Sanctioning Iran: Anatomy of a Failed Policy

SANCTIONING IRAN: Anatomy of a Failed Policy

Hossein Alikhani

I.B.Tauris Publishers

Sanctioning Iran

To Jila, for being there and keeping me sane

SANCTIONING IRAN Anatomy of a Failed Policy

Hossein Alikhani

I.B.Tauris Publishers LONDON • NEW YORK

Published in 2000 by I.B.Tauris & Co Ltd Victoria House, Bloomsbury Square, London WC1B 4DZ 175 Fifth Avenue, New York NY 10010 Website: http://www.ibtauris.com

In the United States and Canada distributed by St Martin’s Press 175 Fifth Avenue, New York NY 10010

Copyright © Hossein Alikhani, 2000

All rights reserved. Except for brief quotations in a review, this book, or any part thereof, may not be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the publisher.

ISBN 1 86064 626 3

A full CIP record for this book is available from the British Library A full CIP record for this book is available from the Library of Congress

Library of Congress catalog card: available

Typeset in Stone by Dexter Haven, London Printed and bound in Great Britain

CONTENTS Preface and Acknowledgements 1

THE SEEDS OF DISTRUST: THE HISTORICAL BACKGROUND

2

SANCTIONS: AN INTEGRAL PART OF US FOREIGN POLICY

3

1

Definition The History of Sanctions, Pre-1945 The History of Sanctions, Post-1945 The US Rationale for Sanctions Sources of Authority for US Unilateral Economic Sanctions The Trading With the Enemy Act The Export Administration Act – The EAA in the 1990s The International Emergency Economic Powers Act Limitations of Presidential Power – The Power to Vest Foreign Property – The Power to Regulate Purely Domestic Transactions

23 23 25 27 30 32 33 37 48 53 54 54 55

DOCUMENT 1: THE TYPOLOGY OF NON-VIOLENT SANCTIONS

57

DOCUMENT 2: THE INTERNATIONAL EMERGENCY ECONOMIC POWERS ACT

59

SANCTIONS: A RATIONAL RESPONSE TO THE HOSTAGE-TAKING

The United States’ Allies and Sanctions The Approach to the United Nations New Unilateral Measures – The Sanctions in Detail: Blocking the Assets – The Sanctions in Detail: Trade Embargo 4

ix

RESOLUTION OF THE HOSTAGE CRISIS

The Hostage Settlement Agreement – The General Declaration – The Settlement Declaration – Supplementary Agreements The End of the Crisis Implementation of the Hostage Agreements Regulations for Implementing the Hostage Agreements US Courts and the Hostage Agreements – Dames & Moore v Regan DOCUMENT 3: THE ALGIERS DECLARATION

66 71 72 77 83 86 90 93 93 94 94 95 96 101 103 106 108

5

DOCUMENT 4: DAMES & MOORE V REGAN

131

SANCTIONS: THE NEXT STAGE

154 158 160 166

Iranian Transactions Regulations Foreign Policy Export Controls Dual Containment: A New Policy

6

7

DOCUMENT 5: THE IRAN-IRAQ NON-PROLIFERATION ACT OF 1992

171

NEW SANCTIONS: THE EFFECT OF LOBBYING

D’Amato Demands More Sanctions New Sanctions Iranian Transactions Regulations – General Definitions – The Importation of Goods and Services from Iran – The Exportation of Goods and Services to Iran – Re-export to Iran – Banking Services – Other Prohibited Transactions A Customized Executive Order The United States Eases Sanctions Counternarcotics US Food and Medicine

177 186 192 195 196 197 198 199 200 201 203 207 207 207

DOCUMENT 6: THE IRANIAN TRANSACTIONS REGULATIONS

210

DOCUMENT 7: EXECUTIVE ORDER 13059 OF 19 AUGUST 1997 PROHIBITING CERTAIN TRANSACTIONS WITH RESPECT TO IRAN

246

DOCUMENT 8: AMENDMENT TO THE IRANIAN TRANSACTIONS REGULATIONS (31 MARCH 1999)

251

DOCUMENT 9: AMENDMENT TO THE IRANIAN TRANSACTIONS REGULATIONS (26 JULY 1999)

275

DOCUMENT 10: AMENDMENT TO THE IRANIAN TRANSACTIONS REGULATIONS (27 OCTOBER 1999)

284

THE SANCTIONS TIGHTEN FURTHER

The Iran Foreign Oil Sanctions Act of 1995 The New Iran Oil Sanctions Act of 1995 The Iran Oil Sanctions Act of 1996 (House of Representatives Version) Reaction to the Bill in the United States The Final House Version of the Bill 8

A BILL TO HAUNT A PRESIDENT

Iran in the ILSA Europe Stands Firm The Reaction of US Allies to the Act

288 289 297 299 301 307 309 314 320 322

The European Union Blocks the ILSA Total Ignores the ILSA The United States Yields to European Pressure Congress Strikes Back Russian Companies Targeted by Sanctions Iran, A Religious Rights Offender New Sanctions Welcome Changes in Iran

9

326 328 330 331 334 334 335

DOCUMENT 11: THE IRAN AND LIBYA SANCTIONS ACT OF 1996

336

DOCUMENT 12: EUROPEAN UNION COUNCIL BLOCKING REGULATION

350

EXTRATERRITORIALITY AND THE IRAN AND LIBYA SANCTIONS ACT

360 361 363 363 365 366 366 367 368 371 372 373 374 375 375 379 381 384 386 388 389 390 390 390 391 393 394 394

Jurisdiction – Bases of Jurisdiction – The Territorial Principle – The Protective Principle – The Nationality Principle – The Passive Personality Principle – The Universal Principle – The Extension of the Bases of Extraterritorial Jurisdiction The Enforcement of Extraterritoriality in the Economic Sphere US Extraterritoriality under the EAA – Re-export Control – The Control of Foreign Products – Export by a US Person – The Pipeline Controversy – The Jurisdictional Reach of Export Controls US Extraterritoriality Under the IEEPA The Cuban Democracy Act The Cuban Liberty and Democratic Solidarity Act of 1996 The Legitimacy of the ILSA – The Territorial Principle – The Protective Principle – The Nationality Principle – The Universal Principle – The Reasonableness Principle Economic Coercion and UN Resolutions The United Nations Rejects Extraterritorial Sanctions Conclusion

10

IRAN SANCTIONS: A POLICY DEFYING LOGIC

The Scope and Extent of Iran Sanctions – The International Emergency Economic Powers Act (IEEPA), as Amended – The Iran and Libya Sanctions Act (ILSA) of 1996 – The Iran-Iraq Arms Non-proliferation Act of 1992, as Amended – The Omnibus Consolidated and Emergency Supplemental Appropriations Act of 1999 – The Foreign Operations Export Financing, and Related Programs Appropriations Act of 1998 – The Foreign Assistance Act of 1961, as Amended – The International Security and Development Cooperations Act (ISDCA) of 1985 – The Antiterrorism and Effective Death Penalty Act of 1996 – The Internal Revenue Code – The Department of Defence Appropriations Act of 1987 – The National Defence Authorization Act – The Spoils of War Act – The Arms Export Control Act (AECA), as Amended – The Export Administration Act (EAA), as Amended – The Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 – The National Defence Authorization Act for 1990–91, as Amended – The Foreign Relation Authorizations Act for 1994 and 1995, as Amended – The Export-Import Bank Act, as Amended – The International Religious Freedom Act of 1998, as Amended Why the Sanctions? – Iran’s Support for International Terrorism – Iran’s Opposition to the Arab-Israeli Peace Process – Iran and the Development of Weapons of Mass Destruction US Sanctions: Prospects for the Future BIBLIOGRAPHY INDEX

397 397 398 398 398 398 399 399 399 399 399 400 400 400 400 400 400 401 401 401 401 402 402 405 406 408 414 424

PREFACE AND ACKNOWLEDGEMENTS

One of the most controversial issues of the past decade has been the role of economic sanctions in US foreign policy. Since the time of the Jefferson administration economic sanctions have been an integral part of US foreign policy. But it is the new pattern of practice which began to emerge during the Clinton administration that has made the subject controversial. For the past 20 years, successive US administrations have tried to isolate Iran diplomatically, militarily and economically, relying on existing legislation to invoke sanctions against it. During the Clinton administration, the US Congress, influenced by domestic political interest groups connected to a foreign country, designated Iran the ‘enemy of the year’, accusing it of supporting international terrorism, undermining the Middle East peace process and seeking to obtain weapons of mass destruction. With new legislation, Congress forced Clinton to subject Iran to the most rigorous and unprecedented forms of sanction which conflicted with the interests of other nations and led to diplomatic rifts with the allies of the United States. Several characteristics of these measures make Iran an interesting case study of the use of unilateral economic sanctions. The purpose of this study is to explore US sanctions against Iran in depth, to examine their history and current status, as well as their political and economic impact, and the conditions under which they were imposed. Having completed this book, I realize that without the substantial assistance, advice and encouragement of many people it could not have materialised. I am particularly indebted to Bruce Zagaris and Hugh Turner for guiding me through the maize of sanctions, and Eric Wemple and his staff for their help in retrieving numerous congressional documents and unfolding the mysteries of US export controls. I would like to thank Sandy Killen and Janet McMahon, whose help was indispensable in acquiring the material for my research.

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I owe a special debt of gratitude to many Iranians, especially those involved in the events of 1979–81, who agreed to be interviewed but wished to remain anonymous. My appreciation goes to a number of colleagues and friends, especially Gerald Butt, who read various drafts of the book and offered valuable comments. My grateful appreciation goes to Anoushirvan Ehteshami for having read the last draft of the manuscript with a critical eye and made valuable suggestions. A number of his suggestions have been incorporated in the final draft. Finally, I want to thank Olga Messios and Marianna Christou for the patience and careful work in the production of the manuscript, and Jonathan McDonnell and other staff of I.B.Tauris, especially my editor Robert Hastings, for their extensive advice. Last, but not least, Jila, Helia, Borna and Dana, my family, deserve special thanks for their support, understanding and remarkable tolerance. While many people in Iran and the United States contributed information for this study, any inaccuracy or mistakes are my responsibility. Hossein Alikhani March 2000

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1 THE SEEDS OF DISTRUST: THE HISTORICAL BACKGROUND

L

ooking back at the twentieth century, the Iranian revolution remains one of the most significant and perhaps least understood social and political upheavals. Its consequences resonated throughout the diplomatic, business and financial worlds. The events of 1979 and their aftermath were particularly problematic in the United States. Gary Sick, former White House aide for Iran during the revolution, states in his seminal work, All Fall Down, that the United States has been permanently and irrevocably changed. ‘Not since the fall of Saigon had a series of foreign policy events so shaken the United States.’ 1 For the United States and for the international community as a whole the Islamic revolution – to quote one commentator – was ‘a completely unanticipated event that had transformed a dependable regional ally to a seemingly implacable foe’.2 The revolution surprised and shocked the world because up to that moment the Shah and the regime which he headed had seemed to be impregnable. In the end, an opposition ‘armed only with slogans and leaflets overthrew a ruler with formidable assets at his disposal’.3 The word most commonly encountered in Western writings to describe the Iranian revolution is ‘baffling’. And nowhere was it more baffling than among officials in the US diplomatic and political communities. Little

1 2 3

Gary Sick, All Fall Down: America’s Tragic Encounter with Iran, Penguin, 1986, p. viii. Eric Hooglund, ‘The United States and Iran, 1981–9’ in Anoushirvan Ehtesmami and Manshour Varasteh (eds), Iran and the International Community, p. 31. Shaul Bakhash, The Reign of the Ayatollahs: Iran and the Islamic Revolution, Basic Books, 1984, p. 9.

1

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more than a year before the revolution, President Carter referred to Iran as ‘an island of stability in one of the more troubled areas of the world’.4 As late as 15 November 1977, President Carter met with the late Shah, reaffirmed US support of his regime and characterized the situation in Iran as stable. The revolution shocked governments around the world because up to the moment it ignited, the Shah and his regime appeared unassailable. According to Sick, during the early years of the Carter administration ‘Iran appeared to be stable, the Shah seemed to be firmly in control, and the policy differences between Iran and the United States were regarded as relatively minor and manageable’.5 In the years since the revolution, there has been an attempt by a number of scholars and foreign policy analysts both inside and outside the United States to analyse the events and individuals involved. There are many interpretations of the causes of the Iranian revolution, and the conditions and circumstances in which it took place. The framework for analysis appears to have been shaped by the allegations of Iran’s post-revolutionary leadership that the United States was responsible for the spark which ignited the revolution. Prevailing scholarship focuses on establishing a cause and effect relationship between US foreign policy and the upheaval of 1979. Tacit in many of these examinations is the supposition that the United States had no choice but to intervene in Iranian affairs. These works preclude the inevitability of interaction between the United States and Iran, resulting from national pursuits of economic and political self-interest. Key to all of these interpretations is defining a role for the United States which adversely impacted upon the internal affairs of Iran and thus fomented revolution. Current scholarship covers the entire spectrum of opinions, which range from indicting US foreign policy as a sole or primary cause of the revolution to that which presents the United States as a benevolent victim nation. Perhaps better than any other author, Barry Rubin, in his work Paved with Good Intentions, identifies the central issues concerning US involvement when he states: ‘What exactly had the nation done to cause the current leaders of Iran to hold the United States in such utter contempt, to charge it with rank imperialism, and to lay at the doorstep of the White House all the sins of its own former monarch?’6 In answer to his own question, Rubin indicates that US foreign policy with regard to Iran ‘seemed in theory, if not in execution, directed toward 4 5 6

Address to the Iranian people, 31 December 1977, Tehran. Gary Sick, All Fall Down: America’s Tragic Encounter with Iran, Penguin, 1986, p. viii. Barry Rubin, Paved with Good Intentions: The American Experience and Iran, Oxford University Press, 1980, p. ix.

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reasonably attainable, rational goals but failed nonetheless because it did not take into account the currents of Iranian and Middle East politics’.7 Rubin states that a country’s behavior, as the Iranian crises so vividly demonstrates, is not merely a product of a rational pursuit of objective national interests. Rather, it is the result of the interaction of the collective historical experience of the nation with the individual life experiences of its citizens. The former creates a nation’s political course, the latter shapes its political consciousness.8

The US role in the revolution in this context would factor quite minimally in the revolutionary equation. It is not the purpose of this chapter to question or challenge prevailing scholarship, much less provide new interpretations. The purpose is to provide a limited analysis of the historical record on US-Iran relations in order to demonstrate that the seeds of distrust between Iran and the United States had already been planted long before November 1979, when the radical Muslim students seized the US embassy in Tehran and took the embassy staff hostage. The hostage episode became the turning-point in relations between the two countries, leading to US economic sanctions against Iran, the topic of this study. As Rubin points out, any relationship between two nations hinges upon an understanding of the history of each. This encompasses social as well as economic history. Viewed from a historical perspective, Iran presents a particularly interesting and complex diplomatic case study. Diplomatic relations between the United States and Persia (Iran) were not established and ratified until 1857, and until the late 1930s, contact between the two was minimal but cordial. Indeed, according to Rubin, ‘at the beginning of this century, few Persian officials had even heard of the United States’.9 However, this period is critical to understanding the ‘complex and controversial relationship between the United States and Iran’.10 Since the Second World War, and certainly since 1953, the United States was the Shah of Iran’s strongest supporter. Indeed, Iran, through the person of the Shah, actively sought the support and involvement of the United States. According to Kuross Samii, even as early as the late nineteenth century, Persian monarchs ‘sought to establish a friendship with the United States to counter the Anglo-Russian exploitation of Iran’.11 And 7 8 9 10

Ibid., p. x. Ibid. Ibid., p. 3. Yonah Alexander and Allan Nanes, The United States and Iran: A Documentary History, Publication of America, 1980, p. xi.

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incredibly, according to another expert on Iran, Richard Cottam, ‘somehow in a little more than one generation, American policy toward Iran had succeeded in replacing what was probably unreasonably strong good will toward the United States with unreasonably strong resentment’.12 Iran, in the nineteenth and early twentieth centuries, was undergoing tremendous cultural and political changes. According to Cottam, ‘traditional nineteenth-century Iran was pre-mass politics and pre-national’.13 It was, paraphrasing Cottam in Iran and the US, a traditional system which is, by definition, stable and resistant to change. During this same period, Britain and Russia played a significant role in the internal affairs of Iran. As Cottam has meticulously documented and diplomatically stated, these two great powers ‘by their actions and by their example induced forces that would challenge and ultimately overturn the traditional system’.14 According to Dr Mohsen Milani, ‘Iranian society had its own unique form of government, its own code of laws, its own system of Justice and its own social equilibrium. But Western penetration of Persia became a catalyst for the breakdown of the country’s social fabric.’ 15 Meanwhile, the United States was simultaneously moving towards a position of world prominence and leadership. Unlike the great European powers, the United States was not engaged in a massive colonization effort in third-world countries such as Iran. American contact with Iran was limited to that of Christian missionaries who provided Iranians with generally positive impressions of the United States. According to Rubin, ‘to Persian intellectuals, who were beginning to delve into Western political history and thought, America’s distance and disinterestedness were fascinating’.16 Noted Iranian scholar Kuross Samii indicated that ‘America’s anticolonial posture, coupled with the tendency of American presidents to express foreign policy through a universal set of principles, had sent a message of hope to subjugated peoples from around the world… The craving for hope on the one hand, and the nobility of expressed American ideals on the other, became the formidable force that carved the savior image of the United States.’ 17 It was against this backdrop that Iran began to perceive 11 Kuross A. Samii, Involvement by Invitation: American Strategies of Containment in Iran, Pennsylvania State University Press, 1987, p. 34. 12 Richard W. Cottam, Iran and the United States: A Cold War Case Study, University of Pittsburg Press, 1988, p. 3. 13 Ibid., p. 19 14 Ibid. 15 Mohsen M. Milani, The Making of Iran’s Islamic Revolution: from Monarchy to Islamic Republic, Westview Press, 1994, 2nd edition, p. 24. 16 Barry Rubin, Paved with Good Intentions: The American Experience and Iran, Oxford University Press, 1980, p. 4.

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the United States as a potential and benign friend and ally in balancing Russian and British interventions in Iran. It is critical to note that the nineteenth century witnessed the formative years of US-Iran diplomatic relations. Perceptions were formed and tacit understandings developed on both sides, based upon statements and documents which neither country formally articulated as policy or necessarily intended to communicate one to the other. These perceptions laid the cornerstone for all future communications, and in effect became unstated foreign policy. That said, there was a belief among both Americans and Persians, according to Rubin, ‘that indeed the United States with its growing power and yet with no national interest in Persia’s resources might come to play some special, beneficial role in rescuing Persia from its humiliating servitude and in restoring it to some semblance of its past glory’.18 As a result, although US relations with Iran did not substantively begin until the early 1940s, an understanding of US-Iran relations needs to encompass a time-frame dating from the late nineteenth century. The titles of two important works on US-Iran relations literally speak volumes about the early intent and purpose of each nation’s diplomatic goals: Kuross Samii’s Involvement by Invitation and Barry Rubin’s Paved with Good Intentions. As early as the late nineteenth century, Iran had begun to encourage involvement by the United States in the internal affairs of the country. The increasing missionary presence had led, in 1883, to the establishment of an American diplomatic mission in Tehran. Iran’s Foreign Ministry was also keenly aware of the need to involve third countries in its diplomatic and commercial activities. Throughout its long history, Iran had been subjected to outside intervention, which often required balancing the interests of competing nations as a method of containment. At the turn of the century, Britain and Russia were dual forces competing for influence over Iranian resources. Iran’s constitutional movement, which took seed in the 1820s, flourished under the rule of Mozaffar ad-Din Shah (1896–1907). It culminated in the 1906 Persian Constitution and the creation of the Majlis, a consultative assembly. Coinciding with these developments came a virtual collapse of the Persian economy. In 1911 and again in 1925, the Iranian government sought external financial expertise, which was provided by the US government. A forced dissolution of the Majlis, due to intervention by Russia, 17 Kuross A. Samii, Involvement by Invitation: American Strategies of Containment in Iran, Pennsylvania State University Press, 1987, pp. 32, 33. 18 Barry Rubin, Paved with Good Intentions: The American Experience and Iran, Oxford University Press, 1980, p. 4.

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once again caused internal social turmoil and resulted in a government easily manipulated by both Britain and Russia. In the early 1920s, a powerful military officer, Reza Khan, appeared as the major national figure. He promised to restore order to Persia, and eventually led an uprising deposing the ruling Ahmad Shah (last of the Qajar dynasty). Reza Khan adopted the name Pahlavi, the language of preIslamic Persia, and began a period of compulsory modernization which continued throughout his reign into the 1940s. The new Shah’s reforms included attempts as secularizing Iranian politics and laying the foundations of a modern economy and infrastructure. However, as Anne Lambton identifies, ‘the old structure of society was destroyed, but no new mechanism through which [Reza Shah] could undertake effective social action replaced it’.19 Force became the method to achieve political and economic ends. Reza Shah’s ascendancy also created a dichotomy for the supporters of the Persian Constitution. The programmes instituted by the Shah were those created by the architects of the Constitution. However, they were implemented in a despotic way which violated the spirit if not the intent of the Constitution. The Shah made many enemies in his despotic attempts to modernize and secularize Iran and, according to Milani, he ‘failed to institutionalize his support, a mistake his son was to repeat’.20 This failure included ‘Reza Khan’s underestimation of Islamic radicalism, [which] was particularly dramatic’.21 His reign over Iran lasted until 1941, and ushered in a modern age of mass politics, one for which the populace was unprepared. During his reign, according to Cottam, ‘the percentage of the population predisposed to participate in political life multiplied several times’.22 To his credit, ‘the economy, thanks to rapid development of the transportation and communications infrastructure, became truly national. Education, health and social services were developed and Iranian dependence on foreign powers declined.’ 23 Ultimately, the Shah’s contradictory modernization programmes and his despotism combined to create pervasive political unrest and long-term instability. In the United States there continued to be surprisingly little knowledge of, or interest in, Iran. ‘On the eve of World War II it was difficult to 19 Anne Lambton: ‘The Impact of the West on Persia’, International Affairs, January 1957, p. 23. 20 Mohsen M. Milani, The Making of Iran’s Islamic Revolution: from Monarchy to Islamic Republic, Westview Press, 1994, 2nd edition, p. 34. 21 Richard W. Cottam, Iran and the United States: A Cold War Case Study, University of Pittsburg Press, 1988, p. 44. 22 Ibid. 23 Ibid., p. 45

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imagine that the relative isolation of America from Iran would ever change. They seemed as distant and as mutually exotic as might any two countries on the planet.’ 24 And yet a popularly held belief in Iran, ‘that the United States, alone among Western nations, cared for the Enlightenment values of national self-determination’ 25 persisted. Thus, ‘on the eve of the American moment in Iran, the Iranians held an idealized image of the United States. The expectation was that the Americans would do what they could to allow Iranians to gain control of their own destiny.’ 26 Therefore, ‘Iranian disappointment was inevitable’.27 Significantly, no one in the United States was aware of this widely held and impossibly high expectation and the impact it would have on future relations. The events of the Second World War and the onset of the Cold War drastically changed the relationship between the United States and Iran. In a world polarized between Soviet communism and Western capitalism, the United States was propelled into the role of world’s great democratic superpower. And the inevitable reshaping of the geo-political map gave Iran a position of vital importance. According to Ann Tibitts Schulz, noted Middle East scholar, ‘American involvement in Iranian military affairs began in 1941, when, on his father’s forced abdication, Mohammad Reza Shah became the titular ruler of Iran’.28 No longer could the United States remain disinterested in Iran. The year 1941 witnessed a watershed in American relations with Iran. The ascendancy of Mohammed Reza Shah occurred precisely at a moment when US interests compelled it to take an active interest in Iran and the Middle East. According to Schulz, ‘Iran is situated within the Middle East shatterbelt, a region that historically has been of strategic interest to world powers’.29 During the war, the young Shah was preoccupied with saving his throne in a highly volatile environment. Support from the West, and particularly from the United States, was critical to that goal. Lacking a base of popular support, the Shah ‘was able to consolidated a domestic base of support in the armed forces, using the US military assistance as political leverage’.30 Thus, from 1941 onwards, the Shah ‘looked upon the United States and the armed forces as the twin pillars of his regime’.31 24 Barry Rubin, Paved with Good Intentions: The American Experience and Iran, Oxford University Press, 1980, p. 17. 25 Richard W. Cottam, Iran and the United States: A Cold War Case Study, University of Pittsburg Press, 1988, p. 50 26 Ibid., p. 54. 27 Ibid. 28 Ann Tibbitts Schulz, Buying Security: Iran Under Monarchy, Westview Press, 1989, p. 14. 29 Ibid., p. 13. 30 Ibid., p. 14

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In the earliest stages of the war, the United States, and particularly President Franklin Roosevelt ‘had hoped to make the country [Iran] an example of Big Three Co-operation… A balance of power [in Iran] would share out influence while preventing excessive infringements on Iranian sovereignty’.32 Iran’s best hope after being invaded by combined British and Soviet forces during the war was a reliance on the intervention of the United States. Meanwhile, US diplomats looked favourably upon the new Shah and the return of parliamentary democracy in Iran. Throughout the war, the United States sought to prevent domination of Iran by either Britain or the Soviet Union. As a result, the 1943 Tehran conference included a promise by the three Great Powers to preserve Iran’s independence. According to Rubin, ‘in later years Iranian governments would often refer to that document [the Tehran Declaration] as the basis for an American obligation to protect their country and to furnish large-scale aid’.33 The advent of Soviet aggression towards Iran after the war presented a clear danger to the country’s future. ‘Soviet behavior also influenced American policy. Moscow’s actions in Iran, as well as in neighboring Turkey and in Eastern Europe, heightened United States suspicions toward Stalin’s postwar intentions.’ 34 Global aggression by the Soviet Union demanded action. The invasion of Azerbaijan by the Soviets created much speculation as to the purpose among the international diplomatic community. Various explanations were given, but regardless of the objective, Soviet policy over the next twelve months… was to lead to an international crisis that, along with Soviet policy in Eastern Europe, was to generate what came to be known as the Cold War perspective. In this view, the Soviet Union was seen as ineluctably aggressive and to be contained only by great will and determination and a full understanding of its devious and conspiratorial style.35

The Azerbaijan crisis was an early testing ground for the theory of ‘containment’ in dealing with the Soviet Union. Regardless of Soviet intent, the crisis was successfully presented by the Shah and influential US diplomats as a case of Soviet aggression and a test case for the US containment policy. Iran’s sovereignty was to become an integral component of subsequent US global containment strategy, a development welcomed by the 31 Ibid. 32 Barry Rubin, Paved with Good Intentions: The American Experience and Iran, Oxford University Press, 1980, p. 29. 33 Ibid., p. 23 34 Ibid., p. 25. 35 Richard W. Cottam, Iran and the United States: A Cold War Case Study, University of Pittsburg Press, 1988, p. 67.

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Shah. A New York Times editorial, coinciding with the Shah’s first visit to America, stated that he was ‘not only a progressive ruler but also the head of a friendly nation which provided the lifeline of the grand alliance during the war and which has now become one of the principal bulwarks against Soviet imperialist expansion’.36 Once again, the United States and Iran were about to enter a new period of diplomatic relations as the result of third-party intervention. This time, US policy towards Iran would be incorporated into a global plan for containing the Soviet Union. Such a policy did not involve an in-depth analysis of its effects on Iran. Indeed, even after the war and in light of Iran’s strategic significance, according to Cottam, ‘US political analysis of Iran as reflected in documents in this period was surprisingly superficial, almost casual’.37 On the other hand, Iranians ‘expected the Americans to behave as the British and Russians had before them. Since the pattern they knew was one of indirection and subtle manoeuvering, they had always depended on reading (and misreading) between the lines.’ 38 The critical lack of interest and mutual understanding between the two nations was to have serious ramifications. The instability of the Shah’s government, combined with his inexperience during the period 1945–53, did not bode well for the nationalist movement taking shape during these years. Socio-economic progress was sporadic but culminated in the nationalization of the Anglo-Iranian Oil Company (AIOC) in 1951. This action precipitated a crisis which drastically increased America’s involvement with Iran and the Shah. In April 1951, the Majlis voted to nationalize AIOC, to the dismay and anger of British investors. The movement’s leader, Muhammed Mossadegh, was appointed Prime Minister. The United States tried to remain neutral, balancing friendship with Britain with a desire to see Iran in control of its own natural resources. The dispute dragged on in the courts, and Mossadegh’s failure to resolve the situation threatened a complete collapse of the Iranian economy. Mossadegh, in order to solicit financial and moral help from the United States, on 23 May 1953 wrote to President Eisenhower and warned that ‘if prompt and effective aid is not given to this country now, any steps that might be taken tomorrow to compensate for the negligence of today might well be too late’.39 36 Barry Rubin, Paved with Good Intentions: The American Experience and Iran, Oxford University Press, 1980, p. 41. 37 Richard W. Cottam, Iran and the United States: A Cold War Case Study, University of Pittsburg Press, 1988, p. 87. 38 Ibid., p. 89.

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This, of course, created the image in American minds of an Iran which might thereafter come under communist influence. ‘This message had exactly the opposite effect [from the one intended]. Eisenhower, rather than fearing the threat of communism in Iran and assisting Mussadegh, decided to cooperate with the British in operation Ajax, ousting Mussadegh.’ 40 The role of the United States in the downfall of Mossadegh and the return of a temporarily exiled Shah in 1953 is central to any discussion of US-Iran relations from that moment forward. It was a crucially important development which radically altered perceptions of the United States within Iran. The facts surrounding the level of US involvement are probably less significant that their interpretation. Misperceptions, both inside and outside Iran, have permanently distorted all subsequent interpretations of US involvement in Iran. According to Cottam, the US role in the overthrow of Mossadegh was ‘essentially the CIA’s buying into an alliance of British intelligence and a diverse group of Iranians centred on General Zahedi’.41 He continues, ‘neither the Americans nor the Iranian victims of their success were willing to face the unavoidable conclusion… that the success of the coup was a consequence of, first, a major Tudeh [the Iranian communist party] miscalculation, and second, the timing of a counter-demonstration that was critically fortuitous’.42 Among the many ironies surrounding the overthrow of Mossadegh, two, according to Cottam, are particularly noteworthy. First, the Americans, who prided themselves on being the primary proponents of liberal democratic nationalist values, played a decisive role in denying to Iran a regime that conceivably could have incorporated those ideals as the prevailing political values in Iran. Second, the very elements of the population that would later be the core support base for the bitterly anti-American Ayatollah Khomeini, the urban lower and lower middle class, provided the crowds that granted the British and Americans their victory.43

Barry Rubin states the case more succinctly: ‘It cannot be said that the United States overthrew Mossadegh and replaced him with the Shah. The CIA merely provided minimal financial and logistical aid for Iranians to 39 Yohan Alexander and Allan Nanes, The United States and Iran: A Documentary History, University Publication of America, 1980, p. 233. 40 Mahdavi Abdulreza Houshang, Iran’s Foreign Relations During the Pahlavi Period, Peykan Publishing, Tehran, 1998, p. 213. 41 Richard W. Cottam, Iran and the United States: A Cold War Case Study, University of Pittsburg Press, 1988, p. 103 42 Ibid., pp. 108–9. 43 Ibid., p. 109.

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do so.’ 44 Iranian Expert Abdulreza Mahdavi agrees with Rubin’s assessment. ‘The CIA paid most of the coup’s expenses and therefore planted the ignominious reputation of the coup in the minds of the Iranians. The coup was planned by the British and executed by their Iranian partisans. But it became known as the “American coup”.’ 45 But again, most significant was the perception in both Iran and the United States ‘that the United States had saved the Shah’s throne’. This interpretation was critical to decisions that the United States would make thereafter as they assessed Iran’s significance in relation to their containment policy, and to the Shah in his efforts to sustain his rule. Whatever interpretation one chooses to place on the objectives and consequences of Operation Ajax, it abruptly and permanently ended America’s political innocence with respect to Iran. Until 1953 the United States had played an essentially benevolent role in the great-power politics of Iran, restraining both British and Soviet appetites during World War II, firmly opposing Soviet encroachments immediately following the war, and playing the honest broker between Iran and the AIOC five years later. But the direct intervention in 1953 cast the United States in the role so common in Iranian history of cynical external power prepared to manipulate Iranian political circumstances for its own benefit. Whether or not such a description is a fair characterization of US Policy, it is unfortunately true that after 1953 the United States would never again be able to enjoy the presumption of benign objectives and enlightened self-interest when engaging itself in the affairs of Iran.46

Throughout the next decade, the Shah strengthened his power. The Majlis was reduced to a token body, and the Prime Minister became merely the Shah’s executive assistant. For the first time, the United States began to intervene actively in the affairs of Iran. ‘US policy after August 19, 1953, was effectively to give the new regime total and unquestioning support.’ 47 The United States, at this time, according to Mark Gasiorowski, ‘began to implement measures designed to enhance Iran’s long-term political stability and integrate Iran into the US global strategy for containing the Soviet Union’.48 This era marks a major shift in the evolution of US-Iran relations.

44 Barry Rubin, Paved with Good Intentions: The American Experience and Iran, Oxford University Press, 1980, pp. 88–89. 45 Mahdavi Abdulreza Houshang, Iran’s Foreign Relations During the Pahlavi Period, Peykan Publishing, Tehran, 1998, p. 214 46 Gary Sick, All Fall Down: America’s Tragic Encounter with Iran, Penguin, 1986, p. 7. 47 Richard W. Cottam, Iran and the United States: A Cold War Case Study, University of Pittsburg Press, 1988, p. 115. 48 Mark J. Gasiorowski, US Foreign Policy and the Shah: Building a Client State in Iran, Cornell University Press, 1991, p. 85.

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In the 1950s, the United States dramatically increased its foreign aid to promote stability in Iran as a means of retaining it as a pro-Western country. Meanwhile, the Shah continually pressed for greater military aid and assistance. According to Gasiorowski, a ‘cliency’ relationship developed between the United States and the Shah, and ‘helped weaken the main Iranian opposition groups during and after the 1953 coup, and it subsequently strengthened the state’s repressive apparatus and its co-optive mechanism’.49 He continues: the growing effectiveness of the repressive apparatus and the era of prosperity created by the US aid program and Iran’s growing oil revenue kept opposition political activity to a minimum in the mid- and late 1950s, enabling the Shah to consolidate his control over the state. Nominally democratic institutions and practices still existed, including elections, a legislature, legislative controls over the executive branch, and even political parties; but the absence of an effective opposition enabled the Shah to subvert these institutions and practices, rendering them ineffective as mechanisms through which society could constrain the state.50

By 1961, the Kennedy administration correctly identified growing repression and instability in Iran. A full-scale push for modernization and reform, particularly land reform, became a condition upon which the future US support of Iran was predicated. The administration believed that if land reform could be encouraged in developing countries it would prevent unrest and bolster resistance to communism. In response, the Shah instituted the ‘White Revolution’, which included six provisions: land reform, nationalization of forests, sale of state-owned enterprises to the public, a workers’ profitsharing plan, women’s suffrage and the creation of literacy corps. In so doing, ‘the Shah appeared to have won a total victory. President Kennedy, Secretary of State Dean Rusk, and the specialists at the CIA and State Department were relatively satisfied by the Shah’s initial steps toward reform.’ 51 The extent to which the reform programme was heralded further underscored the ignorance of US policymakers on the political and social situation in Iran. The White Revolution, particularly land reform, was violently opposed by Iran’s Muslim clerics led by Ayatollah Ruhollah Khomeini. For the part he played in the uprising, Ayatollah Khomeini was deported, an action that appeared to confirm his strongly held belief that only US aid and support were keeping the Shah in power. The popular revolt against the 49 Ibid., p. 130. 50 Ibid., p. 159. 51 Barry Rubin, Paved with Good Intentions: The American Experience and Iran, Oxford University Press, 1980, pp. 111–112.

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White Revolution clearly illustrates how third-world events run the risk of being grossly misinterpreted when interpreted through the Western media. What should have been clear to American officials and the press alike were the real causes underlying the revolt: ‘the regime’s lack of a popular base, its illegitimacy in the eyes of so many Iranians because of the events of 1953 and the growing dissatisfaction of the urban middle class’.52 However, in the American media ‘the “reactionary” revolt only validated the Shah’s reform credentials’.53 The New York Times defined the revolution as one in which the Shah had successfully aligned himself directly with the peasants and workers against the traditionalists and conservatives. More significantly, the White Revolution underscores the dangers inherent in one nation mandating policy for another, particularly a thirdworld one. The policies and programmes needed to create positive reform in Iran had little to do with those advocated by the Kennedy administration. Iranian society was radically different from that of the United States. The models and assumptions upon which US policy were based ultimately paved the way for the formation of a new Islamic organization and the emergence of Khomeini as its religio-political leader. ‘That he emerged in 1979 as the symbol of the revolutionary movement was no historical accident.’ 54 Over the course of the late 1960s and early 1970s, the Shah continued his headlong rush towards economic development. His ‘regime embarked on a massive development project that led to uneven development of the economic and political spheres, modernizing the former without changing the nature of the latter’.55 Concurrently, the Shah ‘harshly suppressed all forms of opposition and… continued to develop institutions and mechanisms to co-opt the modern middle class, the industrial working class and other key societal groups, undermining support for opposition organizations’.56 By the end of the 1960s, Britain’s long military presence in the Middle East had ended. In 1969, the newly-elected American president, Richard Nixon, understanding the strategic significance of the Persian Gulf, with its vast oil reserves, realized measures to ensure security and stability would need to be taken. Facing a war in Vietnam and hostility in the Middle East towards a US military presence, the administration developed what became known as the Nixon Doctrine. This was ‘intended to signal a new 52 Ibid., p. 109. 53 Ibid. 54 Mohsen M. Milani, The Making of Iran’s Islamic Revolution: from Monarchy to Islamic Republic, Westview Press, 1994, 2nd edition, p. 55. 55 Ibid., p. 59 56 Mark J. Gasiorowski, US Foreign Policy and the Shah: Building a Client State in Iran, Cornell University Press, 1991, p. 187.

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American policy toward Southeast Asia… and provide the basis for a twopillar strategy in the Gulf.’ 57 In May 1972, President Nixon and his National Security Advisor, Henry Kissinger, met with the Shah in Tehran. ‘The outcome [of this meeting] was a bargain that radically restructured the US Iranian relationship.’ 58 The May agreement gave the Shah primary responsibility for maintaining Western interests in the Persian Gulf region, in return for a substantial increase in the number of uniformed US advisors and technicians living and working in Iran and a guarantee of access to state-of-the-art US non-nuclear weapons and technology. By implication, senior officials of the Nixon administration ‘let the Shah know that so long as he remained a staunch prowestern ally, they wouldn’t inquire too closely into his handling of Iran’s internal affairs’.59 For the Shah, ‘this was a personal triumph beyond his wildest dreams. For years he had dealt with successive US presidents and had always been kept on a short leash… Now, at last, he was recognized as a world-class strategic thinker by no less an authority than Henry Kissinger.’ 60 The carte blanche which the Shah received to purchase American arms was unprecedented. The US Department of Defence objected vigorously, but in vain. In July 1972, Secretary of State Kissinger ‘in the president’s name, formally served notice to the bureaucracy that, henceforth, decisions on purchases of US military equipment would be left primarily to the government of Iran’.61 As a result, the Shah immediately increased substantially arms purchases from the United States. In addition, to strengthen Iran’s military control of the entrance to the Persian Gulf, he ordered his armed forces to get back three small islands situated close to the United Arab Emirates, Abu Musa, Greater Tunb and Lesser Tunb, which had been under British and Arab control. Despite vigorous protests by Arab regimes about the seizure of the islands, they were powerless to act. ‘The United States and Britain at least tacitly approved the Shah’s move as another step toward the stabilization of the Gulf.’ 62 The Shah’s massive arms buying was fuelled by a sudden and enormous increase in oil revenues in the aftermath of the 1973 Arab-Israeli War. By the end of the 1970s, Iran’s annual expenditure on defence was running 57 Barry Rubin, Paved with Good Intentions: The American Experience and Iran, Oxford University Press, 1980, p. 128. 58 Gary Sick, All Fall Down: America’s Tragic Encounter with Iran, Penguin, 1986, p. 15. 59 H.W. Brands, Into the Labyrinth: The United States and the Middle East, 1945–1993, McGraw-Hill, 1994, p. 154. 60 Gary Sick, All Fall Down: America’s Tragic Encounter with Iran, Penguin, 1986, pp. 15, 16. 61 Ibid., p.17. 62 Marvin Zonis, ‘Iran’ in The Middle East, Michael Adams (ed.), Facts on File, 1988, p. 362.

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at US$9.94 billion. Its arsenal included 447 combat aircraft, 1985 tanks, 14 naval vessels and 710 artillery pieces.63 As the stocks of military hardware grew, it became evident that Iran lacked the technical expertise to handle it all. As a result, the Shah made increasing demands for US advisers and trained technicians. ‘By July, 1976 there were 24,000 Americans working in Iran, with their numbers increasing at a remarkable rate.’ 64 The arrival of large numbers of foreigners bred resentment in Iran. They were regarded as further unwelcome signs of the manner in which the Shah was trying to westernize the country and marginalize traditional and Islamic culture. To many in Iran it appeared that the Shah was building an army to defend the monarchy from the Iranian people and not from external attack. A perception also developed that the Shah was transferring wealth to America and that the imported weaponry would be used to serve American not Iranian interests in the Persian Gulf. The opposition charged that the Shah had become ‘an agent of American Imperialism’.65 Meanwhile, domestic difficulties in Iran continued to mount, with little recognition or understanding of them in the West. The Shah’s superficial modernization programmes caused increasing social disorientation and dissatisfaction. Particularly disastrous was the government-led migration effort of rural poor to urban centres. As government investment dried up in rural areas, even greater numbers of people migrated to cities, only to encounter a strange twentieth-century world without hope of jobs. Those who stayed behind became increasingly embittered as their poverty deepened. Meanwhile, the disparity between rich and poor, compounded by government corruption and the repressive action of the secret police (SAVAK), alienated millions of Iranians from the Shah. The image of Iran presented to the West by the Shah contrasted starkly with reality. A particularly glaring example was the celebration in 1971 of the two-thousand-five-hundredth anniversary of the founding of the Persian kingdom by Cyrus the Great in 549BC. Dignitaries from around the world attended a lavish crowning ceremony in Persepolis, estimated to have cost US$200 million. (The Shah also scrapped the Islamic calendar, replacing it with one starting in 549BC.) Such extravaganzas were possible due to the increase of Iran’s oil revenues, which rose from US$1.1 billion in 1970 to US$20.5 billion in 63 Shahram Chubin, Iran’s National Security Policy: Capabilities, Intentions and Impact, Carnegie Endowment For International Peace, 1994, pp. 36, 37. 64 Barry Rubin, Paved with Good Intentions: The American Experience and Iran, Oxford University Press, 1980, p. 137. 65 Marvin Zonis, ‘Iran’ in The Middle East, Michael Adams (ed.), Facts on File, 1988, p. 363.

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1976. The astronomical increase in oil revenues in Iran led to a remarkable economic expansion during 1970s. For the outside world, therefore, the Shah was able to create an illusion of prosperity, stability and harmony. The economic expansion shifted Iran’s economy from agriculture/ service to industry/service. This new economic structure was controlled by a tiny segment of the population, which Milani refers to as ‘The Triangle of Fortune’.66 At the apex of the triangle was the Shah, along with Western industrialists and their Iranian junior partners. The Iranians in this elite group ‘identified with and emulated the West to such an extent that they became alienated from their own culture. This created a ubiquitous cultural gap between this small portion of the population and the bulk of Iranians… The Islamic revolution, in some ways, was directed against the abuses of this group.’ 67 The drastic economic growth and transformation in Iran’s economy created serious problems in the nation’s economic and cultural infrastructure. As the decade moved toward its conclusion, the oil boom passed and the inherent economic problems surfaced. First and foremost, the economic boom was not experienced in any substantive way either by the majority of the traditional middle class or by industrial working and urban lower classes. A great disparity in income distribution had developed, with the bourgeoisie deriving the greatest benefits. Iran’s rural lower class remained, as before, mired in poverty. Second, the heavy emphasis on military over infrastructure spending left Iran without many basic human services and staple products, causing a great deal of political unrest. Shortages in building supplies, housing, skilled labour and most noticeably electricity underscored this fact. One inevitable consequence of economic growth is social mobilization, defined by Karl Deutsch as the process in which major clusters of old social, economic and psychological commitments are eroded or broken and people become available for new patterns of socialization and behavior. The faster the rate of social mobilization, the greater the chances of political tension.68

Throughout the 1970s, Iran experienced rapid social mobilization of its populace. For Iran, ‘the most significant consequence of social mobilization was the intensified demand by various groups to participate in the political process’.69 In response to these demands the Shah instituted even tighter 66 Mohsen M. Milani, The Making of Iran’s Islamic Revolution: from Monarchy to Islamic Republic, Westview Press, 1994, 2nd edition, p. 66. 67 Ibid., p. 61. 68 Ibid., pp. 65–6. 69 Ibid., p. 67.

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controls to repress his opposition. Those who refused to accept the iron fist of the Shah were, therefore, forced to organize increasingly radicalized forms of opposition to his regime. It was clear that change could not happen by working within the existing constitutional framework. As the Shah battled with the economic crisis and the radical opposition groups, in 1977 he faced other pressures – this time, to his surprise, from quarters outside Iran which he had always regarded as friendly. The US administration, led by President Jimmy Carter, started calling for Iran to make reforms in order to improve the country’s record on human rights. While previous US administrations had been prepared to overlook the repression, frequently brutal, of members of the Iranian opposition, Carter was not. The President was responding to critical reports produced by Amnesty International and other human-rights organizations which spoke of the routine and systematic use of torture. These reports caused shock and outrage around the world – not least among members of the US Congress. The first rumblings of revolution occurred as the result of limited liberalization undertaken by the Shah in response to the incoming president’s human-rights policies. Albeit limited, the opposition groups in Iran saw a crack in the door and decided to seize the opportunity. In May 1977, 54 Iranian lawyers signed a public declaration protesting against legal revision, which they insisted undermined the independence of the judiciary. A month later, leaders of the National Front issued an open letter calling for an end to absolutism and for implementation of the 1906 Constitution. The fact that SAVAK did not harass the signatories was seen by opposition forces as confirmation of an end to outright repression. The liberalization policy provided the opposition with the first opportunity since 1963 to organize and mobilize its resources. Numerous professional associations were reactivated, with students and secular intellectuals the most visible component. This marked the first of eight phases in the revolution, as identified by Mohsen Milani. The next phase in the revolution was the resurgence of the Shiite movement. Protests entered a new phase on 9 January 1978, when seminary students in the holy city of Qom took to the streets in protest against the publication of an article in the Ettelaat newspaper. The article was critical of Khomeini for allegedly violating the true meaning of Islam. During the protest, the police panicked and opened fire, killing at least six people. The protests in Qom marked the beginning of the end for the Shah. Forty days after the demonstration there, serious rioting erupted in Tabriz,

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followed by bloody encounters in other cities, including the 11 May 1978 uprising in Tehran. Such were the inadequacies of US intelligence that even as late as January 1978 Ambassador William Sullivan reported to Washington that the Shah was in ‘full command of the situation’.70 The third step in the revolution involved the consolidation of the opposition forces. The Shah was becoming increasingly indecisive, and his confusion regarding the situation was more readily apparent. The fourth phase of the revolution involved widespread and paralyzing strikes throughout Iran. Oil production fell from 5.8 million barrels per day to 1.1 million. In response, the Shah installed a new prime minister, Ja’far Sharif-Emami, who established a government of reconciliation. He then abolished the new calendar, created two years earlier, and restored the Islamic one, closed down casinos and night clubs, abolished the post of Minister of State for Women’s Affairs, released clerics from prison and eased restrictions on prayer meetings. Despite these concessions, the new government did not succeed in achieving reconciliation or stopping the violent protests. ‘As the popular movement grew stronger, the Carter administration became more confused and divided.’ 71 On 2 September 1978, martial law was declared, the fifth phase in the rapid-fire succession of events. By this time protesters were taking to the streets in tens of thousands. Unaware of the martial law restrictions, participants in the demonstration in Tehran’s Jaleh Square refused to disperse, and troops opened fire, killing large numbers. Even though demonstrators chanted Khomeini’s name, the mounting opposition was united more by a hatred of the Shah than by Islamic fervour. In November, the ailing Shah elected General Gholam Reza Azhari to head a military government. But by early December, ‘it became abundantly clear that Azhari’s military government was unable to contain the revolutionary movement’.72 On 10 and 11 December, millions of citizens participated in well organized marches, intended as ‘a walking referendum for dismantling the Shah’s rule’.73 This sixth phase in the revolution was brilliantly conceived and executed by the opposition. The religious pretext of the marches in Tasu’a and Ashura left the Shah no choice but to permit them. A ban would have been interpreted as further

70 71 72 73

Ibid., p. 115. Ibid., p. 122. Ibid., p. 123. Ibid.

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proof of the ‘sacrilegious policies of the Shah’;74 and approving them would provide the opposition the ideal opportunity to demonstrate to the entire world the ‘immensity of their popular base of support’.75 The Shah’s vacillation on policy reflected the mixed messages he was receiving from Washington. President Carter’s National Security Advisor, Zbigniew Brzezinski, advocated taking whatever action was necessary to suppress the uprising with the full support of the United States. On the other hand, the advice coming from the Secretary of State, Cyrus Vance, was that the Shah should begin negotiations with the opposition to resolve their differences peacefully. The conflicting views inside the US administration, channelled to the Shah by the American Ambassador, William Sullivan, and by the Iranian envoy, Ardeshir Zahedi, ‘added to the ruler’s paralysis and indecision’.76 Dialogue of a sort began later in December when the Shah invited the leader of the National Front, Karim Sanjabi, to his palace. His intention was to ask Sanjabi to form a new government. Such an offer might have succeeded some months earlier, but at this late date reconciliation was now impossible. Sanjabi rejected the offer and informed the Shah that he should leave Iran. By mid-December, the full implications of the situation finally became clear to Western envoys, who now urged the Shah to go abroad. President Anwar Sadat of Egypt in later years would write that the Shah himself indicated that he had been forced to leave Iran because the Americans had exerted a great deal of pressure on him. He told me how the American ambassador came to meet him and kept looking at his watch and telling him that every minute that passes and delays your departure is not in your interest and not in the interest of Iran, you have to hasten your departure immediately.77

Acting under a combination of external and internal pressures, the Shah turned to another member of the National Front, Shahpour Bakhtiar, to try to form an administration that would be acceptable to the opposition. Bakhtiar agreed to accept the prime ministership from the Shah on condition that the Shah hand over authority to a Regency Council and leave the country. The Shah’s departure was now imminent, and marked the seventh phase in the revolution. The top echelons of the Iranian military were in agreement that the Shah should not leave Iran and were contemplating a military coup, a fact 74 75 76 77

Ibid. Ibid. Shaul Bakhash, The Reign of the Ayatollahs: Iran and the Islamic Revolution, Basic Books, 1984, p. 17. Anwar al-Sadat, Those I Have Known, Jonathan Cape, 1985, p. 33.

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confirmed by US Envoy General Robert Huyser. However, constrained by their own limitations and reliance on direct orders from the Shah himself, nothing came of this plan. On 16 January 1979, the Shah boarded a plane at Tehran airport, having delegated authority to the Regency Council, and flew to Egypt. The official word was that he was vacationing. But neither he nor the Iranian public were fooled by this explanation. They knew full well that the Shah would never return. The House of Pahlavi, staunch and powerful ally of the United States, had fallen, and the revolution’s first and most difficult goal had been attained. Khomeini returned to Iran on 1 February 1979, having already created his Council of Islamic Revolution and appointed its secret members, and chose Mehdi Bazargan to lead the provisional government. Creating a dual sovereignty with Bakhtiar’s government and the Regency Council was the final phase of the revolution. While Bakhtiar continued to seek public support, Khomeini’s aides maintained their secret negotiations with the military, which eventually, on 10 February, led to the military declaring neutrality and swinging its support behind the Islamic Republic. ‘With the Shah in exile in Egypt, Khomeini in Iran, Bakhtiar in hiding, Bazargan in charge of the Provisional Revolutionary Government and the armed forces demoralized and neutralized, a new chapter in Iran’s history opened, one in which an Islamic order was built on the ashes of imperial Iran.’ 78 In addition to the common objective of toppling the Shah, one of the platforms that united the nationalists, socialists, Islamists and other opposition forces were anti-imperialistic sentiments, especially against the United States which was to be blamed for anything evil that had happened to Iran for the past 25 years. Notwithstanding those widespread negative sentiments, the Western-educated liberal government of Bazargan, recognizing Iran’s need of reasonable relations with the United States and not desiring to antagonize a superpower did not cut ties with Washington and followed Bakhtiar’s moderate non-alignment policy. On at least two occasions, attacks on the US embassy instigated by leftist forces were contained successfully by the Bazargan government. Despite these attacks, the United States did not pay attention to the anti-US sentiments in the Iranian political environment. Regardless of constant warnings by part of the US administration that admitting the Shah to the United 78 Mohsen M. Milani, The Making of Iran’s Islamic Revolution: from Monarchy to Islamic Republic, Westview Press, 1994, 2nd edition, p. 133.

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States would destroy any chances of achieving better relations with Iran and possibly lead to another attack on the embassy, Carter, under pressure from individuals like Henry Kissinger, David Rockerfeller and others, agreed to allow the Shah to enter the country for medical treatment. The Shah’s admission to the United States and the adamant refusal of the United States to approach the central leaders of the revolution, who had the support of the masses, radically deepened the anti-American sentiments of many Iranians. The meeting in Algiers on 1 November between Brzezinski and Bazargan and two of his cabinet ministers reinforced the views of the revolutionaries that the United States, in co-operation with the Western-educated liberals, intended to weaken and ultimately overturn the revolution and restore the Pahlavi dynasty, as they had done in 1953. In less that two weeks after the Shah’s admission, and three days after the Algiers meeting, on 4 November 1979, 400 militant Islamist students, calling themselves the Moslem Students Following the Line of Imam, separated themselves from the demonstrating crowds, entered the US embassy and took its 63 American occupants hostage, demanding the return of the Shah. The hostage-taking certainly was not, as has been widely reported ever since, the direct result of the Shah’s admission to the United States. Rather, it was a product of an internal power struggle between the Islamic groups and leftists. Both groups had one goal in common: to bring down Bazargan’s moderate government, thus ending the policy of maintaining the normalization of US-Iran relations. Since the admission of the Shah to the United States, the leftist groups had intensified their ‘anti-US’ campaign, and had mobilized many forces with different ideologies. The militant Islamist students, for their part, not wanting to be outmanoeuvered by the leftists, decided to implement the seizure of the US embassy to prevent the leftist Fedaiyan-e Khalq and Mujahedian-e Khalq from gaining the initiative. According to Abbas Abdi, one of the three leaders of the students who seized the embassy, ‘the students speculated that the role of American public opinion in ending the Vietnam war could have similarly helped their cause as well. They predicted that the whole seizure of the embassy would last no more than a week and the relations between the two countries would return to normal.’ 79 With the resignation of Bazargan, 36 hours later, the students achieved their main objective, but hostages were not released. 79 ‘Hostage Meets Captor: Towards a Reconciliation’, meeting organized by Centre for World Dialogue, Paris, 31 July 1998.

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Khomeini did not know of the students’ plan in advance. Immediately after the takeover of the embassy the students’ leaders sent him a message confirming that they would evacuate the compound if he ordered them to do so. But, recognizing its potential benefits, Khomeini three days later called it the ‘second revolution, which is more important than the first one’. For the next 444 days, the hostage crisis became the centre of the whole dynamic of the revolution and served a domestic political function: to put the revolution and all its institutions in order. ‘This action has many benefits… We keep the hostages, finish our internal work, then release them,’ Khomeini explained to Foreign Minister Bani Sadir. ‘We can put the constitution to the people’s vote without difficulty, and carry out presidential and parliamentary elections. When we have finished all these jobs, we can let the hostages go.’ 80 The takeover of the embassy had an immediate impact on US-Iran relations. It ruptured formal relations completely and forced the United States, in an effort to resolve the crisis, to employ diplomatic, economic, judicial and military measures against Iran. Although the hostages were released on 19 January 1981, the punishment of Iran continues. This punishment, by various sanctions, is no longer for overthrowing the ‘US Shah’ or for holding the American diplomats hostage. It is for other alleged misdemeanours that since 1981 Iran has remained continuously the subject of US sanctions, and it appears that for years to come these will be an essential feature of US policy towards Iran.

80 Baqer Moin, Khomeini: Life of the Ayatollah, I.B.Tauris, 1999, pp. 227, 228.

2 SANCTIONS: AN INTEGRAL PART OF US FOREIGN POLICY

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n the decades since the 1979 Islamic Revolution, the United States has tried to isolate Iran diplomatically, militarily and economically, relying on wide-ranging unilateral sanctions and export controls. First, sanctions were imposed as a response to the seizure of the American embassy in Tehran. Following the release of the hostages, the United States’ objectives in using sanction tools were to alter what it regarded as the unacceptable political and military behaviour of Iran. These sanctions and export controls were imposed, withdrawn and imposed again, using not only the legislative vehicles existing in United States law, but through the enactment of new pieces of legislation to suit the needs of successive administrations. In order to understand better this complex area of US foreign policy – sanctions against Iran – one needs to discuss definitions of economic sanctions and export controls, the US rationale for imposing sanctions and the legal authority for the imposition of such measures. DEFINITION What is meant by the term ‘sanction’ in the context of foreign policy making? It is important to make a distinction between technical and descriptive definitions of the term in order to focus on economic sanctions as distinct from normal trade regulations. The latter are restrictions imposed by

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national governments on international commerce. They resemble economic sanctions in their effects, but they meet different objectives. These trading restrictions are the defined objectives of a government’s trade policy as distinct from the defined objectives of foreign policy, for which the United States increasingly employs economic sanctions. It is also necessary to distinguish the technical term ‘economic sanctions’ from the related strategy of the denial of favourable or preferential trade treatment. The task of defining ‘economic sanctions’ can, according to a legal study by Michael Malloy, become ‘complicated by the fact that at the extremes, certain objectives of trade policy may bear a resemblance to the objectives served by, or the techniques employed in, economic sanctions programmes’. There may also be ‘some interposition of the techniques of economic sanctions into international economic policy’. Nevertheless, it can be seen that there are certain distinct foreign policy purposes served by economic sanctions that exist outside general economic policy.1 Barry E. Carter takes economic sanctions to mean ‘coercive economic measures taken against one or more countries to force a change in policies, or at least to demonstrate a country’s opinion about the other’s policies’.2 Most recent studies quote sanctions defined by Hufbauer Schott and Elliott as ‘deliberate, government inspired withdrawal, or threat of withdrawal, of customary trade or financial relations’.3 Excluded from this definition are economic restrictions for economic purposes, such as tariffs and quotas, or ensuring market access or compliance with trade arrangements. These are reactions to the economic behaviour of a state. Economic sanctions are used for foreign policy purposes, and the objective is to change the political behaviour of the target country. As a means of promoting a nation’s foreign policy interests, economic sanctions can be seen in the middle of the spectrum of possible courses of action. At one end of the spectrum, the most coercive courses of action are the use of military force, covert action and the threat of force. At the other end of the scale are diplomatic measures: the expulsion of diplomatic personnel; the recall of an ambassador; formal diplomatic protest; the suspension of cultural exchanges. Sanctions fall somewhere in the middle: 1 2 3

Michael P. Malloy, Economic Sanctions and US Trade. Little, Brown, 1990, p. 7. Barry E. Carter, International Economic Sanctions: Improving the Haphazard US Legal Regime, Cambridge University Press, 1988, p. 4. Gary Clyde Hufbauer, Jeffrey J. Schott and Kimbely Ann Elliott, Economic Sanctions Reconsidered: History and Current Policy, 2nd Edition, Institute for International Economics, 1990, p. 2.

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they are sometimes used as a substitute for other measures. Diplomatic measures may not hit hard enough, but more extreme military solutions might be considered excessive. In the words of Hufbauer, Schott and Elliott, sanctions ‘add teeth to international diplomacy, even when the bark is worse than the bite’.4 Thus, we can use the term ‘economic sanctions’ to refer to ‘nonmilitary actions of the United States that adversely affect the flow of goods, services or financial assets to a specific foreign country in order to penalize or coerce a country for political purposes or to express US displeasure with that country’s actions’.5 In this context the term includes a range of trade and financial measures that may be imposed, in varying combinations. THE HISTORY OF SANCTIONS, PRE-1945 While sanctions and embargoes have become an integral part of the contemporary political world, their use has a long history. The earliest documented occasion is the Megarian decree in ancient Greece enacted by Pericles in 432BC in response to the kidnapping of three Aspasian women. Aristophanes, in the Acharnians, referred to the enactment of a sanctions law: For then, in wrath, the Olympian Pericles Thundered and lightened, and confounded Hellas, Enacting laws which ran like drinking-songs. ‘That the Megarians presently depart From earth and sea the mainland, and the mart’.6

Though sanctions have been used throughout history and by many nations, the purpose of this study is to examine the use of sanctions by the United States. In American history, sanctions have been employed since the eighteenth century. In one of the well documented acts leading to the American Revolution the colonists imposed a boycott on English goods – in 1765 – as a way of protesting the imposition of the Stamp Act. Another boycott, imposed in protest against the Townshend Act, to recover the salaries of colonial governors and judges eventually led to the ‘Boston tea party’ of 1774. The use of sanctions gradually became part of the tradition of the United States. In 1807, in an effort to avoid a war with England and 4 5 6

Ibid., p. 11. Erin Day, Economic Sanctions Imposed by the United States Against Specific Countries: 1979 Through 1992, CRS report for Congress, 92-631F, 10 August 1992. Aristophanes, The Acharnians, ‘Great Books of the Western World’, vol. 5, Encyclopaedia Britannica, 1990, p. 461.

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France, President Thomas Jefferson persuaded Congress to enact a trade embargo. American ships were prohibited from leaving for foreign ports, and the transporting of American goods by other vessels was banned. In the face of strong domestic opposition, the embargo was lifted in 1809. However, in 1822, in response to British orders limiting American trade with France, the United States stopped all trade with England. Until 1918, however, economic sanctions were used to complement military action. Only after the First World War was serious attention given to the idea that sanctions could be a substitute for armed activities. A crucial step in the history of economic sanctions was the creation of the League of Nations following the First World War. Influenced by the apparent effect of the sanctions against the Central Powers during the war, member nations incorporated the ‘economic weapon’ in the Covenant as a non-military deterrent weapon to enforce peace. Article XVI of the League Covenant, without using the specific word ‘sanction’, states: Should any Member of the League resort to war in disregard of its covenants under Articles 12, 13 or 15, it shall ipso facto be deemed to have committed an act of war against all other Members of the League, which hereby undertake to immediately subject it to the severance of all trade or financial relations, the prohibition of all intercourse between their nationals and the nationals of the covenant-breaking State, and the prevention of all financial, commercial or personal intercourse between the nationals of the covenant-breaking State and the nationals of any other State, whether a Member of the League or not.

In other words, this article provides for sanctions against any state which resorts to war before attempting to resolve its claims by peaceful means. There were two early successes enjoyed by the League against smaller powers that encouraged supporters of the notion of sanctions. In 1921, the threat of sanctions was enough to force Yugoslavia to give up its attempts to seize territory from Albania. In 1925, Greece was compelled to renounce territorial claims on Bulgarian territory under similar pressure. However, the picture was drastically different when a big nation was involved. The Japanese invasion of Manchuria in 1931 and Italian aggression against Ethiopia in 1935 are two examples of the failure of the League of Nations to influence the aggressors to withdraw from the occupied lands by imposing sanctions. Between the two world wars, most cases involving the imposition of sanctions were linked to military action. Even through the Second World

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War some of the objectives sought with the use of sanctions were noticeably military in character. However, during the war economic sanctions proved useful. The naval blockade against Europe and Japan, and the Allies’ pre-emptive purchase of strategic materials from neutral countries played a part, albeit small, in the defeat of the Axis Powers. Japan, so dependent on imports from overseas, was particularly vulnerable to such measures. In the 1930s, in line with the concept of the enforcement of international law, international sanctions meant League of Nations sanctions. These were ‘penalties to be collectively imposed by members of the body responsible for international peace and security on those who violated their obligation under the League Covenant’. This concept of penalties in an international framework was carried forward into the United Nations Charter, which introduced new norms of human rights and also gave limited authority to regional bodies to act in defence of regional peace and security. THE HISTORY OF SANCTIONS, POST-1945 Because the harmonization of the policies of the Great Powers was a major factor in winning the First World War, it was only logical that this approach should be continued for the maintenance of peace after the war. So on 2 June 1945 the Charter of the United Nations was signed. Like the League’s Covenant, which basically reflected big power policies, the Charter was also tailored to suit their interests. The five power community, as a Security Council, was empowered to decide on behalf of the other members when and how the sanctions should be applied. The term ‘sanctions’ is not used in the Charter, but the enforcement ‘measures’ used in its provisions have the obvious character of sanctions. The power to impose mandatory economic sanctions is given to the Security Council if it concludes that, under Article 39 of the Charter, a threat to peace or a breach of peace exists. Article 41 of the Charter states: The Security Council may decide what measures not involving the use of armed force are to be employed to give effect to its decisions, and it may call upon the Members of the United Nations to apply such measures. These may include complete or partial interruption of economic relations and of rail, sea, air, postal, telegraphic, radio, and other means of communication, and the severance of diplomatic relations.

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Although this article is associated only with economic sanctions, its actual scope is much wider. In addition to economic measures like embargoes on imports and exports or the freezing or confiscation of financial assets, it may also include restrictions or interruptions of communications and cultural exchanges, such as academic exchanges and sporting links, as well as the severance of diplomatic and political relations.7 Article 41, in conjunction with other articles in the Charter, shows that the UN approach to the application of sanctions, contrary to the automatic sanctions of Article 16 of the League, is flexible, and depends upon the formulation of a number of principles, findings and decisions. For the first 45 years of its life, the Security Council adopted sanctions only twice. The first time was in December 1966 when financial, economic and diplomatic restrictions were imposed on the racist minority regime of Southern Rhodesia. This was followed by an arms embargo against South Africa in 1977. Both were to address denial of human rights and domestic abuse of power rather than to counter the traditional threat to international peace and security. Lack of consensus on what constituted unacceptable behaviour, the absence of a combined will to respond to wrong-doing, and the use of the veto by the permanent members of the Security Council in defence of their own interests limited the United Nations’ role in imposing sanctions, and made the use of mandatory sanctions by the United Nations almost impossible. By the 1970s, the great hopes that UN economic sanctions might become a substitute for force were dashed, opening the way for the leading powers to assume a responsibility for righting what they perceived as ‘wrongs’ on a unilateral or multilateral basis. However, since the end of the Cold War, the Security Council has reactivated to a remarkable extent its sanctions mechanism. Since 1990, Iraq, Yugoslavia, Somalia, Libya, Liberia, Haiti, Unita in Angola, Rwanda and Afghanistan have become targets of sanctions. The Security Council, in its first heads of state joint declaration of 1992, stated: the absence of war and military conflicts amongst states does not in itself ensure international peace and security. The non-military sources of instability in the economic, social, humanitarian, and ecological fields have become a threat to peace and security. The United Nations membership as a whole need to give the highest priority to the solution of these matters.8 7

For a comprehensive list of non-violent sanctions suggested by Margaret Doxey, see Document 1.

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Indeed, the imposition of sanctions under the auspices of international organizations is happening more and more. During the years since 1945, the imposition of sanctions for foreign policy purposes other than military ones has become increasingly common. However, sanctions have still been deployed on occasion to force a target country to withdraw its troops from border skirmishes, to drop plans of territorial acquisition or to refrain from other military adventures. In most cases in the post-war period, where economic sanctions were used against a nation using military force, the United States played a prominent role in their imposition. With the exception of US sanctions in 1956, which forced Britain and France to withdraw their troops from Suez, major powers have never been able to deter the military adventures of other powers by means of economic sanctions alone. The successful cases are mainly against small and weak countries. US economic pressure on Turkey in the mid-1970s did not succeed in securing the withdrawal of Turkish troops from Cyprus, and 25 years later Turkish troops still remain on the island. The United States leads the world as a user of economic sanctions for foreign policy purposes. In the period following the Second World War, sanctions were imposed with the aim of limiting the growth of the Soviet Union’s military capability. Early on in the Cold War, in the 1950s and 1960s, in an attempt to contain the spread of communism, the United States used sanctions against communist countries and those that were engaged in trade with such countries. In the 1970s, human rights became a foreign policy concern of the United States, and Marxist-Leninist regimes were targeted with sanctions. Since the late 1980s, the threat posed by terrorism, narcotics and the proliferation of weapons has precipitated the implementation of sanctions. Of the 107 cases of economic sanctions world-wide between 1945 and 1990, the United States was involved in 74. The United Kingdom used sanctions 13 times in the same period, the Soviet Union 11 times.9 Although economic sanctions have always been powerful instruments in American diplomacy, now that the Cold War is over they have assumed a greater significance in US foreign policy, and now play a more central role, being used more frequently. From 1993 to 1996, the United States enacted 61 laws and executive actions authorising the use of sanctions 8 9

‘Security Council Summit Declaration, “New risks for stability and security”’, New York Times, 1 February 1992. Gary Clyde Hufbauer, Jeffrey J. Schott and Kimbely Ann Elliott, Economic Sanctions Reconsidered: History and Current Policy, 2nd Edition, Institute for International Economics, 1990.

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against 35 countries.10 The United States has enacted 142 sanction-related provisions under 42 federal statutes requiring or authorising the United States to impose sanctions against other countries.11 According to Richard B. Cheney, former US Secretary of Defence, 70 countries with almost twothirds of the world’s population are currently affected by US sanctions.12 The following 13 categories, in order of frequency, have been cited to justify the imposition of sanctions: • terrorism; • proliferation of weapons of mass destruction; • narcotics activity; • expropriation; • human rights; • communism; • military aggression; • environmental activity; • transition to democracy; • worker rights; • market reform; • harbouring war criminals; • boycott activity.13 THE US RATIONALE FOR SANCTIONS Three broad rationales are offered for the imposition of sanctions: the desire to influence a country’s policies or even bring about a change in its regime; the infliction of punishment on a country because of its policies; the symbolic showing of opposition to the target country’s policies for a variety of purposes, the demonstration of opposition to the target country itself, assuring audiences in the imposing country that its government is opposed to the target country’s policies, and showing allied states and other potential target countries that a stand has been taken.14

10 A Catalogue of New US Unilateral Economic Sanctions for Foreign Policy Purposes 1993-1996, National Association of Manufacturers (Washington DC), 1997. 11 Overview and Analysis of Current Unilateral Economic Sanctions, publication 3123, US-International Trade Commission,1998, p. ix. 12 Richard B. Cheney, ‘Defending Liberty in a Global Economy’ in Solveig Singleton and Daniel T. Griswold (eds), Economic Casualties: How US Foreign Policy Undermines Trade, Growth and Liberty, CARO Institute, Washington DC, 1995, p. 23. 13 See also Donald Zarin and Meha Shah, Survey of US Unilateral Economic Sanctions, a report prepared by Dechert, Price and Rhoads, Washington DC, for the President’s Export Council, 11 January 1977. 14 Barry E. Carter, International Economic Sanctions: Improving the Haphazard US Legal Regime, Cambridge University Press, 1988, p. 12.

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A decision to impose sanctions can involve more than one of these rationales. US sanctions against Iran were motivated by a mix of all three. They were intended to force Iran to abandon its unacceptable policies towards the United States, to punish Iran for those policies, and to make a symbolic statement to pro-Israeli groups in the United States. Aside from the three main rationales, sanctions may sometimes be imposed simply because a government feels the need to be seen to be taking action, and sees sanctions as the least controversial way of doing so. In these cases, diplomatic action might not seem compelling enough, while the use of military action might be considered too extreme. Within the broad categories mentioned above, an imposer country will generally have more precise foreign policy motives for the imposition of sanctions. Most studies on the subject quote the categories outlined by Hufbauer, Schott and Elliott.15 ‘Changing target-country policies in a relatively modest way’: these goals include promoting human rights, fighting terrorism and slowing nuclear proliferation. ‘Destabilising the target government’: the aim is generally to effect a change of regime in the target country, as illustrated by the US campaign against Fidel Castro and Manuel Noriega. ‘Disrupt a minor military adventure’: notable successes since 1945 include US opposition to the policies of President Nasser of Egypt in Yemen, and to events in the Congo (1963–5). A failure was illustrated by sanctions against Turkey over Cyprus (1974–8). ‘Impair the military potential of the target country’: the overall intention here is to weaken the target country, with a particular goal of weakening its military potential. Sanctions imposed during the First and Second World Wars, and COCOM (Co-ordinating Committee on Multilateral Export Controls) sanctions against the Soviet Union and its allies, fall into this category. ‘Change target country policies in a major way’: in this category major changes in a target country other than destabilization or reduction of military potential are sought. Sanctions against Poland (1981–4) to end martial law and obtain internal reform, and sanctions against South Africa over apartheid and control of Namibia are good examples. Another possible rationale for the imposition of economic sanctions, as suggested by the same scholars, is ‘Demonstration of resolve’. The need to show resolve has frequently been a motive behind the imposition of sanctions. This has been especially true for the United States, which has often used sanctions as a way of asserting its leadership on the world 15 Gary Clyde Hufbauer, Jeffrey J. Schott and Kimbely Ann Elliott, Economic Sanctions Reconsidered: History and Current Policy, 2nd Edition, Institute for International Economics, 1990, p. 38.

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stage. As Hufbauer, Schott and Elliott point out, US presidents appear to feel compelled to dramatise their opposition to foreign misdeeds even when the likelihood of changing the target country’s behavior seems remote. In these cases sanctions are often imposed because the cost of inaction, in terms of lost confidence at home and abroad in the ability or willingness of the US to act, is greater than the cost of the sanctions.16

Such action is often expected of the United States by the international community. There are expectations that the United States will demonstrate moral outrage and reassure its allies that America will stand by its international commitments. ‘Deterrence’ is another frequently given reason for sanctions: the idea that an imposing country may be discouraging future unacceptable policies by increasing the associated costs. In most cases, however, it is difficult, if not impossible, to ascertain whether sanctions really were a deterrent against further wrongdoing. Under Mikhail Gorbachev, the Soviet Union radically changed its domestic and foreign policies, but it is hard to prove a link between the combined effect of all US sanctions in the past and these changes. To summarize, the imposition of sanctions can be seen to send a threefold message: it indicates to the target country that the imposer condemns its actions; it says to allies that statements will be supported by action; and it shows a domestic audience that its government will act when necessary to look after the nation’s interests.17 SOURCES OF AUTHORITY FOR US UNILATERAL ECONOMIC SANCTIONS Although economic sanctions have been an instrument of US foreign policy since 1765, the recent approach to their use has changed. Prior to 1990, legislation enacted to impose sanctions reflected a co-operative relationship between Congress and the president, and allowed the president substantial discretion and flexibility in their use. However, since 1990 Congress has assumed a more directive role in conducting foreign policy, often by adopting legislation without considering sanctions already in place. In the new legislation, Congress mandates the imposition of sanctions rather than authorizing their imposition. It also specifies what behaviour 16 Ibid., p. 11. 17 Ibid.

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should trigger the imposition of sanctions and identifies the precise conditions for their removal. Moreover, state and local governing bodies have increasingly been targeting foreign countries and institutions by the imposition of their own sanctions. However, the basic statutory authorities which the United States administration can invoke in support of unilateral economic sanctions are the Trading with the Enemy Act (TWEA), the Export Administration Act (EAA) and the International Emergency Economic Powers Act (IEEPA). The application of these three depends on whether wartime, regular or emergency conditions exist. In addition to the above three basic authorities, US law contains dozens of other acts which can impose sanctions, including the Omnibus Consolidated Appropriation Act,18 the Foreign Assistance Act19 and the Nuclear Non-Proliferation Act.20 THE TRADING WITH THE ENEMY ACT 21 The oldest existing legislation in the United States relating to economic sanctions is the TWEA, enacted in 1917 when the United States entered World War I. The TWAE granted the president extraordinary power during a war ‘between the United States and any foreign country, whether enemy, ally of enemy or otherwise, or between residents of one or more foreign countries’.22 The act provided the president with four powers: broad regulatory power without explicit limit over any transactions in foreign exchange, banking transfers, possession or trading in gold, silver, bullion and currency or securities; regulatory power of even greater magnitude over any property in which a foreign country or its national has any interest; power to vest such foreign property; power to deal with vested property for the benefit of the United States. Section 5(b) of the act provides that: During the time of war, the President may, through any agency that he may designate, and under such regulations as he may prescribe, by means of instructions, licenses, or otherwise – (A) investigate, regulate, or prohibit, any transactions in foreign exchange, 18 19 20 21 22

Omnibus Consolidated Appropriation Act of 1996, Pub. L. no 208, 110 Stat. 3009 (1996). Foreign Assistance Act of 1961, Pub. L. no 757 Stat. 424 (amended 1996). Nuclear Non-Proliferation Act of 1978, Pub. L. no 242,929 Stat. 120 (amended 1994). 50 USC App. §1 et seq. Trading with the Enemy Act §5(b), 40 Stat. 411, 414 (1917).

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transfers of credit or payments between, by, through, or to any banking institution, and the importing, exporting, hoarding, melting, or earmarking of gold or silver coin or bullion, currency or securities, and (B) investigate, regulate, direct and compel, nullify, void, prevent or prohibit, any acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, dealing in, or exercising any right, power or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest, by any person, or with respect to any property, subject to the jurisdiction of the United States; and any property or interest of any foreign country or national thereof shall vest, when, as, and upon the terms, directed by the President, in such agency or person as may be designated from time to time by the President, and upon such terms and conditions as the President may prescribe such interest or property shall be held, used, administered, liquidated, sold, or otherwise dealt with in the interest of and for the benefit of the United States…

The TWEA, as originally enacted, only delegated powers to a president in time of war. But Franklin Roosevelt, confronted with a financial crisis in 1933, in his first official act after taking office invoked Section 5(b) of the act and declared that massive withdrawals of gold and currency from the bank had created a national emergency – and so he ordered a bank holiday.23 Congress obligingly amended section 5(b) within five days and provided that its authorities could be invoked ‘during any other period of national emergency declared by the President’.24 The amendment made the act a significant economic weapon to be utilized not only during wartime and against enemies of the United States or its allies, but also against countries whose policies could threaten US interests. The national emergency language stayed in the TWEA until 1977, when the IEEPA was enacted. On 10 April 1940, relying on the authority of Section 5(b) of the TWEA, President Roosevelt blocked the transfer of the property of Denmark and Norway and its nationals.25 This step was taken to prevent Nazi Germany, which had already invaded these two countries, from extortion of property subject to the jurisdiction of the United States. On 7 May 1940, Congress ratified the President’s action and amended Section 5(b) to include yet another authority that the president could exercise ‘during any period of national emergency’. The treasury regulations

23 Proclamation no 2039, 48 Stat. 1689 (1933). 24 Amendment of 1933, Ch. 1, 48 Stat. 1 (1933). 25 Executive Order 8389, 5 Fed. Reg. 1400 (1940).

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issued pursuant to this Order were later expanded to include other countries occupied by the Axis Powers themselves. In response to Chinese communist forces becoming involved in the Korean War, President Truman invoked the TWEA on 16 December 1950 and declared a national emergency to prohibit all trade and other financial transactions with China and North Korea.26 This proclamation became the legal basis for all TWEA post-war controls, and served as the authority in other important situations, totally unrelated to the original premise of the TWEA. In 1968, President Johnson cited Section 5(b), relying on President Truman’s declaration of a national emergency in 1950, and prohibited all export of capital for foreign direct investment.27 President Nixon, on 27 March 1970, in response to the Postal Service strike, declared a state of national emergency to render the strike illegal.28 In August 1971, President Nixon again declared a state of national emergency in respect of concerns about a balance of payments deficit, and imposed a 10 percent surcharge on imports.29 Finally, the TWEA was invoked to extend the EAA when it lapsed. In early 1973, in the wake of the Vietnam War and Watergate, Congress decided that it was necessary to control the President’s abuse of the TWEA. It sought to reform emergency powers by enacting statutes whose framework would define the power of the branches and establish correct procedures for declaring and continuing emergency powers. Congress appointed a special committee to review presidential emergency powers. To the surprise of both the general public and Congress, it was revealed that the ‘majority of the people of the United States have lived all their lives under emergency rule. For forty years freedom and governmental procedures guaranteed by the Constitution have, in varying degrees, been abridged by laws brought into force by states of national emergency.’ 30 The committee discovered that the state of national emergency, brought about by a financial crisis and declared by Roosevelt in 1933, had never been terminated. Neither had the much cited Korean-War-related national emergency of President Truman’s era in the 1950s, nor that of Nixon’s emergency with respect to the 1970 postal strike. Likewise, the imposition of a 10 percent surcharge on imported items and the declaration of a balance of payment crisis in 1971 were found to be still in effect. Johnson used the emergency authority to place controls on US direct investment 26 27 28 29 30

Proclamation 2914, 15 Fed. Reg. 9092 (1950). Executive Order 11387, 3 CFR (1970). Proclamation 3972, 3 CFR 471 (1970). Proclamation 4074, 36 Fed. Reg. 15724 (1971). 93rd Congress, 1st Session 1 (1973).

