Executive Orders direct the blocking of assets of Iranian entities designated under these Orders. These Orders include E.O. 13224, 13382, 13599, and others as discussed throughout this report. Executive Order 13599, issued February 5, 2012, imposes sanctions on the Central Bank and on other entities determined to be owned or controlled by the Iranian government ("government of Iran"). The order requires that any U.S.-based assets of the Central Bank of Iran, or of any Iranian government-controlled entity, be impounded by U.S. financial institutions. U.S. persons are prohibited from any dealings with such entities. U.S. financial institutions previously were required to merely refuse such transactions with the Central Bank, or return funds to it. Several designations have been made under order, as shown in Table 5; on June 21, 2013, OFAC published the names of 38 entities, mostly including oil, petrochemical, and investment companies, determined to meet the definition of "government of Iran." (3) Executive Orders 13224 and 13382 are discussed later in this report because they block assets of persons involved in support of terrorism or proliferation, respectively. The JPA does not address assets disputes.

Sanctions Against Iran's Support for International Terrorism and Regional Activities

The United States began imposing sanctions again Iran again in the mid-1980s. The Secretary of State designated Iran a "state sponsor of terrorism" on January 23, 1984, following the October 1983 bombing of the U.S. Marine barracks in Lebanon perpetrated by elements that later became Hezbollah. This designation triggers substantial sanctions on any nation so designated.

Sanctions Triggered by Terrorism List Designation: Ban on U.S. Aid, Arms Sales, Dual-Use Exports, and Certain Programs for Iran

The U.S. naming of Iran as a "state sponsor of terrorism"--commonly referred to as Iran's placement on the U.S. "terrorism list"--triggers several sanctions. The designation is made under the authority of Section 6(j) of the Export Administration Act of 1979 (P.L. 96-72, as amended), sanctioning countries determined to have provided repeated support for acts of international terrorism. The sanctions triggered by Iran's state sponsor of terrorism designation are:

* Restrictions on sales of U.S. dual use items. The restriction is required by the Export Administration Act, as continued through presidential authorities under the International Emergency Economic Powers Act, IEEPA, as implemented by executive orders).

* Ban on direct U.S. financial assistance and arms sales to Iran. Section 620A of the Foreign Assistance Act, FAA (P.L. 87-95) and Section 40 of the Arms Export Control Act (P.L. 95-92, as amended), respectively, bar these benefits to terrorism list countries. In addition, successive foreign aid appropriations laws since the late 1980s have banned direct assistance to Iran (loans, credits, insurance, Ex-Im Bank credits) without providing for a waiver.

* Requirement that the United States vote to oppose multilateral lending. U.S. officials are required to vote against multilateral lending to any terrorism list country by Section 1621 of the International Financial Institutions Act (P.L. 95118, as amended, which was added by Section 327 of the Anti-Terrorism and Effective Death Penalty Act of 1996 (P.L. 104-132). These laws provide waiver authority.

* Withholding of U.S. foreign assistance to Suppliers of Terrorism List Countries. Under Section 620G and 620H of the Foreign Assistance Act, as added by the Anti-Terrorism and Effective Death Penalty Act (sections 325 and 326 of P.L. 104-132), the President is required to withhold foreign aid from any country that provides to a terrorism list country financial assistance or arms. Waivers are provided. Section 321 of that act also makes it a criminal offense for U.S. persons to conduct financial transactions with terrorism list governments.

* Withholding of U.S. Aid to Organizations that Assist Iran. Section 307 of the FAA (added in 1985) names Iran as unable to benefit from U.S. contributions to international organizations, and require proportionate cuts if these institutions work in Iran. For example, if an international organization spends 3% of its budget for programs in Iran, then the United States is required to withhold 3% of its contribution to that international organization. No waiver is provided for.

No Ban on U.S. Humanitarian Aid

The terrorism list designation, and other U.S. sanctions laws, do not bar disaster aid. The United States donated $125,000, through relief agencies, to help victims of two earthquakes in Iran (February and May 1997); $350,000 worth of aid to the victims of a June 22, 2002, earthquake; and $5.7 million in assistance (out of total governmental pledges of about $32 million) for the victims of the December 2003 earthquake in Bam, Iran, which killed as many as 40,000 people. The U.S. military flew in 68,000 kilograms of supplies to Bam.
Removal From Terrorism List/Sanctions Termination

Terminating the sanctions triggered by Iran's terrorism list
designation would require Iran's removal from the terrorism list.
The Arms Export Control Act spells out two different requirements
for a President to remove a country from the list, depending on
whether the country's regime has changed.

If the regime has changed, the President can remove a country from
the list immediately by certifying that change in a report to
Congress.

If the country's regime has not changed, the President must report
to Congress 45 days in advance of the effective date of removal.
The President must certify that (1) the country has not supported
international terrorism within the preceding six months, and (2)
the country has provided assurances it will not do so in the
future. In this latter circumstance, Congress has the opportunity
to block the removal by enacting a joint resolution to that effect.
The President has the option of vetoing the joint resolution, in
which case blocking the removal would require a congressional veto
override vote.

There is no requirement that Iran be removed from the terrorism
list as a consequence of the JPA.


Executive Order 13224: Sanctioning Terrorism Supporting Entities

In signing Executive Order 13324 (September 23, 2001), the President ordered the freezing of the U.S.-based assets of and a ban on U.S. transactions with entities determined to be supporting international terrorism. This order was issued two weeks after the September 11, 2001, attacks on the United States, under the authority of the IEEPA, the National Emergencies Act, the U.N. Participation Act of 1945, and Section 301 of the U.S. Code, and initially targeted Al Qaeda-related entities. The Order is therefore not specific to Iran.

Implementation: Iran-related entities designated under the order for terrorism-related activities are listed in the table at the end of this report.

Sanctioning Iranian Involvement in the Region

Some sanctions have been imposed to try to curtail Iran's influence in the region:

* Executive Order 13438. On July 7, 2007, President Bush issued Executive Order 13438. The Order sanctions Iranian persons who are posing a threat to Iraqi stability, presumably by providing arms or funds to Shiite militias there. As shown in the tables at the end of this report, some persons sanctioned under the order have been Qods Force officers, some have been Iraqi Shiite militia-linked figures, and some entities have been sanctioned as well.

* Executive Order 13572. Issued on April 29, 2011, the Order targets those responsible for human rights abuses and repression of the Syrian people. The Qods Force and a number of Iranian Qods Force officers, including its overall commander Qasem Soleimani, have been sanctioned under this and related Orders, as shown in the tables at the end of the report.

Ban on U.S. Trade and Investment with Iran

The next major sanction imposed on Iran after those required by the terrorism list designation was a ban on U.S. trade with and investment in Iran. It was imposed on May 6, 1995, by President Clinton, through Executive Order 12959, under the authority primarily of the International Emergency Economic Powers Act (IEEPA, 50 U.S.C. 1701 et seq.). (4) IEEPA gives the President wide powers to regulate commerce with a foreign country when a state of emergency is declared in relations with that country. Executive Order 12959 followed and superseded an earlier (March 15, 1995) Executive Order (12957) barring U.S. investment in Iran's energy sector, which accompanied President Clinton's declaration that a "state of emergency" exists with respect to Iran. A subsequent Executive Order, 13059 (August 19, 1997), added a prohibition on U.S. companies' knowingly exporting goods to a third country for incorporation into products destined for Iran. Each March since 1995, the U.S. Administration has renewed a declaration of a state of emergency that triggers the President's trade regulation authority under IEEPA. The operation of the trade regulations is stipulated in Section 560 of the Code of Federal Regulations (Iranian Transactions Regulations, ITRs). The U.S. trade and investment ban is unaffected by the JPA--with selected exceptions, U.S. firms remain generally banned from the Iran market.

Codification of the Ban and U.S.-Iran Trade Figures

Section 103 of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA, P.L. 111-195) codified the ban on U.S trade with Iran. In so doing, it reinstated the full ban on imports that had been relaxed by executive order in April 2000 to allow U.S. importation of Iranian nuts, fruit products (such as pomegranate juice), carpets, and caviar. The relaxations to the trade ban from then until CISADA's effective date of September 29, 2010, account for the fact that U.S. trade with Iran expanded during that period. The restoration of the full import ban explains why U.S. imports from Iran since that time have been negligible (a total of about $2.2 million for all of 2013). U.S. imports from Iran consist primarily of artwork for exhibitions around the United States (and count as imports even though the works return to Iran after the exhibitions conclude). For all of 2013, U.S. exporters sold about $293 million in goods to Iran, mostly grain sales. CISADA also specifies exemptions to the ban, such as on exports not only of food and medical goods, but also information technology to support personal communications among the Iranian people, goods to allow civilian aircraft to fly safely, and goods for supporting democracy in Iran.

Section 101 of the Iran Freedom Support Act (P.L. 109-293) separately codified the ban on U.S. investment in Iran. Section 101 of that law gives the President the authority to terminate sanctions under the Iran Freedom Support Act if he notifies Congress 15 days in advance (or 3 days in advance if there are "exigent circumstances").

What U.S.-Iran Trade Is Allowed or Prohibited?

The following provisions apply to the U.S. trade ban on Iran as specified in regulations ("Iran Transaction Regulations," ITRs) written pursuant to the executive orders and laws discussed above. The regulations are administered by the Office of Foreign Assets Control (OFAC) of the Treasury Department.

* Oil Dealings. The 1995 trade ban greatly expanded a 1987 ban on imports from Iran under Executive Order 12613 (October 29, 1987). That 1987 ban was imposed under authorities provided in Section 505 of the International Security and Development Cooperation Act of 1985 (22 U.S.C. 2349aa-9). The import ban barred U.S. oil companies from importing Iranian oil but did not ban them from buying Iranian oil and trading it overseas. The 1995 ban prohibits such trading of Iranian oil overseas. The 1995 trade ban does allow U.S. companies to apply for licenses to conduct "swaps" of Caspian Sea oil with Iran. However, these swaps have been prohibited in practice; a Mobil Corporation application to do so was denied in April 1999, and no known applications have been submitted since.

* The regulations pursuant to the U.S. trade ban do not ban the importation, from foreign refiners, of gasoline or other energy products in which Iranian oil is contained and mixed with oil from other producers. The product of a refinery--for example major refineries in the EU countries--is considered a product of the country where that refinery is located, and not a product of Iran. The refined product can be imported into the United States, even if the refined product has some Iran-origin crude oil. No EU refineries have imported Iranian oil since July 1, 2012, and only a few other refineries worldwide both continue to receive Iranian oil and export gasoline to the United States. U.S. gasoline imports from those refineries are minor.

