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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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This JCPOA is flawed in its design; it contains no peaceful, effective means to enforce the deal and explicitly provides Iran with an opening for a nuclear snapback that it can use to characterize itself as the aggrieved party if the EU or U.S. re-imposes sanctions. This nuclear snapback could be particularly effective against the Europeans, who will be loathe to do anything that leads to Iranian nuclear escalation, and on whose support the United States needs on the Joint Committee, at the U.N. Security Council, in a coordinated transatlantic snapback scenario of EU and U.S.

sanctions, or, at a minimum, to comply with U.S. secondary sanctions. To neutralize the effectiveness of economic snapbacks, Iran could target Europe as the weakest link through threats of nuclear escalation or through inducements of substantial investment and commercial opportunities.


Congress should require the administration to renegotiate certain terms of the proposed JCPOA and resubmit the amended agreement for congressional approval. It is not Ibid.

Ibid, paragraph 29.

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unprecedented that Congress and the administration should work together to renegotiate the terms of a treaty or non-binding agreement. Congress can use this precedent to encourage the strengthening of the deal on its technical and conceptual merits. Specifically, Congress can ensure that the sanctions architecture is not precipitous unraveled. This defense of the sanctions architecture will provide peaceful economic leverage to enforce a better deal.

Tie Sanctions Relief to Demonstrable Changes in Iranian Conduct

Since sanctions snapbacks are a flawed mechanism, the lifting of sanctions should be tied to changes in Iran’s conduct that prompted the sanctions in the first place. The provision of sanctions relief should only occur after Iran meets specific, verifiable nuclear and illicit finance benchmarks.

Congress should require that the Obama Administration renegotiate the terms of the sanctions relief. The administration and Congress should work together to create a more effective sanctions relief program that deters and punishes Iranian non-compliance and supports the monitoring, verification, and inspection regime. The United States should also make it clear to Iran that Washington will continue to impose sanctions and target Iran’s support for terrorism and its abuse of human rights, and particularly the dangerous role played by the IRGC across a range of illicit activities.

The following recommendations outline how Congress can defend the conduct-based sanctions architecture. These recommendations are aimed at providing a more effective mechanism for sanctions relief under an amended JCPOA.

1. Develop a rehabilitation program for designated Iranian banks that puts the onus on Tehran to demonstrate that the banks are no longer engaged in illicit financial conduct.

While U.S. financial sanctions are implemented and enforced by the Treasury Department, Congress can play a crucial role by legislating the terms of a rehabilitation program for designated Iranian banks and by laying out specific benchmarks that must be met prior to the suspension of financial sanctions.

Congress should require that Treasury submit a financial sanctions rehabilitation program plan that includes specific benchmarks that institutions must meet before Treasury suspends or terminates key designations. The rehabilitation program should focus on industry standards of financial integrity. Congress should also require Treasury to include a certification, subject to periodic reviews, that will be published in the Federal Register prior to de-designation.

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2. Work with the Obama Administration on licenses to foreign financial institutions and foreign companies engaging in business transactions with Iran.

Given the significant presence of the IRGC in key strategic sectors of Iran’s economy, 101 including the financial sector, it will very difficult for foreign financial institutions to confirm that their counterparts on any transaction are not connected to the IRGC. Only those institutions with the strictest compliance procedures may be able to differentiate between upstanding Iranian corporations and corrupt firms. Western banks, especially those that have previously run afoul of U.S. sanctions, may be hesitant to re-enter the Iranian financial market and reportedly only considering financing non-Iranian firms working in Iran.102 The United States can incentivize the implementation of strict due diligence and “know your customer” procedures by granting special licenses to companies to operate in Iran, but only for transactions not connected to the IRGC and not in support of terrorism, ballistic missile development, and human rights abuses. Even those foreign financial institutions will face significant risks from IRGC, ballistic missile, terrorism, and human rights sanctions; from lawyers seeking to collect on tens of billions of dollars in judgments on behalf of victims of Iranian terrorism; and from the reputational damage from association with repressive and dangerous regime elements. Buyer and seller beware will likely still be the operating principle for heads of global compliance of these banks long after a nuclear deal is concluded.

3. Legislate criteria for the suspension of sanctions on the Central Bank of Iran and the lifting of the Section 311 finding.

The suspension of sanctions against the Central Bank of Iran, even more than the de-designation of individual Iranian banks, will provide significant relief to Iran and should therefore also be tied to verifiable changes in Iranian behavior. Lawmakers could require the president to certify to Congress, prior to suspending sanctions against the CBI and prior to the lifting of the Section 311 finding, that Iran is no longer a “jurisdiction of primary money laundering concern” and that the CBI, as the central pillar of Iran’s illicit financial activities, is no longer engaged in “support for terrorism,” “pursuit of weapons of mass destruction,” including the development of ballistic missiles, or any “illicit and deceptive financial activities.” Congress should stipulate that Treasury must certify that the entire country’s financial system no longer poses “illicit finance risks for the global financial system.” Congress should consider enshrining the Section 311 finding in legislation and making the lifting of the 311 subject to specific termination criteria relating to Iranian illicit conduct.

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); Ali Alfoneh, “Sanctions Relief and the IRGC,” FDD Policy Brief, June 4, 2015. (http://www.defenddemocracy.org/media-hit/alialfoneh-sanctions-relief-and-the-irgc/) Martin Arnold, Simond Kerr, & Ben McLannahan, “Post-Deal Iran an Opportunity but Legal Minefield Too,” Financial Times, July 19, 2015. (http://www.ft.com/intl/cms/s/0/dc76399e-2aff-11e5-8613e7aedbb7bdb7.html#axzz3gTRC6LZP)

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4. Legislate under what circumstances funds in escrow accounts can be released.