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abroad in 1968, and this continued until 1974. This revelation eventually resulted in the formation of the National Emergency Act (NEA) 31 in September 1976. The NEA terminated all previous national emergency acts and prescribed procedural requirements to govern all future declarations. Although Section 5(b) of the TWEA was exempted from the provisions of NEA, a mandate was included for its revision. Supporters of the revision and reform of the TWEA attacked Section 5(b) on two grounds. Firstly, they saw its vast ‘dictatorial’ powers as a threat to con-stitutional and democratic government. Objections on these grounds focused primarily on the absence of any specific provision for congressional review or termination of presidential emergency declarations and on the breadth of power granted. Secondly, legislators criticized the ‘extensive use by Presidents of emergency authority under Section 5(b)… to regulate both domestic and international transactions unrelated to a declared state of emergency’. After lengthy congressional review pursuant to the required mandate under section 502(b) of the NEA, Public Law 95-223 was enacted on 28 December 1977.32 Title I of the law removed the national emergency authority from Section 5(b) of the TWEA. Section 101(a) of the act states that: ‘Section 5(b)(1) of the Trading with the Enemy Act is amended by striking out “or during any other period of national emergency declared by the President” in the text preceding subparagraph (A)’. Henceforth the act was to provide authority to the president during time of war. However, the existing use of the authorities in Section 5(b) of the TWEA were extended by Section 101(b) of the Law. ‘The authorities conferred upon the President by Section 5(b) of the Trading with the Enemy Act which were being exercised with respect to a country on July 1, 1977 as a result of a national emergency declared by the President before such a date may continue to be exercised with respect to such country…’ 33 until 14 September 1978. The president could extend the authority for successive year periods if he determined that it was in the interests of the United States; and this power has been used in extending the TWEA ever since. Title II of Public Law 95-233 established the IEEPA 34 for the purposes of declaring a national emergency in response to a foreign threat to the 31 32 33 34

Pub. L. no 94-412,90 Stat. 1255 (1976). Pub. L. 95-223, 91 Stat. 1625 (1977). Sect. 101(b) Pub. L. no 95-223. Pub. L. no 95-223, 28 December 1977, 95th Congress Ist Session (1977), 50 USC 1701-1706.

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United States. The reform legislation was, in reality, an effort to limit the peacetime granting of emergency powers in three ways: diminishing the breadth of power granted; more strictly defining the occasion for the use of the power; establishing a procedure for declaring emergencies that include congressional input and veto. THE EXPORT ADMINISTRATION ACT There is no other single piece of legislation that gives the president more power to control US commerce than the EAA. Traditionally, the US government restricted the export of war materials or controlled such exports to countries at war. In 1898, three days prior to the declaration of war against Spain, Congress authorized the president ‘to prohibit the export of coal or other materials used in war from any seaport of the United States until otherwise ordered by the President or Congress’.35 Congress amended this legislation in 1912 to allow the president to prohibit the export of arms or munitions to any American country where conditions of domestic violence could be promoted by the availability of US arms.36 On the United States’ entry into World War I, Congress expanded the power of the president to restrict ‘during the present war’ the export of any articles to any country to be named in a presidential proclamation,37 and the TWEA of 6 October 1917 made it unlawful for any person in the United States, except with the authorization of the president, to trade with designated enemies or with nationals, agents or allies of such enemies. The 1898 and 1912 legislation was replaced by a resolution on 31 January 1922, giving the president the authority to license the export of arms and munitions to ‘any country in which the United States exercises extraterritorial jurisdiction’.38 On 31 August 1935, Congress, fearing that the United States may be drawn into war by other belligerent nations, enacted the Neutrality Act of 1935,39 which empowered the president to control the export of arms, ammunition or implements of war to the combative nations. Following the German conquest of France, Congress, on 2 July 1940, passed ‘an Act to Expedite the Strengthening of National Defense’.40 Section 35 36 37 38 39

Joint Resolution of 22 April 1898, no 25, 30 Stat. 739. SJ Res. 89, 37 Stat. 630 (1912). Act of 15 June 1917, Ch. 30, Tit. VII §1, 40 Stat. 225. SJ Res. 124, Ch. 44, 42 Stat. 361 (1922). SJ Res. 173, Ch. 837, 49 Stat. 1081.

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6 of this act authorized the president to prohibit the export from the United States ‘of any military equipment or munitions, or component parts thereof, or machinery, tools, or material, or supplies necessary for the manufacture, servicing or operation thereof’. Although the act was due to expire on 30 June 1942, it was extended by two years, and Section 6 was broadened to include ‘technical data’ as well as any goods and materials. The war had brought about world-wide shortages of chemicals, steel, raw materials, food and other essential items, so the export restrictions during the period 1945–7 were based primarily on ‘short supply’. The national security consideration was for critical material supplies and not, as it is in today’s rationale, for strategic materials. With further extensions, this act continued until 28 February 1949, when the Export Control Act (ECA) 41 came into force. However, the ECA merely set out the forms to be used and listed the terms, which were placed under licensing requirements. It was the first comprehensive US peacetime legislation for export restrictions. In the period between the end of World War II and the passage of the ECA, US policy-makers concluded that peacetime export control was an indispensable component of US policy towards the Soviet Union and its allies. With the ECA of 1949, these policies were continued, and exports to communist countries were controlled. The ECA authorized the president ‘to prohibit or curtail’ the export of ‘any articles, materials or supplies, including technical data, except under such rules and regulations as he shall prescribe’. The original aim of the ECA was to restrict exports for two reasons. Firstly, the domestic economy of the United States, following World War II, was faced with world-wide shortages of essential commodities such as steel, building supplies and chemicals which, in the absence of export controls, would have depleted the local market and caused inflation. Secondly, under the European Recovery Programme (later known as the Marshall Plan) the United States sponsored the rehabilitation of the economies of pre-World War II European nations, requiring the channelling of particular goods to particular countries on a priority basis. When the Soviet Union and other Eastern European countries stopped participating in the plan in its early stages, a third and still more important reason emerged. This was the need for close monitoring of the shipment of goods 40 R 9850, Ch. 508, 54 Stat. 712. 41 Act of 28 February 1949, Ch. 11, 63 Stat. 7.

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to the Soviet Union and other communist countries which might have had military significance. The threat of spreading Soviet political influence made national security a necessary aspect of the ECA. A Senate committee stated that ‘in light of the growing concern of democratic nations over the policies of the Eastern European nations, it is quite clear that our national security requires the exercise of such controls’.42 The US authorities came to the conclusion that the Soviet Union would be a permanent peacetime threat to American interests. They cited the establishment of communist regimes in the Soviet-occupied states of Eastern Europe, Soviet pressure on Iran, the threats of the occupation of Turkey and of communist insurrection in Greece, the communist overthrow of the Czechoslovakian government in February 1948 and the establishment of the Berlin blockade in June 1948. Thus, the passage of the ECA of 1949 was a direct response to Soviet activities. In April 1949, shortly after ECA legislation, the North Atlantic Treaty Organization (NATO) came into being, comprising the United States and its Western allies. Furthermore, in the same year the United States, through its economic leverage, trade and financial aid, forced Europe and Japan to sign up to COCOM, to control trade with the Soviet Union and its allies. Europe and Japan were at that time recuperating from the ravages of war and were being fed back to life by the Marshall Plan. Although the ECA was to be terminated on 30 June 1951, the Korean conflict, coupled with the need to restrict the export of items of strategic significance to the People’s Republic of China, the Soviet Union and its Warsaw Pact allies, prompted its extension. In the same year, Congress also passed the Mutual Defence Assistance Control Act,43 commonly known as the Battle Act in honour of its sponsor, Congressman Laurie Battle. This act gave the US government the authority to control the export of arms, ammunition, implements of war, nuclear materials, petroleum and other strategic items to any country where access to such items would threaten the security of the United States. It also prohibited military, economic and financial assistance to any country in violation of the act. In 1954, Congress enacted the Mutual Security Act, 44 which placed control over the export of arms, ammunition and other implements of war under the auspices of the State Department. 42 US Congress, Senate, S. Rept. 31, 81st Congress, 1st Session, 1949. 43 22 USC §1611-13d (1964). 44 22 USC §1934 (1958).

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The ECA did not lapse in 1951 as originally intended and, with minor amendments, was extended until the 1960s. By the 1960s, the use of export controls was deemed an acceptable foreign policy weapon, and by then comprehensive lists of controlled items of economic and military significance had been drawn up. While approval was routinely given for the shipment of goods to the free world, it was withheld if the ultimate recipient was a communist country. A committee to control exports was headed by Representative Paul Kitchen, who firmly believed that a total embargo on communist countries was necessary and, on his recommendation, Congress enacted a series of amendments and reinforced export controls. One of these amendments required the president to consider not only the potential military significance, but also the ‘economic significance’ when determining whether or not to approve exports. The president was empowered to ban any item ‘to any nation or combination of nations threatening the national security of the United States, if the President shall determine that such export makes a significant contribution to the military or economic power of such nations which would prove detrimental to the nations security and welfare of the United States’.45 These amendments were an expansive authorization given to the president by Congress: they provided that the export of any items that could assist the economic development of any country hostile to the United States be controlled for the purposes of national security and foreign policy. In the late 1960s, several factors alerted the United States to the fact that dramatic changes to its export controls were necessary. The most significant were: US trade balances declined from a 1964 credit of US$6.823 billion to US$5.432 billion in 1965 and US$3.031 billion in 1966, decreasing to US$2.583 billion in 1967, plummeting to US$611 million in 1968 and falling further to US$399 million in 1969; European Economic Community states, Japan and the Soviet Union had fully recovered from the losses of war, and their industries prospered; US control on 2029 export commodity categories to the Soviet Union, in comparison with the 552 categories of other COCOM members, was unreasonably high; trade between the United Kingdom, France, West Germany, Italy and Japan on one side and the Soviet Union on the other was growing rapidly; the United States no longer dominated the Western system as it once had in the 1950s and early 1960s; the United States no longer had a military advantage over the Soviet Union, which was 45 Publ. 87-515, 76 Stat. 127 (1962), 50 USC App. Sec. 2023(a) (1964), as amended (supp. I, 1965).

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approaching nuclear equality; the Soviet Union was capable of either producing its requirements or obtaining them from other sources (out of 1300 items on the ‘non-military lists’ subject to export control, over 1100 were freely available from other Western sources); the Labour Union supported the easing of trade with communist countries because inflation and growing unemployment were affecting their vital interests. In addition, the outcome of the Vietnam War and the unlimited power of President Johnson under the Tonkin Gulf Resolution of 1964 provided a background for Congress to examine the unrestricted powers of the president, especially within the ECA. Through the EAA of 1969, Congress wanted to terminate 20 years of unlimited presidential power over export control. Its actions represented an important departure from the ECA in both tone and substance. During the legislative process of the 1969 act, Congress attempted to instigate four major reforms: that the number of commodities subject to export control for national security be limited, and that the prohibition of the export of goods contributing to the ‘economic potential’ of hostile nations, which was included in the 1962 amendment to the ECA, be lifted; that the administration should consider the foreign availability of a controlled commodity when restricting its export; that Congress also seek to make the export licensing process more open and accountable to the business community by requiring the Department of Commerce to consult manufacturers regarding the control list and foreign availability; that Congress instruct the executive to harmonize US export control practice with other members of COCOM with the view to promoting trade. It also subjected the departmental action to judicial law. The Nixon administration was opposed to such reforms limiting presidential authority, and simply requested an extension to the act until 1973. It also sharply opposed the suggestion that the executive should consider the foreign availability of controlled goods, as well as the requirement to justify its decision to control goods to Congress or to the courts under the Administrative Procedures Act. The administration also favoured the need to restrict more commodities than the other COCOM members, who only regulated goods and technology of direct military significance. During the legislative process the executive won important compromises from Congress on major issues: agency and presidential decisions would not be subject to judicial review; the president retained flexibility in pursuing national security and foreign policy export controls; the president remained free to choose the purpose for which export controls were to

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apply – he could also cite foreign policy instead of national security reasons in order to avoid Congressional restraints; the president could still control exports for national security purposes even if the goods were available from foreign sources, provided the reasons were given to Congress. In summary, the final passage of the EAA of 1969 46 was an ‘administrative victory’. The executive maintained export controls and could cite national security, foreign policy and ideological objectives; but, at the same time, it ‘balanced the need for export controls with awareness of the adverse effects that an overly comprehensive and strict control system produced for the country’s economy and its balance of payments’.47 Although the substitution of ‘administration’ for ‘control’ in the title of the 1969 act reflected the political mood of that time, the final form was, in reality, not much changed, with the exception that it required the president to make various reports to Congress. However, it was a subsequent trend which precipitated some remarkable changes over the next ten years. The administration’s opposition to expanded trade with Eastern Bloc countries underwent a reassessment in the early 1970s when Nixon established relations, including trade, with the People’s Republic of China and negotiated a trade agreement with the Soviet Union. This agreement with Moscow was not ratified by Congress because Senator Henry Jackson, under pressure from active Jewish organizations and the leaders of the American Jewry, wanted to link the granting of most favoured nation (MFN) status for the Soviet Union to the freedom of Jews and, in general, to the improvement of that country’s human rights record. Congress, contrary to the wishes of Nixon and Ford, attached the human rights issue to the agreement, and passed what later became known as the Jackson-Vanik Amendment. The Soviets did not accept such conditions and so the agreement came to nothing. During the early 1970s, the Department of Commerce made minimal progress in decontrolling non-military exports. A significant reduction in the number of controlled commodities on the commodity controls list (CCL) was agreed in May 1973 when the commodity categories on the CCL were reduced from 550 entries to 73 48 (certain entries contained hundreds of actual commodities). 46 Export Administration Act of 1969, Publ. no 91-184, Stat. 841 (1969) (Codified at 50 USC app. §2401– 2413). 47 Gernot Stenger, ‘The Development of American Export Control Legislation After World War II’, Wisconsin International Law Journal, vol. 6 no 1, Fall 1987. 48 US Department of Commerce, Special Report to the President and Congress, 29 May 1973.

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The Department of Commerce may have reduced the number of controlled commodities, but it ignored Congress’s requirement on foreign availability of a controlled commodity. In 1977, under pressure from the private sector, Congress modified the EAA of 1969 and restricted the executive authority to impose export control on goods and commodities that were available abroad in ‘significant quantities and comparable in quality’ to US products. Section 4(c) reads as follows: Foreign availability – In accordance with the provisions of this Act, the President shall not impose export controls for foreign policy or national security purposes on the export from the United States… unless the President determines that adequate evidence has been presented to him demonstrating that the absence of such controls would prove detrimental to the foreign policy or national security of the United States.49

With this amendment, however, a new category of export control was authorized, providing the power to restrict export for foreign policy reasons. Together with reporting duties, consultation requirements and other measures, congressional checks on export control reached an unprecedented level in 1977. In order to reduce further presidential power over export control matters, the IEEPA was established. Under the 1977 amendment, the declared policy of the United States was to encourage trade with all nations except those ‘with which such trade has been determined by the President to be against national interest’.50 Export could also be prohibited ‘to the extent necessary to further significantly the foreign policy of the United States and to fulfil its international obligations’.51 Under the 1977 amendment, the President was given the authority to ‘implement this policy by prohibiting or curtailing export… under such rules and regulations as he shall prescribe’.52 President Carter used this authority in 1978–9 to prevent the export of US$400 million worth of trucks, aircraft and spare parts to Libya for its alleged aggression towards Egypt, and a Sperry Univac computer to the TASS news agency to express his displeasure with the trial and conviction of Alexander Grinzberg and Anatoly Shcharansky, two anti-Soviet activists. The extensive use by the Carter administration of this authority to impose foreign policy control prompted Congress to add provisions to guard against the misuse of foreign policy controls. 49 50 51 52

Export Administration Act of 1979, Publ. no 96–72. 50 USC §2402(a)(A) (1977). 50 USC §2402(7)(1977). 50 USC §2403(b)(1) (1977).

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The congressional hearings of 1978 and 1979, taking into consideration a deficit of more than US$14 billion in 1978 and in excess of US$15 billion in 1979, demonstrated the need for an increase in exports, and thus the EAA of 1979 was enacted with a pro-export emphasis. ‘The ability of United States’ citizens to engage in international commerce,’ the legislation stated, ‘is a fundamental concern of United States policy’.53 It continued: ‘it is important for the national interests of the United States that both the private sector and the Federal Government place a high priority on exports which would strengthen the nation’s economy’.54 The whole issue of expanding exports and restricting them only to the extent necessary came to a sudden end immediately after the EAA of 1979 was enacted. Two serious international incidents caused President Carter to restrict exports. The first restriction was against Iran in response to the seizure of the American embassy in Tehran in the autumn of 1979. President Carter restricted all exports to Iran. He declared the event to be an emergency case and, accordingly, based his actions on the IEEPA, which was being invoked for the first time. Secondly, the invasion of Afghanistan in December 1979 by Soviet troops prompted Carter to impose embargoes on grain, high-technology and phosphate exports to the Soviet Union. In this instance, Carter relied on the national security stipulations of the EAA for all three embargoes, and on the foreign policy clause for grain and high-technology embargoes. The President’s use of both sections for these embargoes was to avoid Congress overriding them, as they could have done if national security reasons alone had been cited. The grain embargo against the Soviet Union severely affected American farmers. In 1980, income dropped by an estimated US$11.5 billion, with 310,000 jobs lost. Congress was forced to react to criticism and amend the Agricultural and Food Act of 1981 with an agricultural embargo protection clause.55 This section provided for mandatory compensation for losses caused by export controls on agricultural products for either national security or foreign policy reasons. The period 1981–2, which also witnessed comprehensive sanctions being imposed against Poland and the Soviet Union, was a remarkable era in US export control policy. Some of the sanctions were for foreign policy 53 50 USC §2401(1). 54 50 USC §2401(3). 55 Agricultural and Food Act of 1981, 7 USC §1736(j) (1982).

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reasons, and were intended to control exports to the Soviet Union ‘of commodities for transmission (including transportation) and refinement of petroleum and natural gas and technical data related to oil and gas transmission or refinement’.56 All licences to export to the Soviet Union were suspended on 30 December 1981. In June 1982, President Reagan extended control to foreign subsidiaries of US corporations and foreign companies using American technology in their manufacturing. Reagan based his decision on a section that Congress added to the EAA in 1977 which allowed the president to impose export control on articles, materials and technical data ‘subject to the jurisdiction of the United States’. Whilst all this was happening, Congress was still following the trend of the EAA of 1979 to promote exports. By enacting two pieces of legislation in 1982 it proved that it had not abandoned its pro-export goals. One action was included in the Future Trading Act of 1982 where, in Section 238, it was provided that: Notwithstanding any other provision of law, the President shall not prohibit or curtail the export of any agricultural commodity or the products thereof under an export sales contract (1) entered into before the President announces an action that would otherwise prohibit or curtail the export of the commodity or products thereof, (2) the terms of which require delivery of the commodity… within two hundred and seventy days after the date the suspension of trade is imposed, except that the President… has declared a national emergency or… Congress has declared war.57

The second action was the Export Trading Companies Act,58 which permitted the creation of companies solely engaged in export under very favourable conditions. One major component of this act permitted banks to be financially involved in trade activities, and another was its anti-trust exclusion features. Both provided striking examples of trade-oriented legislation and represented another attempt to cope with the trade deficit. US trade policy, at the end of 1982, was mixed, with the enactment of the Export Trading Companies Act acknowledging the need to increase exports, whilst maintaining control over exports for foreign policy reasons. What emerged, however, was a clear intention that – in contrast to the grain embargo experience – export controls should not harm America more than the target nation. 56 47 Fed. Reg. 141 (1982). 57 7 USC §12C-3 (1982). 58 15 USC §4001 (1982).

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The EAA was due to expire on 30 September 1983 but, as Congress still had not reached a decision on the role of the Department of Defence in reviewing exports to COCOM members and sanctions against South Africa, it was extended until 14 October 1983 before being allowed to lapse. Reagan immediately used the IEEPA and declared a national emergency in order to maintain the EAA. Congress reinstated the act in December 1983, but let it expire in March 1984. The President used the EAA again, and continued export control under the umbrella of the IEEPA until Congress again authorized the EAA in July 1985. Negotiations on the EAA of 1985 had started early in 1983, but due to differences between the House and Senate the bill was not put to a vote until 1985. The Senate Bill S979 pushed for stricter limits on the use of export controls for foreign policy interests and tighter export controls for national security purposes. Further, the Senate wanted to curtail the president’s authority to impose export controls on agricultural products and prevent the president from breaking existing contracts when imposing foreign policy controls. The House bill HR3231 sought to liberalize licensing requirements for exports to COCOM members and to give the Department of Commerce the exclusive authority to review West-West trade and to be the enforcement body. It also required a congressional role in any presidential decision to extend foreign policy export controls extraterritorially. The administration opposed any restrictions on its authority in connection with export-control issues, and within the administration itself the jurisdiction over West-West licensing caused a major conflict between the Departments of Commerce and Defence. In contrast to the administration and Congress, the business community agreed on basic principles for revising export-control laws, including the addition of the sanctity of contracts and a total prohibition on the extraterritorial application of foreign policy controls. The House and Senate, by deleting these controversial issues, eventually presented the final bill for a vote. As a result, on 12 July 1985, following two years of debate and deliberation, Reagan signed into law the Export Administration Amendments Act of 1985 59 and stated that it was ‘an acceptable balance between enhancing our commercial interests and protecting our national security interests’.60

59 Export Administration Amendments Act of 1985, Publ. no 99-64, Stat. (1985). 60 Statement by the President, 12 July 1985.

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The EAA of 1985 made major changes to the EAA of 1979, namely: requiring the president to make certain determinations and to consult Congress, submitting a detailed report before imposing foreign policy controls; prohibiting the president from imposing foreign policy controls which would interfere with contracts entered into prior to any decision to restrict export; issuing validated licences authorizing multiple exports, allowing exporters to ship the same goods many times under a single licence; decontrolling the export of low-tech items to COCOM members and expediting the processing of export applications for controlled goods and technology to those countries; limiting the power of the Department of Commerce to deny export applications for the goods and technology available in the international marketplace; granting the Customs Service and the Department of Commerce police powers. The Customs Service would conduct investigations overseas, and any activity of the Department of Commerce would relate only to pre-licensing and post-shipment investigations. The 1985 act symbolized success for those in Congress and the business community who sought to liberalize US export controls. The two highlights, the sanctity of contract and the executive limits on foreign policy controls were, in reality, more nominal than actual. The president could break existing contracts if he determined and certified that the strategic interests of the United States were under threat. In order to avoid the limits on foreign policy restrictions, the IEEPA became a flexible weapon in the hands of the president. Thus, Reagan could use the IEEPA rather than the EAA to impose sanctions against Libya. The IEEPA allowed Reagan to avoid the sanctity of contract provision and the prohibition on the use of foreign policy export controls for agricultural products in the 1985 act. With the exception of minor amendments, Congress did not focus on export control until 1988, when the Omnibus Trade and Competitiveness Act (OCTA) of 1988 61 became law. The main goal of the act was to promote US exports in order to reduce the trade deficit, which by 1987 stood at US$170 billion. The act provided the United States with the necessary tools with which to participate in the Uruguay round of the Multilateral Trade Negotiations (MTN). Title I of the OTCA deals with trade, customs and tariff laws. Title II, which comes within the subject of this study, deals with export enhancement and control. Although this law did not alter the policies of the EAA, the amendments to the EAA made a number of important 61 Pub. L. no 100-48, 102 Stat. 1107 (1988).

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operational changes and some reforms. The most important was the substantial freeing of trade to COCOM members. The act authorized the export and re-export of goods and technology to foreign affiliates of domestic concerns. Similarly, it authorized the issuance of distribution licences for export to the People’s Republic of China, which had previously been grouped with the ‘controlled countries’ specifically excluded from authorization. There was also a general relaxation on the re-export of goods, provided that they were incorporated into a manufactured product and constituted less than 25 percent of the total value of the goods manufactured. The act addressed the issue of ‘foreign availability’ again. In the 1985 act this issue had been interpreted very narrowly; but the new act established more precise standards and procedures for exporters to export goods to controlled countries if such goods were available to them from alternative sources. The EAA in the 1990s Since 1990, there have been major efforts to rewrite the EAA, each one ending in failure. It has expired several times, being kept alive only by shortterm extensions granted by Congress or by the issuing of presidential executive orders invoking the IEEPA. The first failed attempt to rewrite it was in 1990. Senate and House officials, after months of debate among themselves and days of consultation with each other, eventually resolved their difference on many controversial provisions, including chemical/biological weapons sanctions, commodity jurisdiction, China sanctions, Iraq sanctions, Cuba sanctions and missile technology controls. In October, Congress passed the Export Facilitation Act of 1990 to extend and amend the EAA of 1979. But President Bush ‘pocket vetoed’ the bill in November 1990 (a pocket veto is an indirect veto which becomes effective when the president fails to act upon a bill before the adjournment of Congress.) The second failed effort to re-authorize the EAA was in 1991. Sam Gejdenson, the Democrat chairman of the House subcommittee with jurisdiction over the EAA, drafted HR3489. This bill, which had the support of the industry, would have required the administration to propose that COCOM eliminate the review of the telecommunication exports, mandate a revision of the procedures for deciding commodity jurisdiction between the Departments of Commerce and State, and remove mass market software from control under the US munitions list.

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The proposed change was a response to political events in the Soviet Union that have resulted in the liberation of the Baltic republics and the end of the political monopoly of the Soviet Communist Party. The House, in October 1991, passed HR3489. The Senate version of the EAA re-authorization (S320) passed in February 1991 did not reflect industry’s interests and lacked the provision of the House version. The Bush administration preferred the Senate version of the bill, and indicated that the telecommunication provisions and the mass-market provision would be grounds for a veto of the legislation. In October 1992, the House and Senate agreed to a compromise on the language of the bill, and the conference report was scheduled for floor votes. However, the House floor vote was blocked by several Republicans from the House Armed Services Committee, who claimed that the bill diminished unfairly the role of the Department of Defence in Department of Commerce export licensing decisions. No action was taken during the remaining few weeks of the Bush administration. On 27 March 1993, President Clinton signed a law extending the EAA until 30 June 1994. The extension was encouraged by industry while they began to lobby the Clinton administration and the new members of Congress to draft a new bill that reflected the changes in the international strategic environment. Also in 1993, a coalition of companies was formed to offer an industry proposal on EAA re-authorization. The Coalition for Export Control Reform drafted a comprehensive bill which was introduced to the House by Congressman Toby Roth (a Republican) who was, at the time, a member of the House subcommittee with jurisdiction over the EAA. On 20 September 1993, Representatives Gephardt, Gejdenson, Gingrich and Roth advised Clinton that the rationale for the reform of the EAA was to ‘enhance the ability of this nation to compete overseas and… improve the effectiveness of our controls on dual use exports’. Although Congress and the Clinton administration agreed that the rationale for national security controls, which was originally designed to block exports to the Soviet Union and the Communist Bloc countries, had changed, they did not agree on the bill. In early 1994, there was renewed interest in the EAA from Congress and the Clinton administration. Both the House and Senate held hearings on the issue, and the administration promised to draft a comprehensive proposal for revising the EAA. The administration finally produced a bill, despite inter-agency disagreements between the Departments of Commerce, Defence and State. In March 1994, Gejdenson introduced a

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bill, whilst another was introduced to the Senate. Although there were hearings on these two bills, neither was ever passed. Following the elections, the Republicans gained control over the House and Senate. In 1995, export controls liberalization advocate Toby Roth, chairman of the House International Relations subcommittee on trade and economic affairs, began a new and vigorous effort to enact a new EAA. The debate over the EAA gained some momentum, with the House and Senate holding hearings and the administration saying that the passage of a new EAA was a priority. Although a substantial amount of work was done behind the scenes on the bill, and different meetings were held between Congress and the administration, no legislation moved at all, even at a subcommittee level. The 1995 pro-industry EAA was eventually sunk by national security hawks, and so a new version was drafted without industry input for 1996. The Bureau of Export Administration (BXA), the agency which has broadest impact on US export and re-export activities, and the Capitol Hill EAA supporters hoped that a less pro-industry bill would finally allow the passage of a new EAA. Industry approached the new EAA bill with little enthusiasm. The American Electronics Association (AEA), on 18 April, attacked the bill’s proposed elimination of foreign availability relief, which would have given exporters the ability to request de-control if they could show that products were widely available from foreign competitors. Additionally, the AEA rallied against the codification of Clinton’s Executive Order 12981, which allowed any government agency to involve itself in licence processing systems. The rest of industry remained quietly on the sidelines, without denouncing it but providing no support either. On 26 June, the House Ways and Means Committee approved a new EAA (HR361), clearing the way to send the legislation to the House floor. On 16 July 1996, the House of Representatives passed the new EAA by voice vote, without a single dissenting voice and with no amendment. It was sent to the Senate, where the Senate Banking Committee began working on it. Several amendments were made, including the addition of foreign availability provisions. The committee also removed a controversial provision which would have allowed companies to sue competitors for advantages gained by complying with the Arab League boycott of Israel. Once again, industry refused to support the amended version of the EAA, and concluded that it did not constitute a ‘real reform’. As the BXA’s

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operation under the IEEPA gave it just enough authority to operate, industry did not feel the same sense of urgency to support a bill which did not help them much. In the end, the Senate did not find the 1996 bill compelling enough to bring it to a floor vote before going into recess for the elections. The new EAA, which had the active support of the House, the Clinton administration and the BXA, once again, while passing through Congress’s multi-layered legislative channels, died quietly. In July 1996, the United States and 32 other countries established the Wassenaar Arrangement in order to replace COCOM, which, with the collapse of the Soviet Union, had lost its raison d’etre. The Wassenaar Arrangement provides for unified export control on conventional arms and dual use goods and technology, including computer systems, with the intention of preventing the military development of countries regarded by the signatories as dangerous to international or regional security and stability. In 1997, the active champion of a new EAA, Toby Roth, had retired. Roth’s successor in the House International Relations subcommittee on trade and economic affairs, Republican Representative Elena Ros-Lehtinen, had no prior experience in export controls and represented a district in Miami where there was strong support for a continued trade embargo against Cuba. Ros-Lehtinen’s presence resulted in an exodus of export control staffers on the subcommittee. As a result, the office was not in a position to draft a new version of the EAA, so the 1996 bill was essentially resurrected as a beginning of a new EAA in 1997. A preliminary hearing was held before the subcommittee on 16 May to decide if a new bill would be introduced for vote in the autumn. Although BXA supported the 1996 bill, they were not favourably impressed with the hearing, and their scepticism eliminated any hope that a bill would be brought to the House floor for a vote in 1997. Although further hearings were held before the subcommittee in October, with the exception of the BXA and the Clinton administration, few seemed interested in the new bill. The year ended without any bill being introduced into Congress, and EAA proponents lost another annual legislative battle. Movement on the new EAA in 1998 was subsumed by the political drama played out between the White House and Independent Counsel Kenneth Starr through impeachment hearings. However, some changes in US export policy were noticed. In response to nuclear testing by both Pakistan and India, the Export Administration Regulation (EAR) was amended on 19 November to limit export of US-origin items to both countries. Also, on

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22 September, by amending EAR, US policy with regard to the export of commercial encryption items changed. The new licence exception allowed for export of strong encryption to the banks and financial institutions in all countries except those designated as state sponsors of international terrorism (Iran, Iraq, Syria, Sudan, Libya, Cuba and North Korea). During 1998, the United States engaged in extensive negotiations with signatories to the Wassenaar Arrangement. The United States amended the EAR as of 23 July in order to harmonize its export controls with Wassenaar. The year also saw the United States finalize attempts to implement the Chemical Weapons Convention (CWC) via the EAR. In 1999, with allegations of both Chinese spying and the illegal transfer of US technology abroad, there was a sense of urgency on the part of Congress to address US export controls. Congress proposed significant changes to the 1999 draft (still pending at the time of writing) of the EAA, which contains 19 different sections on 116 pages. Section 301 deals with national security export controls, under which the administration must establish a five-tier structure based on ‘risk factor’. Each country will be placed into one of the five tiers. The risk factors are based primarily on the countries’ relationship with the United States and its allies, as well as their potential for the diversion of US-origin products. Like the country list, the national security control list would also have different tiers, including an expedited list, containing items with a low risk of export diversion and a critical list, representing items with the highest export diversion risk. An application for export must be reviewed by the Departments of Defence, Energy, Commerce and State. A licence to export will be issued only if there is consensus among these four. The 1999 EAA imposes new and stricter penalties for export violations. An individual who knowingly violates the provisions of the act will be fined US$1 million and/or imprisoned for up to ten years for each violation. Life imprisonment could be imposed for multiple violations in aggravated circumstances. Civil penalties include denial of export privileges. Corporations will be fined up to US$10 million or ten times the value of the exports involved, whichever is higher. The Clinton administration strongly criticized key provisions of the proposed bill. William A. Reinsch, Undersecretary of Commerce, told the Senate Banking Committee on 23 June that requiring consensus ‘all the way through the Cabinet level’ before a decision could be made ‘would cripple the existing effective export licensing process without any appreciable

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gain to national security’. He said the proposal would replace the current system’s ‘default to decision’ mechanism with a ‘default to delay’. Another concern, Reinsch said, was that the 1999 EAA would prevent the administration from exercising the ‘judgment and discretion’ needed to improve effectiveness of multilateral export-control regimes by requiring congressional approval of any future international agreement. The administration and the Banking Committee have to wrestle with other issues, like anti-boycott provisions, foreign policy controls, commodities and country lists, before the 1999 EAA draft is acceptable to all parties. THE INTERNATIONAL EMERGENCY ECONOMIC POWERS ACT The imposition of economic sanctions during a declared state of national emergency would be done through the IEEPA. A national emergency, defined for the first time, is any ‘unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy or economy of the United States’.62 Thus, if the president wants to use the powers granted by the IEEPA to deal with a threat, he must declare a state of national emergency with respect to that threat, and any subsequent threat requires a new declaration of emergency. Under Section 204 of the IEEPA (50 USC 1703), the president must comply with a range of procedural safeguards. The president in ‘every possible instance, shall consult with the Congress before exercising any of the authorities granted by [the act] and shall consult regularly with Congress so long as such authorities are exercised’.63 It is interesting to note that in 1980 President Carter failed to consult with Congress, as required by law, when he imposed sanctions on Iran, and that Congress did not insist upon this point. It is also required that the president immediately transmit a report to Congress setting forth: (1) the circumstances which necessitate such exercise of authority; (2) why the President believes those circumstances constitute an unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States; (3) the authorities to be exercised and the actions to be taken in the exercise of those authorities to deal with those circumstances; 62 50 USC §1701(a)1. 63 50 USC §1703(a).

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(4) why the President believes such actions are necessary to deal with those circumstances; and (5) any foreign countries with respect to which such actions are to be taken and why such actions are to be taken with respect to those countries.64

This report is required to be supplemented every six months for the duration of the emergency.65 (For the full text of the act, see Document 2.) LIMITATIONS OF PRESIDENTIAL POWER Certain powers granted to the president under the TWEA were excluded from the IEEPA. The Power to Vest Foreign Property The most significant power the president was denied was the power to ‘vest’, or expropriate foreign property. Prior to its amendment in 1977, the TWEA provided that: Any property or interest of any foreign country or national thereof shall vest, when, as, and upon the terms, as directed by the president, in such agency or person as may be designated from time to time by the president, and upon such terms and conditions as the president may prescribe such interest or property shall be held, used, administered, liquidated, sold, or otherwise dealt with in the interest of and for the benefit of the United States.66

The omission of this clause from the IEEPA is significant. The idea of the legislators involved in the passage of the act was to remove the vesting powers of the president. It was agreed that the president could only put a freeze on foreign property, not seize such property. Unfortunately, the final language of the statute is not clear. If to ‘vest’ property literally means to ‘take’ title, this does not differ from other actions permitted by the IEEPA’s foreign property control. Under Section 203(a)(1)B of the IEEPA, the president is authorized to ‘direct and compel [the property’s] transfer’, and if the title of such property permits the exercise of some right or privilege with respect to property, the president can ‘nullify, void, prevent’ the exercise. This was tested in Dames & Moore v Regan.67 On 19 January 1981, when President Carter agreed to end the legal proceedings against Iran and 64 65 66 67

50 USC §1703(b). 50 USC §1703(c). Trading with the Enemy Act, §5(b)(1). 453 US 654, 101 SCT 2972.

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nullify attachments contained therein, some 450 actions were pending in the American courts. The claim of Dames & Moore was one of them. The claimants argued that the transfer of Iranian assets beyond the jurisdiction of the United States would permanently deprive them of their property in Iranian accounts, and hence was invalid under the IEEPA as a vesting. The Supreme Court reasoned that although ‘IEEPA does not give the president power to vest or to take title to the [Iranian] assets, it does not follow that the president is not authorised under… IEEPA… to otherwise permanently dispose of the assets in the manner done here’. (For details, see Chapter 4.) The Power to Regulate Purely Domestic Transactions Congress also denied the president the power that had been granted to him by the TWEA to regulate ‘purely domestic’ transactions during peacetime. Under the IEEPA the president has the authority over banking transactions only to the ‘extent that such transfers and payments involve any interest of any foreign country or a national thereof’.68 This restriction is, however, less relevant than it appears. The legislative history of the IEEPA indicates that this clause was added to the act once it became clear that the president under other statutes has substantial emergency powers to regulate domestic banking transactions. Presidential powers under the IEEPA differ from the TWEA in three additional respects. Firstly, the president lacks power under the IEEPA to regulate personal commutations which do not involve the transfer of anything of value. Furthermore, he cannot regulate uncompensated transfers of articles for humanitarian aid. Secondly, the IEEPA does not contain the language found in the TWEA authorizing the president to regulate gold or silver coins or bullion. Thirdly, the IEEPA does not allow the president to seize records. Although Congress, by enacting the IEEPA, attempted to limit the president’s power to times of war, a grandfather clause in the act provides that the powers granted to the president by Section 5(b) of the TWEA which were in force prior to 1 July 1977 could continue to be exercised by the president under the saving clause of the IEEPA, without the need for additional action. Economic sanctions against Cuba remain in force pursuant to the TWEA. The decision of the US Supreme Court in the case of Regan v Wald 69 construed presidential emergency powers to be expansive. 68 50 USC §1702(a)(1)a(ii). 69 Regan v Wald, 104 S. Ct. 3026 (1984).

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Regan v Wald was a challenge to controls on travel to Cuba that were considerably tightened in 1982 by an amended regulation.70 However, the new control could not be justified by the IEEPA because there were no travel restrictions placed on Cuba when the saving clause of the IEEPA (50 USC §1706) was enacted. President Reagan did not declare a new state of national emergency, and he failed to comply with the relevant reporting requirement. The Supreme Court verdict of five-to-four ruled that reliance on the TWEA was sufficient for new controls against countries subject to grandfathered controls. The court reasoned that travel-related sanctions, such as payment for transportation within Cuba and payment for food and lodging, were transactions carried out in respect to property in which Cuba or Cuban nationals had an interest. These transactions, the court believed, fell within the statutory language of the TWEA because the president is authorized to regulate any transaction involving any property in which a foreign country or national has any interest. The court failed to recognise that it was the intention of Congress to freeze existing restrictions by amending the TWEA and enacting the IEEPA. The Wald ruling effectively defeated congressional attempts to narrow the president’s authority to impose additional restrictions. Despite the declared intention of the IEEPA to restrict the peacetime emergency powers of the president, most legal experts believe that it was unsuccessful. The IEEPA did not add any notable procedural or substantive restraints to those imposed by the TWEA. The powers delegated to the president remain wide-ranging and complex to define. For example, to quote Michael Malloy, ‘I would contend that those statutory developments did virtually nothing to curb the President’s economic sanctions authority’.71 The rulings of the Supreme Court in the cases of Dames & Moore v Regan, Regan v Wald and the Immigration and Naturalization Services v Chadha and the Congressional amendment after the decision in the last of these 72 (a declared national emergency may continue at the president’s pleasure) construed the IEEPA’s definition broadly. Such decisions, in addition to the failure of Congress clearly to place restraints on the use of such authority, has undoubtedly expanded the president’s power to impose economic sanctions.

70 31 CFR §515.560 (1984) 71 Michael P. Malloy, Economic Sanctions and US Trade, Little, Brown, 1990, p. xviii. 72 Immigration and Naturalization Service v Chadha, 462 US 919 (1983).

DOCUMENT 1 The Typology of Non-violent Sanctions

I.

DIPLOMATIC AND POLITICAL MEASURES (a) Public protest, censure, condemnation (b) Postponement, cancellation of official visits, meetings, negotiations for treaties and agreements (c) Reduction, limitation of scale of diplomatic representation affecting status of post, diplomatic personnel, consular offices (d) Severance of diplomatic relations (e) Withholding recognition of new governments or new states (f) Vote against, veto admission to international organization; vote for denial of credentials, suspension or expulsion; removal of headquarters, regional offices of international organizations from target

II.

CULTURAL AND COMMUNICATIONS MEASURES* (a) Curtailment, cancellation of cultural exchanges, scientific cooperation, edu-cational ties, sports contacts, tourism (b) Restriction, withdrawal of visa privileges for target nationals (c) Restriction, cancellation of telephone, cable, postal links

*

These measures can also have economic effects.

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(d) Restriction, suspension, cancellation of landing and overflight privileges; water transit, docking and port privileges; land transit privileges III. ECONOMIC MEASURES (i) Financial (a) Reduction, suspension, cancellation of development assistance, military assistance (b) Reduction, suspension, cancellation of credit facilities at concessionary or market rates (c) Freeze, confiscation of bank assets of target government, target nationals (d) Confiscation, expropriation of other target assets (e) Freeze interest, other transfer payments (f) Refusal to refinance, reschedule debt repayments (interest, principal) (g) Vote against loans, grants, subsidies, funding for technical or other assistance from international organizations (ii) Commercial and Technical (a) Import, export quotas (b) Restrictive licensing of imports, exports (c) Limited, total embargo on imports, exports (Note: arms embargoes) (d) Discriminatory tariff policy, including denial of most favored nation (MFN) status, access to General Preferential Tariff (e) Restriction, cancellation of fishing rights (f) Suspension, cancellation of joint projects (g) Suspension, cancellation of trade agreements (h) Ban on technology exports (i) ‘Blacklisting’ those doing business with the target (j) Curtailment, suspension, cancellation of technical assistance, training programs (k) Ban on insurance and other financial services (l) Tax on target’s exports to compensate its victims

Source: Margaret Doxey, International Sanctions in Contemporary Perspective, Macmillan Press, 1996.

DOCUMENT 2 The International Emergency Economics Powers Act

1701. Unusual and extraordinary threat; declaration of national emergency; exercise of Presidential authorities. 1702. Presidential authorities. 1703. Consultation and reports. (a) Consultation with Congress. (b) Report to Congress upon exercise of Presidential authorities. (c) Periodic follow-up reports. (d) Supplemental requirements. 1704. Authority to issue regulations. 1705. Penalties. 1706. Savings provisions. (a) Termination of national emergencies pursuant to National Emergencies Act. (b) Congressional termination of national emergencies by concurrent resolution. (c) Supplemental savings provisions; supersedure of inconsistent provisions. (d) Periodic reports to Congress.

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§1701. Unusual and extraordinary threat; declaration of national emergency; exercise of Presidential authorities (a) Any authority granted to the President by section 1702 of this may be exercised to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States, if the President declares a national emergency with respect to such threat. (b) The authorities granted to the President by section 1702 of this title may only be exercised to deal with an unusual and extraordinary threat with respect to which a national emergency has been declared for purposes of this chapter and may not be exercised for any other purpose. Any exercise of such authorities to deal with any new threat shall be based on a new declaration of national emergency which must be with respect to such threat. (Pub. L. 95-223, Title II, §202, Dec.28, 1977, 91 Stat. 1626.) §1702. Presidential authorities (a) (1) At the times and to the extent specified in section 1701 of this title, the President may, under such regulations as he may prescribe, by means of instructions, licenses, or otherwise – (A) investigate, regulate, or prohibit – (i) any transactions in foreign exchange, (ii) transfers of credit or payments between, by, through, or to any banking institution, to the extent that such transfers or payments involve any interest of any foreign country or a national thereof, (iii) the importing or exporting of currency or securities; and (B) investigate, regulate, direct and compel, nullify, void, prevent or prohibit, any acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest; by any person, or with respect to any property, subject to the jurisdiction of the United States.

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(2) In exercising the authorities granted by paragraph (1), the President may require any person to keep a full record of, and to furnish under oath, in the form of reports or otherwise, complete information relative to any act or transaction referred to in paragraph (1) either before, during, or after the completion thereof, or relative to any interest in foreign property, or relative to any property in which any foreign country or any national thereof has or has had any interest, or as may be otherwise necessary to enforce the provisions of such paragraph. In any case in which a report by a person could be required under this paragraph, the President may require the production of any books of account, records, contracts, letters, memoranda, or other papers, in the custody or control of such person. (3) Compliance with any regulation, instruction, or direction issued under this chapter shall to the extent thereof be a full acquittance and discharge for all purposes of the obligation of the person making the same. No person shall be held liable in any court for or with respect to anything done or omitted in good faith in connection with the administration of, or pursuant to and in reliance on, this chapter, or any regulation, instruction, or direction issued under this chapter. (b) The authority granted to the President by this section does not include the authority to regulate or prohibit, directly or indirectly (1) any postal, telegraphic, telephonic, or other personal communication, which does not involve a transfer of anything of value; (2) donations, by persons subject to the jurisdiction of the United States, of articles, such as food, clothing, and medicine, intended to be used to relieve human suffering, except to the extent that the President determines that such donations (A) would seriously impair his ability to deal with any national emergency declared under section 1701 of this title, (B) are in response to coercion against the proposed recipient or donor, or (C) would endanger Armed Forces of the United States which are engaged in hostilities or are in a situation where imminent involvement in hostilities is clearly indicated by the circumstances; or

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(3) the importation from any country, or the exportation to any country, whether commercial or otherwise, of publications, films, posters, phonograph records, photographs, microfilms, microfiche, tapes, or other informational materials, which are not otherwise controlled for export under section 2404 of the Appendix to this title or with respect to which acts are prohibited by chapter 37 of Title 18. (Pub. L. 95-223, Title II, §203, Dec. 28, 1977, 91 Stat. 1626; Pub. L. 100418, Title II, §2502(b)(1), Aug. 23, 1988, 102 Stat. 1371.) §1703. Consultation and reports (a) Consultation with Congress The President, in every possible instance, shall consult with the Congress before exercising any of the authorities granted by this chapter and shall consult regularly with the Congress so long as such authorities are exercised. (b) Reports to Congress upon exercise of Presidential authorities Whenever the President exercises any of the authorities granted by this chapter, he shall immediately transmit to the Congress a report specifying – (1) the circumstances which necessitate such exercise of authority; (2) why the President believes those circumstances constitute an unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States; (3) the authorities to be exercised and the actions to be taken in the exercise of those authorities to deal with those circumstances; (4) why the President believes such actions are necessary to deal with those circumstances; and (5) any foreign countries with respect to which such actions are to be taken and why such actions are to be taken with respect to those countries. (c) Periodic follow-up reports At least once during each succeeding six-month period after transmitting a report pursuant to subsection (b) of this section with respect to an exercise of authorities under this chapter, the

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President shall report to the Congress with respect to the actions taken, since the last such report, in the exercise of such authorities, and with respect to any changes which have occurred concerning any information previously furnished pursuant to paragraphs (1) through (5) of subsection (b) of this section. (d) Supplemental requirements The requirements of this section are supplemental to those contained in title IV of the National Emergencies Act [50 U.S.C.A. §1641]. (Pub. L. 95-223, Title II, §204, Dec. 28, 1977, 91 Stat. 1627.) §1704. Authority to issue regulations The President may issue such regulations, including regulations prescribing definitions, as may be necessary for the exercise of the authorities granted by this chapter. (Pub. L. 95-223, Title II, §205, Dec. 28, 1977, 91 Stat. 1628.) §1705. Penalties (a) A civil penalty not to exceed $10,000 may be imposed on any person who violates any license, order, or regulation issued under this chapter. (b) Whoever wilfully violates any license, order, or regulation issued under this chapter shall, upon conviction, be fined not more than $50,000, or, if a natural person, may be imprisoned for not more than ten years, or both; and any officer, director, or agent of any corporation who knowingly participates in such violation may be punished by a like fine, imprisonment, or both. (Pub. L. 95-223, Title II, §206, Dec. 28, 1977, 91 Stat. 1628.) §1706. Savings Provisions (a) Termination of national emergencies pursuant to National Emergencies Act. (1) Except as provided in subsection (b) of this section, notwithstanding the termination pursuant to the National Emergencies Act [ 50 U.S.C.A §1601 et seq.] of a national emergency declared for purposes of this chapter, any authorities granted by this chapter, which are exercised on the date of such termination on the basis of such national emergency to prohibit transactions involving property in

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which a foreign country or national thereof has any interest, may continue to be so exercised to prohibit transactions involving that property if the President determines that the continuation of such prohibition with respect to that property is necessary on account of claims involving such country or its nationals. (2) Notwithstanding the termination of the authorities described in section 101(b) of this Act, any such authorities, which are exercised with respect to a country on the date of such termination to prohibit transactions involving any property in which such country or any national thereof has any interest, may continue to be exercised to prohibit transactions involving that property if the President determines that the continuation of such prohibition with respect to that property is necessary on account of claims involving such country or its nationals. (b) Congressional termination of national emergencies by concurrent resolution. The authorities described in subsection (a)(1) of this section may not continue to be exercised under this section if the national emergency is terminated by the Congress by concurrent resolution pursuant to section 202 of the National Emergencies Act [50 U.S.C.A §1622] and if the Congress specifies in such concurrent resolution that such authorities may not continue to be exercised under this section. (c) Supplemental savings provisions; supersedure of inconsistent provisions. (1) The provisions of this section are supplemental to the savings provisions of paragraphs (1), (2), and (3) of section 101(a) [50 U.S.C.A §1601(a)(1), (2), (3)] and of paragraphs (A), (B), and (C) of section 202(a) [50 U.S.C.A. §1622(a)(A), (B), and (C)] of the National Emergencies Act. (2) The provisions of this section supersede the termination provisions of section 101(a) [50 U.S.C.A. §1601(a)] and of title II [50 U.S.C.A §1621 et seq.] of the National Emergencies Act to the extent that the provisions of this section are inconsistent with these provisions.

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(d) Periodic reports to Congress. If the President uses the authority of this section to continue prohibitions on transactions involving foreign property interests, he shall report to the Congress every six months on the use of such authority. (Pub. L. 95-223, Title II, §207, Dec. 28, 1977, 91 Stat. 1628.)

3 SANCTIONS: A RATIONAL RESPONSE TO THE HOSTAGE-TAKING

T

hree days after the seizure of the US embassy in Tehran, when Ayatollah Khomeini refused to allow Ramsey Clark, the former US Attorney General, and William Miller, Staff Director of the Senate Committee on Intelligence, to enter Iran to deliver a message from President Carter, the US administration decided to take punitive action against it. The first measure was imposed on 8 November 1979, when the Secretary of State, at the direction of Carter under the authority of Section 2 of the Arms Export Control Act,1 suspended the shipment of about US$300 million worth of military spare parts which Iran had bought and paid for. On 12 November, Carter, acting on the grounds of national security under section 232 of the Trade Expansion Act,2 proclaimed that ‘recent developments in Iran have exacerbated the threat to the national security posed by imports of petroleum and petroleum products. Those developments underscore the threat to our national security which results from our reliance on Iran as a source of crude oil.’ 3 The importation into the United States of Iranian crude oil and refined finished products of such crude oil, and its possession by the United States, or within free trade zones of the United States, was banned. This section of the Trade Expansion Act authorizes the president to regulate imports of any commodity if he finds

1 2 3

Publ. L. no 90-629, 22 USC §2752. Codified at 19 USC §1862 (1976). Proclamation no 4702, 44 Fed. Reg. 67.602 (1979).

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that such a commodity ‘is being imported into the United States in such quantities or under such circumstances as to threaten or impair the national security’.4 The intention was to simply disrupt Iran’s foreign exchange earnings from the sale of crude oil to the United States, which, at that time, stood at US$13.8 million a day.5 The impact of the withdrawal of Iranian crude oil from the US market was significant enough for the United States that by 23 November 1979 the US Department of Energy had to implement a standby mandatory crude oil allocation programme. The international political angle of the hostage taking was highlighted by Carter: the lives of our people in Iran are at stake. I must emphasize the gravity of the situation. It’s vital to the United States and to every other nation that the lives of diplomatic personnel and other citizens abroad be protected and that we refuse to permit the use of terrorism and the seizure and holding of hostages to impose political demands. No one should underestimate the resolve of the American Government and the American people in this matter.

On 13 November 1979, the US Immigration and Naturalization Service (INS) introduced new requirements with respect to Iranian post-secondary students, and revoked deferred departure dates previously granted. Entry visas issued prior to this were also cancelled. The new INS requirements were challenged by the Iranian students as selective and discriminatory, but were upheld in the US Court of Appeals for the District of Columbia as a rational response to the crisis at hand.6 Iran’s Acting Foreign and Finance Minister at the time was Abolhassan Bani-Sadr, and it was his ill-considered suggestion that Iran might withdraw its assets from US banks, putting them out of reach of US jurisdiction, that prompted Carter, on 14 November, to act under the authority of the International Emergency Economic Powers Act (IEEPA) 7 and the National Emergencies Act (NEA) to declare a national emergency. Lloyd N. Cutler, Carter’s Counsel, in describing the events leading to the assets freeze, said: While we were debating the issue overnight on the 12th and 13th of November, Bani-Sadr, then the finance minister of Iran, announced that Iran was going to take all of its deposits out of US banks both in the United States and Europe. This, he said, would do very serious damage to the dollar. Because of the eight hour time gap, we heard of the announcement around three or four o’clock on the morning of November 14th. That ended all 4 5 6 7

19 USC §1862(b). Makio Miyagawa, Do Economic Sanctions Work? St Martin’s Press, 1992, p. 121. Narenji v Civiletti, 617F.2d 745, DC Circuit, 1979). Codified at 50 USC §1701-1706.

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debate and hesitancy within the administration. We decided that we had to go ahead…’8

Issuing Executive Order 12170,9 Carter stated: Pursuant to the authority vested in me as President including the International Emergency Economic Powers Act, 50 USCA Sec 1701 et seq., the National Emergencies Act, 50 USC Sec 1601 et seq., and 3 USC Sec 301, I, JIMMY CARTER, President of the United States, find that the situation in Iran constitutes an unusual and extraordinary threat to the national security, foreign policy and economy of the United States and hereby declare a national emergency to deal with that threat. I hereby order blocked all property and interests in property of the Government of Iran, its instrumentalities and controlled entities and the Central Bank of Iran which are or become subject to the jurisdiction of the United States or which are in or come within the possession or control of persons subject to the jurisdiction of the United States. The Secretary of the Treasury is authorized to employ all powers granted to me by the International Emergency Economic Powers Act to carry out the provisions of this order. This order is effective immediately and shall be transmitted to Congress and published in the Federal Register. The White House November 14, 1979

Jimmy Carter

This Executive Order represented the first exercise of authority available to the president under the IEEPA. The Iranian assets, amounting to over US$12 billion, consisting of the following, were with a stroke of a pen frozen: deposits and securities held with the Federal Reserve Bank, US$1.418 billion; deposits and securities held with overseas branches of US banks, US$5.579 billion; deposits held with US banks in the United States, US$2.050 billion; other assets held by US persons, about US$2 billion; Bank Markazi Iran’s gold with the Federal Reserve Bank, 1,632,917 ounces. To announce the freeze of Iranian assets, the While House issued a statement, referring only to Iranian intents to withdraw their deposits from US banks. The statement said: ‘The President has today acted to block all official Iranian assets in the United States, including deposits in United States banks and their foreign branches and subsidiaries. This Order is in response to reports that the Government of Iran is about to withdraw funds.’ 10 Oddly enough, there was no mention of the hostages 8 Andreas F. Lowenfeld, Trade Controls for Political Ends, Matthew Bender, 1983, p 540. 9 44 Fed. Reg. 65581 (1979). 10 15 Weekly Comp. Pres. Docs 2117, 14 November 1979).

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in the Executive Order or the White House statement; nor were they referred to in any other statement. The Order stated that the action was taken in view of ‘an unusual and extraordinary threat to the national security, foreign policy and economy of the United States’. The exceptional feature of this Order was the threat to ‘the economy of the United States’. The US government appreciated the very real threat to the stability of the dollar in the world market that would have been caused by the withdrawal of US dollars by Bank Markazi and other Iranian commercial banks. Such action would certainly have had a destabilizing effect and had serious implications for the liquidity of US banks. Later this was confirmed by Roberts Owen, the legal advisor to the US Secretary of State during the hostage crisis. In defending the assets freeze in the International Court of Justice, Owen noted that the Iranian threat of withdrawal of assets from the United States ‘constituted nothing less than an attack on the stability of the world economy and the international monetary system’. However, the stated purpose of the US government’s decision to block Iranian assets, as Carter reported to Congress, was to ‘enable the United States to assure that these resources will be available to satisfy lawful claims of citizens and entities of the United States against the Government of Iran’. Later, it became known that the US government had, as of November 1978, about a year before the embassy take-over, and while the Shah was still in Iran, drawn up a plan to freeze Iranian assets. Fernand St Germain, chairman of the House Committee on Banking, Finance and Urban Affairs, stated in July 1981: Nine months before the hostages were seized, during a period when economic conditions were relatively calm in Iran and in a time in which there was no evidence that Iran might withdraw its funds, legal technicians in the Department of Treasury concluded that the conditions for invoking the IEEPA existed. Such a case for a freeze made at that time on economic grounds was tenuous at best. The ‘emergency’ apparently resulted from the alleged vulnerability of the US banking and financial system to the threat of a withdrawal of Iranian assets.11

He also confirmed that ‘the Treasury Department was prepared with draft freeze regulations as early as February 1979. Those draft regulations later became the basis for the regulations issued after President Carter’s freeze order on November 14, 1979.’ 12 11 ‘Iran, The Financial Aspects of the Hostage Settlement Agreement’, Committee on Banking, Finance and Urban Affairs, House of Representatives, 97th Congress, 1st Session, July 1981, p. iv.

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The freezing of US$12 billion worth of Iranian assets was, and remains, the most significant measure taken by the United States in the history of sanctions. The next biggest assets freeze was that of Libyan assets in 1986, totalling US$818 million. Aside from the record total in the Iranian case, another unique feature was that about US$6 billion of Iranian assets held outside of the United States were also blocked. Although countries previously sanctioned by the United States had their assets blocked outside the United States, none actually had any significant assets to render such sanctions really effective. Cuban assets frozen totalled US$33 million, and only US$100 million of North Vietnamese assets were frozen, whilst remaining assets blocked were insubstantial. The significance of the Iranian assets freeze can only be understood if one recalls that with the involvement of the United States in World War II, and at the height of that war, the US Treasury blocked the assets of virtually the entire globe, which amounted to less than US$8 billion. The comparison between the two figures is interesting, even though of course inflation must be taken into account. The freezing of Iranian assets, as ordered, had a narrower scope than earlier US practice. The Iranian assets freeze applied only to the assets controlled by the Iranian government in the United States and those assets in the possession of US citizens overseas. Earlier assets freezes, similar to those applied to Cuba, China and Vietnam, also included assets belonging to the nationals of sanctioned countries. Such a departure from the general practice could only be explained if the desire was not to block the assets of the Shah and his family. The US government did not want the consequences of freezing Iranian assets to disrupt commercial transactions or create a trade embargo. ‘We intend to keep normal commercial transactions going as usual because these are appropriate and we should not try to interfere with the legitimate activities of private individuals or private firms’.13 This, inevitably, was not feasible. The assets freeze did have an effect on trade to some extent. There were goods waiting to be shipped to Iran, the titles of which had already been passed to the Iranian government or to some other entity acting on its behalf. Furthermore, the accounts of all Iranian banks, through which funds were to be transferred to the US suppliers or manufacturers of such goods, were blocked, making it impossible for trade with the United States to continue. 12 Ibid., p. 5. 13 Office of the White House Press Secretary, press briefing by G. William Miller, Secretary of the Treasury, 14 November 1979.

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THE UNITED STATES’ ALLIES AND SANCTIONS Historically, a unilateral trade embargo has never been fully effective. Aware of this, the United States sought to obtain the co-operation of its allies before imposing trade sanctions against Iran. From 10 to 13 December, the US Secretary of State, Cyrus Vance, visited the United Kingdom, Germany, France, Italy and the NATO Council in Brussels to seek their support for punitive economic and financial measures against Iran. The United States requested its allies to: freeze Iranian assets; support the United States in the United Nations; restrict exports to Iran; prohibit the import of Iranian oil; insist on timely payment of Iran’s loans. Although US allies agreed that the principle of diplomatic immunity ought to be maintained, the only support they extended to the United States was that of a diplomatic and political nature. A communiqué issued by all 15 NATO foreign ministers at the end of their meeting on 13 December stated that the organization had no desire to intervene in Iran’s internal affairs. But the statement went on to say that ‘the seizure of the US embassy in Tehran should be opposed by the international community as a whole, and it called for the immediate release of the hostages’.14 This negative response to US requests is understandable if the economic interests of these countries at the time are considered. Oil imports from Iran accounted for 7.1 percent of the United Kingdom’s total oil imports, and existing contracts were worth over $1 billion. A contract for Chrysler’s British subsidiary to supply car kits with a value of £150 million and a Marples Ridgeway contract valued at £125 million to build a highway in Iran – among other deals – constituted business that the United Kingdom could not afford to lose. A trade embargo on Iran would have inflicted much greater hardship on the Germans. Germany depended on Iran for 12.6 percent of its oil imports, and after the United States was the largest exporter of goods to Iran. Italian state-owned companies Societa Italiana per Conduitte d’Acqua and Italimpianti alone had contracts worth approximately US$1 billion for the expansion of the Bandar Abbas port and a steel complex in Iran.15 Similar situations existed in other European countries, and commercial and financial gain was the final factor that denied the United States the support requested. For example, on 7 December, Richard Cooper, US Under Secretary for Economic Affairs, and Anthony Soloman, Under Secretary 14 ‘US may call for sanctions on Iran’, Financial Times, 14 December 1979. 15 ‘How much will sanctions cost us?’ The Economist, 26 April 1980, p. 54.

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responsible for international monetary affairs, were sent to Switzerland to request the freezing of Iranian assets in all branches and subsidiaries of American banks in Switzerland. The Swiss government viewed an assets freeze as a move ‘encroaching on its sovereignty and threatening international monetary stability’.16 No doubt the size of Iranian deposits in Swiss financial institutions was the main factor behind Switzerland’s rejection of such an idea. The United States also greatly needed the support of Japan, the largest importer of Iranian goods and the third-largest exporter to Iran. Japanese oil companies imported 600,000 barrels a day, or 13 percent of their total oil requirements, from Iran. The US Deputy Secretary of the Treasury, Robert Carswell, flew to Tokyo on 16 December especially to seek Japanese co-operation in imposing sanctions on Iran. Japan, like the Europeans, refused to co-operate. Harold Saunders, US Assistant Secretary of State and the head of the Iran Working Group during the crisis, admitted that the ‘allies were supportive but, with no end of the crisis in sight, were increasingly restive with the idea of committing themselves to a long term interruption of economic relations with Iran’.17 This failure to obtain allied co-operation prompted the United States to adopt a more persuasive measure to encourage their participation. THE APPROACH TO THE UNITED NATIONS During the early stages of the crisis, on 9 November 1979, the United States wrote to the President of the Security Council requesting its intervention in securing the release of the hostages. In response, the President of the Council, supported by all members, issued a statement calling on Iran to release the hostages without delay.18 The statement, issued on 27 November 1979, was closely followed on 4 December by Resolution 457 calling upon Iran ‘to release immediately the personnel of the Embassy of the United States of America being held at Tehran, to provide them with protection and to allow them to leave the country’. The resolution further called upon Iran and the United States ‘to take steps to resolve peacefully the remaining issues between them to their mutual 16 Peter Norman, ‘Mr Vance seeks allies in Bonn and London over Iran money war’, The Times, 8 December 1979. 17 Harold H. Saunders, ‘Diplomacy and Pressure, November 1979–May 1980’ in Warren Christopher, American Hostages in Iran: The Conduct of a Crisis, Yale University Press, 1985. 18 United Nations Security Council Distribution General, S/13616, 1979.

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satisfaction in accordance with the purposes and principles of the United Nations’.19 On 29 November, the United States filed a suit in the International Court of Justice (ICJ) in The Hague and petitioned the court for a legal decision that Iran’s action in taking and holding the hostages violated certain articles of the 1961 Vienna Convention of Diplomatic Relations, the 1963 Vienna Convention of Consular Relations, the Convention on the Prevention and Punishment of Crimes against International Protected Persons including Diplomatic Agents, the 1955 Treaty of Amity, Economic Relations and Consular Rights between the United States and Iran, and of the Charter of the United Nations. On 30 November, the President of the Court informed the parties that a public hearing would be held on 10 December. Iran decided not to be represented at the hearing. Iranian Minister of Foreign Affairs Sadeq Ghotbzadeh advised the court by telegram on 9 December that Iran refused to recognize its jurisdiction over the case, stating that the question of the hostages only represents a marginal and secondary aspect of an overall problem, one such that it cannot be studied separately, and which involves, inter alia, more than 25 years of continual interference by the United States in the internal affairs of Iran, the shameless exploitation of our country, and numerous crimes perpetrated against the Iranian people, contrary to and in conflict with all international and humanitarian norms. The problem involved in the conflict between Iran and the United States is thus not one of the interpretation and the application of the treaties… but results from an overall situation containing much more fundamental and more complex elements. Consequently, the Court cannot examine the American Application divorced from its proper context, [which]… includes, inter alia, all the crimes perpetrated in Iran by the American Government, in particular the coup d’état of 1953 stirred up and carried out by the CIA, the overthrow of the lawful national government of Dr Mossadegh, the restoration of the Shah and of his regime which was under the control of American interests, and all the social, economic, cultural and political consequences of the direct interventions in our internal affairs, as well as the grave, flagrant and continuous violations of all international norms, committed by the United States in Iran.20

Despite this Iranian claim, the International Court of Justice decided that it did have jurisdiction over the matter, and on 15 December issued a 19 United Nations Security Council Resolution 457, S/INF/35, 1979. 20 International Court of Justice, case concerning United States Diplomatic and Consular Staff in Tehran, Order of 15 December 1979, General List 64.

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‘provisional’ decision condemning the hostage seizure as a violation of international law and ordering the release of the hostages along with the return of the property. THE COURT, unanimously, 1. Indicates, pending its final decision in the proceedings instituted on 29 November 1979 by the United States of America against the Islamic Republic of Iran, the following provisional measures: A (i) The Government of the Islamic Republic of Iran should immediately ensure that the premises of the United States Embassy, Chancery and Consulates be restored to the possession of the United States authorities under their exclusive control, and should ensure their inviolability and effective protection as provided for by the treaties in force between the two States and by general international law; (ii) The Government of the Islamic Republic of Iran should ensure the immediate release, without any exception, of all persons of United States nationality who are or have been held in the Embassy of the United States of America or in the Ministry of Foreign Affairs in Tehran, or have been held as hostages elsewhere, and afford full protection to all such persons, in accordance with the treaties in force between the two States and with general international law; (iii) The Government of the Islamic Republic of Iran should, as from that moment, afford to all the diplomatic and consular personnel of the United States full protection, privileges and immunities to which they are entitled under the treaties in force between the two States and under general international law, including immunity from any form of criminal jurisdiction and freedom and facilities to leave the territory of Iran; B The Government of the United States and the Government of the Islamic Republic of Iran should not take any action and should ensure that no action is taken which may aggravate the tension between the two countries or render the existing dispute more difficult of solution; 2. Decides that, until the Court delivers its final judgement in the present case, it will keep the matters covered by this Order continuously under review.

The Court issued a final judgement on 24 May 1980 affirming the above provisional order. This favourable judgement from the International Court of Justice was interpreted by the United States as giving US policy international

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legitimacy to use the UN framework for preparing collective measures against Iran. On 21 December, President Carter stated that ‘we have made clear from the very beginning that the United States prefers a peaceful solution in preference to other remedies which are available to us under International Law. For a peaceful resolution to be achieved it is now clear that concrete action must be taken by the international community’.21 He also requested that the Security Council impose sanctions against Iran under Chapter VII of the United Nations Charter. President Carter requested that the world community ‘support the legal machinery it has established so that the United Nations and the International Court of Justice will continue to be relevant in settling serious disputes which threaten peace among nations’.22 On 31 December, with the Soviet Union, Bangladesh, Czechoslovakia and Kuwait abstaining, the Security Council approved, by a vote of 11 in favour to none against, a resolution requesting Iran ‘to release immediately all persons of US nationality being held as hostages in Iran, to provide them protection and to allow them to leave the country’.23 The resolution also requested the Secretary General to lend his good offices to the search for a solution. Kurt Waldheim, the Secretary General, in accordance with this resolution, flew to Tehran to meet the Iranian authorities. But he was not able to meet Khomeini, the only decision-maker in Tehran at that time. After returning to New York he told the Security Council on 7 January 1980, that ‘at present Iran was not prepared to respond to the call from the United Nations for the release of the hostages’. Under Resolution 461, the Security Council also agreed to meet on 7 January ‘to review the situation and, in the event of non-compliance with the present resolution, to adopt any effective measures, under Articles 39 and 41 of the Charter of the United Nations’.24 With the passage of the resolution and Iranian non-compliance, the process of finalizing UN economic sanctions against Iran began. In order for the Security Council to adopt ‘effective measures’ (sanctions) against Iran, the United States on 10 January 1980 presented to the Security Council a draft resolution and requested that, until the release of all the hostages, all state members of the United Nations: 21 ‘Economic sanctions against Iran’, remarks announcing the intention to seek UN action, 21 December 1979, 15 Weekly Comp. Pres. Docs 2277, 24 December 1979. 22 Ibid., Doc. 2278. 23 UN Security Council Resolution 461 (1979). 24 Ibid.

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(a)

(b)

(c)

(d)

(e) (f)

(g)

shall prevent the sale or supply, by their nationals or from their territories, whether or not originating in their territories, to or destined for Iranian Governmental entities in Iran or any other person or body for the purposes of any enterprise carried on in Iran, of all items, commodities or products except food, medicine and supplies intended strictly for medical purposes; shall prevent the shipment by vessel, aircraft, railway, or other land transport of their registration or owned by or under charter to their nationals, or the carriage, whether or not in bond by land transport facilities across their territories of any of the items, commodities and products covered by subparagraph (a) which are consigned to or destined for Iranian Governmental entities or any person or body in Iran, or to any enterprise carried on in Iran; shall not make available to the Iranian authorities or to any person in Iran or to any enterprise controlled by any Iranian Governmental entity any new credits or loans; shall not, with respect to such persons or enterprises, make available any new deposit facilities or allow substantial increases in existing non-dollar deposits or allow more favourable terms of payment than customarily used in international commercial transactions; and shall act in a businesslike manner in exercising any rights when payments due on existing credits or loans are not made on time and shall require any persons or entities within their jurisdiction to do likewise; shall prevent the shipment from their territories on vessels or aircraft registered in Iran of products and commodities covered by subparagraph (a) above; shall reduce to a minimum the personnel of Iranian diplomatic missions accredited to them; shall prevent their nationals, or firms located in their territories, from engaging in new service contracts in support of industrial projects in Iran, other than those concerned with medical care; shall prevent their nationals or any person or body in their territories from engaging in any activity which evades or has the purpose of evading any of the decisions set out in this resolution.25

On 10 January 1989 the draft resolution was put to a vote. The Soviet Union and East Germany, claiming that the issue was a bilateral one between the United States and Iran, voted against the resolution and, as the negative vote of the Soviet Union constituted a veto, it was defeated. Ambassador McHenry expressed US anger by calling the Soviet Union vote ‘a cynical and irresponsible exercise of its veto power. The Soviets

25 S/13735, 10 January 1980.

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hoped that, by blocking sanctions, they can divert attention from their subjugation of Afghanistan and carry favour with the Government of Iran, who are among those most directly affected by the Afghan invasion.’ 26 NEW UNILATERAL MEASURES When efforts to secure multinational sanctions through the United Nations failed, Carter announced on 7 April a number of new decisions. Diplomatic relations with Iran were broken off, and all Iranian diplomatic and consular personnel and military trainees were ordered to leave the United States. US entry visas held by Iranians were invalidated, and new visas were issued only on strong humanitarian grounds. Carter also announced that he had ordered the Secretary of the Treasury to make an inventory of the frozen Iranian assets and the outstanding claims of US citizens and corporations against Iran in order to prepare a claims programme against Iran for the hostages, their families and other US claimants. He added that legislation would be introduced to Congress which would facilitate the processing and payment of these claims. The most important action of the day was the issuance of Executive Order 12205 by Carter under the authority of Section 203 of the IEEPA and Section 301 of the NEA which prohibited trade and other transactions with Iran: By the authority vested in me as President by the Constitution and statutes of the United States, including Section 203 of the International Emergency Economic Powers Act (50 USC 1702), Section 301 of Title 3 of the United States Code and Section 301 of the National Emergencies Act (50 USC 1631) in order to take steps additional to those set forth in Executive Order number 12170 of November 14, 1979, to deal with the threat to the national security, foreign policy and economy of the United States referred to in that Order, and in furtherance of the objectives of the United Nations Security Council Resolution 461 (1979) adopted on December 3, 1979, it is hereby ordered as follows: 1-101. The following are prohibited effective immediately, notwithstanding any contracts entered into or licenses granted before the date of this Order: (a) The sale, supply or other transfer, by any person subject to the jurisdiction of the United States, of any items, commodities or products except food, medicine and supplies intended strictly for medical purposes, and donations of clothing intended to 26 Statement by Donald F. McHenry, US ambassador to the United Nations, before the UN Security Council, 13 January 1980.

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relieve human suffering, from the United States or from any foreign country, whether or not originating in the United States, either to or destined for Iran, an Iranian Governmental entity in Iran, any other person or body in Iran or any other person or body for the purposes of any enterprise carried on in Iran. (b) The shipment by vessel, aircraft, railway or other land transport of United States registration or owned by or under charter to any person subject to the jurisdiction of the United States or the carriage (whether or not in bond) by land transport facilities across the United States of any of the items, commodities and products covered by paragraph (a) of this section which are consigned to or destined for Iran, an Iranian Governmental entity or person or body in Iran, or to any enterprise carried on in Iran. (c) The shipment from the United States of any of the items, products and commodities covered in paragraph (a) of this section on vessels or aircraft registered in Iran. (d) The following acts, when committed by any person subject to the jurisdiction of the United States in connection with any transaction involving Iran, an Iranian Governmental entity, an enterprise controlled by Iran or an Iranian Governmental entity or any person in Iran: i) Making available any new credits or loans; ii) Making available any new deposit facilities or allowing substantial increases in non-dollar deposits which exist as of the date of this Order; iii) Allowing more favorable terms of payment than are customarily used in international commercial transactions; or iv) Failing to act in a businesslike manner in exercising any rights when payments due on existing credits or loans are not made in a timely manner. (e) The engaging by any person subject to the jurisdiction of the United States in any service contract in support of an industrial project in Iran, except any such contract entered into prior to the date of this Order or concerned with medical care. (f) The engaging by any person subject to the jurisdiction of the United States in any transaction which evades or avoids, or has the purpose of evading or avoiding, any of the prohibitions set forth in this section. 1-102. The prohibitions in Section 1-101 above shall not apply to transactions by any person subject to the jurisdiction of the United States which is a non-banking association, corporation, or other organization organized and doing business under the laws of any foreign country.

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1-103. The Secretary of the Treasury is delegated and authorized to exercise all functions vested in the President by the International Emergency Economic Powers Act (50 USC 1701 et seq.) to carry out the purposes of this Order. The Secretary may re-delegate any of these functions to other officers and agencies of the Federal Government. 1-104. The Secretary of the Treasury shall ensure that actions taken pursuant to this Order and Executive Order number 12170 are accounted for as required by Section 401 of the National Emergencies Act (50 USC 1641). 1-105. This Order is effective immediately. In accord with Section 401 of the National Emergencies Act (50 USC 1641) and Section 204 of the International Emergency Economic Powers Act (50 USC 1703) it shall be immediately transmitted to the Congress and published in the Federal Register’. The White House April 7, 1980

Jimmy Carter

In his remarks, Carter also stated that he had made ‘every effort to obtain [the hostages’] release on honourable, peaceful and humanitarian terms, but the Iranians have refused to release them, or even to improve the inhumane conditions under which these Americans are being held captive’.27 He also warned Iran that ‘other actions may become necessary if these steps do not produce the prompt release of the hostages’.28 The trade sanctions were symbolic, and would never have hurt Iran, nor prompted the release of the hostages. Since the accession to power by Khomeini, US exports to Iran had drastically declined. In 1978, US exports to Iran totalled approximately US$280 million per month. Before the hostage crisis, exports had dropped to as little as US$26 million per month, and just before the 7 April sanctions decision they were down to a mere US$1.4 million. The 7 April order expanded the economic sanctions against Iran from the blocking of assets to a full economic embargo. But despite the magnitude of the block on Iranian assets and the trade embargo, Iran steadfastly refused to release the hostages. So, on 17 April, ten days after imposing the export ban, the President further expanded sanctions and issued Executive Order 12211, forbidding all imports from Iran: By the authority vested in me as President by the Constitution and statutes of the United States, including Section 203 of the International Emergency 27 ‘Sanctions Against Iran’, remarks announcing US actions, 7 April 1980, 16 Weekly Comp. Pres. Docs 611, 14 April 1980. 28 Ibid., p. 612.

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Economic Powers Act (50 USC 1702), Section 301 of Title 3 of the United States Code, Sections 1732 and 2656 of Title 22 of the United States Code, and Section 301 of the National Emergencies Act (50 USC 1631), in order to take steps additional to those set forth in Executive Order 12170 of November 14, 1979 and Executive Order 12205 of April 7, 1980, to deal with the threat to the national security, foreign policy and economy of the United States referred to in those Orders, and the added unusual and extraordinary threat to the national security, foreign policy and economy of the United States created by subsequent events in Iran and neighbouring countries, including the Soviet invasion of Afghanistan, with respect to which I hereby declare a national emergency, and to carry out the policy of the United States to deny the use of its resources to aid, encourage or give sanctuary to those persons involved in directing, supporting or participating in acts of international terrorism, it is hereby ordered as follows: 1-101. Paragraph 1-101(d) of Executive Order No 12205 is hereby amended by the addition of a new subparagraph (v) as follows: (v) Make any payment, transfer of credit, or other transfer of funds or other property or interests therein, except for the purposes of family remittances. 1-102. The following transactions are prohibited, notwithstanding any contracts entered into or licenses granted before the date of this Order: (a) Effective immediately, the direct or indirect import from Iran into the United States of Iranian goods or services, other than materials imported for news publication or news broadcast dissemination. (b) Effective immediately, any transactions with a foreign person or foreign entity by any citizen or permanent resident of the United States relating to that person’s travel to Iran after the date of this Order. (c) Effective seven days from the date of this Order, the payment by or on behalf of any citizen or permanent resident of the United States who is within Iran of any expenses for transactions within Iran. The prohibitions in paragraphs (b) and (c) of this section shall not apply to a person who is also a citizen of Iran and those prohibitions and the prohibitions in section 1-101 shall not apply to a journalist or other person who is regularly employed by a news gathering or transmitting organization and who travels to Iran or is within Iran for the purpose of gathering or transmitting news, making news or documentary films, or similar activities. 1-103. The Secretary of the Treasury is hereby directed, effective fourteen days from the date of this Order, to revoke existing licenses for transactions by persons subject to the jurisdiction of the United States with Iran Air, the National Iranian Oil Company and the National

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1-105.

1-106.

1-107.