* Transshipment and Brokering. The regulations that implement the trade ban prohibit transshipment of goods across Iran. They also ban any activities by U.S. persons to broker commercial transactions involving Iran.

* Civilian Airline Parts. Under the original 1995 Executive order banning U.S. trade with Iran, goods related to the safe operation of civilian aircraft may, on a case-by-case basis, be licensed for export to Iran ([section]560.528 of Title 31, C.F.R.). Some spare parts sales were licensed occasionally since that time. However, on June 23, 2011, the Administration sanctioned Iran Air under Executive Order 13382 (see below), rendering licensing of parts or repairs for that airline impermissible. Other Iranian airlines have been sanctioned under that and Executive Order 13224, as discussed below. The JPA provides for provision of spare civilian airline parts to Iran, specifically including Iran Air (notwithstanding its designation), and relevant provisions of E.O. 13382 have been suspended to enable Iran Air to benefit from this commitment during the JPA period. Boeing and GE have received export licenses to sell aircraft equipment to Iran during the JPA period. (5)

* Personal Communications, Remittances, and Publishing. There are no applicable restrictions on personal communications (phone calls, e-mails) between the U.S. and Iran or on personal remittances. In December 2004, the trade regulations were modified to allow Americans to engage in ordinary publishing activities with entities in Iran (and Cuba and Sudan). On May 30, 2013, OFAC issued a general license for the exportation to Iran of goods (such as cellphones) and services, on a fee basis, that enhance the ability of the Iranian people to access communication technology. However, sanctions on banking transactions make processing payments for many of these transactions difficult, in practice.

* Food and Medical Exports. Since April 1999, commercial sales of food and medical products to Iran have been allowed, on a case-by-case basis and subject to OFAC licensing. Among earlier relaxations, on October 22, 2012, OFAC attempted to facilitate medical sales by issuing a list of medical products, such as scalpels, prosthetics, canes, burn dressings, and other products that could be sold to Iran under "general license"--no export license requirement. That list was updated on July 25, 2013, to include electrocardiogram, electroencephalogram, and dialysis machines and other medical products. According to OFAC, licenses for exports of medical products not on the list are routinely expedited for sale to Iran, and the U.S. government has been informing foreign banks that financing such transactions is not sanctionable. The JPA commits the United States and its partners to facilitate humanitarian sales to Iran. Implementing that commitment did not require modifications to U.S. trade regulations on that issue.

OFAC regulations have a specific definition of "food" that can be licensed for sale to Iran, and that definition excludes alcohol, cigarettes, gum, or fertilizer. (6) This definition addresses information in a December 24, 2010, (7) article that said that OFAC had approved exports to Iran of such condiments as ice cream sprinkles, chewing gum, food additives, hot sauces, body-building supplements, and other goods that have uses other than purely nutritive. Some of the licensed U.S. goods were sold through a Revolutionary Guard-owned chain of stores in Iran called Qods, as well as a government-owned Shahrvand store.

* Humanitarian and Related Services. Private non-financial donations by U.S. residents to Iranian victims of natural disasters (such as mailed packages of food, toys, clothes, etc.) are not prohibited, but donations to relief organizations require a specific OFAC license, because such transfers generally require use of the international banking system. Prior to September 2013, all NGOs that sought to perform relief efforts in Iran required a specific license to do so, which apparently made work in Iran impractical. On September 10, 2013, the Treasury Department eliminated licensing requirements for the provision to Iran of services for health projects, disaster relief, wildlife conservation, human rights projects, and activities related to sports matches and events. The amended regulation also allows importation from Iran of services related to sporting activities, including sponsorship of players, coaching, referees, and training. In some cases, such as the earthquake in Bam in 2003 and the earthquake in northwestern Iran in August 2012, OFAC has issued blanket temporary general licensing for relief organizations to perform relief efforts in Iran. The licensing requirements in the latter case allowed an NGO to transfer up to $300,000 without requiring a specific license.

* Export Financing. As far as financing of approved U.S. sales to Iran, private letters of credit (from non-Iranian banks) can be used to finance approved transactions. Title IX of the Trade Sanctions Reform and Export Enhancement Act of 2000 (P.L. 106-387) (8) bans the use of official credit guarantees for food and medical sales to Iran and other countries on the U.S. terrorism list, except Cuba, although allowing for a presidential waiver to permit such credit guarantees. No U.S. Administration has authorized credit guarantees, to date. It is not clear whether a waiver will be provided for such financing as a consequence of the November 24, 2013, interim nuclear deal with Iran.

Application to Foreign Subsidiaries of U.S. Firms

The U.S. trade ban does not bar subsidiaries of U.S. firms from dealing with Iran, as long as the subsidiary has no operational relationship to--or control by--the parent company. For legal and policy purposes, foreign subsidiaries are considered foreign persons, not U.S. persons, and are subject to the laws of the country in which the subsidiaries are incorporated. Section 218 of the Iran Threat Reduction and Syrian Human Rights Act (P.L. 112-158) applies the U.S. trade ban to foreign subsidiaries if (1) the subsidiary is more than 50% owned by the U.S. parent; (2) the parent firm holds a majority on the Board of Directors; or (3) the parent firm directs the operations of the subsidiary. However, many subsidiaries operate entirely autonomously and might not meet the criteria for sanctionability stipulated in that law.
Trade Ban Easing and Termination

The trade ban has been codified by CISADA, as noted.

Termination:

Section 401 of CISADA provides for the President to terminate the
trade ban codification provision of CISADA (Section 103). The
provision can be terminated if the Administration certifies to
Congress that Iran has no longer satisfies the requirements to be
designated as a state sponsor of terrorism and that Iran has ceased
pursuing and dismantled its nuclear, biological, and chemical
weapons and ballistic missiles and related launch technology.

Alternatively, the trade ban provision in CISADA could be repealed
outright by congressional action.

Waiver Authority

In addition, Section 103(b)(vi) of CISADA allows the President to
license exports to Iran if he determines that doing so is in the
national interest of the United States. This gives the President
flexibility to ease the ban on U.S. exports through executive
action. There is no similar provision in CISADA to ease the ban on
U.S. imports from Iran through a national interest determination.

There are no indications that the ban on U.S. trade with or
investment in Iran is required under the November 24, 2013, interim
nuclear deal, although some transactions might be authorized as a
consequence, as discussed above. There are no indications Iran will
demand the U.S. trade and investment ban be lifted or no longer
implemented as part of a comprehensive nuclear deal.


Energy and Other Sector Sanctions: Iran Sanctions Act (ISA) and Related Laws and Executive Orders

Since 1996, Congress and successive Administrations have put in place steps to try to force foreign firms to choose between participating in the U.S. market and continuing to conduct various energy-related transactions with Iran. The intent of energy sanctions has been to put pressure on Iran's economy and its leadership calculations, and to deny Iran the financial resources to further its nuclear and WMD programs and support terrorist organizations. Iran's petroleum sector is vital to the Iran state and economy--prior to the imposition of oil export-related sanctions in 2012 it generated about 20% of Iran's GDP, about 80% of its foreign exchange earnings, and about 50% of its government revenue.

Iran's oil sector is as old as the petroleum industry itself (early 20th century), and Iran's onshore oil fields are past peak production and in need of substantial investment. Iran has 136.3 billion barrels of proven oil reserves, the third largest after Saudi Arabia and Canada. With the exception of relatively small swap and barter arrangements with neighboring countries, virtually all of Iran's oil exports flow through the Strait of Hormuz, which carries about one-third of all internationally traded oil. Iran's large natural gas resources (940 trillion cubic feet, exceeded only by Russia) were virtually undeveloped when ISA was first enacted. Its small gas exports are mainly to Armenia and Turkey; most of its gas is injected into its oil fields to boost their production.

The Iran Sanctions Act, Amendments, and Related Applications

The Iran Sanctions Act (ISA) has been a key component of U.S. sanctions against Iran's energy sector, and it has been expanded to sanction dealings with other Iranian economic sectors. As initially enacted, ISA sought to thwart Iran's opening of the sector to foreign investment in late 1995. To accommodate its insistence on retaining control of its national resources, Iran used a "buy-back" investment program in which foreign firms gradually recoup their investments as oil and gas is discovered and then produced. In September 1995, Senator Alfonse D'Amato introduced a bill to sanction foreign firms' exports to Iran of energy technology. A revised version instead sanctioning investment in Iran's energy sector, and also applying all provisions to Libya passed the Senate. The Iran and Libya Sanctions Act (ILSA) was signed on August 5, 1996 (H.R. 3107, P.L. 104-172). It was later retitled the Iran Sanctions Act after it terminated with respect to Libya in 2006.

ISA was the first major "extra-territorial sanction" on Iran--a sanction that authorizes U.S. penalties against third country firms. ISA's application has been further expanded by several laws enacted since 2010 that amend its provisions.

Key "Triggers"

ISA consists of a number of "triggers"--transactions with Iran that would be considered violations of ISA and could cause a firm or entity to be sanctioned under ISA's provisions. When triggered, ISA provides for a number of different sanctions that could harm a foreign firm's business opportunities in the United States.

"Investment" To Develop Iran's Oil and Gas Fields

ISA requires the President to sanction companies (entities, persons) that make an "investment" (9) of more than $20 million (10) in one year in Iran's energy sector. (11) The definition of "investment" in ISA ([section]14 (9)) includes not only equity and royalty arrangements but any contract that includes "responsibility for the development of petroleum resources" of Iran. The definition includes additions to existing investment (added by P.L. 107-24) and pipelines to or through Iran and contracts to lead the construction, upgrading, or expansions of energy projects (added by the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 [CISADA; P.L. 111-195]).

Implementation: Several firms have been sanctioned under ISA for investing in Iran S oil and gas fields, as discussed below.

Sales of Weapons Related Technology and Uranium Mining Ventures

The Iran Freedom Support Act (P.L. 109-293, signed September 30, 2006) amended ISA by adding Section 5(b)(1) subjecting to ISA sanctions firms or persons determined to have sold to Iran (1) technology useful for weapons of mass destruction (WMD) or (2) "destabilizing numbers and types" of advanced conventional weapons. (Sanctions apply if the exporter knew or had cause to know that the final destination of the items sold would be Iran.)

Entities determined by the Administration to participate in a joint venture with Iran relating to the mining, production, or transportation of uranium are sanctionable under ISA. Under Section 5(b)(2) added by the Iran Threat Reduction and Syria Human Rights Act (P.L. 112-158, signed August 10, 2012).

Implementation: No ISA sanctions have been imposed on any entities under these provisions.

