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«Implications of a Nuclear Agreement with Iran Mark Dubowitz Executive Director Foundation for Defense of Democracies Center on Sanctions and Illicit ...»

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Iran’s nuclear program.81 Whether or not the IAEA has reached a broader conclusion that Iran’s program is peaceful and this center is not engaged in weapons-related activities, the sanctions will be lifted.

In eight years, United States will also lift sanctions on central pillars of Iran’s nuclear and weaponization activities. Two central individuals, Fereidoun Abbasi-Davani and Mohsen Fakhrizadeh, will be de-listed. Abbasi-Davani is the former head of the Atomic Energy Organization of Iran. 82 Fakhrizadeh is the AQ Khan of Iran’s nuclear weapons development and, according to the U.S. State Department, “managed activities useful in the development of a nuclear explosive device” and designated “for his involvement in Iran’s proscribed WMD activities.”83 The United States will also de-list the Organization of Defensive Innovation and Research (SPND), an entity “primarily responsible for research in the field of nuclear weapons development,” according to the U.S. State Department. The organization was designated less than a year ago, during the P5+1 negotiations with Iran, and was created by Fakhrizadeh. 84 The EU will also de-list SPND and Abbasi-Davani and Fakhrizadeh at the same time.

Additionally, the United States will de-list Aria Nikan Marin Industry, which sources goods for Iran’s nuclear program and whose customers include Khatam al-Anbiya;85 Iran Pooya, which supplies material for centrifuge production;86 and the Kalaye Electric Company, which was designated as a proliferator in 2007 for its involvement in Iran’s centrifuge research and development efforts.87 Kalaye Electric was a site of centrifuge production in 2003. When the IAEA requested access and the ability to take environmental samples, Iran delayed granting access and, according to experts, took “extraordinary steps to disguise the past use and purpose of this facility.”88 Jahan Tech Rooyan Pars and Mandegar Baspar Kimiya Company will also be delisted. These two entities were involved in illicit procurement of proliferation-sensitive material. 89 The Council of the European Union, “Council Implementing Regulation (EU) No 1245/2011 of 1 December 2011 Implementing Regulation (EU) No 961/2010 on Restrictive Measures against Iran,” Official Journal of the European Union, December 2, 2011. (http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32011R1245) Department of State, Press Statement, “Increasing Sanctions Against Iranian Nuclear Proliferation Networks Joint Treasury and State Department Actions Target Iran's Nuclear Enrichment and Proliferation Program,” December 13, 2012. (http://www.state.gov/r/pa/prs/ps/2012/12/202023.htm) Department of State, Media Note, “Additional Sanctions Imposed by the Department of State Targeting Iranian Proliferators,” August 29, 2014. (http://www.state.gov/r/pa/prs/ps/2014/231159.htm) Ibid.

Department of State, Press Statement, “Increasing Sanctions Against Iranian Nuclear Proliferation Networks Joint Treasury and State Department Actions Target Iran's Nuclear Enrichment and Proliferation Program,” December 13, 2012. (http://www.state.gov/r/pa/prs/ps/2012/12/202023.htm) Ibid.

Department of the Treasury, Press Release, “Treasury Targets Iranian Companies for Supporting WMD Proliferation,” February 16, 2007. (http://www.treasury.gov/press-center/press-releases/Pages/hp267.aspx) “ISIS Imagery Brief: Kalaye Electric,” Institute for Science and International Security, March 31, 2005.

(http://isis-online.org/publications/iran/kalayeelectric.html) Department of State, Media Note, “Additional Sanctions Imposed by the Department of State Targeting Iranian Proliferators,” August 29, 2014. (http://www.state.gov/r/pa/prs/ps/2014/231159.htm)

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Additional Entities Potentially Eligible for Sanction In the spring of 2014, my colleagues provided the British and American governments with a database of companies and individuals tied to the IRGC. The full lists are submitted with this Testimony as Exhibits A and B. Entities in this database, which were not previously sanctioned, have not subsequently been sanctioned by either the United States or the European Union. These governments had 16 months to verify and add these companies/individuals to their sanctions lists but refrained from doing so. The non-listing of these entities also provided the IRGC with economic benefits as these companies and persons operate without restrictions.

EXHIBIT A is a database of 217 enterprises of the inner circle of the IRGC’s business empire.

Iran’s Islamic Revolutionary Guard Corps intervene in Iran’s economy through three channels:

The IRGC Cooperative Foundation, The Basij Cooperative Foundation, and Khatam al-Anbiya Construction Headquarters. These three holding companies are direct shareholders of businesses listed in Exhibit A, which also includes the names of their 1,073 board members, CEOs, and CFOs since 2003. Iran’s Official Journal is the source for this information; hyperlinks to entries for each company are provided in the database. 90 Due to lax filing obligations for Iranian non-publicly traded companies, open-source information does not detail the percentage of ownership of companies by each shareholder nor enables us to ascertain the affiliation of each board member and executive to the IRGC. Nevertheless, this database lists companies in which the IRGC, as a direct stakeholder with the power to select at least one member of the board, exercises considerable influence and enjoys profits from the company’s dividends.