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Iranian Gas Company, previously issued pursuant to regulations under Executive Order No 12170 or Executive Order No 12205. The Secretary of the Treasury is delegated, and authorized, to exercise all functions vested in the President by the International Emergency Economic Powers Act (50 USC 1701 et seq.) to carry out the purposes of this Order. The Secretary may re-delegate any of these functions to other officers and agencies of the Federal Government. The Secretary of the Treasury shall ensure that actions taken by him pursuant to the above provisions of this Order, Executive Order No 12170 and Executive Order No 12205 are accounted for as required by Section 401 of the National Emergencies Act (50 USC 1641). The Secretary of State is delegated, and authorized to exercise in furtherance of the purposes of this Order, the powers vested in the President by Section 2001 of the Revised Statutes (22 USC 1732), Section 1 of the Act of July 3, 1926 (22 USC 211a) and Section 215 of the Immigration and Naturality Act (8 USC 1185) with respect to: (a) the restriction of the use of United States passports for travel to, in or through Iran, and; (b) the regulation of departures from and entry into the United States in connection with travel to Iran by citizens and permanent residents of the United States. Except as otherwise indicated herein, this Order is effective immediately. In accord with Section 401 of the National Emergencies Act (50 USC 1641) and Section 204 of the International Emergency Economic Powers Act (50 USC 1703), it shall be immediately transmitted to the Congress and published in the Federal Register.

The White House April 17, 1980

Jimmy Carter

The stated purpose of this Order, which, like the 7 April measure, was issued under the authority of the IEEPA and the NEA, was to deal with the ‘threat to the national security, foreign policy and economy of the United States’ caused by the events in Iran, as well as ‘to carry out the policy of the United States to deny the use of its resources to aid, encourage, give sanctuary to those persons involved in directing, supporting or participating in acts of international terrorism’. As the import of crude oil to the United States had been banned since November 1979, the import ban of the 17 April sanctions had little real impact. Only very small quantities of rugs and pistachio nuts were affected. This new Order imposed additional financial restrictions by prohibiting ‘any payment, transfer of credit, or other transfer of funds or other property

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or interests therein, except for family remittances’. The original blocking programme did not include the blocking of assets subject to US jurisdiction in which Iranian nationals who were naturalized had an interest. It only prohibited all transactions involving property in which Iran or Iranian entities had an interest. This amendment, by adding ‘Iranian nationals’, completed the blocking prohibitions. The most controversial element of the new Order, however, was the ban on travel to Iran, which would have raised troublesome legal and compliance issues. So, based on this Order, Secretary of State Vance issued a public notice, effective 23 April, restricting the use of US passports to travel to or through Iran. The notice stated: This action is required by the increasingly unstable situation in Iran and the concomitant increase in the threat of hostile acts against Americans. The governing authorities in Iran have repeatedly demonstrated their unwillingness to maintain public order and to protect United States nationals from hostile and uncontrolled mob action. The Government of Iran has approved the holding in unlawful captivity of 51 United States diplomatic and consular personnel and two additional United States nationals who are not employees of the United States Government; both the governmental authorities and militant groups express extreme hostility to the United States in their public statements. In these circumstances, where the governing authorities have approved attacks upon United States nationals and where protection against such attacks is unavailable, there is an imminent danger to the physical safety of United States nationals in Iran. Accordingly, United States passports shall cease to be valid for travel to, in, or through Iran unless specifically validated for such travel under the authority of the Secretary of State.29

Although journalists were exempt from this ban, they were required to report to the Treasury Department. This rule was largely ignored, but the US government did not make an issue of it. Some other exemptions were allowed. A licence was issued after the mother of one of the hostages travelled to Iran, and later the US authorities chose not to prosecute Ramsey Clark, a former Attorney General, who led a delegation to Iran to attend a conference sponsored by the Iranian government. Following the enactment of the 17 April sanctions, Carter again urged US allies to co-operate with the United States and impose sanctions against Iran. However, in carrying on discussions with its European and

29 45 Fed. Reg. 26,685 and 26,686, 21 April 1980.

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Japanese allies the United States encountered significant difficulties. The allies, whilst continuing to voice their public support for the US position, were not willing to impose a ban on imports from Iran, and with respect to export restrictions insisted on exceptions. They also refused to take any action on loans on which Iran had defaulted, and they still paid a premium for Iranian crude on the spot market. Some countries – for example the United Kingdom, which had substantial export contracts with Iran – resisted any proposal. On 22 April, the European Community (EC) passed a resolution requiring member nations to impose sanctions against Iran should the American hostages not be released by 17 May that year. On 17 and 18 May, EC foreign ministers met in Naples and voted to impose limited sanctions on Iran, commencing on 22 May. These amounted to a ban on export credits and restrictions on capital transfers. The trade embargo, however, excluded existing contracts entered into prior to 4 November 1979, and allowed case-by-case exceptions for any new contracts. The United Kingdom, although implementing the sanctions, diluted the effect of such sanctions by applying them only to contracts entered into after the EC agreement, and by excluding any new contracts that reflected a continuation of previous supply relationships, provided that the level of exports remained the same. Although the European Community eventually united in solidarity with the United States and imposed sanctions on Iran, figures provided by the European Commission showed that EC exports to Iran between January and November 1980 had increased by over 53 percent, compared with the same period in 1979. Total exports to Iran by EC member states in the reported period of 1979 were valued at US$2.691 billion, in comparison with US$4.132 billion during 1980.30 The Sanctions in Detail: Blocking the Assets The blocking of Iranian assets under Executive Order 12170 of 14 November 1979 was the most important action taken by the US government during the hostage crisis. The Order, which became effective immediately, blocked: all property and interests in property of the Government of Iran, its instrumentalities and controlled entities and the Central Bank of Iran which are or become subject to the jurisdiction of the United States or which are in or

30 Official Journal of the European Communities, no C115/20-21, 18 May 1981.

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come within the possession or control of persons subject to the jurisdiction of the United States.31

The US Treasury Department’s Office of Foreign Assets Control (OFAC) was delegated to implement the Order. The regulations as originally implemented were far from complete, and many definitions and interpretative provisions not initially included were added at later stages. The main provision of the Iranian Assets Control Regulations (IACRs) 32 was Section 535.201, which provided that: (a) No property subject to the jurisdiction of the United States or which is in the possession of or control of persons subject to the jurisdiction of the United States in which on or after the effective date Iran has any interest of any nature whatsoever may be transferred, paid, exported, withdrawn or otherwise dealt in except as authorized.

This provision was narrower in scope than Section 500.201 of the Foreign Assets Control Regulations (FACRs), and did not prohibit any transaction if an individual Iranian national had an interest. It was set to come into effect from 8.10am Eastern Standard Time on 14 November 1979.33 ‘Iran’ and ‘an Iranian entity’ were defined to include: (a) 1. The State and the Government of Iran as well as any political subdivision, agency, instrumentality thereof or any territory, dependency, colony, protecto-rate, mandate, dominion, possession or place subject to the jurisdiction thereof; 2. Any partnership, association, corporation, or other organization substantially owned or controlled by any of the foregoing; 3. Any person to the extent that such person is, or has been, or to the extent that there is reasonable cause to believe that such person is, or has been, since the effective date acting or purporting to act directly or indirectly on behalf of any of the foregoing; 4. Any territory which on or since the effective date is controlled or occupied by the military, naval or police forces or other authority of Iran; and 5. Any other person or organization determined by the Secretary of the Treasury to be included within paragraph (a) hereof.34

Provision 535.202, in the absence of a licence, prohibited: the acquisition, transfer (including the transfer on the books of any issuer or agent thereof), disposition, transportation, importation, exportation, or

31 32 33 34

Executive Order 12170. 31 CFR Part 535. 31 CFR §535.201. 31 CFR §535.301.

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withdrawal of, or the endorsement or guaranty of signatures on or otherwise dealing in any security (or evidence thereof) registered or inscribed irrespective of the fact that at any time (either prior to, on, or subsequent to the effective date) the registered or inscribed owner thereof may have, or appears to have, assigned, transferred or otherwise disposed of any such security.

Section 535.203 was rendered null and void with respect to any transfer involving Iranian properties, and a transfer prior to 15 November 1979 would not be recognized unless ‘the person with whom such property is held or maintained had written notice of the transfer or by any written evidence had recognized such transfer prior to such effective date’.35 It was also asserted under this provision that ‘Unless licensed or authorized pursuant to this part any attachment, judgement, decree, lien, execution, garnishment, or other judicial process is null and void with respect to any property in which on or since the effective date there existed an interest of Iran’.36 This part of the provision was an important issue in the final negotiations for the release of the hostages. The terms of the prohibitions contained in provisions 535.201, 535.202 and 535.203 were broad in scope and blocked virtually anything of value in which Iran or Iranian entities had an interest if they were ‘subject to the jurisdiction of the United States’ or within ‘the possession of or control of persons subject to the jurisdiction of the United States’. A ‘person subject to the jurisdiction of the United States’ was defined as: (a) Any person wheresoever located who is a citizen or resident of the United States; (b) Any person actually within the United States; (c) Any corporation organized under the laws of the United States or of any state, territory, possession, or district of the United States; and (d) Any partnership, association, corporation, or other organization wheresoever organized or doing business which is owned or controlled by persons specified in paragraphs (a), (b) or (c) of this section’.37

The idea of such a broad definition was to enable the United States to exercise its jurisdiction over branches and subsidiaries and US commercial banks, even when they were established in other countries and doing business under that country’s laws. In response to concerns about the

35 31 CFR §535.203(b). 36 31 CFR §535.203(e). 37 31 CFR §535.329.

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scope of US jurisdiction voiced by foreign governments and the IMF, OFAC, on 19 November 1979, mitigated the effects of such broad jurisdictional claims by amending the regulations to allow the Iranian authorities to withdraw funds from foreign branches and subsidiaries of US banks should the deposited funds be in non-US currency.38 The other significant provisions of the IACRs, which were issued on 4 and 18 December 1979, were provisions 535.504 and 535.418, in which the judicial proceedings against and the prejudgement attachment to the blocked Iranian property became authorized. Although this authority did not permit the enforcement or carrying out of any judgement or order, it did open the way to a flood of litigation. American claimants filed all sorts of suits against the Iranian government and its entities, and in many proceedings they even obtained prejudgement attachments. Whilst these cases were pending, the Carter administration negotiated the Hostage Settlement Agreement, in which it was agreed (in January 1981) that the United States would ‘terminate all legal proceedings in the United States Courts involving claims of United States persons and institutions against Iran and its state enterprises, to nullify all attachments, and judgements, obtained therein, to prohibit all further litigation based on such claims, and to bring about the termination of such claims through binding arbitration’.39 Carter suspended all domestic litigation against Iran on 19 January, and President Reagan ratified the Order on 24 February by issuing Executive Order 12294. Although the president’s power to dissolve the prejudgement attachments and suspend litigation was upheld by the Supreme Court in Dames & Moore v Regan,40 the issue remains the subject of scholarly debate. The Sanctions in Detail: Trade Embargo With Executive Order 12205 of 7 April 1980 and Executive Order 12211 of 17 April 1980, Carter not only intensified the financial restrictions against Iran which had existed since November 1979, but also imposed an extensive trade embargo on Iran. Executive Order 12205 prohibited:

38 31 CFR §535.566. 39 Declaration of the Government of the Democratic and Popular Republic of Algeria, General Declaration, 19 January 1981. 40 101 S CT 2972 (1981).

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The sale, supply or other transfer, by any person subject to the jurisdiction of the United States, of any items, commodities or products, except food, medicine and supplies intended strictly for medical purposes, and donations of clothing intended to be used to relieve human suffering, from the United States, or from any foreign country, whether or not originating in the United States, either to or destined for Iran, any Iranian Governmental entity in Iran, any other person or body in Iran or any other person or body for the purposes of any enterprise carried on in Iran.

OFAC amended the IACRs to implement the new Order. The trade restriction in section 535.207 reproduced verbatim the provisions of the Order itself. It was more detailed than any other provisions implemented by the Treasury Department in any previous embargo programmes. It was also forbidden to transport goods by Iranian vessels or aircraft and by any ‘vessel, aircraft, railway or other land transport of United States registration or owned by or under charter to a person subject to the jurisdiction of the United States or the carriage by land transport facilities across the United States… for Iran, an Iranian Governmental entity, or any person or body in Iran, or to any enterprise carried on in Iran’.41 A significant feature of this sanction was the exemption from the embargo controls of ‘food, medicine or supplies intended strictly for medical purposes, and donations of clothing intended to be used to relieve human suffering’.42 The range of financial sanctions covered by Executive Order 12170 was expanded. Under section 535.206, certain activities were prohibited by any person subject to US jurisdiction and involving any transaction with Iran, an Iranian entity or any person in Iran. This meant that Americans were not allowed to: 1. Make available any new deposit facilities or allow substantial increases in existing non-dollar deposits. 2. Allow more favourable terms of payment than customarily used in international commercial transactions. 3. Fail to act in a businesslike manner in exercising any rights when payments due on existing credits or loans are not made in a timely manner, provided the exercise of such rights is not otherwise prohibited by this part. 4. Make any payment, transfer of credit, or other transfer of funds or other property or interests therein to any person in Iran. 41 31 CFR §535.207. 42 31 CFR §535.207(1).

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In addition, entering into service contracts in support of industrial projects in Iran without a specific licence was forbidden.43 Executive Order 12211 also amended Executive Order 12205 and added further financial restrictions by prohibiting ‘any payment, transfer of credit, or other transfer of funds or other property or interest therein, except for the purpose of family remittances’. The blocking prohibitions, which were originally limited to Iranian government assets or its controlled entities, were now extended, by this Order, to Iranian nationals as well. OFAC amended its previous regulations accordingly to implement the President’s Order. The banning of any transaction, directly or indirectly involving ‘Iran, an Iranian Governmental entity, an enterprise controlled by Iran or an Iranian Government entity, or any person in Iran’ 44 completed the blocking of the assets of the Iranian government and of Iranian nationals. In addition, the trade embargo was completed with the prohibition providing that ‘no merchandise, other goods or services of Iranian origin may be imported into the United States if such merchandise or goods are or have been located in or transported from Iran after the effective date’ 45 of 17 April 1980. Travel to Iran by US nationals was prohibited. To implement this part of the Order, the President delegated his authority to the Secretary of State to impose the restrictions on the ‘use of United States passports for travel to, in or through Iran’ and ‘to regulate the departure from and entry into the United States in connection with travel to Iran by citizens and permanent residents of the United States’.46 As per the instructions of the Secretary of State, US passports, as of 23 April, were no longer valid for travel to or through Iran, and permanent resident aliens were also forbidden to travel to Iran unless they could justify that their proposed visit was in the national interest of the United States.47 OFAC also issued provision 535.209 prohibiting persons subject to the jurisdiction of the United States from ‘any direct or indirect payment or transaction (including any transfer, other dealing in, or use of property) either to, by, on behalf of, or otherwise involving, any foreign country or any national thereof, which is incident to travel to, or travel or maintenance within Iran of any individual who is a US citizen or US permanent 43 44 45 46 47

31 CFR §535.424. 31 CFR §535.206. 31 CFR §535.204. Executive Order 12211, Part 1-106. 45 Fed. Reg. 27600, 23 April 1980.

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resident alien’. In order to avoid constitutional challenges to this part of the IACR, news gathering and dissemination activities were permitted. Journalists were exempt from the travel ban to Iran provided that any trip was ‘for purpose of gathering or transmitting news, filming news or making documentary films or similar activities’.48 Under provision 535.550, ‘importations of publications, films, posters, photograph records, photographs, microfilms, microfiche and tapes, originating in Iran’ were also allowed, with a specific licence. In addition, the export to Iran of a wide range of publications, such as newspapers, magazines, journals, newsletters, books, film etc. were authorized, unless such materials were principally devoted to the dissemination of technical data.49 To encourage its allies to support its sanctions, in drafting provisions 535.206 and 535.207 OFAC elected not to impose the sanctions on an extraterritorial basis. But it did not, however, give US subsidiaries complete freedom to continue to export to Iran. Under provision 535.603, ten days prior to any transaction with Iran, US subsidiaries were required to submit a report to OFAC, giving full details of the proposed transactions. During those ten days, OFAC contacted the US parent companies and let them know that the information given by the subsidiaries was not immune from disclosure under the Freedom of Information Act. In other words, their business relationship with Iran would become public knowledge. According to Richard J. Davis, Assistant Secretary of the Treasury in the Carter administration, ‘Given the high emotional feeling about the hostage crisis in the United States, that deterred a great number of exports’.50

48 31 CFR §535.562(b). 49 31 CFR §535.575. 50 Richard J. Davis, ‘The Decision to Freeze Iranian Assets’ in Andreas F. Lowenfeld et al. (ed.) Revolutionary Days: The Iranian Hostage Crisis and the Hague Claims Tribunal, Juris Publishing, 1999, p. 15.

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n 24 April 1980, exactly a week after the expansion of sanctions against Iran, the United States resorted to a military plan to free the hostages which had taken six months to prepare. The decision reflected the frustration felt by the US administration at the failure of economic or diplomatic sanctions to achieve their goal. The military mission, code-named ‘Eagle Claw’, involved eight RH-53D helicopters from the aircraft carrier USS Nimitz, stationed in the Persian Gulf, and six C-130 Hercules transport aircraft, taking off from Egypt with 90 special forces personnel aboard. Their objective was to rescue the hostages from the US embassy compound in the middle of Tehran, a daring – some might say impossible – mission. On 25 April, shortly after the team had landed in Iran’s Tabas Desert, the venture had to be aborted because of equipment failure. During the subsequent evacuation, one of the helicopters collided with a tanker plane. Both burst into flames, killing eight members of the rescue team and injuring another five. The pilots and remaining members of the mission fled to Egypt, leaving the helicopters and the bodies of their dead colleagues in the desert. The failed rescue mission was a sharp blow to US military prestige, and did not help the Carter administration domestically or internationally. Not only was its image of competence seriously damaged, but it was also criticized by the International Court of Justice in a judgement issued on 24 May, on the grounds that the United States had ignored the Order of

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15 December not to aggravate tension, adding that the rescue mission had not been compatible with ‘respect to the judicial process’. After the failed rescue mission, which was the last viable US option to resolve the crisis, no new initiatives were undertaken in the following months. The death of the Shah, in July 1980, while eliminating the original cause of the crisis, did little to resolve matters. A decision-making process in Iran on how to resolve the crisis was only possible with the nomination in the Iranian parliament (Majlis) of a speaker, the appointment of a prime minister and the approval of the cabinet. By the end of August all these steps were taken. Now that the liberal government was ousted, the left destroyed, Islamic institutions fully formed and the revolution stabilized, there was no further reason to keep the hostages. ‘The hostages now,’ said Behzad Nabavi, the Iranian Minister of State for Executive Affairs ‘are like fruit from which all the juice has been squeezed out’.1 Now, with some kind of face-saving commitment from the United States, the hostages could be released. Ayatollah Khomeini, on 12 September 1980 in a message to pilgrims, set the terms for the release of the hostages; ‘They can be set free if the property of the dead Shah is returned, all claims of America against Iran are annulled, a guarantee of political and military non-interference in Iran is given by America, and all our capital is released’. The next day, the Iranian Foreign Minister informed the Majlis ‘now that the seizure of the embassy has helped us to lay down the foundation of the Islamic Republic… we have no more interest in keeping [the hostages]’.2 On 2 November, the Majlis issued a resolution based on Khomeini’s four points, demanding that: the US pledge not to interfere in Iranian affairs; the freeze on Iranian assets be lifted and that these assets be placed at the disposal of Iran; economic and financial sanctions against Iran be lifted and all claims against Iran be cancelled; the property of the Shah and his close relatives be returned to Iran. The Iranian Prime Minister, Mohammad Ali Rajaei, stipulated that Algeria should act as an intermediary between Iran and the United States. Washington accepted the conditions as a workable proposal, and serious negotiations for the release of the hostages began. The power struggle and the rivalry between the Islamic Republic Party and President Bani-Sadr, both trying to dominate the course of the negotiations, delayed the release of the hostages for weeks. Asking the United 1 2

Keyhan (newspaper), 15 January 1981. Enghelabe Islami (newspaper), 13 September 1980.

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States, as late as 17 December, to release US$14 billion in frozen assets and give a US$10 billion guarantee that the Shah’s wealth would be returned and a political apology were the direct result of this rivalry. Months earlier – in Bonn on 16 September in a secret meeting between Warren Christopher, US Assistant Secretary of State, and Sadegh Tabatabaei, a close relative and aide of Khomeini – the US rejection of these demands had been conveyed to Tehran. Early in January 1981, Iran dropped its demands for apologies and the US$24 billion. What remained on the list of demands was the cancellation of the claims of US citizens and entities, which were subject to judicial attachment, and the release of the Shah’s assets. Lifting the existing attachment and dismissing the pending litigation against Iran was agreed to with the condition that another forum be found for the settlement of claims, and it was this which ultimately brought the two parties to agree to international arbitration. On the matter of the Shah’s assets, and those of his close relatives, it was agreed that Iran would commence litigation in the US courts, and that whilst the cases were pending the United States would prohibit any transfer of such assets outside US jurisdiction. Intensive negotiations between Iran and the United States, through Algerian intermediaries, continued until mid-January, when all major issues were resolved and the text of the agreement formulated. The Algiers Agreement was objected to by President Bani-Sadr and his aides. Alireza Nobari, then head of the Iranian Central Bank, in a letter to Majlis deputies, wrote, ‘the Algiers Agreement has seriously harmed the economic interests of the Islamic Republic and has adversely affected Iran’s national sovereignty’.3 In response to this letter, and criticisms by the Islamic Republic newspaper to the effect that nothing in the Algiers Agreement was to the benefit of Iran, the chief Iranian negotiator, Behzad Nabavi, said, ‘the Iranian government had been pushed into a difficult corner… the hostage crisis is now at an end as far as the government is concerned, and making this into a new issue is not to the benefit of the revolution’.4 The Majlis approved the agreement on 14 January, with two amendments. Firstly, contracts that provided that they should operate under the exclusive jurisdiction of Iranian courts were to be excluded from the claims settlement tribunal and, secondly, arbitration should not cover claims arising from the seizure of the embassy, nor from the Iranian Revolution itself. 3 4

Mahmood Toloei, Shah in the Court of History, Elm Publishing, Tehran, 1995, p 126. Ibid., p. 127.

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The headline-grabbing 444-day international crisis ended on 19 January 1981 with the signing of the Algiers Accords, or the Hostage Settlement Agreement. The next day, as President Reagan was taking office, half an hour after the end of Carter’s term, the hostages left Iran. THE HOSTAGE SETTLEMENT AGREEMENT The Iran-US agreement of 19 January stipulated that in return for the release of the American hostages, the United States agreed to restore the financial position of Iran, as much as possible, to that prior to the crisis. The most major aspect of the settlement affected about US$12 billion worth of Iranian investments and about 2150 law suits pending in US courts against Iran. The deal, as agreed, contained two declarations by the Algerian government, known as the Algiers Accords. In addition, there were three other agreements to further the implementation of the declarations. The two declarations lay at the heart of the agreement to end the hostage crisis. The General Declaration This declaration was the primary document from which all others were derived. It is the only document which in part, albeit briefly, deals with the political issues of the hostage crisis. ‘The United States pledges that it is and from now on will be the policy of the United States not to intervene, directly or indirectly, politically or militarily, in Iran’s internal affairs’. The inclusion of ‘it is and from now on will be’ elicited the admission from the United States that it had interfered in Iran’s internal affairs in the past. To ensure the release of the hostages the US also undertook: to restore the financial position of Iran to that which existed prior to 14 November 1979; to ensure the free transfer of Iranian assets; to terminate all legal proceedings in US courts against Iran and Iranian entities, and nullify all attachments and judgements obtained against Iran; to revoke all trade sanctions against Iran; to freeze the assets and property of the late Shah and his close relatives and prohibit any transfer of such property; to withdraw its claims before the International Court of Justice.

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The Settlement Declaration With this document, the United States and Iran agreed: to establish an international tribunal (the Iran-United States Claims Tribunal) in order to decide the claims of the United States and its nationals against Iran, and of Iran and its nationals against the United States; that the tribunal have nine members, each government appointing three, the remaining three selected by mutual agreement; that the tribunal conduct its business in accordance with the arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL); that claims of nationals of either state be presented by the claimants themselves or, if the claims are less than US$250,000, by the government of such nationals; that decisions and awards of the tribunal shall be final and binding, and that no appeal will be heard; that The Hague shall be the seat of the tribunal; that the expenses of the tribunal shall be equally divided. Supplementary Agreements The Undertakings, the Escrow Agreement and the Technical Agreement were agreed upon to further the implementation of the two declarations. The first document was entitled ‘Undertakings of the Government of the United States of America and the Government of the Islamic Republic of Iran with respect to the Declaration of the Government of the Democratic and Popular Republic of Algeria (Undertakings)’. This document provided that the 52 hostages would depart from Iran when the Banque Centrale d’Algerie received confirmation that 1,632,917,779 ounces of Iranian gold and US$7.955 billion worth of Iranian cash and securities, blocked since 14 November 1979, had been transferred to the Bank of England. It also provided that US$3.667 billion would be returned to the Federal Reserve Bank of New York to pay off principal and interest on Iran’s outstandings on syndicated loan agreements to US banks and foreign members of the syndicates. In addition, US$1.418 billion would remain available to pay other loans, once disputes over the amounts involved were settled. The second document was the Escrow Agreement, which was to be executed by the Federal Reserve Bank of New York as the Fiscal Agent and Bank Markazi Iran, with the Banque Centrale d’Algerie acting as escrow agent for the implementation of financial provisions of the General Declaration.

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The third document was the Technical Agreement between Banque Centrale d’Algerie, as the escrow agent, the Governor and Company of the Bank of England, and the Federal Reserve Bank of New York, as fiscal agent of the United States. This agreement detailed the manner in which the banks should deal with the deposits, securities and other technicalities concerning the receipt and transfer by the Bank of England of Iranian assets. (For the complete declaration, see Document 3.) THE END OF THE CRISIS In order for the provisions of the two declarations and undertakings to be implemented, President Carter issued the following executive orders on 19 January 1981. This action effectively ended the crisis and secured the release of the 52 American hostages after 444 days in captivity: Executive Order 12276, ‘Direction relating to the establishment of Escrow Accounts’; Executive Order 12277, ‘Direction relating to the transfer of Iranian Government assets’; Executive Order 12278, ‘Direction relating to the transfer of Iranian Government assets overseas’; Executive Order 12279, ‘Direction relating to the transfer of Iranian Government assets held by domestic banks’; Executive Order 12280, ‘Direction relating to the transfer of Iranian Government financial assets held by non-banking institutions’; Executive Order 12281, ‘Direction relating to the transfer of certain Iranian Government assets’; Executive Order 12282, ‘Revocation of prohibitions against transactions involving Iran’; Executive Order 12283, ‘Non prosecution of claims of hostages and for actions at the United States Embassy and elsewhere’; Executive Order 12284, ‘Restrictions on the transfer of property of the former Shah of Iran’. Executive Order 12285, ‘President’s Commission on Hostage Compensation’. In comparing the terms of the Algiers Accords with the demands of the students, Khomeini’s conditions and the Majlis resolution of 2 November, one can see how much the conditions were reduced because of the pressure to settle before the end of the Carter administration. Behzad Nabavi, in response to criticism of the Algiers Agreement, admitted ten years later that ‘the defeat of Carter in the polls and his imminent replacement by Reagan, who had labeled Iran barbaric and a blackmailer, did not make it likely for the new president to agree to the conclusion of the Agreement as it had been drafted’. He adds that ‘if the hostage crisis had not been resolved during Carter’s presidency, it was likely that the US, during

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Reagan’s tenure, would have treated the Islamic Republic the same way it is now treating Iraq’.5 The United States did not confess to any crimes, nor offer any apology. Its siding with Iraq during the Iran-Iraq War puts into question its pledge not to intervene in Iranian affairs. Of US$12 billion of frozen assets, less than US$3 billion was returned to Iran, and none of the Shah’s wealth was ever recovered. Relaxation of the export controls and sanctions lasted only for a short period, and, most important, US private claimants received much better treatment in The Hague than they could have hoped for in any US court. Due to the sovereign immunity doctrine and other legal technicalities, it is doubtful if those claimants would have any chance of recovery in a US court. Walter J. Stoessel, Under Secretary for Political Affairs at the US Department of State defended, in the Senate on 4 March 1981, the arbitration clause of the hostage agreement and affirmed that ‘access to Iranian assets and satisfaction of the American contract claims were by no means legally assured prior to the taking of the hostages… we believe the agreements provide for more certain protection of claimants’ interests than we enjoyed previously’. Claimants against the People’s Republic of China got 40 cents on the dollar after 30 years, those against Cuba and Libya have had nothing yet. IMPLEMENTATION OF THE HOSTAGE AGREEMENTS The agreements with Iran to release the hostages were negotiated and agreed upon during the last days of the Carter administration. Executive Orders 12276 to 12285 were signed on 19 January 1981 by Carter, and the hostages were released during the first hour of the Reagan presidency the following day. But the new administration seemed reluctant to implement the agreements associated with the hostage release. Formal action was taken by the Reagan administration only a month later. The US State Department issued a statement on 18 February, saying: Our position up until now has been that the US will, of course, honour its obligations under international law. Because of the complexity of the agreements and the extraordinary conditions under which they were negotiated, we have undertaken a review to determine precisely what our obligations are under them. That review has been completed. Having considered all the circumstances carefully, we have decided to approve implementation of the agreements in strict accordance with the terms of the agreements. 5

Behzad Nabavi, ‘An Answer to the Critique of the Algiers Agreement, Journal of Foreign Policy, vol. V, Autumn 1991, p 677.

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[The] Review considered the impact of implementing or not on: • Rights of US claimants; • US terrorist policy; • US international interests, including US obligations to third parties, particularly Algeria, who had themselves made commitments during the course of these negotiations; • Long-term US interests in the Persian Gulf, including Iran. … did not consider several questions, of great potential interest to historians and of possible value for drawing lessons with respect to future policy, but of no practical bearing on the immediate question of whether or not to implement the agreements. … The review just completed did not consider: • How could the whole crisis have been handled better? • Could a better set of agreements have been negotiated? • We did not consider whether these agreements should have been signed. … We are confronted with an accomplished fact. We have an agreement signed by a President of the US and the question is whether, given the existence of this agreement and the consequences (legal, financial and political) of implementing it or not, what should this country do? The conclusion of the agreements was a legal exercise of Presidential authority. This authority will be subject to challenge in our courts and the executive branch will of course abide by the determination of our judicial system. We did not find it necessary to reach a conclusion as to the legally binding character of these agreements under international law. We are proceeding because we believe it is in the overall interests of the United States to carry out the agreement. The decision represents a practical judgement that implementation provides the surest resolution of the issue consistent with the best interests of the United States in the Gulf region and throughout the world. Iran has not profited from these agreements. It was ultimately forced to settle on terms that simply restored status quo ante because the advent of the new Administration finally confronted it with a serious deadline. The funds already returned to Iran and those which may be returned following the implementation of these agreements and the settlement of commercial and financial claims are funds which belonged to Iran before the seizure of the American hostages. It should be well understood that the decision to faithfully implement the agreements does not represent a precedent for future actions by the United States Government in similar situations. The present Administration would not have negotiated with Iran for the release of the hostages. Future acts of state sponsored terrorism against the US will meet swift and sure punishment.6 6

US Department of State, statement on Hostage Agreements implementation, 18 February 1981, reprinted in International Legal Materials, vol. XX, no 2, March 1981, p. 554.

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The assertion by the new administration that it ‘would not have negotiated with Iran for the release of the hostages’ is inconsistent with the facts of the ‘Iran-Contra affair’, in which the same administration secretly and illegally negotiated with Iran for the release of Western hostages in Lebanon. Executive Orders 12276 to 12285 were signed by Carter on 19 January 1981, but were not actually issued until 22 January. As they were challenged in litigation, they had to be ratified by Reagan to remove any doubts as to their effect. On 24 February, Reagan issued Executive Order 12294, ratifying Carter’s orders and providing that: all claims which could be presented to the Iran-United States Claims Tribunal under the agreement be suspended in the United States; in cases where the Iran-United States Claims Tribunal determines that it did not have jurisdiction, suspension would be terminated and the claimants could reactivate their claims in US courts; determinations of the Iran-United States Claims Tribunal, whether accepting or discharging a claim, should be final. In connection with the implementing of the Hostage Settlement Agreement, Walter J. Stoessel, Under Secretary for Political Affairs at the Department of State, on 4 March in a statement before the Senate Committee on Foreign Relations, presented the views of the Reagan administration on the hostage agreements, and stated why it was in the interest of the United States to implement the agreements. I welcome this opportunity to discuss the Administration’s decision to implement the agreements with Iran for the hostages’ release. I will address my comments to why we believe it is in the interests of the United States to implement the agreements. I will also talk about the legal basis for proceeding with the agreements and the practical steps we plan to take in this regard. Our decision to implement the agreements must be considered in the context of both our international interests and domestic concerns. Given Iran’s strategic location, its oil resources and the possibilities for Soviet influence there, movement toward improved relations may at some point be in the interest of the United States. However, it is also in our interest to take care that any such movement is consistent with our strong opposition to terrorism and the stake which we, and all law abiding nations, have in the system of international law and custom. I want to stress that, by itself, our decision to implement the Algerian agreements does not constitute a decision to normalize relations with Iran. However, a benefit of implementing the agreements is that this option is left open. In short, in completing a very thorough review of our obligations under the agreements, we have considered our strategic concerns – and the

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extraordinary conditions under which the agreements were negotiated – very carefully. Our decision to approve implementation, strictly in accordance with the terms of the agreements, also takes into account the legitimate rights of US claimants and our policies for dealing with terrorism. We did not in our review of the agreements address whether the crisis could have been better handled or whether a better set of agreements could have been negotiated. However, the agreements are an accomplished fact, authorized by the President of the United States acting within the authority of his office. We are satisfied that our obligations under them do not violate US law. We did not see it as necessary to reach a conclusion as to the agreements’ legally binding character under international law. We are proceeding with implementation because it appears to be clearly in the overall interests of the United States to do so. Let me say that Iran has not profited from these agreements and in fact paid a considerable economic price from the sanctions and political isolation imposed upon it. Faced with the serious deadline imposed by the advent of a new Administration which was not committed to continue the negotiations underway, Iran had to settle for terms that restored financial relations with the United States roughly to where they were before the hostages were seized and had to give up many of their demands, including the return of the Shah and the return of his assets. The funds already returned to Iran and those which may be returned as the agreements are implemented and commercial and financial claims are settled are assets that belonged to Iran before the seizure of the hostages. No US funds have been sent to Iran as a result of these agreements. Three actions required under the agreements have already taken place: • The United States has pledged noninterference in Iran’s internal affairs. This is in accordance with our policy and international law. • $7.9 billion was transferred to an Escrow Account with the Bank of England. Of this, $3.7 billion was then returned to the Federal Reserve Bank of New York to pay off syndicated bank loans and credits, and $1.4 billion was retained in the account to pay nonsyndicated loans and credits of banks and disputed interest owing on Iranian deposits in US banks. • We have revoked economic sanctions on Iran in response to the hostage taking. Normal control under the Arms Control Act continue to apply and a Department travel advisory points out the dangers of travelling there. However, a number of additional steps are required to complete implementation of the agreements. The executive branch published regulations last week to implement Executive Orders signed by President Carter on January 19, and a new Executive Order signed by President Reagan on February 24, 1981. These regulations explain the responsibilities of US holders of Iranian assets. We have discussed these regulations in detail with US claimants; their views have been fully considered in the drafting process. We are working to conclude a security account arrangement with a foreign central bank into which to place a portion of the $2.2 billion in Iranian

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assets now in US branches of US banks. One half of these assets, as they are transferred, are to go into such an interest bearing account for payment of arbitration awards to US claimants. When $1 billion has been placed in the security account, the additional funds will be transferred to Iran. However, when the balance in the security accounts should drop below $500 million as a result of payment claims, Iran is obliged to make new deposits sufficient to maintain the $500 million balance. We must also transfer to Iran $1–1.5 billion of other Iranian assets subject to US jurisdiction. Claims not settled within six months by direct negotiation between the parties may be submitted to the arbitration tribunal. We are seeking a site for the tribunal and will shortly begin to make other arrangements as well, including the selection of arbitrators. The new Executive Order signed by President Reagan suspends the claims in US courts that may be presented to the arbitration tribunal. These claims will be discharged only after the tribunal takes jurisdiction and makes a judgement on the merits. We will also lift the legal attachments by US claimants on Iranian assets. These attachments must be removed before the transfers can begin that will – in addition to returning some Iranian property to Iran – fill the security account from which arbitration awards will be paid. We will also, in due course, withdraw US claims against Iran before the International Court of Justice. (We will, however, continue to press our claim for the return of our Embassy and other properties in Iran). A category of obligations of which I have not spoken concerns the Shah’s wealth. The regulations that I have mentioned will require that whenever the Shah’s estate or any close relative is served as a defendant in US courts by Iran, pursuant to an effort to recover Iranian property, the assets involved will be frozen and information regarding them will be for the courts to decide, as the agreements made clear. Moreover, the regulations will expressly permit those family members whose assets are frozen as much money as they need for personal expenses. The banks seem to be satisfied with the agreements and stand to be paid in full – something that was by no means assured previously. The principal concern of the contract claimants is that Iran may not pay awards made by the arbitration tribunal. However, under the terms of the agreement, arbitral awards against Iran would be enforceable against its assets in any country. Iran has waived its sovereign immunity defense with respect to awards made by the arbitration tribunal. Because of its dependence on oil sales, Iranian assets would be available in a number of countries for satisfaction of arbitral awards. Access to Iranian assets and satisfaction of the American contract claims were by no means legally assured prior to the taking of the hostages either. Most of those with claims upon Iranian assets now understand and are reasonably satisfied with these arrangements. Others may have a different view, however, and some will go to court to try to keep Iranian assets here

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or to delay the transfer of the funds. In general, we believe the agreements provide for more certain protection of claimants’ interests than was enjoyed previously. On the question of hostage claims, we have concluded that given our sovereign immunities law, the former hostages stand little chance of successful litigation against Iran. Thus, our obligation under the agreements to block hostage claims against Iran will have little practical effect. When the agreements were being negotiated the hostage families themselves made clear that they did not want the claims issue to impede the earliest possible release of the hostages. Nevertheless, the Administration believes that the question of compensation should be considered in the context of compensation given other Government servants who have endured similar hardships, such as prisoners of war and other ex-hostages. President Carter created a commission to make recommendations on the issue of hostage compensation by the United States – the Administration now has the question of this commission and its mandate under active review.7

REGULATIONS FOR IMPLEMENTING THE HOSTAGE AGREEMENTS The Secretary of the Treasury was delegated and authorised to carry out the executive orders and issue the relevant regulations. Under Executive Order 12282, the trade sanctions imposed against Iran on 12 November 1979, 7 April and 17 April 1980 were lifted. A general licence was issued authorizing all trade and financial transactions, without terminating the national emergency with respect to Iran. OFAC issued provision 535.579, and authorized exports to Iran. It also announced additional regulations concerning the implementation of the hostage agreements. Under 535.217, access to the property of the former Shah of Iran and that of his close relatives was blocked: (a) For the purpose of protecting the rights of litigants in courts within the United States, all property and assets located in the United States in the control of the estate of Mohammad Reza Pahlavi, the former Shah of Iran, or any close relative of the former Shah served as a defendant in litigation in such courts brought by Iran seeking the return of property alleged to belong to Iran, is blocked as to each such estate or person, until all such litigation against such estate or person is finally terminated. This provision shall apply only to such persons as to which Iran has furnished proof of service to the Office of Foreign Assets Control and which the office has identified in paragraph (b) of this section. 7

US Department of State statement, 4 March 1981, Current Policy no 262, US Department of State, Bureau of Public Affairs, reproduced in International Legal Materials, vol. XX no 2, March 1981, p. 555.

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b) [Reserved] (c) The effective date of this section is January 19, 1981.

On 11 May 1981, the property of Ashraf Pahlavi, and on 15 August, the property of Shams Pahlavi, sisters of the former Shah, was identified and paragraph (b) was amended accordingly. The agreed formula under the Algiers Accords was that Iran should file lawsuits in US courts requesting the return of the Shah’s assets and those of his close family. The US government would then block the assets under litigation pending the courts’ decisions. Living expenses deemed necessary for the Shah’s relatives were considered under provision 535.580: ‘The transfer, payment or withdrawal of property de-scribed in §535.217 is authorized to the extent necessary to pay living expenses of any individual listed in that section. Living expenses for this purpose shall include food, housing, transportation, security and other personal expenses.’ One of the most important regulations was issued under provision 535.216 which reflected the provisions of Executive Order 12283: (a) Persons subject to the jurisdiction of the United States are prohibited from prosecuting in any court within the United States or elsewhere, whether or not litigation was commenced before or after January 19, 1981, any claim against the Government of Iran arising out of events occurring before January 19, 1981 relating to: 1. The seizure of the hostages on November 4, 1979; 2. The subsequent detention of such hostages; 3. Injury to United States property or property of United States nationals within the United States Embassy compound in Tehran after November 3, 1979; or 4. Injury to United States nationals or their property as a result of popular movements in the course of the Islamic Revolution in Iran which were not an act of the Government of Iran. (b) Any persons who are not United States nationals are prohibited from prosecuting any claim described in paragraph (a) of this section in any court within the United States. (c) No further action, measure or process shall be taken after the effective date of this section in any judicial proceeding instituted before the effective date of this section which is based upon any claim described in paragraph (a) of this section, and all such proceedings shall be terminated. (d) No judicial order issued in the course of the proceedings described in paragraph (c) of this section shall be enforced in any way.

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The above regulation effectively banned the former hostages from filing any law suits against Iran, and those who did try to sue Iran lost their cases on different grounds. The innocent hostages who had suffered for 444 days of captivity were the biggest losers from the Algiers Accords. On the other hand, the US banks – which knew that interest on Iranian loans, mounting with every delay in resolving the hostage crisis, would be paid from frozen funds – were the greatest winners. During the assets freeze, US banks holding Iranian assets were not required to pay interest on Iranian accounts. Under the final agreement, banks were ultimately required to transfer the funds to Iran, ‘including interest from 14 November 1979, at commercially reasonable rates’. Under provision 535.440 ‘commercially reasonable rates’ were interpreted for savings deposits, as the rate provided in the deposit agreement, for demand accounts as no interest, and for other accounts as any rate agreed to by the bank and Iran. In practice, this worked in favour of US banks. US COURTS AND THE HOSTAGE AGREEMENTS In John D. McKeel Jr et al v the Islamic Republic of Iran and the United States of America,8 12 former hostages and the wives of two others sued Iran, seeking compensation for damages suffered during, and as a result of, their captivity, and sought declaratory relief against the United States. The Appeal Court affirmed the District Court’s dismissal of the action for lack of subjectmatter jurisdiction. The appellants requested that the case be remanded to determine whether the President’s agreements negotiated for the release of the hostages constituted a valid claim against the United States for the ‘taking’ of property without just compensation. The court rejected this, and their claims were dismissed. Suits filed by other hostages, for example Persinger v Islamic Republic of Iran,9 Williams v Iran,10 Lauterbach v Iran 11 and the cases of Cooke v Iran 12 and Amburn v United States,13 were all dismissed on the grounds that their cases were precluded by the executive agreements negotiated by Carter to secure the release of the hostages. The claims of former hostages were, in effect, extinguished by Carter’s actions, while the commercial claims of other US citizens were suspended 8 9 10 11 12 13

722 F2d 582. No 690 F2d 1010, DC Circuit 1982. No 81-1672, DC Circuit, 1982. No 81-1672, DC Circuit, 1982. No 1 CI CT 695. No 564-82C.

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by Reagan under Executive Order 12294 of 24 February 1981. The claimants were given the opportunity to take their cases to the Iran-United States Claims Tribunal. OFAC provision 535.222, giving effect to the President’s Order, provided that: (a) All claims which may be presented to the Iran-United States Claims Tribunal under the terms of Article II of the Declaration of the Democratic and Popular Republic of Algeria concerning the Settlement of Claims by the Government of the United States of America and the Government of Islamic Republic of Iran, dated January 19, 1981, and claims for equitable or other judicial relief in connection with such claims, are hereby suspended, except as they may be presented to the Tribunal. During the period of this suspension, all such claims shall have no legal effect in any action now pending in any court in the United States, including the courts of any state and any locality thereof, the District of Columbia and Puerto Rico, or in any action commenced in any such court after the effective date of this section. (b) Nothing in paragraph (a) of this section shall prohibit the assertion of a defense, set off or counterclaim in any pending or subsequent judicial proceeding commenced by the Government of Iran, any political subdivision of Iran, or any agency, instrumentality or entity controlled by the Government of Iran or any political subdivision thereof. (c) Nothing in this section precludes the commencement of an action after the effective date of this section for the purpose of tolling the period of limitations for commencement of such action. (d) Nothing in this section shall require dismissal of any action for want of prosecution. (e) Suspension under this section of a claim or a portion thereof submitted to the Iran-United States Claims Tribunal for adjudication shall terminate upon a determination by the Tribunal that it does not have jurisdiction over such claim or portion thereof. (f) A determination by the Iran-United States Claims Tribunal on the merits that a claimant is not entitled to recover on a claim or part thereof shall operate as a final resolution and discharge of such claim or part thereof for all purposes. A determination by the Tribunal that a claimant shall have recovery on a claim or part thereof in a specified amount shall operate as a final resolution and discharge of such claim or part thereof for all purposes upon payment to the claimant of the full amount of the award including any interest awarded by the Tribunal. (g) Nothing in this section shall apply to any claim concerning the validity or payment of a standby letter of credit, performance or payment bond or other similar instrument. (h) The effective date of this section is February 24, 1981.

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Under the Algiers Accords, US claimants with certain forum selection clauses requiring litigation in Iran could not take their claims to the IranUnited States Claims Tribunal. Litigation in Tehran was their only course of action. Executive Orders 12279 to 12281 and the OFAC regulations, proclaimed on the basis of the Orders which, in effect, revoked and withdrew the court orders and attachments against Iranian assets, were challenged by a number of litigants. In fact, the constitutionality and enforceability of the Hostage Settlement Agreement was brought into question. On this issue, the rulings of the courts were different. In Electronic Data Systems Corporation v Social Security Organization of the Government of Iran 14 the court found that there was ‘a substantial likelihood that the Executive Order was not validly promulgated during President Carter’s term of office’. The court also found that under IEEPA the president did not have the authority to vest himself with custody and control of the assets. The president could ‘freeze but not seize’ the assets. It was the opinion of the court that Congress did not, under the IEEPA, grant power to the president to nullify or void attachments or judgements, actions which demonstrated a valid exercise of judicial power. Judge Porter went further and said, ‘If I am wrong with regard to the intended reach of the IEEPA, I likewise conclude that the Act itself is not in harmony with the United States Constitution’. In Marschalk Co. v Iran National Airlines Corp,15 Judge Duffy reached the same conclusion, and said, ‘It was the hostage crisis that was settled by the Agreement, not… plaintiffs’ claims… I know of no case, other than those arising from the present situation, that holds that the President has the Constitutional power to take possession of private property and bargain with it to secure the release of American hostages or for any other foreign policy’. However, in Chas T. Main International Inc. v United States,16 the court concluded that the president was indeed empowered by both the Constitution and the IEEPA to reach an agreement with a foreign government requiring the removal of civil actions pending in the US courts. The conflicting conclusions of the courts made it clear that the Supreme Court had to decide the issue. The Supreme Court took Dames & Moore v Donald T. Regan, Secretary of the Treasury et al 17 as a test case, as it was, in many ways, a typical example of the cases filed against Iran. 14 15 16 17

508 518 509 453

F Supp. 1350 (ND Tex. 1981). F Supp. 69 (SDNY 1981). F Supp. 1162 (D Mass 1981). US 654, 69L Ed 918, 101 S Ct. 2972.

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Dames & Moore v Regan On 19 December 1979, a few weeks after the seizure of the US embassy in Iran, Dames & Moore filed suit in the US District Court for the Central District of California against Iran, the Atomic Energy Organization of Iran (AEOI) and Iranian banks. Dames & Moore alleged in their complaint that AEOI owed its wholly-owned subsidiary, Dames & Moore International, SRL US$3,436,694.30, plus interest, in respect of site studies undertaken for a proposed nuclear power plant in Iran. The District Court issued orders of attachment directed against Iranian property in the United States and the property of Iranian banks until the judgement was entered. On 27 January 1981, following the release of the hostages and President Carter’s Executive Orders, Dames & Moore moved for a summary judgement against Iran and AEOI, but not against the Iranian banks. The court granted Dames & Moore’s motion, and awarded them the amount claimed plus interest. Iran and AEOI appealed against this judgement and the court stayed execution, pending appeal. The court, in light of the Executive Orders, also ordered that all prejudgement attachments obtained against Iran be vacated and further proceedings against Iranian banks be stayed. On 28 April 1981, Dames & Moore filed another action in the District Court against the United States and the Secretary of the Treasury for declaratory relief, seeking to prevent the enforcement of the executive orders and the OFAC regulations implementing the Algiers Accords. Dames & Moore alleged that by implementing the agreements, the President and the Secretary of the Treasury had gone beyond their powers, and that their actions were unconstitutional because they would adversely affect the final judgement against Iran and AEOI, prejudgement attachments and any ability to litigate against the Iranian banks. On 28 May, the District Court dismissed the complaint, on the grounds of failure to state a claim upon which relief could be granted, but entered an injunction pending appeal to the Court of Appeals blocking the Iranian property that was subject to any writ of attachment issued by any court in favour of Dames & Moore. On 3 June, Dames & Moore appealed to the Ninth Circuit Court of Appeals and simultaneously petitioned the Supreme Court with a writ of certiorari before judgement. The Court granted certiorari on 11 June and, against a 19 July 1981 deadline for the transfer of assets to Iran, adopted an expedited briefing schedule, setting oral argument for 24 June.

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Eight days after the oral argument ended, on 2 July, the last day of its 1980 term, the Supreme Court upheld the authority of the president provided for under the IEEPA, to suspend legal proceedings instituted in US courts by American plaintiffs, to nullify attachments obtained in such proceedings, and to transfer to Iran the blocked assets previously subject to attachment. (For the Court’s decision, see Document 4.) It was the opinion of the court that blocking assets would permit the President to maintain the foreign assets at his disposal for use in negotiating the resolution of a declared national emergency. The frozen assets serve as a bargaining chip to be used by the President when dealing with a hostile country. Accordingly, it is difficult to accept petitioner’s argument, because the practical effect of it is to allow individual claimants throughout the country to minimize or wholly eliminate this ‘bargaining chip’ through attachments, garnishments, or similar encumbrances on property.

The court’s findings on the purpose of blocking, at least in the case of the frozen Iranian assets, was contrary to what President Carter had declared to be his purpose. President Carter’s statement to Congress, released concurrently with the initial freeze regulations, was that the freeze would ‘enable the United States to assure that these resources will be available to satisfy lawful claims of citizens and entities of the United States against the Government of Iran’.18 The Supreme Court’s decision in the case of Dames & Moore allows presidents virtually unlimited power, and gives them the authority to lawfully dispose of private claims against foreign governments in order to resolve an international crisis. This power is so sweeping that there is little that American businesses can do to protect themselves. Political and diplomatic considerations seem destined once more to take priority, and presidents may again bargain away their commercial claims in order to further foreign policy objectives.

18 President’s Message to Congress, 14 November 1979, Weekly Comp. Pres. Docs 2118, 19 November 1979.

DOCUMENT 3 The Algiers Declaration

Declaration of the Government of the Democratic and Popular Republic of Algeria The Government of the Democratic and Popular Republic of Algeria, having been requested by the Governments of the Islamic Republic of Iran and the United States of America to serve as an intermediary in seeking a mutually acceptable resolution of the crisis in their relations arising out of the detention of the 52 United States nationals in Iran, has consulted extensively with the two governments as to the commitments which each is willing to make in order to resolve the crisis within the framework of the four points stated in the resolution of November 2, 1980, of the Islamic Consultative Assembly of Iran. On the basis of formal adherences received from Iran and the United States, the Government of Algeria now declares that the following interdependent commitments have been made by the two governments. GENERAL PRINCIPLES

The undertakings reflected in this Declaration are based on the following general principles: A. Within the framework of and pursuant to the provisions of the two Declarations of the Government of the Democratic and Popular Republic

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of Algeria, the United States will restore the financial position of Iran, in so far as possible, to that which existed prior to November 14, 1979. In this context, the United States commits itself to ensure the mobility and free transfer of all Iranian assets within its jurisdiction, as set forth in Paragraphs 4–9. B. It is the purpose of both parties, within the framework of and pursuant to the provisions of the two Declarations of the Government of the Democratic and Popular Republic of Algeria, to terminate all litigation as between the Government of each party and the nationals of the other, and to bring about the settlement and termination of all such claims through binding arbitration. Through the procedures provided in the Declaration relating to the Claims Settlement Agreement, the United States agrees to terminate all legal proceedings in United States courts involving claims of United States persons and institutions against Iran and its state enterprises, to nullify all attachments and judgements obtained therein, to prohibit all further litigation based on such claims, and to bring about the termination of such claims through binding arbitration. Point I: Non-Intervention in Iranian Affairs 1. The United States pledges that it is and from now on will be the policy of the United States not to intervene, directly or indirectly, politically or militarily, in Iran’s internal affairs. Points II and III: Return of Iranian Assets and Settlement of U.S. Claims 2. Iran and the United States (hereinafter ‘the parties’) will immediately select a mutually agreeable central bank (hereinafter ‘the Central Bank’) to act, under the instructions of the Government of Algeria and the Central Bank of Algeria (hereinafter ‘The Algerian Central Bank’) as depositary of the escrow and security funds hereinafter prescribed and will promptly enter into depositary arrangements with the Central Bank in accordance with the terms of this declaration. All funds placed in escrow with the Central Bank pursuant to this declaration shall be held in an account in the name of the Algerian Central Bank. Certain procedures for implementing the obligations set forth in this Declaration and in the Declaration of the Democratic and Popular Republic of Algeria concerning the settlement of claims by the Government of the

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United States and the Government of the Islamic Republic of Iran (hereinafter ‘the Claims Settlement Agreement’) are separately set forth in certain Undertakings of the Government of the United States of America and the Government of the Islamic Republic of Iran with respect to the Declaration of the Democratic and Popular Republic of Algeria. 3. The depositary arrangements shall provide that, in the event that the Government of Algeria certifies to the Algerian Central Bank that the 52 U.S. nationals have safely departed from Iran, the Algerian Central Bank will thereupon instruct the Central Bank to transfer immediately all monies or other assets in escrow with the Central Bank pursuant to this declaration, provided that at any time prior to the making of such certification by the Government of Algeria, each of the two parties, Iran and the United States, shall have the right on seventy-two hours notice to terminate its commitments under this declaration. If such notice is given by the United States and the foregoing certification is made by the Government of Algeria within the seventy-two hour period of notice, the Algerian Central Bank will thereupon instruct the Central Bank to transfer such monies and assets. If the seventy-two hour period of notice by the United States expires without such a certification having been made, or if the notice of termination is delivered by Iran, the Algerian Central Bank will thereupon instruct the Central Bank to return all such monies and assets to the United States, and thereafter the commitments reflected in this declaration shall be of no further force and effect. ASSETS IN FEDERAL RESERVE BANK

4. Commencing upon completion of the requisite escrow arrangements with the Central Bank, the United States will bring about the transfer to the Central Bank of all gold bullion which is owned by Iran and which is in the custody of the Federal Reserve Bank of New York, together with all other Iranian assets (or the cash equivalent thereof) in the custody of the Federal Reserve Bank of New York, to be held by the Central Bank in escrow until such time as their transfer or return is required by Paragraph 3 above.

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5. Commencing upon the completion of the requisite escrow arrangements with the Central Bank, the United States will bring about the transfer to the Central Bank, to the account of the Algerian Central Bank of all Iranian deposits and securities which on or after November 14, 1979, stood upon the books of overseas banking offices of U.S. banks, together with interest thereon through December 31, 1980, to be held by the Central Bank, to the account of the Algerian Central Bank, in escrow until such time as their transfer or return is required in accordance with Paragraph 3 of this Declaration. ASSETS IN U.S. BRANCHES OF U.S. BANKS

6. Commencing with the adherence by Iran and the United States to this declaration and the claims settlement agreement attached hereto, and following the conclusion of arrangements with the Central Bank for the establishment of the interest-bearing security account specified in that agreement and Paragraph 7 below, which arrangements will be concluded within 30 days from the date of this Declaration, the United States will act to bring about the transfer to the Central Bank, within six months from such date, of all Iranian deposits and securities in U.S. banking institutions in the United States, together with interest thereon, to be held by the Central Bank in escrow until such time as their transfer or return is required by Paragraph 3. 7. As funds are received by the Central Bank pursuant to Paragraph 6 above, the Algerian Central Bank shall direct the Central Bank to (1) transfer one-half of each such receipt to Iran and (2) place the other half in a special interest-bearing security account in the Central Bank, until the balance in the security account has reached the level of $1 billion. After the $1 billion balance has been achieved, the Algerian Central Bank shall direct all funds received pursuant to Paragraph 6 to be transferred to Iran. All funds in the security account are to be used for the sole purpose of securing the payment of, and paying, claims against Iran in accordance with the claims settlement agreement. Whenever the Central Bank shall thereafter notify Iran that the balance in the security account has fallen below $500 million, Iran shall promptly make new deposits sufficient to maintain a minimum balance of $500 million in the account. The account shall be so maintained

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until the President of the Arbitral Tribunal established pursuant to the claims settlement agreement has certified to the Central Bank of Algeria that all arbitral awards against Iran have been satisfied in accordance with the claims settlement agreement, at which point any amount remaining in the security account shall be transferred to Iran. OTHER ASSETS IN THE U.S. AND ABROAD

8. Commencing with the adherence of Iran and the United States to this declaration and the attached claims settlement agreement and the conclusion of arrangements for the establishment of the security accounts, which arrangements will be concluded within 30 days from the date of this Declaration, the United States will act to bring about the transfer to the Central Bank of all Iranian financial assets (meaning funds or securities) which are located in the United States and abroad, apart from those assets referred to in Paragraph 5 and 6 above, to be held by the Central Bank in escrow until their transfer or return is required by Paragraph 3 above. 9. Commencing with the adherence by Iran and the United States to this declaration and the attached claims settlement agreement and the making by the Government of Algeria of the certification described in Paragraph 3 above, the United States will arrange, subject to the provisions of U.S. law applicable prior to November 14, 1979, for the transfer to Iran of all Iranian properties which are located in the United States and abroad and which are not within the scope of the preceding paragraphs. NULLIFICATION OF SANCTIONS AND CLAIMS

10. Upon the making by the Government of Algeria of the certification described in Paragraph 3 above, the United States will revoke all trade sanctions which were directed against Iran in the period November 4, 1979, to date. 11. Upon the making by the Government of Algeria of the certification described in Paragraph 3 above, the United States will promptly withdraw all claims now pending against Iran before the International Court of Justice and will thereafter bar and preclude the prosecution against Iran of any pending or future claim of the United States or a United States national arising out of events occurring before the date

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of this declaration related to (A) the seizure of the 52 United States nationals on November 4, 1979, (B) their subsequent detention, (C) injury to United States property or property of the United States nationals within the United States Embassy compound in Tehran after November 3, 1979, and (D) injury to the United States nationals or their property as a result of popular movements in the course of the Islamic Revolution in Iran which were not an act of the Government of Iran. The United States will also bar and preclude the prosecution against Iran in the courts of the United States of any pending or future claim asserted by persons other than the United States nationals arising out of the events specified in the preceding sentence. Point IV: Return of the Assets of the Family of the Former Shah 12. Upon the making by the Government of Algeria of the certification described in Paragraph 3 above, the United States will freeze, and prohibit any transfer of, property and assets in the United States within the control of the estate of the former Shah or of any close relative of the former Shah served as a defendant in U.S. litigation brought by Iran to recover such property and assets as belonging to Iran. As to any such defendant, including the estate of the former Shah, the freeze order will remain in effect until such litigation is finally terminated. Violation of the freeze order shall be subject to the civil and criminal penalties prescribed by U.S. law. 13. Upon the making by the Government of Algeria of the certification described in Paragraph 3 above, the United States will order all persons within U.S. jurisdiction to report to the U.S. Treasury within 30 days, for transmission to Iran, all information known to them as of November 3, 1979, and as of the date of the order, with respect to the property and assets referred to in Paragraph 12. Violation of the requirement will be subject to the civil and criminal penalties prescribed by U.S. law. 14. Upon the making by the Government of Algeria of the certification described in Paragraph 3 above, the United States will make known, to all appropriate U.S. courts, that in any litigation of the kind described in Paragraph 12 above the claims of Iran should not be considered legally barred either by sovereign immunity principles or by the act of state doctrine and that Iranian decrees and judgements relating to such assets should be enforced by such courts in accordance with United States law.

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15. As to any judgement of a U.S. court which calls for the transfer of any property or assets to Iran, the United States hereby guarantees the enforcement of the final judgement to the extent that the property or assets exist within the United States. 16. If any dispute arises between the parties as to whether the United States has fulfilled any obligation imposed upon it by Paragraphs 12–15, inclusive, Iran may submit the dispute to binding arbitration by the tribunal established by, and in accordance with the provisions of, the claims settlement agreement. If the tribunal determines that Iran has suffered a loss as a result of a failure by the United States to fulfill such obligation, it shall make an appropriate award in favor of Iran which may be enforced by Iran in the courts of any nation in accordance with its laws. SETTLEMENT OF DISPUTES

17. If any other dispute arises between the parties as to the interpretation or performance of any provision of this declaration, either party may submit the dispute to binding arbitration by the tribunal established by, and in accordance with the provisions of, the claims settlement agreement. Any decision of the tribunal with respect to such dispute, including any award of damages to compensate for a loss resulting from a breach of this declaration or the claims settlement agreement, may be enforced by the prevailing party in the courts of any nation in accordance with its laws. Initialed on January 19, 1981 Warren M. Christopher Deputy Secretary of State of the Government of the United States By virtue of the powers vested in him by his Government as deposited with the Government of Algeria.

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Declaration of the Government of the Democratic and Popular Republic of Algeria Concerning the Settlement of Claims by the Government of the United States of America and the Government of the Islamic Republic of Iran The Government of the Democratic and Popular Republic of Algeria, on the basis of formal notice of adherence received from the Government of the Islamic Republic of Iran and the Government of the United States of America, now declares that Iran and the United States have agreed as follows: Article I Iran and the United States will promote the settlement of the claims described in Article II by the parties directly concerned. Any such claims not settled within six months from the date of entry into force of this agreement shall be submitted to binding third-party arbitration in accordance with the terms of this agreement. The aforementioned six months’ period may be extended once by three months at the request of either party. Article II 1. An International Arbitral Tribunal (the Iran-United States Claims Tribunal) is hereby established for the purpose of deciding claims of nationals of the United States against Iran and claims of nationals of Iran against the United States, and any counterclaim which arises out of the same contract, transaction or occurrence that constitutes the subject matter of that national’s claim, if such claims and counterclaims are outstanding on the date of this agreement, whether or not filed with any court, and arise out of debts, contracts ( including transactions which are the subject of letters of credit or bank guarantees), expropriations or other measures affecting property rights, excluding claims described in Paragraph 11 of the Declaration of the Government of Algeria of January 19, 1981, and claims arising out of the actions of the United States in response to the conduct described in such paragraph, and excluding claims arising under a binding contract between the parties specifically providing that any disputes thereunder shall be within the sole jurisdiction of the competent Iranian courts in response to the Majlis position.

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2. The Tribunal shall also have jurisdiction over official claims of the United States and Iran against each other arising out of contractual arrangements between them for the purchase and sale of goods and services. 3. The Tribunal shall have jurisdiction, as specified in Paragraphs 16–17 of the Declaration of the Government of Algeria of January 19, 1981, over any dispute as to the interpretation of performance of any provision of that declaration. Article III 1. The Tribunal shall consist of nine members or such larger multiple of three as Iran and the United States may agree are necessary to conduct its business expeditiously. Within ninety days after the entry into force of this agreement, each government shall appoint one-third of the members. Within thirty days after their appointment, the members so appointed shall by mutual agreement select the remaining third of the members and appoint one of the remaining third President of the Tribunal. Claims may be decided by the full Tribunal or by a panel of three members of the Tribunal as the President shall determine. Each such panel shall be composed by the President and shall consist of one member appointed by each of the three methods set forth above. 2. Members of the Tribunal shall be appointed and the Tribunal shall conduct its business in accordance with the arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL) except to the extent modified by the parties or by the Tribunal to ensure that this agreement can be carried out. The UNCITRAL rules for appointing members of three-member Tribunals shall apply mutatis mutandis to the appointment of the Tribunal. 3. Claims of nationals of the United States and Iran that are within the scope of this agreement shall be presented to the Tribunal either by claimants themselves, or, in the case of claims of less than $250,000, by the Government of such national. 4. No claim may be filed with the Tribunal more than one year after the entry into force of this agreement or six months after the date the President is appointed, whichever is later. These deadlines do not apply to the procedures contemplated by Paragraphs 16 and 17 of the Declaration of the Government of Algeria of January 19, 1981.

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Article IV 1. All decisions and awards of the Tribunal shall be final and binding. 2. The President of the Tribunal shall certify, as prescribed in Paragraph 7 of the Declaration of the Government of Algeria of January 19, 1981, when all arbitral awards under this agreement have been satisfied. 3. Any award which the Tribunal may render against either government shall be enforceable against such government in the courts of any nation in accordance with its laws. Article V The Tribunal shall decide all cases on the basis of respect for law, applying such choice of law rules and principles of commercial and international law as the Tribunal determines to be applicable, taking into account relevant usages of the trade, contract provisions and changed circumstances. Article VI 1. The seat of the Tribunal shall be The Hague, The Netherlands, or any other place agreed by Iran and the United States. 2. Each government shall designate an agent at the seat of the Tribunal to represent it to the Tribunal and to receive notices or other communications directed to it or to its nationals, agencies, instrumentalities, or entities in connection with proceedings before the Tribunal. 3. The expenses of the Tribunal shall be borne equally by the two governments. 4. Any question concerning the interpretation or application of this agreement shall be decided by the Tribunal upon the request of either Iran or the United States. Article VII For the purposes of this agreement: 1. A ‘national’ of Iran or of the United States, as the case may be, means (a) a natural person who is a citizen of Iran or the United States; and (b) a corporation or other legal entity which is organized under the laws of Iran or the United States or any of its states or territories, the District of Columbia or the Commonwealth of Puerto Rico, if,

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collectively, natural persons who are citizens of such country hold, directly or indirectly, an interest in such corporation or entity equivalent to fifty per cent or more of its capital stock. 2. ‘Claims of nationals’ of Iran or the United States, as the case may be, means claims owned continuously, from the date on which the claim arose to the date on which this agreement enters into force, by nationals of that state, including claims that are owned indirectly by such nationals through ownership of capital stock or other proprietary interests in juridical persons, provided that the ownership interest of such nationals, collectively, were sufficient at the time the claim arose to control the corporation or other entity, and provided, further, that the corporation or other entity is not itself entitled to bring a claim under the terms of this agreement. Claims referred to the Arbitral Tribunal shall, as of the date of filing of such claims with the Tribunal, be considered excluded from the jurisdiction of the courts of Iran, or of the United States, or of any other court. 3. ‘Iran’ means the Government of Iran, any political subdivision of Iran, and any agency, instrumentality, or entity controlled by the Government of Iran or any political subdivision thereof. 4. The ‘United States’ means the Government of the United States, any political sub-division of the United States, any agency, instrumentality or entity controlled by the Government of the United States or any political subdivision thereof. Article VIII This agreement shall enter into force when the Government of Algeria has received from both Iran and the United States a notification of adherence to this agreement. Initialed on January 19, 1981 Warren M.Christopher Deputy Secretary of State of the Government of the United States By virtue of the powers vested in him by his Government as deposited with the Government of Algeria.

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Undertakings of the Government of the United States of America and the Government of the Islamic Republic of Iran with Respect to the Declaration of the Government of the Democratic and Popular Republic of Algeria 1. At such time as the Algerian Central Bank notifies the Governments of Algeria, Iran, and the United States that it has been notified by the Central Bank that the Central Bank has received for deposit in dollar, gold bullion, and securities accounts in the name of the Algerian Central Bank, as escrow agent, cash and other funds, 1,632,917.779 ounces of gold (valued by the parties for this purpose at $0.9397 billion), and the securities (at face value) in the aggregate amount of $7.955 billion, Iran shall immediately bring about the safe departure of the 52 U.S. nationals detained in Iran. Upon the making by the Government of Algeria of the certification described in Paragraph 3 of the Declaration, the Algerian Central Bank will issue the instructions required by the following paragraph. 2. Iran having affirmed its intention to pay all its debts and those of its controlled institutions, the Algerian Central Bank acting pursuant to Paragraph 1 above will issue the following instructions to the Central Bank: (A) To transfer $3.667 billion to the Federal Reserve Bank of New York to pay the unpaid principal of and interest through December 31, 1980 on (1) all loans and credits made by a syndicate of banking institutions, of which a U.S. banking institution is a member, to the Government of Iran, its agencies, instrumentalities or controlled entities and (2) all loans and credits made by such a syndicate which are guaranteed by the Government of Iran or any of its agencies, instrumentalities or controlled entities (B) To retain $1.418 billion in the escrow account for the purpose of paying the unpaid principal of the interest owing, if any, on the loans and credits referred to in Paragraph (A) after application of the $3.667 billion and on all other indebtedness held by United States banking Institutions of, or guaranteed by, the Government of Iran, its agencies, instrumentalities or controlled entities not previously paid and for the purpose of paying disputed amounts of deposits, assets, and interests, if any, owing on Iranian deposits in U.S. banking institutions. Bank Markazi and the appropriate United States banking institutions shall promptly meet in an effort

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to agree upon the amounts owing. In the event of such agreement, the Bank Markazi and the appropriate banking institution shall certify the amount owing to the Central Bank of Algeria which shall instruct the Bank of England to credit such amount to the account, as appropriate, of the Bank Markazi or of the Federal Reserve Bank of New York in order to permit payment to the appropriate banking institution. In the event that within 30 days any U.S. banking institution and the Bank Markazi are unable to agree upon the amounts owed, either party may refer such dispute to binding arbitration by such international arbitration panel as the parties may agree, or failing such agreement within 30 additional days after such reference, by the Iran-United States Claims Tribunal. The presiding officer of such panel or tribunal shall certify to the Central Bank of Algeria the amount, if any, determined by it to be owed, whereupon the Central Bank of Algeria shall instruct the Bank of England to credit such amount to the account of the Bank Markazi or of the Federal Reserve Bank of New York in order to permit payment to the appropriate banking institution. After all disputes are resolved either by agreement or by arbitration award and appropriate payment has been made, the balance of the funds referred to in this Paragraph (B) shall be paid to Bank Markazi. (C) To transfer immediately to, or upon the order of, the Bank Markazi all assets in the escrow account in excess of the amounts referred to in Paragraphs (A) and (B). Initialed on January 19, 1981 Warren M. Christopher Deputy Secretary of State of the Government of the United States By virtue of the powers vested in him by his Government as deposited with the Government of Algeria.

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Escrow Agreement This Escrow Agreement is among the Government of the United States of America, the Federal Reserve Bank of New York ( the ‘FED’) acting as fiscal agent of the United States, Bank Markazi Iran, as an interested party, and the Banque Centrale d’Algerie acting as Escrow Agent. This Agreement is made to implement the relevant provisions of the Declaration of the Government of Algeria of January 19, 1981 (the ‘Declaration’). These provisions concern the establishment of escrow arrangements for Iranian property tied to the release of United States nationals being held in Iran. 1. In accordance with the obligations set forth in paragraph 4 of the Declaration, and commencing upon the entry into force of this Agreement, the Government of United States will cause the FED to: (A) Sell, at a price which is the average for the middle of the market, bid and ask prices for the three business days prior to the sale, all U.S. Government securities in its custody or control as of the date of sale, which are owned by the Government of Iran, or its agencies, instrumentalities or controlled entities; and (B) Transfer to the Bank of England as depositary for credit to accounts on its books in the name of the Banque Centrale d’Algerie, as Escrow Agent under this Agreement, all securities (other than the aforementioned U.S. Government securities), funds (including the proceeds from the sale of the aforementioned U.S. Government securities), and gold bullion of not less than the same fineness and quality as that originally deposited by the Government of Iran, or its agencies, instrumentalities or controlled entities, which are in the custody or control of the FED and owned by the Government of Iran, or its agencies, instrumentalities or controlled entities as of the date of such transfer. When the FED transfers the above Iranian property to the Bank of England, the FED will promptly send to the Banque Centrale d’Algerie a document containing all information necessary to identify that Iranian property (type, source, character as principal or interest). Specific details relating to securities, funds and gold bullion to be transferred by the FED under this paragraph 1 are attached as Appendix A.

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2. Pursuant to the obligations set forth in paragraphs 5, 6 and 8 of the Declaration, the Government of the United States will cause Iranian deposits and securities in foreign branches and offices of United States banks, Iranian deposits and securities in domestic branches United States, to be transferred to the FED, as fiscal agent of the United States, and then by the FED to the Bank of England for credit to the account on its books, opened in the name of the Banque Centrale d’Algerie as Escrow Agent under this Agreement (the Iranian securities, funds and gold bullion mentioned in paragraph 1 above and deposits, securities and funds mentioned in this paragraph 2 are referred to collectively as ‘Iranian property’). 3. Insofar as Iranian property is received by the Bank of England from the FED in accordance with this Agreement, the Iranian property will be held by the Bank of England in the name of the Banque Centrale d’Algerie as Escrow Agent as follows: – The securities will be held in one or more securities custody accounts at the Bank of England in the name of the Banque Centrale d’Algerie as Escrow Agent under this Agreement. – The deposits and funds will be held in one or more dollar accounts opened at the Bank of England in the name of Banque Centrale d’Algerie as Escrow Agent under this Agreement. These deposits and funds will bear interest at rates prevailing in money markets outside the United States. – The gold bullion will be held in a gold bullion custody account at the Bank of England, in the name of the Banque Centrale d’Algerie as Escrow Agent under this Agreement. – It will be understood that the Banque Centrale d’Algerie shall have no liability for any reduction in the value of the securities, bullion, and monies held in its name as Escrow Agent at the Bank of England under the provisions of this Agreement. 4. (a) As soon as the Algerian Government certifies in writing to the Banque Centrale d’Algerie that all 52 United States nationals identified in the list given by the United States Government to the Algerian Government in November, 1980, now being held in Iran, have safely departed from Iran, the Banque Centrale d’Algerie will immediately give the instructions to the Bank of England specifically contemplated by the provisions of the Declaration and the Undertakings of the Government of the United States of America and the Government of the Islamic Republic of Iran with respect

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to the Declaration of the Government of the Democratic and Popular Republic of Algeria, and the Implementing Technical Clarifications and Directions arising therefrom, all three shares of [deletion by hand, with initials] which are made part of this Agreement. The contracting parties resolve to work in good faith to resolve any difficulty that could arise in the course of implementing this Agreement [handwritten addendum, with initials]. (b) In the event that (i) either the Government of Iran or the Government of the United States notifies the Government of Algeria in writing that it has given notice to terminate its commitments under the Declaration referred to above, and (ii) a period of 72 hours elapses after the receipt by the Government of Algeria of such notice, during which period the Banque Centrale d’Algerie has not given the Bank of England the instruction described in subparagraph (a) above, the Banque Centrale d’Algerie will immediately give the instructions to the Bank of England specifically contemplated by the provisions of the Declaration, and the Undertakings of the Government of the United States of America and the Government of the United States of America and the Government of the Islamic Republic of Iran with respect to the Declaration of the Government of the Democratic and Popular Republic of Algeria and the Implementing Technical Clarifications and Directions arising therefrom [deletion by hand, with initials]. (c) If the certificate by the Government of Algeria referred to in subparagraph (a) has been given before the United States Government has effectively terminated its commitment under the Declaration, the Iranian property shall be transferred as provided in subparagraph (a) of this paragraph 4. (d) The funds and deposits held by the Bank of England under this Agreement will earn interest at rates prevailing in money markets outside the United States after their transfer to the account of the Banque Centrale d’Algerie, as Escrow Agent, with the Bank of England, and such interest will be included as part of the Iranian property for the purposes of subparagraphs (a) and (b) of this paragraph 4. 5. On the date of the signing of this Agreement by the four parties hereto, the Banque Centrale d’Algerie and the FED will enter into a Technical

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Arrangement with the Bank of England to implement the provisions of this Agreement. Pursuant to that Technical Arrangement between the FED, the Bank of England and the Banque Centrale d ‘Algerie, the FED shall reimburse the Bank of England for losses and expenses as provided in paragraph 10 thereof. The FED will not charge the Banque Centrale d’Algerie for any expenses or disbursements related to the implementation of this Agreement. 6. This Agreement will become effective as soon as it has been signed by the four parties to it and the Banque Centrale d’Algerie and the FED have entered into the Technical Arrangement with the Bank of England referred to in paragraph 5 of this Agreement. 7. Throughout its duration, this Agreement may be amended, canceled, or revoked only with the written concurrence of all four of the signatory parties. 8. Nothing in this Agreement shall be considered as constituting, in whole or in part, a waiver of any immunity to which the Banque Centrale d’Algerie is entitled. 9. A French language version of this Agreement will be prepared as soon as practicable. The English and French versions will be equally authentic and of equal value. 10. This Agreement may be executed in counterparts, each of which constitutes an original. In Witness whereof, the parties hereto have signed this Agreement on January 20, 1981. Appendix A Securities, Gold Bullion, and Funds to be transferred by the Federal Reserve Bank of New York International Bank for Reconstruction and Development Securities – $35 million (face value) Gold Bullion – 1,632,917.746 fine ounces of gold, good delivery, London bars of a fineness of 995 parts per 1,000 or better Funds – approximately $1.38 billion

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Technical Arrangement Between Banque Centrale d’Algerie as Escrow Agent and the Governor and Company of the Bank of England and the Federal Reserve Bank of New York as Fiscal Agent of the United States (January 20, 1981) This Technical Arrangement is made between the Banque Centrale d’Algerie (hereinafter referred to as the ‘Escrow Agent’) as Escrow Agent, the Governor and Company of the Bank of England (hereinafter referred to as the ‘Bank’), and the Federal Reserve Bank of New York as fiscal agent of the United States (hereinafter referred to as the ‘FED’). 1. The Bank are [sic] hereby appointed to hold, invest and distribute, in accordance with the terms of this Technical Arrangement, such of the funds and other property (as identified by the FED on its sole responsibility at the time of transfer) as may be transferred to them by the FED and such other funds or property as may from time to time be held by the Bank on such accounts or invested by the Bank pursuant to paragraph 4 hereof (all of which funds and property are collectively referred to as the ‘Escrow Fund’). The Bank shall act as a depositary and shall hold and invest the Escrow Fund in accordance with the arrangements described herein until such time as the Escrow Fund shall have been distributed as provided in paragraph 7 below. 2. The Bank will open in the name of the Escrow Agent the following accounts: (A) Two securities custody accounts, Securities Custody Account No. 1 and Securities Custody Account No. 2 (the ‘Securities Custody Accounts’); (B) Three accounts denominated in US dollars, ‘Dollar Account No. 1,’ ‘Dollar Account No. 2’ and ‘Dollar Account No. 3’ (the ‘Dollar Accounts’); (C) A gold bullion custody account (the ‘Bullion Account’) and shall credit the securities to Securities Custody Account No. 1, the dollar deposits to Dollar Account No. 1 and the gold bullion to the Bullion Account when ferred [sic] to the Bank by the FED for deposit on such accounts, and shall provide the Escrow Agent with a general description of the funds and other property so transferred. 3. The Bank shall (A) Hold the securities for the time being in the Securities Custody Accounts in accordance with the provisions of this Arrangement; (B) Hold the gold bullion for the time being in the Bullion Account in

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accordance with the provisions of this Arrangement; and (C) Hold the funds for the time being in the Dollar Accounts on a call basis, so as to ensure the liquidity of those funds, and in accordance with the provisions of this Arrangement. (a) The Bank shall make a good faith effort under the circumstances to invest and reinvest outside the United States the funds on the Dollar Accounts at market rates with such banks and in such manner as the Bank may determine and will pay by way of interest on the funds on those Dollar Accounts sums equivalent to those received by them, subject nevertheless to the deduction from Dollar Account No. 2 of sums equivalent to the amounts of their reasonable costs, charges and expenses in respect of the maintenance and operation of Dollar Account No. 2. (b) Any interest received on the securities in the Securities Custody Account No. 1 shall be credited to Dollar Account No.1 and any interest received on the Securities Custody Account No. 2 shall be credited to Dollar Account No. 3. The Bank shall invest all monies representing interest paid in respect of any part of the Escrow Fund in the same manner as any funds for the time being on deposit on the Dollar Accounts. The Bank shall not have or incur any liability by reason of any diminution in value of the securities or gold bullion for the time being held by them in the name of the Escrow Agent on the Securities Custody Accounts and the Bullion Account respectively. Similarly, the Escrow Agent shall not have or incur any liability by reason of any dimunition in value of the securities or gold bullion for the time being held in its name by the Bank on the Securities Custody Accounts and the Bullion Account respectively. Moreover, the Escrow Agent shall not have or incur any liability for any loss arising from investment of the funds held for the Escrow Agent on the Dollar Accounts. In addition, the Escrow Agent shall not bear nor be liable for any expenses, charges, costs or fees of any kind incurred by the Bank or the FED in performance of their duties under this Arrangement. In the performance of their duties under this Arrangement, the Bank shall not exercise any discretion designed to favour one of the parties to this Arrangement and shall act only on the instructions of the Escrow Agent.