Sales of Gasoline and Related Equipment and Services

Section 102(a) of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA, signed on July 1, 2010, P.L. 111-195) amended Section 5 of ISA to exploit Iran's dependency on imported gasoline (40% dependency at that time). It followed legislation such as H.R. 2880 (110th Congress, not enacted); P.L. 111-85 that prohibited the use of U.S. funds to fill the Strategic Petroleum Reserve with products from firms that sell gasoline to Iran; and P.L. 111-117 that denied Ex-Im Bank credits to any firm that sold gasoline or related equipment and services to Iran--initiatives that prompted Reliance Industries Ltd. of India to cease new sales of gasoline to Iran as of December 2008. (The Ex-Im Bank, in August 2008, had extended $900 million in financing guarantees to Relianced.) The provision made sanctionable:

* sales to Iran of over $1 million worth (or $5 million in a one year period) of gasoline and related aviation and other fuels. (Fuel oil, a petroleum by-product, is not included in the definition of refined petroleum.)

* sales to Iran of equipment or services (same dollar threshold as above) which would help Iran make or import gasoline. Examples of such sales include equipment and services that Iran can use to construct or maintain its oil refineries, or provision of related services such as shipping or port operations.

Implementation: Several firms, as discussed below, have been sanctioned under ISA for selling or shipping gasoline to Iran.

Sales of Energy Sector Equipment, Services, and Petrochemicals

An Executive Order, 13590 (November 21, 2011), was codified by Section 201 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (ITRSHA, P.L. 112-158). The ITRSHA provision added Section 5(a)(5 and 6) to ISA sanctioning firms that:

* provide to Iran $1 million or more (or $5 million in a one year period) worth of goods or services that Iran could use to maintain or enhance its oil and gas sector. This made sanctionable, for example, transactions with Iran by global oil services firms and the sale to Iran of energy industry gear such as drills, pumps, vacuums, oil rigs, and the like.

* provide to Iran $250,000 (or $1 million in a one year period) worth of goods or services that Iran could use to maintain or expand its production of petrochemical products. (12) This provision was not required to be waived as a consequence of the November 24, 2013, interim nuclear deal with Iran, and was not waived.

Implementation: No firms have been sanctioned under these provisions.

Purchasing of Iranian Crude Oil and Petrochemical Products

Executive Order 13622 (July 30, 2012) applies virtually all of the same sanctions as ISA--as well as restrictions on foreign banks (see below)--to entities that the Administration determines have:

* purchased oil or other petroleum products from Iran. (13) The part of this provision pertaining to petrochemical purchases will need to be waived as a consequence of the interim nuclear deal.

* conducted transactions with the National Iranian Oil Company (NIOC) or Naftiran Intertrade Company (NICO).

Under the Order, sanctions do not apply if the parent country of the entity has received an exemption under Section 1245 of P.L. 112-81--an exemption earned for "significantly reducing" oil purchases from Iran. (See below for more information on the exemption process.) A law cannot be amended by executive order and E.O. 13622 does not amend ISA.

Implementation: Several firms were sanctioned under this order on May 31, 2013, for petrochemical sales to Iran.

Sanctions on transactions related to purchasing Iranian crude oil were codified by Section 201 of the Iran Threat Reduction and Syria Human Rights Act (P.L. 112-158, signed August 10, 2012). It amends ISA by applying ISA sanctions to entities determined by the Administration to have:

* Owned a vessel that was used to transport Iranian crude oil. This sanction does not apply in cases of transporting oil to countries that have received exemptions under P.L. 112-81, discussed below. The section also authorizes but does not require the President, subject to regulations, to prohibit a ship from putting to port in the United States for two years, if it is owned by a person sanctioned under this provision. (Adds Section 5(a)(7) to ISA.)

* Participated in a joint oil and gas development venture with Iran, outside Iran, if that venture was established after January 1, 2002. The effective date exempts energy ventures in the Caspian Sea, such as the Shah Deniz oil field there. (Adds Section 5(a)(4 to ISA).)

Implementation. Some firms, as shown below, have been sanctioned for providing vessels for the shipment of crude oil to Iran.

Insurance for Iranian Oil Entities and Purchases of Iranian Bonds

Separate provisions of the Iran Threat Reduction and Syria Human Rights Act (Sections 212, 213, and 302) do not specifically amend ISA, but require the application of 5 out of 12 ISA sanctions on any company:

* that provides insurance or re-insurance for the National Iranian Oil Company (NIOC) or the National Iranian Tanker Company (NITC); or

* that purchases or facilitates the issuance of sovereign debt of the government of Iran, including Iranian government bonds.

Dealings with Iran's Energy, Shipbuilding, and Shipping Sector

The National Defense Authorization Act for FY2013 (H.R. 4310, P.L. 112-239, signed January 2, 2013) Subtitle D, "The Iran Freedom and Counter-Proliferation Act" (IFCA), does not amend ISA but imposes at least 5 out the 12 ISA sanctions (as of July 1, 2013, 180 days after enactment) on entities determined to have:

* provided goods or services to the energy, shipbuilding, and shipping sectors of Iran, or to port operations there--or which provide insurance for such transactions. This is under Section 1244 of IFCA, which also blocks U.S.-based property and U.S.-based banking activity on violators. The sanctions do not apply when such transactions involve purchases of Iranian oil by countries that have active exemptions under PL. 112-81 or to the purchase of natural gas from Iran (or most transactions related to such gas purchases).

* provided underwriting services, insurance, or reinsurance for a broad range of transactions with Iran, including those related to shipping oil, gasoline, or other goods for the energy, shipping, or shipbuilding sectors in Iran. This is under Section 1246 of IFCA. There is no exception to this sanction for countries exempted under P.L. 112-81.

* Section 1248 of IFCA sanctions Iran's state broadcasting establishment (Islamic Republic of Iran Broadcasting) as a human rights abuser, triggering sanctions under Section 105 of CISADA.

* Dealings in Precious Metals. Section 1245 of IFCA imposes at least 5 out of 12 ISA sanctions on entities that provide precious metals to Iran (including gold) or semi-finished metals or software for integrating industrial processes. The section therefore affects foreign firms that transfer gold or other precious metals to Iran in exchange for oil or any other product. There is no exception to this sanction for countries exempted under P.L. 112-81. The provision does not amend ISA. This essentially codifies Section 5 of Executive Order 13622 that blocks U.S.-based property of individuals or firms determined to have helped Iran purchase U.S. bank notes or precious metals or to have provided financial support to NIOC, NICO, or the Central Bank of Iran. Executive Order 13645 of June 3, 2013, (Section 16), applies the restriction to transfers of stones or jewels.

Waiver authority is discussed in the box on ISA waivers below.

Sanctions Imposed Under IFCA:

On August 29, 2014, the State Department sanctioned UAE-based Goldentex FZE in accordance with IFCA for providing support to Iran's shipping sector.

The Automotive Sector and Rial Trading

Executive Order 13645 of June 3, 2013, (effective July 1, 2013):

* imposes ISA sanctions on firms that supply goods or services to Iran's automotive (cars, trucks, buses, motorcycles, and related parts) sector, and blocks foreign banks from the U.S. market if they finance transactions with Iran's automotive sector. (An executive order cannot amend a law, so the order does not amend ISA.) This provision was suspended to implement the November 24, 2013, interim nuclear deal with Iran.

* blocks U.S.-based property and prohibits U.S. bank accounts for foreign banks that conduct transactions in Iran's currency, the rial, or hold rial accounts. This provision most likely will affect banks in countries bordering or nearby Iran that sometimes have dealt in the rial.

* blocks U.S.-based property of any person that conducts transactions with any Iranian entity on the list of Specially Designated Nationals (SDNs) or Blocked Persons.

Mandate and Time Frame to Investigate ISA Violations

In the original version of ISA, there was no firm requirement, and no time limit, for the Administration to investigate potential violations and determine that a firm has violated ISA's provisions. CISADA, Section 102(g)(5), altered that by mandating that the Administration begin an investigation of potential ISA violations when there is "credible information" about a potential violation. The same section made mandatory the 180-day time limit for a determination of violation. Under Section 102(h)(5), the mandate to investigate gasoline related sales can be delayed an additional 180 days if an Administration report, submitted to Congress by June 1, 2011, asserts that its policies have produced a significant result in sales of gasoline to Iran. (No such report was submitted.) Earlier, P.L. 109-293, the "Iran Freedom Support Act" (signed September 30, 2006) amended ISA by calling for, but not requiring, a 180-day time limit for a violation determination (there is no time limit in the original law). (14)

A subsequent law, the Iran Threat Reduction and Syria Human Rights Act (P.L. 112-158), contains a provision to define "credible information" to begin an investigation of a violation. The law defines credible information to include a corporate announcement or corporate filing to its shareholders that it has undertaken transactions with Iran that are potentially sanctionable under ISA. It also says the President may (not mandatory) use as credible information reports from the Government Accountability Office and the Congressional Research Service.

Oversight Mechanisms: Reports Required

The Iran Threat Reduction and Syria Human Rights Act (P.L. 112-158) sets up several mechanisms for Congress to oversee whether the Administration is investigating ISA violations. Section 223 requires a Government Accountability Office report, within 120 days of enactment, and another such report a year later, on companies that have undertaken specified activities with Iran that might constitute violations of ISA. Section 224 amends a reporting requirement in Section 110(b) of CISADA by requiring an Administration report every 180 days on investment in Iran's energy sector, joint ventures with Iran, and estimates of Iran's imports and exports of petroleum products. The GAO reports have been issued; there is no information available on whether the required Administration reports have been issued as well.
Available Sanctions Under ISA

Once a firm is determined to be a violator, the original version of
ISA required the imposition of two of a menu of six sanctions on
that firm. CISADA added three new possible sanctions and required
the imposition of at least three out of the nine against violators.
CISADA amended ISA by adding three available sanctions and
requiring imposition on 5 out of the 12 available sanctions.
Executive Order 13590, and the July 30, 2012, executive order,
discussed above, provide for exactly the same penalties as those in
ISA. The 12 available sanctions against the sanctioned entity, from
which the Secretary of State or the Treasury can select, are:

1. denial of Export-Import Bank loans, credits, or credit
guarantees for U.S. exports to the sanctioned entity (original ISA)

2. denial of licenses for the U.S. export of military or militarily
useful technology to the entity (original ISA)

3. denial of U.S. bank loans exceeding $10 million in one year to
the entity (original ISA)

4. if the entity is a financial institution, a prohibition on its
service as a primary dealer in U.S. government bonds; and/or a
prohibition on its serving as a repository for U.S. government
funds (each counts as one sanction) (original ISA)

5. prohibition on U.S. government procurement from the entity
(original ISA)

6. prohibitions in transactions in foreign exchange by the entity
(added by CISADA)

7. prohibition on any credit or payments between the entity and any
U.S. financial institution (added by CISADA)

8. prohibition of the sanctioned entity from acquiring, holding,
using, or trading any U.S.-based property which the sanctioned
entity has a (financial) interest in (added by CISADA)

9. restriction on imports from the sanctioned entity, in accordance
with the International Emergency Economic Powers Act (IEEPA; 50
U.S.C. 1701) (original ISA)

10. a ban on a U.S. person from investing in or purchasing
significant amounts of equity or debt instruments of a sanctioned
person (added by Iran Threat Reduction and Syria Human Rights Act,
P.L. 112-158)

11. exclusion from the United States of corporate officers or
controlling shareholders of a sanctioned firm (added by P.L.
112-158)

12. imposition of any of the ISA sanctions on principal offices of
a sanctioned firm (added by P.L. 112-158).