EXHIBIT B is a list of companies publicly traded on the Tehran Stock Exchange (TSE), in which the IRGC Cooperative Foundation, the Basij Cooperative Foundation, or the Armed Forces Pension Fund jointly or separately own at least 50%+1 of the shares or control the majority of the votes on the Board. The combined value of these holdings amounts to 20%, or $17.5 billion, of the total market value of the Tehran Stock Exchange. 91 Of the companies listed in Exhibit B, only three have been sanctioned by the United States—one of which, Ghadir Investment Company, will be de-listed by the Treasury Department within 6-12 months.

An earlier version of Exhibit A was submitted to the Department of Treasury at a March 2014 meeting with FDD analysts, for their review. The database provided, to date, the most accurate map of IRGC direct holdings in Iran’s economy and offered the potential for additional designation of IRGC companies. Companies listed on Exhibit B were repeatedly mentioned in articles and research by FDD experts.92 Iranian Official Journal, accessed July 20, 2015. (http://www.gazette.ir/) The information on which this conclusion is based is available on the Tehran Stock Exchange website (http://www.tsetmc.com/Loader.aspx?ParTree=15) For example, see Emanuele Ottolenghi & Saeed Ghasseminejad, “Who Really Controls Iran’s Economy,” The National Interest, May 20, 2015. (http://nationalinterest.org/feature/who-really-controls-irans-economy-12925)

–  –  –

Since the information in the exhibits was made available to the Obama Administration, none of the companies which were not sanctioned at the time have been subsequently added to Treasury’s designations.

THE JCPOA’S IRANIAN NUCLEAR SNAPBACK

The JCPOA contains a weak enforcement mechanism. Throughout the negotiations, Obama Administration officials have explained that under a final deal, the United States and its allies would be able to re-impose sanctions quickly in order to punish Iranian non-compliance and bring Iran back into compliance with its nuclear commitments. This was the so-called “snapback” sanction.

Even as originally conceived, this enforcement mechanism was flawed93 because there would likely be significant disagreements between the United States, European states, and members of the U.N. Security Council on the evidence, the seriousness of infractions, the appropriate level of response, and likely Iranian retaliation. In addition to this diplomatic hurdle, the snapback sanction mechanism was economically flawed because it took years to persuade international companies to exit Iran after they had invested billions of dollars; once companies re-enter the Iranian market, it will be difficult to get them to leave again. Just yesterday, Foreign Minister Mohammad Zarif noted that the “swarming of businesses to Iran” is a barrier to the re-imposition of sanctions, and once the sanctions architecture is dismantled, “it will be impossible to reconstruct it.” Zarif boasted that Iran can restart its nuclear activities faster than the United States can re-impose sanctions. 94 Furthermore, sanctions impacted reputational and legal risk calculations of private companies evaluating potential business deals with an Iranian government, economy, and entities that had consistently engaged in deceptive and other illicit conduct. The question of risk and the integrity of Iran’s economy and financial dealings cannot be turned on and off quickly. The snapback sanction in the JCPOA also has an additional economic delay because it grandfathers in existing deals, providing an incentive for companies to move as quickly as possible to sign major longterm so that any existing contacts will not be subject to snapback sanctions.

The JCPOA further undermines the snapback sanction—the United States’ only peaceful enforcement mechanism—through the dispute resolution mechanism, which is governed by a Joint Commission compromised of the United States, EU, France, U.K., Germany, China, Russia and Iran. The mechanism creates a 60-plus day delay between the time that the United States (or another P5+1 member) announces that a violation has occurred and the time that United Nations sanctions are re-imposed.95 For more detail on the challenges of the “snapback” sanction, see “The ‘Snapback’ Sanction as a Response to Iranian Non-Compliance,” Iran Task Force, January 2015. (http://taskforceoniran.org/pdf/Snapback_Memo.pdf) “Foreign Investments in Iran to Serve as Barrier for Sanctions Snapback – FM,” Voice of the Islamic Republic of Iran, Radio Farhang (in Persian), July 21, 2015. (Accessed via BBC Worldwide Monitoring) “Joint Comprehensive Plan of Action,” Vienna, July 14, 2015, paragraphs 36-37.