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(a) Provided that no previous instruction has been received under subparagraph (b) below, upon receipt of instructions from the Escrow Agent to do so, in the form provided in paragraph 8 below, the Bank shall immediately transfer the funds then held on Dollar Account No. 1 as follows: (i) U.S. Dollars 3,667,000,000 to the FED, subject to the FED’s sole direction; (ii) U.S. Dollars 1,418,000,000 to Dollar Account No. 2; and (iii)the balance to an account of Bank Markazi Iran opened at the Bank, subject to Bank Markazi Iran’s sole direction and transfer the securities and bullion then held in the Securities Custody Account No. 1 and the Bullion Account respectively to the account of Bank Markazi Iran at the Bank, subject to Bank Markazi Iran’s sole direction. (b) Provided that no previous instruction has been received under subparagraph (a) above, upon receipt of instructions from the Escrow Agent to do so, in the form provided in paragraph 8 below, the Bank shall immediately transfer the Escrow Fund to the account of the FED at the Bank, subject to the FED’s sole direction, and close all the Accounts opened under paragraph 2 of this Arrangement. (c) Any funds or securities received by the Bank from the FED for deposit on any of the accounts described in paragraph 2 of this Arrangement, other than Dollar Account No. 2, after receipt and execution by Bank of the instructions referred to in subparagraph (a) above, shall be credited in accordance with the instructions of the Escrow Agent in the form provided in paragraph 8 below, to the account of Bank Markazi Iran at the Bank, subject to Bank Markazi Iran’s sole direction, and to Dollar Account No. 3 and Securities Custody Account No. 2 at the Bank in the name of the Escrow Agent. Not later than 30 days after the date hereof the Escrow Agent shall instruct the Bank to transfer the funds and securities in these accounts to such bank as the Escrow Agent shall direct, for the account of the Banque Centrale d’Algerie. (d) Upon receipt by the Bank of instructions from the Escrow Agent to do so in the form provided in paragraph 8 below, the Bank shall, as soon as practicable thereafter. (i) transfer such amount as may be specified in the instructions from Dollar Account No. 2 to the FED, subject to the FED’s sole

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direction, if sufficient funds then remain on Dollar Account No. 2 to make such transfer; and/or (ii) transfer the remaining funds on Dollar Account No.2 to the account of Bank Markazi Iran at the Bank, subject to Bank Markazi Iran’s sole direction, and close Dollar Account No. 2. (e) The Escrow Agent shall not be entitled to give the Bank any instruction other than described in this paragraph 7, and the Bank shall be entitled and bound to rely on any instruction falling within this paragraph 7 without further inquiry, and any transfer by the Bank in accordance with any instructions given to them under this paragraph 7 shall constitute a good discharge to the Bank. 8. (a) The Bank and the Escrow Agent will exchange telegraphic keys which will permit the reciprocal validation of messages and payment and transfer orders; however, the instructions set forth in paragraphs 7(a) and 7(b) shall be in writing, shall be transmitted by hand either (i) to the Bank or (ii) to the Deputy Governor of the Bank for and on behalf of the Bank at the British Embassy at Algiers and shall be authenticated as provided in subparagraph (b) below. In the event that a telegraphic test is challenged, the Bank and the Escrow Agent agree to contact each other by telex or other appropriate means as rapidly as possible, in order to obtain confirmation of the authenticity of the transmission. (b) The Bank and the Escrow Agent shall provide each other with a list, which will be revised whenever necessary, of the names of the persons authorized to execute any written notice or instruction required or permitted under this Arrangement and identify the signatures of such designated persons; all such notices or instructions to the Bank; the Bank shall not be obliged to act on any such notice or instruction unless properly so authorized, authenticated and delivered in the manner required by this paragraph 9. Except as provided in paragraph 8(a) above, any advices, written notices, or instructions permitted or required by this Arrangement shall be given to the parties hereto at the respective addresses shown below: (i) To the Bank at: Threadneedle Street London EC2R 8AH

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Attention: D.H.F. Somerset J.G. Drake W.B. Moule (ii) To the FED at: 33 Liberty Street New York New York 10045 Attention: H. David Willey George Ryan (iii) To the Escrow Agent at: 8 Boulevard Zirout Youcef Algiers Algeria Attention: Mr. Mohamed Bessekhouad Mr. Bachir Sail Mr. Mohand Kirat Mr. Lakhdar Benouataf 10. The FED shall indemnify and hold the Bank harmless against and shall reimburse the Bank for any loss or expense that they may incur by reason of their acts or omissions under or in connection with this Arrangement, except for (A) Any loss or expense resulting from their own negligence or wilful misconduct and (B) Any loss arising from investment of the funds held for the Escrow Agent on Dollar Accounts No. 1, No. 2 and No. 3. 11. The Bank may rely and shall be protected in acting on any instrument, instruction, notice, direction given by the Escrow Agent in accordance with paragraph 7 reasonably believed by them to be genuine and to have been signed or dispatched by the appropriate person or persons. 12. The Bank shall not be liable for any act or omission unless such act or omission involves negligence or wilful misconduct on the part of the Bank. This paragraph 12 does not apply to any loss arising from investment of the funds held for the Escrow Agent on the Dollar Accounts. 13. (a) The Bank shall advise the Escrow Agent by telex as soon a reasonably practicable thereafter of all changes in balance, deposits, interest earned and withdrawals on the six accounts opened and

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maintained by the Bank for the Escrow Agent as provided in paragraph 2 of this Arrangement. (b) The Bank shall provide the FED by telex with a list of all debits and credits to the six accounts referred to in subparagraph (a) above. 14. The Bank and the FED accept that the Escrow Agent is a central bank, whose property is normally entitled to the full immunities of a central bank under the State Immunity Act of 1978 of the United Kingdom. Nothing in this Arrange-ment shall be considered as constituting, in whole or in part, a waiver of any immunity to which they are entitled. 15. Nothing herein shall require the Bank to violate the laws of England or any court order thereunder; the Bank confirms that none of the provisions of this Arrangement is in violation of the laws of England. 16. The provisions hereof may not be modified or changed except by an instrument in writing duly executed by or on behalf of the Escrow Agent, the Bank and the FED. 17. This Arrangement is written in English and French texts but, in the event of any conflict between the two texts, the English text shall prevail. 18. The arrangements described herein shall be governed by and construed in accordance with the laws of England. Dated 20th of January 1981 Banque Centrale d’Algerie by Mohamed Bessekhouad Lakhdar Benouataf The Governor and Company of the Bank of England by C.W. McMahon D.H.F. Somerset The Federal Reserve Bank of New York as Fiscal Agents of the United States by Ernest T. Patrikis

DOCUMENT 4 Dames & Moore v Regan

Supreme Court of the United States No. 80-2078 Dames & Moore v. Regan, 453 U.S. 654 (1981) 453 U.S. 654 Certiorari to the United States Court of Appeals for the Ninth Circuit No. 80-2078 Decided July 2, 1981. JUSTICE REHNQUIST delivered the opinion of the Court. The questions presented by this case touch fundamentally upon the manner in which our Republic is to be governed. Throughout the nearly two centuries of our Nation’s existence under the Constitution, this subject has generated considerable debate. We have had the benefit of commentators such as John Jay, Alexander Hamilton, and James Madison writing in The Federalist Papers at the Nation’s very inception, the benefit of astute foreign observers of our system such as Alexis de Tocqueville and James Bryce writing during the first century of the Nation’s existence, and the benefit of many other treatises as well as more than 400 volumes of reports of decisions of this Court. As these writings reveal it is doubtless both futile and perhaps dangerous to find any epigrammatical explanation of how this country has been governed. Indeed, as Justice Jackson noted, ‘[a] judge…

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may be surprised at the poverty of really useful and unambiguous authority applicable to concrete problems of executive power as they actually present themselves.’ Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579, 634 (1952) (concurring opinion). Our decision today will not dramatically alter this situation, for the Framers ‘did not make the judiciary the overseer of our government.’ Id., at 594 (Frankfurter, J., concurring). We are confined to a resolution of the dispute presented to us. That dispute involves various Executive Orders and regulations by which the President nullified attachments and liens on Iranian assets in the United States, directed that these assets be transferred to Iran, and suspended claims against Iran that may be presented to an International Claims Tribunal. This action was taken in an effort to comply with an Executive Agreement between the United States and Iran. We granted certiorari before judgment in this case, and set an expedited briefing and argument schedule, because lower courts had reached conflicting conclusions on the validity of the President’s actions and, as the Solicitor General informed us, unless the Government acted by July 19, 1981, Iran could consider the United States to be in breach of the Executive Agreement. But before turning to the facts and law which we believe determine the result in this case, we stress that the expeditious treatment of the issues involved by all of the courts which have considered the President’s actions makes us acutely aware of the necessity to rest decision on the narrowest possible ground capable of deciding the case. Ashwander v. TVA, 297 U.S. 288, 347 (1936) (Brandeis, J., concurring). This does not mean that reasoned analysis may give way to judicial fiat. It does mean that the statement of Justice Jackson – that we decide difficult cases presented to us by virtue of our commissions, not our competence – is especially true here. We attempt to lay down no general ‘guidelines’ covering other situations not involved here, and attempt to confine the opinion only to the very questions necessary to decision of the case. Perhaps it is because it is so difficult to reconcile the foregoing definition of Art. III judicial power with the broad range of vitally important day-today questions regularly decided by Congress or the Executive, without either challenge or interference by the Judiciary, that the decisions of the Court in this area have been rare, episodic, and afford little precedential value for subsequent cases. The tensions present in any exercise of executive power under the tripartite system of Federal Government established by the Constitution have been reflected in opinions by Members of this

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Court more than once. The Court stated in United States v. Curtiss-Wright Export Corp., 299 U.S. 304, 319–320 (1936): ‘[W]e are here dealing not alone with an authority vested in the President by an exertion of legislative power, but with such an authority plus the very delicate, plenary and exclusive power of the President as the sole organ of the federal government in the field of international relations – a power which does not require as a basis for its exercise an act of Congress, but which, of course, like every other governmental power, must be exercised in subordination to the applicable provisions of the Constitution.’ And yet 16 years later, Justice Jackson in his concurring opinion in Youngstown, supra, which both parties agree brings together as much combination of analysis and common sense as there is in this area, focused not on the ‘plenary and exclusive power of the President’ but rather responded to a claim of virtually unlimited powers for the Executive by noting: ‘The example of such unlimited executive power that must have most impressed the forefathers was the prerogative exercised by George III, and the description of its evils in the Declaration of Independence leads me to doubt that they were creating their new Executive in his image.’ 343 U.S., at 641. As we now turn to the factual and legal issues in this case, we freely confess that we are obviously deciding only one more episode in the neverending tension between the President exercising the executive authority in a world that presents each day some new challenge with which he must deal and the Constitution under which we all live and which no one disputes embodies some sort of system of checks and balances. I On November 4, 1979, the American Embassy in Tehran was seized and our diplomatic personnel were captured and held hostage. In response to that crisis, President Carter, acting pursuant to the International Emergency Economic Powers Act, 91 Stat. 1626, 50 U.S.C. 1701-1706 (1976 ed., Supp. III) (hereinafter IEEPA), declared a national emergency on November 14, 1979,1 and blocked the removal or transfer of ‘all property and interests in property of the Government of Iran, its instrumentalities and controlled entities and the Central Bank of Iran which are or become subject to the 1

Title 50 U.S.C. §1701(a) (1976 ed., Supp. III) states that the President’s authority under the Act ‘may be exercised to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States, if the President declares a national emergency with respect to such threat.’ Petitioner does not challenge President Carter’s declaration of a national emergency.

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jurisdiction of the United States…’ Exec. Order No. 12170, 3 CFR 457 (1980), note following 50 U.S.C. §1701 (1976 ed., Supp. III).2 President Carter authorized the Secretary of the Treasury to promulgate regulations carrying out the blocking order. On November 15, 1979, the Treasury Department’s Office of Foreign Assets Control issued a regulation providing that ‘[u]nless licensed or authorized… any attachment, judgment, decree, lien, execution, garnishment, or other judicial process is null and void with respect to any property in which on or since [November 14, 1979,] there existed an interest of Iran.’ 31 CFR §535.203 (e) (1980). The regulations also made clear that any licenses or authorizations granted could be ‘amended, modified, or revoked at any time’. §535.805.3 On November 26, 1979, the President granted a general license authorizing certain judicial proceedings against Iran but which did not allow the ‘entry of any judgment or of any decree or order of similar or analogous effect…’ §535.504 (a). On December 19, 1979, a clarifying regulation was issued stating that ‘the general authorization for judicial proceedings contained in §535.504 (a) includes pre-judgment attachment’. §535.418. On December 19, 1979, petitioner Dames & Moore filed suit in the United States District Court for the Central District of California against the Government of Iran, the Atomic Energy Organization of Iran, and a number of Iranian banks. In its complaint, petitioner alleged that its wholly owned subsidiary, Dames & Moore International, S.R.L., was a party to a written contract with the Atomic Energy Organization, and that the subsidiary’s entire interest in the contract had been assigned to petitioner. Under the contract, the subsidiary was to conduct site studies for a proposed nuclear power plant in Iran. As provided in the terms of the contract, the Atomic Energy Organization terminated the agreement for its own convenience on June 30, 1979. Petitioner contended, however, that it was owed $3,436,694.30 plus interest for services performed under the contract prior to the date of termination.4 The District Court issued orders of attachment directed against property of the defendants, and the property of certain Iranian banks was then attached to secure any judgment that might be entered against them. 2

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Title 50 U.S.C. §1702 (a) (1) (B) (1976 ed., Supp. III) empowers the President to ‘investigate, regulate, direct and compel, nullify, void, prevent or prohibit, any acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest…’ Title 31 CFR §535.805 (1980) provides in full: ‘The provisions of this part and any rulings, licenses, authorizations, instructions, orders, or forms issued thereunder may be amended, modified, or revoked at any time.’

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On January 20, 1981, the Americans held hostage were released by Iran pursuant to an Agreement entered into the day before and embodied in two Declarations of the Democratic and Popular Republic of Algeria. Declaration of the Government of the Democratic and Popular Republic of Algeria (App. to Pet. for Cert. 21–29), and Declaration of the Government of the Democratic and Popular Republic of Algeria Concerning the Settlement of Claims by the Government of the United States of America and the Government of the Islamic Republic of Iran (id., at 30–35). The Agreement stated that ‘[i]t is the purpose of [the United States and Iran]… to terminate all litigation as between the Government of each party and the nationals of the other, and to bring about the settlement and termination of all such claims through binding arbitration’. Id., at 21–22. In furtherance of this goal, the Agreement called for the establishment of an Iran-United States Claims Tribunal which would arbitrate any claims not settled within six months. Awards of the Claims Tribunal are to be ‘final and binding’ and ‘enforceable… in the courts of any nation in accordance with its laws’. Id., at 32. Under the Agreement, the United States is obligated ‘to terminate all legal proceedings in United States courts involving claims of United States persons and institutions against Iran and its state enterprises, to nullify all attachments and judgments obtained therein, to prohibit all further litigation based on such claims, and to bring about the termination of such claims through binding arbitration’. Id., at 22. In addition, the United States must ‘act to bring about the transfer’ by July 19, 1981, of all Iranian assets held in this country by American banks. Id., at 24–25. One billion dollars of these assets will be deposited in a security account in the Bank of England, to the account of the Algerian Central Bank, and used to satisfy awards rendered against Iran by the Claims Tribunal. Ibid. On January 19, 1981, President Carter issued a series of Executive Orders implementing the terms of the agreement. Exec. Orders Nos. 12276– 12285, 46 Fed. Reg. 7913–7932. These Orders revoked all licenses permitting the exercise of ‘any right, power, or privilege’ with regard to Iranian funds, securities, or deposits; ‘nullified’ all non-Iranian interests in such assets 4

The contract stated that any dispute incapable of resolution by agreement of the parties would be submitted to conciliation and that, if either party was unwilling to accept the results of conciliation, ‘the matter shall be decided finally by resort to the courts of Iran.’ Pet. for Cert. 7, n. 2. In its complaint, which was based on breach of contract and related theories, petitioner alleged that it had sought a meeting with the Atomic Energy Organization for purposes of settling matters relating to the contract but that the Organization ‘has continually postponed [the] meeting and obviously does not intend that it take place.’ Complaint in Dames & Moore v. Atomic Energy Organization of Iran, No. CV 79-04918 LEW (Px) (CD Cal.), _ 27.

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acquired subsequent to the blocking order of November 14, 1979; and required those banks holding Iranian assets to transfer them ‘to the Federal Reserve Bank of New York, to be held or transferred as directed by the Secretary of the Treasury’. Exec. Order No. 12279, 46 Fed. Reg. 7919. On February 24, 1981, President Reagan issued an Executive Order in which he ‘ratified’ the January 19th Executive Orders. Exec. Order No. 12294. 46 Fed. Reg. 14111. Moreover, he ‘suspended’ all ‘claims which may be presented to the… Tribunal’ and provided that such claims ‘shall have no legal effect in any action now pending in any court of the United States’. Ibid. The suspension of any particular claim terminates if the Claims Tribunal determines that it has no jurisdiction over that claim; claims are discharged for all purposes when the Claims Tribunal either awards some recovery and that amount is paid, or determines that no recovery is due. Ibid. Meanwhile, on January 27, 1981, petitioner moved for summary judgment in the District Court against the Government of Iran and the Atomic Energy Organization, but not against the Iranian banks. The District Court granted petitioner’s motion and awarded petitioner the amount claimed under the contract plus interest. Thereafter, petitioner attempted to execute the judgment by obtaining writs of garnishment and execution in state court in the State of Washington, and a sheriff’s sale of Iranian property in Washington was noticed to satisfy the judgment. However, by order of May 28, 1981, as amended by order of June 8, the District Court stayed execution of its judgment pending appeal by the Government of Iran and the Atomic Energy Organization. The District Court also ordered that all prejudgment attachments obtained against the Iranian defendants be vacated and that further proceedings against the bank defendants be stayed in light of the Executive Orders discussed above. App. to Pet. for Cert. 106–107. On April 28, 1981, petitioner filed this action in the District Court for declaratory and injunctive relief against the United States and the Secretary of the Treasury, seeking to prevent enforcement of the Executive Orders and Treasury Department regulations implementing the Agreement with Iran. In its complaint, petitioner alleged that the actions of the President and the Secretary of the Treasury implementing the Agreement with Iran were beyond their statutory and constitutional powers and, in any event, were unconstitutional to the extent they adversely affect petitioner’s final judgment against the Government of Iran and the Atomic Energy Organization, its execution of that judgment in the State of Washington,

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its prejudgment attachments, and its ability to continue to litigate against the Iranian banks. Id., at 1–12. On May 28, 1981, the District Court denied petitioner’s motion for a preliminary injunction and dismissed petitioner’s complaint for failure to state a claim upon which relief could be granted. Id., at 106–107. Prior to the District Court’s ruling, the United States Courts of Appeals for the First and the District of Columbia Circuits upheld the President’s authority to issue the Executive Orders and regulations challenged by petitioner. See Chas. T. Main Int’l, Inc. v. Khuzestan Water & Power Authority, 651 F.2d 800 (CA1 1981); American Int’l Group, Inc. v. Islamic Republic of Iran, 211 U.S. App. D.C. 468, 657 F.2d 430 (1981). On June 3, 1981, petitioner filed a notice of appeal from the District Court’s order, and the appeal was docketed in the United States Court of Appeals for the Ninth Circuit. On June 4, the Treasury Department amended its regulations to mandate ‘the transfer of bank deposits and certain other financial assets of Iran in the United States to the Federal Reserve Bank of New York by noon, June 19’. App. to Pet. for Cert. 151–152. The District Court, however, entered an injunction pending appeal prohibiting the United States from requiring the transfer of Iranian property that is subject to ‘any writ of attachment, garnishment, judgment, levy, or other judicial lien’ issued by any court in favor of petitioner. Id., at 168. Arguing that this is a case of ‘imperative public importance,’ petitioner then sought a writ of certiorari before judgment. Pet. for Cert. 10. See 28 U.S.C. §2101 (e); this Court’s Rule 18. Because the issues presented here are of great significance and demand prompt resolution, we granted the petition for the writ, adopted an expedited briefing schedule, and set the case for oral argument on June 24, 1981. 452 U.S. 932 (1981). II The parties and the lower courts, confronted with the instant questions, have all agreed that much relevant analysis is contained in Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579 (1952). Justice Black’s opinion for the Court in that case, involving the validity of President Truman’s effort to seize the country’s steel mills in the wake of a nationwide strike, recognized that ‘[t]he President’s power, if any, to issue the order must stem either from an act of Congress or from the Constitution itself’. Id., at 585. Justice Jackson’s concurring opinion elaborated in a general way the consequences of different types of interaction between the two democratic branches in assessing Presidential authority to act in any given case. When the President

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acts pursuant to an express or implied authorization from Congress, he exercises not only his powers but also those delegated by Congress. In such a case the executive action ‘would be supported by the strongest of presumptions and the widest latitude of judicial interpretation, and the burden of persuasion would rest heavily upon any who might attack it’. Id., at 637. When the President acts in the absence of congressional authorization he may enter ‘a zone of twilight in which he and Congress may have concurrent authority, or in which its distribution is uncertain’. Ibid. In such a case the analysis becomes more complicated, and the validity of the President’s action, at least so far as separation-of-powers principles are concerned, hinges on a consideration of all the circumstances which might shed light on the views of the Legislative Branch toward such action, including ‘congressional inertia, indifference or quiescence’. Ibid. Finally, when the President acts in contravention of the will of Congress, ‘his power is at its lowest ebb,’ and the Court can sustain his actions ‘only by disabling the Congress from acting upon the subject’. Id., at 637–638. Although we have in the past found and do today find Justice Jackson’s classification of executive actions into three general categories analytically useful, we should be mindful of Justice Holmes’ admonition, quoted by Justice Frankfurter in Youngstown, supra, at 597 (concurring opinion), that ‘[t]he great ordinances of the Constitution do not establish and divide fields of black and white’. Springer v. Philippine Islands, 277 U.S. 189, 209 (1928) (dissenting opinion). Justice Jackson himself recognized that his three categories represented ‘a somewhat over-simplified grouping,’ 343 U.S., at 635, and it is doubtless the case that executive action in any particular instance falls, not neatly in one of three pigeonholes, but rather at some point along a spectrum running from explicit congressional authorization to explicit congressional prohibition. This is particularly true as respects cases such as the one before us, involving responses to international crises the nature of which Congress can hardly have been expected to anticipate in any detail. III In nullifying post-November 14, 1979, attachments and directing those persons holding blocked Iranian funds and securities to transfer them to the Federal Reserve Bank of New York for ultimate transfer to Iran, President Carter cited five sources of express or inherent power. The Government, however, has principally relied on §203 of the IEEPA, 91 Stat. 1626, 50

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U.S.C. §1702 (a) (1) (1976 ed., Supp. III), as authorization for these actions. Section 1702 (a) (1) provides in part: ‘At the times and to the extent specified in section 1701 of this title, the President may, under such regulations as he may prescribe, by means of instructions, licenses, or otherwise – ‘(A) investigate, regulate, or prohibit – ‘(i) any transactions in foreign exchange, ‘(ii) transfers of credit or payments between, by, through, or to any banking institution, to the extent that such transfers or payments involve any interest of any foreign country or a national thereof, ‘(iii) the importing or exporting of currency or securities, and ‘(B) investigate, regulate, direct and compel, nullify, void, prevent or prohibit, any acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest; ‘by any person, or with respect to any property, subject to the jurisdiction of the United States.’ The Government contends that the acts of ‘nullifying’ the attachments and ordering the ‘transfer’ of the frozen assets are specifically authorized by the plain language of the above statute. The two Courts of Appeals that have considered the issue agreed with this contention. In Chas. T. Main Int’l, Inc. v. Khuzestan Water & Power Authority, the Court of Appeals for the First Circuit explained: ‘The President relied on his IEEPA powers in November 1979, when he ‘blocked’ all Iranian assets in this country, and again in January 1981, when he ‘nullified’ interests acquired in blocked property, and ordered that property’s transfer. The President’s actions, in this regard, are in keeping with the language of IEEPA: initially he ‘prevent[ed] and prohibit[ed]’ ‘transfers’ of Iranian assets; later he ‘direct[ed] and compel[led]’ the ‘transfer’ and ‘withdrawal’ of the assets, ‘nullify[ing]’ certain ‘rights’ and ‘privileges’ acquired in them. ‘Main argues that IEEPA does not supply the President with power to override judicial remedies, such as attachments and injunctions, or to extinguish ‘interests’ in foreign assets held by United States citizens. But we can find no such limitation in IEEPA’s terms. The language of IEEPA is sweeping and unqualified. It provides broadly that the President may void or nullify the ‘exercising [by any person of] any right, power or privilege with

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respect to… any property in which any foreign country has any interest…’ 50 U.S.C. §1702 (a) (1) (B).’ 651 F.2d, at 806–807 (emphasis in original). In American Int’l Group, Inc. v. Islamic Republic of Iran, the Court of Appeals for the District of Columbia Circuit employed a similar rationale in sustaining President Carter’s action: ‘The Presidential revocation of the license he issued permitting prejudgment restraints upon Iranian assets is an action that falls within the plain language of the IEEPA. In vacating the attachments, he acted to ‘nullify [and] void… any… exercising any right, power, or privilege with respect to… any property in which any foreign country… has any interest… by any person… subject to the jurisdiction of the United States.’ 211 U.S. App. D.C., at 477, 657 F.2d, at 439 (footnote omitted). Petitioner contends that we should ignore the plain language of this statute because an examination of its legislative history as well as the history of §5 (b) of the Trading with the Enemy Act (hereinafter TWEA), 40 Stat. 411, as amended, 50 U.S.C. App. §5 (b) (1976 ed. and Supp. III), from which the pertinent language of §1702 is directly drawn, reveals that the statute was not intended to give the President such extensive power over the assets of a foreign state during times of national emergency. According to petitioner, once the President instituted the November 14, 1979, blocking order, §1702 authorized him ‘only to continue the freeze or to discontinue controls’. Brief for Petitioner 32. We do not agree and refuse to read out of §1702 all meaning to the words ‘transfer,’ ‘compel,’ or ‘nullify’. Nothing in the legislative history of either §1702 or §5 (b) of the TWEA requires such a result. To the contrary, we think both the legislative history and cases interpreting the TWEA fully sustain the broad authority of the Executive when acting under this congressional grant of power. See, e.g., Orvis v. Brownell, 345 U.S. 183 (1953).5 Although Congress intended to limit the President’s emergency power in peacetime, we do not think the changes brought about by the enactment of the IEEPA in any way affected the authority of the President to take the specific actions taken here. We likewise note that by the time petitioner instituted this action, the President had already entered the freeze order. Petitioner proceeded against the blocked assets only after the Treasury Department had issued revocable licenses authorizing such proceedings and attachments. The Treasury Regulations provided that ‘unless licensed’ any attachment is null and void, 31 CFR 535.203 (e) (1980), and all licenses ‘may be amended, modified, or revoked at any time’. 535.805. As such, the attachments obtained by petitioner were specifically made subordinate to

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further actions which the President might take under the IEEPA. Petitioner was on notice of the contingent nature of its interest in the frozen assets. This Court has previously recognized that the congressional purpose in authorizing blocking orders is ‘to put control of foreign assets in the hands of the President…’ Propper v. Clark, 337 U.S. 472, 493 (1949). Such orders permit the President to maintain the foreign assets at his disposal for use in negotiating the resolution of a declared national emergency. The frozen assets serve as a ‘bargaining chip’ to be used by the President when dealing with a hostile country. Accordingly, it is difficult to accept petitioner’s argument because the practical effect of it is to allow individual claimants throughout the country to minimize or wholly eliminate this ‘bargaining chip’ through attachments, garnishments, or similar encumbrances on property. Neither the purpose the statute was enacted to serve nor its plain language supports such a result.6 Because the President’s action in nullifying the attachments and ordering the transfer of the assets was taken pursuant to specific congressional authorization, it is ‘supported by the strongest of presumptions and the 5

6

Petitioner argues that under the TWEA the President was given two powers: (1) the power temporarily to freeze or block the transfer of foreign-owned assets; and (2) the power summarily to seize and permanently vest title to foreign-owned assets. It is contended that only the ‘vesting’ provisions of the TWEA gave the President the power permanently to dispose of assets and when Congress enacted the IEEPA in 1977 it purposefully did not grant the President this power. According to petitioner, the nullification of the attachments and the transfer of the assets will permanently dispose of the assets and would not even be permissible under the TWEA. We disagree. Although it is true the IEEPA does not give the President the power to ‘vest’ or to take title to the assets, it does not follow that the President is not authorized under both the IEEPA and the TWEA to otherwise permanently dispose of the assets in the manner done here. Petitioner errs in assuming that the only power granted by the language used in both §1702 and §5(b) of the TWEA is the power temporarily to freeze assets. As noted above, the plain language of the statute defies such a holding. Section 1702 authorizes the President to ‘direct and compel’ the ‘transfer, withdrawal, transportation,… or exportation of… any property in which any foreign country… has any interest…’ We likewise reject the contention that Orvis v. Brownell and Zittman v. McGrath, 341 U.S. 446 (1951), grant petitioner the right to retain its attachments on the Iranian assets. To the contrary, we think Orvis supports the proposition that an American claimant may not use an attachment that is subject to a revocable license and that has been obtained after the entry of a freeze order to limit in any way the actions the President may take under §1702 respecting the frozen assets. An attachment so obtained is in every sense subordinate to the President’s power under the IEEPA. Although petitioner concedes that the President could have forbidden attachments, it nevertheless argues that once he allowed them the President permitted claimants to acquire property interests in their attachments. Petitioner further argues that only the licenses to obtain the attachments were made revocable, not the attachments themselves. It is urged that the January 19, 1981, order revoking all licenses only affected petitioner’s right to obtain future attachments. We disagree. As noted above, the regulations specifically provided that any attachment is null and void ‘unless licensed,’ and all licenses may be revoked at any time. Moreover, common sense defies petitioner’s reading of the regulations. The President could hardly have intended petitioner and other similarly situated claimants to have the power to take control of the frozen assets out of his hands. Our construction of petitioner’s attachments as being ‘revocable,’ ‘contingent,’ and ‘in every sense subordinate to the President’s power under the IEEPA,’ in effect answers petitioner’s claim that even if the President had the authority to nullify the attachments and transfer the assets, the exercise of such would constitute an unconstitutional taking of property in violation of the Fifth Amendment absent just compensation. We conclude that because of the President’s authority to prevent or condition attachments, and because of the orders he issued to this effect, petitioner did not acquire any ‘property’ interest in its attachments of the sort that would support a constitutional claim for compensation.

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widest latitude of judicial interpretation, and the burden of persuasion would rest heavily upon any who might attack it’. Youngstown, 343 U.S., at 637 (Jackson, J., concurring). Under the circumstances of this case, we cannot say that petitioner has sustained that heavy burden. A contrary ruling would mean that the Federal Government as a whole lacked the power exercised by the President, see id., at 636–637, and that we are not prepared to say. IV Although we have concluded that the IEEPA constitutes specific congressional authorization to the President to nullify the attachments and order the transfer of Iranian assets, there remains the question of the President’s authority to suspend claims pending in American courts. Such claims have, of course, an existence apart from the attachments which accompanied them. In terminating these claims through Executive Order No. 12294, the President purported to act under authority of both the IEEPA and 22 U.S.C. 1732, the so-called ‘Hostage Act.’ 7 46 Fed. Reg. 14111 (1981). We conclude that although the IEEPA authorized the nullification of the attachments, it cannot be read to authorize the suspension of the claims. The claims of American citizens against Iran are not in themselves transactions involving Iranian property or efforts to exercise any rights with respect to such property. An in personam lawsuit, although it might eventually be reduced to judgment and that judgment might be executed upon, is an effort to establish liability and fix damages and does not focus on any particular property within the jurisdiction. The terms of the IEEPA therefore do not authorize the President to suspend claims in American courts. This is the view of all the courts which have considered the question. Chas. T. Main Int’l, Inc. v. Khuzestan Water & Power Authority, 657 F.2d, at 809–814; American Int’l Group, Inc. v. Islamic Republic of Iran, 211 U.S. App. D.C., at 481, n. 15, 657 F.2d, at 443, n. 15; The Marschalk Co. v. Iran National Airlines Corp., 518 F. Supp. 69, 79 (SDNY 1981); Electronic Data Systems Corp. v. Social Security Organization of Iran, 508 F. Supp. 1350, 1361 (ND Tex. 1981). The Hostage Act, passed in 1868, provides: ‘Whenever it is made known to the President that any citizen of the United States has been unjustly deprived of his liberty by or under the 7

Judge Mikva, in his separate opinion in American Int’l Group, Inc. v. Islamic Republic of Iran, 211 U.S. App. D.C. 468, 490, 657 F.2d 430, 452 (1981), argued that the moniker ‘Hostage Act’ was newly coined for purposes of this litigation. Suffice it to say that we focus on the language of 22 U.S.C. 1732, not any shorthand description of it. See W. Shakespeare, Romeo and Juliet, Act II, scene 2, line 43 (‘What’s in a name?’).

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authority of any foreign government, it shall be the duty of the President forthwith to demand of that government the reasons of such imprisonment; and if it appears to be wrongful and in violation of the rights of American citizenship, the President shall forthwith demand the release of such citizen, and if the release so demanded is unreasonably delayed or refused, the President shall use such means, not amounting to acts of war, as he may think necessary and proper to obtain or effectuate the release; and all the facts and proceedings relative thereto shall as soon as practicable be communicated by the President to Congress.’ Rev. Stat. §2001, 22 U.S.C. §1732. We are reluctant to conclude that this provision constitutes specific authorization to the President to suspend claims in American courts. Although the broad language of the Hostage Act suggests it may cover this case, there are several difficulties with such a view. The legislative history indicates that the Act was passed in response to a situation unlike the recent Iranian crisis. Congress in 1868 was concerned with the activity of certain countries refusing to recognize the citizenship of naturalized Americans traveling abroad, and repatriating such citizens against their will. See, e.g., Cong. Globe, 40th Cong., 2d Sess., 4331 (1868) (Sen. Fessenden); id., at 4354 (Sen. Conness); see also 22 U.S.C. §1731. These countries were not interested in returning the citizens in exchange for any sort of ransom. This also explains the reference in the Act to imprisonment ‘in violation of the rights of American citizenship.’ Although the Iranian hostage-taking violated international law and common decency, the hostages were not seized out of any refusal to recognize their American citizenship – they were seized precisely because of their American citizenship. The legislative history is also somewhat ambiguous on the question whether Congress contemplated Presidential action such as that involved here or rather simply reprisals directed against the offending foreign country and its citizens. See, e.g., Cong. Globe, 40th Cong., 2d Sess., 4205 (1868); American Int’l Group, Inc. v. Islamic Republic of Iran, supra, at 490–491, 657 F.2d, at 452–453 (opinion of Mikva, J.). Concluding that neither the IEEPA nor the Hostage Act constitutes specific authorization of the President’s action suspending claims, however, is not to say that these statutory provisions are entirely irrelevant to the question of the validity of the President’s action. We think both statutes highly relevant in the looser sense of indicating congressional acceptance of a broad scope for executive action in circumstances such as those presented in this case. As noted in Part III, supra, at 670–672, the IEEPA delegates

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broad authority to the President to act in times of national emergency with respect to property of a foreign country. The Hostage Act similarly indicates congressional willingness that the President have broad discretion when responding to the hostile acts of foreign sovereigns. As Senator Williams, draftsman of the language eventually enacted as the Hostage Act, put it: ‘If you propose any remedy at all, you must invest the Executive with some discretion, so that he may apply the remedy to a case as it may arise. As to England or France he might adopt one policy to relieve a citizen imprisoned by either one of those countries; as to the Barbary powers, he might adopt another policy; as to the islands of the ocean, another. With different countries that have different systems of government he might adopt different means.’ Cong. Globe, 40th Cong., 2d Sess., 4359 (1868). Proponents of the bill recognized that it placed a ‘loose discretion’ in the President’s hands, id., at 4238 (Sen. Stewart), but argued that ‘[s]omething must be intrusted to the Executive’ and that ‘[t]he President ought to have the power to do what the exigencies of the case require to rescue [a] citizen from imprisonment’. Id., at 4233, 4357 (Sen. Williams). An original version of the Act, which authorized the President to suspend trade with a foreign country and even arrest citizens of that country in the United States in retaliation, was rejected because ‘there may be a great variety of cases arising where other and different means would be equally effective, and where the end desired could be accomplished without resorting to such dangerous and violent measures’. Id., at 4233 (Sen. Williams). Although we have declined to conclude that the IEEPA or the Hostage Act directly authorizes the President’s suspension of claims for the reasons noted, we cannot ignore the general tenor of Congress’ legislation in this area in trying to determine whether the President is acting alone or at least with the acceptance of Congress. As we have noted, Congress cannot anticipate and legislate with regard to every possible action the President may find it necessary to take or every possible situation in which he might act. Such failure of Congress specifically to delegate authority does not, ‘especially… in the areas of foreign policy and national security,’ imply ‘congressional disapproval’ of action taken by the Executive. Haig v. Agee, ante, at 291. On the contrary, the enactment of legislation closely related to the question of the President’s authority in a particular case which evinces legislative intent to accord the President broad discretion may be considered to ‘invite’ ‘measures on independent presidential responsibility,’ Youngstown, 343 U.S., at 637 (Jackson, J., concurring). At least this is so where there is no contrary indication of legislative intent and when, as

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here, there is a history of congressional acquiescence in conduct of the sort engaged in by the President. It is to that history which we now turn. Not infrequently in affairs between nations, outstanding claims by nationals of one country against the government of another country are ‘sources of friction’ between the two sovereigns. United States v. Pink, 315 U.S. 203, 225 (1942). To resolve these difficulties, nations have often entered into agreements settling the claims of their respective nationals. As one treatise writer puts it, international agreements settling claims by nationals of one state against the government of another ‘are established international practice reflecting traditional international theory’. L. Henkin, Foreign Affairs and the Constitution 262 (1972). Consistent with that principle, the United States has repeatedly exercised its sovereign authority to settle the claims of its nationals against foreign countries. Though those settlements have sometimes been made by treaty, there has also been a longstanding practice of settling such claims by executive agreement without the advice and consent of the Senate.8 Under such agreements, the President has agreed to renounce or extinguish claims of United States nationals against foreign governments in return for lump-sum payments or the establishment of arbitration procedures. To be sure, many of these settlements were encouraged by the United States claimants themselves, since a claimant’s only hope of obtaining any payment at all might lie in having his Government negotiate a diplomatic settlement on his behalf. But it is also undisputed that the ‘United States has sometimes disposed of the claims of its citizens without their consent, or even without consultation with them, usually without exclusive regard for their interests, as distinguished from those of the nation as a whole’. Henkin, supra, at 262–263. Accord, Restatement (Second) of Foreign Relations Law of the United States §213 (1965) (President ‘may waive or settle a claim against a foreign state… [even] without the consent of the [injured] national’). It is clear that the practice of settling claims continues today. Since 1952, the President has entered into at least 10 binding settlements with foreign nations, including an $80 million settlement with the People’s Republic of China.9 Crucial to our decision today is the conclusion that Congress has implicitly approved the practice of claim settlement by executive agreement.

8

At least since the case of the ‘Wilmington Packet’ in 1799, Presidents have exercised the power to settle claims of United States nationals by executive agreement. See Lillich, The Gravel Amendment to the Trade Reform Act of 1974, 69 Am. J. Int’l L. 837, 844 (1975). In fact, during the period of 1817–1917, ‘no fewer than eighty executive agreements were entered into by the United States looking toward the liquidation of claims of its citizens.’ W. McClure, International Executive Agreements 53 (1941). See also 14 M. Whiteman, Digest of International Law 247 (1970).

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This is best demonstrated by Congress’ enactment of the International Claims Settlement Act of 1949, 64 Stat. 13, as amended, 22 U.S.C. §1621 et seq. (1976 ed. and Supp. IV). The Act had two purposes: (1) to allocate to United States nationals funds received in the course of an executive claims settlement with Yugoslavia, and (2) to provide a procedure whereby funds resulting from future settlements could be distributed. To achieve these ends Congress created the International Claims Commission, now the Foreign Claims Settlement Commission, and gave it jurisdiction to make final and binding decisions with respect to claims by United States nationals against settlement funds. 22 U.S.C. §1623 (a). By creating a procedure to implement future settlement agreements, Congress placed its stamp of approval on such agreements. Indeed, the legislative history of the Act observed that the United States was seeking settlements with countries other than Yugoslavia and that the bill contemplated settlements of a similar nature in the future. H. R. Rep. No. 770, 81st Cong., 1st Sess., 4, 8 (1949). Over the years Congress has frequently amended the International Claims Settlement Act to provide for particular problems arising out of settlement agreements, thus demonstrating Congress’ continuing acceptance of the President’s claim settlement authority. With respect to the Executive Agreement with the People’s Republic of China, for example, Congress established an allocation formula for distribution of the funds received pursuant to the Agreement. 22 U.S.C. §1627 (f) (1976 ed., Supp. IV). As with legislation involving other executive agreements, Congress did not question the fact of the settlement or the power of the President to have concluded it. In 1976, Congress authorized the Foreign Claims Settlement Commission to adjudicate the merits of claims by United States nationals against East Germany, prior to any settlement with East Germany, so that the Executive would ‘be in a better position to negotiate an adequate settlement… of these claims’. S. Rep. No. 94-1188, p. 2 (1976); 22 U.S.C. §1644b. Similarly, Congress recently amended the International Claims Settlement Act to facilitate the settlement of claims against Vietnam. 22 U.S.C. §1645, 1645a (5) (1976 ed., Supp. IV). The House Report stated that the purpose of the legislation was to establish an official inventory of losses of private United States property in Vietnam so that recovery could be achieved ‘through future direct Government-to-Government

9

Those agreements are 1979. 30 U.S. T. 1957 (People’s Republic of China); 1976. 27 U.S. T. 3933 (Peru); 1976. 27 U.S. T. 4214 (Egypt); 1974. 25 U.S. T. 227 (Peru); 1973. 24 U.S. T. 522 (Hungary); 1969. 20 U.S. T. 2654 (Japan); 1965. 16 U.S. T. 1 (Yugoslavia); 1963. 14 U.S. T. 969 (Bulgaria); 1960. 11 U.S. T. 1953 (Poland); 1960. 11 U.S. T. 317 (Rumania).

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negotiation of private property claims’. H. R. Rep. No. 96-915, pp. 2–3 (1980). Finally, the legislative history of the IEEPA further reveals that Congress has accepted the authority of the Executive to enter into settlement agreements. Though the IEEPA was enacted to provide for some limitation on the President’s emergency powers, Congress stressed that ‘[n]othing in this act is intended… to interfere with the authority of the President to [block assets], or to impede the settlement of claims of U.S. citizens against foreign countries’. S. Rep. No. 95-466, p. 6 (1977); 50 U.S.C. §1706 (a) (1) (1976 ed., Supp. III).10 In addition to congressional acquiescence in the President’s power to settle claims, prior cases of this Court have also recognized that the President does have some measure of power to enter into executive agreements without obtaining the advice and consent of the Senate. In United States v. Pink, 315 U.S. 203 (1942), for example, the Court upheld the validity of the Litvinov Assignment, which was part of an Executive Agreement whereby the Soviet Union assigned to the United States amounts owed to it by American nationals so that outstanding claims of other American nationals could be paid. The Court explained that the resolution of such claims was integrally connected with normalizing United States’ relations with a foreign state: ‘Power to remove such obstacles to full recognition as settlement of claims of our nationals… certainly is a modest implied power of the President… No such obstacle can be placed in the way of rehabilitation of relations between this country and another nation, unless the historic conception of the powers and responsibilities… is to be drastically revised.’ Id., at 229–230. 10 Indeed, Congress has consistently failed to object to this longstanding practice of claim settlement by executive agreement, even when it has had an opportunity to do so. In 1972, Congress entertained legislation relating to congressional oversight of such agreements. But Congress took only limited action, requiring that the text of significant executive agreements be transmitted to Congress. 1 U.S.C. §112b. In Haig v. Agee, ante, p. 280, we noted that ‘[d]espite the longstanding and officially promulgated view that the Executive has the power to withhold passports for reasons of national security and foreign policy, Congress in 1978, ‘though it once again enacted legislation relating to passports, left completely untouched the broad rule-making authority granted in the earlier Act’. Ante, at 301, quoting Zemel v. Rusk, 381 U.S. 1, 12 (1965). Likewise in this case, Congress, though legislating in the area, has left ‘untouched’ the authority of the President to enter into settlement agreements. The legislative history of 1 U.S.C. §112b further reveals that Congress has accepted the President’s authority to settle claims. During the hearings on the bill, Senator Case, the sponsor of the Act, stated with respect to executive claim settlements: ‘I think it is a most interesting [area] in which we have accepted the right of the President, one individual, acting through his diplomatic force, to adjudicate and settle claims of American nationals against foreign countries. But that is a fact.’ Transmittal of Executive Agreements to Congress: Hearings on S. 596 before the Senate Committee on Foreign Relations, 92d Cong., 1st Sess., 74 (1971).

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Similarly, Judge Learned Hand recognized: ‘The constitutional power of the President extends to the settlement of mutual claims between a foreign government and the United States, at least when it is an incident to the recognition of that government; and it would be unreasonable to circumscribe it to such controversies. The continued mutual amity between the nation and other powers again and again depends upon a satisfactory compromise of mutual claims; the necessary power to make such compromises has existed from the earliest times and been exercised by the foreign offices of all civilized nations.’ Ozanic v. United States, 188 F.2d 228, 231 (CA2 1951). Petitioner raises two arguments in opposition to the proposition that Congress has acquiesced in this longstanding practice of claims settlement by executive agreement. First, it suggests that all pre-1952 settlement claims, and corresponding court cases such as Pink, should be discounted because of the evolution of the doctrine of sovereign immunity. Petitioner observes that prior to 1952 the United States adhered to the doctrine of absolute sovereign immunity, so that absent action by the Executive there simply would be no remedy for a United States national against a foreign government. When the United States in 1952 adopted a more restrictive notion of sovereign immunity, by means of the so-called ‘Tate’ letter, it is petitioner’s view that United States nationals no longer needed executive aid to settle claims and that as a result, the President’s authority to settle such claims in some sense ‘disappeared’. Though petitioner’s argument is not wholly without merit, it is refuted by the fact that since 1952 there have been at least 10 claims settlements by executive agreement. Thus, even if the pre-1952 cases should be disregarded, congressional acquiescence in settlement agreements since that time supports the President’s power to act here. Petitioner next asserts that Congress divested the President of the authority to settle claims when it enacted the Foreign Sovereign Immunities Act of 1976 (hereinafter FSIA). 28 U.S.C. §§1330, 1602 et seq. The FSIA granted personal and subject-matter jurisdiction in the federal district courts over commercial suits brought by claimants against those foreign states which have waived immunity. 28 U.S.C. §1330. Prior to the enactment of the FSIA, a foreign government’s immunity to suit was determined by the Executive Branch on a case-by-case basis. According to petitioner, the principal purpose of the FSIA was to depoliticize these commercial lawsuits by taking them out of the arena of foreign affairs – where the Executive Branch is subject to the pressures of foreign states seeking to

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avoid liability through a grant of immunity – and by placing them within the exclusive jurisdiction of the courts. Petitioner thus insists that the President, by suspending its claims, has circumscribed the jurisdiction of the United States courts in violation of Art. III of the Constitution. We disagree. In the first place, we do not believe that the President has attempted to divest the federal courts of jurisdiction. Executive Order No. 12294 purports only to ‘suspend’ the claims, not divest the federal court of ‘jurisdiction.’ As we read the Executive Order, those claims not within the jurisdiction of the Claims Tribunal will ‘revive’ and become judicially enforceable in United States courts. This case, in short, illustrates the difference between modifying federal-court jurisdiction and directing the courts to apply a different rule of law. See United States v. Schooner Peggy, 1 Cranch 103 (1801). The President has exercised the power, acquiesced in by Congress, to settle claims and, as such, has simply effected a change in the substantive law governing the lawsuit. Indeed, the very example of sovereign immunity belies petitioner’s argument. No one would suggest that a determination of sovereign immunity divests the federal courts of ‘jurisdiction’. Yet, petitioner’s argument, if accepted, would have required courts prior to the enactment of the FSIA to reject as an encroachment on their jurisdiction the President’s determination of a foreign state’s sovereign immunity. Petitioner also reads the FSIA much too broadly. The principal purpose of the FSIA was to codify contemporary concepts concerning the scope of sovereign immunity and withdraw from the President the authority to make binding determination of the sovereign immunity to be accorded foreign states. See Chas. T. Main Int’l, Inc. v. Khuzestan Water & Power Authority, 651 F.2d, at 813–814; American Int’l Group, Inc. v. Islamic Republic of Iran, 211 U.S. App. D.C., at 482, 657 F.2d. at 444. The FSIA was thus designed to remove one particular barrier to suit, namely sovereign immunity, and cannot be fairly read as prohibiting the President from settling claims of United States nationals against foreign governments. It is telling that the Congress which enacted the FSIA considered but rejected several proposals designed to limit the power of the President to enter into executive agreements, including claims settlement agreements.11 It is quite

11 The rejected legislation would typically have required congressional approval of executive agreements before they would be considered effective. See Congressional Oversight of Executive Agreements: Hearings on S. 632 and S. 1251 before the subcommittee on separation of powers of the Senate Committee on the Judiciary, 94th Cong., 1st Sess., 243-261, 302-311 (1975); Congressional Review of International Agreements: Hearings before the subcommittee on international security and scientific affairs of the House Committee on International Relations, 94th Cong., 2d Sess., 167, 246 (1976).

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unlikely that the same Congress that rejected proposals to limit the President’s authority to conclude executive agreements sought to accomplish that very purpose sub silentio through the FSIA. And, as noted above, just one year after enacting the FSIA, Congress enacted the IEEPA, where the legislative history stressed that nothing in the IEEPA was to impede the settlement of claims of United States citizens. It would be surprising for Congress to express this support for settlement agreements had it intended the FSIA to eliminate the President’s authority to make such agreements. In light of all of the foregoing – the inferences to be drawn from the character of the legislation Congress has enacted in the area, such as the IEEPA and the Hostage Act, and from the history of acquiescence in executive claims settlement – we conclude that the President was authorized to suspend pending claims pursuant to Executive Order No. 12294. As Justice Frankfurter pointed out in Youngstown, 343 U.S., at 610–611, ‘a systematic, unbroken, executive practice, long pursued to the knowledge of the Congress and never before questioned… may be treated as a gloss on “Executive Power” vested in the President by §1 of Art. II’. Past practice does not, by itself, create power, but ‘long-continued practice, known to and acquiesced in by Congress, would raise a presumption that the [action] had been [taken] in pursuance of its consent…’ United States v. Midwest Oil Co., 236 U.S. 459, 474 (1915). See Haig v. Agee, ante, at 291–292. Such practice is present here and such a presumption is also appropriate. In light of the fact that Congress may be considered to have consented to the President’s action in suspending claims, we cannot say that action exceeded the President’s powers. Our conclusion is buttressed by the fact that the means chosen by the President to settle the claims of American nationals provided an alternative forum, the Claims Tribunal, which is capable of providing meaningful relief. The Solicitor General also suggests that the provision of the Claims Tribunal will actually enhance the opportunity for claimants to recover their claims, in that the Agreement removes a number of jurisdictional and procedural impediments faced by claimants in United States courts. Brief for Federal Respondents 13–14. Although being overly sanguine about the chances of United States claimants before the Claims Tribunal would require a degree of naivete which should not be demanded even of judges, the Solicitor General’s point cannot be discounted. Moreover, it is important to remember that we have already held that the President has the statutory authority to nullify attachments and to transfer the assets out of the country. The President’s power to do so does not depend on his provision

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of a forum whereby claimants can recover on those claims. The fact that the President has provided such a forum here means that the claimants are receiving something in return for the suspension of their claims, namely, access to an international tribunal before which they may well recover something on their claims. Because there does appear to be a real ‘settlement’ here, this case is more easily analogized to the more traditional claim settlement cases of the past. Just as importantly, Congress has not disapproved of the action taken here. Though Congress has held hearings on the Iranian Agreement itself,12 Congress has not enacted legislation, or even passed a resolution, indicating its displeasure with the Agreement. Quite the contrary, the relevant Senate Committee has stated that the establishment of the Tribunal is ‘of vital importance to the United States.’ S. Rep. No. 97-71, p. 5 (1981).13 We are thus clearly not confronted with a situation in which Congress has in some way resisted the exercise of Presidential authority. Finally, we re-emphasize the narrowness of our decision. We do not decide that the President possesses plenary power to settle claims, even as against foreign governmental entities. As the Court of Appeals for the First Circuit stressed, ‘[t]he sheer magnitude of such a power, considered against the background of the diversity and complexity of modern international trade, cautions against any broader construction of authority than is necessary’. Chas. T. Main Int’l, Inc. v. Khuzestan Water & Power Authority, 651 F.2d, at 814. But where, as here, the settlement of claims has been determined to be a necessary incident to the resolution of a major foreign policy dispute between our country and another, and where, as here, we can conclude that Congress acquiesced in the President’s action, we are not prepared to say that the President lacks the power to settle such claims. V We do not think it appropriate at the present time to address petitioner’s contention that the suspension of claims, if authorized, would constitute 12 See Hearing on the Iranian Agreements before the Senate Committee on Foreign Relations, 97th Cong., 1st Sess. (1981); Hearings on the Iranian Asset Settlement before the Senate Committee on Banking, Housing and Urban Affairs, 97th Cong., 1st Sess. (1981); Hearings on the Algerian Declarations before the House Committee on Foreign Affairs, 97th Cong., 1st Sess. (1981). 13 Contrast congressional reaction to the Iranian Agreements with congressional reaction to a 1973 Executive Agreement with Czechoslovakia. There the President sought to settle over $105 million in claims against Czechoslovakia for $20.5 million. Congress quickly demonstrated its displeasure by enacting legislation requiring that the Agreement be renegotiated. See Lillich, supra n. 8, at 839–840. Though Congress has shown itself capable of objecting to executive agreements, it has rarely done so and has not done so in this case.

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a taking of property in violation of the Fifth Amendment to the United States Constitution in the absence of just compensation.14 Both petitioner and the Government concede that the question whether the suspension of the claims constitutes a taking is not ripe for review. Brief for Petitioner 34, n. 32; Brief for Federal Respondents 65. Accord, Chas. T. Main Int’l, Inc. v. Khuzestan Water & Power Authority, supra, at 814–815; American Int’l Group, Inc. v. Islamic Republic of Iran, 211 U.S. App. D.C., at 485, 657 F.2d, at 447. However, this contention, and the possibility that the President’s actions may effect a taking of petitioner’s property, make ripe for adjudication the question whether petitioner will have a remedy at law in the Court of Claims under the Tucker Act, 28 U.S.C. 1491 (1976 ed., Supp. III), in such an event. That the fact and extent of the taking in this case is yet speculative is inconsequential because ‘there must be at the time of taking “reasonable, certain and adequate provision for obtaining compensation”.’ Regional Rail Reorganization Act Cases, 419 U.S. 102, 124–125 (1974), quoting Cherokee Nation v. Southern Kansas R. Co., 135 U.S. 641, 659 (1890); see also Cities Service Co. v. McGrath, 342 U.S. 330, 335–336 (1952); Duke Power Co. v. Carolina Environmental Study Group, Inc., 438 U.S. 59, 94, n. 39 (1978). It has been contended that the ‘treaty exception’ to the jurisdiction of the Court of Claims, 28 U.S.C. §1502, might preclude the Court of Claims from exercising jurisdiction over any takings claim the petitioner might bring. At oral argument, however, the Government conceded that 1502 would not act as a bar to petitioner’s action in the Court of Claims. Tr. of Oral Arg. 39–42, 47. We agree. See United States v. Weld, 127 U.S. 51 (1888); United States v. Old Settlers, 148 U.S. 427 (1893); Hughes Aircraft Co. v. United States, 209 Ct. Cl. 446, 534 F.2d 889 (1976). Accordingly, to the extent petitioner believes it has suffered an unconstitutional taking by the suspension of the claims, we see no jurisdictional obstacle to an appropriate action in the United States Court of Claims under the Tucker Act. The judgment of the District Court is accordingly affirmed, and the mandate shall issue forthwith. It is so ordered. JUSTICE STEVENS, concurring in part. In my judgment the possibility that requiring this petitioner to prosecute its claim in another forum will constitute an unconstitutional ‘taking’ is so 14 Though we conclude that the President has settled petitioner’s claims against Iran, we do not suggest that the settlement has terminated petitioner’s possible taking claim against the United States. We express no views on petitioner’s claims that it has suffered a taking.

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remote that I would not address the jurisdictional question considered in Part V of the Court’s opinion. However, I join the remainder of the opinion. JUSTICE POWELL, concurring in part and dissenting in part. I join the Court’s opinion except its decision that the nullification of the attachments did not effect a taking of property interests giving rise to claims for just compensation. Ante, at 674, n. 6. The nullification of attachments presents a separate question from whether the suspension and proposed settlement of claims against Iran may constitute a taking. I would leave both ‘taking’ claims open for resolution on a case-by-case basis in actions before the Court of Claims. The facts of the hundreds of claims pending against Iran are not known to this Court and may differ from the facts in this case. I therefore dissent from the Court’s decision with respect to attachments. The decision may well be erroneous,15 and it certainly is premature with respect to many claims. I agree with the Court’s opinion with respect to the suspension and settlement of claims against Iran and its instrumentalities. The opinion makes clear that some claims may not be adjudicated by the Claims Tribunal, and that others may not be paid in full. The Court holds that parties whose valid claims are not adjudicated or not fully paid may bring a ‘taking’ claim against the United States in the Court of Claims, the jurisdiction of which this Court acknowledges. The Government must pay just compensation when it furthers the Nation’s foreign policy goals by using as ‘bargaining chips’ claims lawfully held by a relatively few persons and subject to the jurisdiction of our courts.16 The extraordinary powers of the President and Congress upon which our decision rests cannot, in the circumstances of this case, displace the Just Compensation Clause of the Constitution.

15 Even though the Executive Orders purported to make attachments conditional, there is a substantial question whether the Orders themselves may have effected a taking by making conditional the attachments that claimants against Iran otherwise could have obtained without condition. Moreover, because it is settled that an attachment entitling a creditor to resort to specific property for the satisfaction of a claim is a property right compensable under the Fifth Amendment, Armstrong v. United States, 364 U.S. 40 (1960); Louisville Bank v. Radford, 295 U.S. 555 (1935), there is a question whether the revocability of the license under which petitioner obtained its attachments suffices to render revocable the attachments themselves. See Marschalk Co. v. Iran National Airlines Corp., 518 F. Supp. 69 (SDNY 1981). 16 As the Court held in Armstrong v. United States, supra, at 49: ‘The Fifth Amendment’s guarantee that private property shall not be taken for a public use without just compensation was designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.’ The Court unanimously reaffirmed this understanding of the Just Compensation Clause in the recent case of Agins v. City of Tiburon, 447 U.S. 255, 260–261 (1980).

5 SANCTIONS: THE NEXT STAGE

F

ollowing the 1981 release of the American hostages in Tehran, US export restrictions to Iran were relaxed – but only for a short while. Operation Staunch, in 1983, at the height of the Iran-Iraq War, was designed to prevent Iran from receiving arms and any dual use items. On 13 January 1984, Secretary of State George Schultz accused Iran of having been involved in the October 1983 bombing of the US Marine barracks in Lebanon. As a result, Iran was added to the list of countries (Libya, Syria, Cuba and South Yemen) accused of providing support for acts of international terrorism. This effectively: prohibited foreign aid grants, agricultural grants and trade credits to Iran; restricted the transfer of munitions to Iran and prohibited the use of US credit guarantees or other financial assistance by Iran to acquire the same; instructed US directors of international banks and other financial institutions to vote against loans or other programmes for Iran. On 30 March 1984, the US Department of Commerce imposed antiterrorism controls on Iran. The export of all aircraft, including ultra-lights and gliders, helicopters, related parts and components, and all goods and technical data subject to control for national security purposes, if destined for military use, was prohibited, except with required validated licences. A general denial policy was established for such transactions. The use of chemical weapons on Iranians by Iraqi forces during the IranIraq War prompted the Department of Commerce on 31 July to restrict the

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export to both countries of 13 chemicals that could also be used to manufacture mustard gas and other lethal substances. On 28 February 1987, President Reagan, as required by section 481 of the Foreign Assistance Act of 1961,1 issued a presidential determination and designated Iran as a state failing to take adequate steps to control narcotics production, trafficking and money laundering.2 As a result, assistance by Export-Import Banks and the Overseas Private Investment Corporation (OPIC) to Iran was prohibited, and US representatives in international multilateral banks were instructed to vote against loans or other financial assistance to Iran. For two years, 1985 and 1986, while the ‘Iran-Contra’ negotiations and deals were in progress, there was little control over exports to Iran. In the aftermath of the Iran-Contra scandal, Reagan decided, on 23 September 1987, that: (a) the Iran-Iraq War, together with Iran’s intransigent attitude against peaceful resolution of that conflict and Iran’s on-going support of acts of international terrorism, have resulted in a breach of peace posing a serious and direct threat to the strategic interests of the United States. Hostile Iranian policies and actions directed against vessels of neutral nations in the Persian Gulf have heightened the seriousness of that threat; (b) Iran has purchased a large shipment of US origin SCUBA gear in the United States; (c) available information indicates that this type of equipment will be diverted to military use by Iran in attacks on oil rigs and possibly shipping or in support of other terrorist or military actions; (d) prohibition of such shipments of equipment will be instrumental in remedying the direct threat posed by the use of this equipment against US interests in the region and in our effort to persuade other potential sources of similar equipment to likewise prohibit its transfer to Iran.3

The export and re-export to Iran of self-contained underwater breathing apparatus (scuba gear) and related equipment was prohibited. Shortly afterwards, on 23 October, Reagan expanded the controls over Iran by prohibiting the export of 15 high-tech product groups: • • • • 1 2 3

Mobile communications equipment Boats, including inflatable boats Off-highway wheel tractors Diesel engines, 400HP and over

Foreign Assistance Act, Pub. L, 87-195, 22 USC 2291. Presidential Determination no 87-9, 28 February 1987. Presidential Determination no 87-20, 23 September 1987, 52 Fed. Reg. 36749 (1987).

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Non-strategic aircraft parts and components Portable electric generators Marine engines, both inboard and outboard, and specially designed parts Other naval equipment (surface effect and hydrofoil vessels and acoustic underwater detection equipment) Underwater photographic equipment Submersible systems Pressurized aircraft breathing equipment Sonar navigation equipment Acoustic underwater detection equipment Electronic test equipment Cryptographic equipment

To comply with the Department of Commerce’s regulations, validated licences for exports to Iran would be required and, according to the notice, would be generally denied. However, requests for parts and components for foreign-made products incorporating 20 percent or less of US content might be considered favourably. On 6 October 1987, the Democrats, who had just taken control of Congress, in response to US Department of Energy purchases of Iranian oil for the US Strategic Petroleum Reserve, passed resolutions calling for bans on Iranian imports. On 29 October, Reagan, not wanting to be seen as less tough on terrorism than Congress, issued Executive Order 12613,4 which imposed an import ban on Iranian goods and services. By the authority vested in me as President by the Constitution and laws of the United States of America, including section 505 of the International Security and Development Co-operation Act of 1985 (22 USC 2349aa-9) and section 301 of Title 3 of the United States Code. I, RONALD REAGAN, President of the United States of America, find that the Government of Iran is actively supporting terrorism as an instrument of state policy. In addition, Iran has conducted aggressive and unlawful military action against US flag vessels and merchant vessels of other non-belligerent nations engaged in lawful and peaceful commerce in international waters of the Persian Gulf and territorial waters of non-belligerent nations of that region. To ensure that United States imports of Iranian goods and services will not contribute financial support to terrorism or to further aggressive actions against non-belligerent shipping, I hereby order that: Section 1. Except as otherwise provided in regulations issued pursuant to this Order, no goods or services of Iranian origin may be imported into the United States, including its territories and possession, after the effective date of this Order. 4

52 Fed. Reg. 41940 (1987).

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Section 2. The prohibition contained in Section 1 shall not apply to: (a) Iranian origin publications and materials imported for news publications or news broadcast dissemination; (b) petroleum products refined from Iranian crude oil in a third country; (c) articles imported directly from Iran into the United States that were exported from Iran prior to the effective date of this Order. Section 3. This Order shall take effect at 12.01pm Eastern Standard Time on October 29, 1987, except as otherwise provided in regulations issued pursuant to this Order. Section 4. The Secretary of the Treasury, in consultation with the Secretary of State, is hereby authorized to take such actions, including the promulgation of rules and regulations, as may be necessary to carry out the purposes of this Order. The Secretary of the Treasury may redelegate any of these functions to other officers and agencies of the Federal Government. All agencies of the United States Government are directed to take all appropriate measures within their authority to carry out the provisions of this Order, including the suspension or termination of licenses or other authorizations in effect as of the date of this Order. Section 5. The measures taken pursuant to this Order are in response to the actions of the Government of Iran referred to above, occurring after the conclusion of the 1981 Algiers Accords, and are intended solely as a response to those actions. This Order shall be transmitted to the Congress and published in the Federal Register. The White House October 29, 1987

Ronald Reagan

To impose sanctions against Iran, President Reagan used the statutory authority of anti-terrorism provisions of the International Security and Development Co-operation Act of 1985 (ISDCA).5 Section 505 of the ISDCA prohibits imports ‘from any country which supports terrorism or terrorist organizations or harbours terrorists or terrorist organizations’. The Office of Foreign Assets Control (OFAC), pursuant to the Executive Order, promulgated the Iranian Transactions Regulations (ITRs),6 whose primary target was Iranian crude oil, imports of which in the first ten months of 1987 were valued at about US$1.8 billion. The other major item imported into the United States from Iran was carpets.

5 6

Pub. L. no 99-83 §§501–508,99 Stat. 190, 219–222 (1985) (Codified at 22 USC 2349aa-9). 31 CFR §§560.101–560.901.

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IRANIAN TRANSACTIONS REGULATIONS Under provision 560.201, unless licensed, the import into the United States of Iranian-origin goods and services was prohibited, with the exception of: (a) Iranian origin publications and materials imported for news publication or news broadcast dissemination; (b) petroleum products refined from Iranian crude oil in a third country; and (c) articles imported directly from Iran prior to the effective date.

Importation was defined as the ‘bringing of any goods into the United States, except that in the case of goods transported by vessel “importation” shall mean the bringing of any goods into the United States with the intent to unlade it’.7 The term ‘Iranian-origin goods and services’ is defined as: (a) goods grown, produced, manufactured, extracted, or processed in Iran; (b) goods which have entered into Iranian commerce; and (c) services performed in Iran or by the Government of Iran, as defined in §560.304, where the benefit of such services will be received in the United States. Services of Iranian origin are not imported into the United States when such services are provided in the United States by an Iranian national resident in the United States.8

Interpretation of the term ‘goods’ further included merchandise, articles and technical data in tangible form including, but not limited to, a model, prototype, blueprint, drawing, operating manual, computer software, tape recording, microfiche or other material in machine readable form. The term ‘goods’ does not apply to oral transmission of technical data in the course of performance of services, telephone communications, lectures, seminars or plant visits.9

Diplomatic and consular services performed by or on behalf of the government of Iran and of the government of the United States were not considered to be services of Iranian origin.10 To modify the scope of the prohibitions under provision 560.201, OFAC issued a series of licensing provisions. Under specific licences, the following were authorized: imports pursuant to contractual commitments, provided the goods entered the United States before 1 January 1988 and payments were made or irrevocably committed prior to 29 October 1987;11 imports 7 8 9 10 11

31 31 31 31 31

CFR CFR CFR CFR CFR

§560.308. §560.306. §560.405. §560.306(1), (2). §560.503.

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of goods located in a third country prior to imposition of sanctions, provided no payment or other benefit would be given to Iran after the effective date of the sanctions;12 importation of services of Iranian origin by an Iranian national for participating in a public conference, performance or similar event;13 importation of goods of Iranian origin sent as a gift, with a value of not more than US$100;14 importation of accompanied luggage normally incident to travel, by persons entering the United States directly or indirectly from Iran, provided the value did not exceed the personal exemption from customs duty at US$400;15 services performed in Iran to or on behalf of a US person with respect to intellectual property, patents, trademarks and copyrights;16 importation of services and goods necessary for the conduct of legal proceedings;17 importation of goods of Iranian origin in connection with awards and decisions of the Iran-United States Claims Tribunal, and agreements settling claims before the Tribunal;18 imports of goods and services for official or personal use by personnel of Iranian missions to international organizations, provided these imports were not for sale.19 The prohibition under provision 560.201 did not apply to offshore transactions. Provision 560.404 stated: The prohibitions contained in §560.201 do not apply to the importation into locations outside the United States of goods or services of Iranian origin. The prohibitions also do not extend to payments or other transactions, wherever concluded, by any person relating to such transactions outside the United States, such as US financial service or brokerage transactions involving offshore transactions with Iran. Payments relating to such non-prohibited transactions, and payments relating to the exceptions designated in §560.201, are not prohibited.

However, the ‘importation into the United States, for transhipment or transit, of goods of Iranian origin which are intended or destined for third countries’ was prohibited.20 Under provision 560.407, the importation into the United States from third countries of goods containing raw materials or components of Iranian origin was not prohibited if those raw materials or components had been 12 13 14 15 16 17 18 19 20

31 31 31 31 31 31 31 31 31

CFR CFR CFR CFR CFR CFR CFR CFR CFR

§560.504. §560.505. §560.506. §560.507. §560.509. §560.510. §560.511. §560.512. §560.406.

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incorporated into manufactured products or substantially transformed in a third country. The ITRs, under provision 560.202, stipulated that: No person may order, buy, act as broker or facilitator for, receive, conceal, store, use, sell, loan, dispose of, transfer, transport, finance, forward, or otherwise service, in whole or in part, any goods or services subject to the prohibitions of this part, with knowledge or reason to know that a violation of this part, or any regulation, order, license issued pursuant hereto or to section 505 of this Act, has occurred, is about to occur, or is intended to occur with respect to such goods or services.

The term ‘person’, for the purpose of the ITRs was defined to mean ‘an individual, partnership, association, corporation, or other organization’.21 In addition, ‘the Government of Iran’ included: 1. The State and the Government of Iran, as well as any political subdivision, agency, or instrumentality thereof; 2. Any partnership, association, corporation or other organization substantially owned or controlled by the foregoing; 3. Any person to the extent that such person is, has been, or to the extent that there is reasonable cause to believe that such person is, or has been, since the effective date acting or purporting to act directly or indirectly on behalf of any of the foregoing.22

On 5 March 1991, the ITRs were amended to permit, on a case-by-case basis, the importation of Iranian crude oil in connection with the resolution and settlement of cases before the Iran-United States Claims Tribunal in The Hague. This amendment permits the licensing of these transactions: settlement between Iran and a US company with payment to the US company in oil instead of funds from the tribunal’s security account; purchase of Iranian oil in which the entire payment is deposited in the security account.23 In general, the ITRs were relatively modest in scope, and entirely distinct from the Iranian Assets Control Regulations (IACRs) promulgated in 1979–80. FOREIGN POLICY EXPORT CONTROLS When, on 23 February 1989, the unilateral security controls pursuant to the requirements of the Omnibus Trade and Competitiveness Act of 1988 were discontinued, the Department of Commerce placed 23 chemicals 21 31 CFR §560.305. 22 31 CFR §560.304. 23 31 CFR §560.513.

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and five classes of biological agents under foreign policy based controls. These commodoties could be used in the manufacture of chemical and biological weapons. The Department of Commerce, in its 1989 report to Congress, stated: The unilateral national security controls that have been in place since the beginning of export controls were aimed at the Warsaw Pact and other Communist countries. Since the Soviet Union now produces these same chemicals and biological agents, the purpose of this change in controls is to focus on those countries of immediate concern: Iran, Iraq, Syria and Libya.

The supposed purpose of the controls was to prevent American contribution to, and thereby distance the United States from, the proliferation and use of chemical and biological weapons. The imposition of foreign policy controls on these materials demonstrates continued US opposition to the increasing proliferation and use of these weapons by terrorist and aggressor nations. It reflects the US commitment to co-operate in multilateral export control efforts, to reinforce international obligations agreed to in the Geneva Protocol of 1925 and the 1972 Biological Disarmament Convention, and to pursue a global, comprehensive, and effectively verifiable ban on all chemical and biological weapons.24

It is ironic that these pronouncements of noble intent and honourable purpose were conspicuously absent during the eight years of the Iran-Iraq War, during which Iraqi forces used various chemical weapons against Iran. During this period, the export of these chemicals from the United States to Iraq was never stopped. As one US official put it, the supply was to help Iraq in its ‘struggle for national survival against Iran’. Only after the Iran-Iraq War when, in August 1988, Iraq used chemical weapons extensively against its own Kurdish population in Halabja, killing over 5000 civilians and permanently maiming a further 7000, did the United States take action. Congress passed the Prevention of Genocide Act in 1988, with the intention of stopping the supply of deadly chemicals to Iraq. Iran, Libya and Syria, which had never used such weapons, were also targeted. Although Congress did pass the Prevention of Genocide Act with a view to imposing sanctions on Iraq, the Reagan administration called the measure ‘premature’. The act and sanctions against Iraq were never passed into law. By June 1990, the export to Iran of the following chemicals was prohibited: ammonium hydrogen fluoride; arsenic trichloride; benzilic acid; 24 US Department of Commerce, 1989 report to Congress, ‘Imposition of Foreign Policy Export Controls on Certain Chemicals and Biological Agents’, p. 2.

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diethyl ethylphosphonate; diethyl methylphosphonite; diethyl-N, Ndimethylphosphoroamidate; diethyl phosphite; N-diethylethanolamine; N-diisopropyl-beta-aminoethane thiol; N-diisopropyl-beta-aminoethanol; N-diisopropyl-beta-aminoethyl chloride; diisopropylamine; dimethyl ethylphosphonate; dimethylamine; dimethylamine hydrochloride; O-ethyl-2diisopropylaminoethyl methylphosphonite; ethylphosphonous dichloride; ethylphosphonous difluoride; ethylphosphonyl dichloride; ethylphosphonyl difluoride; hydrogen fluoride; 3-hydrox-1-methylpiperidine; methyl benzilate; methylphosphorous dichloride; methylphosphorous difluoride; phosphorous pentachloride; phosphorous pentasulphide; pinacolone tertbutyl methyl ketone; pinacolyl alcohol; potassium cyanide; potassium fluoride; potassium hydrogen fluoride; 3-quinuclidinol; 3-quinuclidinone; sodium bifluoride; sodium cyanide; sodium fluoride; sodium sulphide; triethyl phosphite. On 1 September 1991, the Commerce Control List (CCL) underwent a complete revision. This was prompted by a major reduction in national security controls due to a multilateral agreement in COCOM. However, controls over Iran were expanded, and by then the export to Iran of the following items required a validated licence which, under the revised policy, would be denied: all national security items; all chemical and biological weapons (CBW) proliferation items; all missile technology items; all nuclear control items; all military-related items; aircraft, including helicopters, engines and parts; heavy-duty on-highway tractors; off-highway wheel-tractors; cryptographic, crypto-analytic and crypto-logic equipment; navigation, direction-finding radar equipment; electronic test equipment; mobile communications equipment; acoustic underwater detection equipment; vessels and boats (including inflatable); marine and submarine engines; underwater photographic equipment; submersible systems; CNC (computer numerically controlled) machine tools; vibration test equipment; certain digital computers; certain telecommunications transmission equipment (including packet switches); certain microprocessors; certain semiconductor manufacturing equipment; software specially designed for CAD/CAM IC (product design); software specially designed for air traffic control applications; high sensitivity gravity meters; high sensitivity magnometers; certain fluorocarbon compounds for cooling fluids for radar and supercomputers; high-strength organic and inorganic fibres; certain machines for gear cutting (up to 1.25 metres); certain aircraft skin and spar-milling machines; certain manual dimensional inspection machines; robots employing feedback information in real time; large diesel engines;

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portable electric power generators; scuba gear and pressurized aircraft breathing apparatus. Even with all the restrictions imposed on exports to Iran, and the lack of political contact, exports by US corporations to Iran accelerated dramatically in the early 1990s. US exports to Iran in 1987 amounted to US$54 million, growing to US$60 million by 1989. In 1990, exports shot up to US$168 million, reaching US$750 million by 1992, making the United States Iran’s sixth-largest trading partner. Whilst US direct exports to Iran were increasing at an unprecedented rate in 1992, Congress hardened its attitude towards trade with Iran. Iranian policies came under attack from several members of Congress, who launched a probe into the Department of Commerce’s export licensing policies towards Iran. The House Foreign Affairs Committee started preparing legislation that would embargo the export of dual use items to Iran. During the 22 July hearing of the House Foreign Affairs Committee it was revealed that the Department of Commerce, between 1 August 1991 and 19 February 1992, had approved 48 licences for exports to Iran of, among other things, computers, analogue-to-digital converters and navigation and direction-finding equipment totalling US$180,149,689. ‘We should not reward terrorist countries such as Iran and Syria with access to sophisticated US technology,’ said Howard Berman, a Democrat Representative, who continued that the Reagan and Bush Administrations’ policies towards Iraq were a catastrophic failure; it is inconceivable that the President still believes that we can influence the behavior of these countries by trying to build a closer economic relationship with them’.25 Berman and his colleagues on the committee pushed for the public disclosure of the licensing records for Iran, on the grounds that withholding such records would conflict with national interest. Jim Le Munyon, Commerce Assistant Secretary, refused this demand, arguing that it could be detrimental to the interests of US exporters. Former Commerce Under Secretary, Paul Freedenberg, concurred with this view: ‘The people pressing for the release of the records are the ones who do not want US companies to do business there [in Iran] to begin with’. He continued: ‘If these disclosures continue, US companies will voluntarily withdraw from these markets and, as usual, foreign competitors will fill any void that develops’.26 In response to Le Munyon’s argument, committee chairman Dante Fascell quipped, ‘You are doing an admirable job of defending the indefensible’.27 25 Reported in Export Control News, 30 July 1992, p. 4. 26 Ibid., p. 5.

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Congress drafted the National Defence Authorization Act (NDAA) for the Fiscal Year 1993, which included, under Title XVI, the ‘Iran-Iraq Arms Non-Proliferation Act’.28 The sponsor of this bill, Senator John McCain, and co-sponsor, Senator Alfonse D’Amato, argued that tighter curbs on shipments to Iran were necessary if a repetition of US export control errors with Iraq prior to the Gulf War was to be avoided. On 23 October 1992, President Bush, in the middle of his campaign for a second term, had to sign the bill into law and accept congressional intrusion on the constitutional power of the president to conduct foreign policy in order to obtain the spending authorization contained elsewhere in the bill. Nevertheless, in his statement issued in connection with the bill, he said: I am particularly concerned about provisions that purport to derogate the President’s authority under the Constitution to conduct US foreign policy, including negotiation with other countries… Consistent with my responsibility under the Constitution for the conduct of diplomatic negotiations, and with established practice, I will construe these provisions to be precatory rather than mandatory.

The declared policy behind the act was: to oppose, and urgently seek the agreement of other nations also to oppose, any transfer to Iran or Iraq of goods or technology, including dual use goods or technology, wherever that transfer could materially contribute to either country’s acquiring chemical, biological, nuclear, or destabilizing numbers and types of advanced conventional weapons.29

The Iran-Iraq Arms Non-Proliferation Act was the most restrictive legislation against Iran since 1980, and contained provisions mandating new restrictions on exports. The law: bans foreign military sales and the issuance of export licences for military items for export to Iran; prohibits the issuance of licences for items controlled for national security reasons to Iran; requires other nations to adopt and institute against Iran the same sanctions and controls as the United States; requires the president to impose mandatory sanctions against any person who, or any foreign country which, ‘transfers or retransfers goods or technology so as to contribute knowingly and materially to the efforts by Iran or Iraq (or any agency or instrumentality of either such country) to acquire destabilizing numbers and types of advanced conventional weapons’. 27 Ibid. 28 Iran-Iraq Arms Non Proliferation Act of 1992, Pub. L. 102-484, 106 Stat. 2571. 29 Ibid., Sec. 1602.