Mandatory Sanction: Prohibition on Contracts with the U.S.
Government

There is an additional mandatory sanction under ISA. CISADA
([section] 102(b)) added a requirement in ISA that companies, as a
condition of obtaining a U.S. government contract, certify to the
relevant U.S. government agency that the firm--and any companies it
owns or controls--are not violating ISA. Regulations to implement
this requirement were issued on September 29, 2010.

ISA Waiver, Exemptions, and Sunset Provisions

ISA Waiver Provisions

The President has the authority to waive sanctions on firms
determined to have violated ISA provisions. Under the original
version of ISA to waive sanctions if he certifies that doing so is
important to the U.S. national interest ([section]9(c)). CISADA
([section] 102(c)) changed the 9(c) ISA waiver standard to
"necessary" to the national interest, and the Iran Threat Reduction
Act modified the standard further to "essential to the national
security interests" of the United States. For sanctionable
transactions involving WMD equipment, the waiver standard, as
modified by the Iran Threat Reduction Act, is "'vital to the
national security interests of the United States."

Under the original version of ISA, there was also waiver authority
([section]4(c)) if the parent country of the violating firm joined
a sanctions regime against Iran. This waiver provision was changed
by the Iran Freedom Support Act (P.L. 109293) to allow for a waiver
determination based on U.S. vital national security interests. The
Section 4(c) waiver was altered again, by CISADA, to provide for a
six month (renewable) waiver if doing so is "vital to the national
interest," and if the parent country of the violating entity is
"closely cooperating" with U.S. efforts against Iran's WMD and
advanced conventional weapons program. The criterion of "closely
cooperating" is defined in the conference report as implementing
all U.N. sanctions against Iran. It could be argued that using a
Section 4 waiver, rather than a Section 9 waiver, would support
U.S. diplomacy with the parent country of the offending entity.

ISA ([section]5(f)) also contains several exceptions such that the
President is not required to impose sanctions that prevent
procurement of defense articles and services under existing
contracts, in cases where a firm is the sole source supplier of a
particular defense article or service. The President also is not
required to prevent procurement of essential spare parts or
component parts.

Related IFCA Waiver Authority

Sections 1244 and 1245 of IFCA provide for a waiver of sanctions
for 180 days, renewable for 180 day periods, if such a waiver is
determined to be vital to U.S. national security. These sections
were waived in order to implement the JPA. In addition, Section
5(a)(7) of ISA was waived to allow for certain transactions with
NIOC and NITC.

"Special Rule" Exempting Firms That End Their Business with Iran

Under a provision added by CISADA ([section] 102(g)(5)), ISA
provides a means--a so-called "special rule"--for firms to avoid
ISA sanctions by pledging to verifiably end their business with
Iran and to forgo any sanctionable business with Iran in the
future. Under the special rule, the Administration is not required
to make a determination of sanctionability against a firm that
makes such pledges. The special rule has been invoked on several
occasions, as discussed below. However, there is some imprecision
in the time frame under which countries can wind down their Iran
business, and some firms could work in Iran for several more years
under their pledges. Energy firms insist they needed time to wind
down their investments in Iran because, under the buy-back program
used by Iran, the energy firms are paid back their investment over
time, making it highly costly for them to suddenly end operations
in Iran.

Termination Process and Requirements

In its entirety, ISA application to Iran would terminate if the
Administration certifies that three requirements are met:

(1) that Iran has ceased its efforts to acquire WMD; (2) that Iran
has been removed from the U.S. list of state sponsors of terrorism;
and (3) that Iran no longer "poses a significant threat" to U.S.
national security and U.S. allies. (15)

This termination provision, and the sunset provision discussed
below, do not apply to those laws that apply ISA sanctions without
specifically amending ISA. The executive orders and laws that apply
ISA sanctions to specified violators but without amending ISA
itself can be revoked by a superseding executive order or
congressional action that amends or repeals the provisions
involved.

Sunset Provisions

ISA is currently scheduled to sunset on December 31, 2016, as
provided for by CISADA. This followed prior sunset extensions to
December 31,201 1, (by P.L. 109-293), and to December 31,2006 (P.L.
107-24, August 3, 2001). The original law provided for a sunset
date of August 5, 2001. P.L. 107-24 also required an Administration
report on ISA's effectiveness within 24 to 30 months of enactment;
that report was submitted to Congress in January 2004 and did not
recommend that ISA be repealed.


Clarification of Responsibilities: Executive Order 13574

On May 23, 2011, President Obama issued Executive Order 13574 clarifying that it is the responsibility of the Treasury Department to implement those ISA sanctions that involve the financial sector, including bans on loans, credits, and foreign exchange for, or imports from the sanctioned entity, as well as blockage of property of the sanctioned entity (if these sanctions are selected by the Secretary of State, who makes the decision which penalties to impose on sanctioned entities).

Interpretations and Administration of ISA and Related Laws

The sections below analyze how ISA, as amended by related laws, have been interpreted and implemented through real-world cases and examples.

Application to Energy Pipelines

ISA's definition of sanctionable "investment" has been consistently interpreted by successive Administrations to include construction of energy pipelines to or through Iran. Such pipelines are deemed to help Iran develop its petroleum (oil and natural gas) sector. This interpretation was reinforced by amendments to ISA in CISADA, which specifically included in the definition of petroleum resources "products used to construct or maintain pipelines used to transport oil or liquefied natural gas." In March 2012, then-Secretary of State Clinton made clear that the Obama Administration interprets the provision to be applicable from the beginning of pipeline construction. (16)

Implementation. No gas pipelines built linking Iran to neighboring countries have been sanctioned under ISA. Specific pipeline projects that are under various stages of construction are discussed in the international compliance section below.

Application to Crude Oil Purchases

The original version of ISA did not make sanctionable purchases of oil from Iran. Executive Order 13622 and P.L. 112-158 essentially render purchasing Iranian oil sanctionable--if the parent country of the energy buyer or shipper has not received a sanctions exemption under P.L. 112-81, which is discussed below. Any new customer for Iranian oil is automatically sanctionable under the Order and P.L. 112-81.

Application to Natural Gas Purchases from Iran/Shah Deniz Exception

The FY2013 National Defense Authorization Act (P.L. 112-239) bars dealings with Iran's energy sector broadly--but specifically excludes from sanctionability purchases of natural gas from Iran. Still, payments for the natural gas might be subject to sanctions as discussed elsewhere in this report. Purchases of Iranian gas are distinguishable from the construction of natural gas pipelines involving Iran which, as discussed, does constitute potentially sanctionable activity.

The effective dates of U.S. sanctions laws also excludes long-standing joint natural gas projects that involve some Iranian firms--particularly the Shah Deniz natural gas field and pipeline in the Caspian Sea. The project is run by a consortium in which Iran's Naftiran Intertrade Copmany (NICO) holds a passive 10% share. The other partners in the venture are BP, Azerbaijan's natural gas firm SOCAR, Russia's Lukoil, and other firms. NICO has been sanctioned under ISA, as discussed below. An OFAC factsheet of November 28, 2012, states that the Shah Deniz consortium, as a whole, is not determined to be "a person owned or controlled by" the government of Iran, as defined in Executive Order 13599. The factsheet states that transactions with the consortium would not violate U.S. trade regulations on Iran nor require a license from OFAC. The guidance appears to apply to both the existing pipeline as well as the second phase of the project that is now under way, which also involves NICO and will carry gas to Europe.

Application to Liquefied Natural Gas Development

The original version of ISA did not apply to the development by Iran of a liquefied natural gas (LNG) export capability. Iran has no LNG export terminals, in part because the technology for such terminals is patented by U.S. firms and unavailable for sale to Iran. However, CISADA specifically includes LNG in the definition of petroleum resources and therefore made LNG investment in Iran--or supply of LNG tankers or pipelines to Iran--sanctionable.

Application to Private Financing but Not Official Credit Guarantee Agencies

The definitions of investment and other sanctionable activity under ISA clearly include financing for investment in Iran's energy sector, or for sales of gasoline and refinery-related equipment and services. Therefore, banks and other financial institutions that assist energy investment and refining and gasoline procurement activities could be sanctioned under ISA.

However, these definitions--including those in Executive Order 13622 and in P.L. 112-158--are not interpreted to apply to official credit guarantee agencies--such as France's COFACE and Germany's Hermes. These credit guarantee agencies are arms of their parent governments, and ISA does not provide for sanctioning governments or their agencies. Early versions of CISADA would have made these entities sanctionable but this was not included in the final law, out of concern for alienating U.S. allies.

Application to Iranian Energy Institutions/NIOC and NITC

As noted above, provisions of P.L. 112-158 and Executive Order 13622--although they do not amend ISA--apply ISA sanctions to dealings with the National Iranian Oil Company (NIOC), which is supervised by the Oil Ministry, the National Iranian Tanker Company (NITC), and a previously sanctioned firm, Naftiran Intertrade Company (NICO), which is a subsidiary of NIOC.

Under Section 302 of the Iran Threat Reduction and Syria Human Rights Act (P.L. 112-158), any person who engages in a significant transaction with NIOC and NITC is subject to the imposition of 5 out of 12 ISA sanctions. Section 312 of that law required an Administration determination, within 45 days of enactment (by September 24, 2012) whether NIOC and NITC are IRGC agents or affiliates. If such a determination is made, financial transactions with NIOC and NITC would be sanctionable under CISADA (prohibition on opening U.S.-based accounts).

Implementation. On September 24, 2012, the Department of the Treasury informed Congress that it had determined that NIOC and NITC are agents or affiliates of the IRGC. As noted below, on November 8, 2012, the Treasury Department named NIOC as a proliferation entity under Executive Order 13382. In accordance with Section 104 of CISADA, that designation bars any foreign bank determined to have dealt directly with NIOC (including with a NIOC bank account in a foreign country) from opening a U.S.-based account.