(http://eeas.europa.eu/statements-eeas/docs/iran_agreement/iran_joint-comprehensive-plan-of-action_en.pdf) Foundation for Defense of Democracies www.defenddemocracy.org Mark Dubowitz July 23, 2015 If the United States believes that Iran has violated the deal, Washington will refer Iran to the Joint Commission, which consists of the P5+1, Iran, and an EU representative. If the issue cannot be resolved by consensus within the Joint Commission, after a process of 35 days, the United States can then unilaterally refer the issue to the U.N. Security Council. The Security Council must then pass a resolution (which the United States can veto) to continue the current sanctions relief. If that resolution is not passed within another 30 days, the previous U.N.

sanctions will be re-imposed. The “snap” in “snapback” therefore takes more than two months.

The mechanism also does not provide for any unilateral re-imposition of sanctions, nor does the U.N. Security Council resolution, Resolution 2231, which the Obama Administration pushed forward to a vote despite congressional requests to delay until after Congress had thoroughly reviewed the deal.96 Furthermore, the resolution states that the snapback mechanism is for issues of “significant non-performance,” implying that it would not likely be used for incidents of incremental cheating. The Iranian regime cheats incrementally, not egregiously, even though the sum total of its incremental cheating is egregious. The snapback provision incentivizes Iran to continue this behavior because there is no enforcement mechanism to punish incremental cheating.

More importantly, JCPOA has armed Iran with its own nuclear “snapbacks” against attempts to re-impose U.N. sanctions in respond to Iranian nuclear violations. The JCPOA explicitly states, “Iran has stated that if sanctions are reinstated in whole or in part, Iran will treat that as grounds to cease performing its commitments under this JCPOA in whole or in part.”97

This nuclear snapback also is included in text relating to both EU and U.S. economic snapbacks:

“The EU will refrain from re-introducing or re-imposing the sanctions that it has terminated implementing under this JCPOA without prejudice to the dispute resolution mechanism provided for under this JCPOA. There will be no new nuclear-related UN Security Council sanctions and no new EU nuclear-related sanctions or restrictive measures.”98

In addition:

“The U.S. Administration, acting consistent with the respective roles of the President and the Congress, will refrain from re-introducing or re-imposing the sanctions specified in Annex II that it has ceased applying under this JCPOA, without prejudice to the dispute resolution process provided for under this JCPOA… [and] will refrain from imposing Steny Hoyer, Press Release, “Hoyer: U.N. Security Council Vote Should Wait for Congressional Review Period,” July 17, 2015. (http://www.democraticwhip.gov/content/hoyer-un-security-council-vote-should-wait-congressionalreview-period); House Committee on Foreign Affairs, Press Release, “Chairman Royce, McCaul to President on Iran Deal: UN Security Council Should Wait Until Congressional Review is Complete,” July 16, 2015.

(http://foreignaffairs.house.gov/press-release/chairmen-royce-mccaul-president-iran-deal-un-security-councilshould-wait-until); “Congress Leaders Ask White House To Delay UN Vote on Iran Deal,” JTA, July 17, 2015.

(http://forward.com/news/breaking-news/312210/congress-leaders-ask-white-house-to-delay-un-vote-on-iran-deal/) “Joint Comprehensive Plan of Action,” Vienna, July 14, 2015, paragraph 37. (http://eeas.europa.eu/statementseeas/docs/iran_agreement/iran_joint-comprehensive-plan-of-action_en.pdf) Ibid, paragraph 26.

Foundation for Defense of Democracies www.defenddemocracy.org Mark Dubowitz July 23, 2015 new nuclear-related sanctions. Iran has stated that it will treat such a re-introduction or re-imposition of the sanctions specified in Annex II, or such an imposition of new nuclear-related sanctions, as grounds to cease preforming its commitments under this JCPOA in whole or in part.”99 (emphasis added) Finally, the JPCOA contains an explicit requirement for the EU and the United States to do

nothing to interfere with the normalization of trade and economic relations with Iran:

“The EU and its Member States and the United States, consistent with their respective laws, will refrain from any policy specifically intended to directly and adversely affect the normalization of trade and economic relations with Iran inconsistent with their commitments not to undermine the successful implementation of this JCPOA.”100 (emphasis added) Iran can use these provisions to argue that any re-imposition of sanctions, even if implemented on non-nuclear grounds “adversely affects the normalization of trade and economic relations” and will challenge attempts by the EU or United States to re-instate sanctions on non-nuclear grounds. Iran will threaten to simply walk away from the deal and expand its nuclear program.

Even while incrementally cheating on its commitments, Iran could force the United States and Europe to choose between not strictly enforcing the agreement and abrogating the whole agreement. Given the normal political and diplomatic environment, which encourages parties not to undermine existing agreements, it is highly likely that that the United States and Europe would choose not to address incremental cheating. Iran is likely to get away with small- and mediumsized violations, since both the United States and Europe are heavily invested in this deal and would only abrogate it for a major violation. The JCPOA’s language also provides Iran with an opening to insist that other non-nuclear sanctions measures, including Iran’s inclusion on the state sponsor of terrorism list, hinders trade and therefore should be terminated.



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