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The mandatory sanctions against any foreign government include procurement sanctions, export sanctions of items on the US munitions list, suspension of US assistance, multilateral development bank assistance, codevelopment or co-production agreements, and military and dual use technical exchange agreements. Regulations implementing this legislation were never issued, but the policy has been in effect since 1992. (For the complete act, see Document 5.) With the enactment of the NDAA, the United States began to pressurize its allies to restrict exports of all internationally controlled dual use items to Iran. At a meeting in Bonn on 20 November, the G7 group of nations resisted US proposals which in effect meant implementation of a multilateral ‘presumption of denial’ policy to Iran for all items specified in COCOM, the Australian Group (AG), the Missile Technology Control Regime (MTCR) and the Nuclear Suppliers Group (NSG). The US list of items embargoed to Iran by the end of 1992 was broader than the combination of all multilateral control lists mentioned above. Only law-technology manufactured items and products such as general industrial goods, construction material and medical items were licensed for export to Iran. Prior to the NDAA, in 1992 licensed goods exported to Iran accounted for US$446.1 million of the US$747.5 million of the total US sales to Iran, or some 60 percent of total direct exports. After the bill was passed, the percentage of licensed goods dropped to less than 2 percent, or some US$11.6 million for the whole of 1993, and yet the total of US direct exports to Iran for the same year amounted to US$616 million.30 A senior US administration official said, ‘… whatever Iran is able to purchase from us today is a net benefit to the US… Nothing strategic is going out. If Iran wants to buy US goods, why not? It merely weakens them economically.’ 31 This policy, to allow and even to encourage export of law-technology items and consumer goods to Iran in order to drain off Iran’s foreign currency, was a parallel to US policy towards the Soviet Union during the Cold War.

30 Iran Brief, no 1, 5 December 1994. 31 Ibid.

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DUAL CONTAINMENT: A NEW POLICY The end of the Cold War following the collapse of the Soviet Union, the election of Bill Clinton as president, and a swing to Democratic control of the White House after 12 years of Republican rule necessitated an overall change in US foreign policy. How to deal with Iran was an important element of the debate in the new US administration. In 1993, a new policy emerged from the debate. It was known as ‘dual containment’. This specifically advocated strict containment of both Iran and Iraq, in much the same way as US policy had targetted the former Soviet Union during the Cold War. Iran and Iraq were regarded as twin evils, with Islam demonized in the way that communism had been in the past. By the same analogy, Israel, Turkey, Egypt, Saudi Arabia and the other Gulf Co-operation Council (GCC) states represented the regional equivalent of the free world – despite the authoritarian nature of some of their regimes. The architect of this inherently anti-Iranian policy was Martin Indyk, then Special Assistant to President Clinton for Near East and South Asian Affairs at the National Security Council. Indyk’s background might well shed light on his motives for formulating this new policy which eventually led to a total US embargo against Iran. Indyk was born and raised in Australia. He later went to Israel to become a media consultant to the Likud Prime Minister at that time, Yitzhak Shamir. Sub-sequently, he went to Washington DC, where he was employed by the American Israel Public Affairs Committee (AIPAC), the principal Israeli lobby in the United States. With the financial help of Barbi Weinberg, a member of AIPAC’s governing board, and her husband, who was the chairman of AIPAC, Indyk established the Washington Institute for Near East Policy in 1985. Through the leadership of this institute, Indyk found a channel to the White House and became responsible for Middle East Affairs at the National Security Council.32 Dual containment was unveiled by Indyk on 18 May 1993 at the annual Soref Symposium at the Washington Institute for Near East Policy.33 Indyk defined America’s ‘vital interests’ in the region as: ‘the free flow of Middle Eastern oil at reasonable prices… Reciprocating the friendship 32 Lucille Barnes, ‘Likudists within Administration fuel reckless anti-boycott drive’, The Washington Report on Middle East Affairs, January 1994, p. 14. 33 Dr Martin Indyk, ‘The Clinton Administration’s Approach to the Middle East’ in Challenges to US interests in the Middle East: Obstacles and Opportunities, Washington Institute for Near East Policy, 1993, pp. 1–8.

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of those in the Arab world who seek good relations with the United States… The security, survival and well-being of Israel… The promotion of a just, lasting, comprehensive and real settlement of the Arab-Israeli conflict’. Indyk asserted that the most serious new threat to the United States’ ‘vital interests’ was Iran, which, according to him, was engaged in a five-prong challenge to the United States. • It is the foremost state sponsor of terrorism and assassination across the globe. • Through its support for Hamas and Hezbollah, Iran is doing its best to thwart US efforts to promote peace between Israel, the Palestinians and the Arab states. • Iran is fishing in troubled waters across the Arab world, actively seeking to subvert friendly governments. • Through its active efforts to acquire offensive weapons, Iran is seeking an ability to dominate the Gulf by military means. • Iran is seeking weapons of mass destruction capability including clandestine nuclear weapons capability and ballistic missiles to deliver weapons of mass destruction to the Middle East.

In calculating a strategy to respond to those perceived threats, Indyk assumed that ‘the current Iraqi and Iranian regimes are both hostile to American interests in the region’. As such, the United States should not ‘continue the old balance of power games, building up one to balance the other’. Indyk acknowledged that ‘Iran does not yet face the kind of international regime that has been placed on Iraq. A structural imbalance, therefore, exists between the measures available to contain Iran and Iraq.’ The ‘structural imbalance’ was obviously in international economic pressure and sanctions. Indyk declared, ‘We will work energetically to persuade our European and Japanese allies, as well as Russia and China’ that it is not ‘in their interests to ease Iran’s economic situation so that it can pursue normal commercial relations on one level while threatening our common interests on other levels’. Antony Lake, Assistant to President Clinton for National Security Affairs, launched the Martin Indyk dual containment proposal as an official Clinton administration policy, and presented it to the public in his article ‘Confronting Backlash States’.34 The Clinton administration presented dual containment as a radical departure from previous US policies in the Persian Gulf that relied on one 34 Antony Lake, ‘Confronting Backlash States’, Foreign Affairs, vol. 73 no 2, March/April 1994, pp. 45–55.

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regional power balancing another. The balancing policy began after Britain withdrew its military forces from the Persian Gulf in 1971 and the United States assumed responsibility for defending Western interests there. Between 1972 and 1979, the United States sought to strengthen Iran under the Shah, considering him a regional pillar of stability and, as such, the policeman of US policy in the Persian Gulf. This was partly a response to the 1968 coup in Iraq, which brought the left-wing Ba’th Party to power. The Ba’thist regime sought political and military support from the Soviet Union, and this eventually led to the signing of a treaty of friendship in April 1972 between the two countries. A month later, Henry Kissinger, then President Nixon’s National Security Advisor, visited Tehran and offered unlimited US support for the Shah, with the aim of putting pressure on the Baghdad regime. The fall of the Shah in February 1979 was, therefore, a major blow to this US balancing policy. In September 1980, Iraq invaded Iran and, despite a US pledge to remain neutral in the conflict, Washington backed Saddam Hussein in an effort to contain the influence of the Iranian Revolution. The Reagan administration removed Iraq from the list of state sponsors of terrorism, opened exportcredit lines, resumed formal relations with Baghdad, undertook diplomatic efforts (Operation Staunch) to persuade other governments not to sell arms to Iran, and re-flagged and provided naval escorts to Kuwaiti oil tankers. In essence, ‘the United States tilted towards Iraq in the Iran-Iraq war and became directly involved during the later stages of the war’.35 ‘Both approaches proved disastrous,’ wrote Lake. ‘In the Shah’s case, the US strategy for regional stability collapsed when he was overthrown. And in Saddam Hussein’s case, American backing assisted him in acquiring a massive conventional arsenal which he used first against his own people and then later in Kuwait.’ 36 Citing the ineffectiveness of previous administrations’ policies to contain Iran and Iraq by tilting towards one or the other, Lake explained the dual containment policy as an effort to keep both hostile regimes weak. He also contended that the new policy did not ignore balance of power considerations, but sought to balance power at a low level. Lake believed that the United States would be able to reach the objective goals of the new policy because the Clinton administration had a number of advantages that previous ones had lacked.

35 Kenneth Katzmann, Iran: Current Developments and US Policy, CRS, Library of Congress, 1997. 36 Antony Lake, ‘Confronting Backlash States’, Foreign Affairs, vol. 73 no 2, March/April 1994.

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First, the end of the Cold War simply eliminated a major strategic consideration from our calculus. We no longer have to fear Soviet efforts to gain a foothold in the Persian Gulf by taking advantage of our support for one of these states to build relations with the other. The strategic importance of both Iraq and Iran has, therefore, been reduced dramatically and their ability to play the superpowers off each other has been eliminated. Second, over the last decade, a regional balance of power between Iran and Iraq has been established at a much lower level of military capability. Iraq’s victory in the Iran-Iraq War substantially reduced Iran’s conventional offensive capabilities. And Iraq’s defeat in Desert Storm significantly diminished its offensive capabilities and brought its weapons of mass destruction under tight control. Without the backing of an alternate superpower they now confront serious difficulties in challenging US power. Third, as a result of Iraq’s invasion of Kuwait, the Gulf Co-operation Council (GCC) states are less reluctant to enter into security and prepositioning arrangements with Washington. These arrangements provide our military forces with an ability to deploy in the Persian Gulf against any threat that either Iraq or Iran might pose to these states. Finally, broader trends in the region are positive. Washington enjoys strong relations with the region’s other critical powers: Egypt, Israel, Turkey and Saudi Arabia. Progress in resolving the Arab-Israeli conflict solidifies our position in the Arab world and strengthens the ties between our regional allies. It increases the isolation of Iraq and Iran while reducing their ability to exploit the Arab-Israeli conflict to promote their regional ambitions. The comprehensive settlement that the United States seeks will cost Iraq the opportunity to manipulate the Palestinian cause and rob Iran of its ability to promote turmoil in Lebanon.37

Lake ended his statement by referring to George Kenan’s article in Foreign Affairs about half a century earlier, in which he articulated the containment policy toward the Soviet Union. Kenan argued that the United States had the means to ‘increase enormously the strains under which Soviet policy must operate’, and thereby generate the ‘break-up or gradual mellowing of Soviet power’. The basic assumption underlying the dual containment policy was that it could operate in the same way as the policy towards the Soviet Union. Dual containment was designed to ‘increase enormously the strain’ under which Iran must operate, and thereby generate the ‘break-up or gradual mellowing’ of Iranian power. The main instruments of dual containment are economic sanctions and political isolation. For the policy to work effectively both are necessary. 37 Ibid.

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Clinton inherited from previous administrations a broad package of economic sanctions which served as a basis from which to implement the containment. But unilateral sanctions did not alter Iran’s foreign policy, and US attempts to obtain the co-operation of its allies and other countries in isolating Iran were unsuccessful. The United States’ punitive approach to Iran was emphatically resisted by Western industrialized nations, which believed that a persuasive approach through trade and contact, rather than isolation, had a better chance of moderating Iran’s international behaviour. They described the policy of engagement with Iran as ‘critical dialogue’. The only successes the United States achieved with some of its allies was to curtail the export of dual use items to known military endusers and the suspension of new loans to Iran by the World Bank in 1994. The policy, as formulated, has not been successful and, according to former US National Security Advisors Zbigniew Brzezinski and Brent Scowcroft, and former Assistant Secretary of State Richard Murphy, the policy will ‘not be sustainable for much longer’. These three US foreign policy experts believe that dual containment ‘is more a slogan than a strategy. In trying to isolate both of the Persian Gulf’s powers, the policy lacks strategic viability and carries a high financial and diplomatic cost’ by driving ‘the United States and its Group Seven allies apart’.38 That last point, for the initiators of the policy, appears not to be a crucial consideration. Patrick Clawson, Director of the Washington Institute for Near East Policy, in his article ‘The Continuing Logic of Dual Containment’ for the December 1997 issue of Survival, suggests that a ‘better approach would be to stop seeking universal backing for dual containment. If maintaining an extremely broad coalition requires too much dilution of US goals, then the appropriate response is to advance those goals with a narrower coalition, rather than to abandon vital interests.’ The Gulf, Clawson writes, ‘offers much the same long-term prospects as did the Soviet Union when George Kenan recommended containment, ie the regimes will eventually change for domestic reasons because they cannot meet their peoples’ needs’. Clawson is clearly convinced that sanctions and containment are the most effective ways of changing the behaviour of Iran and Iraq, and that the United States will eventually attain its goals, even if it takes almost half a century.

38 Zbigniew Brzenzinski, Brent Scowcroft and Richard Murphy, ‘Differentiated Containment’, Foreign Affairs, vol. 76 no 3, May/June 1997, pp 20–30.

DOCUMENT 5 The Iran-Iraq Arms Nonproliferation Act of 1992

SECTION 1601. SHORT TITLE

This title may be cited as the ‘Iran-Iraq Arms Non-Proliferation Act of 1992.’ SECTION 1602. UNITED STATES POLICY

(a) IN GENERAL. – It shall be the policy of the United States to oppose, and urgently to seek the agreement of other nations also to oppose, any transfer to Iran or Iraq of any goods or technology, including dual use goods or techno-logy, wherever that transfer could materially contribute to either country’s acquiring chemical, biological, nuclear, or destabilizing numbers and types of advanced conventional weapons. (b) SANCTIONS. – (1) In the furtherance of this policy, the President shall apply sanctions and controls with respect to Iran, Iraq, and those nations and persons who assist them in acquiring weapons of mass destruction in accordance with the Foreign Assistance Act of 1961, the Nuclear Non-Proliferation Act of 1978, the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991, chapter 7 of the Arms Export Control Act, and other relevant statutes, regarding the non-proliferation of weapons of mass destruction and the means of their delivery. (2) The President should also urgently seek the agreement of other nations to adopt and institute, at the earliest practicable date,

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sanctions and controls com-parable to those the United States is obli-gated to apply under this subsection. (c) PUBLIC IDENTIFICATION. – The Congress calls on the President to identify publicly (in the report required by section 1607) any country or person that transfers goods or technology to Iran or Iraq contrary to the policy set forth in subsection (a). SECTION 1603. APPLICATION TO IRAN OF CERTAIN IRAQ SANCTIONS

The sanctions against Iraq specified in paragraphs (1) through (4) of section 586G(a) of the Iraq Sanctions Act of 1990 (as contained in Public Law 101-513), including denial of export licenses for United States persons and prohibitions on United States Government sales, shall be applied to the same extent and in the same manner with respect to Iran. SECTION 1604. SANCTIONS AGAINST CERTAIN PERSONS

(a) PROHIBITION. – If any person transfers or retransfers goods or technology so as to contribute knowingly and materially to the efforts by Iran or Iraq (or any agency or instrumentality of either such country) to acquire destabilizing numbers and types of advanced conventional weapons, then the sanctions described in subsection (b) shall be imposed. (b) MANDATORY SANCTIONS. – The sanctions to be imposed pursuant to subsection (a) are as follows: (1) PROCUREMENT SANCTION. – For a period of two years, the United States Government shall not procure, or enter into any contract for the procurement of, any goods or services from the sanctioned person. (2) EXPORT SANCTION. – For a period of two years, the United States Govern-ment shall not issue any license for any export by or to the sanctioned person. SECTION 1605. SANCTIONS AGAINST CERTAIN FOREIGN COUNTRIES

(a) PROHIBITION. – If the President determines that the government of any foreign country transfers or retransfers goods or technology so as to contribute knowingly and materially to the efforts by Iran or Iraq (or any agency or instrumentality of either such country) to acquire destabilizing numbers and types of advanced conventional weapons, then – (1) the sanctions described in subsection (b) shall be imposed on such country; and

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(2) in addition, the President may apply, in the discretion of the President, the sanction described in subsection (c). (b) MANDATORY SANCTIONS. – Except as provided in paragraph (2) the sanctions to be imposed pursuant to subsection (a)(1) are as follows: (1) SUSPENSION OF UNITED STATES ASSISTANCE. – The United States Government shall suspend, for a period of one year, United States assistance to the sanctioned country. (2) MULTILATERAL DEVELOPMENT BANK ASSISTANCE. – The Secretary of the Treasury shall instruct the United States Executive Director to each appropriate international financial institution to oppose, and vote against, for a period of one year, the extension by such institution of any loan or financial or technical assistance to the sanctioned country. (3) SUSPENSION OF CODEVELOPMENT OR COPRODUCTION AGREEMENTS. – The United States shall suspend, for a period of one year, compliance with its obligations under any memorandum of understanding with the sanctioned country for the codevelopment or coproduction of any item on the United States Munitions List (established under section 38 of the Arms Export Control Act), including any obligation for implementation of the memorandum of understanding through the sale to the sanctioned country of technical data or assistance or the licensing for export to the sanctioned country of any component part. (4) SUSPENSION OF MILITARY AND DUAL USE TECHNICAL EXCHANGE AGREEMENTS. – The United States shall suspend, for a period of one year, compliance with its obligations under any technical exchange agreement involving military and dual use technology between the United States and the sanctioned country that does not directly contribute to the security of the United States, and no military or dual use technology may be exported from the United States to the sanctioned country pursuant to the agreement during that period. (5) UNITED STATES MUNITIONS LIST. – No item on the United States Munitions List (established pursuant to section 38 of the Arms Export Control Act) may be exported to the sanctioned country for a period of one year. (c) DISCRETIONARY SANCTION. – The sanction referred to in subsection (a)(2) is as follows: (1) USE OF AUTHORITIES OF INTERNATIONAL EMERGENCY ECONOMIC POWERS ACT. – Except as provided in paragraph (2), the President

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may exercise, in accordance with the provision of that Act, the authorities of the International Emergency Economic Powers Act with respect to the sanctioned country. (2) EXCEPTION. – Paragraph (1) does not apply with respect to urgent humanitarian assistance. SECTION 1606. WAIVER

The President may waive the requirement to impose a sanction described in section 1603, in the case of Iran, or a sanction described in section 1604(b) or 1605(b), in the case of Iraq and Iran, 15 days after the President determines and so reports to the Committees on Armed Services and Foreign Relations of the Senate and the Committees on Armed Services and Foreign Affairs of the House of Representatives that it is essential to the national interest of the United States to exercise such waiver authority. Any such report shall provide a specific and detailed rationale for such determination. SECTION 1607. REPORTING REQUIREMENT

(a) ANNUAL REPORT. – Beginning one year after the date of the enactment of this Act, and every 12 months thereafter, the President shall submit to the Committees on Armed Services and Foreign Relations of the Senate and the Committees on Armed Services and Foreign Affairs of the House of Representatives a report detailing – (1) all transfers or retransfers made by any person or foreign government during the preceding 12-month period which are subject to any sanction under this title; and (2) the actions the President intends to undertake or has undertaken pursuant to this title with respect to each such transfer. (b) REPORT ON INDIVIDUAL TRANSFERS. – Whenever the President determines that a person or foreign government has made a transfer which is subject to any sanction under this title, the President shall, within 30 days after such transfer, submit to the Committees on Armed Services and Foreign Relations of the Senate and the Committees on Armed Services and Foreign Affairs of the House of Representatives a report – (1) identifying the person or government and providing the details of the transfer; and (2) describing the actions the President intends to undertake or has undertaken under the provisions of this title with respect to each such transfer.

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(c) FORM OF TRANSMITTAL. – Reports required by this section may be submitted in classified as well as in unclassified form. SECTION 1608. DEFINITIONS

For purposes of this title: (1) The term ‘advanced conventional weapons’ includes – (A) such long-range precision-guided munitions, fuel air explosives, cruise missiles, low observability aircraft, other radar evading aircraft, advanced military aircraft, military satellites, electromagnetic weapons, and laser weapons as the President determines destabilize the military balance or enhance offensive capabilities in destabilizing ways; (B) such advanced command, control, and communications systems, electronic warfare systems, or intelligence collection systems as the President determines destabilize the military balance or enhance offensive capabilities in destabilizing ways; and (C) such other items or systems as the President may, by regulation, determine necessary for purposes of this title. (2) The term ‘cruise missile’ means guided missiles that use aerodynamic lift to offset gravity and propulsion to counteract drag. (3) The term ‘goods or technology’ means – (A) any article, natural or manmade substance, material, supply, or manufactured product, including inspection and test equipment; and (B) any information and know-how (whether in tangible from, such as models, prototypes, drawings, sketches, diagrams, blueprints, or manuals, or in intangible form, such as training or technical services) that can be used to design, produce, manufacture, utilize, or reconstruct goods, including computer software and technical data. (4) The term ‘person’ means any United States or foreign individual, partnership, corporation, or other form of association, or any of their successor entities, parents, or subsidiaries. (5) The term ‘sanctioned country’ means a country against which sanctions are required to be imposed pursuant to section 1605. (6) The term ‘sanctioned person’ means a person that makes a transfer described in section 1604(a). (7) The term ‘United States assistance’ means – (A) any assistance under the Foreign Assistance Act of 1961, other than –

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(i) urgent humanitarian assistance or medicine, and (ii) assistance under chapter 11 of part I (as enacted by the Freedom for Russia and Emerging Eurasian Democracies and Open Markets Support Act of 1992). (B) sales and assistance under the Arms Export Control Act; (C) financing by the Commodity Credit Corporation for export sales of agricultural commodities; and (D) financing under the Export-Import Bank Act.

6 NEW SANCTIONS: THE EFFECT OF LOBBYING

W

hile the dual containment policy was being pursued, the US government was actively engaged in unilateral and multilateral efforts to restrict Iran’s trade and political relations with the world community. But Israel believed that the United States should have been adopting a tougher stand by planning to overthrow the Iranian regime. So it began to pressure the US administration and Congress through its official lobbying group, the American Israel Public Affairs Committee (AIPAC). It is well known that the influence of AIPAC on American politics is second only to that of the American Association of Retired People (AARP). Traditionally, AIPAC’s role was to promote Israel’s interests in the United States, whether by mobilizing its influence to thwart US arms sales to Arab countries, or by launching verbal attacks on the Palestinian leader, Yasser Arafat. In 1992, after 15 years of political dominance by the hardline Likud Party, Israeli voters elected the Labour Party’s Yitzak Rabin as Prime Minister. Rabin, believing that AIPAC was in the pocket of Likud, advised AIPAC directors that in future he would conduct foreign policy directly with the White House. AIPAC, as a way of retaining a place in the corridors of power, set themselves the task of developing a plan to target Iran. ‘Although different from the traditional Arab-Israel threat, Tehran nevertheless is a useful tool for AIPAC’s survival.’1 1

Raymond Tanter, Rogue Regimes: Terrorism and Proliferation, St Martin’s Griffin, New York, 1999, p. 56.

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By late 1994, AIPAC had produced Comprehensive US Sanctions Against Iran: A Plan for Action.2 It had also started lobbying strenuously for a total trade embargo and for a secondary boycott of foreign companies trading with Iran. From the outset, AIPAC was not short of allies in the US Congress or from within the Clinton administration. On 2 September 1994, the Tel Aviv daily Maariv reported that the rabbi of the Adath Yisrael Synagogue in Cleveland Park, Washington DC, had dedicated his Sabbath sermon to the Jewish political centre being formed in the United States. The rabbi was quoted as saying: ‘For the first time in American history we no longer feel that we live in the diaspora. The US has no longer a Government of goyim [gentiles] but an administration in which the Jews are full partners in the decision making at all levels. Perhaps the aspects of the Jewish religious law connected with the term “government of goyim” should be re-examined, since it is an outdated term in the US’. Indeed, in the National Security Council, seven out of 11 of the top directors were Jewish, and operating at the most sensitive intersections of US security and foreign policy administration: Sandy Berger, Deputy Chairman of the Council; Martin Indyk, Senior Director and Advisor to the President in charge of the Middle East and South Africa; Dan Schifter, Senior Director and Advisor to the President in charge of Western Europe; Dan Steinberg, Senior Director and Advisor to the President in charge of Africa; Richard Feinberg, Senior Director and Advisor to the President in charge of Latin America; and Stanley Ross, Senior Director and Advisor to the President in charge of Asia. There was a similar state of affairs at the White House: Abner Mikva, White House Counsel; Ricki Seidman, President’s Schedule and Programmes Manager: Phil Leida, Deputy Chief of Staff; Robert Robin, Economics Advisor; David Heiser, Media Director; Alice Rubin, Staff Director; Ely Segal, in charge of volunteers; Ira Magaziner, in charge of the health programme; Rahm Emmanuel, Clinton’s Senior Advisor in charge of co-ordinating special projects in the White House, with an office next to the Oval Office. Also, two cabinet members were Jewish: Labour Secretary Robert Reich and Mickey Kantor, in charge of international trade agreements. They were joined by a long list of senior Jewish officials in the State Department, headed by the Chief of the Middle East Peace Process, Denis Ross. Outside the White House, both Clinton’s nominations to the nine-member US 2

AIPAC, Comprehensive US Sanctions Against Iran: A Plan for Action, 1995.

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Supreme Court were Jewish. Clinton also appointed a Jewish CIA direction, John Deutch, who in turn, within a year, appointed three Jewish deputies. Outside the Jewish community, AIPAC forces had a willing ally in the Secretary of State, Warren Christopher, whose personal antipathy towards Iran dated back to his experience negotiating the Algiers Accords to secure the release of the hostages in the US embassy in Tehran. The staunchest ally of Israel was the chairman of the Senate Banking Committee, New York Senator D’Amato, AIPAC’s champion in the Senate. On 25 January 1995, D’Amato, who represents a large Jewish constituency strongly supportive of Israel and has a long history of advocating tougher trade policies towards Iran, introduced in the Senate the Comprehensive Iran Sanctions Act (CISA) of 1995 (S277), aimed at severing all trade links between the United States and Iran. As part of the embargo the act would prohibit: 1 Any transaction in the currency exchange of Iran. 2. The transfer of credit or payments between, by, through, or to any banking institution, to the extent that such transfers or payments involve any interest of Iran or a national thereof. 3. The importing from, or exporting to, Iran of currencies or securities. 4. Any acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power or privilege with respect to, or any transaction involving, any property in which Iran or any national thereof has any interest; by any person, or with respect to any property, subject to the jurisdiction of the United States. 5. The licensing for export to Iran, or for export to any other country for reexport to Iran, by any person subject to the jurisdiction of the United States of any item or technology controlled in the Export Administration Act of 1979, the Arms Export Control Act or the Atomic Energy Act of 1954. 6. The importation into the United States of any good or service which is, in whole or in part, grown, produced, manufactured, extracted, or processed in Iran.3

In his remarks introducing the CISA, D’Amato said that the measure ‘would end the ability of the US oil companies to buy Iranian oil and then resell it in the open market’, a market which netted Iran US$3.5 billion. He also said that the legislation would cut off US$750 million in US dual use items that

3

Comprehensive Iran Sanctions Act of 1995, S277, 104th Congress, 1st Session, 25 January 1995.

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Iran can convert for use in its military and nuclear programs… Iran is arming itself to the teeth, and we are simply ignoring it. Iran’s purchase of military items from countries such as China and North Korea coupled with its ongoing receipt of US dual use export is dangerous. We must ensure that we do not provide them with anything that will come back to haunt us.

The CISA was explicitly based on the Cuban Democracy Act of 1992. D’Amato adapted the Cuban model, which prohibited even foreign subsidiaries of US companies engaging in trade, a move which was resisted in Europe. D’Amato’s bill was described by US industry as ‘an example of an irresponsible commitment to unilateral controls in a world with declining multilateral co-ordination of trade restrictions’.4 Many US businesses deliberately did not react to the bill for fear of being labelled greedy or insensitive to Iran’s alleged terrorism policy. So they failed to bring to D’Amato’s attention the fact that dual use exports to Iran in 1993 were worth only US$11.6 million, or approximately 2 percent of total exports. The editor of Export Control News, the leading monthly newsletter on US government export control policy, reacted to the D’Amato bill in an article entitled ‘Al D’Amato on the Strategic Value of the Abacus’: News Flash: The Iranians are capable of converting toilet paper into tank treads, desks into missile launch pads and Wheaties into rocket fuel. At least that’s what Senator Alfonse D’Amato (R-NY) implied last month in lobbying for a bill that he introduced last month to impose an airtight economic embargo against Iran. ‘US companies supply over US$750 million in exports to Iran annually, including dual use materials that Iran can convert for use in its military and nuclear programs,’ said D’Amato in a prepared statement. Wake up, Alfonse: US companies sell nothing of strategic value to Iran. In October 1992, you co-sponsored a bill authored by Senator John McCain (R-AZ) prohibiting the Commerce Department to authorize any exports of controlled goods and technology to Iran. This action, coupled with the long running US arms export embargo against Iran, made smuggling the only way that Tehran could procure US origin products with weapons applications. And it left an innocuous range of the most prosaic commercial items eligible for export to Iran. Computers make this point elegantly. A US company cannot export to Iran any computer with a composite theoretical performance (CTP) level exceeding 6 million theoretical operations per second (Mtops). Since Alfonse in the past has shown an embarrassing ignorance of export controls, I’ll 4

Export Control News, vol. 9 no 2, 28 February 1995.

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explain this computer power in layman’s terms. The current standard for desktop PCs is based on the Pentium chip – most machines so equipped have a CTP rating of 67 Mtops. So a machine exportable from the US to Iran has about 1/11 the power of today’s PCs, not to mention how it stacks up against workstations and other more sophisticated systems actually capable of performing weapons design applications. So, Al, we’re talking about machines that are barely one product generation beyond the abacus, vintage Potsy Webber-era classics the size of a bulldozer that take fifteen minutes to save a three-page document. If you’re looking for someone who would call this stuff useful for weapons development, try Genghis Khan the medieval Mongol warrior conqueror of Central Asia, who would no doubt have affixed the computer’s jagged processor boards to his army’s spears and hand-to-hand combat equipment. Here’s the point: Unless D’Amato can produce tangible evidence that imports from the US are enhancing Tehran’s military preparedness, he should not be permitted to use this argument to promote his embargo legislation. US industry groups have agonized over how to respond to the legislation, struggling to word a diplomatic statement that conveys their opposition without appearing to endorse robust trade relations with one of the world’s most recalcitrant supporters of terrorism. After several meetings in February, industry decided upon a reasonable tack – namely, to focus on the futility of cutting US trade flows to Iran from a trickle to a drip while other industrial countries trade freely with Iran. But if D’Amato convenes a hearing on the bill, industry would be welladvised to call him out on his contention that US products are finding their way into Iran’s weapons systems. Such a confrontation would expose D’Amato’s position for what it is: empty rhetoric. Then, the debate could focus on the real purpose and value of the bill, which is to inflict a largely symbolic punishment on Iran for its involvement in international terrorism. Academics, industrialists and non-proliferation experts have long contested the prudence and effectiveness of trade denial as a punitive instrument wielded to influence the behavior of rogue countries. It is beyond my purpose and ability to advance this debate in this column. However, the public should be made aware that the D’Amato bill is a forum for this debate alone and should not be evaluated on the false premise that it will somehow slow Iran’s march toward regional military prominence in the Middle East. Few have argued against the long-standing US embargo against North Korea, another terrorism supporter and a virtual catalog house for unstable Third World countries seeking ballistic missiles. But how effective has the embargo been from a strategic perspective? The chiropractor bills are still washing up on the desks of the State Department negotiators who spent all of last October bending over backwards in search of an agreement to dismantle North Korea’s nuclear program.5

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While D’Amato’s bill was heading towards the top of the Senate agenda and attracting more co-sponsors, Representative Peter King, on 23 February 1995, introduced identical legislation to the House. In a rush to head off the D’Amato and King bills, the National Iranian Oil Company (NIOC) announced, on 6 March 1995, that it had signed a US$1 billion contract with the US oil company Conoco to develop the offshore Sirri-A and Sirri-E fields. The deal put the administration in the embarrassing situation of appearing, on the one hand, to be encouraging US commercial engagement with Iran, while, on the other hand, to be asking other parties to try to contain the regime. Being taken by surprise, and unprepared to respond to the new development, the US administration made conflicting remarks. While the White House Press Secretary Michael McCurry stated that the Conoco deal is not ‘illegal or prohibited under US law’, US Secretary of State, Warren Christopher, on 9 March, in Tel-Aviv, condemned the agreement as ‘inconsistent with the containment policy that we have carried forward,’ adding that ‘wherever you look you will find the evil hand of Iran in the region’.6 Though the Departments of Commerce, Defence, Energy and the Treasury were against any change of policy towards Iran, sharp criticism from the Secretary of State, Republican congressional leaders and the Jewish lobby in the United States left Clinton no option but to declare, on 14 March, that ‘the deal was at odds with US policy toward Iran’, adding that he was planning to issue an Executive Order prohibiting contracts similar to that between Conoco and the NIOC. Conoco subsequently withdrew from the deal, at the same time making the point that both Bush and Clinton administration officials had periodically been advised of its three years of negotiations on the Sirri fields. This had been the first oil concession granted by Iran to an American company since the revolution, after 16 years of anti-American policy in Iran. Senior Iranian officials openly said that picking an American company was not a decision based solely on the technological capabilities of Conoco or its better financial package. It was a political decision, specifically to signal a desire to improve relations with Washington. In an interview with Peter Jennings, President Rafsanjani later admitted, ‘We invited an American firm and entered into a deal… this was a message to the United States, which was not correctly understood. We had a lot of difficulty in this country by 5 6

Export Control News, vol. 9 no 2, 28 February 1995. Ernest H. Preeg, Feeling Good or Doing Good with Sanctions: Unilateral Economic Sanctions and the US National Interest, Center for Strategic and International Studies Press, 1999, p. 52.

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inviting an American company to come here with such a project because of public opinion’.7 Selecting Conoco, rather than, say, France’s Total, to develop the Sirri project was certainly a positive signal from Tehran to Washington that the Iranian government was willing to bridge some of the seemingly irreconcilable differences that had characterized Iran-US relations since the revolution of 1979. Giving such a contract to a US company would not have been possible without the blessing of Ayatollah Khamenei, the Iranian spiritual leader and a critic of US policy in general. Moreover, the offer to Conoco and Iran’s attempt to join a consortium in Azerbaijan were clearly designed to create an area of mutual interest with the United States upon which further reconciliation could have been built. Washington either did not understand the signal or was insensitive to the strategic implications of Tehran’s invitation to Conoco. The Clinton administration’s response, much to Iran’s surprise, was one of total rebuff. On 15 March 1995, the day before the Senate hearing on the D’Amato bill, Clinton, seeking to regain the initiative, issued Executive Order 12957, which prohibited: (a) the entry into or performance by a United States person, or the approval by a United States person of the entry into or performance by an entity owned or controlled by a United States person, of (i) a contract that includes overall supervision and management responsibility for the development of petroleum resources located in Iran, or (ii) a guaranty of another person’s performance under such a contract. (b) the entry into or performance by a United States person, or the approval by a United States person of the entry into or performance by an entity owned or controlled by a United States person, of (i) a contract for the financing of the development of petroleum resources located in Iran, or (ii) a guaranty of another person’s performance under such a contract. (c) any transaction by any United States person or within the United States that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in this Order.8

The imposition of a lien on contracts by President Clinton against Iran torpedoed the Conoco deal, which was eventually awarded to Total. The only consequences of this embargo were the commercial loss to American companies and a ‘missed opportunity in the political sphere’ for the US administration. The move was a 7 8

Elaine Sciolino, ‘Iranian leader says US move on oil deal wrecked chances to improve ties’, New York Times, 16 May 1995. Executive Order 12957, Section 1, 52 Fed. Reg. 14615, 17 March 1995.

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clear blow to those within the Administration and elsewhere who support[ed] the policy of constructive engagement with Iran rather than the current hard-line tack, many of whom have gone under deep cover in recent months anyhow. What Conoco did for Washington was to open a door for them to finally start a constructive dialogue with Tehran. Instead of thanking them, which they should have done, the Clinton Administration slammed that door in their face.9

At a hearing on the D’Amato bill on 16 March, the administration opposed the bill as it was introduced, and recommended milder sanctions against Iran. Peter Tarnoff, Under Secretary for Political Affairs at the State Department, said that the fully-fledged embargo on both exports and reexports to Iran championed by D’Amato would only rankle US allies and hurt US companies, while having little impact on the Iranian economy. ‘The complications of this sort of measure have led us to conclude that at this point we should not proceed with the measure [proposed by Senator D’Amato],’ Tarnoff declared in concluding his testimony. He also stressed that trade with Iran was more strict than ‘any other country on the face of the earth’, and that US trading partners lacked the political will to impose the drastic measures outlined in the D’Amato legislation. Former State Department official James Placke admitted in his testimony before the Senate Foreign Relations Committee that a unilateral embargo would have virtually no effect on the Iranian economy: ‘Banning such offshore trade would not seriously affect Iranian crude oil exports… There may, however, be longer lasting dislocations and loss of markets for some American owned companies’. Another witness, Dr Patrick Clawson, a Senior Fellow at the Institute for National Strategic Studies, argued that sanctions could cost Iran ‘at least tens of millions of dollars a year’ and could provoke a loss of investor confidence in the Iranian economy. However, those measures alone would not topple the Iranian regime nor tone down its anti-Western policies. Arthur T. Downey, Vice President of Baker Hughes Incorporated, speaking on behalf of the National Foreign Trade Council (NFTC), which represents some 500 of America’s largest exporting companies – banks, oil companies and leading manufacturers – stated that the embargo ‘will be no more effective in getting Iran to alter its actions than if the Committee’s Members were to go on a hunger strike’. Kenneth Timmerman, publisher of Iran Brief, a monthly newsletter, and a supporter of Israel’s policy of tougher sanctions against Iran, was the 9

‘CONOCO backs out of Iran deal under US Government orders’, MEES, vol. XXXVIII no 25, 20 March 1995, p. 10.

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next witness. He urged the imposition of the embargo for strategic reasons, arguing that under existing export control laws Iran received US-origin equipment with clear military applications. ‘US companies are feeding the regime,’ he said, and ‘we currently have no available tool that can ensure that American companies do not provide dangerous dual use technologies to Iran. The administration has been cutting our controls on virtually a daily basis.’ To support his claims, Timmerman issued the following list of the items allegedly shipped by US companies to Iran in 1993 without prior licence review by the Department of Commerce or other licensing agencies: toxins, cultures of micro-organisms; turbojet turbines, excluding aircraft, thrust exceeding 25 kilo-newtons; air or vacuum pumps; machinery for liquefying air or other gases; centrifuges; parts of centrifuges; machine-tool holders and self-opening dieheads; gas separation equipment; hydraulic presses, metal forming; electric generating sets; spectrophotometers; electric spectrometers and spectrographs; gamma camera systems for detecting ionizing radiation; laboratory furnaces; gas turbine engines, power exceeding 5000kW; machines as special attachments for machine tools; parts of metalworking machine tools for cutting gears; cathode-ray oscilloscopes. Timmerman, referring to his list, claimed that ‘clearly many of them have direct military applications, including in some cases in the prod-uction of nuclear weapons, ballistic missiles, and chemical or biological warfare agents’. Timmerman’s allegations drew a strongly worded response from Bill Reinsch, the Department of Commerce’s Chief Export Control official, who called the charges ‘inaccurate and without foundation’, and insisted that the exports in Timmerman’s testimony were in fact low-level items which did not require US government approval for export to Iran. ‘In instance after instance, the items were determined by the US and our allies as not having military application’. Reinsch added: If it were otherwise, the US would control their export and deny their sales to Iran. For example, with respect to some of the items highlighted by Mr Timmerman, the centrifuge parts turn out to be parts for pumps (commonly used in the oil industry), the centrifuge turned out to be industrial bearings and seals, the gas turbine engines turned out to be the type used in electrical power generation, and the oscilloscope turned out to be a general use calibration kit. If Timmerman has evidence of illegal shipments to Iran, he has a duty to bring these to the immediate attention of the Department’s enforcement office, which he has not done.10 10 The above text on the 16 March 1995 hearing is based on ‘Administration Opposes Iran Embargo’, Export Control News, vol. 9 no 3, 31 March 1995, pp. 7–8. Timmerman’s list is based on ‘G-Test Equipment to Iran 1993’, Iran Brief, no 5, 3 April 1995.

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Timmerman’s list, albeit called ‘inaccurate and without foundation’ by the US Department of Commerce, appeared again verbatim in the AIPAC report presented to the US Congress on 2 April in support of the D’Amato bill.11 D’AMATO DEMANDS MORE SANCTIONS While the State Department was in favour of tougher sanctions against Iran, the Departments of Energy, Commerce and the Treasury were all against such measures, on the grounds that unilateral sanctions were difficult to apply. At a meeting with oil equipment suppliers on 27 March, Deputy Energy Secretary Bill Wyatt said, ‘you can’t have a unilateral embargo in today’s oil market’. When he learnt of the administration’s reluctance to impose a complete ban on Iran, and faced with the possibility of a compromise, Senator D’Amato introduced a new bill. The champion of sanctions against Iran decided this time that his CISA of 1995 was not comprehensive enough because it did not cover transactions concluded by non-US corporations. So, on 27 March, while his previous bill was still being debated, D’Amato, using AIPAC’s Plan for Action as a model, submitted the Iran Foreign Sanctions Act of 1995. Introducing his legislation to the Senate, D’Amato advised his colleagues that while the total trade embargo on Iran under the CISA ‘could have a real effect on Iran, the effect on foreign corporations would be negligible’. This new ‘legislation will place procurement and export sanctions on any foreign person or corporation that has engaged in any trade with Iran in any goods or technology, as defined in the Export Administration Act (EAA) of 1979. Simply put, a foreign corporation or person will have to choose between trade with the United States or trade with Iran.’ To convince his colleagues, D’Amato cited numerous precedents of this approach claiming the similarity: the Comprehensive Anti-Apartheid Act, which authorized the president to limit the importation into the United States of any product or service of a foreign country to the extent to which that country benefits from the sanctions imposed on South Africa by the act; the Foreign Relations Act of 1994, incorporating the Nuclear Proliferation Prevention Act, which provides for a ban on US government procurement from any third-country company which assists another country to acquire nuclear weapons; Missile Technology Control Regime sanctions, attached to the Arms Export Control Act (AECA) and EAA, which prohibits US 11 AIPAC, Comprehensive US Sanctions Against Iran: A Plan for Action, 1995, pp. 26, 27.

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government procurement, licences for the transfer of any items of the UN munitions list (AECA) or the dual use technologies list (EAA), and the importation into the United States of any product of the foreign company; the AECA also has similar sanctions for chemical and biological weapons proliferation, as does the Iran-Iraq Arms Non Proliferation Act of 1992, as well as various items of legislation designed to counter the Arab league boycott of Israel. D’Amato’s proposed legislation would have resulted in sanctions being imposed on ‘any foreign person or entity that engaged in trade with Iran in any goods or technology’. In essence, the US government would not be allowed: to ‘procure, or enter into any contract for procurement of any goods or services’ from any sanctioned person or entity; to ‘issue any licence for any export by or any’ sanctioned person or entity. Although the Senate bill was broad, the House version, introduced by King, was even broader and sought to impose a blanket import ban on any foreign entity selling military goods or services or dual use items, as well as on parties purchasing Iranian oil and natural gas. ‘The importation into the United States of products produced by the sanctioned person (company) should be prohibited,’ reads the House bill. The D’Amato and King bills in effect ‘seek to present European and Japanese firms with a choice; trade with Iran or with the United States of America’.12 While some Congressmen were clamouring for tough action against Iran, AIPAC, on 2 April, publicly threw its support behind D’Amato and King, and began to distribute the Plan for Action, hoping to persuade Congress to impose exceptional economic restrictions, and calling for the United States to ban trade with any nation that traded with Iran. To try to win over Congress, the plan quoted Secretary of State Warren Christopher more than once as having said that ‘Iran is an outlaw nation whose evil hand can be seen throughout the Middle East and the world’. In his introduction to the Plan for Action, Neal M. Sher, the Executive Director of AIPAC, said that ‘the recent cancellation of Conoco’s deal with Iran was a welcome development, but clearly much more should, and can, be done. Two things are needed: (1) A comprehensive ban on American trade with Iran, and (2) steps to deter European and Japanese companies from trading with Iran.’ 13 ‘The legislation to achieve these vital objectives and end the support being given to Iran by major companies are being introduced in the Senate by Senator Alfonse D’Amato and in the House of Representatives by Peter King.’ 14 12 AIPAC, Comprehensive US Sanctions Against Iran: A Plan for Action, p. 4. 13 Ibid., p. 3.

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The author of the AIPAC report suggested: ‘There is much that can be done by the United States, unilaterally if necessary, to influence what companies operating abroad do. Little will be achieved if foreign oil companies replace American firms, with no impact on Iran. What must not happen, is to allow the uncontrolled growth of trade with Iran that is now taking place.’ 15 AIPAC and D’Amato were seeking the same goal: ‘(1) Comprehensive banning on American trade with Iran; (2) creating barriers to third country trade with and financial support for Iran; and (3) impeding multilateral financial support for Iran – particularly from the World Bank and International Monetary Fund’.16 The Plan for Action also listed a selection of European and Japanese companies, and their subsidiaries in the United States, to be targeted, the emphasis being on Total, the inheritor of the former Conoco deal. The other influential Jewish group which actively supported D’Amato was the Jewish Institute for National Security Affairs (JINSA). The Board of Directors of JINSA, which included influential personalities such as Jeanne Kirkpatrick, Jim Woolsey, Dick Cheney and Gene Rostow, passed a resolution on 10 April stating: In view of Iran’s continued violation of the human rights at home and abroad, Iran’s support of international terrorism and Iran’s ongoing attempt to acquire nuclear weapons; and recognized that sanctions must be international in order to be effective. The Board of JINSA: 1. Urges Congress to pass S277 and S260, designed to create an international embargo against Iran; 2. Calls upon President Clinton actively to engage America’s partners abroad, using all the tools of power diplomacy to enforce the provisions of the legislation.17

JINSA had previously, in October 1994, called on the Clinton administration to go beyond its dual containment policy in order to ‘add teeth to its rhetorical opposition to Iranian policies and to actively seek co-operation and accommodation from other countries in promulgating policies to halt the supply of capital and technology to Iran’.18 Had the D’Amato bills, as presented, become law, the unprecedented reach of their extraterritorial application would have caused grave 14 15 16 17 18

Ibid., p. 4. Ibid., p. 5. Ibid., p. 47. Iran Brief, no 6, 1 May 1995. Iran Brief, no 1, 5 December 1994.

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problems with US allies. Western nations have long resisted challenges to their economic interests and interference in international trade. Despite the fact that the West finds itself increasingly bound by economic and political ties, there remains a fundamental instinct to protect national interests when the threat of foreign meddling is perceived. Without the co-operation of the Europeans and the Japanese which, in this instance, is unlikely to have been possible, the outcome is equally unlikely to have been as D’Amato desired. The results in the United States would also have been detrimental if such bills had become law. Gary Sick, former National Security Advisor to three presidents, predicted four consequences: First, if the Bills are taken at face value, a substantial bureaucratic structure must be created to enforce them. Second, when it is discovered that many provisions of the bills produce absurd results, they will be allowed to moulder on the books, largely forgotten except when trotted out to harass some unsuspecting soul who has attracted the ire of a sharp Customs Officer. Third, a blizzard of presidential waivers will be required on major and minor issues of routine trade and tourism, making a travesty of the legislative process and clogging the courts with frivolous litigation. Finally, corporate lawyers and entrepreneurs with a taste for complex legal dodges will have a field day, creating a swamp of evasive corruption and thriving business for eager prosecutors.19

Clinton recalled the comments of Senator William Fullbright, chairman of the Senate Foreign Relations Committee, who on CBS television’s ‘Face The Nation’ in October 1973 declared that the US Senate was ‘subservient’ to Israeli policies and that ‘the Israelis control the policy of Congress and especially of the Senate… on anything the Israelis are interested in the Senate… they have 75 to 80 votes’. He was aware that the assessment was still valid, and that his own tenure at the White House was at stake if he didn’t capitulate to the manifesto of the Plan for Action. Intimidated by AIPAC and D’Amato, Clinton decided to act. It was not a coincidence that on 30 April 1995 Clinton, wearing a yarmulke, chose the occasion of a World Jewish Congress dinner in New York to announce that Iran has presented a particular problem to the peace process of the people of the Middle East. From the beginning of our Administration, we have moved to counter Iran’s support of international terrorism and, in particular, its backing for violent opponents of peace in the Middle East. At the 19 Gary Sick, ‘How Not to Make Iran Policy’, MEES, vol. XXXVIII no 31, 1 May 1995, p. D5.

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same time we have tried to stop its quest to acquire weapons of mass destruction, which would make it a threat not only to its neighbours, but to the entire region and the world. I am formally announcing my intention to cut off all trade and investment with Iran and to suspend nearly all other economic activity between our nations. This is not a step I take lightly, but I am convinced that instituting a trade embargo with Iran is the most effective way our nation can help to curb that nation’s drive to acquire devastating weapons and its continued support for terrorism. The Executive Order I plan to sign next week will cover not only the energy sector, but all United States exports to Iran and all investments by American firms and the branches they own or control.

In effect, then, item 1 on AIPAC’s Plan for Action had been implemented. Clinton, in the same speech, declared his opposition to the D’Amato bills, and stated, ‘I do want you to know that I do oppose the suggestion some have made that we impose a secondary boycott and prohibit foreign firms doing business with Iran from doing business with the United States. I don’t agree with that. I think that decision would cause unnecessary strain with our allies at a time when we need our friends’ co-operation.’ What Clinton was opposing was item 2 of AIPAC’s Plan for Action, which, after 15 months of resistance, he was forced to accept, during the 1996 election campaign, to avoid being outflanked by D’Amato and the JewishAmerican voters. Clinton’s justification for the new sanctions against Iran was to halt Congress activity on the D’Amato bill, a move which was well received. ‘I applaud the President,’ said Senator John McCain, the Republican from Arizona who had documented Iran’s weapons purchases over the years. ‘He did the right thing and I will support him however I can. The D’Amato legislation should certainly be held in abeyance.’ D’Amato called Clinton’s decision a ‘good first step’. However, he said that the next step should be to get other countries to co-operate. On 1 May, the day after Clinton’s announcement of his intention to ‘cut off all trade and investment with Iran’, Secretary of State Warren Christopher, never missing an opportunity to castigate and condemn Iran, restated Washington’s position in a press conference by again calling Iran an ‘outlaw state’. He said that Iran’s ‘repugnant behavior has not changed’ and, with reference to the United States’ main concerns, continued: First, Iran is the foremost state sponsor of terrorism in the world. Second, through its support of particular terrorist enterprises, Iran seeks to undermine the Middle East peace process. And third, Iran is a major proliferation threat and is pursuing a determined course to acquire nuclear weapons.

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Iran’s backing for international terrorism is pervasive. It has supported violence across the Middle East: in Lebanon, Israel, Egypt, Turkey, Algeria and now in Gaza. Its terrorist reach is also global, extending to Africa, Latin America, Asia and Europe as well. We estimate that Iran, a country that is now in the throes of a severe economic crisis, nevertheless spends several hundred million dollars a year to provide racial groups with weapons, equipment, training and financial support. Iran is the primary patron of terrorists trying to derail the Arab/Israeli peace process. Hamas, Islamic Jihad, Hizbollah, Ahmad Jibril’s Popular Front, each of these organizations receives funds, training and political support from Iran, support which they have used to leave a trail of carnage from Beit Lid to Buenos Aires. A regime with this kind of record simply cannot be permitted to get its hands on nuclear weapons. Based upon a wide variety of data, we know that since the mid-1980s, Iran has had an organized structure dedicated to acquiring and developing nuclear weapons. We know that Iran is seeking a capability to produce both plutonium and highly enriched uranium, the critical materials for a nuclear bomb. For years, Iran has been trying to purchase heavy water research reactors that are best suited to producing weapons-grade plutonium, not electricity. We know that Iran is devoting resources to various uraniumenrichment technologies focusing on the gas centrifuge. If the international community does not take strong action to counter its efforts, Iran will achieve its goal. When that might happen, no one can predict with certainty, but what we do know is that if Iran gets substantial foreign help, it will be able to build nuclear weapons sooner rather than later. With its proven record of terrorism and aggressive ambitions, Iran cannot be given the benefit of the doubt. Increased international pressure must be applied to Iran to bring about a change in its policies. That is exactly the goal of the President’s Executive Order. It sends an unmistakable message to friend and foe alike: we view Iran’s actions as a major threat to US interests and international security, and we’re determined to stop them.

In a reference to embarrassing remarks made by Helmut Kohl in a joint press conference in Washington on 9 February – in which the German Chancellor said that while his country had cut back in economic relations with Iran, US oil companies continued to buy one quarter of Iranian oil – Christopher continued: In recent months, other countries have pointed to the ongoing, although heavily restricted, economic ties between the United States and Iran. They’ve pointed to that to justify their broad-based commercial relationships. Now the President’s decision totally eliminates that excuse to lead by example. It puts the United States in the strongest possible position to urge others to take similar steps.

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NEW SANCTIONS On 6 May 1995, Clinton, using his constitutional authority under the International Emergency Economic Powers Act (IEEPA), National Emergency Act (NEA) and International Security and Development Co-operation Act (ISDCA) of 1985, issued Executive Order 12959 20 banning virtually all US trade and investment with Iran. President Clinton stated: Iran has continued to engage in activities that represent a threat to peace and security of all nations. I have now taken additional measures to respond to Iran’s continuing support for international terrorism, including support for acts that undermine the Middle East peace process, as well as its intensified efforts to acquire weapons of mass destruction.21

The Executive Order prohibited: • •

•

•

• • •

the importation into the United States, or the financing of such importation, of any goods or services of Iranian origin… the exportation from the United States to Iran, the Government of Iran, or to any entity owned or controlled by the Government of Iran, or the financing of such exportation, of any goods, technology, or services… the re-exportation to Iran, the Government of Iran, or any entity owned or controlled by the Government of Iran, of any goods or technology [unless previously licensed or] (i) substantially transformed outside the United States, or (ii) incorporated into another product outside the United States and [constituting] less than 10 percent by value of the product exported from a third country… any transaction, including purchase, sale, transportation, swap, financing, brokering transactions, by a United States person relating to goods or services of Iranian origin or owned or controlled by the Government of Iran… any new investment by a United States person in Iran or in property owned or controlled by the Government of Iran… the approval or facilitation by a United States person of transactions between US foreign subsidiaries and Iran any transaction by any United States person or within the United States that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in this Order.

The Executive Order defined the term ‘United States person’ as ‘any United States citizen, permanent resident alien, entity organized under the laws of

20 Executive Order 12959, 60 Fed. Reg. 24757, 9 May 1995. 21 Letter of 6 May 1995 from the President to the speaker of the House of Representatives and the President of the Senate, the White House, Office of the Press Secretary, 8 May 1995.

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the United States (including foreign branches), or any person in the United States’. The jurisdiction of all the sanctions contained in this Order was based upon either the territoriality principle, ie import and export to and from the United States, or the nationality principle, ie transaction by a US person. The term ‘new investment’ also included loans and extension of credit facilities. The effective date of the Order was 12.01am Eastern Daylight Time on 7 May. Although there was no long-term contract sanctity provision in the Order, US companies were given a 30-day window in which to fulfil trade commitments under contracts that were in effect prior to 7 May. The Office of Foreign Assets Control (OFAC) extended this window from 30 to 90 days, to expire on 6 August. In a letter to the Speaker of the House of Representatives and the President of the Senate which accompanied the Order, President Clinton mentioned the following exceptions: •

• •

Transactions by United States persons related to the Iran-United States Claims Tribunal in The Hague, established pursuant to the Algiers Accords, and the other international obligations and United States Government functions; The export of agricultural commodities consistent with section 5712(c) of Title 7, United States Code; Market-based swaps of crude oil from the Caspian Sea area for Iranian crude oil in support of energy projects in Azerbaijan, Turkmenistan and Kazakhstan.22

In contrast to the 1979 sanctions against Iran, the new measures did not block Iranian assets held in the United States. This blocking, imposed in 1979, was lifted by the Algiers Accords in 1981, thereby resolving the hostage crisis. However, the new Order banned the export of financial services to Iran, and this directly controlled the manner in which US banks could deal with Iranian accounts. The new sanctions were to be administered primarily by OFAC, which issues general licences. With the Executive Order issued by the President, King and D’Amato agreed to postpone congressional consideration of their bills, which would have imposed sanctions on foreign companies trading with Iran, in exchange for a commitment from the Clinton administration to try to obtain multilateral support from US allies at the summit of G7 states 22 Press release, the White House, Office of the Press Secretary, 8 May 1995.

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meeting in Halifax, Nova Scotia on 15–17 June 1995. But the administration’s diplomatic efforts did not ultimately achieve any tangible progress. Prior to the issuance of regulations implementing Executive Order 12959, OFAC issued 12 general licences for applicable transactions rather than applying for specific licence approval. These general licences were later incorporated into the Iranian Transactions Regulations (ITRs). OFAC also issued two general notices. One, of 14 June, allowed for the fulfilment of pre-7 May contracts up to 6 August. The second, of 14 July, gave Iranian banks in the United States until 29 December to complete transactions for US exporters involving letters of credit which were issued, confirmed or advised prior to 6 June. General Licence no 1, ‘30 Day Delayed Effective Date for Pre-May 7, 1995 Trade Contracts Involving Iran’ (issued 19 May 1995), provides a 30day delayed effective date to allow all transactions necessary to complete performance of a trade contract entered into prior to 7 May 1995 involving Iran (CFR §560.515). General Licence no 2, ‘Payment and US Dollar Clearing Transactions Involving Iran’ (issued 1 June 1995), guides US banking institutions on how to handle the transfer of funds maintained in their books, not involving accounts of the Iranian government, its entities and persons in Iran. It also allows the transfer of funds to the Iranian government and its entities if the underlying transaction is not prohibited, for example, payment for the shipment of donations, family remittances etc (CFR §560.516). General Licence no 3, ‘Exportation of Services: Iranian Accounts at US Financial Institutions’ (issued 1 June 1995), deals with the operation of accounts of the Iranian government, its entities and persons in Iran who maintain accounts with US banking institutions. This general licence also has an appendix listing banks controlled by the Iranian government inside and outside Iran (CFR §560.517). General Licence no 4, ‘Transactions in Iranian Origin and Iranian Government Property’ (issued 13 June 1995), authorizes domestic transactions of goods or services of Iranian origin as long as they are not imported into the United States, that the transaction occurs prior to 6 August 1995, and is performed outside of the United States (CFR §560.518). General Licence no 5, ‘Exportation and Importation of Information and Informational Materials’ (issued 14 June 1995), defines ‘informational materials’ and deals with the exportation, importation and financial transactions of information and informational materials (CFR §560.520).

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General Licence no 6, ‘Diplomatic Pouches’ (issued 14 June 1995), authorizes the exportation from the United States to Iran, and importation into the United States from Iran, of diplomatic pouches and their contents (CFR §560.521). General Licence no 7, ‘Policy Governing News Organization Offices’ (issued 14 June 1995), allows US media organizations, with a specific licence, to establish and operate news bureaux in Iran, and Iran to establish such offices in the United States (CFR §560.519). General Licence no 8, ‘Exportation of Agricultural Commodities’ (issued 14 June 1995), enables US exporters, until 2 February 1996, to export agricultural commodities under an export sales contract entered into prior to 7 May 1995 (CFR §560.520). General Licence no 9, ‘Iranian Government Missions in the United States’ (issued 14 June 1995), permits the Iranian Mission to the United States and the Iranian Interest Section in the United States to import and export goods and services from or to Iran as necessary to conduct their official duties (CFR §560.512). General Licence no 10, ‘Transactions Related to the Resolution of Disputes Between the United States or United States Nationals and the Government of Iran’ (issued 22 June 1995), authorizes the exportation and importation of any goods, technology and services to or from Iran in connection with the agreement settling claims brought before the Iran-United States Claims Tribunal, international tribunals or awards or decisions of the US courts (CFR §560.510). General Licence no 11, ‘Exportation of Household Goods and Personal Effects to Iran’ (issued 21 July 1995), allows persons departing from the United States to relocate to Iran to export their household personal effects and articles for family use (CFR §560.524). General Licence no 12, ‘Exportation of Legal Services’ (issued 21 July 1995), deals with the provision of legal advice, representation of the Iranian government and counselling persons in Iran (CFR §560.525). IRANIAN TRANSACTIONS REGULATIONS On 11 September 1995, OFAC, after a delay of more than four months, issued ITRs implementing Executive Order 12957 of 15 March, prohibiting US involvement in the development of Iranian petroleum resources, and Executive Order 12959 of 6 May, substantially tightening sanctions against Iran.

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The new regulations amended previous ITRs 23 issued under President Reagan’s Executive Order 12613 of 29 October 1987. The ITRs offer clarifications and outlines of some aspects that were vague in the Executive Order. General Definitions The ITRs define ‘Iran’ and ‘Iranian’, under provision 560.303, as: the territory of Iran, and any other territory of marine area, including the exclusive economic zone and continental shelf, over which the Government of Iran claims sovereignty, sovereign rights or jurisdiction, provided that the Government of Iran exercises partial or total de facto control over the area or derives a benefit from economic activity in the area pursuant to an international agreement. The term Iranian means pertaining to Iran as defined in this section.

The ‘Government of Iran’ includes: (a) The State and the Government of Iran, as well as any political subdivision, agency, or instrumentality thereof; (b) Any entity owned or controlled directly or indirectly by the foregoing; (c) Any person to the extent that such person is, or has been, or to the extent that there is reasonable cause to believe that such person is, or has been, since the applicable effective date, acting or purporting to act directly or indirectly on behalf of any of the foregoing; and (d) Any person or entity designated by the Secretary of the Treasury as included within paragraphs (a) through (c) of this section.24

‘Iranian origin goods and services’ are defined under provision 560.306: (1) Goods grown, produced, manufactured, extracted, or processed in Iran; (2) Goods which have entered into Iranian commerce; and (3) Services performed in Iran or by the Government of Iran’.

The term ‘services of Iranian origin’ does not include: (1) Diplomatic and consular services performed by or on behalf of the Government of Iran; (2) Diplomatic and consular services performed by or on behalf of the Government of the United States; or (3) Services provided in the United States by an Iranian national resident in the United States.

A ‘United States person’, as in all foreign assets control regulations, is ‘any United States citizen, permanent resident alien, entity organized under 23 31 CFR Part 560. 24 §560.304.

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the laws of the United States (including foreign branches), or any person in the United States’.25 ‘Information or informational materials’ include, without limitation, ‘Publications, films, posters, photograph records, photographs, microfilms, microfiche, tapes, compact discs, CD Roms, artworks and news wire feeds’,26 provided they would not fall under Department of Commerce restrictions for foreign policy controls or national security controls. An ‘Entity owned or controlled by the government of Iran’ includes: ‘any corporation, partnership, association, or other entity in which the Government of Iran owns a majority or controlling interest, and any entity which is otherwise controlled by that Government’.27 ‘Entity’ is defined as any ‘partnership, association, trust, joint venture, corporation or other organization’.28 Provision 560.304 provided that the Secretary of the Treasury may designate any person or entity within the definition ‘Government of Iran’. The effect of being designated as an entity owned or controlled by the Iranian government is significant. Simply, the Secretary of the Treasury has the power to include any person or firm, even outside Iran as an extension of the Iranian government. A US person doing business with such a person or firm is equivalent to a US person doing business with the government of Iran, and subject to severe penalties. The Importation of Goods and Services from Iran Under provision 560.201, direct or indirect importation into the United States of ‘any goods or services of Iranian origin’ or the ‘financing of such importation’ is prohibited, with the exception of ‘Iranian publications and materials imported for news publications and news broadcast dissemination’. Under the ITRs, the following imports into the United States are also permitted: • Iranian origin goods from a foreign trade zone or bonded warehouse, provided these goods were imported into the bonded warehouse or the foreign trade zone before 29 October 1987;29 • goods as gifts with a value of less than US$100;30

25 26 27 28 29 30

§560.314. §560.315. §560.313. §560.305. §560.408. §560.506.

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• Iranian origin services by an Iranian entering for participation in a public conference, exhibition or similar event;31 • goods and services necessary to the initiation and conduct of legal proceedings;32 • accompanied baggage, normally incident to travel, by an Iranian person containing personal articles;33 • services performed in Iran for, or on behalf of, a United States person in connection with patent, trademark, copyright or other intellectual property protection;34 • household goods and personal effects for family use of persons arriving in the United States, provided they have been used by such persons and are not intended for any other person or for sale;35 • Iranian origin oil in connection with the resolution or settlement of cases before the Iran-United States Claims Tribunal in The Hague;36 • goods and services for official or personal use by a member of the Iranian government mission in the United States;37 • information or informational materials;38 • goods from third countries containing Iranian origin raw materials or components, provided the raw materials or components have been incorporated into manufactured products or substantially transformed in a third country by a person other than a United States person;39 • goods of Iranian origin in connection with agreement settling claims brought before the Iran-United States Claims Tribunal and awards, orders or decisions of a court in the United States or abroad;40 • diplomatic pouches from Iran.41 The Exportation of Goods and Services to Iran In general, under provision 560.204 the exportation ‘from the United States to Iran or the Government of Iran, or financing of such exportation, of any goods, technology, or services is prohibited’. Agricultural commodities

31 32 33 34 35 36 37 38 39 40 41

§560.505. §560.510. §560.507. §560.509. §550.524. §560.513. §560.512. §560.315. §560.407. §560.510. §560.521.

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– feed grains, rice, wheat etc – were allowed to be exported until 2 February 1996, provided that the sales contracts were signed before 7 May 1995.42 The ITRs allow the export of the following goods and services to Iran: • goods sent to persons in Iran as a gift with a value of less than US$100;43 donation of articles such as medicine, food and clothing intended to be used to relieve human suffering;44 • household goods and personal effects of a person departing the United States to relocate in Iran, provided the articles have been actually used by such persons or by family members accompanying them;45 • provision of certain legal advice, representation of the Iranian government or a person in Iran in the US courts;46 • diplomatic pouches from the United States to Iran and their contents;47 • services provided to Iran in a third country by a US individual ordinarily resident outside the United States, but not services provided by overseas branches of an entity located in the United States;48 • goods or technology or services in connection with awards and decisions of a court in the United States, or agreements settling claims brought before the Iran-United States Claims Tribunal, provided they are not subject to licensing application requirements of any other agency of the US government, in which case a licence is required.49 Re-export to Iran Section 560.414 prohibits US persons from ‘reexporting any items subject to prohibitions contained in 560.205, regardless of when the items were exported from the United States’ and reached US foreign-owned subsidiaries. Also, ‘United States persons are prohibited from approving or facilitating any reexport by an entity owned or controlled by a United States person of any item subject to prohibitions of 560.205’, again, ‘regardless of when the item was exported from the United States’. Section 560.205 outlines the prohibited re-export of goods and technology (not including those covered by the contract sanctity period prior to 7 May 1995). The ‘re-exportation to Iran or the Government of Iran of any goods 42 43 44 45 46 47 48 49

§560.520. §560.506. §560.210. §560.524. §560.525. §560.521. §560.410. §560.510.

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or technology exported from the United States, the exportation of which Iran was subject to export license application requirements under any United States regulations in effect immediately prior to May 6, 1995, is prohibited’. There is an exception clause which allows the re-export of controlled goods and technology if they have been substantially transformed outside the United States, or incorporated into another product abroad, and if they constitute ‘less than 10 percent by value of that product export from a third country’. Therefore, regulations relating to the re-export to Iran of items not subject to US export licence application requirements, and which were exported from the United States before 7 May 1995, do not apply to a person who is not a US person.50 Banking Services Under the ITRs, US banks, including foreign branches, are prohibited from carrying out any transactions with Iranian banks inside or outside Iran. The term ‘exportation of services’ also covers financial services; thus, ‘transfer instructions directing the movement of funds or the performance of the banking services that would directly or indirectly benefit persons in Iran or the Government of Iran are requests for the exportation of services’,51 and must be rejected by US banking institutions. US banks and their foreign branches may not finance, or arrange offshore financing for, third country trade transactions where Iran is the ultimate beneficiary of the trade. In addition, US banks are not allowed to renew or reschedule existing Iranian credits or loans in any currency.52 However, US banking institutions are authorized to perform limited transactions under the ITRs, for example payment under letters of credit for trade contracts in force prior to 6 May 1995, provided that the shipments were made before 6 June that year.53 US banks are authorized to process transfers related to exempted transactions covered by provision 560.210, such as the exportation of information or informational material, a travel-related remittance, or a payment for the shipment of a donation of articles to relieve human suffering.54 US banks may handle non-commercial family remittances

50 §560.414. 51 ‘Payment and US Dollar Clearing Transactions Involving Iran’, OFAC General Licence no 2, issued 1 June 1995. 52 §560.412. 53 §560.210(e). 54 §560.517.

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involving Iran, provided that the transfers are routed to or from non-US, non-Iranian offshore banks.55 US banks are also authorized, at the request of an Iranian account-holder, to effect a lump-sum closure of the account by transfer or payment to its owner only.56 For services rendered to Iran, US banks are permitted to be compensated.57 US banks are also authorized to process US dollar clearing, or handle ‘Uturn’ transactions to cover transfers of funds to or from Iran, or for the direct benefit of persons in Iran or the government of Iran, if the transfers are by order of a third country bank for payment to another third country bank, provided that they do not credit or debit an Iranian account.58 The operation of accounts by US banks for foreign government missions and their personnel in Iran and the Iranian government missions in the United States is authorized.59 Other Prohibited Transactions [The] approval or facilitation by a United States person of the entry into or performance by an entity owned or controlled by a United States person of a transaction or contract prohibited as to United States persons by §560.205, §560.206 and §560.207, or relating to the financing of activities prohibited as to United States persons by those sections, or of a guaranty of another person’s performance of such transaction or contract, is prohibited.60

Although the ITRs do not apply to US subsidiaries outside the United States, involvement of the parent company in any transaction is prohibited. Overseas branches of US companies are considered to be a US person, and any transaction, including services performed anywhere in the world ‘on behalf of a person in Iran or the Government of Iran or where the benefit of such services is otherwise received in Iran’ is prohibited.61 The only services that are permitted are those provided ‘in the United States or by a United States person to a non-Iranian carrier transporting passengers or goods to or from Iran’ and ‘services provided in a third country by a United States person ordinarily resident outside the United States’.62 Under provision 560.207, the ITRs prohibit US persons from any ‘new investment’ in Iran or in any property owned or controlled by the 55 56 57 58 59 60 61 62

§560.516. §560.517(a)(3). §560.517. §560.516. §560.517. §560.208. §560.410. Ibid.

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government of Iran. The term ‘new investment’, in addition to ‘a commitment or contribution of funds or other assets’, includes loans and extensions of credit facilities.63 The term ‘credits or loans’ is defined to mean any transfer or extension of funds or credit on the basis of an obligation to repay, or any assumption or guarantee of the obligation of another to repay an extension of funds or credit, including but not limited to: overdrafts; currency swaps; purchases of a loan made by another person; sales of financial assets subject to an agreement to repurchase; renewals or re-financings whereby funds or credits are transferred to or extended to a prohibited recipient; the issuance of standby letters of credit; and drawdowns on existing lines of credit.

As part of the implementation of Executive Order 12957, any transactions with respect to the development of Iranian petroleum resources are prohibited: (a) The entry into or performance by a United States person, or the approval by a United States person of the entry into or performance by an entity owned or controlled by a United States person, of: (1) A contract that includes overall supervision and management responsibility for the development of petroleum resources located in Iran, or (2) A guaranty of another person’s performance under such contract, or (b) The entry into or performance by a United States person, or the approval by a United States person of the entry into or performance by an entity owned or controlled by a United States persons of: (1) A contract for the financing of the development of petroleum resources located in Iran, or (2) A guaranty of another person’s performance under such a contract.64

Transhipments or transit of goods or services of Iranian origin or owned or controlled by the government of Iran is prohibited.65 Offshore transactions in Iranian goods and services are also restricted. Provision 560.411 prohibits: Transactions by United States persons in locations outside the United States with respect to goods or services which the United States person knows, or has reason to know, are of Iranian origin or owned or controlled by the Government of Iran, including: (a) importing into or exporting from such locations; and (b) purchasing, selling, financing, swapping, insuring, transporting, lifting, storing, incorporating, or transforming, or brokering any of the foregoing. 63 §560.316. 64 §560.209. 65 §560.406.

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The Executive Order and OFAC regulations do not impose additional prohibitions directly on US foreign subsidiaries’ activities involving Iran. However, US companies are prohibited from approving or facilitating owned or controlled foreign subsidiaries’ transactions with Iran. Thus, the activities of a foreign subsidiary may cause a US company to violate this prohibition and it is this prohibition, that gives the US government the tool with which to indirectly limit foreign subsidiaries’ dealings with Iran. (For the complete regulation, see Document 6.) A CUSTOMIZED EXECUTIVE ORDER Two years later, on 19 August, President Clinton issued Executive Order 13059, supposedly ‘to clarify the steps taken in Executive Order 12957 of March 15, 1995 and 12959 of May 6, 1995 to deal with the unusual and extraordinary threat to the national security, foreign policy and economy of the United Stated declared in Executive Order 12957 in response to the actions and policies of the Government of Iran’. What the public did not know was that this Executive Order was customized for a legal case initiated by General Motors against the United States, challenging ITR provisions. On 1 June 1991, the Diesel Division of General Motors of Canada Ltd (DDGM) signed a contract to supply Iranian Railways with locomotives. The contract was amended twice, and finally, on 15 October 1996, it was agreed that DDGM would supply 39 locomotives, Model SDL70MAC, 4000HP, for a total cost of US$90 million. The locomotives were to be built in Canada by DDGM, incorporating a long hood, diesel engine, alternator and the high-voltage cabinet manufactured by the Electro-Motive Division (EMD) of General Motors in the United States. Even though the company believed that the transactions between EMD and DDGM and Iranian Railways were permitted by law, General Motors wrote a letter ‘out of an abundance of caution and prudence’ to OFAC on 23 June 1995 to obtain prior approval. Twenty months later, on 21 February 1997, OFAC denied approval of the transactions. OFAC, while acknowledging that nego-tiations for the proposed transaction long preceded the issuance of the Order and the regulations, ruled: ‘nevertheless, the completion of the proposed export transactions would contravene the Order and the implementing regulations’.66 66 Letter of 21 February 1997 from R. Richard Newcomb, Director of OFAC, to Michael P. Milliken, Attorney, General Motors Corporation.

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General Motors, not accepting OFAC’s position, filed an action with a US court on 10 July 1997 for declaratory relief, requesting the court to resolve the disagreement.67 The disagreement between OFAC and General Motors arose out of an interpretation of part of the Executive Order and two corresponding provisions of ITRs. General Motors took the position that the Executive Order prohibited: (b) … the exportation from the United States to Iran… of any goods, technology… or services, (c) the re-exportation to Iran… of any goods or technology… exported from the United States, the exportation of which to Iran is subject to export license application requirements under any United States regulations in effect immediately prior to the issuance of this order, unless, for goods, they have been (i) substantially transformed outside the United States, or (ii) incorporated into another product outside the United States and constitute less than 10 percent by value of that product exported from a third country.68

The OFAC regulations which mirror the above section of the Executive Order are 31 CFR 560.204 and 31 CFR 560.205. Section 560.204 of the ITRs states that ‘the exportation from the United States to Iran or the Government of Iran, or the financing of such exportation, of any goods and technology or services, is prohibited’. General Motors took the position that this provision was for direct export to Iran from the United States, and did not apply to its own transaction, since the export would be to a Canadian corporation in Canada. Also under dispute was provision 31 CFR 560.205, which outlines the prohibited re-export of goods and technology: ‘the reexportation to Iran or the Government of Iran of any goods or technology exported from the United States, the exportation of which to Iran was subject to export license application requirements under any United States regulations in effect immediately prior to May 6, 1995, is prohibited’. There was an exception clause which allowed the re-export of controlled goods and technology if ‘they have been substantially transformed outside the United States and constitute less than 10 percent by value of that product exported from a third country’. General Motors remained convinced that the re-exportation clause of the Executive Order and of the ITRs governed its transactions, and maintained in court that: 67 General Motors Corporation v United States of America, Civil Action no 97-CV-71316DT, United States District Court, Eastern District of Michigan. 68 Executive Order 12959, 6 May 1995.

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(A) Prior to the issuance of the Executive Order it was not necessary to obtain a license for the export of the locomotive goods and technology to Iran. (B) The locomotive components supplied by EMD to Canadian Diesel are substantially transformed in Canada into a new article of commerce – a locomotive.

OFAC took the stance in court of expanding the meaning of ‘export’ in the Executive Order and its own provision by claiming that export from the United States to Iran means export from the United States to anywhere as long as the exporter knows that Iran is the ultimate destination. In practice, it means that all exporters to Iran, no matter where they were and of what nationality, are considered to be US persons if they use US-origin technology and components in their products. OFAC’s argument did not persuade the court, so Clinton was persuaded to issue a new Executive Order especially designed to respond to the difficulties that OFAC had encountered in applying the previous one in the General Motors case. On 19 August 1997, President Clinton signed Executive Order 13059, which restated in broader terms the US economic sanctions against Iran. In his letter to Congress explaining the new Order, he stated that he ‘found it necessary to take additional measures to confirm that the embargo on Iran prohibits all trade and investment activities by United States persons, wherever located, and to consolidate in one order the various prohibitions previously imposed’. The President also stated in his letter that ‘By confirming that United States persons are prohibited from engaging in any trade- or investment-related activities with Iran, I want to make clear that this means all direct or indirect involvement in such activities wherever those activities occur’. The new Order set forth in more expansive terms the prohibitions on trade relations with Iran. Section 2 stated explicitly that US persons, wherever located, were prohibited from exportation, re-exportation, sale, or supply, directly or indirectly, from the United States… of any goods, technology, or services to Iran or the Government of Iran… (and) to a person in a third country undertaken with knowledge or reason that such goods, technology, or services are intended specifically for supply, transshipment, or re-exportation, directly or indirectly to Iran or the Government of Iran.

Further, the new Order expressly prohibits a US person from supplying parts, components or technology to a third country if they are ‘intended specifically for use in the production of, for commingling with, or for

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incorporating into goods, technology, or services to be directly or indirectly supplied, transshipped or re-exported exclusively or predominantly to Iran or the Government of Iran’. It also removed the previous exception for services provided outside the United States by US persons ordinarily resident abroad.69 The Order also, for the first time, addressed expressly the re-exportation of goods and technology from a third country to Iran by individuals and entities that were not US persons. Section 2(b) forbids: the re-exportation from a third country, directly or indirectly, by a person other than a United States person of any goods, technology, or services that have been exported from the United States, if: (i) undertaken with knowledge or reasons to know that the re-exportation is intended specifically for Iran or the Government of Iran, and (ii) the exportation of such goods, technology, or services to Iran from the United States was subject to export license application requirements under any United States regulations in effect on May 6, 1995, or thereafter is made subject to such requirements imposed independently of the actions taken pursuant to the national emergency declared in Executive Order 12957.

This section of the Order prohibits the re-exportation from foreign inventories of US-origin products that originally required a US export licence for export to Iran, eg mainframe computers, helicopter parts etc. However, this prohibition on re-exportation by non-US persons would not apply if such goods and technology had been: (A) substantially transformed into a foreign-made product outside the United States, or (B) incorporated into a foreign-made product outside the United States if the aggregate value of such controlled United States goods and technology constitutes less than 10 percent of the total value of the foreign-made product to be exported from a third country.70

The new Order restates the prior prohibition on transactions on dealings by US persons in Iranian goods and services, and then extends the ban to include ‘goods, technology, or services for exportation, re-exportation, sale, or supply, directly or indirectly, to Iran or the Government of Iran’.71 In Executive Order 12959, of 6 May 1995, the prescribed involvement by a US person was specified to include ‘purchase, sale, transportation, 69 31 CFR §560.410. 70 Sec. 2(b)(iii)(A) and (B). 71 Sec. 2(d)(ii).

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swap, financing, brokering transaction’, but the new Order also prohibits ‘any approval… facilitation, or guarantee by a United States person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited by this Order if performed by a United States person or within the United States’.72 As a result, the new Executive Order clearly prohibits a US person from performing any role in a foreign entity’s transactions with Iran or the government of Iran. (For the full text of the Executive Order, see Document 7.) Twenty months later, on 31 March 1999, in implementing the new Executive Order, OFAC amended the ITRs, effectively adding new and additional sanctions against Iran.73 (For the full text of the amended regulation, see Document 8.) THE UNITED STATES EASES SANCTIONS During 1998 and 1999, there were two limited policy shifts in US sanction programmes against Iran. Counternarcotics In February 1987, Iran was first designated as a state that failed to co-operate with US anti-drug efforts and listed among the countries that did not take adequate steps to control narcotics production and trafficking. The United Nations Drug Control Programme (UNDCP) assessment of Iran’s anti-drug efforts eventually convinced the United States that Iran should not be named in the list of those narcotics-producing and narcotics-transit countries. On 7 December 1998, President Clinton removed Iran from the list and lifted the sanctions imposed under the Foreign Assistance Act of 1961. For Iran, this lifting of sanctions does not have any significance as the same prohibitions still exist under other sanctions imposed on the country. US Food and Medicine Under Executive Order 12959, of 6 May 1995, agricultural commodities, feed grains, rice, wheat etc, were allowed to be exported to Iran until 2 February 1996, provided that the sales contracts were signed before 7 May 1995.74 Under mounting pressure from the US agricultural and business 72 Sec. 2(e). 73 64 Fed. Reg. 20168, 26 April 1999. 74 31 CFR 560.520.