Some major components of NIOC have not been sanctioned, including the Iranian Offshore Oil Company; the National Iranian Gas Export Co.; and Petroleum Engineering and Development Co. There are also independent Iranian energy firms, such as Pasargad Oil Co, Zagros Petrochem Co, Sazeh Consultants, Qeshm Energy, and Sadid Industrial Group. Their relations with NIOC or the Revolutionary Guard (see below) are unclear, and none of these independent firms has been sanctioned under any U.S. law or executive order.

Sanctions on dealings with NIOC and NITC were waived in accordance with the JPA.

Sanctions Imposed Under ISA

The European Union (EU) opposed ISA as an extraterritorial application of U.S. law. In April 1997, the United States and the EU agreed to avoid a trade confrontation over ISA and a separate Cuba sanctions law (P.L. 104-114). The agreement involved the promise by the EU not to file any complaint with the World Trade Organization (WTO) over this issue, in exchange for the eventual May 18, 1998, announcement by the Clinton Administration to waive ISA sanctions ("national interest"--[section]9c--waiver) on the first project determined to be in violation--a $2 billion (17) contract, signed in September 1997, for Total SA of France and its partners, Gazprom of Russia and Petronas of Malaysia, to develop phases 2 and 3 of the 25+ phase South Pars gas field. The EU, for its part, pledged to increase cooperation with the United States on nonproliferation and counterterrorism. Then-Secretary of State Albright, in the May 18, 1998, waiver announcement, indicated that similar future such projects by EU firms in Iran would not be sanctioned, provided overall EU cooperation against Iranian terrorism and proliferation continued. (18) The EU sanctions against Iran imposed since 2010 have largely rendered this understanding moot because EU firms are barred from investing in Iran's energy sector.

The Obama Administration has used ISA authorities to discourage companies from continuing their business with Iran. This is a contrast from the first 14 years after ISA's passage, in which successive Administrations hesitated to confront companies of partner countries. State Department reports to Congress on ISA, required every six months, do not specifically state which foreign companies, if any, are still being investigated for ISA violations. No publication of such deals has been placed in the Federal Register, as required by Section 5e of ISA.

The companies for which ISA determinations have been announced are listed in the table below.
Table 1. ISA Sanctions Determinations

Date         Companies/Country             Status/Comment

May 18,      Total SA (France); Gazprom    Waived. ISA Violation
1998         (Russia); and Petronas        determined but sanctions
             (Malaysia)                    waived in line with U.S.-
                                           EU agreement discussed in
                                           text above.

Sept. 30,    Naftiran Intertrade Co.       Sanctioned. For activities
2010         (NICO) Switzerland, Iran      to develop Iran's energy
                                           sector

Sept. 30,    Total (France); Statoil       Exempted. Under from
2010         (Norway); ENI (Italy); and    sanctions under ISA
             Royal Dutch Shell (Britain,   "special rule" for
             Netherlands)                  pledging to wind down work
                                           on Iran energy fields.

Nov. 17,     Inpex (Japan)                 Exempted. Special rule
2010                                       applied for announcement
                                           one month earlier that it
                                           divested its remaining 10%
                                           stake in Azadegan oil field
                                           development.

March 29,    Belarusneft (Belarus,         Sanctioned. For $500
2011         subsidiary of Belneftekhim)   million contract with NICO
                                           (see above) to develop
                                           Jofeir oil field. Other
                                           subsidiaries of
                                           Belneftekhim were
                                           sanctioned in 2007 under
                                           E.O. 13405 related to
                                           policy on Belarus.

May 24,      Petrochemical Commercial      Sanctioned. Under CISADA
2011         Company International         amendment to ISA imposing
             (PCCI) of Bailiwick of        sanctions for selling
             Jersey and Iran; Royal        gasoline to Iran or helping
             Oyster Group (UAE); Tanker    Iran import gasoline.
             Pacific (Singapore);          Allvale Maritime and
             Allvale Maritime              SAMAMA determinations were
             (Liberia); Societie           issued on September 13,
             Anonyme Monegasque Et         2011, to "clarify" the May
             Aerienne (SAMAMA, Monaco);    24 determinations that had
             Speedy Ship (UAE/Iran);       named Ofer Brothers Group.
             Associated Shipbroking        The two, as well as Tanker
             (Monaco); and Petroleos       Pacific, are affiliated
             de Venezuela (PDVSA,          with a Europe-based trust
             Venezuela).                   linked to deceased Ofer
                                           brother Sami Ofer, and not
                                           Ofer Brothers Group based
                                           in Israel. The firms named
                                           were subjected primarily to
                                           the financial-related
                                           sanctions provided in ISA.
                                           U.S.-based subsidiaries of
                                           PDVSA, such as Citgo, were
                                           not sanctioned and U.S.
                                           purchases of Venezuelan oil
                                           were not affected.

Jan. 12,     Zhuhai Zhenrong Co.           Sanctioned. For brokering
2012         (China); Kuo Oil Pte Ltd.     sales or making sales to
             (Singapore); FAL Oil Co.      Iran of gasoline.
             (UAE)

Aug. 12,     Sytrol (Syria)                Sanctioned. For sales of
2012                                       gasoline to Iran.

Mar. 14,     Dr. Dimitris Cambis;          Sanctioned. Under
2013         Impire Shipping; Kish         amendments to ISA by Iran
             Protection and Indemnity      Threat Reduction Act
             (Iran); and Bimeh Markasi-    sanctioning owning vessels
             Central Insurance of Iran     that transport Iranian oil
             (CII, Iran)                   or providing insurance for
                                           the shipments. Treasury
                                           sanctions also imposed on
                                           these and eight UAE-based
                                           oil graders that concealed
                                           the transactions.

April 12,    Tanker Pacific; SAMAMA; and   Sanctions lifted. Special
2013         Allvale Maritime              rule applied after firms
                                           provided to the U.S.
                                           "reliable assurances" they
                                           will not engage in
                                           sanctionable activities in
                                           the future.

May 31,      Ferland Co. Ltd. (Cyprus      Sanctioned. For cooperating
2013         and Ukraine)                  with National Iranian
                                           Tanker Co. to illicitly
                                           sell Iranian crude oil.
                                           Sanctions also imposed by
                                           Treasury under E.O. 13608.

August 29,   Dettin SPA                    Sanctioned. Italy-based
2014                                       company sanctioned for
                                           providing goods and
                                           services to Iran's
                                           petrochemical industry.

Source: State Department announcements.


Sanctions on Oil and Other Payments to Iran's Central Bank

In late 2011, some in Congress believed that action was needed to cut off the mechanisms oil importers use to pay Iran hard currency for oil. Proposals to cut Iran's Central Bank from the international financial system were based on that objective, as well as on the view that the Central Bank helps other Iranian banks circumvent the U.S. and U.N. banking pressure.

In November 2011, provisions to sanction foreign banks that deal with Iran's Central Bank were incorporated into a FY2012 national defense authorization bill (H.R. 1540, signed on December 31, 2011 [P.L. 112-81]). Section 1245 of P.L. 112-81 provides for the following:

* Requires the President to prevent a foreign bank from opening an account in the United States--or impose strict limitations on existing U.S. accounts--if that bank processes payments through Iran's Central Bank.

* Exemption Provision. Foreign banks can be granted an exemption from sanctions (for any transactions with the Central Bank, not just for oil) if the President certifies that the parent country of the bank has significantly reduced its purchases of oil from Iran. That determination is reviewed every 180 days; countries must continue to reduce their oil buys from Iran, relative to the previous 180-day period, to retain the exemption.

* Effective Dates. The provision applied to non-oil related transactions with the Central Bank of Iran 60 days after enactment (by February 29, 2012). The provision applied to transactions with the Central Bank for oil purchases only after 180 days (as of June 28, 2012).

* The provision applies to a foreign central bank only if the transaction with Iran's Central Bank is for oil purchases.

* Sanctions on transactions for oil apply only if the President certifies to Congress--90 days after enactment (by March 30, 2012), based on a report by the Energy Information Administration to be completed 60 days after enactment (by February 29, 2012)--that the oil market is adequately supplied. The EIA report and Administration certification are required every 90 days thereafter.

Although Treasury Under Secretary David Cohen told the Senate Foreign Relations Committee on December 2, 2011, that the provision could lead to a rise in oil prices that would benefit Iran, the Administration accepted the legislation. In the signing statement on the bill, President Obama indicated he would implement the provision so as not to damage U.S. relations with partner countries.
Waiver and Termination Provisions

The law provides for the President to waive the sanctions for 120
days, renewable for successive 120 day periods, if the President
determines that doing so is in the national security interest.

The Administration has the authority to grant exceptions, as
stipulated, but outright repeal or amendment of this law would
require congressional action.

This provision was waived on January 20, 2014, in order to
implement the JPA, meaning that Iran's oil customers will not be
required to further reduce oil purchases from Iran during the JPA
period. Iran is demanding that this sanction no longer apply as
part of a comprehensive nuclear deal, and the United States and its
partners are likely to agree to suspend or lift this sanction as
part of a comprehensive nuclear deal.


Implementation: Exemptions Issued

On February 27, 2012, the Department of the Treasury announced regulations to implement Section 1245. The first required EIA report was issued on February 29, 2012, and, on March 30, 2012, President Obama determined that there was a sufficient supply of oil worldwide to permit countries to reduce oil purchases from Iran. An EIA report of April 27, 2012, and Administration determination of June 11, 2012, made similar findings and certifications, triggering potential sanctions as of June 28, 2012. Subsequent EIA reports and Administration determinations of the state of the oil market have kept the sanctions triggers in place.

The lack of precise definition of "significant reduction" in oil purchases gives the Administration flexibility in applying the exemption provision. On January 19, 2012, several Senators wrote to Treasury Secretary Geithner agreeing with outside experts that the Treasury Department should define "significant reduction" as an 18% purchase reduction based on total price paid (not just volumes). (19) Administration officials said they largely adopted that standard. P.L. 112-158 also amended Section 1245 such that any country that has received an exemption would retain that exemption if it completely ceases purchasing oil from Iran. The EU embargo on purchases of Iranian oil, announced January 23, 2012, and which took full effect by July 1, 2012, implied that virtually all EU oil customers of Iran would obtain exemptions. The table below on major Iranian oil customers indicates cuts made by major customers compared to 2011.

Exemptions Issued (20)

* On March 20, 2012, the Secretary of State announced the first group of 11 countries that had achieved an exemption for significantly reducing oil purchases from Iran: Belgium, the Czech Republic, France, Germany, Greece, Italy, Japan, the Netherlands, Poland, Spain, and Britain. The exemptions for these 11 countries have all been renewed since. (Seventeen EU countries were not granted exemptions because they were not buying Iran's oil and could not "significantly reduce" buys from Iran.)

