25 March 2010

The Iranian nuclear crisis is still on the agenda and again we find ourselves in a position in which the Western bloc is seeking to apply another round of sanctions in order to curb Iran’s nuclear ambitions. Following that aim, in February of this year U.S. Secretary of State Hillary Clinton and Secretary of Defense Robert Gates traveled to the Persian Gulf region for persuasion tours. But while the Obama administration is trying to win a new round of UNSC sanctions, the United States Government Accountability Office’s (GAO) March 2010 report raised the question about the effectiveness of the sanctions regime being applied to Iran to date.

The U.S. has been applying systematic sanctions against Iran more than a decade. Both the sanctions on the oil and gas sectors and the sanctions on transferring sensitive technology to Iran aim to contain the Iranian regime. Furthermore, we also have the last three sets of UNSC resolutions which banned trade with Iran in all items, materials, equipment, goods and technology that could contribute to the country’s enrichment-related, reprocessing or heavy water-related activities, or to the development of nuclear-weapon delivery systems. The UNSC resolutions also imposed a ban on arms sales, expanded the freeze on assets, and applied sanctions such as the inspection of cargo suspected of carrying prohibited goods, the tighter monitoring of financial institutions and the extension of travel bans and asset freezes, over its nuclear program.[1]

Besides, the current U.S.-led push for tougher sanctions on Iran over its nuclear program intensified last week with the circulation of a draft UN Security Council resolution to Russia and China. Although there is still no concrete data about the content of the draft, the leaked details indicate that sanctions would target the Iranian Revolution Guard Corps (IRGC) and would widen the scope of existing penalties against Iran’s shipping, banking and insurance sectors. The thinking behind the US’ strategy is "Iran is moving toward a military dictatorship,” and dual use technologies, such as nuclear technology, should not be in the hands of such a regime.
Besides the sanctions applied through UNSC resolutions, there are also several legal tools unilaterally used by the U.S. for sanctioning foreign companies that transfer sensitive technology to Iran:


1. Executive Orders 13382[2] , 12938[3] , and 13094[4] : These orders establish criteria for the application of sanctions on foreign firms that provide sensitive technologies to Iran.

2. Iran, North Korea, and Syria Non-proliferation Act[5] : This act allows the President to sanction foreign persons who transferred sensitive goods, services, or technology to Iran after a certain date. Those sanctions could be applied to foreign persons with respect to whom there is credible evidence that such persons have, on or after January 1, 1999, transferred goods, services, or technology listed in specified multilateral export control lists to Iran.

3. Iran-Iraq Arms Non-proliferation Act of 1992[6] : This act requires the President to sanction persons who, by transferring or retransferring goods or technology, "knowingly and materially” contribute to Iran’s efforts to acquire chemical, biological, or nuclear weapons, or destabilizing numbers and types of advanced conventional weapons. Mandatory sanctions under the act include: a ban on U.S. government procurement from sanctioned persons and a ban on licenses for export to or by the foreign person.

4. Iran Sanctions Act[7] : This act allows the President to sanction persons who provide Iran with goods, technology, or services if they know that doing so would contribute materially to Iran’s ability to acquire or develop chemical, biological, or nuclear weapons /related technologies or destabilizing numbers and types of advanced conventional weapons.

5. Nuclear Proliferation Prevention Act of 1994[8] : This act directs the President, with exceptions, to sanction persons if the President determines in writing that such persons have "materially and with requisite knowledge” contributed, through the transfer of certain specified goods or technology to the efforts of any individual, group, or non-nuclear-weapon state to acquire unsafeguarded special nuclear material or to use, develop, produce, stockpile, or otherwise acquire any nuclear explosive device.

6. Arms Export Control Act: Portions of Arms Export Control Act (AECA) require the President to sanction foreign persons that the President has determined to have provided to certain countries missile equipment or technology or contributed to certain countries’ acquisition of chemical or biological weapons.

7. Export Administration Act: Portions of this act require the President to sanction foreign persons that are determined to have provided to certain countries missile equipment or technology or contributed to certain countries’ acquisition of chemical or biological weapons.

Those listed bans are administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury, which is also responsible for licensing financial transactions with Iran and imports from Iran. Under the ban, the U.S. has banned the export of most U.S. goods to Iran without an export license from the Department of the Treasury. And the U.S. Treasury usually rejects most license applications to Iran with the exception of agricultural and medical goods. In addition to restricting direct exports, the U.S. has also generally prohibited U.S. firms from knowingly shipping goods to Iran through other nations without a Treasury license. And an American citizen must obtain a Treasury license before exporting or selling goods to Iran[9] .

But in spite of all those efforts it has been identified that Iran obtains a wide range of U.S. military and dual-use items through illegal transshipments. In 2008, it was reported in the U.S. media that U.S. firms had exported a wide range of restricted goods to Iran, including military rifles. Those items are illegally transshipped to Iran through the United Arab Emirates (UAE), Malaysia, Singapore, and other countries, according to U.S. officials. The Justice Department has prosecuted several individuals for efforts to transship military aircraft parts to Iran[10] . The GAO Report said that as the Treasury administers the U.S. sanctions program on Iran, its inability to provide complete and timely information on export licenses undermines the U.S. government’s ability to assess compliance with the sanctions.