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communities, on 28 April 1999 President Clinton announced a policy shift and lifted the restrictions on US sales of food, medicine and medical equipment to Iran. It was also announced that such commodities and equipment would be exempted from any future unilateral sanctions. ‘Our farmers are hurting, and they deserve every opportunity to reach out to as many potential consumers as possible around the world… food and medicine, as a general rule, should not be used as a tool of foreign policy, except in extraordinary cases,’ Agricultural Secretary Dan Glickman said at a press conference. Stuart E. Eizenstat, Under Secretary of State for Economic, Business and Agricultural Affairs, in making the policy change announcement, advanced the Clinton administration’s dubious argument that ‘US food and medicine sales to Iran would benefit the Iranian people and divert at least some Iranian financial resources that otherwise might be spent on weaponry’.75 The new policy does not allow automatic sales of such products, but permits ‘case-by-case review of specific proposals for the commercial sale of agricultural commodities and products, as well as medicine and medical equipment, where the United States Government has the discretion to do so’.76 To implement the new decisions, on 26 July OFAC amended the ITRs,77 effective immediately, to allow: the sale of agricultural commodities and products, if those commodities and products are intended for ultimate consumption in Iran as: (I) Food by humans (including live animals, raw, processed and packaged foods) or animals (including animal feeds); (II) Seeds for food crops; and (III) Reproductive materials (such as live animals, fertilized eggs, embryos and semen) for the production of food animals.78

Under the same provision, the restriction on sale of medicines and medical equipment was also lifted, provided they are not listed as restricted exports on the commerce control list of Export Administration Regulations.79 For commercial sales of bulk agricultural commodities, OFAC added appendix B to the ITRs and issued provision 560.531, to permit on a caseby-case basis the sale, export and re-export of commodities listed in the appendix. 75 76 77 78 79

Boycott Law Bulletin, vol. XXIII no IX, p. 2. 64 Fed. Reg. 41784, 2 August 1999. 64 Fed. Reg. 41791 2 August 1999). 31 CFR 560.530(a)(1). 31 CFR 560.530(a)(2).

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The new regulations only allow transactions with approved Iranian buyers who are private individuals, non-governmental entities, and governmental bodies ‘identified by the Office of Foreign Assets Control as not being affiliated with the coercive organs of the state’. Furthermore, it restricted payment and financing to cash in advance, sales on open account, with certain limitations, and financing by third country banks that are neither United States persons nor government of Iran entities. US government funds or financing in support of the sales is prohibited, but US banks are allowed to advise, confirm and negotiate the letters of credit issued by the third country banks. (For the complete regulations, see Document 9.) OFAC, on 27 October 1999, amended ITR provisions relating to the financing of agricultural and medical sales.80 The amendment also identified the Government Trading Corporation (GTC) and the State Livestock and Logistic Company as being eligible procurement bodies of the government of Iran, and not as being affiliated with the coercive organs of the state. (For the amended regulations, see Document 10.)

80 64 Fed. Reg. 58791, 1 November 1999.

DOCUMENT 6 The Iranian Transactions Regulations

Office of Foreign Assets Control, 31 CFR PART 560 Subpart A – Relation of this Part to Other Laws and Regulations 560.101 Relation of this part to other laws and regulations Subpart B – Prohibitions 560.201 560.202 560.203 560.204 560.205 560.206 560.207 560.208 560.209

Prohibited importation of goods and services from Iran. [Reserved] Evasions; attempts. Prohibited exportation of goods, technology, and services to Iran. Prohibited reexportation of goods and technology to Iran. Prohibited transactions related to Iranian-origin goods or services. Prohibited investment. Prohibited approval or facilitation. Prohibited transactions with respect to the development of Iranian petroleum resources. 560.210 Exempt transactions.

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Subpart C – General Definitions 560.301 560.302 560.303 560.304 560.305 560.306 560.307 560.308 560.309 560.310 560.311 560.312 560.313 560.314 560.315 560.316 560.317 560.318 560.319 560.320

Effective date. [Reserved] Iran; Iranian. Government of Iran. Person; entity. Iranian-origin goods and services. United States. Importation. [Reserved] License. General license. Specific license. Entity owned or controlled by the Government of Iran. United States person. Information or informational materials. New investment. Credits or loans. Technology. United States depository institution. Iranian accounts. Subpart D – Interpretations

560.401 560.402 560.403– 560.405 560.406 560.407 560.408 560.409 560.410 560.411 560.412 560.413 560.414

Reference to amended sections. Effect of amendment. [Reserved] Transhipments prohibited. Transactions related to Iranian-origin goods. Importation into and release from a bonded warehouse or foreign trade zone. [Reserved] Exportation of services. Offshore transactions in Iranian-origin goods and services. Extensions of credits or loans to Iran. Letter of credit payments by Iranian banks in the United States. Exports to third countries: reexports.

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Subpart E – Licenses, Authorizations and Statements of Licensing Policy 560.501 560.502 560.503– 560.504 560.505 560.506 560.507 560.508 560.509 560.510

560.511 560.512 560.513 560.514 560.515 560.516 560.517 560.518 560.519 560.520 560.521 560.522 560.523 560.524 560.525 560.526 560.527 560.528

Effect of license or authorization. Exclusion from licenses and authorizations. [Reserved] Certain services relating to participation in various events authorized. Importation and exportation of certain gifts authorized. Accompanied baggage authorized. Telecommunications and mail transactions authorized. Certain transactions related to patents, trademarks and copyrights authorized. Transactions related to the resolution of disputes between the United States or United States nationals and the Government of Iran. [Reserved] Iranian Government missions in the United States. Importation of Iranian-origin oil. [Reserved] 30-day delayed effective date for pre-May 7, 1995 trade contracts involving Iran. Payment and United States dollar clearing transactions involving Iran. Exportation of services: Iranian accounts at United States depository institutions. Transactions in Iranian-origin and Iranian Government property. Policy governing news organization offices. Exportation of agricultural commodities. Diplomatic pouches. Allowable payments for overflights of Iranian airspace. Importation of information and informational materials. Household goods and personal effects. Exportation of certain legal services. Commodities trading and related transactions. Rescheduling existing loans. Aircraft safety.

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Subpart F – Reports 560.601 Records and reports. 560.602 [Reserved] 560.603 Reports on oil transactions engaged in by foreign affiliates. Subpart G – Penalties 560.701 560.702 560.703 560.704 560.705 560.706

Penalties. Detention of shipments. Prepenalty notice. Presentation responding to prepenalty notice. Penalty notice. Referral for administrative collection measures or to United States Department of Justice. Subpart H – Procedures

560.801 Procedures. 560.802 Delegation by the Secretary of the Treasury. 560.803 Customs procedures: Goods specified in §560.201. Subpart I – Paperwork Reduction Act 560.901 Paperwork Reduction Act notice. AUTHORITY: 3 U.S.C. 301; 18 U.S.C 2332d; 22 U.S.C. 2349aa-9; 31 U.S.C.

321(b); 50 U.S.C. 1601-1651, 1701-1706; Pub. L. 101-410, 104 Stat. 890 (28 U.S.C. 2461 note); E.O 12613, 52 FR 41940, 3 CFR, 1987 Comp., p. 256; E.O. 12957, 60 FR 14615, 3 CFR, 1995 Comp. P.332; E.O 12959, 60 FR 24757, 3 CFR, 1995 Comp., p. 356. SOURCE: 60 FR 47063, Sept.11, 1995, unless otherwise noted.

Subpart A – Relation of this Part to Other Laws and Regulations §560.101 Relation of this part to other laws and regulations (a) This part is separate from, and independent of, the other parts of this chapter including part 535 of this chapter, ‘Iranian Assets Control Regulations,’ with the exception of part 501 of this chapter, the recordkeeping and reporting requirements and license application and other procedures of which apply to this part. No license or authorization contained in or issued pursuant to those other parts authorizes any

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transaction prohibited by this part. No license or authorization contained in or issued pursuant to any other provision of law or regulations authorizes any transaction prohibited by this part. (b) No license or authorization contained in or issued pursuant to this part relieves the involved parties from complying with any other applicable laws and regulations. [60 FR 47063, 11 September 1995, as amended at 62 FR 45109, 25 August 1997]

Subpart B – Prohibitions §560.201 Prohibited importation of goods and services from Iran Except as otherwise authorized, and notwithstanding any contract entered into or any license or permit granted prior to May 7, 1995, the importation into the United States, or the financing of such importation, of any goods or services of Iranian origin, other than Iranian-origin publications and materials imported for news publications or news broadcast dissemination, is prohibited. §560.202 [Reserved] §560.203 Evasions; attempts Any transaction by any United States person or within the United States that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions contained in this part is hereby prohibited. §560.204 Prohibited exportation of goods, technology, and services to Iran Except as otherwise authorized, and notwithstanding any contract entered into or any license or permit granted prior to May 7, 1995, the exportation from the United States to Iran or the Government of Iran, or the financing of such exportation, of any goods, technology, or services is prohibited. §560.205 Prohibited reexportation of goods and technology to Iran Except as otherwise authorized, and notwithstanding any contract entered into or any license or permit granted prior to May 7, 1995, the reexportation to Iran or the Government of Iran of any goods or technology exported from the United States, the exportation of which to Iran was subject to export license application requirements under any United States

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regulations in effect immediately prior to May 6, 1995, is prohibited, unless the reexportation is of goods that have been substantially transformed outside the United States, or incorporated into another product outside the United States and constitute less than 10 percent by value of that product exported from a third country. §560.206 Prohibited transactions related to Iranian-origin goods or services Except as otherwise authorized, and notwithstanding any contract entered into or any license or permit granted prior to May 7, 1995, any transaction, including purchase, sale, transportation, swap, financing, or brokering transactions, by a United States person relating to goods or services of Iranian origin or owned or controlled by the Government of Iran is prohibited. §560.207 Prohibited investment Except as otherwise authorized, and notwithstanding any contract entered into or any license or permit granted prior to May 7, 1995, any new investment by a United States person in Iran or in property (including entities) owned or controlled by the Government of Iran is prohibited. §560.208 Prohibited approval or facilitation Except as otherwise authorized, and notwithstanding any contract entered into or any license or permit granted prior to May 7, 1995, the approval of facilitation by a United States person of the entry into or performance by an entity owned or controlled by a United States person of a transaction or contract prohibited as to United States persons by §§560.205, 560.206, and 560.207, or relating to the financing of activities prohibited as to United States persons by those sections, of a guaranty of another person’s performance of such transaction or contract, is prohibited. §560.209 Prohibited transactions with respect to the development of Iranian petroleum resources Except as otherwise authorized, and notwithstanding any contract entered into or any license or permit granted prior to March 16, 1995, the following are prohibited: (a) The entry into or performance by a United States person, or the approval by a United States person of the entry into or performance by an entity owned or controlled by a United States person, of: (1) A contract that includes overall supervision and management responsibility for the development of petroleum resources located in Iran, or

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(2) A guaranty of another person’s performance under such contract; or (b) The entry into or performance by a United States person, or the approval by a United States person, of the entry or performance by an entity owned or controlled by a United States person, of (1) A contract for the financing of the development of petroleum resources located in Iran, or (2) A guaranty of another person’s performance under such a contract. §560.210 Exempt transactions (a) Personal communications. The prohibitions of §§560.204 and 560.206 do not apply to any postal, telegraphic, telephonic, or other personal communication, which does not involve the transfer of anything of value. (b) Humanitarian donations. The prohibitions of §§560.204 and 560.206 do not apply to donations by United States persons of articles, such as food, clothing, and medicine, intended to be used to relieve human suffering. (c) Information and informational materials. (1) The prohibitions of §§560.204 and 560.206 do not apply to the exportation from the United States to Iran of information and informational materials, as defined in §560.315, whether commercial or otherwise, regardless of format or medium of transmission, or any transaction of common carriers incident to such exportation. (2) Paragraph (c)(1) of this section does not authorize transactions related to information and informational materials not fully created and in existence at the date of the transaction, or to the substantive or artistic alteration or enhancement of information or informational materials, or the provision of marketing and business consulting services by a United States person. Such prohibited transactions include, without limitation, payment of advances for information or informational materials not yet created and completed, and provision of services to market, produce or co-produce, create or assist in the creation of information or informational materials. (3) Paragraph (c)(1) does not authorize transactions incident to the exportation of restricted technical data as defined in part 779 of the Export Administration Regulations, 15 CFR part 779, or to the exportation of goods for use in the transmission of any data. The exportation of such goods to Iran is prohibited, as provided in §560.204.

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(d) Travel. The prohibitions contained in this part do not apply to transactions ordinarily incident to travel to or from any country, including importation of accompanied baggage for personal use, maintenance within any country including payment of living expenses and acquisition of goods or services for personal use, and arrangement or facilitation of such travel including nonscheduled air, sea, or land voyages. This exemption extends to transactions with Iranian carriers and those involving group tours and payments in Iran made with cash or traveller’s checks for transactions incident to personal travel. The use of currency drafts, charge, debit, or credit cards is not permitted. (e) Letters of Credit. Letters of credit and other financing agreements with respect to trade contracts in force as of May 6, 1995, may be performed pursuant to their terms with respect to underlying trade transactions occurring prior to 12:01 a.m. EDT, June 6, 1995. See §560.413. Subpart C – General Definitions §560.301 Effective date The term effective date means: (a) 12:01p.m., Eastern Standard Time, October 29, 1987, for all prohibitions set forth in §560.201. (b) 12:01a.m., Eastern Daylight Time, June 6, 1995, for all prohibitions set forth in §§560.204, 560.205, and 560.206 with respect to trade transactions based on contracts in force as of May 6, 1995, and which were authorized pursuant to federal regulations in force immediately prior to May 6, 1995. (c) 12:01a.m., Eastern Standard Time, March 16, 1995, for all prohibitions set forth in §560.209 and the prohibitions set forth in §560.203 as they apply to the prohibitions set forth in §560.209. (d) 12:01a.m., Eastern Daylight Time, May 7, 1997, for all other prohibitions contained in this part. §560.302 [Reserved] §560.303 Iran; Iranian The term Iran means the territory of Iran, and any other territory or marine area, including the exclusive economic zone and continental shelf, over which the Government of Iran claims sovereignty, sovereign rights or

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jurisdiction, provided that the Government of Iran exercises partial or total de facto control over the area or derives a benefit from economic activity in the area pursuant to an international agreement. The term Iranian means pertaining to Iran as defined in this section. §560.304 Government of Iran The term Government of Iran includes: (a) The state and the Government of Iran as well as any political subdivision, agency, or instrumentality thereof; (b) Any entity owned or controlled directly or indirectly by the foregoing; (c) Any person to the extent that such person is, or has been, or to the extent that there is reasonable cause to believe that such person is, or has been, since the applicable effective date acting or purporting to act directly or indirectly on behalf of any of the foregoing; and (d) Any person or entity designated by the Secretary of the Treasury as included within paragraphs (a) through (c) of this section. §560.305 Person; entity (a) The term person means an individual or entity. (b) The term entity means a partnership, association, trust, joint venture, corporation or other organization. §560.306 Iranian-origin goods and services (a) The term goods or services of Iranian origin includes: (1) Goods grown, produced, manufactured, extracted, or processed in Iran; (2) Goods which have entered into Iranian commerce; and (3) Services performed in Iran or by the Government of Iran, as defined in §560.304. (b) The term services of Iranian origin does not include: (1) Diplomatic and consular services performed by or on behalf of the Government of Iran; (2) Diplomatic and consular services performed by or on behalf of the Government of the United States; or (3) Services provided in the United States by an Iranian national resident in the United States.

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§560.307 United States The term United States means the United States, including its territories and possessions. §560.308 Importation The term importation means the bringing of any goods into the United States, except that in the case of goods transported by vessel, ‘importation’ means the bringing of any goods into the United States with the intent to unlade them. §560.309 [Reserved] §560.310 License Except as otherwise specified, the term license means any license or authorization contained in or issued pursuant to this part. §560.311 General License The term general license means any license or authorization the terms of which are set forth in this part. §560.312 Specific License The term specific license means any license or authorization not set forth in this part but issued pursuant to this part. §560.313 Entity owned or controlled by the Government of Iran The term entity owned or controlled by the Government of Iran includes any corporation, partnership, association, or other entity in which the Government of Iran owns a majority or controlling interest, and any entity which is otherwise controlled by that government. §560.314 United States person The term United States person means any United States citizen, permanent resident alien, entity organized under the laws of the United States (including foreign branches), or any person in the United States. §560.315 Information and Informational materials. (a) The term information or informational materials includes, without limitation:

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(1) Publications, films, posters, phonograph records, photographs, microfilms, microfiche, tapes, compact disks, CD ROMs, artworks, and news wire feeds. (2) To be considered information or informational materials, artworks must be classified under chapter subheading 9701, 9702, or 9703 of the Harmonized Tariff Schedule of the United States. (b) The term information and informational materials with respect to United States exports does not include items: (1) That were, as of April 30, 1994, controlled for export pursuant to section 5 of the Export Administration Act of 1979, 50 U.S.C. App. 2401-2420 (the ‘EAA’), or section 6 of the EAA to the extent that such controls promote the nonproliferation or antiterrorism policies of the United States, including ‘software’ that is not ‘publicly available’ as these terms are defined in 15 CFR parts 779 and 779.1; or (2) With respect to which acts are prohibited by 18 U.S.C. chapter 37. §560.316 New investment The term new investment means a transaction after 12:01 EDT, May 7, 1995, that constitutes: (a) A commitment or contribution of funds or other assets; or (b) A loan or other extension of credit, as defined in 560.317. §560.317 Credits or loans The term credits or loans means any transfer or extension of funds or credit on the basis of an obligation to repay, or any assumption or guarantee of the obligation of another to repay an extension of funds or credit, including but not limited to: overdrafts; currency swaps; purchases of debt securities issued by the Government of Iran; purchases of a loan made by another person; sales of financial assets subject to an agreement to repurchase; renewals or refinancings whereby funds or credits are transferred to or extended to a prohibited borrower or prohibited recipient; the issuance of standby letters of credit; and drawdowns on existing lines of credit. §560.318 Technology For purposes of §§560.204 and 560.205, the term technology includes technical data or other information subject to the Export Administration Regulations, 15 CFR parts 768–799.

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§560.319 United States depository institution The term United States depository institution means: (a) Any entity organized under the laws of any jurisdiction within the United States (including its foreign branches), and (b) Any agency, office, or branch located in the United States of a foreign entity; that is engaged primarily in the business of banking, including accepting deposits and making, granting, transferring, holding, or brokering loans and credits, or purchasing or selling foreign exchange, or procuring purchasers and sellers thereof, as principal or agent. The term includes, among others, banks, savings banks, savings associations, mortgage companies, credit unions, and trust companies and United States holding companies. §560.320 Iranian accounts The term Iranian accounts means accounts of persons located in Iran or of the Government of Iran maintained on the books of a United States depository institution. Subpart D – Interpretations §560.401 Reference to amended sections. Except as otherwise specified, reference to any section of this part or to any regulation, ruling, order, instruction, direction, or license issued pursuant to this part refers to the same as currently amended. §560.402 Effect of amendment Any amendment, modification, or revocation of any section of this part or of any order, regulation, ruling, instruction, or license issued by or under the direction of the Director of the Office of Foreign Assets Control does not, unless otherwise specifically provided, affect any act done or omitted to be done or any civil or criminal suit or proceeding commenced or pending prior to such amendment, modification, or revocation. All penalties, forfeitures, and liabilities under any such order, regulation, ruling, instruction, or license continue and may be enforced as if such amendment, modifi-cation, or revocation had not been made. §§560.403–560.405 [Reserved]

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§560.406 Transhipments prohibited (a) The prohibitions in §560.201 apply to the importation into the United States, for transhipment or transit, of Iranian-origin goods which are intended or destined for third countries. (b) The prohibitions in §560.204 apply to the exportation from the United States, for transhipment or transit, of goods which are intended or destined for Iran. (c) The prohibitions in §560.205 apply to the reexportation of goods described in that section, for transhipment or transit, which are intended or destined for Iran. (d) The prohibitions in §560.206 apply to any transaction relating to the transhipment of goods of Iranian origin or owned or controlled by the Government of Iran through any country. §560.407 Transactions related to Iranian-origin goods (a) Importation into the United States from third countries of goods containing Iranian-origin raw materials or components is not prohibited if those raw materials or components have been incorporated into manufactured products or substantially transformed in a third country by a person other than a United States person. (b) Transactions relating to Iranian-origin goods that have not been incorporated into manufactured products or substantially transformed in a third country are prohibited. (c) Transactions relating to goods containing Iranian-origin raw materials or components are not prohibited if those raw materials or components have been incorporated into manufactured products or substantially transformed in a third country by a person other than a United States person. §560.408 Importation into and release from a bonded warehouse or a foreign trade zone The prohibitions in §560.201 apply to importation into a bonded warehouse or a foreign trade zone of the United States. However, §560.201 does not prohibit the release from a bonded warehouse or a foreign trade zone of Iranian-origin goods imported into a bonded warehouse or a foreign trade zone prior to October 29, 1987. §560.409 [Reserved]

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§560.410 Exportation of services (a) The prohibition on the exportation of services from the United States contained in §560.204 applies only to services performed on behalf of a person in Iran or the Government of Iran or where the benefit of such service is otherwise received in Iran, if such services are performed: (1) In the United States, or (2) Outside the United States by an individual United States person ordinarily resident in the United States, or (3) Outside the United States by an overseas branch of an entity located in the United States. (b) The benefit of services performed anywhere in the world on behalf of the Government of Iran is presumed to be received in Iran. (c) Services provided in the United States or by a United States person to a non-Iranian carrier transporting passengers or goods to or from Iran are not considered to be exported to Iran. (d) Services provided in a third country by a United States person ordinarily resident outside the United States are not considered to be exported from the United States. §560.411 Offshore transactions in Iranian-origin goods and services The prohibitions contained in §560.206 apply to among other things, transactions by United States persons in locations outside the United States with respect to goods or services which the United States person knows, or has reason to know, are of Iranian origin or owned or controlled by the Government of Iran including: (a) Importing into or exporting from such locations; and (b) Purchasing, selling, financing, swapping, insuring, transporting, lifting, storing, incorporating, or transforming, or brokering any of the foregoing. §560.412 Extensions of credits or loans to Iran (a) The prohibitions contained in §560.207 apply, among other things, to the unauthorized renewal or rescheduling of credits or loans in existence as of May 6, 1995. (b) The prohibitions contained in §560.209 apply, among other things to the unauthorized renewal or rescheduling of credits or loans in existence as of March 15, 1995. (c) The prohibitions contained in §§560.207 and 560.209 apply, among other things, to credits or loans in any currency.

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§560.413 Letter of credit payments by Iranian banks in the United States (a) For purposes of the exemption in §560.210 (e), payment of letters of credit and other financing agreements according to their terms includes, in the case of payments made by an Iranian bank’s branch or agency located in the United States, payments that such branch or agency is: (1) Legally obligated to make pursuant to the terms of letters of credit and other financing agreements relating to pre-May 7, 1995 trade contracts; or (2) Licensed to make by the Office of Foreign Assets Control with respect to pre-May 7, 1995 trade contracts. (b) Payments that are not binding legal obligations of an Iranian bank’s branch or agency pursuant to the terms of the letter of credit or other financing agreement are not covered by this exemption. §560.414 Exports to the third countries; reexports (a) The prohibitions contained in §560.205 do not apply to the reexportation to Iran by a person who is not a United States person of any item described in that section which was exported from the United States prior to 12:01 a.m. EDT, May 7, 1995, and was not the property of a United States person as of 12:01 a.m. EDT, May 7, 1995, if the reexportation to Iran of such item was not subject to export license application requirements under the United States regulations in effect immediately prior to May 6, 1995. (b) United States persons are prohibited as of 12:01 a.m. EDT, May 7, 1995, from reexporting any item subject to the prohibitions contained in §560.205 regardless of when the item was exported from the United States. United States persons are prohibited from approving or facilitating any reexport by an entity owned or controlled by a United States person of any item subject to the prohibitions of §560.205 of this part regardless of when the item was exported from the United States. (c) Effective 12:01 a.m. EDT May 7, 1995, the exportation from the United States to any destination of any item that was subject to export license application requirements under any United States regulations in effect immediately prior to May 6, 1995, is subject to the condition that the reexportation to Iran requires a specific license, except as otherwise authorized by this part.

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Subpart E – Licenses, Authorizations and Statements of Licensing Policy §560.501 Effect of license or authorization (a) No license or other authorization contained in this part, or otherwise issued by or under the direction of the Director of the Office of Foreign Assets Control, authorizes or validates any transaction effected prior to the issuance of the license, unless specifically provided in such license or other authorization. (b) No regulation, ruling, instruction, or license authorizes a transaction prohibited under this part unless the regulation, ruling, instruction, or license is issued by the Office of Foreign Assets Control and specifically refers to this part. No regulation, ruling, instruction, or license referring to this part authorizes any transactions prohibited by any provision of this chapter unless the regulation, ruling, instruction or license specifically refers to such provision. (c) Any regulation, ruling, instruction or license authorizing any transaction otherwise prohibited under this part has the effect of removing a prohibition or prohibitions contained in this part from the transaction, but only to the extent specifically stated by its terms. Unless the regulation, ruling, instruction or license otherwise specifies, such an authorization does not create a right, duty, obligation, claim, or interest in, or with respect to, any property which would not otherwise exist under ordinary principles of law. §560.502 Exclusion from licenses and authorizations The Director of the Office of Foreign Assets Control reserves the right to exclude any person, property, or transaction from the operation of any license, or from the privileges therein conferred, or to restrict the applicability thereof with respect to particular persons, property, transactions, or classes thereof. Such action is binding upon all persons receiving actual or constructive notice of such exclusion or restriction. §560.503–560.504 [Reserved] §560.505 Certain services relating to participation in various events authorized The importation of Iranian-origin services into the United States is authorized where such services are performed in the United States by an Iranian national who enters the United States on a visa issued by the State

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Department for the purpose of participating in a public conference, performance, exhibition or similar event, and such services are consistent with that purpose. §560.506 Importation and exportation of certain gifts authorized The importation into the United States of Iranian-origin goods, and the exportation from the United States of goods, is authorized for goods sent as gifts to persons provided that the value of the gift is not more than $100. §560.507 Accompanied baggage authorized (a) Persons entering the United States directly or indirectly from Iran are authorized to import into the United States Iranian-origin accompanied baggage normally incident to travel. (b) Persons leaving the United States for Iran are authorized to export from the United States accompanied baggage normally incident to travel. (c) This authorization applies to accompanied baggage that includes only articles that are necessary for personal use incident to travel, not intended for any other person or for sale, and are not otherwise prohibited from importation or exportation under applicable United States laws. §560.508 Telecommunications and mail transactions authorized All transactions of common carriers incident to the receipt or transmission of telecommunications and mail between the United States and Iran are authorized. For purposes of this section, the term mail includes parcels only to the extent the parcels contain goods exempted from the prohibitions contained in this part or otherwise eligible for importation from or exportation to Iran under a general or specific license. §560.509 Certain transactions related to patents, trademarks and copyrights authorized (a) All of the following transactions in connection with patent, trademark, copyright or other intellectual property protection in the United States or Iran are authorized: (1) The filing and prosecution of any application to obtain a patent, trademark, copyright or other form of intellectual property protection; (2) The receipt of a patent, trademark, copyright or other form of intellectual property protection;

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(3) The renewal or maintenance of a patent, trademark, copyright or other form of intellectual property protection; and (4) The filing and prosecution of opposition or infringement proceedings with respect to a patent, trademark, copyright or other form of intellectual property protection, or the entrance of a defense to any such proceedings. (b) Nothing in this section affects obligations under any other provisions of law. §560.510 Transactions related to the resolution of disputes between the United States or United States nationals and the Government of Iran (a) Except as otherwise authorized, specific licenses may be issued on a case-by-case basis to authorize transactions in connection with awards, decisions or orders of the Iran-United States Claims Tribunal in The Hague, the International Court of Justice, or other international tribunals (collectively, ‘tribunals’); agreements settling claims brought before tribunals; and awards, orders, or decisions of an administrative, judicial or arbitral proceeding in the United States or abroad, where the proceeding involves the enforcement of awards, decisions or orders of tribunals, or is contemplated under an inter-national agreement, or involves claims arising before 12:01a.m. EDT, May 7, 1995, that resolve disputes between the Government of Iran and the United States or United States nationals, including the following transactions: (1) Importation into the United States of, or any transaction related to goods and services of Iranian origin or owned or controlled by the Government of Iran; (2) Exportation or reexportation to Iran or the Government of Iran of any goods, technology, or services, except to the extent that such exportation or reexportation is also subject to export licensing application requirements of another agency of the United States Government and the granting of such a license by that agency would be prohibited by law; (3) Financial transactions related to the resolution of disputes at tribunals, including transactions related to the funding of proceedings or of accounts related to proceedings or to a tribunal; participation, representation, or testimony before a tribunal; and the payment of awards of a tribunal; and (4) Other transactions otherwise prohibited by this part which are

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necessary to permit implementation of the foregoing awards, decisions, orders, or agreements. (b) Specific licenses may be issued on a case-by-case basis to authorize payment of costs related to the storage or maintenance of goods in which the Government of Iran has title, and to authorize the transfer of title to such goods, provided that such goods are in the United States and that such goods are the subject of a proceeding pending before a tribunal. (c) (1) All transactions are authorized with respect to the importation of Iranian-origin goods and services necessary to the initiation and conduct of legal proceedings, in the United States or abroad, including administrative, judicial and arbitral proceedings and proceedings before tribunals. (2) Specific licenses may be issued on a case-by-case basis to authorize the exportation to Iran or the Government of Iran of goods, and of services not otherwise authorized by §560.525, necessary to the initiation and conduct of legal proceedings and proceedings before tribunals, except to the extent that the exportation is also subject to export licensing application requirements of another agency of the United States Government and the granting of such a license by that agency would be prohibited by law. (3) Representation of United States persons or of third country persons in legal proceedings, in the United States or abroad, including administrative, judicial and arbitral proceedings and proceedings before tribunals, against Iran or the Government of Iran is not prohibited by this part. The exportation of certain legal services to a person in Iran or the Government of Iran is authorized in §560.525. (d) The following are authorized: (1) All transactions related to payment of awards of the Iran-United States Claims Tribunal in The Hague against Iran. (2) All transactions necessary to the payment and implementation of awards (other than exports or reexports subject to export license application requirements of other agencies of the United States Government) in a legal proceeding to which the United States Government is a party, or to payments pursuant to settlement agreements entered into by the United States Government in such a legal proceeding. [60 FR 47063, Sept.11, 1995, as amended at 62 FR41852, Aug. 4, 1997]

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§560.511 [Reserved] §560.512 Iranian Government missions in the United States (a) All transactions ordinarily incident to the importation of goods or services into the United States by, the exportation of goods or services from the United States by, or the provision of goods or services in the United States to, the missions of the Government of Iran to international organizations in the United States, and Iranians admitted to the United States under section 101(a)(15)(G) of the Immigration and Nationality Act (‘INA’), 8 U.S.C. 1101(a)(15)(G), are authorized, provided that: (1) The goods or services are for the conduct of the official business of the mission, or for personal use of personnel admitted to the United States under INA section 101(a)(15)(G), and are not for resale; and (2) The transaction is not otherwise prohibited by law. (b) All transactions ordinarily incident to the importation of goods or services into the United States by, the exportation of goods or services from the United States by, or the provision of goods or services in United States to, the Iranian Interests Section of the Embassy of Pakistan (or any successor protecting power) in the United States, are authorized, provided that: (1) The goods or services are for the conduct of the official business of the Iranian Interests Section, and are not for resale; and (2) The transaction is not otherwise prohibited by law. (c) All transactions ordinarily incident to the provision of goods or services in the United States to the employees of Iranian missions to international organizations in the United States, and to employees of the Iranian Interests Section of the Embassy of Pakistan (or any successor protecting power) in the United States, are authorized, provided that the transaction is not otherwise prohibited by law. §560.513 Importation of Iranian-origin oil (a) Specific licenses will be issued on a case-by-case basis to permit the importation of Iranian-origin oil in connection with the resolution or settlement of cases before the Iran-United States Claims Tribunal in The Hague, established pursuant to the Declaration of the Government of the Democratic and Popular Republic of Algeria Concerning the Settlement of Claims by the Government of the United States of

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America and the Government of the Islamic Republic of Iran of January 19, 1981, or where the proceeds are otherwise to be deposited in the Tribunal’s Security Account. (b) License applications submitted pursuant to this section must contain the importer’s certification that the oil is of Iranian origin with all relevant supporting documentation, including specification of the production site at which the oil was extracted, and that the sale or transfer of the oil is by or for the account of the Government of Iran. Licenses will not be issued for importations of Iranian-origin oil which is not sold or transferred by or for the account of the Government of Iran. In cases where the oil is being imported either in whole or in part in resolution or settlement of a case pending before the Tribunal, applicants are required to identify the case and submit a copy of the settlement agreement and the Award on Agreed Terms issued by the Tribunal. In cases where any proceeds are generated for the account of the Government of Iran from the importation of Iranian-origin oil, the importer must demonstrate that irrevocable arrangements are in place that will ensure that the proceeds will be deposited in the Tribunal’s Security Account. §560.514 [Reserved] §560.515 30-day delayed effective date for pre-May 7, 1995 trade contracts involving Iran (a) All transactions necessary to complete performance of a trade contract entered into prior to May 7, 1995, and involving Iran (a ‘pre-existing trade contract’), including the exportation of goods, services, (including financial services), or technology from the United States that was authorized pursuant to Federal regulations in force immediately prior to May 6, 1995, or performance under a pre-existing trade contract for transactions in Iranian-origin or Government of Iran owned or controlled goods or services not involving importation into the United States, are authorized without specific licensing by the Office of Foreign Assets Control if the conditions in paragraph (a)(1) or (a)(2) are met: (1) If the pre-existing trade contract is for exportation of goods or technology from the United States that was authorized pursuant to Federal regulations in force immediately prior to May 6, 1995, the goods or technology must be exported from the United States prior to 12:01 a.m. EDT, June 6, 1995, and all other activity by U.S.

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persons that is necessary and incidental to the performance of the pre-existing trade contact (other than payment under a financing contract) must be completed prior to 12:01 a.m. EDT, August 6, 1995; or (2) If the pre-existing trade contract is for: (i) The exportation of services from the United States and benefiting a person in Iran or the Government of Iran; or (ii) The reexportation of goods or technology to Iran, the Government of Iran, or an entity owned or controlled by the Government of Iran that was authorized pursuant to Federal regulations in force immediately prior to May 6, 1995, or (iii) Transactions relating to goods or services of Iranian origin or owned or controlled by the Government of Iran other than transactions relating to importation into the United States of such goods or services, all obligations under the pre-existing trade contract (other than payment under a financing contract) must be fully completed prior to 12:01 a.m. EDT, June 6, 1995. (b) In order to complete performance of a pre-existing trade contract, the arrangement or renegotiation of contracts for transactions necessary and incidental to performance of the pre-existing trade contact is authorized. Such incidental transactions may include, for example, financing, shipping and insurance arrangements. Amendments to a pre-existing trade contact for the purpose of accelerating a previously specified delivery schedule under a contract for a fixed quantity or value of goods, technology or services, or curtailing or cancelling required performance, are authorized without specific licensing. Any other alteration of the trade contract must be specifically licensed by the Office of Foreign Assets Control. (c) The existence of a contract will be determined with reference to the principles contained in Article 2 of the Uniform Commercial Code. (d) No U.S. person may change its policies or operating procedures in order to enable a foreign entity owned or controlled by U.S. persons to enter into a transaction that could not be entered into directly by a U.S. person located in the United States pursuant to the prohibitions contained in this part.

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§560.516 Payment and United States dollar clearing transactions involving Iran (a) United States depository institutions are authorized to process transfers of funds to or from Iran, or for the direct or indirect benefit of persons in Iran or the Government of Iran, if the transfer is covered in full by any of the following conditions and does not involve debiting or crediting an Iranian account: (1) The transfer is by order of a foreign bank which is not an Iranian entity from its own account in a domestic bank (directly or through a foreign branch or subsidiary of a domestic bank) to an account held by a domestic bank (directly or through a foreign branch or subsidiary of a domestic bank) for a second foreign bank which is not an Iranian entity. For purposes of this section ‘foreign bank’ includes a foreign subsidiary, but not a foreign branch of a domestic bank; (2) The transfer arises from an underlying transaction that has been authorized by a specific or general license issued pursuant to this part; (3) The transfer arises from an underlying transaction that is not prohibited or is exempted from regulation pursuant to Section 203(b) of the International Emergency Economic Powers Act, 50 U.S.C. 1702(b), such as an exportation of information or informational materials to Iran, a travel-related remittance, or payment for the shipment of a donation of articles to relieve human suffering or a third country transaction not involving a United States person nor otherwise prohibited by this part; or (4) The transfer is a non-commercial remittance to or from Iran, such as a family remittance not related to a family-owned enterprise. (b) Before a United States depository institution initiates a payment subject to the prohibitions contained in this part on behalf of any customer, or credits a transfer subject to such prohibitions to the account on its books of the ultimate beneficiary, the U.S. depository institution must determine that the transfer is not prohibited by this part. (c) Pursuant to the prohibitions contained in §560.208, a United States depository institution may not make transfers to or for the benefit of a foreign-organized entity owned or controlled by it if the underlying transaction would be prohibited if engaged in directly by the U.S. depository institution. (d) This section does not authorize transactions with respect to property blocked pursuant to part 535.

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§560.517 Exportation of services: Iranian accounts at United States depository institutions (a) United States depository institutions are prohibited from performing services with respect to Iranian accounts, as defined in §560.320, at the instruction of the Government of Iran or persons located in Iran, except that United States depository institutions are authorized to provide and be compensated for services and incidental transactions with respect to: (1) The maintenance of Iranian accounts, including the payment of interest and the debiting of service charges; (2) The processing of transfers arising from underlying transactions that are exempted from regulation pursuant to section 203(b) of the International Emergency Economic Powers Act, 50 U.S.C. 1702(b), such as an exportation of information or informational materials to Iran, a travel-related remittance, or payment for the shipment of a donation of articles to relieve human suffering; and (3) At the request of the account party, the closing of Iranian accounts and the lump sum transfer only to the account party of all remaining funds and other assets in the account. (b) Specific licenses may be issued with respect to the operation of Iranian accounts that constitute accounts of: (1) Foreign government missions and their personnel in Iran; or (2) Missions of the Government of Iran in the United States. §560.518 Transactions in Iranian-origin and Iranian Government property (a) Except for transactions involving the Government of Iran, all domestic transactions with respect to Iranian-origin goods located in the United States are authorized, provided that this paragraph (a) does not affect the status of property blocked pursuant to part 535 or detained or seized, or subject to detention or seizure, pursuant to this part. (b) All transactions necessary and incidental to a United States person’s sale or other disposition of goods or services of Iranian origin or owned or controlled by the Government of Iran that are located or to be performed outside the United States and were acquired by that United States person in transactions not prohibited by part 535 or this part are authorized, provided: (1) The sale or other disposition does not result in the importation of such goods or services into the United States, and

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(2) The sale or other disposition is completed no later than 12:01 a.m. EDT, August 6, 1995. (c) Except as provided in paragraphs (a) and (b) of this section, United States persons may not deal in goods or services of Iranian origin owned or controlled by the Government of Iran, except that the following transactions are authorized: (1) Transactions by a United States person with third-country nationals incidental to the storage and maintenance in third countries of Iranian-origin goods owned prior to May 7, 1995, by that United States person or acquired thereafter by that United States person consistent with the provisions of this part: (2) Exportation of Iranian-origin household and personal effects from the United States incident to the relocation of United States persons outside the United States; and (3) Purchase for personal use or consumption in Iran of Iranian-origin goods or services. (d) In addition to transactions authorized by paragraph (c)(1) of this section, a United States person is authorized after 12:01 a.m. EDT, May 7, 1995, to use or dispose of Iranian-origin household and personal effects that are located outside the United States and that have been acquired by the United States person in transactions not prohibited by part 535 or this part. §560.519 Policy governing news organization offices (a) Specific licenses may be issued on a case-by-case basis authorizing transactions necessary for the establishment and operation of news bureaus in Iran by United States organizations whose primary purpose is the gathering and dissemination of news to the general public. (b) Transactions that may be authorized include but are not limited to those incident to the following: (1) Leasing office space and securing related goods and services; (2) Hiring support staff; (3) Purchasing Iranian-origin goods for use in the operation of the office; (4) Paying fees related to the operation of the office in Iran. (c) Specific licenses may be issued on a case-by-case basis authorizing transactions necessary for the establishment and operation of news bureaus in the United States by Iranian organizations whose primary purpose is the gathering and dissemination of news to the general public.

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(d) The number assigned to such specific licenses should be referenced in all import and export documents and in all funds transfers and other banking institutions organized or located in the United States in connection with the licensed transactions to avoid disruption of the trade and financial transactions. §560.520 Exportation of agricultural commodities (a) All transactions by United States persons in connection with the exportation from the United States to Iran of any agricultural commodity under an export sales contract are authorized provided: (1) Such contract was entered into prior to 12:01 a.m. EDT, May 7, 1995; and (2) The terms of such contract require delivery of the commodity prior to February 2, 1996. (b) The performance of letters of credit and other financing agreements with respect to exports authorized by this section is authorized pursuant to their terms. (c) For purposes of this section, the term agricultural commodity means feed grains, rice, wheat, cotton, peanuts, tobacco, dairy products, and oilseeds (including vegetable oil). (d) Specific licenses may be granted on a case-by-case basis for transactions by United States persons in connection with the exportation of other agricultural articles from the United States to Iran that do not fall within the definition of ‘agricultural commodity’ contained in paragraph (c) of this section, provided such exportation is pursuant to an export sales contract and the conditions contained in paragraphs (a)(1) and (a)(2) of this section are met. §560.521 Diplomatic pouches All transactions in connection with the importation into the United States from Iran, or the exportation from Iran, or the exportation from the United States to Iran, of diplomatic pouches and their contents are authorized. §560.522 Allowable payments for overflights of Iranian airspace Payments to Iran of charges for services rendered by the Government of Iran in connection with the overflight of Iran or emergency landing in Iran of aircraft owned by a United States person or registered in the United States are authorized.

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§560.523 Importation of information and informational materials (a) In addition to transactions relating to information or informational materials that are exempted from regulation under §560.210, the following are authorized: (1) The importation of information and informational materials of Iranian origin from any location, whether commercial or otherwise, regardless of format or medium of transmission; and (2) All financial and other transactions related to the importation of information and informational materials. (b) Specific licenses may be issued on a case-by-case basis for the exportation of equipment necessary for the establishment of news wire feeds or other transmissions of information or informational materials. §560.524 Household goods and personal effects (a) The exportation from the United States to Iran of household and personal effects, including baggage and articles for family use, of persons departing the United States to relocate in Iran is authorized provided the articles included in such effects have been actually used by such persons or by family members accompanying them, are not intended for any other person or for sale, and are not otherwise prohibited from exportation, See also, §560.518(c)(2). (b) The importation of Iranian-origin household and personal effects, including baggage and articles for family use, of persons in the United States is authorized; to qualify, articles included in such effects must have been actually used abroad by such persons or by other family members arriving from the same foreign household, must not be intended for any other person or for sale, and must not be otherwise prohibited from importation. §560.525 Exportation of certain legal services (a) The provision of the following legal services to the Government of Iran or to a person in Iran, and receipt of payment of professional fees and reimbursement of incurred expenses are authorized: (1) Provision of legal advice and counselling on the requirements of and compliance with the laws of any jurisdiction within the United States, provided that such advice and counselling is not provided to facilitate transactions that would violate any of the prohibitions contained in this part;

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(2) Representation when a person in Iran or the Government of Iran has been named as a defendant in or otherwise made a party domestic United States legal, arbitration, or administrative proceedings. (3) Initiation and conduct of domestic United States legal, arbitration, or administrative proceedings on behalf of the Government of Iran or a person in Iran; (4) Representation before any federal or state agency with respect to the imposition, administration, or enforcement of United States sanctions against Iran; (5) Initiation and conduct of legal proceedings, in the United States or abroad, including administrative, judicial and arbitral proceedings and proceedings before international tribunals (including the IranUnited States Claims Tribunal in The Hague and the International Court of Justice): (i) To resolve disputes between the Government of Iran or an Iranian national and the United States or a United States national; (ii) Where the proceeding is contemplated under an international agreement; or (iii) Where the proceeding involves the enforcement of awards, decisions, or orders resulting from legal proceedings within the scope of paragraph (a)(5)(i) or (a)(5)(ii) of this section, provided that any transaction, unrelated to the provision of legal services or the payment therefor, that is necessary or related to the execution of an award, decision or order resulting from such legal proceeding, or otherwise necessary for the conduct of such proceeding and which would otherwise be prohibited by this part requires a specific license in accordance with §§560.510 and 560.801; (6) Provision of legal advice and counselling in connection with settlement or other resolution of matters described in paragraph (a)(5) of this section; and (7) Provision of legal services in any other context in which prevailing United States law requires access to legal counsel at public expense. (b) The provision of any other legal services to a person in Iran or the Government, not otherwise authorized in or exempted by this part, requires the issuance of a specific license. [60 FR 47063, Sep.11, 1995, as amended at 62 FR41852, Aug.4, 1997]

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§560.526 Commodities trading and related transactions (a) Trading in Iranian-origin commodities. With respect to §560.206, specific licenses may be issued on a case-by-case basis to authorize certain commodities trading by a United States person in Iranian-origin goods, or transactions incidental to such trading, where: (1) No party to the transaction with the United States person is a person in Iran or the Government of Iran, and (2) It was impossible for the United States person to determine at the time of entry into the transaction, given all circumstances of the transaction, that the goods would be of Iranian origin or would be owned or controlled by the Government of Iran. (b) Trading in commodities destined for Iran or the Government of Iran. With respect to §560.204, specific licenses may be issued on a case-by-case basis to authorize certain trading by United States persons in commodities of U.S. or third country origin destined for Iran or the Government of Iran, or transactions incidental to such trading, where: (1) It was impossible for the United States person to determine at the time of entry into the transaction, given all circumstances of the transaction, that the goods would be for delivery to Iran or the Government of Iran; (2) The United States person did not contract with a person in Iran or the Government of Iran; and (3) The United States person did not initiate the nomination of the commodity’s destination as Iran or the Government of Iran. §560.527 Rescheduling existing loans Specific licenses may be issued on a case-by-case basis for rescheduling loans or otherwise extending the maturities of existing loans, and for charging fees or interest at commercially reasonable rates, in connection therewith, provided that no new funds or credits are thereby transferred or extended to Iran or the Government of Iran §560.528 Aircraft safety Specific licenses may be issued on a case-by-case basis for the exportation and reexportation of goods, services, and technology to insure the safety of civil aviation and safe operation of U.S.-origin commercial passenger aircraft.

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Subpart F – Reports §560.601 Records and reports For provisions relating to records and reports, see subpart C of part 501 of this chapter. [62 FR 45109, Aug.25, 1997]

§560.602 [Reserved] §560.603 Reports on oil transactions engaged in by foreign affiliates (a) Requirement for reports. A report must be filed with the Office of Foreign Assets Control with respect to each foreign affiliate of a United States person that engaged in a reportable transaction, as defined in paragraph (b), during the calendar quarter. Reports are due within 60 days after the end of each calendar quarter. (b) Definitions. For purposes of this section: (1) The term reportable transaction means any purchase, sale, or swap of Iranian-origin crude oil, or natural gas. For purposes of this paragraph (b), a purchase, sale or swap is deemed to have occurred as of the date of the bill of lading used in connection with such transaction. (2) The term foreign affiliate means a person or entity other than a United States person (see §560.314) which is organized or located outside the United States and which is owned or controlled by a United States person or persons. (c) Who must report. A United States person must file a report with respect to each foreign affiliate owned or controlled by it which engaged in a reportable transaction or transactions during the prior calendar quarter. For the calendar quarter beginning October 1, 1996, and all subsequent quarters, a United States person must file a report only as to each foreign affiliate owned or controlled by it which engaged in a reportable transaction or transactions totaling $1,000,000 or more during the calendar quarter. A single United States entity within the consolidated or affiliated group may be designated to report on each foreign affiliate of the United States members of the group. Such centralized reporting may be done by the United States person who owns or controls, or has been delegated authority to file on behalf of, the remaining United States persons in the group.

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(d) What must be reported. (1) Part I of the report must provide the name, address, and principal place of business of the United States person; its place of incorporation or organization if an entity; and the name, title, and telephone number of the individual to contact concerning the report. (2) Part II of the report must provide, with respect to the foreign affiliate, its name and address; the type entity, e.g. corporation, partnership, limited liability company; the country of its incorporation or organization; and its principal place of business. (3) Part III of the report must include the following information with respect to each reportable transaction (a separate Part III must be submitted for each reportable transaction): (i) The nature of the transaction, e.g. purchase, sale, swap. (ii) A description of the product involved; (iii) The name of the Iranian or third-country party or parties involved in the transaction; (iv) The currency and amount of the transaction, and corresponding United States dollar value of the transaction if not denominated in United States dollars. (e) Where to report. Reports must be filed with the Compliance Programs Division, Office of Foreign Assets Control, Department of the Treasury, 1500 Pennsylvania Avenue, NW.-Annex, Washington, DC 20220. Reports may be submitted by facsimile transmission at 202/622-1657. A copy must be retained for the reporter’s records. (f) Whom to contact. Blocked Assets Division, Office of Foreign Assets Control, Department of the Treasury, 1500 Pennsylvania Avenue, NWAnnex, Washington, DC20220; telephone: 202/622-2440. [63 FR 62942, Nov. 10, 1998]

Subpart G – Penalties §560.701 Penalties (a) Attention is directed to section 206 of the International Emergency Economic Powers Act (the ‘Act’) (50 U.S.C. 1705), which is applicable to violations of the provisions of any license, ruling, regulation, order, direction or instruction issued by or pursuant to the direction or authorization of the Secretary of the Treasury pursuant to this part or otherwise under the Act. Section 206 of the Act, as adjusted by the

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Federal Civil Penalties Inflation Adjustment Act of 1990 (Pub. L. 101410, as amended, 28 U.S.C. 2461 note), provides that: (1) A civil penalty of not to exceed $11,000 per violation may be imposed on any person who violates any license, order, or regulation issued under the Act; (2) Whoever wilfully violates any license order, or regulation issued under the Act shall, upon conviction be fined not more than $50,000, or, if a natural person, may be imprisoned for not more than ten years, or both; and any officer, director, or agent of any corporation who knowingly participates in such violation may be punished by a like fine, imprisonment or both. The criminal penalties provided in the Act are subject to increase pursuant to 18 U.S.C. 3571. Attention is also directed to 18 U.S.C. 1001, which provides that whoever, in any matter within the jurisdiction of any department or agency of the United States, knowingly and willfully falsifies, conceals or covers up by any trick, scheme, or device a material fact, or makes or uses any false, fictitious or fraudulent statement or representation or makes or uses any false writing or document knowing the same to contain any false, fictitious or fraudulent statement or entry, shall be fined under Title 18, United States Code, or imprisoned not more than five years, or both. Attention is directed to 18 U.S.C. 2332d, as added by Public Law 104132, section 321, which provides that except as provided in regulations issued by the Secretary of the Treasury, in consultation with the Secretary of State, a U.S. person, knowing or having reasonable cause to know that a country is designated under section 6(j) of the Export Administration Act, 50 U.S.C. App. 2405, as a country supporting international terrorism, engages in a financial transaction with the government of that country, shall be fined under title 18, United States Code, or imprisoned for not more than 10 years, or both Violations of this part may also be subject to relevant provisions of the Customs laws and other applicable laws.

[60 FR 47063, Sept.11, 1995, as amended at 61 FR 43461, Aug. 23, 1996; 61 FR 54939, Oct. 23, 1996; 62 FR 45109, Aug. 25, 1997]

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§560.702 Detention of shipments Import shipments into the United States of Iranian-origin goods in violation of §560.201 and export shipments from the United States of goods destined for Iran in violation of §560.202 or 560.204 shall be detained. No such import, export, or reexport will be permitted to proceed, except as specifically authorized by the Secretary of the Treasury. Unless licensed, such shipments are subject to penalty or seizure and forfeiture action, under the Customs laws or other applicable provisions of law, depending on the circumstances. §560.703 Prepenalty notice (a) When required. If the Director of the Office of Foreign Assets Control has reasonable cause to believe that there has occurred a violation of any provision of this part or a violation of the provisions of any license, ruling, regulation, order, direction or instruction issued by or pursuant to the direction or authorization of the Secretary of the Treasury pursuant to this part or otherwise under the International Emergency Economic Powers Act, and the Director determines that further proceedings are warranted, he may issue to the person concerned a notice of his intent to impose a monetary penalty. The prepenalty notice may be issued whether or not another agency has taken any action with respect to this matter. (b) Contents – (1) Facts of violation. The prepenalty notice will describe the violation, specify the laws and regulations allegedly violated, and state the amount of the proposed monetary penalty. (2) Right to make presentations. The prepenalty notice also shall inform the person of his right to make a written presentation within 30 days of mailing of the notice as to why a monetary penalty should not be imposed, or, if imposed, why it should be in a lesser amount than proposed. §560.704 Presentation responding to prepenalty notice (a) Time within which to respond. The named person shall have 30 days from the date of mailing of the prepenalty notice to make a written presentation to the Director; (b) Form and contents of the written presentation. The written presentation need not be in any particular form, but shall contain information sufficient to indicate that it is in response to the prepenalty notice and

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set forth the reasons why the person believes the penalty should be imposed or, if imposed, why it should be in a lesser amount than proposed. §560.705 Penalty notice (a) No violation. If, after considering any presentations made in response to the prepenalty notice and any relevant facts, the Director determines that there was no violation by the person named in the prepenalty notice, he shall promptly notify the person in writing of the determination and that no monetary penalty will be imposed. (b) Violation. If, after considering any presentations made in response to the prepenalty notice, the Director determines that there was a violation by the person named in the prepenalty notice, he may issue a written notice of the imposition of the monetary penalty to that person. §560.706 Referral for administrative collection measures or to United States Department of Justice In the event that the person named does not pay the penalty imposed pursuant to this part or make payment arrangements acceptable to the Director within 30 days of the mailing of the written notice of the imposition of the penalty, the matter may be referred for administrative collection measures or to the United States Department of Justice for appropriate action to recover the penalty in a civil suit in a Federal district court. Subpart H – Procedures §560.801 Procedures For license application procedures and procedures relating to amendments, modifications, or revocations of licenses; administrative decisions; rulemaking; and requests for documents pursuant to the Freedom of Information and Privacy Acts (5 U.S.C. 552 and 552a), see subpart D of part 501 of this chapter. [62 FR 45109, Aug. 25, 1997]

§560.802 Delegation by the Secretary of the Treasury Any action which the Secretary of the Treasury is authorized to take pursuant to Executive Order 12613, Executive Order 12957, Executive Order 12959, and any further Executive orders relating to the national emergency

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declared in Executive Order 12957 may be taken by the Director, Office of Foreign Assets Control, or by any other person to whom the Secretary of the Treasury has delegated authority so to act. [60 FR 47063, Sep.11, 1995, Redesignated at 62 FR 45109, Aug. 25, 1997]

§560.803 Customs procedures: Goods specified in §560.201 (a) With respect to goods specified in §560.201, and not otherwise licensed or excepted from the scope of that section, appropriate Customs officers shall not accept or allow any: (1) Entry for consumption or warehouse (including any appraisement entry, any entry of goods imported in the mails, regardless of value, and any informal entries): (2) Entry for immediate exportation; (3) Entry for transportation and exportation; (4) Withdrawal from warehouse; (5) Admission, entry, transfer or withdrawal to or from a foreign trade zone; or (6) Manipulation or manufacture in a warehouse or in a foreign trade zone. (b) Customs officers may accept or allow the importation of Iranian-origin goods under the procedures listed in paragraph (a) if: (1) A specific license pursuant to this part is presented; or (2) Instructions authorizing the transaction are received from the Office of Foreign Assets Control. (c) Whenever a specific license is presented to an appropriate Customs officer in accordance with this section, one additional legible copy of the entry, withdrawal or other appropriate document with respect to the merchandise involved must be filed with the appropriate Customs officers at the port where the transaction is to take place. Each copy of any such entry, withdrawal or other appropriate document, including the additional copy, must bear plainly on its face the number of the license pursuant to which it is filed. The original copy of the specific license must be presented to the appropriate Customs officers in respect of each such transaction and must bear a notation in ink by the licensee or person presenting the license showing the description, quantity and value of the merchandise to be entered, withdrawn or otherwise dealt with. This notation must be so placed and so written that there will exist no possibility of confusing it with anything placed

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on the license at the time of its issuance. If the license in fact authorizes the entry, withdrawal, or other transaction with regard to the merchandise, the appropriate Customs officer, or other authorized Customs employee, shall verify the notation by signing or initialing it after first assuring himself that it accurately describes the merchandise it purports to represent. The license shall thereafter be returned to the person presenting it and the additional copy of the entry, withdrawal or other appropriate Customs officer to the Office of Foreign Assets Control. (d) If it is unclear whether an entry, withdrawal or other action affected by this section requires a specific license from the Office of Foreign Assets Control, the appropriate Customs officer may withhold any action thereon and shall advise such person to communicate directly with the Office of Foreign Assets Control to request that instructions be sent to the Customs officer to authorize him to take action with regard thereto. [60 FR 47063, Sep. 11, 1995. Redesignated at 62 FR 45109, Aug. 25 1997]

Subpart I – Paperwork Reduction Act §560.901 Paperwork Reduction Act notice The specific information collection requirements in §560.603 have been approved by the Office of Management and Budget (‘OMB’) under the Paperwork Reduction Act (44 U.S.C. 3507 (j)) and assigned control number 1505-0106. For approval by OMB under the Paper Reduction Act of information collections relating to recordkeeping and reporting requirements, to licensing procedures (including those pursuant to statements of licensing policy), and to other procedures, see §560.901 of this chapter. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by OMB. [62 FR 45109, Aug. 25, 1997]

DOCUMENT 7 Executive Order 13059 of 19 August 1997 Prohibiting Certain Transactions with Respect to Iran

By the authority vested in me as President by the Constitution and the laws of the United States of America, including the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.) (‘IEEPA’), the National Emergencies Act (50 U.S.C. 1601 et seq.), section 505 of the International Security and Development Cooperation Act of 1985 (22 U.S.C. 2349aa-9) (‘ISDCA’), and section 301 of title 3, United States Code, I WILLIAM J. CLINTON, President of the United States of America, in order to clarify the steps taken in Executive Orders 12957 of March 15, 1995, and 12959 of May 6, 1995 to deal with the unusual and extraordinary threat to the national security, foreign policy, and economy of the United States declared in Executive Order 12957 in response to the actions and policies of the Government of Iran, hereby order: Section 1. Except to the extent provided in section 3 of this order or in regulations, orders, directives or licenses issued pursuant to this order, and notwithstanding any contract entered into or any license or permit granted prior to the effective date of this order, the importation into the United States of any goods or services of Iranian origin or owned or controlled by the Government of Iran, other than the information or informational materials within the meaning of section 203(b)(3) of IEEPA (50 U.S.C. 1702(b)(3)), is hereby prohibited.

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Section 2. Except to the extent provided in section 3 of this order, in section 203(b) of IEEPA (50 U.S.C. 1702 (b)), or in regulations, orders, directives, or licenses issued pursuant to this order, and notwithstanding any contract entered into or any license or permit granted prior to the effective date of this order, the following are prohibited: (a) The exportation, reexportation, sale, or supply, directly or indirectly from the United States, or by a United States person, wherever located, of any goods, technology, or services to Iran or the Government of Iran, including the exportation, reexportation, sale, or supply of any goods, technology, or services to a person in a third country undertaken with knowledge or reason, to know that: (i) such goods, technology, or services are intended specifically for supply, transhipment, or reexportation, directly or indirectly, to Iran or the Government of Iran; or (ii) such goods, technology, or services are intended specifically for use in the production of, for commingling with, or for incorporation into goods, technology, or services to be directly or indirectly supplied, transhipped, or reexported exclusively or predominantly to Iran or the Government of Iran; (b) the reexportation from a third country, directly or indirectly, by a person other than a United States person of any goods, technology, or services that have been exported from the United States, if: (i) undertaken with knowledge or reason to know that the reexportation is intended specifically for Iran or the Government of Iran, and (ii) the exportation of such goods, technology, or services to Iran from the United States was subject to export license application requirements under any United States regulations in effect on May 6, 1995, or thereafter is made subject to such requirements imposed independently of the actions taken pursuant to national emergency declared in Executive Order 12957; provided, however, that this prohibition shall not apply to those goods or that technology subject to export license application requirements if such goods or technology have been: (a) substantially transformed into a foreign-made product outside the United States; or (b) incorporated into a foreign-made product outside the United States if the aggregate value of such controlled United States goods and technology constitutes less than 10 percent of the total value of the foreign made product to be exported from a third country;

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(c) any new investment by a United States person in Iran or in property, including entities, owned or controlled by the Government of Iran; (d) any transaction or dealing by the United States person, wherever located, including purchasing, selling, transporting, swapping, brokering, approving, financing, facilitating, or guaranteeing, in or related to: (i) goods or services of Iranian origin or owned or controlled by the Government of Iran; or (ii) goods, technology, or services for exportation, reexportation, sale, or supply, directly or indirectly, to Iran or the Government of Iran; (e) any approval, financing, facilitation, or guarantee by a United States person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited by this order if performed by a United States person or within the United States; and (f) any transaction by a United States person or within the United States that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in this order. Section 3. Specific licenses issued pursuant to Executive Orders 12613 (of October 29, 1987), 12957, or 12959 continue in effect in accordance with their terms except to the extent revoked, amended, or modified by the Secretary of the Treasury. General licenses, regulations, orders, and directives issued pursuant to those orders continue in effect in accordance with their terms except to the extent inconsistent with this order or to the extent revoked, amended, or modified by the Secretary of the Treasury. Section 4. For the purpose of this order: (a) the term ‘person’ means an individual or entity; (b) the term ‘entity’ means a partnership, association, trust, joint venture, corporation, or other organization; (c) the term ‘United States person’ means any United States citizen, permanent resident alien, entity organized under the laws of the United States (including foreign branches), or any person in the United States; (d) the term ‘Iran’ means territory of Iran and any other territory or marine area, including the exclusive economic zone and continental shelf, over which the Government of Iran claims sovereignty, sovereign rights, or jurisdiction, provided that the Government of Iran exercises partial or total de facto control over the area or derives a benefit from economic activity in the area pursuant to international arrangements;

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(e) the term ‘Government of Iran’ includes the Government of Iran, any political subdivision, agency, or instrumentality thereof, and any person owned or controlled by, or acting for or on behalf of, the Government of Iran: (f) the term ‘new investment’ means: (i) a commitment or contribution of funds or other assets; or (ii) a loan or other extension of credit, made after the effective date of Executive Order 12957 as to transactions prohibited by that order, or otherwise made after the effective date of Executive Order 12959. Section 5. The Secretary of the Treasury, in consultation with the Secretary of State and, as appropriate, other agencies, is hereby authorized to take such actions, including the promulgation of rules and regulations, the requirement of reports, including reports by United States persons on oil and related transactions engaged in by their foreign affiliates with Iran or the Government of Iran, and to employ all powers granted to me by IEEPA and the ISDCA as may be necessary to carry out the purposes of this order. The Secretary of the Treasury may redelegate any of these functions to other officers and agencies of the United States Government. All agencies of the United States Government are hereby directed to take all appropriate measures within their authority to carry out the provisions of this order. Section 6. (a) The Secretary of the Treasury may authorize the exportation or reexportation to Iran or the Government of Iran of any goods, technology, or services also subject to export license application requirements of another agency of the United States Government only if authorization by that agency of the exportation or reexportation to Iran would be permitted by law. (b) Nothing contained in this order shall be construed to supersede the requirements established under any other provision of law or to relieve a person from any requirement to obtain a license or other authorization from another department or agency of the United States Government in compliance with applicable laws and regulations subject to the jurisdiction of that department or agency. Section 7. The provisions of this order consolidate the provisions of Executive Orders 12613, 12957, and 12959. Executive Order 12613 and subsections (a), (b), (c), (d), and (f), of section 1 of Executive order 12959

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are hereby revoked with respect to transactions occurring after the effective date of this order. The revocation of those provisions shall not alter their applicability to any transaction or violation occurring before the effective date of this order, nor shall it affect the applicability of any rule, regulation, order, license, or other form of administrative action previously taken pursuant to Executive Orders 12613 or 12959. Section 8. Nothing contained in this order shall create any right or benefit, substantive or procedural, enforceable by any party against the United States, its agencies or instrumentalities, its officers or employees, or any other person. Section 9. The measures taken pursuant to this order are in response to actions of the Government of Iran occurring after the conclusion of the 1981 Algiers Accords, and are intended solely as a response to those later actions. Section 10. (a) This order is effective at 12:01am eastern daylight time on August 20, 1997 (b) This order shall be transmitted to the Congress and published in the Federal Register. William J. Clinton The White House August 19, 1997

DOCUMENT 8 Amendment to the Iranian Transactions Regulations (31 March 1999)

Office of Foreign Assets Control 31 CFR Part 560 Implementation of Executive Order 13059 Subpart B – Prohibitions 560.201 Prohibited importation of goods or services from Iran. 560.204 Prohibited exportation, reexportation, sale or supply of goods, technology, or services to Iran. 560.205 Prohibited reexportation of goods, technology or services to Iran or the Government of Iran by persons other than United States persons; exceptions. 560.206 Prohibited trade-related transactions with Iran; goods, technology, or services. 560.207 Prohibited investment. 560.208 Prohibited facilitation by United States persons of transactions by foreign persons. 560.210 Exempt transactions.

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Subpart C – Definitions 560.301 Effective date. 560.306 Iranian-origin goods or services; Goods or services owned or controlled by the Government of Iran. 560.308 Importation of goods. 560.315 Information and informational materials. 560.318 [Removed and Reserved ] 560.319 United States depository institution. Subpart D – Interpretations 560.403 560.406 560.410 560.411 560.412 560.414 560.416 560.417 560.418 560.419 560.420

Transhipment through Iran. Transhipment or transit through United States prohibited. Exportation, reexportation, sale or supply of services. [Removed and Reserved] Extensions of credit or loans to Iran. Reexportation of certain U.S.-origin goods exported prior to May 7, 1995. Brokering services. Facilitation; change of policies and procedures; referral of business opportunities offshore. Release of technology or software in the United States or a third country. U.S. employment of persons normally located in Iran. Reexportation by non-U.S. persons of certain foreign made products containing U.S.-origin goods or technology.

Subpart E – Licenses, Authorizations and Statements of Licensing Policy 560.501 Effect of license or authorization. 560.505 Importation of certain Iranian-origin services authorized; activities related to certain visa categories authorized. 560.506 Importation and exportation of certain gifts authorized. 560.509 Certain transactions related to patents, trademarks and copyrights authorized. 560.511 Exportation or supply of insubstantial United States content for use in foreign-made products or technology. 560.515 30-day delayed effective date for pre-May 7, 1995 trade contracts involving Iran.

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560.516 Payment and United States dollar clearing transactions involving Iran. 560.523 Exportation of equipment and services relating to information and informational materials. 560.529 Bunkering and emergency repairs. Appendix to Part 560 – Financial Institutions Determined to be Owned or Controlled by the Government of Iran 1. The authority citation continues to read as follows: Authority: 3 U.S.C. 301; 18 U.S.C. 2332d; 22 U.S.C. 2349aa-9; 31 U.S.C. 321(b); 50 U.S.C. 1601-1651, 1701-1706; Pub. L 101-410, 104 Stat. 890 (28 U.S.C. 2461 note); E.O. 12613, 52 FR 41940, 3 CFR, 1987 Comp., p. 256; E.O 12957, 60 FR 14615, 3 CFR, 1995 Comp., p.332; E.O. 12959, 60 FR 24757, 3 CFR, 1995 Comp. P. 356; E.O. 13059, 62 FR 44531, 3 CFR, 1997 Comp., P.217. Subpart B – Prohibitions 2. Section 560.201 is revised to read as follows: §560.201 Prohibited importation of goods or services from Iran Except as otherwise authorized pursuant to this part, and notwithstanding any contract entered into or any license or permit granted prior to May 7, 1995, the importation into the United States of any goods or services of Iranian origin or owned or controlled by the Government of Iran, other than information and informational materials within the meaning of section 203(b)(3) of the International Emergency Economic Powers Act (50 U.S.C. 1702(b)(3)), is prohibited. 3. Section 560.204 is revised to read as follows: §560.204 Prohibited exportation, reexportation, sale or supply of goods, technology, or services to Iran Except as otherwise authorized pursuant to this part, including §560.511, and notwithstanding any contract entered into or any license or permit granted prior to May 7, 1995, the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of any goods, technology, or services to Iran or the

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Government of Iran is prohibited, including the exportation, reexportation, sale, or supply of any goods, technology, or services to a person in a third country undertaken with knowledge or reason to know that: (a) Such goods, technology, or services are intended specifically for supply, transhipment, or reexportation, directly or indirectly, to Iran or the Government of Iran; or (b) Such goods, technology, or services are intended specifically for use in the production of, for commingling with, or for incorporation into goods, technology, or services to be directly or indirectly supplied, transhipped, or reexported exclusively or predominantly to Iran or the Government of Iran. 4. Section 560.205 is revised to read as follows: §560.205 Prohibited reexportation of goods, technology or services to Iran or the Government of Iran by persons other than United States persons; exceptions (a) Except as otherwise authorized pursuant to this part, and notwithstanding any contract entered into or any license or permit granted prior to May 7, 1995, the reexportation from a third country, directly or indirectly, by a person other than a United States person, of any goods, technology or services that have been exported from the United States is prohibited, if: (1) Undertaken with knowledge or reason to know that the reexportation is intended specifically for Iran or the Government of Iran; and (2) The exportation of such goods, technology, or services from the United States to Iran was subject to export license application requirements under any United States regulations in effect on May 6, 1995, or thereafter is made subject to such requirements imposed independently of this part (see §560.414). (b) The prohibitions of paragraph (a) of this section shall not apply to those goods or that technology subject to export license application requirements if such goods or technology have been: (1) Substantially transformed into a foreign-made product outside the United States; or (2) Incorporated into a foreign-made product outside the United States if the aggregate value of such goods and technology described in paragraph (a)(2) of this section constitutes less than 10 percent of

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the total value of the foreign-made product to be exported from a third country (see §560.420). (c) Reexportation by United States persons or from the United States is governed by other sections in this part, including §§560.204 and 560.206. Note to §560.205. The reexportation of U.S.-origin goods or technology, including U.S.-origin goods or technology that have been incorporated or substantially transformed into a foreign-made product, not prohibited by this section, may require authorization by the U.S. Department of Commerce under the Export Administration Regulations (15 CFR parts 740-774) or by the U.S. State Department under the International Traffic in Arms Regulations (22 CFR 123.9). 5. Section 560.206 is revised to read as follows: §560.206 Prohibited trade-related transactions with Iran; goods, technology, or services (a) Except as otherwise authorized pursuant to this part, and notwithstanding any contract entered into or any license or permit granted prior to May 7, 1995, no United States person, wherever located, may engage in any transaction or dealing in or related to: (1) Goods or services of Iranian origin or owned or controlled by the Government of Iran; or (2) Goods, technology, or services for exportation, reexportation, sale or supply, directly or indirectly, to Iran or the Government of Iran. (b) For purposes of paragraph (a) of this section, the term transaction or dealing includes but is not limited to purchasing, selling, transporting, swapping, brokering, approving, financing, facilitating, or guaranteeing. 6. Section 560.207 is revised to read as follows: §560.207 Prohibited investment Except as otherwise authorized pursuant to this part, and notwithstanding any contract entered into or any license or permit granted prior to May 7, 1995, any new investment by a United States person in Iran or in property (including entities) owned or controlled by the Government of Iran is prohibited. 7. Section 560.208 is revised to read as follows:

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§560.208 Prohibited facilitation by United States persons of transactions by foreign persons Except as otherwise authorized pursuant to this part, and notwithstanding any contract entered into or any license or permit granted prior to May 7, 1995, no United States person, wherever located, may approve, finance, facilitate, or guarantee any transaction by a foreign person where the transaction by that foreign person would be prohibited by this part if performed by a United States person within the United States. 8. Paragraphs (c) and (d) of §560.210 are revised to read as follows: §560.210 Exempt transactions (c) Information and informational materials. (1) The importation from any country and the exportation to any country of information and informational materials as defined in §560.315, whether commercial or otherwise, regardless of format or medium of transmission, are exempt from the prohibitions and regulations of this part. (2) This section does not exempt from regulation or authorize transactions related to information or informational materials not fully created and in existence at the date of the transactions, or to the substantive or artistic alteration or enhancement of informational materials, or to the provision of marketing and business consulting services. Transactions that are prohibited notwithstanding this section include, but are not limited to, payment of advances for information and informational materials not yet created and completed (with the exception of prepaid subscriptions for widely circulated magazines and other periodical publications), provision of services to market, produce or co-produce, create or assist in the creation of information or informational materials, and payment of royalties to persons in Iran or to the Government of Iran. (3) This section does not exempt from regulation or authorize transactions incident to the exportation of software subject to the Export Administration Regulations (15 CFR parts 730-774). (4) This section does not exempt from regulation or authorize the exportation of goods (including software) or technology or the sale or leasing of telecommunications transmission facilities (such as satellite links or dedicated lines) where such exportation, sale or leasing is for use in the transmission of any data. (d) Travel. The prohibitions contained in this part do not apply to transactions ordinarily incident to travel to or from any country, including

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importation of accompanied baggage for personal use, maintenance within any country including payment of living expenses and acquisition of goods or services for personal use, and arrangement or facilitation of such travel including non-scheduled air, sea, or land voyages. This exemption extends to the transactions with Iranian carriers and those involving group tours and payments in Iran made for transactions directly incident to travel. Subpart C – Definitions 9. Section 560.301 is revised to read as follows: §560.301 Effective date The effective date of the prohibitions and directives contained in subpart B of this part is 12.01 a.m., Eastern Daylight Time, August 20, 1997. For the effective date of pre-existing regulations and directives, see the Executive Orders in the Authority citation for this part and implementing regulations. 10. Section 560.306 is revised to read as follows: §560.306 Iranian-origin goods or services; Goods or services owned or controlled by the Government of Iran (a) The terms goods of Iranian origin and Iranian-origin goods include: (1) Goods grown, produced, manufactured, extracted, or processed in Iran; and (2) Goods which have entered into Iranian commerce. (b) The terms services of Iranian origin and Iranian-origin services include: (1) Services performed in Iran or by an entity organized under the laws of Iran, or a person residing in Iran; and (2) Services performed outside Iran by a citizen national or permanent resident of Iran who is ordinarily resident in Iran, or by an entity organized under the laws of Iran. (c) The term goods or services owned or controlled by the Government of Iran includes: (1) Goods grown, produced, manufactured, extracted or processed by the Government of Iran or goods in its possession or control; and (2) Services performed by the Government of Iran. (d) The terms services of Iranian-origin, Iranian-origin services, and services owned or controlled by the Government of Iran do not include:

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(1) Diplomatic and consular services performed by or on behalf of the Government of Iran; (2) Diplomatic and consular services performed by or on behalf of the Government of the United States; or (3) Services performed outside Iran by an Iranian citizen or national who is resident in the United States or a third country, provided such services are not performed by or on behalf of the Government of Iran (other than diplomatic and consular services), an entity organized under the laws of Iran, or a person located in Iran. 11. Section 560.308 is revised to read as follows: §560.308 Importation of goods With respect to goods (including software), the term importation means the bringing of any goods into the United States, except that in the case of goods transported by vessel, importation means the bringing of any goods into the United States with the intent to unlade them. 12. Section 560.315 is amended to revise the section heading and paragraphs (a) introductory text, (b) introductory text, and (b)(1) to read as follows: §560.315 Information and informational materials (a) The term information and informational materials includes:… (b) The term information and informational materials, with respect to exports, does not include items:… (1) That were, as of April 30, 1994, or that thereafter become, controlled for export pursuant to section 5 of the Export Administration Act of 1979 (50 U.S.C. App. 2401-2420, the ‘EAA’), or section 6 of the EAA to the extent that such controls promote the non-proliferation or antiterrorism policies of the United States; or §560.318 [Removed and reserved] 13. Section 560.318 is removed and reserved. 14. Section 560.319 is revised to read as follows: §560.319 United States depository institution The term United States depository institution means any entity (including its foreign branches) organized under the laws of any jurisdiction within the United States, or any agency, office or branch located in the United

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States of a foreign entity, that is engaged primarily in the business of banking (for example, banks, savings banks, savings associations, credit unions, trust companies and United States bank holding companies). Subpart D – Interpretations 15. Section 560.403 is added to subpart D to read as follows: §560.403 Transhipment through Iran The prohibitions in §§560.204, 560.206 and 560.208 apply to export, reexport or supply transactions which require a transhipment or transit of goods or technology through Iran to third countries. 16. Section 560.406 is revised to read as follows: §560.406 Transhipment or transit through United States prohibited. (a) The prohibitions in §560.201 apply to the importation into the United States, for transhipment or transit, of Iranian-origin goods or goods owned or controlled by the Government of Iran which are intended or destined for third countries. (b) The prohibitions in §560.204 apply to the transhipment or transit of foreign goods through the United States which are intended or destined for Iran or the Government of Iran, including entities owned or controlled by the Government of Iran. 17. Section 560.410 is revised to read as follows: §560.410 Exportation, reexportation, sale or supply of services (a) The prohibition on the exportation, reexportation, sale or supply of services contained in §560.204 applies to services performed on behalf of a person in Iran or the Government of Iran or where the benefit of such services is otherwise received in Iran, if such services are performed: (1) In the United States, or (2) Outside the United States by a United States person, including by an overseas branch of an entity located in the United States. (b) The benefit of services performed anywhere in the world on behalf of the Government of Iran is presumed to be received in Iran. (c) Example. A United States person is engaged in a prohibited exportation of services to Iran when it extends credit to a third-country firm specifically to enable that firm to manufacture goods for sale to Iran or for an entity of the Government of Iran. See also §560.416.

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§560.411 [Removed and Reserved] 18. Section 560.411 is removed and reserved. 19. Section 560.412 is revised to read as follows: §560.412 Extensions of credit or loans to Iran (a) The prohibitions contained in §§560.204 and 560.207 apply to but are not limited to the unauthorized renewal or rescheduling of credits or loans in existence as of May 6, 1995, such as the extension of a standby letter of credit. (b) The prohibitions contained in §560.209 apply, among other things, to the unauthorized renewal or rescheduling of credits or loans in existence as of March 15, 1995. (c) The prohibitions contained in §§560.204, 560.207 and 560.209 apply to, among other things, credits or loans in any currency. 20. Section 560.414 is revised to read as follows: §560.414 Reexportation of certain U.S.-origin goods exported prior to May 7, 1995 The prohibitions on reexportation in §560.205 do not apply to United States-origin goods or technology that were exported from the United States prior to 12:01 a.m. Eastern Daylight Time, May 7, 1995, if: (a) Such goods or technology were not the property of a United States person as of 12:01 a.m. Eastern Daylight Time, May 7, 1995; and (b) The reexportation of the U.S.-origin goods or technology to Iran or the Government of Iran was not subject to reexport (as opposed to export) license application requirements under U.S. regulations in effect prior to May 6, 1995. Notes to §560.414 1. The exclusion in this section applies among other things, to goods that were as of May 6, 1995, classified under the U.S. Department of Commerce’s Export Administration Regulations (15 CFR parts 730774) as ECCNs 2A994; 3A993; 5A992; 5A995; 6A990; 6A994; 7A994; 8A992; 8A994; 9A990; 9A992; and 9A994, that were exported from the United States prior to 12:01 a.m. Eastern Daylight Time, May 7, 1995, and were not the property of a United States person as of 12:01 a.m.