* On June 11, 2012, the Administration granted seven more exemptions based on reductions of oil purchases from Iran of about 20% in each case: India, Korea,

Turkey, Malaysia, South Africa, Sri Lanka, and Taiwan. All have been renewed since.

* On June 28, 2012, the Administration granted exemptions to China and Singapore, two remaining major Iran oil customers, with China the single largest buyer. The exemptions were renewed repeatedly since.

Sanctions on Paying Iran with Hard Currency

The ability of Iran to acquire hard currency has been further impeded by a provision of the Iran Threat Reduction Act (P.L. 112-158), which went into effect on February 6, 2013--180 days after enactment. Section 504 of the Iran Threat Reduction Act amended P.L. 112-81 (adding "clause ii" to Paragraph D(1)) by requiring that any funds owed to Iran as a result of exempted transactions (oil purchases, for example) be credited to an account located in the country with primary jurisdiction over the foreign bank making the transaction. This has the net effect of preventing Iran from bringing earned hard currency back to Iran and compelling it to buy the products of the oil customer countries.
Waiver Provision

The waiver provision that applies to the sanctions to be imposed
under the FY2012 NDAA (P.L. 112-81) applies to this hard currency
"lock-up" provision.

To implement the JPA, a waiver was issued under P.L. 1 12-81 to
allow Iran to receive some hard currency from ongoing oil sales in
eight installments during the JPA period. Iran remains unable, even
under the JPA, to remove hard currency from existing accounts
abroad. Iran is likely to demand that this sanction be lifted as
part of a comprehensive nuclear deal so that Iran can access its
hard currency accounts abroad unfettered.


Proliferation-Related Sanctions

Aside from the "terrorism list sanctions" discussed above, several laws and executive orders seek to bars Iran from obtaining U.S. or other technology that can be used for weapons of mass destruction programs (WMD).

Iran-Iraq Arms Nonproliferation Act and Iraq Sanctions Act

The Iran-Iraq Arms Nonproliferation Act (P.L. 102-484, signed in October 1992) imposes a number of sanctions on foreign entities that supply Iran with WMD technology or "destabilizing numbers and types of advanced conventional weapons." Sanctions imposed on violating entities include a ban, for two years, on U.S. government procurement from that entity, and a two-year ban on licensing U.S. exports to that entity. A sanction to ban imports to the United States from the entity is authorized.

If the violator is determined to be a foreign country, sanctions to be imposed are a one-year ban on U.S. assistance to that country; a one-year requirement that the United States vote against international lending to it; a one-year suspension of U.S. co-production agreements with the country; a one-year suspension of technical exchanges with the country in military or dual use technology; and a one-year ban on sales of U.S. arms to the country. The President is also authorized to deny the country most-favored-nation trade status; and to impose a ban on U.S. trade with the country.

Section 1603 of the act amends an earlier law, the Iraq Sanctions Act of 1990 (Section 586G(a) of P.L. 101-513) also provides for a "presumption of denial" for all dual use exports to Iran (which would include computer software).
Waiver and Termination

Section 1606 of the Act provides a presidential waiver for the
provisions of the Act, and for those imposed pursuant to the Iraq
Sanctions Act of 1990, if the President determines a waiver is
"essential to the national interest."

Terminating this sanction outright would require congressional
action. It is not clear whether this sanction will be lifted or
waived as part of a comprehensive nuclear deal.


Iran-North Korea-Syria Nonproliferation Act

The Iran Nonproliferation Act (P.L. 106-178, signed in March 2000) is now called the Iran-North Korea-Syria Non-Proliferation Act (INKSNA) after amendments applying its provisions to North Korea and to Syria. It authorizes sanctions on foreign persons (individuals or corporations, not countries or governments) that are determined by the Administration to have assisted Iran's WMD programs. Sanctions imposed include a prohibition on U.S. exportation of arms and dual use items to the sanctioned entity, and, under Executive Order 12938 (of November 14, 1994), a ban on U.S. government procurement and of imports to the United States from the sanctioned entity. The law also bans U.S. extraordinary payments to the Russian Aviation and Space Agency in connection with the international space station unless the President can certify that the agency or entities under its control had not transferred any WMD or missile technology to Iran within the year prior. (21) (A continuing resolution for FY2009, which funded the U.S. government through March 2009, waived this law to allow NASA to continue to use Russian vehicles to access the International Space Station.)

Implementation: Entities sanctioned under this law are listed in the tables at the end of the report.
Waiver and Termination

Section 4 gives the President the authority to not impose sanctions
if the President justifies that decision to Congress. Section 5
provides for exemptions from sanctions if certain conditions are
met, particularly that the government with jurisdiction over the
entity cooperating to stop future such transfers to Iran.

Termination of this law outright would require congressional
action.


Executive Order 13382

Executive Order 13382 (June 28, 2005) allows the President to block the assets of proliferators of weapons of mass destruction (WMD) and their supporters under the authority granted by the International Emergency Economic Powers Act (IEEPA; 50 U.S.C. 1701 et seq.), the National Emergencies Act (50 U.S.C. 1601 et seq.), and Section 301 of Title 3, United States Code.

Implementation. The numerous entities sanctioned under the order for dealings with Iran are listed in the tables at the end of this report.

Foreign Aid Restrictions for Suppliers of Iran

Successive foreign aid appropriations have withheld 60% of any U.S. assistance to the Russian Federation unless it terminates technical assistance to Iran's nuclear and ballistic missiles programs. Because U.S. aid to Russia generally goes directly to programs in Russia and not to the Russian government, little or no funding has been withheld as a result of the provision.

Sanctions on "Countries of Diversion Concern"

Title III of CISADA established authorities to sanction countries that allow U.S. technology that Iran could use in its nuclear and WMD programs to be re-exported or diverted to Iran. Section 303 of CISADA authorizes the President to designate a country as a "Destination of Diversion Concern" if that country allows substantial diversion of goods, services, or technologies characterized in Section 302 of that law to Iranian end-users or Iranian intermediaries. The technologies specified include any goods that could contribute to Iran's nuclear or WMD programs, as well as goods listed on various U.S. controlled-technology lists such as the Comerce Control List or Munitions List. For any country designated as a country of diversion concern, there would be prohibition of denial for licenses of U.S. exports to that country of the goods that were being re-exported or diverted to Iran.

Implementation: To date, no country has been designated a "Country of Diversion Concern."
Waiver and Termination

Waiver: The President may waive sanctions on countries designated
as of Diversion Concern for 12 months, and additional 12 month
periods, pursuant to certification that the country is taking steps
to prevent such diversions and re-exports.

Termination: The designation terminates on the date the President
certifies to Congress that the country has adequately strengthened
its export controls to prevent such diversion and re-exports to
Iran in the future.

Sanctions on the Islamic Revolutionary Guard Corps (IRGC)

Numerous sanctions discussed in this report target Iran's Islamic
Revolutionary Guard Corps (IRGC), which plays a role in repressing
domestic dissent, developing Iran's energy sector, developing
Iran's WMD programs particularly by procuring technology abroad,
and supporting pro-Iranian militant movements and governments in
the Middle East region. Much of the work on Iran's oil and gas
fields is done through a series of contractors. Some of them, such
as Khatam ol-Anbia and Oriental Kish, have been identified by the
U.S. government as controlled by the IRGC and have been sanctioned
under various executive orders, discussed below. The 2011
appointment of Khatam ol-Anbia's chief, Rostam Ghasemi, as oil
minister, caused the U.S. government and many experts to assess
that the IRGC role in Iran's energy sector was large and growing.
He was replaced by President Hassan Rouhani with a former Oil
Minister and oil industry professional, but the IRGC involvement in
Iran's energy sector is not shrinking. The Wall Street Journal
reported on May 27, 2014, that Khatam ol-Anbia has $50 billion in
contracts with the Iranian government, including in the energy
sector but also in port and highway construction. It has as many as
40,000 employees. Sanctions targeting the IRGC are discussed below:

* Section 311 of the Iran Threat Reduction Act requires a
certification by a contractor to the U.S. government that it is not
knowingly engaging in a significant transaction with Iran's Islamic
Revolutionary Guard Corps (IRGC), or any of its agents or
affiliates that have been sanctioned under several executive orders
discussed below. A contract may be terminated if it is determined
that the company's certification of compliance was false.

* Section 302 of the Iran Threat Reduction Act imposes at least 5
out of 12 ISA sanctions on persons that materially assist, with
financing or technology, the IRGC, or assist or engage in
"significant" transactions with any of its affiliates that are
sanctioned under Executive Order 13382, 13224, or similar executive
orders discussed below--or which are determined to be affiliates of
the IRGC. Section 302 did not amend ISA.

* Section 301 of the Iran Threat Reduction Act requires the
President, within 90 days of enactment (by November 9, 2012), to
identify "officials, agents, or affiliates" of the IRGC and to
impose sanctions in accordance with Executive Order 13382 or 13224,
including blocking any such designee's U.S.-based assets or
property. Some of these designations, including of National Iranian
Oil Company (NIOC), were made by Treasury Department on November 8,
2012.

* Section 303 of the Iran Threat Reduction Act requires the
imposition of sanctions on agencies of foreign governments that
provide technical or financial support, or goods and services to
sanctioned (under U.S. executive orders or U.N. resolutions)
members or affiliates of the IRGC. Sanctions include a ban on U.S.
assistance or credits for that foreign government agency, a ban on
defense sales to it, a ban on U.S. arms sales to it, and a ban on
exports to it of controlled U.S. technology.

* Section 104 of CISADA sanctions foreign banks that conduct
significant transactions with the IRGC or any of its agents or
affiliates that are sanctioned under any executive order. It also
sanctions any entity that assists Iran's Central Bank efforts to
help the IRGC acquire WMD or support international terrorism.

* The IRGC is named as a proliferation supporting entity under
Executive Order 13382, and the Qods Force, the unit of the IRGC
that assists pro-Iranian movements and countries abroad, is named
as a terrorism supporting entity under Executive Order 13324.
Several Iranian firms linked to the IRGC are sanctioned, as noted
in the tables at the end of this report. Several IRGC commanders
are named under other executive orders, discussed below,
sanctioning Iranian human rights abusers, abusers of Syrian human
rights, and entities undermining stability in Iraq.

* No IRGC-related laws or executive orders were waived or suspended
to implement the JPA.


Financial/Banking Sanctions

U.S. efforts to shut Iran out of the international banking system have gained strength as other countries have joined the effort. These efforts have been implemented primarily by the Treasury Department through progressively strong actions, particularly using the authority in legislation in 2011 to cut off Iran's Central Bank from the international financial system.