As it is mentioned in GAO Report’s conclusion:
"While the United States government has severely restricted U.S. exports to Iran, it cannot readily determine the extent to which it has issued licenses for such exports or the extent to which goods marked for Iran are leaving U.S. ports. U.S. agencies should have complete, reliable, and timely information concerning these matters to ensure the U.S. government is implementing the ban on exports to Iran. While covert transshipments of U.S. goods through third-party countries are inherently difficult to detect, erroneous reports of overt shipments of U.S. goods to Iran have prompted concerns that the United States is not abiding by its own export ban. The Census Bureau has taken some steps to detect and correct errors in its latest statistics, but the Treasury Department has yet to take action to ensure that it can retrieve complete and timely data on which exports to Iran it has licensed and which it has not.”


For years, the U.S. has been forcing other countries to support its efforts to contain the Iranian regime and squeeze its economy in order to rein in Iran’s nuclear ambitions. But the recent GAO Report and a New York Times (NYT) analysis of federal records and other documents show that both the Bush and Obama administrations were not successful in reducing foreign business ties with Iran. This reality is also valid for U.S. companies who have investments directly or indirectly in Iran. The interesting part of the NYT analysis is the revelation of data showing that 74 corporations have done business both in Iran and with the U.S. government over the last decade. And the most noteworthy part of the analysis is that the U.S. government awarded more than 107 billion USD in contract payments and grants to those foreign and multinational American companies while they were doing business in Iran[11] . This analysis indicates that more than two-thirds of the money went to companies doing business in Iran’s energy sector, which is known as a huge source of Iranian government and also IRGC. But in the same analysis it is mentioned that many companies have pulled out or put their activities on hold since 2007. It is important to underline that 49 of 74 companies continue to do business in Iran with no announced plans to leave.

One of the U.S. government’s most effective tools to influence other companies’ behavior is the ILSA Act, which was devised to punish companies that invest more than 20 million USD in Iran’s oil and gas sector. But during the 14 years since the Act was passed, this law has never been enforced. Shell, ENI, Daelim, Petrobras, Pepsol, Statoil, Total are among the companies who have ignored the ILSA and, in spite of receiving grants and benefits from the U.S. government, also have investments in Iran.

Even if some companies based in the U.S. are not bridging the sanctions directly, they are doing so through their foreign subsidiaries run independently by non-Americans. Honeywell and Ingersoll Rand are among those companies.


Consequently, it can be said that coercive measures such as sanctions have not been effective in containing the Iranian regime as they were intended to do, nor have they curbed the regime’s ambitions to continue its nuclear activities to date. In direct contradiction to their expected effect, these coercive efforts spurred Iran’s motivations. Moreover, it has been witnessed that during those years both U.S. and non-U.S. companies have skirted the sanctions and invested in almost all sectors of the Iranian market. Currently it seems that only the gasoline embargo could be considered a crippling sanction for Iran case, because Iran imports approximately 35% of the gasoline it consumes. But again it is unclear whether this embargo will work, and other forms of sanctions have proven ineffective in reining in Iran’s nuclear ambitions. So when we take into consideration the existing picture, including GAO reports, analysis, and Iran’s current position both regarding its nuclear program and other issues, it is worth asking whether further sanctions is the best solution. Isn’t there still time to find some other effective ways to deal with the Iranian issue? The Obama administration promised dialogue with Iran, but somehow this process has turned out to be the same as during the Bush administration. It is true that President Obama extended handed to Iran several times, but we have to ask whether those attempts were enough. Nobody claimed that initiating a dialogue and normalization process would be easy. Everybody knew that this long lasting enmity could not be overcome in a few months and that the iceberg between the two countries could not be removed immediately. President Obama’s difficult position is understandable, but a U-turn to President Bush’s Iran policy and use the same ineffective tools is not the solution in this case.


[1] See: S.C. Res. 1737, U.N.Doc. S/RES/1737 (Dec. 27, 2006), S.C. Res. 1747, U.N. Doc. S/RES/1747 (Mar. 24, 2007), and S.C. Res. 1803, U.N. Doc. S/RES/1803 (Mar. 3, 2008).
[2] Executive Order No. 13,382, 70 Fed. Reg. 38,567 (June 28, 2005).
[3] Executive Order No. 12,938, 59 Fed. Reg. 58,099 (Nov. 14, 1994).
[4] Executive Order No. 13,094, 63 Fed. Reg. 40,803 (July 28, 1998).
[5] Iran Nonproliferation Act of 2000; Restriction on Extraordinary Payments in Connection with the International Space Station, Pub. L. No. 106-178, 114 Stat. 38 (Mar. 14, 2000); Syria and North Korea added to this act by further amendments.
[6] Pub. L. No. 102-484, Title XVI, 106 Stat. 2315, 2571-75 (1992).
[7] Iran-Libya Sanctions Act of 1996, Pub. L. No. 104-172, 110 Stat. 1541 , Proliferation-related sanctionable activities were added to the law in 2006.
[8] Nuclear Proliferation Prevention Act, Pub. L. No. 103-236, Stat. 382, 507-525 (1994),
[9] United States Government Accountability Office, ’Iran Sanctions’, Report to Congressional Requesters, March 2010
[10] Ibid
[11] Jo Becker – Ron Nixon, ’US Enriches Companies Defying Its Policy on Iran’, The New York Times, 6 March 2010