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Eastern Daylight Time, May 7, 1995. As of April 26, 1999, items covered by this note are classified under ECCNs 2A994; 3A992.a; 5A991.f; 5A992; 6A991; 6A998; 7A994; 8A992.d,.e, .f and .g; 9A990.a and b. and 9A991.d and e. 2. A reexportation of U.S.-origin goods or technology which meets the conditions of paragraph (a) of this section, or which is not within the scope of §560.205, nevertheless may require specific authorization by other agencies of the U.S. Government for reexportation to Iran or the Government of Iran. For example, items which meet the conditions of paragraph (a) may nevertheless require an export license under the Enchanced Proliferation Control Initiative provisions of the Export Administration Regulations (15 CFR part 774). 21. Section 560.416 is added to subpart D to read as follows: §560.416 Brokering services (a) For purposes of the prohibitions in §§560.201, 560.204, 560.205, 560.206 and 560.208, the term services includes performing a brokering function. (b) Examples. A person within the United States, or a United States person wherever located, may not: (1) Act as a broker for the provision of goods or services or technology, from whatever source, to or from Iran or the Government of Iran; (2) Act as a broker for the purchase or swap of crude oil of Iranian origin or owned or controlled by the Government of Iran; (3) Act as a broker for the provision of financing, a financial guarantee or an extension of credit by any person to Iran or the Government of Iran; (4) Act as a broker for the provision of financing, a financial guarantee or an extension of credit to any person specifically to enable that person to construct or operate a facility in Iran or owned or controlled by the Government of Iran; or (5) Act as a broker for the provision of financing, a financial guarantee, or an extension of credit to any person specifically to enable that person to provide goods, services, or technology intended for Iran or the Government of Iran. 22. Section 560.417 is added to subpart D to read as follows:

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§560.417 Facilitation; change of policies and procedures; referral of business opportunities offshore With respect to §560.208, a prohibited facilitation or approval of a transaction by a foreign person occurs, among other instances, when a United States person: (a) Alters its operating policies or procedures, or those of a foreign affiliate, to permit a foreign affiliate to accept or perform a specific contract, engagement or transaction involving Iran or the Government of Iran without the approval of the United States person, where such transaction previously required approval by the United States person and such transaction by the foreign affiliate would be prohibited by this part if performed directly by a United States person or from the United States; (b) Refers to a foreign person purchase orders, requests for bids, or similar business opportunities involving Iran or the Government of Iran to which the United States person could not directly respond as a result of the prohibitions contained in this part; or (c) Changes the operating policies and procedures of a particular affiliate with the specific purpose of facilitating transactions that would be prohibited by this part if performed by a United States person or from the United States. 23. Section 560.418 is added to subpart D to read as follows: §560.418 Release of technology or software in the United States or a third country The release of technology or software in the United States, or by a United States person wherever located, to any person violates the prohibitions of this part if made with knowledge or reason to know the technology is intended for Iran or the Government of Iran, unless that technology or software meets the definition of information and informational materials in §560.315. See §560.511 Notes to §560.418 1. The U.S. Department of Commerce’s Bureau of Export Administration requires a license for the release in the United States (or in a third country) to a foreign national of technology if both of the following conditions are met:

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(a) That technology would require a license for exportation (or reexportation) to the home country of the foreign national; and (b) The foreign national is not a citizen or permanent resident of the United States (or of the third country) or is not a protected individual under the Immigration and Naturalization Act (8 U.S.C. §1324(b)(a)(3)). See 15 CFR 734.2(b(2)(ii) and 734.2(b)(5). 2. The transfer to a foreign national of technology subject to regulations administered by the U.S. Department of State or other agencies of the U.S. Government may require authorization by those agencies. 24. Section 560.419 is added to subpart D to read as follows: §560.419 U.S. employment of persons normally located in Iran The prohibitions in §560.201 make it unlawful to hire an Iranian national normally located in Iran to come to the United States solely or for the principal purpose of engaging in employment on behalf of an entity in Iran or as the employee of a U.S. person, unless that employment is authorized pursuant to a visa issued by the U.S. State Department or by §560.505. See also §560.418 with respect to the release of technology and software. 25. Section 560.420 is added to subpart D to read as follows: §560.420 Reexportation by non-U.S. persons of certain foreign made products containing U.S.-origin goods or technology For purposes of satisfying the de minimis content rule in 560.205(b)(2): (a) U.S.-origin goods (excluding software) falling within the definition in §560.205 must comprise less than 10 percent of the foreign made good (excluding software); (b) U.S.-origin software falling within the definition in §560.205 must comprise less than 10 percent of the foreign-made software; (c) U.S.-origin technology falling within the definition in §560.205 must comprise less than 10 percent of the foreign-made technology; and (d) In cases involving a complex product made of a combination of U.S.origin goods (including software) and technology falling within the definition in §560.205, the aggregate value of all such U.S.-origin goods (including software) and such technology contained in the foreignmade product must be less than 10 percent of the total value of the foreign-made product.

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Notes to §560.420 1. Notwithstanding the exceptions contained in §560.205(b)(1) and (b)(2) and this section, a reexportation to Iran or the Government of Iran of U.S.-origin items falling within the definition in §560.205 is prohibited if those U.S.-origin goods (including software) or that technology have been substantially transformed or incorporated into a foreign-made end product which is destined to end uses or end users prohibited under regulations administered by other U.S. Government agencies. See, e.g. the Export Administration Regulations (31 CFR 736.2(b)(5), 744.2, 744.3, 744.4, 744.7 and 744.10); International Traffic in Arms Regulations (22 CFR 123.9). 2. A reexportation not prohibited by §560.205 may nevertheless require authorization by the U.S. Department of Commerce, the U.S. Department of State or other agencies of the U.S. Government. 3. The provisions of §560.205 and this section apply only to persons other than United States persons. Subpart E – Licenses, Authorizations and Statements of Licensing Policy 26. Section 560.501 is amended by adding paragraphs (d) and (e) to read as follows: §560.501 Effect of license or authorization (d) Specific licenses issued prior to 12:01 a.m., Eastern Daylight Time, August 20, 1997, continue in effect in accordance with their terms except to the extent specifically revoked, amended, or modified by the Office of Foreign Assets Control. (e) Nothing contained in this part shall be construed to supersede the requirements established under any other provision of law or to relieve a person from any requirement to obtain a license or other authorization from another department or agency of the U.S. Government in compliance with applicable laws and regulations subject to the jurisdiction of that department or agency. For example, exports of goods, services, or technical data which are not prohibited by this part or which do not require a license by the Office of Foreign Assets Control, nevertheless may require authorization by the U.S. Department of Commerce, the U.S. Department of State or other agencies of the U.S. Government. See also §560.701 (d). 27. Section 560.505 is revised to read as follows:

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§560.505 Importation of certain Iranian-origin services authorized; activities related to certain visa categories authorized (a) The importation of Iranian-origin services into the United States or other dealing in such services is authorized where such services are performed in the United States by an Iranian citizen or national for the purpose of, or which directly relate to, participating in a public conference, performance, exhibition or similar event, and such services are consistent with that purpose. (b) Persons otherwise qualified for a non-immigrant visa under categories A-3 and G-5 (attendants, servants and personal employees of aliens in the United States on diplomatic status), D (crewmen), F (students), I (information media representatives), J (exchange visitors), M (nonacademic students), O and P (aliens with extraordinary ability, athletes, artists and entertainers), Q (international cultural exchange visitors), R (religious workers), or S (witnesses) are authorized to carry out in the United States those activities for which such a visa has been granted by the U.S. State Department. (c) Persons otherwise qualified for a visa under categories E-2 (treaty investor), H-1b (temporary worker), or L (intra-company transferee) and all immigrant visa categories are authorized to carry out in the United States those activities for which such a visa has been granted by the U.S. State Department, provided that the persons are not coming to the United States to work as an agent, employee or contractor of the Government of Iran or a business entity or other organization in Iran. 28. Section 560.506 is revised to read as follows: §560.506 Importation and exportation of certain gifts authorized The importation into the United States of Iranian-origin goods from Iran or a third country, and the exportation from the United States to Iran of goods, are authorized for goods sent as gifts to persons provided that the value of the gift is not more than $100; the goods are of a type and in quantities normally given as gifts between individuals; and the goods are not controlled for chemical and biological weapons (CB), missile technology (MT), national security (NS), or nuclear proliferation (NP). See Commerce Control List, Export Administration Regulations (15 CFR part 774). 29. Section 560.509 is amended by revising paragraph (a)(1) as follows:

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§560.509 Certain transactions related to patents, trademarks and copyrights authorized (a) (1) The filing and prosecution of any application to obtain a patent, trademark, copyright or other form of intellectual property protection, including importation of or dealing in Iranian-origin services, payment for such services, and payment to persons in Iran directly connected to such intellectual property protection; 30. Section 560.511 is added to read as follows: §560.511 Exportation or supply of insubstantial United States content for use in foreign-made products or technology (a) Except as provided in paragraph (b) of this section and notwithstanding the prohibitions in §560.204, the exportation or supply of goods or technology from the United States, or by a United States person wherever located, for substantial transformation or incorporation into a foreignmade end product in a country other than the United States or Iran, intended specifically or predominantly for Iran or the Government of Iran, is permitted under this part where the exporter has ascertained that all of the following are the case: (1) The U.S.-origin goods or technology being exported for substantial transformation or incorporation abroad were not subject to export license application requirements under any United States regulations in effect on May 6, 1995, or were not thereafter made subject to such regulations imposed independently of this part; (2) With respect to the foreign-made end product: (i) U.S. origin goods (excluding software) comprise less than 10 percent of the foreign-made good (excluding software); (ii) U.S.-origin software companies comprise less than 10 percent of the foreign made software; (iii) U.S.-origin technology comprises less than 10 percent of the foreign-made technology; and (iv) In cases involving a complex product made of a combination of goods (including software) and technology contained in the foreign-made end product is less than 10 percent of the total value of the foreign-made product; (3) The foreign-made end product is not destined to end uses or end users prohibited under regulations administered by other U.S.

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Government agencies. See, e.g. the Export Administration Regulations (31 CFR 736.2(b)(5), 744.2, 744.3, 744.4, 744.7, and 744.10); International Traffic in Arms Regulations (22 CFR 123.9); (4) The foreign-made end product is not intended for use in the Iranian petroleum or petrochemical industry. For this purpose, products intended for use in the Iranian petroleum or petrochemical industry include not only products uniquely suited for use in those industries, such as oilfield services equipment, but also goods and technology for use in products, such as computers, office equipment, construction equipment, or building materials, which are suitable for use in other industries but which are intended specifically for use in the petroleum or petrochemical industries. (b) The authorization contained in this section is not available if the foreign-made end product is of a type which other Government agencies make ineligible for de minimis U.S.-origin content. See, e.g., the Export Administration Regulations (15 CFR 734.4(a) and (b)); International Traffic in Arms Regulations (22 CFR 123.9). Note to §560.511 An exportation authorized by this section may nevertheless require authorization by the U.S. Department of Commerce, the U.S. Department of State or other agencies of the U.S. Government. 31. Paragraph (d) of §560.515 removed, and paragraph (a) is revised to read as follows: §560.515 30-day delayed effective date for pre-May 7, 1995 trade contracts involving Iran (a) All transactions necessary to complete performance of a trade contract entered into prior to May 7, 1995, and involving Iran (a pre-existing trade contract), including the exportation of goods, services (including financial services), or technology from the United States that was authorized pursuant to Federal regulations in force immediately prior to May 6, 1995, or performance under a pre-existing trade contract for transactions in Iranian-origin or Government of Iran-owned or controlled goods or services that do not involve importation into the United States, are authorized without specific licensing by the Office of Foreign Assets Control if the conditions in paragraph (a)(1) or (a)(2) of this section are met:

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(1) If the pre-existing trade contract is for an exportation of goods or technology from the United States that was authorized pursuant to Federal regulations in force immediately prior to May 6, 1995, the goods or technology must be exported from the United States prior to 12:01 a.m. Eastern Daylight Time, June 6, 1995, and all other activity by U.S. persons that is necessary and incidental to the performance of the pre-existing trade contract (other than payment under a financing contract) must be completed prior to 12:01a.m. Eastern Daylight Time, August 6, 1995. (2) All obligations under a pre-existing trade contract (other than payment under a financing contract) must be fully completed prior to 12:01 a.m. Eastern Daylight Time, June 6, 1995, if the pre-existing trade contract is one for the following: (i) The exportation of services from the United States benefiting a person in Iran or the Government of Iran; (ii) The reexportation of goods or technology to Iran, the Government of Iran, or an entity owned or controlled by the Government of Iran that was authorized pursuant to Federal regulations in force immediately prior to May 6, 1995; or (iii) Transactions relating to goods or services of Iranian origin or owned or controlled by the Government of Iran other than transactions relating to importation into the United States of such goods or services. 32. Section 560.516 is amended by revising paragraphs (a)(3), (a)(4) and (b) to read as follows: §560.516 Payment and United States dollar clearing transactions involving Iran (3) The transfer arises from an underlying transaction that is not prohibited by this part, such as a non-commercial remittance to or from Iran (e.g. a family remittance not related to a family-owned enterprise); a U.S. related commercial transfer not prohibited by this part (see e.g. §560.515(b)); or a third-country transaction not prohibited by this part; or (4) The transfer arises from an underlying transaction that is exempted from regulation pursuant to §203 (b) of the International Economic Powers Act (50 U.S.C 1702(b)), such as an exportation to Iran or importation from Iran of information and informational materials, a

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travel-related remittance, or payment for the shipment of a donation of articles to relieve human suffering. (b) Before a United States depository institution initiates a payment on behalf of any customer, or credits a transfer to the account on its books of the ultimate beneficiary, the United States depository institution must determine that the underlying transaction is not prohibited by this part. 33. Section 560.523 is revised to read as follows: §560.523 Exportation of equipment and services relating to information and informational materials Specific licenses may be issued on a case-by-case basis for the exportation of equipment and services necessary for the establishment of news wire feeds or other transmissions of information and informational materials. 34. Section 560.529 is added to subpart E to read as follows: §560.529 Bunkering and emergency repairs Goods or services provided in the United States to a non-Iranian carrier transporting passengers or goods to or from Iran are permissible if they are: (a) Bunkers or bunkering services; (b) Supplied or performed in the course of emergency repairs; or (c) Supplied or performed under circumstances which could not be anticipated prior to the carrier’s departure for the United States. 35. An appendix to this part is added at the end thereof to read as follows: Appendix to Part 560 – Financial Institutions Determined to be Owned or Controlled by the Government of Iran This appendix lists financial institutions determined by the Office of Foreign Assets Control to be entities owned or controlled by the Government of Iran within the meaning of §560.313. The names and addresses represent the most complete list available at this time. Unless otherwise indicated, the financial institutions listed below are considered to be entities owned or controlled by the Government of Iran when they operate, not only from the locations listed below , but also from any other location. The names and addresses are subject to change, and the Office of Foreign Assets Control will update the list as needed.

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1. AGRICULTURAL COOPERATIVE BANK OF IRAN (a.k.a. BANK TAAVON KESHAVARZI IRAN). No129 Patrice Lumumba Street, Jalal-Al-Ahmad Expressway, P.O. Box 14155/6395, Tehran, Iran. 2. AGRICULTURAL DEVELOPMENT BANK OF IRAN (a.k.a. BANK TOSIAIYI KESHAHVARZI), Farahzad Expressway, Tehran, Iran. 3. BANK TOSIAIYI KESHAHVARZI (a.k.a. AGRICULTURAL DEVELOPMENT BANK OF IRAN) Farahzad Expressway, Tehran, Iran 4. BANK MARKAZI JOMHOURI ISLAMI IRAN (a.k.a. THE CENTRAL BANK OF IRAN), Ferdowsi Avenue, P.O. Box 11365-8551, Tehran, Iran 5. BANK MASKAN (a.k.a. HOUSING BANK (of Iran)), Ferdowsi St. Tehran, Iran 6. BANK MELLAT, Park Shahr, Varzesh Avenue, P.O. Box 11365/5964, Tehran, Iran, and all offices worldwide, including , but not limited to: a. BANK MELLAT (Branch), Ziya Gokalp Bulvari No. 12, Kizilay, Ankara, Turkey b. BANK MELLAT (Branch), Binbir Cicek Sokak, Buyukdere Caddesi, P.O. Box 67, Levant, Instabul, Turkey c. BANK MELLAT (Branch), 48 Gresham Street, London EC2V 7AX, England 7. BANK MELLI, P.O. Box 11365-171, Ferdowsi Avenue, Tehran, Iran, and all offices worldwide, including but not limited to: a. BANK MELLI (Branch), 4 Moorgate, London EC2R 6AL, England b. BANK MELLI (Branch), Schadowplatz 12, 4000 Dusseldorf 1, Germany c. BANK MELLI (Branch), Friedenstrasse 4, P.O. Box 160 154, 6000 Frankfurt am Main, Germany d. BANK MELLI (Branch), P.O. Box 112129, Holzbruecke 2, 2000 Hamburg 11, Germany e. BANK MELLI (Branch), Odeonsplatz 18, 8000 Munich 22, Germany f. BANK MELLI (Branch), 43 Avenue Montaigne, 75008 Paris, France g. BANK MELLI (Branch), 601 Gloucester Tower, The Landmark, 11 Pedder Street, P.O. Box 720, Hong Kong h. BANK MELLI (Representative Office), 333 New Tokyo Building, 3-1 Marunouchi, 3-chome, Chiyoda-ku, Tokyo, Japan i. BANK MELLI (Representative Office), 818 Wilshire Boulevard, Los Angeles, California 90017, U.S.A j. BANK MELLI (Representative Office), 767 Fifth Avenue, 44th Floor, New York, New York 10153, U.S.A k. BANK MELLI (Representative Office) Smolensky Boulevard 22/14, Kv. S., Moscow, Russia

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BANK MELLI (Branch), Flat No. 1, First Floor, 8 Al Sad El-Aaly, Dokki, P.O. Box 2654, Cairo, Egypt m. BANK MELLI (Branch), Ben Yas Street, P.O. Box No. 1894, Riga Deira, Dubai, U.A.E. n. BANK MELLI (Branch), P.O. Box 2656, Shaikha Maryam Building, Liwa Street, Abu Dhabi, U.A.E. o. BANK MELLI (Branch) P.O. Box 1888, Clock Tower, Industrial Road, AlAin Club Building in from Emeriel Al Ain, Al Ain, Abu Dhabi, U.A.E. p. BANK MELLI (Branch), P.O. Box 1894, Riga, Ban Yas Street, Deira, Dubai, U.A.E q. BANK MELLI (Branch), Mohd-Habib Building, Al-Fahidi Street, P.O. Box 3093, Bur Dubai, Dubai, U.A.E r. BANK MELLI (Branch) , P.O. Box 248, Fujairah, U.A.E. s. BANK MELLI (Branch), Sami Sagar Building Oman Street AlNakheel, P.O. Box 5270, Ras-Al Khaimah, U.A.E t. BANK MELLI (Branch), P.O. Box 459, Al Bory Street, Sharjah, U.A.E. u. BANK MELLI (Branch), P.O. Box 785, Government Road, Shaikh Mubarak Building, Manama, Bahrain v. BANK MELLI (Branch), P.O. Box 23309, Shaikh Salman Street, Road No. 1129, Muharraq 211, Bahrain w. BANK MELLI (Branch), P.O. Box 5643, Mossa Abdul Rehman Hassan Building, 238 Al Burj St., Ruwi, Muscat, Oman 8. BANK OF INDUSTRY AND MINE (of Iran) (a.k.a. BANK SANAT VA MADAN), Hafez Avenue, P.O. Box 11365/4978, Tehran, Iran 9. BANK REFAH KARGARAN (a.k.a. WORKERS WELFARE BANK (of Iran)). Moffettah No. 125, P.O. Box 15815 1866, Tehran, Iran 10. BANK SADERAT IRAN, Bank Saderat Tower, P.O. Box 15745-631, Somayeh Street, Tehran, Iran, and all offices worldwide, including, but not limited to: a. BANK SADERAT IRAN (Branch), Hamdam Street, Airport Road Intersection, P.O. Box 700, Abu Dhabi, U.A.E. b. BANK SADERAT IRAN (Branch), Al-Am Road, P.O. Box 1140, Al Ein, Abu Dhabi, U.A.E. c. BANK SADERAT IRAN (Branch), Liwara Street, P.O. Box 16, Ajman, U.A.E. d. BANK SADERAT IRAN (Branch), 3rd Floor Dom Dasaf Building, Mejloka Street 7A, Ashkhabad, Turkmenistan e. BANK SADERAT IRAN (Branch), 25–29 Panepistimiou Street, P.O. Box 4308, GR-10210, Athens 10672, Greece

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f.

BANK SADERAT IRAN (Branch), Imam Ali Street, Sahat Yaghi, Ras Elain-Alektisad Building 2ND Floor, Baalbeck, Lebanon g. BANK SADERAT IRAN (Branch and Offshore Banking Unit), 106 Government Road, P.O. Box 825, Manama Town 316, Bahrain h. BANK SADERAT IRAN (Branch), Hamra Pavilion Street, Savvagh and Daaboul Building 1ST floor, P.O. Box 113-6717, Beirut, Lebanon i. BANK SADERAT IRAN (Branch), Alghobairi Boulevard, Beirut, Lebanon j. BANK SADERAT IRAN (Branch), 28 Sherif Street, P.O. Box 462, Cairo, Egypt k. BANK SADERAT IRAN (Branch), Old Ben-Ghanem Street (next to God Market), P.O. Box 2256, Doha, Qatar. l. BANK SADERAT IRAN (Branch), Almaktoum Road, P.O. Box 4182, Deira, Dubai, U.A.E. m. BANK SADERAT IRAN (Branch), Bazar Murshid, P.O. Box 4182, Deira, Dubai, U.A.E. n. BANK SADERAT IRAN (Branch), Alfahid Road, P.O. Box 4182, Bur Dubai, Dubai, U.A.E. o. BANK SADERAT IRAN (Branch), Sherea Shekikh Zayad Street, P.O. Box 55, Fujairah, U.A.E p. BANK SADERAT IRAN (Branch), Wilhelm Leuschner Strasse 41, P.O. Box 160151, W-6000 Frankfurt am Main, Germany q. BANK SADERAT IRAN (Branch), P.O. Box 112227, Hopfenhof Passage, Kleiner Bustah 6–10, W-2000 Hamburg 11, Germany r. BANK SADERAT IRAN (Branch), Lothbury, London EC2R 7HD, England s. BANK SADERAT IRAN (Representative Office), 707 Wilshire Boulevard, Suite 4880, Los Angeles, California 90017, U.S.A. t. BANK SADERAT IRAN (Representative Office), 55 East 59th Street, 16th Floor, New York, New York 10022, U.S.A. u. BANK SADERAT IRAN (Branch), P.O. Box 4269, Mutrah, Muscat, Oman v. BANK SADERAT IRAN (Branch), 16 Rue de la Paix, Paris 2eme, 75002 Paris, France w. BANK SADERAT IRAN (Branch), Alaroba Road, P.O. Box 316, Sharjah, U.A.E. 11. BANK SANAT VA MADAN (a.k.a. BANK OF INDUSTRY AND MINE (of Iran)), Hafez Avenue, P.O. Box 11365/4978,Tehran, Iran 12. BANK SEPAH, Emam Khomeini Square, P.O. Box 11364, Tehran, Iran, and all offices worldwide, including, but not limited to: a. BANK SEPAH (Branch), Muenchener Strasse 49, P.O. Box 10 03 47, W-6000 Frankfurt am main 1, Germany

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b. BANK SEPAH (Branch), 5/7 Eastcheap, EC3M 1JT London, England c. BANK SEPAH (Representative Office), 650 Fifth Avenue, New York, New York 10019, U.S.A. d. BANK SEPAH (Branch), 17 Place Vendome, 75001 Paris, France e. BANK SEPAH (Branch), Via Barberini 50, 00187 Rome, Italy f. BANK SEPAH (Representative Office) Ufficio di Rappresentan Za, Via Ugo Foscolo 1, 20121 Milan, Italy 13. BANK TAAVON KESHAVARZI IRAN (a.k.a. AGRICULTURAL COOPERATIVE BANK OF IRAN) No. 129 Patrice Lumumba Street, Jalal-Al-Ahmad Expressway, P.O. Box 14155/6395, Tehran, Iran 14. BANK TEJARAT, 130 Taleghani Avenue, Nejatoullahie, P.O. Box 113655416, Tehran, Iran, and all offices worldwide, including, but not limited to: a. BANK TEJARAT (Branch), 6/8 Clements Lane, London EC4N 7AP, England b. BANK TEJARAT (Branch), 44 Avenue des Champs Elysees, 75008 Paris, France 15. DEUTSCH-IRANISCHE HANDELSBANK AG (n.k.a. EUROPAEISCH-IRANISCHE HANDELSBANK AG) Depenau 2, W-2000 Hamburg 1, Germany, and all offices worldwide, including, but not limited to: a. DEUTSH-IRANISCHE HANDELSBANK AG (n.k.a. EUROPAEISCH-IRANISCHE HANDELSBANK AG) (Representative Office), 23 Argentine Square, Beihaghi Bulvard, P.O. Box 15815/1787, Tehran 15148, Iran 16. EUROPAEISCH-IRANISCHE HANDELSBANK AG (f.k.a. DEUTSCH-IRANISCHE HANDELSBANK AG) Depenau 2, W-2000 Hamburg 1, Germany, and all offices worldwide, including, but not limited to: a. EUROPAEISCH-IRANISCHE HANDELSBANK AG (f.k.a. DEUTSCHIRANISCHE HANDELSBANK AG) (Representative Office), 23 Argentine Square, Beihaghi Bulvard, P.O. Box 15815/1787, Tehran 15148, Iran 17. HOUSING BANK (of Iran) (a.k.a. BANK MASKAN), Ferdowsi St., Tehran, Iran 18. IRAN OVERSEAS INVESTMENT BANK LIMITED (f.k.a. IRAN OVERSEAS INVESTMENT CORPORATION LIMITED), 120 Moorgate, London EC2M 6TS, England, and all offices worldwide, including, but not limited to: a. IRAN OVERSEAS INVESTMENT BANK LIMITED (Representative Office), 1137 Avenue Vali Asr off Park-e-SA11, P.O. Box 15115/531, Tehran, Iran b. IRAN OVERSEAS INVESTMENT BANK LIMITED (Agency), Suite 3c Olympia House, 61/63 Dame Street, Dublin 2, Ireland

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c. IRAN OVERSEAS INVESTMENT BANK LIMITED (Agency), Improgetti, Via Germanico 24, 00192 Rome, Italy d. IRAN OVERSEAS TRADING COMPANY LIMITED (Subsidiary), 120 Moorgate, London EC2M 6TS, England e. IRAN OVERSEAS INVESTMENT CORPORATION LIMITED (n.k.a. IRAN OVERSEAS INVESTMENT BANK LIMITED), 120 Moorgate, London EC2M 6TS, England 19. THE CENTRAL BANK OF IRAN (a.k.a. BANK MARKAZI JOMHOURI ISLAMI IRAN), Ferdowsi Avenue, P.O. Box 11365-8551, Tehran, Iran 20. WORKERS WELFARE BANK (of Iran) (a.k.a. BANK REFAH KARGARAN), Moffettah No. 125, P.O. Box 15815 1866, Tehran, Iran Dated: March 25, 1999.

DOCUMENT 9 Amendment to the Iranian Transactions Regulations (26 July 1999)

Office of Foreign Assets Control 31 CFR Part 560 Subpart D – Interpretations 560.405 Transactions incidental to a licensed transaction authorized Subpart E – Licenses, Authorizations, and Statements of Licensing Policy 560.530 Commercial sales of agricultural commodities and products, medicine, and medical equipment 560.531 Commercial sales of certain bulk agricultural commodities 560.532 Payment for and financing of commercial sales of agricultural commodities and products, medicine, and medical equipment 560.533 Brokering sales of bulk agricultural commodities Appendix A to Part 560 [Redesignated] Appendix B to Part 560 – Bulk Agricultural Commodities 1. The authority citation for part 560 continues to read as follows:

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Authority: 3 U.S.C. 301; 18 U.S.C. 2332d; 22 U.S.C. 2349aa-9; 31 U.S.C. 321(b); 50 U.S.C. 1601–1651, 1701–1706; Pub. L. 101-410, 104 Stat. 890 (28 U.S.C. 2461 note); E.O.12613, 52 FR 41940, 3 CFR, 1987 Comp., p. 256; E.O. 12957, 60 FR 14615, 3 CFR, 1995 Comp., p. 332; E.O. 12959, 60 FR 24757, 3CFR, 1995 Comp., p. 356; E.O. 13059, 62 FR 44531, 3 CFR, 1997 Comp., p. 217. Subpart D – Interpretations 2. Section 560.405 is added to subpart D to read as follows: §560.405 Transactions incidental to a licensed transaction authorized Any transaction ordinarily incident to a licensed transaction and necessary to give effect thereto is also authorized, except: (a) A transaction by an unlicensed Iranian governmental entity or involving a debit or credit to an Iranian account not explicitly authorized within the terms of the license; (b) Provision of any transportation services to or from Iran not explicitly authorized in or pursuant to this part other than discharging licensed or exempt cargo there; (c) Distribution or leasing in Iran of any containers or similar goods owned or controlled by United States persons after the performance of transportation services to Iran; and (d) Financing of licensed sales for exportation or reexportation of agricultural commodities or products, medicine or medical equipment to Iran or the Government of Iran. See §560.532. Subpart E – Licenses, Authorizations, and Statements of Licensing Policy 3. Section 560.530 is added to subpart E to read as follows: §560.530 Commercial sales of agricultural commodities and products, medicine, and medical equipment (a) General license for executory contracts. Entry into executory contracts is authorized for the following transactions with nongovernmental entities in Iran or procurement bodies of the Government of Iran not affiliated with the coercive organs of the state, provided that performance of the executory contracts including any preparatory activities, payments or deposits related to such executory contracts is contingent

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upon the prior authorization of the Office of Foreign Assets Control in or pursuant to this part: (1) The sale of agricultural commodities and products, if those commodities and products are intended for ultimate consumption in Iran as: (i) Food by humans (including live animals, raw, processed and packaged foods) or animals (including animal feeds); (ii) Seeds for food crops; and (iii) Reproductive materials (such as live animals, fertilized eggs, embryos and semen) for the production of food animals; and (2) The sale of medicines (including those administered by injection) and medical equipment for use in Iran, if those medicines and medical equipment are not listed on the Commerce Control List in the Export Administration Regulations, 15 CFR part 774, supplement no. 1 (excluding items classified EAR99), as of the date of exportation or reexportation. (EAR99 items may in certain instances require a license from the Department of Commerce, Bureau of Export Administration. See, e.g., 15 CFR 736.2(b)(5), 744.2 through 744.4, 744.7, and 744.10.) Note to paragraph (a) of §560.530 See §560.531 with respect to the availability of specific licenses for entry into and performance of contracts for sales of certain bulk agricultural commodities. (b) Required terms of executory contracts. The authorization contained in paragraph (a) of this section applies only to executory contracts that: (1) Disclose all parties with an interest in the sales transaction. If the goods are being sold to a purchasing agent in Iran, the executory contract must identify the agent’s principals at the wholesale level for whom the purchase is being made; (2) Provide only for sales at prevailing market prices; (3) Set forth all terms of sale (e.g., purchase price, quantity, date of shipment, financing), except that dates for contract performance may be made dependent upon the date a specific license pursuant to paragraph (d) of this section is obtained from the Office of Foreign Assets Control; (4) Make any performance involving the exportation or reexportation of any goods, technology (including technical data, software, or other information) or services that are subject to license application requirements of another Federal agency contingent upon the prior

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authorization of that agency. (For example, items classified EAR99 under the Export Administration Regulations, 15 CFR parts 730 through 774, may in certain instances require a license from the Department of Commerce, Bureau of Export Administration. See, e.g., 15 CFR 736.2(b)(5), 744.2 through 744.4, 744.7, and 744.10; see also 22 CFR 123.9); and (5) Provide for payment terms consistent with the provisions of §560.532. (c) Ineligible purchasers. Nothing in this section permits entry into or performance of a sales contract with a person specifically named in appendix A to this chapter V or in appendix A to this part 560, other than a procurement body of the Government of Iran identified by the Office of Foreign Assets Control as not being affiliated with the coercive organs of the state. Note to paragraph (c) of §560.530 Information on ineligible purchasers and eligible procurement bodies will be published in the Federal Register and may be found on the Office of Foreign Assets Control’s Internet site: http://www.treas.gov/ofac, or on its fax-on-demand system: 202/622-0077. (d) Specific licenses for performance under executory contracts. Specific licenses may be issued on a case-by-case basis to permit the performance of executory contracts meeting the requirements of paragraphs (a) and (b) of this section. See §501.801(b) of this chapter with respect to specific licensing procedures. (e) Recordkeeping and reporting requirements. Attention is drawn to the recordkeeping, retention, and reporting requirements of §§501.601 and 501.602. 4. Section 560.531 is added to subpart E to read as follows: §560.531 Commercial sales of certain bulk agricultural commodities (a) Sales of bulk agricultural commodities by licensed sellers. Specific licenses may be issued on a case-by-case basis to permit the sale and exportation or reexportation to persons in Iran or the Government of Iran of bulk agricultural commodities intended for ultimate consumption in Iran as food by humans or animals (including animal feeds) and seeds for food crops, for sales meeting all requirements of paragraph (b) of this section.

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(b) Required contract terms for commercial sales of bulk agricultural commodities. Specific licenses issued pursuant to this section will authorize entry into and performance only of contracts that: (1) Provide for the sale and exportation or reexportation only of bulk agricultural commodities listed in appendix B to this part 560; (2) Fully identify the purchasers of the bulk agricultural commodities, including (for sales through persons in third countries) those to whom the commodities are to be resold, and do not include as a purchaser any person in Iran or any person within the definition of the term Government of Iran other than: (i) A private individual in Iran acting for his or her own account; (ii) A nongovernmental entity in Iran; or (iii) A procurement body of the Government of Iran identified by the Office of Foreign Assets Control as not being affiliated with the coercive organs of the state; (3) Provide only for sales at prevailing market prices; (4) Make any performance involving the exportation or reexportation of any goods, technology (including technical data, software, or other information) or services that are subject to license application requirements of another Federal agency contingent upon the prior authorization of that agency. (For example, EAR99 items may in certain instances require a license from the Department of Commerce, Bureau of Export Administration. See, e.g., 15 CFR736.2(b)(5), 744.2 through 744.4, 744.7, and 744.10; see also 22 CFR 123.9); and (5) Provide for payment terms consistent with the provisions of §560.532. (c) Recordkeeping and reporting requirements. Attention is drawn to the recordkeeping, retention, and reporting requirements of §§501.601 and 501.602. (d) Other commodities and products. Requests may be made to the Office of Foreign Assets Control for specific licenses analogous to those available pursuant to paragraph (a) of this section where the applicant demonstrates to the satisfaction of the Office of Foreign Assets Control that, in light of industry practices, sales of the particular agricultural commodity or product, medicine, or medical equipment are impracticable under the executory contract licensing procedures contained in §560.530. (e) Ineligible purchasers. Nothing in this section permits entry into or performance of a sales contract with a person specifically named in

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appendix A to this chapter V or in appendix A to this part 560, other than a procurement body of the Government of Iran identified by the Office of Foreign Assets Control as not being affiliated with the coercive organs of the state. Note to paragraph (e) of §560.531 Information on ineligible purchasers and eligible procurement bodies will be published in the Federal Register and may be found on the Office of Foreign Assets Control’s Internet site: http://www.treas.gov/ofac, or on its fax-on-demand system: 202/622-0077. 5. Section 560.532 is added to subpart E to read as follows: §560.532 Payment for and financing of commercial sales of agricultural commodities and products, medicine, and medical equipment (a) General license for payment terms. The following payment terms for sales of agricultural commodities and products, medicine, and medical equipment pursuant to §§560.530 and 560.531 are authorized: (1) Payment of cash in advance; (2) Sales on open account, provided that the account receivable may not be transferred by the person extending the credit; or (3) Financing by third-country financial institutions that are neither United States persons nor Government of Iran entities. Such financing may be confirmed or advised by U.S. financial institutions. (b) Specific licenses for alternate payment terms. Specific licenses may be issued on a case-by-case basis for payment terms and trade financing not authorized by the general license in paragraph (a) of this section for sales pursuant to §§560.530 and 560.531, except that such financing may not be provided by the Government of Iran. See §501.801(b) of this chapter for specific licensing procedures. (c) No use of Iranian accounts. Nothing in this section authorizes payment terms or trade financing involving a debit or credit to an Iranian account. (d) Transfers through the U.S. financial system. Any payment relating to a trans-action authorized in or pursuant to §560.530, 560.531, or 560.533 that is routed through the U.S. financial system must reference the relevant Office of Foreign Assets Control license authorizing the payment to avoid the rejection of the transfer. See §560.516(b).

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Section 560.533 is added to subpart E to read as follows:

§560.533 Brokering sales of bulk agricultural commodities (a) General license for brokering sales by U.S. persons. United States persons are authorized to broker the sale by United States persons of the bulk agricultural commodities listed in appendix B to this part 560 to individuals in Iran acting for their own account, nongovernmental entities in Iran, procurement bodies of the Government of Iran identified by the Office of Foreign Assets Control as not being affiliated with the coercive organs of the state, or persons in third countries purchasing specifically for resale to any of the foregoing, provided that the brokered sales meet all conditions of §560.531. (b) Specific licensing for brokering sales by non-U.S. persons. Specific licenses may be issued on a case-by-case basis to permit United States persons to broker the sale and exportation or reexportation of bulk agricultural commodities by non-United States persons to persons in Iran or the Government of Iran. Specific licenses issued pursuant to this section will authorize the brokerage only of sales that: (1) Are limited to the bulk agricultural commodities listed in appendix B to this part 560; (2) Are to purchasers permitted pursuant to paragraphs (b)(2) and (e) of §560.531; (3) Require that any performance that is subject to license application requirements of another Federal agency be contingent upon the prior authorization of that agency. (For example, items classified EAR99 under the Export Administration Regulations, 15 CFR parts 730 through 774, may in certain instances require a license from the Department of Commerce, Bureau of Export Administration. See, e.g., 15 CFR 736.2(b)(5), 744.2 through 744.4, 744.7, and 744.10; see also 22 CFR 123.9.) (c) No debit to an Iranian account. Payment for any brokerage fee pursuant to this section may not involve a debit or credit to an Iranian account. (d) Recordkeeping and reporting requirements. Attention is drawn to the recordkeeping, retention, and reporting requirements of §§501.601 and 501.602.

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Appendix A to Part 560 [Redesignated] 7. The appendix to part 560 is redesignated as Appendix A to Part 560. 8. Appendix B to part 560 is added to read as follows: Appendix B to Part 560-Bulk Agricultural Commodities Notes: 1. Appendix B sets forth those agricultural commodities eligible for the bulk agricultural commodity sales licensing procedures in §560.531. 2. Commodities are identified by their classification numbers in the Harmonized Tariff Schedule of the United States (see 19U.S.C. 1202) (‘HTS’). HTS Number Commodity 1001.10 1001.90

1101.00 1006.10 1006.20 1006.30 1006.40 1102.30 1103.14 1002.00 1003.00 1004.00 1007.00 1005.00 0713.31 0713.32 0713.33 0713.39 0713.50

Durum Wheat Other Wheat and Meslin, including seed, Red Spring Wheat, White Winter Wheat, ‘Canadian’ Western Red Winter Wheat, Soft White Spring Wheat, and Wheat not elsewhere specified Wheat or Meslin Flour Rice in the husk (paddy or rough) Husked (brown) Rice Semi-milled or wholly milled Rice, whether or not polished or glazed Broken Rice Rice Flour Rice Groats, Meal and Pellets Rye Barley Oats Grain Sorghum Corn (Maize) Dried Beans including Vigna mungo (L.), Hepper, and Vigna radiata (L.) Wilczek Small red (adzuki) beans Kidney beans, including white pea beans Beans, other Broad beans and horse beans

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0713.10 0713.20 0713.40 0713.90 1201.00 2304.00 1507.10 1507.90 1514.10 1514.90 1515.21 1515.29 1512.21 1512.29 1517.90 1508.10 1508.90 1515.50 1512.11 1512.19 1212.91 1212.92 1701.11 1701.12 1701.91 1701.99

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Dried Peas ( Pisum sativum) Chickpeas (garbanzos) Lentils Dried leguminous vegetables, shelled, not elsewhere specified Soybeans, whether or not broken Soybean cake, meal and pellets Soybean oil, crude Soybean oil, other Rapeseed, colza and mustard oil, crude Rapeseed, colza and mustard oil, other Corn (Maize) oil, crude Corn (Maize) oil, other Cottonseed oil, crude Cottonseed oil, other Cottonseed oil, hydrogenated Peanut (ground-nut) oil, crude Peanut (ground-nut) oil, other Sesame oil Sunflower-seed oil, crude Sunflower-seed oil, other Sugar Beets, fresh, chilled, frozen or dried Sugar Cane, fresh, chilled, frozen or dried Cane Sugar, raw, solid form Beet Sugar, raw, solid form Cane or Beet Sugar, solid form, containing added coloring or flavoring Cane or Beet Sugar, other, not elsewhere specified

Dated: July 26, 1999.

DOCUMENT 10 Amendment to the Iranian Transactions Regulations (27 October 1999)

Office of Foreign Assets Control 31 CFR Part 560 Subpart B – Prohibitions 560.210 Exempt transactions. Subpart E – Licenses, Authorizations and Statements of Licensing Policy 560.505 560.530

[Amended] Commercial sales, exportation and reexportation of agricultural commodities and products, medicine, and medical equipment. 560.531 Commercial sales, exportation and reexportation of certain bulk agricultural commodities. 560.532 Payment for and financing of commercial sales of agricultural commodities and products, medicine and medical equipment. 560.533 Brokering sales of bulk agricultural commodities. Appendix C to Part 560 – Eligible Procurement Bodies 1. The authority citation for part 560 continues to read as follows:

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Authority: 3 U.S.C. 301; 18 U.S.C. 2332d; 22 U.S.C. 2349aa-9; 31 U.S.C. 321(b); 50 U.S.C. 1601–1651, 1701–1706; Pub. L 101-410, 104 Stat. 890 (28 U.S.C. 2461 note); E.O. 12613, 52 FR 41940, 3 CFR, 1987 Comp., p. 256; E.O 12957, 60 FR 14615, 3 CFR, 1995 Comp., p.332; E.O. 12959, 60 FR 24757, 3 CFR, 1995 Comp. P. 356; E.O. 13059, 62 FR 44531, 3 CFR, 1997 Comp., P.217. Subpart B – Prohibitions 2. In §560.210, revise the last sentence of paragraph (c)(2) to read as follows: §560.210 Exempt Transactions (c) (2) Transactions that are prohibited notwithstanding this section include, but are not limited to, payment of advances for information and informational materials not yet created and completed (with the exception of prepaid subscriptions for widely circulated magazines and other periodical publications), and provision of services to market, produce or co-produce, create or assist in the creation of information and informational materials. Subpart E – Licenses, Authorizations and Statements of Licensing Policy §560.505 [Amended] 3. In §560.505, amend paragraph (c) by revising the phrase ‘H-1b (temporary worker)’ to read ‘H (temporary worker).’ 4. In §560.530, revise the section heading, paragraph (a) introductory text, and the first sentence of paragraph (b)(4) to read as follows: §560.530 Commercial sales, exportation and reexportation of agricultural commodities and products, medicine, and medical equipment (a) General license for executory contracts. Except as provided in paragraph (c) of this section, entry into executory contracts is authorized for the following transactions with individuals in Iran acting for their own account, nongovernmental entities in Iran or procurement bodies of the Government of Iran identified by the Office of Foreign Assets Control as not being affiliated with the coercive organs of the state, or with persons in third countries purchasing specifically for resale to any of the foregoing, provided that performance of the executory contacts (including any preparatory activities, payments or deposits related to

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such executory contracts) is contingent upon the prior authorization of the Office of Foreign Assets Control in or pursuant to this part: (b) (4) Make any performance involving the exportation or reexportation of any goods, technology or services (including technical data, software, or information) that are subject to license application requirements of another Federal agency contingent upon the prior authorization of that agency. 3. In §560.531, revise the section heading and the first sentence of paragraph (b)(4) to read as follows: §560.531 Commercial sales, exportation and reexportation of certain bulk agricultural commodities (a) (4) Make any performance involving the exportation or reexportation of any goods, technology or services (including technical data, software, or information) that are subject to license application requirements of another Federal agency contingent upon the prior authorization of that agency. 3. In §560.532, revise the first sentence in paragraph (b) and paragraph (c) to read as follows: §560.532 Payment for and financing of commercial sales of agricultural commodities and products, medicine, and medical equipment (b) Specific licenses for alternate payment terms. Specific licenses may be issued on a case-by-case basis for payment terms and trade financing not authorized by the general license in paragraph (a) of this section for sales pursuant to §§560.530 and 560.531. (c) No debits or credits to Iranian accounts on the books of U.S. depository institutions. Nothing in this section authorizes payment terms or trade financing involving a debit or credit to an account of a person located in Iran or the Government of Iran maintained on the books of a U.S. depository institution. 7. In §560.533, revise the first sentence of paragraph (b)(3) and paragraph (c) to read as follows: §560.533 Brokering services of bulk agricultural commodities (b) (3) Make any performance involving the exportation or reexportation of any goods, technology or services (including technical data,

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software, or information) that are subject to license application requirements of another Federal agency contingent upon the prior authorization of that agency. (c) No debits or credits to Iranian accounts on the books of U.S. depository institutions. Payment for any brokerage fee earned pursuant to this section may not involve a debit or credit to an account of a person located in Iran or of the Government of Iran maintained on the books of a U.S. depository institution. 8. Appendix C is added to part 560 to read as follows: Appendix C to Part 560 – Eligible Procurement Bodies This Appendix C sets forth eligible procurement bodies of the Government of Iran identified by the Office of Foreign Assets Control as not being affiliated with the coercive organs of the state. See §560.531(e). Government Trading Corporation ( a.k.a. GTC). State Livestock and Logistics Co. (a.k.a. State Livestock Affairs Logistics; a.k.a. SLAL). Dated: October 27, 1999.

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ollowing the imposition of sanctions against Iran, Representative King and Senator D’Amato struck a deal with the Clinton administration. As part of it the State Department pledged that at the G7 summit in June 1995 in Halifax, Nova Scotia, President Clinton would pressure US allies to restrict their trade with Iran. In return, King and D’Amato agreed to postpone congressional consideration of their bills. During the summer of 1995, the US administration stepped up its efforts to pressure its allies to limit trade with Iran. Only Israel, Uzbekistan, Ivory Coast and El Salvador expressed outright support for a trade ban against Iran. The G7 countries at their summit also failed to endorse US policy on Iran. Although the United States made Iran the major issue of the summit, it could not convince the remaining nations (Canada, France, Germany Japan, the United Kingdom and Italy) to unite in embargoing Iran. Allies of the United States argued that a ‘constructive engagement’ would be a more satisfactory way of dealing with Tehran. The United States, lacking substantial evidence of Iran’s alleged intention to acquire nuclear weapons, could not even convince its allies to issue a harsh communiqué. Canadian Prime Minister Jean Chretien, chairman of the summit, declared in his concluding statement that ‘if evidence emerged to support’ the United States’ allegations, ‘we will immediately curtail any nuclear co-operation programme with Iran’. The final statement from the G7 meeting merely called on Iran ‘to participate constructively in regional and world affairs’.

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The near unanimous refusal of the world to co-operate with Washington caused shock in the United States. ‘Our superpower status isn’t what we like to think it is,’ said John Lichtblau, President of the Petroleum Industry Research Foundation.1 In the aftermath of the G7 summit, on 13 July 1995, the French oil company Total signed a US$600 million contract for the development of the Sirri-A and Sirri-E fields. This contract had originally been awarded to the US firm CONOCO, which, under pressure from the US administration in March 1995, had to withdraw from the deal. The United States’ failure to convince its allies to support its policy on Iran was compounded by the refusal of the world community as a whole to back sanctions, and an invitation extended by Tehran to about 100 European and Asian companies to participate in discussions on investments in energy projects worth US$6.5 billion. Despite all these setbacks, D’Amato’s resolve was not weakened. Instead, he returned to the offensive, this time introducing the Iran Foreign Oil Sanction Act of 1995. THE IRAN FOREIGN OIL SANCTIONS ACT OF 1995 On 8 September 1995, D’Amato introduced the act (S1228) to the Senate Banking Committee, co-sponsored by Senators Inouye, Pressler, Faircloth and Kohl. The legislation, though similar in name, differed from the Iran Foreign Sanctions Act which D’Amato had introduced on 27 March, which would have imposed sanctions against any foreign company involved in any type of trade with Iran. The new bill would only impose sanctions on foreign companies that helped Iran develop its oil industry. The key idea behind the bill was that imposing sanctions on foreign entities trading with Iran in energy-related goods would be an effective way to encourage international co-operation in boycotting Iran. In a statement accompanying the bill, D’Amato explained that he was offering, through the legislation, to provide the ‘proper tools’ with which the Clinton administration could obtain international support for its sanctions policy against Iran. ‘Our allies must understand that oil is Iran’s lifeline,’ D’Amato said. ‘If we are going to persuade the Iranian regime that its efforts to achieve nuclear status, its support for international terrorism, and its horrendous human rights abuse against the Iranian people should end, we must end the funding with which they are paying for it all. The rest of the world now must stop providing that funding.’ 1

Yussuf M. Ibrahim, ‘Iran Shrugs Off Sanctions’, International Herald Tribune, 22 June 1995.

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The legislation envisaged the imposition of sanctions on foreign companies trading in petroleum and natural-gas-related goods and technology, or anything that ‘materially contributes to the extraction, refining, production, storage or transportation of petroleum, petroleum products, or natural gas and the products thereof in or by Iran, including goods and technology that are required for the development, production or use (including the repair, maintenance or operation of equipment) for the petroleum and natural gas activities’ 2 in Iran. The D’Amato bill required the president to impose mandatory and discretionary sanctions on foreign persons, companies or subsidiaries. The mandatory sanctions included: • procurement sanctions – ‘the United States Government shall not procure or enter into any contract for the procurement of any goods or services from such sanctioned foreign person or any parent subsidiary, affiliate or successor entity thereof’; • export sanctions – ‘the United States Government shall not issue any license or grant any other permission or authority to export any goods or technology to a sanctioned foreign person’, and ‘sanctioned foreign persons shall be included within the table of Denial Orders for general and validated export licenses for a period of not less than three years’; • denial of entry of persons into the United States – ‘sanctioned natural persons and senior executive officers of sanctioned partnerships shall be ineligible to receive visas and shall be excluded from admission into the United States’. The discretionary sanctions included: • investment, mergers, acquisitions and take-overs – ‘The President may exercise his authority… to investigate and prohibit mergers, acquisitions, take-overs and other similar investments in the United States’ by sanctioned persons and companies; • import sanctions – the president could prohibit ‘the importation into the United States of products produced by any sanctioned foreign person including any parent, subsidiary, affiliate or successor entity’, and the prohibition would apply to any finished product or component parts, whether shipped directly or indirectly, and to any kind of services; • prohibition against Export-Import Bank assistance – ‘The Export-Import Bank of the United States may not guarantee, insure, extend credit to or participate in the extension of credit in connection with export of any 2

S1228, 104th Congress, 1st Session.

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goods or services to any foreign person that has been made subject to the sanctions’; • loans from US financial institutions – ‘The United States Government may prohibit any United States financial institution from making any loan or providing any credit to any foreign person sanctioned’; • prohibition on foreign financial institutions – a sanctioned foreign financial institution would lose its designation as a primary dealer in the United States and ‘shall not serve as agent of the United States Government or serve as repository for United States Government funds’. Furthermore, such sanctioned foreign financial institutions should not ‘commence any line of business in the United States in which it was not engaged’ nor ‘conduct business from any location in the United States at which it did not conduct business’ before the determination by the president of its sanctioned status. On 11 October, D’Amato held a hearing on his new bill before the Senate Committee on Banking, Housing and Urban Affairs. Upset with the US allies’ refusal to back sanctions, D’Amato addressed the committee, enquiring into ‘the effect of international compliance with the Administration’s effort to restrict trade with Iran’. Puzzled that US allies were still trading with Iran, he said, we must convince our allies that their companies’ help to Iran in developing oil fields is really unacceptable. The legislation that we’ve proposed will help to do that by placing sanctions on any foreign company that supplies Iran with equipment to extract petroleum and natural gas, enabling Iran to obtain hard currency to fund the acquisition of nuclear weapons and to continue its support for terrorism. Our allies must understand that oil is Iran’s lifeline. If we’re going to persuade the Iranian regime that its behavior is unacceptable, the world must cut this lifeline. Apparently, some of our allies have yet to join us in our embargo. In fact, they seem to be playing along with the Iranian regime’s plan to flaunt this embargo by agreeing to attend an international investment conference in November in Tehran, hoping to sign contracts worth US$6.5 billion. The Iranian regime hopes to take advantage of disagreements with the US sanctions and thumb its nose at the United States, showing that Iran can survive, and even thrive, despite the trade ban. This is even more reason to pass, I believe, the pending legislation.

Under Secretary of State, Peter Tarnoff, and the CIA Deputy Director for Intelligence, John Gannon, testified at the hearing, and declared the Clinton administration’s opposition to the proposed legislation. Tarnoff stated that a ‘secondary boycott would put at risk the co-operation on Iran policy

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that we share with others – particularly co-operation on critical matters such as denying Iran weapons. We also believe that such interference in the international market place would backfire hurting American businesses and harming the American economy.’ Targeting foreign companies which provided Iran’s petroleum industry with equipment and technology ‘would create additional disincentives for European trade and investment with Iran. Yet it could also have negative implications for US economic interest by upsetting our relations with key allies and foreign industry.’ Tarnoff acknowledged that allies of the United States had declined to support sanctions against Iran, and conceded that ‘if, after a reasonable period of time, diplomacy alone proves inadequate in achieving an acceptable level of multinational support for our efforts, we could then consider additional approaches’. John Gannon admitted that in the long term sanctions would have little impact on the Iranian economy, and that Iran would maintain its oil sales because it uses sophisticated marketing tactics and because its crude oil is of good quality. He added that the ban would not stop major new development projects or prevent maintenance and repairs. At most, it would raise prices, disrupt individual Iranian businesses and possibly delay some infrastructure projects. Iran continued to have other trading options. As early as 1980, it was cultivating alternative suppliers to replace US equipment, and had established ties with hundreds of foreign companies. He concluded that even the strong growth in US exports to Iran in the early 1990s reflected only an Iranian preference for, not a dependence on, US goods. Gannon acknowledged, correctly, that ‘the strong and sustained support of other countries is essential for sanctions to succeed. The long-term effect on Iran’s economy will be minimal unless many more countries join the embargo or withhold significant loans. To date there has been little international support.’ He cited Israel, El Salvador and Ivory Coast – countries with no, or limited, trade with Iran – as the only supporters of the US sanctions against Iran. Gannon added that the ‘Western governments, including many of our European allies, have voiced doubts about the potential impact of sanctions on Iranian behavior. They argue that engagement, not isolation, of Iran offers the best hope of moderating Tehran’s behavior.’ During the hearings, D’Amato pledged that he would not take his bill to the Senate floor without further consultation with the State Department. ‘It is not my intention to set policy, but to put pressure on the Iranians,’ he told Tarnoff.

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D’Amato’s conciliatory gesture was insufficient. Soon after the hearing, he conducted an all-out effort to line up new supporters for his bill. By 19 October, the co-sponsors numbered 29, among them Senate majority leader Bob Dole. Others included Inouye, Lieberman, Mack, Pressler, Snowe, Kyle, Faircloth, Kohl, Domenici, Hatch, Grassley, Cochran, Stevens, Dewine, Warner, Brown, Helms, Shelby, Campbell, McConnel, Inhofe, Santorum, Bennet, Gramm, Coverdell, Kempthorne and Thomas. US Secretary of State Warren Christopher, addressing the UN General Assembly on 25 October 1995, said: ‘Every dollar that goes into the coffers of a state sponsor of terrorism makes its secret quest for weapons of mass destruction even more alarming. We must stand together to prevent Iran from acquiring such threatening capabilities.’ His failure to obtain any support encouraged D’Amato, Dole, Inouye and Kohl to write to him on 27 October, warning that they were planning to move towards the enactment of this bill. ‘It is now obvious that whatever efforts the Administration has been making to persuade the international community to support a sanctions regime against Iran have not been successful.’ The senators continued: ‘Our patience has now run out and we feel we can wait no longer before putting real teeth in our policy of economically isolating and undermining a regime which has embarked on policies that impose a clear and present danger to the vital security interest of our country’. Also, on 11 October, Benjamin Gilman, chairman of the International Relations Committee of the House of Representatives, had introduced the House version of the D’Amato bill (HR2458). This was co-sponsored by Representatives King, Shaw, Berman and Forbes. ‘As long as our trading partners continue business as usual with this terrorist country,’ Gilman said, ‘our own embargo will have little long-term effect on its policies’. On 9 November, Tarnoff delivered testimony to the House International Relations Committee: While our allies share our concerns about Iranian behavior, they do not share our conclusion that economic pressure is the most effective way to change this behavior. They prefer a policy of dialogue. We point out to them that their dialogue has not produced an improvement in Iran’s behavior. Yet they remain reluctant to take action, in part because it would negatively affect the commercial interests of their business and, in part, because of an honest disagreement with us over whether or not economic pressure will alter Iran’s behavior. Still, I believe that our constant diplomatic pressure on our international partners is resulting in tangible measures that support US policy. For example,

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it is reasonable for us to expect that we can hold the line on stopping new official credit, government aid and investment in Iran.

Tarnoff expressed the administration’s opposition to the bill, and highlighted its concerns. First we must find a way to further our objectives which hurts Iran more than it hurts America’s broader interests. For example, we need to ensure than any proposed sanctions do not just drive foreign firms to cut off their business relations with US companies in favour of Iran’s market. This would only jeopardize American jobs and exports without restricting Iran’s ability to acquire imports. A second concern is whether we could administer such sanctions. Accurately monitoring trade between Iran and the world’s major foreign suppliers would be very difficult, especially since we could not count on trading nations to co-operate with us. A final concern is that, whatever approach we and the Congress choose, we should not engender a spate of acrimonious international litigation with our closest trading partners, or fragment the increasingly effective diplomatic coalition that we have successfully forged to counter objectionable Iranian policies. We would also weigh carefully the implication for our broader trading interests of adopting a secondary boycott.

Berman, one of the co-sponsors of the bill, explained that its purpose was not to persuade Japan and European countries to impose a total embargo against Iran. It’s focused very specifically on the kinds of exports that will help Iran increase its capacity to produce oil and gas and secure the currency that will allow it to finance the terrorists, to strengthen its conventional arms capabilities, to destabilise the Gulf region, to finance any programs of weapons of mass destruction. The existence of this Bill gives the Administration a chance, I think to focus a very special rifle shot on our friends who have the companies.

Berman continued: This isn’t Russia’s strength; this isn’t China’s strength. The countries that have not gone along with some of the other efforts are not the problems here, because they don’t have the capability to provide this kind of sophisticated infrastructure and equipment. It is our closest allies in Europe and Japan that have this capability, particularly in Europe, and it seems to me that the existence of this Bill and the importance of the subject gives an opportunity to renew a diplomatic effort specially focused on this kind of equipment and I’d just be interested in your reaction to that.

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On 10 November, the day after the hearing on the Gilman bill, yet another similar bill was introduced in the House of Representatives. This time it was HR2619, presented by Representatives Gejdenson and Burton. Although the Clinton administration had been, up to that point, opposed to the D’Amato and Gilman Bills, by 14 November it was expressing a willingness to support these two pieces of legislation, the major impetus being the imminent conference in Tehran, where government contracts worth about US$6.5 billion would be open for bids. Evidence of bipartisan support also encouraged the US government. As one US official stated, ‘We sense a certain inevitability in Congress wanting to move forward on this, so we are now willing to talk with them’. The Clinton administration’s willingness to compromise with Congress on the proposed bills prompted the presidency of the Council of the European Union and the European Commission to express their objections to the Iran Foreign Oil Sanction Act, in a letter to the State Department on 8 December. The European Community maintains its strong and unequivocal opposition to the extra-territorial application of US jurisdiction which would restrict EC trade with third countries as a matter of law and policy, and takes the position that the US has no basis in international law to claim the right to impose sanctions on any foreign person or foreign-owned company who supplies Iran with oil development equipment. This applies particularly to sanctions against trade in products that have no connection with proliferation-related technology.

Similar letters were also sent to 40 senators and representatives. Deputy Assistant Secretary of State C. Richard Welch and D’Amato’s congressional aides negotiated for weeks to reach a workable compromise on the proposed bill. The administration eventually won the support of key Democratic Senator Paul Sarbanes, the ranking minority member of D’Amato’s Banking Committee. Sarbanes advised D’Amato that the Democrats would oppose the bill if the import measures in it were not removed. D’Amato had to compromise at the last minute, aware in particular that Senator Phil Gramm of Texas was opposed to it. To win the administration’s support for the bill, D’Amato had to reduce significantly the tougher sanctions he had proposed. The new legislation shifted the focus from ‘the foreign companies that trade on petroleum and natural gas-related technology’ to the companies that ‘made an investment of more than US$40 million, that significantly and materially contributed to the development of petroleum resources in Iran’.

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This softened version of the D’Amato bill was unanimously approved by the Senate Banking Committee on 12 December. After the legislation was passed, D’Amato stated: This legislation will place sanctions on any foreign company that invests in this Iranian energy sector by entering into contracts to develop the petroleum resources of Iran. Without such a policy, Iran will continue to do business with companies who put their desire for profits ahead of the international community’s goal of preventing Iran from developing nuclear weapons and funding terrorism.

D’Amato added: ‘With such a policy there would be a real chance of convincing Iran that its attempt to acquire nuclear weapons of mass destruction and its promotion of terrorism is entirely counterproductive’.3 On 18 December, the Senate approved D’Amato’s bill (S1228) aimed at forcing foreign companies to cut off investment in projects that contributed to the development of Iranian petroleum resources. But the passage of the bill was halted on 19 December after Senator Edward Kennedy learned that an amendment he had tabled including Libya in the bill had not been considered. So before the final version of the bill was approved on 20 December, an amendment was introduced by Kennedy and D’Amato (receiving unanimous assent), mandating the same set of sanctions against foreign companies entering into contracts to develop Libya’s petroleum resources. ‘Libya pays for its sponsorship of terrorism with its oil money,’ said D’Amato, ‘Therefore, it is only logical that we deprive Libya of the means to fund these actions’. The Kennedy amendment to the bill was passed on the eve of the seventh anniversary of the bombing of Pan Am Flight 103 over Lockerbie. ‘Despite UN economic sanctions which have been in force since 1992, the Government of Libya has refused to hand over suspects and the two suspects remain in Libya under the protection of Colonel Qadafi,’ said Kennedy on the Senate floor when introducing his amendment. The inclusion of Libya in the bill surprised everyone, including the Clinton administration, which privately stated that ‘the Administration would back off its stated support of the D’Amato Bill because of the addition of Libya to the Bill’.

3

‘Bill sanctions foreign companies aiding Iranian energy development’, Senator D’Amato news release, 12 December 1995.

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THE NEW IRAN OIL SANCTIONS ACT OF 1995 The declared policy of the United States behind the bill was ‘to deny Iran the ability to support international terrorism and to fund the development and acquisition of weapons of mass destruction and the means to deliver them by limiting the development of petroleum resources in Iran’. The legislation required that the president should impose one or more of the following sanctions on any foreign company that invested more than US$40 million in the Iranian oil industry in one year: the withholding of the support of the United States Export-Import Bank for export of any goods and services to any sanctioned company; the refusal of permission to export any goods and technology to any sanctioned company; the prohibition of US financial institutions from granting any loan or providing any credit to any sanctioned person in excess of US$10 million during any 12-month period; the prohibition of any financial institution sanctioned under the legislation from being designated as a primary dealer in US government debt instruments, or from serving as an agent of the US government or as a repository of US government funds. The bill, as passed, was a victory for the Clinton administration. The exclusion of trade transactions, the elimination of denial of entry into the United States, and the removal of the prohibition on importation into the United States of goods from sanctioned companies decreased significantly the scope of the bill. However, even the watered-down legislation was opposed by allies of the United States. ‘We take note of the changes of the Iran Oil Sanctions Act of 1995 (S1228), as passed by the US Senate on 20 December 1995,’ two prominent Europeans wrote in a letter to D’Amato. While we acknowledge that these changes have reduced the scope of sanctions against foreign companies, we reiterate our strong and unequivocal opposition to the extra-territorial application of US jurisdiction. We find it unacceptable that companies incorporated in and operating from the European Community will be threatened by unilateral US sanctions when maintaining legitimate business relations with Iran and Libya. We reiterate our position that the US has no basis in international law to claim the right to regulate in any way transactions taking place outside the US. This way of unilaterally attempting to impose policies on third parties disturbs international trade and investment relations and depreciates the standing of internationally accepted fora for any such measures.4 4

Letter from Hugo Paeman and Ferdinando Salleo to Senator D’Amato, 25 January 1996.

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In addition, the European Union’s economic ties and interests in Iran since the Iranian Revolution in 1979 had developed to such an extent that it would have been practically impossible to allow a bill such as D’Amato’s to have any effect on their nationals or companies operating from their territories. The passage of the bill through the Senate, although still not bringing the law into force, gave D’Amato the courage to harass companies that he thought might be tempted to invest in the Iranian oil industry. He wrote to Japanese, Australian and European companies declaring that ‘attempts to rush deals to be signed before the Bill passed Congress in an effort to avoid sanctions are unconscionable,’ and warned ‘that there is growing support in the Congress to add various provisions including one that would make the Bill retroactive in order to cover these types of threat. Deals such as this will only encourage harsher provisions.’ 5 Eiji Watanabe, Chairman of the Japanese company JGC, responded to Senator D’Amato advising that due to shortage of finance they would not immediately be participating in any new projects in Iran. But if this barrier were to be removed and JGC decided to pursue new business there ‘its performance of work would be consistent with national laws, policies and international agreements applicable to JGC’.6 In his letters to Elf Aquitaine and Total, D’Amato wrote: We in Congress view any business deal that provides Iran with the hard currency to develop its energy sector as a direct threat to US national security because such deals enhance the regime’s financial resources enabling it to finance its ongoing nuclear programs and terrorist networks aimed at the United States and its allies. We are committed to strengthening current economic sanctions against Iran until that regime’s ability to conduct these practices ceases.

In an undiplomatic and hostile manner, D’Amato continued his letters by connecting the activities of these two French companies in Iran to a recent bomb attack in Israel, denouncing their involvement in Iran as ‘very disturbing’ and ‘an insult to the memory of those killed in the recent attacks in Israel’. He threatened that ‘Congress and American people cannot sit back idly while companies from allied countries provide Iran with the resources to fund and support terrorist acts such as these’.7 5 6 7

Letter from Senator D’Amato to B.T. Loton, Chairman of BHP Company of Australia, 5 February 1996, and letter to Eiji Watanabe, Chairman of JGC Corp. of Japan, 28 February 1996. Letter from Eiji Watanabe, Chairman of JGC Corp. of Japan, to Senator D’Amato, 5 March 1996. Letter from Senator D’Amato to M. Philippe Jaffre, President of Elf Aquitaine, 14 March 1996, and letter to M.C. de Margerie, Executive President of Total Middle East, 14 March 1996.

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The President of Total Middle East, in a terse response, wrote that ‘as a non-American company, we do not believe it is appropriate for us to comment on these matters’. The comments of other companies which were courteous enough to reply were similar. Guglielmo Moscato, Chairman of Italy’s Agip, at a press conference held in Milan on 27 March, said: ‘We must make the Americans aware that just because we find ourselves in the middle of two bellicose nations like the US and Libya, we are not prepared to allow our interest to be damaged’. THE IRAN OIL SANCTIONS ACT OF 1996 (HOUSE OF REPRESENTATIVES VERSION) In order for it to become law, the Senate bill had to be reconciled with the House of Representatives companion bill before a single version could be presented to the President for signing. Benjamin Gilman, Republican majority leader and chairman of the International Relations Committee of the House of Representatives, introduced the House version of D’Amato’s bill on 11 October 1995. The Iran Oil Sanctions Act of 1996, as originally drafted, was similar to the D’Amato bill before the amendments made during its passage through the Senate. The House bill, by the time it was ready for debate, had 55 co-sponsors and still contained the import sanctions and other tough measures which had been dropped from the Senate version. On 21 March 1996, the House of Representatives International Relations Committee considered the final version of the Iran Oil Sanctions Act of 1996 (HR3107). In his opening statement during the committee consideration, Gilman, the principal author of the bill, said that ‘our legislation offers foreign companies in oil and gas industries a simple choice, they can do business with the United States or with Iran and Libya, but not both. Our Bill helps the Administration to deliver an unmistakable message to our European and Asian allies. The era of dialogue is over, the time for action is now.’ Gilman praised the administration for the embargo which had been established against Iran in May 1995, but said that ‘much more needs to be done to pressure states such as Iran and Libya that provide moral and financial support for the terrorism that has killed and maimed thousands of innocent victims. If our deeds are to match our words in this effort, enactment of this Bill is a necessary step to rein in these rogue nations.’

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In an unusual move, the House committee invited D’Amato as chief Senate sponsor of the Iran sanctions measures to speak in favour of the bill. He said, ‘We must view any business deal that provides Iran and Libya with the hard currency to develop their energy sectors as a direct threat to US national security’. D’Amato continued: ‘Such deals only enhance these regimes’ financial resources enabling them to finance their ongoing terrorist programs and effort to obtain weapons of mass destruction’. At the committee session, Representative Doug Bereuter read a letter from the European Union expressing their opposition to the bill. Representative Tom Lantos countered that the Europeans had forfeited their right to complain about US legislation by continuing to do business with ‘sickening regimes. The Europeans come in with no moral standing on these issues.’ During the committee’s consideration the Clinton administration expressed opposition to the bill as it was introduced. It preferred the Senate version because it carried less risk of retaliation by US trade partners, and was less offensive to its allies. Representative Gejdenson, in response to the administration’s comments that the legislation would offend US allies, stated ‘that these are the same allies who steadfastly refuse to alter their sacred trading relationship with Iran. These are the same allies who preach the mantra of critical dialogue with Iran. How many innocent Israeli kids have to be blown up before we decide that it is time to act? I am sorry if we offend our friends but the sight of arms and legs strewn over the streets of Tel Aviv offends me.’ The bill, despite strong opposition from US allies and the Clinton administration itself, cleared the House International Relations Committee by a vote of 32–0. Under the new bill, the president would be required to impose sanctions on any person, including any successor, parent, subsidiary or affiliate of the sanctioned entity who exported, transferred, or released to Iran, nationals of Iran, or entities owned or controlled by Iran or nationals of Iran any goods or technology listed in the Annex to the Resolution 883 of the Security Council of the United Nations, adopted 11 November 1993 (against Libya), and all types of equipment, supplies and grants of licences prohibited by paragraph 5 of the resolution, and any other goods or technology that the president determined could significantly or materially contribute to Iran’s ability to develop its petroleum resources, including goods and technology required for development, production, or use of facilities (including the repair, maintenance, or operation of equipment), for the development of

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petroleum resources. This would apply whether or not the goods or technology is exported from the United States, and whether or not the goods or technology were subject to the jurisdiction of the United States. Also sanctioned would be those who made an investment of $40 million or more (or any combination of investment of at least $10 million each which equals or exceeds $40 million in any 12-month period) that directly contributed to the enhancement of Iran’s ability to develop its petroleum resources. The legislation required the president to impose two or more of the following penalties on a sanctioned entity: the denial of Export-Import Bank assistance; the denial of licences for exports of controlled technology and a prohibition on imports; a prohibition on US financial institutions loaning over US$10 million per year; a prohibition from serving as a primary dealer in US government bonds or as a repository for US government funds; a ban on all trade with the US government. Under the act, the president could delay the imposition of sanctions for 90 days in order to pursue consultations with the government of the offending entity, with the provision of an additional 90 days delay should such government be in the process of taking steps to terminate the activity of the sanctionable entity. The imposed sanctions could also be terminated should the president determine and certify to Congress that ‘Iran has ceased its efforts to acquire weapons of mass destruction and has been removed from the US list of state sponsors of terrorism’. Under the legislation, the president would be required to submit a report to Congress every six months detailing his efforts to ‘mount a multilateral campaign to persuade all countries to pressure Iran to cease its weapons of mass destruction programs and its support of international terrorism’. The President would also be required to report on his efforts in persuading other governments to reduce the presence of Iranian diplomats and representatives of other Iranian institutions. The act orders the application of the sanctions, with all their provisions, to Libya. Each reference to ‘Iran’ in the act is deemed to be a reference to Libya. REACTION TO THE BILL IN THE UNITED STATES Despite voting for the bill at the International Relations Committee, Congressmen Lee Hamilton and James Morgan voiced their concerns and requested that Congress consider their reservations as the bill moved forward.

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The principal points raised by Hamilton and Morgan, as reported by the International Relations Committee on 17 April, were: the sanctions in the bill penalize foreign firms for commercial activities that are legal in their home countries, and US efforts to penalize these companies would put the United States at odds with the governments of other countries and ultimately reduce the multilateral co-operation on Iran; the effectiveness of US efforts to change the behaviour of the Iranian government would be influenced by international responses to the bill; more attention should be focused on the relative merits of sanctioning investment rather than sanctioning trade, as investment is more critical than oil to Iran’s energy sector; sanctions should harm Iran more than the United States, otherwise they would be unsustainable; the president should have sufficient flexibility to weigh the economic and security implications of different sanctions measures, and balance US foreign policy and economic interests; the international response to Iran and Libya has been different, and the United States should also treat them thus; as there was already substantial foreign investment in Libya’s oil industry, investment sanctions would not be much of a deterrent. The Clinton administration, concerned about possible reprisals by US allies, urged Congress to soften the legislation. It favoured the Senate version of the bill, with its option on the manner in which Libya should be handled. In the House, some influential Republican as well as Democratic congressmen were also anxious to avoid conflict with Europe and eliminate the cost to US financial institutions. Financial services industry groups, including the New York Clearing House (NYCH), which operates the largest fund transfer system in the world, the Bankers Association for Foreign Trade (BAFT) and the Securities Industry Association also opposed the bill, especially the definition of sanctionable investments. They asked James Leach, chairman of the House Banking and Financial Services Committee, to oppose the investment definition. Jill Considine, President of the NYCH, also wrote to Bill Archer, chairman of the Ways and Means Committee, saying that without excluding loans from the definition of sanctionable investments in Iran and Libya, the provisions in the House bill ‘could have a dramatic effect on the ability of US and foreign banks to do business with one another’. Leach wrote to the House Speaker, Newt Gingrich, opposing the changes made to the legislation by the International Relations Committee by which the definition of ‘investment’ was broadened from that in the Senate bill. The changes sought by chairman Leach would narrow the

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definition on investment in the bill to avoid making banks subject to sanctions because they had offered financing to companies investing in Iran and Libya, and would also widen the president’s discretion in choosing the sanctions against financial institutions. Leach argued that even though the president had the discretion to apply two of the five sanctions in the bill, when it came to the financial institutions he lacked such discretion because only two of the sanctions applied to foreign lenders. He wrote: ‘On the basis of the assurances that these issues… will be satisfactorily resolved in consultation with the International Relations Committee, the Banking Committee agrees to waive consideration on HR3107 without prejudice’. The same letter was copied by Leach to Bill Archer, chairman of the Ways and Means Committee, and, in an accompanying letter on 21 May, he advised the committee ‘to incorporate language from the Senate companion measure related to the imposition of sanctions and the definition of investment’. He also notified the committee that ‘these modification are favoured by the Treasury and would alleviate much of the concern the legislation had generated in the financial community’. Philip M. Crane, chairman of the subcommittee on trade of the House Ways and Means Committee, called for a hearing on the Iran Oil Sanctions Act of 1996 for 22 May. He requested that the Clinton administration attend and submit statements for the committee’s consideration. The focus of the hearing was to evaluate the administration’s views on: 1. ending support for terrorist activities by Iran and Libya through economic sanctions or other means; 2. the efficacy of employing a secondary boycott to achieve the elimination of trade and investment by our allies in those countries; 3. the most effective mechanisms by which to achieve a multilateral trade and investment discipline with respect to countries that support international terrorism; and 4. how the use of secondary boycotts or extra-territorial unilateral actions might affect United States obligations under multilateral trade agreements and treaties.8

Crane, in his opening statement at the 22 May hearing said that ‘the US feels alone in taking a stand against rogue states, while European and other allies pay only lip service and snap up contracts forfeited by US firms’. However, ‘the US must not construct solutions that only further hurt US 8

‘Crane announces Hearing on Iran and Libya Sanctions’, House Ways and Means Committee subcommittee on trade, press release, 17 May 1996.

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businesses and drive a deeper wedge between the US and its allies’. He also questioned the appropriateness of using secondary boycotts against foreign companies to achieve foreign policy goals. The Clinton administration witnesses called upon Congress to rework the legislation, citing the potential damage to relations with major trading partners in Europe and elsewhere. David Welch, Acting Assistant Secretary of State for Near Eastern Affairs, said, our major trading partners, chiefly Canada, Europe and Japan, are strongly opposed to this sanctions legislation because they consider it to be an attempt to force US policy on their citizens. They also believe that traderelated sanctions imposed unilaterally by the United States will violate the principles of free trade that we have worked hard to establish internationally. These governments are also reluctant to adopt measures that will mean a loss in business for their companies.9

Welch brought up the doubts of US allies over whether economic sanctions would alter the behaviour of Iran and Libya. He believed that until Iran and Libya are forced to pay a cost for their actions, they will have no incentive to change their policies. Like you, we have been disappointed by the lack of support from our friends and allies for our efforts to increase the economic pressure on Iran and Libya. We believe other governments must assume more responsibility for the effort to contain threats which endanger us all. We also find it difficult to understand why these regimes merit financial benefits, or even ‘business as usual’. We would prefer to work in co-operation with our allies and major trading partners, but we have told them we are committed to responding to these threats unilaterally, if necessary.10

The other witness at the hearing, Ambassador Jennifer Hillman, General Counsel at the Office of the United States Trade Representative, complained that the Iran Oil Sanction Act of 1996 had not been ‘sufficiently tailored’ to put pressure on Iran and Libya ‘at the least cost to US businesses and trade interests’. She singled out the concern expressed by US trading partners that ‘HR3107 and similar legislation are simply further evidence of US unilateralism that will destroy the multilateral trading system’. Hillman informed the committee that ‘the United States is firmly committed to the multilateral trading system’, but in cases where we have not been able to obtain sufficient multilateral action, but where our national security and economic interests are at risk, 9

‘Striking a balance: maximum pressure on Iran and Libya, minimum cost to American interests’, statement by C. David Welch before the House Ways and Means Committee subcommittee on trade, 22 May 1996. 10 Ibid.

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we need to look at alternatives. But we must take care to measure the impact of any alternative on our trading partners, on the multilateral trading system and on US business and economic interests. We need to craft an alternative that balances all these interests, while putting maximum pressure on the pariah states.11

The administration’s position, addressed by Welch, was: 1. We support sanctions against investment in Iran’s petroleum resources. Investment is the choke point of Iran’s economy. Blocking foreign investment in Iran’s oil and gas sector will have a major impact on the country’s economy by limiting its level of oil and gas production, and thus the Government’s revenues. Fewer barrels will mean fewer dollars. Moreover, we are confident that we can succeed in this endeavour because the mere threat of sanctions is already keeping some foreign oil companies out of Iran. But we believe sanctions against trade with Iran would be ineffective, and counterproductive. We simply will be unable to keep Iran from acquiring those goods common to the oil and gas industry which are manufactured and sold by trading companies all over the world. And the costs – both of trying to monitor and enforce such a ban unilaterally, and of the retaliatory measures that other governments will take if we impose sanctions on their companies – are too high. 2. We support sanctions against companies that violate the UN Security Council bans on certain trade and transactions with Libya. We have worked hard in the UN to build and sustain international support for sanctions against Libya, including bans on certain oil and gas equipment as well as prohibitions on the transfer of military goods, aviation parts and services, and financial services. Global restrictions are more effective than unilateral American action. It makes sense to add to this existing UN sanctions regime. But we believe sanctions against investment in Libya’s oil and gas resources would be ineffective and counterproductive. It is too late for us to stop foreign investment in Libya’s oil and gas sector because some two dozen companies are already working there now. It is likely that the governments of these companies would take action to protect them. Such retaliatory measures could have a harmful impact on US companies and workers. 3. We support a modification that would allow us to avoid imposing sanctions against institutions that finance investment deals. The Administration is concerned that US sanctions against foreign financial institutions would be costly to US firms, could be disruptive to financial markets, would reduce the attractiveness of the United States as a financial centre, and could invite retaliation against US financial 11 Statement by Ambassador Jennifer Hillman on HR3107 before the House Ways and Means Committee subcommittee on trade, 22 May 1996.