Early Efforts: Targeted Financial Measures

Since 2006, the Treasury Department has used existing authorities to persuade foreign banks to cease dealing with Iran by attempting to convince the banks that Iran is using the international financial system to fund terrorist groups and acquire weapons-related technology. According to a GAO report of February 2013, the Treasury Department made overtures to 145 banks in 60 countries, including several visits to banks and officials in the UAE, and convinced at least 80 foreign banks to cease handling financial transactions with Iranian banks. In November 6, 2008, the Treasury Department has barred U.S. banks from handling any indirect transactions ("U-turn transactions," meaning transactions with non-Iranian foreign banks that are handling transactions on behalf of an Iranian bank) with all Iranian banks. (22)

Implementation: The Treasury Department also used punishments against banks that have helped Iran violate U.S. financial restrictions. In 2004, the Treasury Department fined UBS $100 million for the unauthorized movement of U.S. dollars to Iran and other sanctioned countries. In December 2005, the Treasury Department fined Dutch bank ABN Amro $80 million for failing to fully report the processing of financial transactions involving Iran's Bank Melli (and another bank partially owned by Libya). In December 2009, Credit Suisse agreed to pay $536 million for illicit processing of Iranian transactions with U.S. banks. In June 2012, Dutch bank IMG agreed to pay $619 million for moving billions of dollars through the U.S. financial system, using falsified records, on behalf of Iranian and Cuban clients. Standard Chartered agreed in August 2012 to a $340 million settlement with New York State regulators for allegedly processing transactions with Iran in contravention of U.S. regulations. (23) In January 2014, Clearstream Banking, based in Luxembourg, agree to pay $152 million for permitting Iran to evade restrictions on dealing with U.S. banks. That same month, the Bank of Moscow agreed to pay $9.5 million for illicitly moving money through the U.S. financial system on behalf of Bank Melli. (24) On June 30, 2014, BNP Paribas paid $9 billion in fines for helping Iran, Sudan, and Cuba violate U.S. sanctions.

CISADA: Sanctioning Foreign Banks That Conduct Transactions with Iran

The Treasury Department efforts were enhanced substantially by Section 104 of CISADA (P.L. 111-195) and U.N. and EU sanctions. The intent of Section 104 was to weaken Iran's economy by preventing Iranian traders from obtaining "letters of credit" (trade financing) to buy or sell goods. The binding provisions of Section 104 of CISADA require the Secretary of the Treasury to prescribe several sets of regulations to forbid U.S. banks from opening new "correspondent accounts" or "payable-through accounts" (or force the cancellation of existing such accounts) for foreign banks that process "significant transactions" with

* Any foreign entity that is sanctioned by Executive Order 13224 or 13382 (terrorism and proliferation activities, respectively). These orders are discussed elsewhere in this report. To date, several hundred entities (including individuals), many of them Iran-based or of Iranian origin, have been sanctioned under these two Orders; a full list is at the end of this report.

* Any entity designated under by U.N. Security Council resolutions that impose sanctions on Iran.

* Iran's energy, shipping, and shipbuilding sectors, including with NIOC, NITC, and IRISL. (This provision was added by Section 1244(d) of the FY2013 National Defense Authorization Act (P.L. 112-239) but it does not specifically amend CISADA).

Foreign banks that do not have operations in the United States typically establish correspondent accounts or payable-through accounts with U.S. banks as a means of accessing the U.S. financial system. The Treasury Department has authority to determine what constitutes a "significant" financial transaction.

Implementation of Section 104: Sanctions Imposed

On July 31, 2012, the Administration announced the first sanctions under Section 104 of CISADA. Sanctioned were the Bank of Kunlun in China and the Elaf Islamic Bank in Iraq. However, on May 17, 2013, the Treasury Department lifted sanctions on Elaf Islamic Bank in Iraq, asserting that the bank had reduced its exposure to the Iranian financial sector and stopped providing services to an Iranian bank sanctioned by the EU (Export Development Bank of Iran).
Waiver and Termination

Under Section 401(a) of CISADA, the Section 104 sanctions
provisions would terminate 30 days after the President certifies to
Congress that Iran (1) has met the requirements for removal from
the terrorism list, AND (2) has ceased pursuit, acquisition or
development of, and verifiably dismantled its nuclear weapons and
other WMD programs.

The Secretary of the T reasury may waive sanctions under Section
104, with the waiver taking effect 30 days after the Secretary
determines that a waiver is necessary to the national interest and
submits a report to Congress describing the reason for that
determination.

Waivers of CISADA were not required to implement the JPA. Iran is
likely to demand that this sanction no longer apply after any
comprehensive nuclear deal.


Iran Designated a Money-Laundering Jurisdiction

On November 21, 2011, the Administration took further steps to isolate Iran's banking system by identifying Iran as a "jurisdiction of primary money laundering concern" (25) under Section 311 of the USA Patriot Act (31 U.S.C. 5318A). The Treasury Department determined that Iran's financial system, including the Central Bank, constitutes a threat to governments or financial institutions that do business with these banks. The designation carried no immediate penalty, but it imposed additional requirements on U.S. banks to ensure against improper Iranian access to the U.S. financial system.

Promoting Divestment

A recent trend in Congress and in several states has been to require or call for divestment of shares of firms that have invested in Iran's energy sector at the levels sanctionable under ISA. (26) The intent of doing so is to express the view of Western and other democracies that Iran is an outcast internationally. A divestment provision was contained in CISADA, providing a "safe harbor" for investment managers who sell shares of firms that invest in Iran's energy sector.

Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 requires companies, in their reports to the Securities and Exchange Commission, to disclose whether it or any corporate affiliate has engaged in any sanctionable transactions with Iran under ISA, CISADA, and other applicable laws.

Sanctions and Sanctions Exemptions to Support Democratic Change/Civil Society in Iran

A trend in U.S. policy and legislation since the June 12, 2009, election-related uprising in Iran has been to support the ability of the domestic opposition in Iran to communicate, to reduce the regime's ability to monitor or censor Internet communications, and to sanction Iranian officials that commit human rights abuses. Sanctions on the IRGC (see box above) represent one facet of that trend because the IRGC is not only involved in Iran's WMD programs but it is also the key instrument through which the regime has suppressed oppositionists. Earlier, the Iran Freedom Support Act (IFSA; P.L. 109-293) authorized "sums as may be necessary" to assist Iranians who are "dedicated" to "democratic values ... and the adoption of a democratic form of government in Iran"; and "advocates the adherence by Iran to nonproliferation regimes."

General Implementation: Individuals and entities designated under the Executive Orders and provisions discussed below are listed in the tables at the end of this report. For those provisions that ban visas to enter the United States, the State Department interprets the provisions to apply to all members of the designated entity. (27) Similar sanctions against many of these same officials--as well as several others--have been imposed by the European Union.

No suspension of U.S. sanctions on Iran for its human rights practices was required by the JPA. U.S. statements indicate that sanctions related specifically to human rights issues will not be eased as part of a comprehensive nuclear settlement, if reached.

Expanding Internet and Communications Freedoms

Some laws and Administration action focus on expanding Internet freedom in Iran or preventing the Iranian government from using the Internet to identify opponents. Subtitle D of the FY2010 Defense Authorization Act (P.L. 111-84), called the "VOICE" (Victims of Iranian Censorship) Act, contained several provisions to increase U.S. broadcasting to Iran and to identify (in a report to be submitted 180 days after enactment) companies that are selling Iran technology equipment that it can use to suppress or monitor the Internet usage of Iranians. The act authorized funds to document Iranian human rights abuses since the June 2009 presidential election. Section 1241 of the act also required an Administration report by January 31, 2010, on U.S. enforcement of sanctions against Iran, and the effect of those sanctions on Iran.

Sanctions and Administrative Actions Against Iran's Internet Censorship

The "Reduce Iranian Cyber-Suppression Act" (111th Congress, S. 1475 and H.R. 3284) was incorporated into CISADA as Section 106. The section prohibits U.S. government contracts with foreign companies that sell technology that Iran could use to monitor or control Iranian usage of the Internet. The provisions were directed, in part, against a joint venture between Nokia (Finland) and Siemens (Germany) that reportedly sold Internet monitoring and censorship technology to Iran in 2008. (28) Section 103(b)(2) of CISADA exempts from the U.S. export ban on Iran equipment to help Iranians communicate and use the Internet.

Section 403 of the Iran Threat Reduction and Syria Human Rights Act (P.L. 112-158, August 2010) sanctions (visa ban, U.S.-based property blocked) persons/firms determined to have engaged in censorship in Iran, limited access to media, or--for example, a foreign satellite service provider--supported Iranian government jamming or frequency manipulation.

The Administration took several separate steps to facilitate Internet communications among Iranians.

* On March 8, 2010, OFAC amended the Iran Transactions Regulations to allow for a general license for providing free mass market software to Iranians. The ruling incorporated major features of the Iran Digital Empowerment Act (H.R. 4301 in the 111th Congress). The OFAC determination required a waiver of the provision of the Iran-Iraq Arms Nonproliferation Act (Section 1606 waiver provision) discussed above.

* On March 20, 2012, the Treasury Department announced that several additional types of software and information technology products would be able to be exported to Iran under general license, including personal communications, personal data storage, browsers, plug-ins, document readers, and free mobile applications related to personal communications. The exports could proceed provided the products were available at no cost to the user. (29) On May 30, 2013, the Treasury Department further amended its policies to allow for the sale, on a cash basis (no U.S. financing), to Iran of equipment (e.g., cellphones, laptops, satellite Internet, website hosting, and related products and services) that Iranians can use to communicate.

* On April 23, 2012, President Obama issued an executive order (13606) directly addressing the issue by sanctioning persons who commit "Grave Human Rights Abuses by the Governments of Iran and Syria Via Information Technology (GHRAVITY)." The order blocks the U.S.-based property and essentially bars U.S. entry and bans any U.S. trade with persons and entities listed in an Annex and persons or entities subsequently determined to be (1) operating any technology that allows the Iranian (or Syrian) government to disrupt, monitor, or track computer usage by citizens of those countries or assisting the two governments in such disruptions or monitoring; or (2) selling to Iran (or Syria) any technology that enables those governments to carry out such disruptions or monitoring.

* On October 9, 2012, the President issued Executive Order 13628 reinforcing Section 403 of the Iran Threat Reduction Act by blocking the property of persons/firms determined to have committed the censorship, limited free expression, or assisted in jamming communications. The Order also specifies the sanctions authorities of the Department of State and of the Treasury.