An estimated $100 billion in Iranian oil revenues have accumulated in semi-restricted escrow accounts and can only be spent on non-sanctionable goods in the countries where they are accumulating or on humanitarian goods from a third country. Between January 2014 and June 30, 2015, under the JPOA, Iran received $11.9 billion in installments from these escrow accounts.103 Instead of allowing the repatriation of the funds to Iran, Congress should amend the Iran Threat Reduction Act (ITRA) to create a mechanism for the release of specific amounts in installments if Iran is complying with its commitments. However, these funds should not be repatriated to Iran and be moved to escrow accounts where Iran can spend them on nonsanctionable European goods and where they can be more easily recaptured in a snapback scenario (European banks are more likely to comply than Chinese banks, for example). None of these escrowed oil funds should be repatriated back to Iran until Treasury certifies that Iran is no longer a “primary money laundering concern” and a state sponsor of terrorism and Congress approves this certification.

5. Enforce and expand designations of IRGC-affiliated entities.

Even an amended JCPOA will not address Iran’s support for terrorism, threatening and destabilizing behavior towards its neighbors, and systematic human rights abuses. As such, Congress should require presidential certifications that no sanctions relief will go to the IRGC or IRGC-affiliated entities.

Congress could clarify that it expects that no sanctions on IRGC-linked entities, whether based on nuclear, ballistic missile, or terrorism activities, will be lifted against any entity or financial institution until the president certifies that Iran is no longer a state sponsor of terrorism and the IRGC no longer meets the criteria as a designated entity under U.S. law. Congress should go further and designate the IRGC in its entirety under Executive Order 13224 for its role in directing and supporting international terrorism (it is currently only designated under Executive Order 13382 for proliferation purposes; the Quds Force is designated under EO 13224).

6. Enforce and expand IRGC, terrorism- and human rights-related designations.

Iran’s continued support for global terrorism requires that U.S. terrorism sanctions be maintained and expanded. Iran’s human rights record has, by numerous expert accounts, deteriorated under President Hassan Rouhani. 104 Congress should work with the Obama Administration to enhance terrorism sanctions, particularly focused on the IRGC and Quds Force and its various officials, entities, and instrumentalities. Congress should work with the Obama Administration to Department of the Treasury, “Frequently Asked Questions Relating to the Extension of Temporary Sanctions Relief through June 30, 2015, to Implement the Joint Plan of Action between the P5 + 1 and the Islamic Republic of Iran,” November 25, 2014, pages 5-6, (http://www.treasury.gov/resourcecenter/sanctions/Programs/Documents/jpoa_ext_faq_11252014.pdf) “Iranian Nobel Laureate: Human Rights As Bad As Under Ahmadinejad,” Associated Press, November 12, 2014.

(http://english.alarabiya.net/en/perspective/features/2014/11/12/Iranian-Nobel-laureate-Human-rights-as-bad-asunder-Ahmadinejad.html); Sangwon Yoon, “Iran Leader Fails to Deliver on Rights Promises, UN Says,” Bloomberg, October 27, 2014. (http://www.bloomberg.com/news/2014-10-27/iran-leader-fails-to-deliver-on-rightspromises-un-says.html) Foundation for Defense of Democracies www.defenddemocracy.org Mark Dubowitz July 23, 2015 significantly expand U.S. human rights sanctions against any and all Iranian officials, entities, and instrumentalities engaged in human rights abuses. The penalties for both of these sanctions should go beyond travel bans and asset freezes and target the sectors, entities, and instrumentalities that provide revenues to fund Iranian terrorism activities and/or human rights abuses.


As a result of the sunset of restrictions on Iran’s nuclear program and ballistic missile program and the access to heavy weaponry, Iran over time will be permitted not only to maintain its current nuclear capacity, but also to develop it further to an industrial-size nuclear program with a near-zero breakout time, an easier-to-hide and more efficient advanced-centrifuge-powered clandestine sneak-out pathway, and multiple heavy water reactors. Iran will be able to buy and sell heavy weaponry with the expiration of the arms embargo, bolstering IRGC military capabilities, and arming the most destabilizing and dangerous regimes and terrorism organizations. Iran will also be able to access key technologies to further develop its long-range ballistic missile program, including for the building of an ICBM that threatens the United States.

At the same time, the JCPOA dismantles much of the international sanctions architecture, while abandoning the core principles of the conduct-based sanctions regime that the Obama and George W. Bush administrations had built up for more than a decade. The unraveling of the U.S.

and EU sanctions regimes leaves Iran as a growing economy increasingly immunized against future economic sanctions snapbacks. It provides Iran with $150 billion in early sanctions relief and hundreds of billions of dollars in future relief with which the leading state of terrorism can continue to fund its dangerous activities. Of great concern, the JCPOA provides Iran with a “nuclear snapback” to intimidate Europe, the United States, and other countries, to refrain from using sanctions as an effective mechanism to enforce the nuclear agreement and to target the full range of its illicit conduct including its support for terrorism.

The JCPOA is a fundamentally flawed deal in its inherent design. Rather than block Iran’s pathways to a nuclear bomb, it provides a new path, the “patient path.” Congress should require the Obama Administration to renegotiate and fix the major flaws of the agreement and resubmit an amended JCPOA to Congress for review. Simultaneously, Congress should defend the economic sanctions architecture it helped create and tie all future sanctions relief to verifiable changes in Iranian conduct that prompted the sanctions in the first place.

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