Measures to Sanction Human Rights Abuses and Promote the Opposition

Another part of the effort to help Iran's opposition has been legislation to sanction regime officials involved in suppressing the domestic opposition in Iran. The following sections discuss sanctions against Iran's human rights abuses.

Sanctions Against Iranian Human Rights Abusers and Related Equipment

Section 105 of CISADA was modeled on a Senate bill, S. 3022, the Iran Human Rights Sanctions Act, in the 111th Congress. The section bans travel and freezing assets of those Iranians determined to be human rights abusers. On September 29, 2010, pursuant to Section 105, President Obama signed an Executive Order (13553) providing for the CISADA sanctions against Iranians determined to be responsible for or complicit in post-2009 Iran election human rights abuses. Those named under the provisions are listed in the tables at the end of this report.
Termination Authority

Section 105 contains its own specific authority to terminate the
section through Administration action. Section 105 can be
terminated if the President certifies to Congress that Iran has (1)
unconditionally released all political prisoners detained in the
aftermath of the June 2009 uprising; (2) ceased its practices of
violence, unlawful detention, torture, and abuse of citizens who
were engaged in peaceful protest; (3) fully investigated abuses of
political activists that occurred after the uprising; and (4)
committed to and is making progress toward establishing an
independent judiciary and respecting human rights recognized in the
Universal Declaration of Human Rights.


Sales of Anti-Riot Equipment

Section 402 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (P.L. 112-158) amended Section 105 by adding provisions that sanctions (visa ban, U.S. property blocked) for any person or company that sells the Iranian government goods or technologies that it can use to commit human rights abuses against its people. Such goods include firearms, rubber bullets, police batons, chemical or pepper sprays, stun grenades, tear gas, water cannons, and like goods. Under that section, ISA sanctions are additionally to be imposed on any person determined to be selling such equipment to the IRGC.

Sanctions Against Iranian Broadcasting and Profiteers

IFCA (Subtitle D of P.L. 112-239), Section 1248, mandates inclusion of the Islamic Republic of Iran Broadcasting (IRIB), the state broadcasting umbrella group, as a human rights abuser, thereby imposing CISADA Section 105 sanctions (travel ban, asset freeze) on that entity.

Section 1249 amends CISADA by making sanctionable under Section 105 any person determined to have engaged in corruption or to have diverted or misappropriated humanitarian goods or funds for such goods for the Iranian people. The measure is intended to sanction Iranian profiteers who are, for example, using official connections to corner the market for vital medicines. This essentially codifies a similar provision of Executive Order 13645.

Separate Visa Ban

On July 8, 2011, the State Department imposed visa restrictions on more than 50 Iranian officials for participating in political repression in Iran. The State Department announcement stated that the names of those subject to the ban would not be released because visa records are confidential. The action was taken under the authorities of Section 212(a)(3)(C) of the Immigration and Nationality Act, which renders inadmissible to the United States a foreign person whose activities could have serious consequences for the United States. On May 30, 2013, the State Department announced it had imposed visa restrictions on an additional 60 Iranian officials and other individuals who participated in human rights abuses related to political repression in Iran. (30)

There are certain exemptions in the case of high level Iranian visits to attend the United Nations. Under the U.N. Participation Act (P.L. 79-264) that provides for U.S. participation in the United Nations and as host nation of U.N. headquarters in New York, visas are routinely issued to heads of state and members of their entourage attending these meetings. In September 2012, however, the State Department refused visas for 20 members of Iranian President Ahmadinejad's traveling party on the grounds of past involvement in terrorism or human rights abuses. Still, in line with U.S. obligations under the act, then President Ahmadinejad was allowed to fly to the United States on Iran Air, even though Iran Air is a U.S.-sanctioned entity, and his plane reportedly was allowed to stay at Andrews Air Force base for the duration of his visit.

U.N. Sanctions

U.N. sanctions apply to all U.N. member states. As part of a multilateral process of attempting to convince Iran to choose the path of negotiations or face further penalty, during 2006-2008, three U.N. Security Council resolutions--1737, 1747, and 1803--imposed sanctions primarily on Iran's weapons of mass destruction (WMD) infrastructure. Resolution 1929 was adopted on June 9, 2010, by a vote of 12-2 (Turkey and Brazil), with one abstention (Lebanon). (Iranian entities and persons under U.N. sanctions are in Table 5.) A summary of the major provisions of all four of these resolutions is contained in the table below.

U.N. Security Council action was not needed to implement the JPA. The JPA makes reference to a comprehensive settlement satisfying all provisions of U.N. resolutions on Iran, indicating that Security Council action might be taken to implement any comprehensive agreement.

International Implementation and Compliance (31)

During 2010-2013, converging international views on Iran produced substantial global cooperation in pressuring Iran with sanctions--including among Iran's neighbors that are often reluctant to antagonize Iran. Some countries apparently joined the sanctions regime primarily as a means of heading off unwanted military action against Iran by the United States or by Israel. U.S. officials say they expect that same degree of cooperation with respect to the Joint Plan of Action--both in easing sanctions temporarily and in preventing an easing beyond that stipulated by the JPA. The JPA--which ran from January 20, 2014, until July 20, 2014, and was extended until November 24, 2014--requires Iran's oil exports to remain constant (about 1 million barrels per day). Iran's oil customers are not required to cut average purchases further but are not permitted to increase those purchases either.

A comparison between U.S., U.N., and EU sanctions against Iran is contained in Table 4 below. To increase international compliance with all applicable sanctions, on May 1, 2012, President Obama issued Executive Order 13608, giving the Treasury Department the ability to identify and sanction (cutting them off from the U.S. market) foreign persons who help Iran (or Syria) evade U.S. and multilateral sanctions.

The United States and its partners have also sought to stop Iran from using traditional trading patterns common to its neighborhood to evade sanctions. On January 10, 2013, the Treasury Department's Office of Foreign Assets Control issued an Advisory to highlight Iran's use of hawalas (traditional informal banking and money exchanges) in the Middle East and South Asia region to circumvent financial sanctions. Because the involvement of an Iranian client is often opaque, banks have sometimes inadvertently processed hawala transactions involving Iranians.

Europe

U.S. and European approaches on Iran have converged since the nuclear issue came to the fore in 2002. Previously, European and other countries appeared less concerned than is the United States about Iran's support for militant movements in the Middle East or Iran's strategic power in the Persian Gulf and were reluctant to sanction Iran. Since the passage of Resolution 1929 in June 2010, European Union (EU) sanctions on Iran have become nearly as extensive as those of the United States. The EU is a party to the JPA, and, as of January 20, 2014, the EU is implementing easing of those sanctions below--unless specified otherwise. EU sanctions are as follows.

* A ban on EU oil imports from Iran went into effect on July 1, 2012, pursuant to a January 23, 2012, EU decision. Collectively, the EU bought about 600,000 barrels per day of Iranian oil in 2011, about a quarter of Iran's total oil exports. The embargo was imposed despite the fact that the most vulnerable EU economies--Spain, Italy, and Greece--were each buying more than 10% of their oil from Iran. Because of the embargo, 10 EU countries have maintained exemptions from sanctions under (P.L. 112-81). A ban on EU imports of natural gas from Iran went into effect in October 2012 and intended to stall Iran's efforts to expand gas exports to Europe. The JPA did not lift the EU ban on imports of oil or gas from Iran.

* An EU ban on insurance for shipping oil or petrochemicals from Iran took full effect on July 1, 2012. Earlier, most EU-based insurers closed their offices in Iran.

* The EU has banned all trade with Iran in gold, precious metals, diamonds, and petrochemical products.

* The EU has frozen the assets of Iran's Central Bank, although transactions are permitted for approved legitimate trade, and it froze the assets of several Iranian firms involved in shipping. This sanction has not been eased to implement the JPA.

* As of October 15, 2012, there has been a ban on transactions between European and all Iranian banks, unless specifically authorized.

* The EU has banned short-term export credits, guarantees, and insurance.

* The EU has banned exports to Iran of graphite, semi-finished metals such as aluminum and steel, industrial software, shipbuilding technology, oil storage capabilities, and flagging or classification services for Iranian tankers and cargo vessels. With the exception of exports to Iran's automotive sector, the EU ban on export of these technologies was not suspended.

SWIFT Cutoff. Section 220 of the Iran Threat Reduction and Syria Human Rights Act (P.L. 112-158, signed in August 2012), required reports on electronic payments systems such as the Brussels-based SWIFT (Society of Worldwide Interbank Financial Telecommunications) that might be doing business with Iran, but does not mandate sanctions against such systems. Subsequently, the EU requested that SWIFT cut off sanctioned Iranian banks from the network. SWIFT acceded to that request on March 17, 2012, denying access to 14 Iranian banks blacklisted by the EU. Iranian banks not sanctioned by the EU can still access the SWIFT system. (32) (The United States has sanctioned about 50 Iranian banks, but only those sanctioned by the EU have been cut off from SWIFT). And, some experts report that Iranian banks are still able to conduct electronic transactions with the European Central Bank via an electronic payments system called "Target II." The SWIFT sanctions have not been suspended to implement the JPA. Most experts assess that this ban will be lifted as part of a comprehensive nuclear deal with Iran.

The harmonization of U.S. and European sanctions on Iran differs from early periods. During the 1990s, EU countries maintained a policy of "critical dialogue" with Iran, and the EU and Japan refused to join the 1995 U.S. trade and investment ban on Iran. The European dialogue with Iran was suspended in April 1997 in response to the German terrorism trial ("Mykonos trial") that found high-level Iranian involvement in killing Iranian dissidents in Germany, but resumed in May 1998 during Mohammad Khatemi's presidency of Iran. In the 1990s, European and Japanese creditors bucked U.S. objections and rescheduled about $16 billion in Iranian debt bilaterally, in spite of Paris Club rules that call for multilateral rescheduling. In July 2002, Iran tapped international capital markets for the first time since the Islamic revolution, selling $500 million in bonds to European banks. During 2002-2005, there were active negotiations between the European Union and Iran on a "Trade and Cooperation Agreement" (TCA) that would have lowered the tariffs or increased quotas for Iranian exports to the EU countries. (33) Negotiations were discontinued in late 2005 after Iran abrogated an agreement with several EU countries to suspend uranium enrichment. Similarly, there has, to date, been insufficient international support to grant Iran membership in the World Trade Organization (WTO), even though U.S. Administrations ceased blocking Iran from applying in May 2005.
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Title Annotation:p. 1-37
Author:Katzman, Kenneth
Publication:Congressional Research Service (CRS) Reports and Issue Briefs
Article Type:Report
Geographic Code:7IRAN
Date:Oct 1, 2014
Words:17850
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