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firms. We don’t need to run that risk of harming American banks and businesses. The fact of the matter is that Iran needs more than just bank loans to develop its oil and gas fields. Iran also needs the expertise of a foreign oil company to pull off these multi-million dollar and multiyear deals. A focus on blocking these companies should be sufficient. 4. We support modifications to the structure of the Bill that would provide the President with greater flexibility in applying sanctions. We’d like to give the President the latitude to respond most effectively to each new situation. We will use the sanctions authority aggressively, but we need flexibility so we can properly target our actions. 5. Finally, we support a modification to the provision that would require the President to indiscriminately impose sanctions against both parent companies and their subsidiaries, including American companies, whether or not the party was involved in the sanctionable activity.12

In short, the administration recommended the following changes in the final legislation: for Iran, the standard for invoking sanctions should be new investment; for Libya, trade (not investment) should trigger existing multilateral sanctions to be used; the provision imposing sanctions on institutions that finance investment deals should be eliminated; greater flexibility for the president in imposing sanctions should be considered; the president should be required to impose sanctions against both parent companies and their subsidiaries. After ten weeks of negotiations, a compromise was reached. Committee chairman Archer said it was developed on a bipartisan basis and had the support of the administration. ‘We can never be successful in ending international terrorism or preventing the proliferation of weapons of mass destruction without multilateral co-operation.’ Archer added that legislation was needed because US allies had done an inadequate job of pressuring Iran and Libya to end their reign of terror. The House Ways and Means Committee cleared the legislation on 13 June 1996, and six days later it was approved in the House by a vote of 415–0. D’Amato welcomed the move. ‘This Iran sanctions legislation sends a clear and direct signal to anyone who wants to do business with the bloody Iranian and Libyan regimes,’ he said. ‘You must choose between trade with the United States and trade with Iran and Libya. It’s that simple.’ A week prior to the committee’s clearance it was reported that the ‘American Israel Public Affairs Committee (AIPAC) had not given final approval to compromise’.13 Congress should probably 12 ‘Striking a balance: maximum pressure on Iran and Libya, minimum cost to American interests’, statement by C. David Welch before the House Ways and Means Committee subcommittee on trade, 22 May 1996.

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thank AIPAC, the chief lobbying group for Israel, for allowing the different committees in Congress and the White House to reach a compromise and strike a deal. ‘The deal became possible after the influential American Israel Public Affairs Committee’s lobby dropped demands for language that would sanction foreign banks supporting investment in Iran.’ 14 The Wall Street Journal carried a report that AIPAC staff sat at the table of the committee deliberating the bill and when ‘the Two House Committees [the International Relations Committee and the Ways and Means Committee] were at loggerheads, AIPAC played the key role of gobetween… to try to resolve differences’.15 When the final version of the bill was approved by the House, AIPAC proudly announced that ‘these guys [Congress] wrote this thing with us sentence by sentence’.16 Once again, AIPAC proved that it could be more influential and powerful than US oil companies. One wonders how an outside group, the only purpose of which is to promote Israel’s interests, could be allowed to sit at different committees of the US Congress and influence their decisions, especially on affairs that may affect Washington’s relations with its closest allies. The issue of the sanctions on Iran, along with the attempt to force foreign companies to abide by US law, was initiated by AIPAC in 1995. The progress of the bill, although not exactly as planned, still represented a victory for AIPAC and demonstrated its influence over Congress and consequent ability to push through legislation with secondary boycott clauses. The House Ways and Means Committee had to be under tremendous pressure from AIPAC to approve a bill with secondary boycott provisions when it had traditionally always rejected such measures. THE FINAL HOUSE VERSION OF THE BILL The 24-page bill enacted by the House is a masterpiece of complexity and obfuscation, but whilst remaining very rigid and harsh it is definitely less offensive to US trading partners than the earlier version endorsed by the House International Relations Committee. 13 Michael S. Levyveld, ‘Iran Sanctions Bill a Step Closer to Winning Approval’, Journal of Commerce, 7 June 1996. 14 Michael S. Levyveld, ‘Ways and Means Approves Iran, Libya Sanctions’, Journal of Commerce, 14 June 1996. 15 Robert S. Greenberg and Laurie Lande, ‘Progress of Iran-Sanctions Measure in Congress Signals Comeback for Pro-Israel Lobbying Group’, Wall Street Journal, 18 June 1996. 16 Michael S. Levyveld, ‘Iran Sanctions Bill a Step Closer to Winning Approval’, Journal of Commerce, 7 June 1996.

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On 18 June, the White House issued a statement in support of the amended legislation, and said that the bill would be ‘effective and enforceable while minimizing unnecessary cost to US economic and foreign policy interests’. The statement further claimed that the bill would assist the United States in pursuing its foreign policy objectives by deterring investment in Iran’s petroleum industry and would also assist the United States in obtaining Libya’s full compliance with UN Security Council resolutions. In the final House bill, the Iran and Libya Sanctions Act of 1996, the main difference to the previous version lies with the treatment of Libya. In the Senate bill and other earlier House versions, sanctions and penalties applicable to Libya and Iran were the same. In the final bill, Libya is treated differently, with a mandatory requirement for sanctions to be imposed on foreign firms which violate existing UN sanctions. Imposing sanctions on investing in the Libyan oil industry is only optional. European companies with large investments in the Libyan energy sector welcomed this change. The other significant changes to the bill were the deletion of the provision which would have imposed sanctions on companies selling equipment to the Iranian oil industry, and the definition of ‘investment’ to exclude the ‘entry into, performance, or financing of a contract to sell or purchase goods, services, or technology’. A conference between members of the Senate and the House was necessary in order to prepare unified legislation for submission to the President for signature.

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hen the bill authorizing sanctions to target Iran’s oil industry came up for a vote in the Senate on 26 June 1996, despite appeals from the Clinton administration to pass it as cleared by the House, Senator Kennedy re-introduced the measures deleted in the House version that would make the punishment applicable to Libya as well. Senator Kennedy was fulfilling his promise to the families of the victims of Pan Am Flight 103 to make discretionary penalties in Libyan sanctions mandatory when the Senate took up the House bill. A furious row erupted when his move was blocked by Senator William Roth, the Finance Committee chairman, who put a ‘hold’ on attempts to adopt the Libyan sanction proposalswith unanimous consent. Kennedy’s actions became a last-minute nightmare for D’Amato and the American Israel Public Affairs Committee (AIPAC) lobby. They recognised that the Libya amendment might well endanger what amounted to almost a year’s work on a bill aimed primarily at investment in Iran. ‘We agree that there ought to be sanctions against Libya, but doing it this way is simply going to kill the bill,’ a senior D’Amato aide said. ‘Does Senator Kennedy want to bear responsibility for preventing meaningful sanction against the Islamic Republic?’ Opposing the compromise bill that passed the House would ‘send the wrong message to Tehran’. AIPAC accused Kennedy of being a deal breaker, and feared that the House Ways and Means Committee might amend the bill a second time

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and return it to the Senate. The pro-Israel group urged Kennedy to ‘pursue tougher Libyan measures outside the current legislation in order to speed enactment of the Iran sanctions in the Bill’.1 Under pressure from the families of the Pan Am Flight 103 victims, Roth lifted his ‘hold’, paving the way for the approval of Kennedy’s amendment. Kennedy argued on the Senate floor that Libya continued to support terrorism, and that as a result the sanctions had to be mandatory. ‘Congress should not compromise with terrorism,’ Kennedy said. ‘The foreign oil companies that traffic with terrorists should not expect subsidies from the United States to help them produce oil in Libya. The same sanctions that apply to Iran should apply to Libya too.’ On 16 July, the Senate approved the legislation, including Kennedy’s original amendment, which this time was introduced on behalf of Kennedy and D’Amato by the Senate majority leader, Trent Lott. This made sanctions regarding investment in Libya mandatory rather than discretionary, and increased from one to two the number of sanctions that the president would be required to impose on firms engaging in prohibited investment trade with Libya. The difference between the House and Senate versions of the bill had to be resolved by a conference between the two bodies. However, in the aftermath of the 17 July crash of TWA Flight 800 on Long Island, initially believed to be linked to terrorism, the congressional leadership decided to bypass the required conference. Although the cause of the disaster remained uncertain, opposition to the bill melted away amid widespread suspicion that a terrorist bomb was responsible. On 23 July, the House approved by voice vote the legislation as presented by the Senate. Benjamin Gilman, chairman of the House International Relations Committee, said that the House vote cleared the way for the bill to be sent to President Clinton for signature. In light of the growing possibility that a terrorist act led to the destruction of TWA Flight 800, and the growing likelihood that state sponsored terrorism poses an increased threat to Americans inside and outside the United States, we should have in place the strongest deterrent to any future acts of terrorism supported by such rogue regimes as Iran and Libya’.2

Roth, while agreeing with the goals of the legislation, believed that the unilateral sanctions would be ineffective, citing the Soviet grain embargo 1 2

Michael S. Levyveld, ‘Kennedy Presses for tough Libya sanctions’, Journal of Commerce, 27 June 1996, p. 7B. Congressional Record, House of Representatives, 23 July 1996, p. H8126.

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as an example. He also indicated that the Iranian and Libyan economies were important to US allies, and therefore Washington would not isolate these two countries. Roth also believed that the secondary boycott of the bill would unify Europe, as it had done in 1982 when President Reagan had tried to embargo a Siberian pipeline. This legislation will not isolate Iran and Libya, it will isolate us. No one should be surprised. Iran and Libya threaten international peace and security. Our goal must be to change their behavior. Whatever we do, it must be effective. We need our allies with us, not against us. There was a time when the United States could sound the alarm and Europe would rally to our side. That day is over. Economic sanctions and secondary boycotts have not and will not work when they are unilateral. With enactment of this Bill I am concerned we will have jeopardised our relations with the very countries whose support we need to eventually reach the goal of turning Iran and Libya away from their current terrorist behavior.3

The bill, as cleared, imposes sanctions not only on US interests investing and trading with Iran and Libya, but also on non-US firms and individuals trading with these countries. This shift to secondary boycotts is significant. In 1977, Congress made amendments to the Export Administration Act (EAA) of 1969, making it illegal for US companies to accept the regulations of the Arab boycott of Israel. At that time, Congress correctly opposed secondary sanctions as extraterritorial measures that impermissibly impinge on the sovereignty of other nations. Compliance with the Arab boycott has been a violation of US law since 1977. The US Congress later, to placate Israel, came full circle from the 1970s, when it universally condemned secondary boycotts by enacting secondary sanctions of its own. In short, the United States considered itself right when in the 1970s the Arab states had been wrong. It is interesting to note that the driving force behind the anti-boycott provisions of the EAA was AIPAC, which, as early as the mid-1950s, had been marshalling opposition to the Arab boycott of Israel. The arguments put forward by AIPAC, the architect of the Iran and Libya Sanctions Act (ILSA), in favour of anti-boycott legislation over 30 years ago are strikingly similar to those that are made these days in Europe. US allies might find it beneficial to substitute ‘European’ for ‘American’ in the speech of Irving J. Fain, testifying before the House Banking and

3

Congressional Record, House of Representatives, 23 July 1996, p. H8127.

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Currency Committee in 1965 on behalf of AIPAC, when he commented that the Arab boycott constituted a harassment and blackmailing of America, an interference with their normal business activities… that the boycott activities were contrary to the principles of free trade that the United States has espoused for many years… and the Arab interference in the business relations of American firms with other countries is in effect an interference with the sovereignty of the United States.4

Fain’s conclusion will strike a chord in the hearts of many of America’s trading partners: The United States cannot avoid involvement. Inaction by the United States becomes an act of omission, which permits the boycott activities to continue, thus becomes a positive involvement in support of the boycott. This is a case where silence gives assent… The United States must decide whether it will protect its businessmen from the boycott or leave them exposed.5

Where America has led with its anti-boycott laws, Europe and the rest of the world will surely follow. The act does not have a direct effect on US firms, because US law already prohibited US companies from undertaking the types of transactions made sanctionable by the ILSA. Since 1986, Libyan Sanctions Regulations (LSRs) 6 have broadly prohibited US companies from performing ‘any contract in support of an industrial or other commercial or governmental project in Libya’.7 The 1987 embargo against Iran, strengthened in May 1995, also prohibited US companies from making ‘any new investment’ in Iran. In fact, these pre-existing sanctions against Iran were much broader than the sanctions contained in the new law, since they prohibit any investment in Iran, not simply investment in its petroleum or natural gas sectors. Clearly, non-US companies are the target of this law. Frustration with the unwillingness of US allies to impose sanctions on Iran in 1995 provided the original impetus for it. President Clinton, on 5 August at a White House ceremony with former Iran hostages present, signed into law the controversial ILSA. By enacting it, President Clinton issued an open invitation for legal and political 4 5 6 7

Kennan Lee Teslik, Congress, The Executive Branch and Special Interests, the American Response to the Arab Boycott of Israel, Greenwood Press, 1982, p. 56. Ibid. 31 CFR Part 550. 31 CFR §550.205.

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conflicts with America’s closest allies. Fall-out from the introduction of this legislation haunted him for the next two years. At the signing ceremony at the White House, Clinton said that Iran and Libya were ‘two of the most dangerous supporters of terrorism in the world. The Iran and Libya Sanctions Bill I signed today will help to deny those countries the money they need to finance international terrorism. It will limit the flow of resources necessary to obtain weapons of mass destruction.’ 8 In response to the question of possible European retaliation against this law, President Clinton said: ‘Every advanced country is going to have to make up its mind whether it can do business with people by day who turn around and fuel attacks on their innocent civilians by night. That’s a decision that every country’s going to have to make.’ 9 This statement, when compared with his previous declaration, show how pressure from the Republican controlled Congress and the Jewish lobby forced him to change his mind. On 30 April 1995, in his speech before the World Jewish Congress, he had stated that ‘I do want you to know that I do oppose the suggestion some have made that we impose a secondary boycott and prohibit foreign firms doing business with Iran from doing business with the United States. I don’t agree with that. I think that decision would cause unnecessary strain with our allies at a time when we need our friends’ co-operations.’ Immediately following the signing of the ILSA, the President of the American Jewish Congress, David Khan, and the Executive Director, Philip Baum, seconded Clinton and issued a statement declaring that ‘the American Government has sent a strong message to the civilized world: stop placing the bottom line of oil profit over saving lives’. Baum and Khan expected ‘outrage on the part of Western governments for US interference in their citizens’ business affairs’. The Jewish leaders, however, called on these governments to ‘pay careful attention to the President’s words. If the plague of Islamic fundamentalist terror is ever to be uprooted, our allies must understand the concerted action of the civilized world… and only concerted action… will be required.’ 10

8

Remarks by the President at the signing ceremony for the Iran and Libya Sanctions Act of 1996, White House press release, 5 August 1996. 9 Ibid. 10 American Jewish Congress, press release, 5 August 1996.

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IRAN IN THE ILSA The ILSA begins with the congressional findings that ‘the effort of the Government of Iran to acquire weapons of mass destruction and the means to deliver them and its support of acts of international terrorism endanger the national security and foreign policy interests of the United States and those countries with which the United States share common strategic and foreign policy objectives’.11 Congress, without identifying the countries who ‘share common strategic and foreign policy objectives’ with the United States, attempted to delegate to itself the role of protecting the security and interests of other states. With the exception of Israel, no other country agreed with the United States’ insubstantial claims. US allies never saw Iran as endangering their national security or foreign policy interests. The bill, while it was still being debated, was strongly opposed and condemned throughout the world. Obviously Congress could not have informed the public that the act was being passed only to serve the interests of Israel, and so had to gloss over this by claiming that action was being taken for the sake of the world. Furthermore, Congress declared that beyond existing multilateral and bilateral efforts additional means ‘to deny Iran the financial means to sustain its nuclear, chemical, biological and missile weapons programs’ 12 were required. In addition, it also believed that ‘the Government of Iran uses its diplomatic facilities and quasi-governmental institutions outside of Iran to promote acts of international terrorism’.13 Based on these findings, Congress declared that the policy of the United States was ‘to deny Iran the ability to support acts of international terrorism and to fund the development and acquisition of weapons of mass destruction and the means to deliver them by limiting the development of Iran’s ability to explore for, extract, refine, or transport by pipeline petroleum resources of Iran’.14 If the objective of Congress, as stated, was to correct the current and unacceptable behaviour of Iran, it remained unclear why it was believed that it could be achieved by enacting the ILSA, which, even if successful, could have only medium- to long-term impact. Even though the ILSA, from its inception, was widely opposed by US trading partners, it is ironic that Congress, by selecting a unilateral means,

11 12 13 14

Iran and Libya Sanctions Act of 1996, Section 2(1). Ibid., Section 2(2). Ibid., Section 2(3). Ibid., Section 3(a).

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hoped to effect multilateral co-operation. The President was urged by Congress ‘to commence immediately diplomatic efforts, both in appropriate international forums such as the United Nations, and bilaterally with allies of the United States, to establish a multilateral sanctions regime against Iran’.15 The leading expert on the sanctions issues, Michael Malloy, believes that ‘the Congressional approach to multilateral sanctions is essentially sanctions on US terms’.16 The president is required under the legislation to report to Congress not later than one year after the date of the enactment of the act, and periodically thereafter, on the success and failure of his diplomatic efforts in obtaining other countries’ agreement to take measures against Iran.17 The act requires the president to submit to Congress not later than 90 days after the enactment of the act ‘whether the member states of the European Union, the Republic of Korea, Australia, Israel or Japan have legislative or administrative standards providing for the imposition of trade sanctions on persons or their affiliates doing business or having investments in Iran or Libya’.18 The legislation, under specific terms, gives the president the ability to delay the imposition of sanctions or completely waive them. The president could delay the imposition of sanctions for 90 days in order to pursue consultations with the government that has primary jurisdiction over the offending person.19 Should that government take specific and effective action, and apply appropriate penalties in order to terminate the involvement of its nationals in sanctionable activities, the president could delay the imposition of sanctions for up to an additional 90 days.20 A country would qualify for a waiver of sanctions if that country undertakes ‘substantial measures including economic sanctions’ 21 against Iran. The ILSA’s second waiver provision is contained in Section 9(c)(1). This gives the president the authority to waive sanctions if he determines and reports to Congress that ‘it is important to the national interests of the United States to exercise such waiver authority’ to eliminate harm to the United States and to protect national defence producers who rely heavily 15 Ibid., Section 4(a). 16 Michael P. Malloy, ‘Legal and Political Issues of Unilateral Sanctions: Emerging Trends and Challenges in US Practice’, paper presented at the Institute for Global Leadership, Geneva, 7–8 November 1996, p. 29. 17 Iran and Libya Sanctions Act of 1996, Section 4(b). 18 Ibid., Section 4(e)(1). 19 Ibid., Section 9(a)(2). 20 Ibid., Section 9(a)(3). 21 Ibid., Section 4(c)(1).

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on foreign components to produce their high-tech weaponry. The president, under Section 5(f) of the act, is not required to impose sanctions on foreign firms which either supply the US with defence articles and defence services or with parts and components essential to US products and production. The heart of the controversy associated with the act, the point which prompted the industrial nations to react, is that the sanctions are directed at third countries and not against Iran and Libya. Congress instructed Clinton to act as a world policeman and impose US law on every individual and nation. Under the act, the president shall impose sanctions on any person, including successor, parent, subsidiary or affiliate of the sanctioned entity, who has, with actual knowledge, on or after the date of the enactment of this Act, made an investment of $40,000,000 or more (or any combination of investments of at least $10,000,000 each, which in the aggregate equals or exceeds $40,000,000 in any twelve month period) that directly and significantly contributed to the enhancement of Iran’s ability to develop petroleum resources of Iran.22

The president, when required to apply sanctions under the act, would have to select two or more of the following sanctions: 1 the denial of the assistance of the United States Export-Import Bank for export of any goods or technology to the sanctioned company;23 2 the denial of required export licences to US firms exporting controlled goods and technology to the company being penalized;24 3 a ban on any US financial institution making a loan of more than $10 million a year to any sanctioned entity;25 4 a prohibition against a sanctioned financial institution from: serving as a primary dealer in US government debt instruments;26 serving as a repository for US government funds (each option is considered as a separate sanction);27 5 a ban on purchases by the US government of any goods or services from a sanctioned entity;28 6 an import ban on the sanctioned company, in accordance with the International Emergency Economic Powers Act (IEEPA).29 22 23 24 25 26 27 28 29

Ibid., Ibid., Ibid., Ibid., Ibid., Ibid., Ibid., Ibid.,

Section Section Section Section Section Section Section Section

5(a). 6(1). 6(2). 6(3). 6(4)(a). 6(4)(b). 6(5). 6(6).

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The fourth of these is directed only at financial institutions, and although it is listed as one subsection in the act it is broken into two to fulfil the requirement that the president should impose at least two sanctions. The act, under Section 14, defines the financial institution to include: a depository institution (as defined in Section 3(c)(1) of the Federal Deposit Insurance Act), including a branch or agency of a foreign bank (as defined in Section 1(b)(7) of the International Banking Act of 1978); a credit union; a securities firm, including a broker or dealer; an insurance company, including an agency or underwriter; any other company that provides financial services. Three of the above six sanctions – covering exports, procurements and imports – violate all bilateral and multilateral agreements to which the United States is a signatory, including OAS, OECD, NAFTA and, above all, WTO. The president may waive the application of the above sanctions with respect to nationals of a country if ‘that country has agreed to undertake substantial measures, including economic sanctions, that will inhibit Iran’s effort to carry out activities’ unacceptable to the United States.30 For nationals of other countries, the investment thresholds can be lowered to $20 million (from $40 million) and $5 million (from $10 million) after one year if the host country refuses to co-operate with the United States in attempting to isolate Iran.31 The legislation requires that the president not only publishes in the federal register a list of persons and entities targeted by sanctions,32 but also lists ‘all significant projects which have been publicly tendered in the oil and gas sector in Iran’.33 The ‘significant projects’ referred to are the 11 oil and gas ventures for which Iran was inviting international tenders, and it was Washington’s aim to block investment in these projects. The duration of the sanctions is two years,34 but if the president determines and certifies to Congress that the sanctioned person in no longer involved in sanctionable activities, and he has received reliable assurances that that person will not engage in such activities in the future, then such sanctions shall remain in effect for a period of one year.35 The key provision in the ILSA covers investment to develop the petroleum resources of Iran. In the act, the development of petroleum resources

30 31 32 33 34 35

Ibid., Ibid., Ibid., Ibid., Ibid., Ibid.,

Section Section Section Section Section Section

4(c)(1). 4(d)(1). 5(d). 5(e). 9(b)(1). 9(b)(2).

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is defined as ‘the exploration for, or the extraction, refining, or transportation by pipeline of petroleum resources’.36 The term ‘investment’ means any of the following activities undertaken pursuant to an agreement entered into with the government of Iran or any entity in Iran, on or after the effective date of the act: (A) The entry into a contract that includes responsibility for the development of petroleum resources located in Iran or Libya (as the case may be), or the entry into a contract providing for the general supervision and guarantee of another person’s performance of such contract…37 (B) The purchase of a share of ownership, including an equity interest, in that development…38 (C) The entry into a contract for providing for the participation in royalties, earnings, or profits in that development, without regard to the form of the participation…39

‘Investment’ does not include ‘the entry into, performance of, or financing of contracts to sell or purchase goods, services, or technology’.40 Thus, the purchase of oil or gas from Iran is not a sanctioned activity. The provisions of the act are not retroactive in any form. The effective date is the date of the enactment of the act,41 the expiry date five years later.42 It may be terminated earlier if the president determines and certifies to Congress that Iran: (1) has ceased its efforts to design, develop, manufacture, or acquire: • a nuclear explosive device or related materials and technology;43 • chemical and biological weapons;44 • ballistic missiles and ballistic missile launch technology;45 and (2) has been removed from the list of countries the governments of which have been determined, for the purposes of Section 6(j) of the Export Administration Act of 1979, to have repeatedly provided support for acts of international terrorism.46

(For the full text of the act, see Document 11.) The responsibility to draft the regulations had been given to the State Department’s Bureau of Economic and Business Affairs. Iran-Libya sanctions 36 37 38 39 40 41 42 43 44 45 46

Ibid., Ibid., Ibid., Ibid., Ibid., Ibid., Ibid., Ibid., Ibid., Ibid., Ibid.,

Section Section Section Section Section Section Section Section Section Section Section

14(4). 14(9)(A). 14(9)(B). 14(9)(C). 14(9)(C). 13(A). 13(B). 8(1)(A). 8(1)(B). 8(1)(C). 8(2).

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were considered a diplomatic matter and almost exclusively drafted by the State Department instead of the Treasury Department’s Office of Foreign Assets Control (OFAC). Sanctions regulations drafted by the State Department generally have significant ambiguity and loopholes. The State Department, on 16 December 1996, issued its interpretation of the ILSA. The document, entitled ‘Additional Information for the Iran and Libya Sanctions Act’,47 used language identical to the ambiguously worded act, apparently trying to avoid announcing what was a sanctionable activity with the hope that the legislation would act as a deterrent to companies planning to carry out new business in Iran. The ‘guidance’ did clarify some terms in the act. It specified that only contracts entered into after 5 August 1996 would be subject to sanctions. Previous obligations under contracts entered into prior to this date were allowed to be carried out. ‘Companies may perform existing contracts and complete existing investments, such as sub-contracts, farm-in arrangements, and the like in connection with contracts entered into prior to the date of enactment’. The term ‘agreement’ also included contracts and the extension of contracts. ‘Development’ under the act, referred to ‘the exploration for, or the extraction, refining or transportation by pipeline of, petroleum resources’.48 The guidance, therefore, explained that the ‘entry into a contract that includes responsibility for those activities could be considered an investment’. As per the act, the term ‘investment’ ‘does not include the entry into, performance, or financing of a contract to sell or purchase goods, services or technology’.49 The guidance defined goods and technology in the same way as those used in Section 16 of the EAA. The guidance referred to a House Ways and Means Committee report regarding the term ‘services’, saying that the term ‘investment’ was meant to include ‘entry into a contract for the provision of management services entailing overall responsibility for the development of Iranian or Libyan petroleum resources’. In determining whether a contract was an investment rather than a service contract, the State Department considered whether the person providing the management services was putting capital at risk, receiving a share of the income or profits from the development, receiving compensation based on the investment performance, or receiving a share in the assets upon the dissolution of the enterprise. 47 61 Fed. Reg. 66067-8, 16 December 1996. 48 The Iran and Libya Sanctions Act, Section 14(4). 49 Ibid., Section 14(a).

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In the final section, the guidance clarified that parent companies would become the targets of sanctions if they had facilitated or authorized a contract that fell within the scope of the legislation. Subsidiaries and affiliates would be targeted only if they had actually participated in the implementation of the contract. EUROPE STANDS FIRM The antagonistic behaviour of the United States towards Iran arises from totally distinct causes from its treatment of Libya. In the opinion of the United States, Iran is a promoter of international terrorism and an opponent of the Middle East peace process, whilst Libya is responsible for the bombing of Pan Am Flight 103. However, in the opinion of US trading partners these two nations are linked by one common theme: both are victims of US determination to force them to toe the Washington line. Prior to the latest sanctions, America’s allies had been prepared to condone US antagonism towards Libya and overlook the myth fostered in Washington – of Iran as the source of all international terrorism – on the grounds that it did not effect their own political and commercial interests in these two countries. The extraterritorial nature of the D’Amato bill and its secondary boycott provisions were calculated to have a far-reaching and negative effect not only on extensive European interests in Libya and Iran but also on those of such diverse countries as Australia, Russia, Japan, China, Brazil and the Persian Gulf Arab states. So the legislation unleashed a storm of criticism and condemnation around the world. A European ambassador in Washington said that American diplomacy has a taste for embargoes and boycotts which we do not share. Legislation aimed at isolating Cuba, Iran and Libya economically amounts to a secondary boycott, that is unacceptable… we have not elected the American Congress, we have never voted for it and I do not see why we should let it legislate for the rest of the world.50

Contrary to their usual practice, US allies in Europe severely criticized the behaviour of Congress and expressed their strong and determined opposition to the bill even while it was still being debated. In letters to William Roth, chairman of the Senate Finance Committee and Bill Archer, chairman of the House Ways and Means Committee, sent on 18 April 1996, Sir Leon Brittan, Vice President of the European 50 Thomas W. Lipman, ‘Panel passes sanctions for foreign firms’, Washington Post, 22 March 1996.

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Commission, reiterated the European Commission’s strong opposition to the ILSA and ‘the use by the United States of indirect trade and investments sanctions to force policy objectives on the international community in an extraterritorial and unilateral manner which is contrary to the generally accepted principles of international law’. Brittan also warned that ‘if the act as passed by the House International Relations Committee becomes law, the European Commission will be obliged to protect European commercial interests through all available multilateral fora’. German Foreign Minster Klaus Kinkel, in an appearance before the American Jewish Committee in Washington on 8 April and using unusually strong language, accused the United States of ‘putting us to the pillory’ for continuing political and economic relations with Iran. Kinkel said that Secretary of State Warren Christopher had pressed Germany to abandon not just trade with Iran but political dialogue as well, an effort he said his country rejected. He continued: ‘It is in our view better to continue the dialogue with Iran rather than break off all contact, introduce sanctions and further radicalise Iran by isolating the country’. At the same time there was an inherent contradiction in US foreign policy. While the United States was pressuring its European allies to contain Iran, it was bestowing most favoured nation privileges on China. The Clinton administration argued that it had a better chance of changing the behaviour and policy of the Chinese through dialogue and trade than through sanctions. That was precisely the principle that the European Union had prescribed for relations with Iran. Upon his return to Bonn on 9 May, Kinkel said that the European Union would not allow Washington to penalize third parties doing business with targets of US trade sanctions like Cuba, Iran and Libya. ‘For the reason of principle, the European Union would have to consider counter measures that would in turn have negative effect on American trade and investment interest in Europe.’ French President Jacques Chirac also warned the US administration that the ‘European Union would retaliate if the D’Amato Bill becomes law’.51 Neither did British Trade and Industry Secretary Ian Lang rule out reprisals, saying that counter-sanctions were ‘quite feasible’, and that the United Kingdom was looking at various options. The British Secretary of State for Foreign and Commonwealth Affairs, Malcolm Rifkind, addressing US press representatives on 29 May, also 51 Jim Hoagland, ‘A Sudden Romance with Europe’, Washington Post, 5 May 1996.

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disagreed with the US policy of using secondary boycott measures to change the behaviour of countries like Cuba, Iran and Libya. ‘Secondary boycotts are wrong in principle, no country has the right to tell companies in other countries how they should behave in third countries.’ Rifkind believed that the new US sanctions, if passed through Congress into law, would not damage Iran, Cuba or Libya, but would ‘cause division among Western allies who should be working together to combat terrorism. Sanctions would penalize American workers. Is it really America’s best interest that potential investors in Britain should be scared off from creating new jobs for Americans?’ The European Union, disappointed with the inability of the Clinton administration to dissuade Congress from considering such punitive legislation, instructed its ambassador to Washington, Hugo Paeman, to express concern with the proposed legislation. Paeman said in a letter to congressional leaders, dated 21 May, that congressional approval of HR3107 ‘could become a serious problem in our trade relations’ with the United States. What causes deep concern in the European Union is the proposal that the United States should attempt to impose its terms on the rest of the world by adopting secondary boycott legislation with extra-territorial effect… Unilateral measures against Europe, with the risk of World Trade Organisation challenges, counter measure and a spiral of conflict will only serve ultimately to distract attention from our common position to the regimes in question.

It would be fair to say that while the US administration did not initially support this legislation, when faced with its inevitable passage, it decided to work with Congress to secure a compromise that would give the president more flexibility. But, by signing the ILSA on 5 August, President Clinton ignited another European protest, stronger than that over its controversial Helms-Burton legislation. THE REACTION OF US ALLIES TO THE ACT The Cuban Liberty and Democratic Solidarity Act (LIBERTAD) known as the Helms-Burton Act, and the ILSA sparked a furore amongst US trading partners, who claimed that the United States was trying to apply its laws in an extraterritorial fashion. The Helms-Burton law allows American companies and individuals to sue, in the US courts, foreign companies benefiting from property nationalized by the Cuban regime in 1959. Foreign companies investing in Iranian or Libyan energy sectors are

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similarly targeted by the ILSA. Both cases are classic examples of the extraterritorial application of US sanctions laws, under which the US government attempts to claim jurisdiction over the economic activities of non-US persons within a third country. Industrial nations, especially Canada and EU member states, take the extraterritorial issues very seriously. On 6 August 1996, Canada’s Foreign Affairs Minister, Lloyd Axworthy, and the Minister for International Trade, Art Eggleton, condemned President Clinton for signing the ILSA into law. ‘While we share the concerns of the United States and other countries on international terrorism and place a high priority on finding ways to combat it, this is not the way to proceed,’ said Axworthy. ‘As with the Helms-Burton Law, Canada continues to object to unilateral measures that have extra-territorial effects; this legislation is an inappropriate response to US concerns.’ The United States, he went on, had every right to set policies that applied to American companies, but it did not have the right to impose its foreign policies on companies in other countries. ‘You do not have unilateral imposition of laws by one legislature applying to other countries. At some point the Americans just have to stop doing that.’ Eggleton also opposed the act. ‘The extra-territorial effects of this latest Act represent once again an attempt by the United States to dictate trade policies to its allies. Canada will continue to defend its interests against the extra-territorial application of such legislation.’ Kinkel declared the act ‘unacceptable’ to Germany: ‘We cannot let ourselves be told with whom we do business’. President Chirac charged that the US ‘unilateralism is threatening the international rule of law’. He believed that the legislation unjustly interfered with international trade and investment and warned that France would take immediate countermeasures if French firms were to be affected by the act. France would have to pass ‘appropriate legislation – what are known as mirror laws, in order to deal with these issues on a basis of equality with our American partners’. The French Foreign Minister, Hervé de Charette, in a 6 August interview with the French daily Le Parisien, maintained that ‘these American laws have nothing to do with the fight against terrorism. I am totally opposed to one state changing the rules of international trade to its own advantage and unilaterally imposing this change to others.’ Ambassador Paeman, in a written statement issued following the passing of the ILSA by both the Senate and the House, said that the European Union would oppose the bill. There is no doubt that this Bill represents an extreme case of extra-territorial legislation as sanctions can be imposed even if the persons concerned are

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located outside the United States and the transactions involve no US financial instrument and no transfer of US technology. It is the legislation’s clear intention to hit any company anywhere in the world.

Joseph Coll I. Carbo, a European Union Commissioner representing Spain, said that ‘there is no way we can let the US get away with this. If we do not stand up to the US on this law, how could we ever stand up to China if they decided to take similar action against companies that invest in Taiwan.’ While the Chinese government called the law ‘inconsistent with international norms’, Russian Foreign Ministry spokesman Vladimir Andreyev said, ‘we need co-ordinated practical measures to improve wide antiterrorist co-operation based on international law, but not unilateral steps contradicting the law’. Japan also added its voice to the criticism of the United States, saying the sanctions measures violated international law. Hirosho Hashimoto, a Foreign Ministry spokesman, said it was ‘regrettable’ that Clinton had implemented such sanctions: ‘Application of domestic law outside the US borders is not permitted under international law’. Hashimoto said that Japan would continue to urge America to reconsider the law, and would decide what action to take in the light of how it was applied. Leon Brittan said that Clinton signed into law legislation that establishes the unwelcome principle that one country can dictate the foreign policy of others and disturb the unity of purpose between allies that is so necessary if we are to stamp out terrorism successfully together. The European Union has already said it will act to defend its rights and interests if they are jeopardised by this legislation.52

The European Union on 8 August lodged a formal protest with the US State Department which was delivered by Ireland’s ambassador to the United States, Dermot Gallagher, on behalf of the EU presidency. The European Union regarded the US legislation as ‘completely unacceptable’, and warned that the imposition of the law would prompt ‘retaliatory action’. The EU presidency, on 21 August, published a declaration condemning the ILSA, reaffirming the European Union’s ‘determination to act in the appropriate international fora, including the World Trade Organisation, in defence of its rights and interests and to show solidarity in defence of interests of member states’ companies if these are affected by the legislation’. The legislation also drew withering criticism from other US allies, even from a country like Egypt, which was known to have little sympathy for 52 ‘European Commission reacts to signing of Iran/Libya Law’, Office of Press and Public Affairs, European Commission Delegation, no 48/96, 5 August 1996.

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either Iran or Libya. Al-Ahram, the semi-official Cairo daily, wrote on 8 August that ‘the United States is seeking to impose its will on its allies by waving the flag of the fight against terrorism’. Another Cairo daily, AlWafd, in more strident terms, declared that ‘by signing this Bill, the US President has relinquished his position as head of the world’s leading democracy, moved us back to the Middle Ages, and put on the tiara of a Roman Catholic Pope by excommunicating any foreign company investing more than $40 million in oil and gas production in Libya or Iran’. The strength of protest from major US allies to the law, in addition to their objection to the application of extraterritoriality, also reflected the dependence of these countries on Iranian and Libyan oil, and the significant market that these two countries represented for finished products and services. Europe imports almost 20 percent of its oil from Iran and Libya. Iran is also the major supplier of oil to Japan. In 1995, the European Union exported US$11.5 billion worth of goods to Iran, while Iran, in turn, sold over US$17 billion worth of products in the European Union. US State Department spokesman Nicholas Burns called the European reaction to the act ‘quite aggressive’, but hoped that the European Union and the United States would be able to talk quietly about this and not give the Iranians the pleasure of seeing this debate in the West. After all, the focus of the legislation ought to be continued to be directed at Tehran, which is a major terrorist state, at Tripoli, the Libyans. It would be a shame if the Europeans and the Americans debated these measures for weeks to come and that the focus and the spotlight was shifted to us and not where it should be applied.53

Burns admitted that there would be no chance of multilateral action against Iran and Libya because the European Union had made it clear that ‘they are not going to go along’. The immediate direct challenge to the legislation, and the most concrete rebuff to the United States came from Turkey, a NATO ally and the third-largest beneficiary of US aid after Israel and Egypt. Only three days after Clinton had signed the sanction law, the Turkish Prime Minister, Necmettin Erbakan, entered into an agreement with Iran to install a pipeline and purchase 190 billion cubic metres of Iranian natural gas for US$20 billion. The Iran-Turkey gas pipeline deal angered D’Amato and prompted him on 8 August to write to Christopher, and on 13 August to Clinton, requesting them to stop the deal. 53 International Trade Reporter, vol. 13 no 33, 14 August 1996.

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This provocative act, less than a full week after the signing of the Iran-Libya Sanctions Act, is a direct challenge to our policy of economically isolating Iran. If Turkey escapes the sanctions, as called for in this legislation, then this will mean that any foreign country will feel free to blatantly violate this law running entirely counter to our strategy of isolating Iran until the regime’s behavior changes… I urge you in the strongest terms to seek a dialogue with Turkey on alternative sources for Turkey’s energy needs and prevent this deal from going forth, or place sanctions on Turkey, as called for in the legislation.

D’Amato apparently initiated his objection to the Iran-Turkey deal without any consultation. Turkey’s friendship with both the United States and Israel deterred AIPAC from putting pressure on Congress, and as a result efforts to block the Turkish deal evaporated. THE EUROPEAN UNION BLOCKS THE ILSA When Stuart Eizenstat, Clinton’s Special Envoy to Europe, failed to persuade the European Union not to oppose or retaliate against the ILSA and LIBERTAD, the 15 EU foreign ministers, on 1 October, voted unanimously in Luxembourg on a joint move against the US sanctions laws. They then issued a joint statement: ‘In order to provide comprehensive, effective and EU-wide protection for citizens and companies within the EU, whose economic and financial interests are likely to be affected by the Helms-Burton and D’Amato acts, it was decided to take rapidly all the necessary measures to counter the extra-territorial effect of these laws’. As agreed, the EU member states, on 22 November, acting on the basis of Articles J3 and K3 of the treaty of the European Union and Article 235 of the European Community Treaty, adopted blocking legislation 54 designed to prevent the European business community from complying with the LIBERTAD and ILSA, with the aim of protecting the European Union from the negative effects of these laws. ‘This Regulation provides protection against and counteracts the effects of the extra-territorial application of the laws… where such application affects the interests of persons… engaging in international trade related commercial activities between the Community and third countries.’ 55 The regulation states that ‘no judgement of a court or tribunal and no decision of an administrative authority located outside the community 54 ‘Protecting against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom’, Council Regulations (EC) 2271/96, 22 November 1996. 55 Ibid., Article 1.

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given effect… [under the LIBERTAD and ILSA] shall be recognized or be enforceable in any manner’.56 Two main elements of the anti-boycott regulation, non-compliance and notification requirements, applied with regard to the ILSA. The noncompliance section of the regulation hampered the application and implementation of the US legislation by prohibiting European companies from complying with the act: ‘No person… shall comply, whether directly or through a subsidiary or other intermediary person, actively or by deliberate omission, with any requirement or prohibition including requests of foreign courts, based on or resulting, directly or indirectly’, from the laws.57 Article 2 of the regulation requires companies to inform the European Commission directly or through the competent authorities of the member states if their economic or financial interests are affected by US actions. This notification requirement, obligatory for directors, managers and other persons with management responsibilities, would ensure that the European Union was fully aware of US pressures being put on European companies, and enable them to act accordingly. Section 5(a) of the ILSA requires the US president to determine whether a sanctionable act has occurred. The anti-boycott regulation prohibited anyone from providing any information which could facilitate or allow the US president to make that determination. Foreign companies were invited, under Section 7 of the ILSA, to request the US Secretary of State to review any envisaged investment and issue an advisory opinion as to its legality. The anti-boycott legislation prohibits companies from doing so, and requires subsidiaries of US companies based in Europe not to comply with these sanctions. (For the complete regulation, see Document 12.) Secondary boycott is a new, but not untried, weapon in the US economic arsenal. The only previous American attempt to enforce a major secondary boycott ended in failure and embarrassment when, in 1982, President Reagan made a bid to sanction the firms participating in the Soviet gas pipeline. That time the targets of US pressure were merely the subsidiaries of American corporations, but the adverse reaction in Europe and Canada was so intense that the sanctions became unsustainable, forcing Reagan to withdraw his Order. Without doubt, the secondary boycott elements of the US sanctions bills are incompatible with the provisions of the World Trade Organization 56 Ibid., Article 4. 57 Ibid., Article 5.

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(WTO). In order to stop the application of these elements, Europe lodged a complaint with the WTO. It is interesting to note that on the other side of the Atlantic, at the same time, the United States used the same provision to complain about another secondary boycott. Indifferent to the contradiction of US advocacy of secondary boycotts on Iran, Libya and Cuba, Acting US Trade Representative Charlene Barshefsky objected to Saudi Arabia’s membership of WTO, and called the Arab League boycott of Israel a ‘trade distorting practice’ that was ‘incompatible’ with the provisions of the WTO. Saudi participation in the boycott and the whole issue ‘would have to be resolved’ or the United States would oppose the kingdom’s admission to the WTO. The European Union’s blocking legislation and its complaint to the WTO prompted the United States to discuss the issue with its European partners. At a meeting held on 11 April 1997, the United States suggested the granting of a general waiver for EU investments in Iran under Section 4(c) of the ILSA on condition that EU states implemented measures to accomplish some of the ILSA’s goals. The US government specified four measures to be adopted by the European Union to avoid sanctions: signature of pending anti-terrorism conventions; a reduction in Iranian diplomatic staff; agreement not to reschedule Iranian debts to EU financial institutions; increased co-operation on dual use export controls. The US offer was rejected by the European Union on the grounds that it might give legitimacy to the ILSA. TOTAL IGNORES THE ILSA Despite the sword of Damocles hanging over the heads of possible investors in Iran, Total, the leading French oil company, decided to ignore the ILSA. On 28 September 1997, in partnership with Russia’s state-owned Gazprom and Malaysia’s state-owned Petronas, it signed a US$2 billion investment contract with Iran to develop the offshore South Pars gas field. The cooperation between Iran and France had strategic implications for both countries. It reduced Iran’s future dependence on US technology in the energy industry and won for the country France as an ally in putting pressure on the United States to grant sanctions waivers. For France, the contract meant a more visible position in Middle East policy and the region’s oil industry. This landmark deal posed the first challenge to US legislation, and placed Clinton in a strategic dilemma. To enact the legislation forced on

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him by Congress to impose sanctions on Total would have damaged his relations with his allies in Europe and elsewhere. On the other hand, choosing not to impose sanctions on Total would have required him to wrestle with a Congress still in favour of punishing Iran to the fullest extent. Congress, as expected, immediately started its fiery campaign in support of the prompt imposition of sanctions against those involved in the South Pars deal. On 1 October 1997, an outraged D’Amato and Gilman, the ILSA’s principle sponsors, wrote a letter to Clinton requesting him to impose sanctions on the Total deal and ‘lead the effort to restrict Iran’s ability to finance the export of terror and acquisition of weapons of mass destruction… the Administration policy towards Iran is in jeopardy and our nation’s credibility in the fight against terrorism hangs in the balance.’ The US administration was forced to adopt a cautious middle-ground approach and discuss the matter with its allies, especially the Europeans. For months, the United States lobbied Europe heavily to take some action to allow Clinton to ‘ratchet down’ the potential for a trade war. The administration stated that if some convergence could be found between the United States and the European Union on Iran policy then Clinton could use his authority under the ILSA and waive the application of the law. Even though the Total deal with Iran was so obviously in violation of the ILSA, under the pretext of ‘investigating if a sanctionable activity has occurred’ the State Department delayed its decision in the hope of winning a face-saving agreement with the European Union. Annoyed by the delays, Gilman, in his letter of 2 April 1988, informed Clinton that his committee would begin looking into whether there had been a decision by the administration not to enforce the law if no action had been taken by the week of 20 April, when Congress was scheduled to reconvene: ‘Mr President, refusing to enforce the law in this case is not an option, not least because your oath of office requires you to see that the law is faithfully executed’. The administration rejected the congressional deadline. James P. Rubin, a spokesman at the State Department, said he could not say when the investigation would be completed, but it certainly would not be based on some arbitrary deadline. ‘We are pursuing our policy based on the law… no decision has been made.’ As the administration was approaching a decision on sanctions, Lott, D’Amato and 11 other senators, on 8 May, called on Clinton, and urged him ‘in the strongest terms’ to find the Total investment in Iran ‘in violation of ILSA and to impose sanctions on Total and its partners’. The senators

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told the President that while Iranian President Mohammad Khatami’s rhetoric had been moderate ‘Iran remains the world’s leading sponsor of international terrorism and is actively pursuing a program to obtain weapons of mass destruction and the missiles to deliver them’. Granting a waiver of sanctions for Total, they continued, would ‘send exactly the wrong message… A decision not to sanction will reveal the United States as a paper tiger, thus opening the floodgate for future investments and enriching a nation bent on buying weapons of mass destruction and funding terrorism.’ THE UNITED STATES YIELDS TO EUROPEAN PRESSURE After more than a year of negotiations, the United States and the European Union eventually, on 18 May 1998, reached a ‘compromise’, resolving a long and tense dispute over US efforts to use the threat of sanctions to force Europe to follow US policy. The agreement announced by Clinton and British Prime Minister Tony Blair, following a US-EU summit in London was clearly a victory for the European Union in its two-year campaign against US unilateral economic sanctions. As far as Iran was concerned, Clinton was using his presidential waiver authority under Section 9(c) of the ILSA, having determined that ‘it is important to the national interest of the United States to exercise’ a waiver on sanctions against Total and its partners, despite US legislation. In return, the EU member states assured the President that they would work harder to prevent the transfer to Iran of materials and technology that might assist the Iranians in the development of weapons of mass destruction. In this connection, Clinton said that ‘the waiver we have granted today is part of our overall strategy to deter Iran from acquiring weapons of mass destruction and promoting terrorism’.58 Iran’s pursuit of weapons of mass destruction and promotion of terrorism were the reasons that the ILSA was enacted. For the first time in the history of sanctions the same reasoning was being cited two years later to justify the waiver of punitive measures. Madeleine Albright, the US Secretary of State, was more sincere: granting this waiver does not mean we support this investment; we do not. In fact, we made vigorous efforts to stop it, including representations at the 58 Tom Buerkle, ‘US and EU make peace over trade with Iran’, International Herald Tribune, 19 May 1998, p. 1.

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highest levels of the Governments involved. When it appeared that the project would nevertheless go forward, we concluded that sanctions would not prevent this project from proceeding… Moreover, granting the waiver will prevent retaliation against US firms which the imposition of sanctions would probably engender and avoid possible challenges based on claims related to treaties and other international obligations.59

The sanction waivers not only applied to Total and its partners; the principle would also be extended to other firms involved in developing Iran’s oil and gas industry. The White House stressed that the waiver agreement did not apply to EU and Russian investment in Libya. But Leon Brittan, in explaining the deal to the European parliament, said ‘if the US were to take action against any European company in regard to Libya we have the full right – and I would believe the intentions – to go to the World Trade Organization on the Helms-Burton issue and on the ILSA issue’. Sanctions under the ILSA were never imposed. This was not due to a lack of sanctionable conduct within the international community. Violation of the act was either completely ignored by the United States or dismissed as violating the spirit but not the law. This was largely due to the fact that the European Union had filed a challenge to the ILSA and LIBERTAD before the WTO. It was widely anticipated that the organization would rule against the United States, and that such a decision would not only brand the United States a violator of international law, but would also give Congress a reason to force the United States out of the hard-won WTO. By temporarily waiving the sanctions, the Clinton administration not only deflated a possible confrontation with the European Union but also put the final nail in the coffin of its dual containment policy of isolating Iran. CONGRESS STRIKES BACK Such a tactical retreat did not impress congressional militants, and as expected they reacted quickly and angrily to US concessions. D’Amato, outraged at the administration’s decision, said in a statement on 18 May, ‘The decision is a mistake. It will send a signal to others that they can do business as usual with Iran at a time when Iran continues to pursue weapons of mass destruction and continues to sponsor terrorist acts.’ Gilman maintained, the same day, that ‘the Administration has sent the wrong signal at the wrong time to Iran, which continues to export terrorism

59 Statement by US Secretary of State Madeline Albright in London, 18 May 1998.

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around the world and to produce weapons of mass destruction’. Gilman also said that the decision was ‘a signal to prospective investors in Iran that they need not fear US sanctions on oil and gas investment there or in Libya’. Jesse Helms, co-sponsor of LIBERTAD, also condemned the agreement. ‘The Europeans offered the Administration absolutely nothing in exchange for this waiver. This sends a signal to Iran that the United States is not serious about isolating their terrorist regime.’ 60 Roth, in a press release on 18 May, denounced the agreement, and said that ‘the US-EU agreement announced today gives foreign companies our blessing to invest and profit at a time when there is strong reason to believe that Tehran is trying to acquire nuclear weapons and so soon after the Department of State has reported that Tehran remains an important source of international terrorism’. Sam Brownback, another US senator, also criticized the administration: By waiving sanctions on Total and Gazprom’s investment in Iranian offshore gas fields, the Clinton administration is putting more money in the hands of the leading terrorist country in the world. This effectively endorses foreign investment in Iran and places American companies at an even further disadvantage. The money Iran raises can now be poured into its weapons programmes, threatening not only Israel and moderate Arab regimes in the Middle East, but Europe itself.61

However, the cries of the sanctions hawks in Congress did not affect the administration’s decision. Congress, in retaliation, soon afterwards opened another chapter by debating a new unilateral sanction against Iran. On 22 May, Lott launched the Senate’s consideration of the Iran Missile Proliferation Sanctions Act (IMPSA). This is not a complicated piece of legislation. It is designed to address one of the most pressing security issues we face in the world. Iran’s determined drive to acquire ballistic missile production capability. Iran is a terrorist state under US law. The same Iranian Government responsible for terrorist murder around the world is engaged in efforts to acquire nuclear weapons and the means to deliver them. They already have chemical weapons. They are working on biological weapons. Iran’s missile program has been advanced tremendously by assistance from a wide range of Russian entities.

During the floor debate, Brownback, said of the waiver on the ILSA that it was a ‘grave mistake’ and showed a ‘lack of resolve’. He went on that the legislation was ‘more important now than ever. It is more urgent now than 60 James Bennet, ‘To clear air with Europe, US waives some sanctions’, New York Times, 19 May 1998. 61 Senator Sam Brownback, press release, 19 May 1998.

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it was 10 days ago to alert the world and Iran in particular, that the United States will not tolerate an Iranian nuclear program.’ The IMPSA, like the ILSA, was initiated by Israel, and the campaign to get it through Congress was co-ordinated by AIPAC on the direct instructions of Israeli Prime Minster Benjamin Netanyahu. Ze’ev Schiff, the military editor of Ha’aretz, an Israeli daily, reported on 22 September 1997 that Israel was trying to influence Congress to impose sanctions on Russian companies which helped Iran in its efforts to develop long-range missiles. Commenting that he did not trust the President’s decision on waivers, and aware that the Clinton administration opposed such sanctions, Senator Lauch Faircloth said he would introduce legislation requiring consultation with Israel before a waiver decision could be made under the bill. Despite administration opposition to the bill, on 22 May the Senate voted 90–4 to approve a bill requiring the President to impose sanctions on foreign companies, especially Russian ones, that supplied Iran with goods and technology to help its ballistic missile programme. On 9 June, the House, voting 392–22, approved the bill and sent it to the President for signature. The legislation would have required the president to impose sanctions on foreign persons transferring, or attempting to transfer, missile items or technology, or any technical assistance that could contribute to Iran’s efforts to acquire, develop or produce ballistic missiles. Sanctions to be imposed were a prohibition on exports of defence articles; a prohibition on exports of dual use items; a refusal of US government loans, grants, credits and guarantees. Under the bill, the president had the option to waive sanctions if he determined that the waiver was essential to the national security of the United States. As expected, on 23 June Clinton vetoed the IMPSA because the threshold for imposing sanctions was too low. Among other things, the White House said that the bill required ‘the imposition of sanctions based on an unworkable low standard of evidence’ and it ‘could be wrongly triggered against individuals and business world-wide’.

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RUSSIAN COMPANIES TARGETED BY SANCTIONS On 28 July 1998, Clinton, in a move aimed at heading off a congressional veto to override the presidential veto, signed Executive Order 13094,62 revising and amending Executive Order 12938 of 14 November 1994. The new Order targeted with sanctions foreign persons determined by the Secretary of State to have ‘materially contributed or attempted to contribute materially to the effort of any foreign country, project or entity of proliferation concern to use, acquire, design, develop, produce or stockpile weapons of mass destruction or missiles capable of delivering such weapons’. According to the amended Order, the following Russian companies were sanctioned: Baltic State Technical University, Europalas 2000, Glavkosmos, Grafit Research Institute, Inro Scientific Centre, Moso Company and Plyus Scientific Production. The sanctions barred US government assistance to these companies as well as all trade between them and the United States. On 12 January 1999, three other Russian entities, the Scientific Research and Design Institute of Power Technology, the D. Mendeleyev University of Chemical Technology and the Moscow Aviation Institute, became the targets of identical sanctions. IRAN, A RELIGIOUS RIGHTS OFFENDER Human rights improvements, always a primary objective for US sanctions applied elsewhere, were not demanded of Iran until October 1999. On 6 October, the State Department designated Iran, China, Iraq, Myanmar (Burma) and Sudan countries that ‘engage in, or tolerate violations of religious freedom’. Designation of Iran as a violator of religious freedom, and its eligibility for further US diplomatic and economic sanctions was justified by its alleged mistreatment of members of the Bahai sect. Bahaism, an offshoot of Islam which originated in Iran in the midnineteenth century, is not considered a divine religion by the Iranian constitution. This view is not a new one in Iran, and has stood for the past 150 years, even during the Shah’s time. Followers of the divine religions, Jews, Christians and Zoroastrians, can practice in complete freedom, and even have direct representation in the 62 Fed. Reg. 40803, vol. 63 no 146, 30 July 1998.

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Iranian parliament. Saudi Arabia, Egypt, Pakistan, Turkey and a dozen other countries which practice persecution regularly are excluded from the list. ‘Were the President and his advisors more worried about injuring the relationship… than with giving the honest assessment required by the plain language of the statues?’ 63 asked Representative Chris Smith, who championed the International Religious Freedom Act of 1998.64 The act, with its menu of 15 sanctions ranging from a private or public demarche, to prohibition of government procurement from the sanctioned country, would have no effect on Iran, because the sanctions prescribed in it are duplicates of existing restrictions against Iran. The only sanction, if imposed, which might affect Iran would be that aimed at the ‘delay or cancellation of scientific or cultural exchanges’. NEW SANCTIONS WELCOME CHANGES IN IRAN Even with the sweeping victory of reformists in the February 2000 parliamentary elections, the attitude of the US Congress seems to be rooted still in traditional prejudices. As the votes were being counted in Iran, the US Senate (on 24 February by 98–0) and House of Representatives (on 2 March by 420–0) voted the Iran Nonproliferation Act (INA). As the entire world appears to welcome the tide of change in Iran, Congress, unwilling to part with old policies, is as determined as ever to portray Iran as a country deserving of more US sanctions. The new sanctions, although weaker than the measures in the Iran Missile Proliferation Sanctions Act which Clinton vetoed in 1998, still moves the US to another round of unilateral sanctions against US trading partners for assisting Iranian weapons programmes. The act requires the president to submit reports to Congress every six months identifying foreign persons or countries that transfer material or technology to Iran, and authorizes him to impose sanctions. The act also bars payments to the Russian Space Agency for work on the International Space Station unless Moscow ‘demonstrates a sustained commitment’ to non-proliferation.

63 ‘US Cites Five Nations for Religious Persecution’, ABC News Internet Ventures, 6 October 1999. 64 Pub. L. 105-292, 112 Stat. 2787, 27 October 1998, 22 USC §6401, 1999.

DOCUMENT 11 The Iran and Libya Sanctions Act of 1996

110 STAT. 1541 Public Law 104-172 104th Congress An Act To impose sanctions on persons making certain investments directly and significantly contributing to the enhancement of the ability of Iran or Libya to develop its petroleum resources, and on persons exporting certain items that enhance Libya’s weapons or aviation capabilities or enhance Libya’s ability to develop its petroleum resources, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION 1. SHORT TITLE.

This Act may be cited as the ‘Iran and Libya Sanctions Act of 1996’. SECTION 2. FINDINGS.

The Congress makes the following findings: (1) The efforts of the Government of Iran to acquire weapons of mass destruction and the means to deliver them and its support of acts of international terrorism endanger the national security and foreign

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policy interests of the United States and those countries with which the United States shares common strategic and foreign policy objectives. (2) The objective of preventing the proliferation of weapons of mass destruction and acts of international terrorism through existing multilateral and bilateral initiatives requires additional efforts to deny Iran the financial means to sustain its nuclear, chemical, biological, and missile weapons programs. (3) The Government of Iran uses its diplomatic facilities and quasi-governmental institutions outside of Iran to promote acts of international terrorism and assist its nuclear, chemical, biological, and missile weapons programs. (4) The failure of the Government of Libya to comply with Resolutions 731, 748, and 883 of the Security Council of the United Nations, its support of international terrorism, and its efforts to acquire weapons of mass destruction constitute a threat to international peace and security that endangers the national security and foreign policy interests of the United States and those countries with which it shares common strategic and foreign policy objectives. SECTION 3. DECLARATION OF POLICY.

(a) POLICY WITH RESPECT TO IRAN. – The Congress declares that it is the policy of the United States to deny Iran the ability to support acts of international terrorism and to fund the development and acquisition of weapons of mass destruction and the means to deliver them by limiting the development of Iran’s ability to explore for, extract, refine, or transport by pipeline petroleum resources of Iran. (b) POLICY WITH RESPECT TO LIBYA. – The Congress further declares that it is the policy of the United States to seek full compliance by Libya with its obligations under Resolutions 731, 748, and 883 of the Security Council of the United Nations, including ending all support for acts of international terrorism and efforts to develop or acquire weapons of mass destruction. SECTION 4. MULTILATERAL REGIME.

(a) MULTILATERAL NEGOTIATIONS. – In order to further the objectives of section 3, the Congress urges the President to commence immediately diplomatic efforts, both in appropriate international fora such as the United Nations, and bilaterally with allies of the United States, to establish a multilateral sanctions regime against Iran, including

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provisions limiting the development of petroleum resources that will inhibit Iran’s efforts to carry out activities described in section 2. REPORTS TO CONGRESS. – The President shall report to the appropriate congressional committees, not later than 1 year after the date of the enactment of this Act, and periodically thereafter, on the extent that diplomatic efforts described in subsection (a) have been successful. Each report shall include – (1) the countries that have agreed to undertake measures to further the objectives of section 3 with respect to Iran, and a description of those measures; and (2) the countries that have not agreed to measures described in paragraph (1), and with respect to those countries, other measures (in addition to that provided in subsection (d)) the President recommends that the United States take to further the objectives of section 3 with respect to Iran. WAIVER. – The President may waive the application of section 5(a) with respect to nationals of a country if – (1) that country has agreed to undertake substantial measures, including economic sanctions, that will inhibit Iran’s efforts to carry out activities described in section 2 and information required by subsection (b)(1) has been included in a report submitted under subsection (b); and (2) the President, at least 30 days before the waiver takes effect, notifies the appropriate congressional committees of his intention to exercise the waiver. ENHANCED SANCTION. – (1) SANCTION. – With respect to nationals of countries except those with respect to which the President has exercised the waiver authority of subsection (c), at any time after the first report is required to be submitted under subsection (b), section 5(a) shall be applied by substituting ‘$20,000,000’ for ‘$40,000,000’ each place it appears, and by substituting ‘$5,000,000’ for ‘$10,000,000’. (2) REPORT TO CONGRESS. – The President shall report to the appropriate congressional committees any country with respect to which paragraph (1) applies. INTERIM REPORT ON MULTILATERAL SANCTIONS; MONITORING. – The President, not later than 90 days after the date of the enactment of this Act, shall report to the appropriate congressional committees on – (1) whether the member states of the European Union, the Republic of

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Korea, Australia, Israel, or Japan have legislative or administrative standards providing for the imposition of trade sanctions on persons or their affiliates doing business or having investments in Iran or Libya; (2) the extent and duration of each instance of the application of such sanctions; and (3) the disposition of any decision with respect to such sanctions by the World Trade Organization or its predecessor organization. SECTION 5. IMPOSITION OF SANCTIONS

(a) SANCTIONS WITH RESPECT TO IRAN. – Except as provided in subsection (f), the President shall impose 2 or more of the sanctions described in paragraphs (1) through (6) of section 6 if the President determines that a person has, with actual knowledge, on or after the date of the enactment of this Act, made an investment of $40,000,000 or more (or any combination of investments of at least $10,000,000 each, which in the aggregate equals or exceeds $40,000,000 in any 12-month period), that directly and significantly contributed to the enhancement of Iran’s ability to develop petroleum resources of Iran. (b) MANDATORY SANCTIONS WITH RESPECT TO LIBYA. – (1) VIOLATIONS OF PROHIBITED TRANSACTIONS. – Except as provided in subsection (f), the President shall impose 2 or more of the sanctions described in paragraphs (1) through (6) of section 6 if the President determines that a person has, with actual knowledge, on or after the date of the enactment of this Act, exported, transferred, or otherwise provided to Libya any goods, services, technology, or other items the provision of which is prohibited under paragraph 4(b) or 5 of Resolution 748 of the Security Council of the United Nations, adopted March 31, 1992, or under paragraph 5 or 6 of Resolution 883 of the Security Council of the United Nations, adopted November 11, 1993, if the provision of such items significantly and materially – (A) contributed to Libya’s ability to acquire chemical, biological and nuclear weapons or destabilizing numbers and types of advanced conventional weapons or enhanced Libya’s military or paramilitary capabilities; (B) contributed to Libya’s ability to develop its petroleum resources; or (C) contributed to Libya’s ability to maintain its aviation capabilities.

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(2) INVESTMENTS THAT CONTRIBUTE TO THE DEVELOPMENT OF PETROLEUM RESOURCES. – Except as provided in subsection (f), the President shall impose 2 or more of the sanctions described in paragraphs (1) through (6) of section 6 if the President determines that a person has, with actual knowledge, on or after the date of the enactment of this Act, made an investment of $40,000,000 or more (or any combination of investments of at least $10,000,000 each, which in the aggregate equals or exceeds $40,000,000 in any 12-month period), that directly and significantly contributed to the enhancement of Libya’s ability to develop its petroleum resources. PERSONS AGAINST WHICH THE SANCTIONS ARE TO BE IMPOSED. – The sanctions described in subsection (a) and (b) shall be imposed on – (1) any person the President determines has carried out the activities described in subsection (a) or (b); and (2) any person the President determines – (A) is a successor entity to the person referred to in paragraph (1); (B) is a parent or subsidiary of the person referred to in paragraph (1) if that parent or subsidiary, with actual knowledge, engaged in the activities referred to in paragraph (1); or (C) is an affiliate of the person referred to in paragraph (1) if that affiliate, with actual knowledge, engaged in the activities referred to in paragraph (1) and if that affiliate is controlled in fact by the person referred to in paragraph (1). For purposes of this Act, any person or entity described in this subsection shall be referred to as ‘a sanctioned person’. PUBLICATION IN FEDERAL REGISTER. – The President shall cause to be published in the Federal Register a current list of persons and entities on whom sanctions have been imposed under this Act. The removal of persons or entities from, and the addition of persons and entities to, the list, shall also be so published. PUBLICATION OF PROJECTS. – The President shall cause to be published in the Federal Register a list of all significant projects which have been publicly tendered in the oil and gas sector in Iran. EXCEPTIONS. – The President shall not be required to apply or maintain the sanctions under subsection (a) or (b)(1) in the case of procurement of defense articles or defense services – (A) under existing contracts or subcontracts, including the exercise of options for production quantities to satisfy requirements essential to the national security of the United States;

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(B) if the President determines in writing that the person to which the sanctions would otherwise be applied is a sole source supplier of the defense articles or services, that the defense articles or services are essential, and that alternative sources are not readily or reasonably available; or (C) if the President determines in writing that such articles or services are essential to the national security under defense coproduction arrangements; in the case of procurement, to eligible products, as defined in section 308(4) of the Trade Agreements Act of 1979 (19 U.S.C. 2518(4)), of any foreign country or instrumentality designated under section 301(b)(1) of that Act (19 U.S.C. 2511(b)(1)); to products, technology, or services provided under contracts entered into or before the date on which the President publishes in the Federal Register the name of the person on whom the sanctions are to be imposed; to – (A) spare parts which are essential to United States products or production; (B) component parts, but not finished products, essential to United States products or production; or (C) routine servicing and maintenance of products, to the extent that alternative sources are not readily or reasonably available. to information and technology essential to United States products or production; or to medicines, medical supplies, or other humanitarian items.

SECTION 6. DESCRIPTION OF SANCTIONS.

The sanctions to be imposed on a sanctioned person under section 5 are as follows: (1) EXPORT-IMPORT BANK ASSISTANCE FOR EXPORTS TO SANCTIONED PERSONS. – The President may direct the Export-Import Bank of the United States not to give approval to the issuance of any guarantee, insurance, extension of credit, or participation in the extension of credit in connection with the export of any goods or services to any sanctioned person. (2) EXPORT SANCTION. – The President may order the United States Government not to issue any specific license and not to grant any other

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specific permission or authority to export any goods or technology to a sanctioned person under – (i) the Export Administration Act of 1979; (ii) the Arms Export Control Act; (iii) the Atomic Energy Act of 1954; or (iv) any other statute that requires the prior review and approval of the United States Government as a condition for the export or reexport of goods or services. LOANS FROM UNITED STATES FINANCIAL INSTITUTIONS. – The United States Government may prohibit any United States financial institution from making loans or providing credits to any sanctioned person totaling more than $10,000,000 in any 12-month period unless such person is engaged in activities to relieve human suffering and the loans or credits are provided for such activities. PROHIBITIONS ON FINANCIAL INSTITUTIONS. – The following prohibitions may be imposed against a sanctioned person that is a financial institution: (A) PROHIBITION ON DESIGNATION AS PRIMARY DEALER. – Neither the board of Governors of the Federal Reserve System nor the Federal Reserve Bank of New York may designate, or permit the continuation of any prior designation of, such financial institution as a primary dealer in United States Government debt instruments. (B) PROHIBITION ON SERVICE AS A REPOSITORY OF GOVERNMENT FUNDS. – Such financial institution may not serve as agent of the United States Government or serve as repository for United States Government funds. The imposition of either sanction under subparagraph (A) or (B) shall be treated as 1 sanction for purposes of section 5 and the imposition of both such sanctions shall be treated as 2 sanctions for the purposes of section 5. PROCUREMENT SANCTION. – The United States Government may not procure, or enter into any contract for the procurement of, any goods or services from a sanctioned person. ADDITIONAL SANCTIONS. – The President may impose sanctions as appropriate, to restrict imports with respect to a sanctioned person, in accordance with the International Emergency Economic Powers Act (50 U.S.C. 1701 and following).

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SECTION 7. ADVISORY OPINIONS.

The Secretary of State may, upon the request of any person, issue an advisory opinion to that person as to whether a proposed activity by that person would subject that person to sanctions under this Act. Any person who relies in good faith on such an advisory opinion which states that the proposed activity would not subject a person to such sanctions, and any person who thereafter engages in such activity, will not be made subject to such sanctions on account of such activity. SECTION 8. TERMINATION OF SANCTIONS.

(a) IRAN. – The requirement under section 5(a) to impose sanctions shall no longer have force or effect with respect to Iran if the President determines and certifies to the appropriate congressional committees that Iran – (1) has ceased its efforts to design, develop, manufacture, or acquire – (A) a nuclear explosive device or related materials and technology; (B) chemical and biological weapons; and (C) ballistic missiles and ballistic missile launch technology; and (2) has been removed from the list of countries the governments of which have been determined, for purposes of section 6(j) of the Export Administration Act of 1979, to have repeatedly provided support for acts of international terrorism. (b) LIBYA. – The requirement under section 5(b) to impose sanctions shall no longer have force or effect with respect to Libya if the President determines and certifies to the appropriate congressional committees that Libya has fulfilled the requirements of United Nations Security Council Resolution 731, adopted January 21, 1992, United Nations Security Council Resolution 748, adopted March 31, 1992, and the United Nations Security Council Resolution 883, adopted November 11, 1993. SECTION 9. DURATION OF SANCTIONS; PRESIDENTIAL WAIVER.

(a) DELAY OF SANCTIONS. – (1) CONSULTATIONS. – If the President makes a determination described in section 5(a) or 5(b) with respect to a foreign person, the Congress urges the President to initiate consultations immediately with the government with primary jurisdiction over that foreign person with respect to the imposition of sanctions under this Act. (2) ACTIONS BY GOVERNMENT OF JURISDICTION. – In order to pursue consultations under paragraph (1) with the government concerned, the President may delay imposition of sanctions under this Act for

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up to 90 days. Following such consultations, the President shall immediately impose sanctions unless the President determines and certifies to the Congress that the government has taken specific and effective actions, including, as appropriate, the imposition of appropriate penalties, to terminate the involvement of the foreign person in the activities that resulted in the determination by the President under section 5(a) or 5(b) concerning such person. (3) ADDITIONAL DELAY IN IMPOSITION OF SANCTIONS. – The President may delay the imposition of sanctions for up to an additional 90 days if the President determines and certifies to the Congress that the government with primary jurisdiction over the person concerned is in the process of taking the actions described in paragraph (2). (4) REPORT TO CONGRESS. – Not later than 90 days after making a determination under section 5(a) or 5(b), the President shall submit to the appropriate congressional committees a report on the status of consultations with the appropriate foreign government under this subsection, and the basis for any determination under paragraph (3). (b) DURATION OF SANCTIONS. – A sanction imposed under section 5 shall remain in effect – (1) for a period of not less than 2 years from the date on which it is imposed; or (2) until such time as the President determines and certifies to the Congress that the person whose activities were the basis for imposing the sanction is no longer engaging in such activities and that the President has received reliable assurance that such person will not knowingly engage in such activities in the future, except that such sanction shall remain in effect for a period of at least 1 year. (c) PRESIDENTIAL WAIVER. – (1) AUTHORITY. – The President may waive the requirement in section 5 to impose a sanction or sanctions on a person described in section 5(c), and may waive the continued imposition of a sanction or sanctions under subsection (b) of this section, 30 days or more after the President determines and so reports to the appropriate congressional committees that it is important to the national interest of the United States to exercise such waiver authority. (2) CONTENTS OF REPORT. – Any report under paragraph (1) shall provide a specific and detailed rationale for the determination under paragraph (1), including – (A) a description of the conduct that resulted in the determination

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under section 5(a) or (b), as the case may be; (B) in the case of a foreign person, an explanation of the efforts to secure the co-operation of the government with primary jurisdiction over the sanctioned person to terminate or, as appropriate, penalize the activities that resulted in the determination under section 5(a) or (b), as the case may be; (C) an estimate as to the significance(i) of the provision of the items described in section 5(a) to Iran’s ability to develop its petroleum resources, or (ii) of the provision of the items described in section 5(b)(1) to the abilities of Libya described in subparagraph (A), (B), or (C) of section 5(b)(1), or of the investment described in section 5(b)(2) on Libya’s ability to develop its petroleum resources, as the case may be; and (D) statement as to the response of the United States in the event that the person concerned engages in other activities that would be subject to section 5(a) or (b). (3) EFFECT OF REPORT ON WAIVER. – If the President makes a report under paragraph (1) with respect to a waiver of sanctions on a person described in section 5(c), sanctions need not be imposed under section 5(a) or (b) on that person during the 30-day period referred to in paragraph (1). SECTION 10. REPORTS REQUIRED.

(a) REPORT ON CERTAIN INTERNATIONAL INITIATIVES. – Not later than 6 months after the date of the enactment of this Act, and every 6 months thereafter, the President shall transmit a report to the appropriate congressional committees describing – (1) the efforts of the President to mount a multilateral campaign to persuade all countries to pressure Iran to cease its nuclear, chemical, biological, and missile weapons programs and its support of acts of international terrorism; (2) the efforts of the President to persuade other governments to ask Iran to reduce the presence of Iranian diplomats and representatives of other government and military or quasi-governmental institutions of Iran and to withdraw any such diplomats or representatives who participated in the takeover of the United States embassy in Tehran on November 4, 1979, or the subsequent holding of United States hostages for 444 days;

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(3) the extent to which the International Atomic Energy Agency has established regular inspections of all nuclear facilities in Iran, including those presently under construction; and (4) Iran’s use of Iranian diplomats and representatives of other government and military or quasi-governmental institutions of Iran to promote acts of inter-national terrorism or to develop or sustain Iran’s nuclear, chemical, biological, and missile weapons programs. (b) OTHER REPORTS. – The President shall ensure the continued transmittal to the Congress of reports describing – (1) the nuclear and other military capabilities of Iran, as required by section 601(a) of the Nuclear Non-Proliferation Act of 1978 and section 1607 of the National Defense Authorization Act For Fiscal Year 1993; and (2) the support provided by Iran for acts of international terrorism, as part of the Department of State’s annual report on international terrorism. SECTION 11. DETERMINATIONS NOT REVIEWABLE.

A determination to impose sanctions under this Act shall not be reviewable in any court. SECTION 12. EXCLUSION OF CERTAIN ACTIVITIES.

Nothing in this Act shall apply to any activities subject to the reporting requirements of title V of the National Security Act of 1947. SECTION 13. EFFECTIVE DATE; SUNSET.

(a) EFFECTIVE DATE. – This Act shall take effect on the date of the enactment of this Act. (b) SUNSET. – This Act shall cease to be effective on the date that is 5 years after the date of the enactment of this Act. SECTION 14. DEFINITIONS.

As used in this Act: (1) ACT OF INTERNATIONAL TERRORISM. – The term ‘act of international terrorism’ means an act – (A) which is violent or dangerous to human life and that is a violation of the criminal laws of the United States or of any State or that would be a criminal violation if committed within the jurisdiction of the United States or any State; and

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(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

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(B) which appears to be intended – (i) to intimidate or coerce a civilian population; to influence the policy of a government by intimidation or coercion; or to affect the conduct of a government by assassination or kidnapping. APPROPRIATE CONGRESSIONAL COMMITTEES. – The term ‘appropriate congressional committees’ means the Committee on Finance, the Committee on Banking, Housing, and Urban Affairs, and the Committee on Foreign Relations of the Senate and the Committee on Ways and Means, the Committee on Banking and Financial Services, and the Committee on International Relations of the House of Representatives. COMPONENT PART. – The term ‘component part’ has the meaning given that term in section 11A(e)(1) of the Export Administration Act of 1979 (50 U.S.C. App. 2410a(e)(1)). DEVELOP AND DEVELOPMENT. – To ‘develop’, or the ‘development’ of, petroleum resources means the exploration for, or the extraction, refining, or transportation by pipeline of, petroleum resources. FINANCIAL INSTITUTION. – The term ‘financial institution’ includes – (A) a depository institution (as defined in section 3(c)(1) of the Federal Deposit Insurance Act), including a branch or agency of a foreign bank (as defined in section 1(b)(7) of the International Banking Act of 1978); (B) a credit union; (C) a securities firm, including a broker or dealer; (D) an insurance company, including an agency or underwriter; and any other company that provides financial services. (E) any other company that provides financial services. FINISHED PRODUCT. – The term ‘finished product’ has the meaning given that that term in section 11A(e)(2) of the Export Administration Act of 1979 (50 U.S.C. App. 2410a(e)(2)). FOREIGN PERSON. – The term ‘foreign person’ means – (A) an individual who is not a United States person or an alien lawfully admitted for permanent residence into the United States; or (B) a corporation, partnership, or other nongovermental entity which is not a United States person. GOODS AND TECHNOLOGY. – The terms ‘goods’ and ‘technology’ have the meanings given those terms in section 16 of the Export Administration Act of 1979 (50 U.S.C. App.2415). INVESTMENT. – The term ‘investment’ means any of the following activities if such activity is undertaken pursuant to an agreement, or

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pursuant to the exercise of rights under such an agreement, that is entered into with the Government of Iran or a nongovernmental entity in Iran, or with the Government of Libya or a nongovernmental entity in Libya, on or after the date of the enactment of this Act: (A) The entry into a contract that includes responsibility for the development of petroleum resources located in Iran or Libya (as the case may be), or the entry into a contract providing for the general supervision and guarantee of another person’s performance of such a contract. (B) The purchase of a share of ownership, including an equity interest, in that development. (C) The entry into a contract providing for the participation in royalties, earnings, or profits in that development, without regard to the form of the participation. The term ‘investment’ does not include the entry into, performance, or financing of a contract to sell or purchase goods, services, or technology. (10) IRAN. – The term ‘Iran’ includes any agency or instrumentality of Iran. (11) IRANIAN DIPLOMATS AND REPRESENTATIVES OF OTHER GOVERNMENT AND MILITARY OR QUASI-GOVERNMENTAL INSTITUTIONS OF IRAN. – The term ‘Iranian diplomats and representatives of other government and military or quasi-governmental institutions of Iran’ includes employees, representative, or affiliates of Iran’s – (A) Foreign Ministry; (B) Ministry of Intelligence and Security; (C) Revolutionary Guard Corps; (D) Crusade for Reconstruction; (E) Qods (Jerusalem) Forces; (F) Interior Ministry; (G) Foundation of the Oppressed and Disabled; (H) Prophet’s Foundation; (I) June 5th Foundation; (J) Martyr’s Foundation; (K) Islamic Propagation Organization; and (L) Ministry of Islamic Guidance. (12) LIBYA. – The term ‘Libya’ includes any agency or instrumentality of Libya. (13) NUCLEAR EXPLOSIVE DEVICE. – The term ‘nuclear explosive device’ means any device whether assembled or disassembled, that is designed to produce an instantaneous release of an amount of nuclear energy

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(14)

(15) (16)

(17)

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from special nuclear material (as defined in section 11(aa) of the Atomic Energy Act of 1954) that is greater than the amount of energy that would be released from the detonation of one pound of trinitrotoluene (TNT). PERSON. – The term ‘person’ means – (A) a natural person; (B) a corporation, business association, partnership, society, trust, any other nongovernmental entity, organization, or group, and any other governmental entity operating as a business enterprise; and (C) any successor to any entity described in subparagraph (B). PETROLEUM RESOURCES. – The term ‘petroleum resources’ includes petroleum and natural gas resources. UNITED STATES OR STATE. – The term ‘United States’ or ‘State’ means the several States, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, Guam, the United States Virgin Islands, and any other territory or possession of the United States. UNITED STATES PERSON. – The term ‘United States person’ means – (A) a natural person who is a citizen of the United States or who owes permanent allegiance to the United States; and (B) a corporation or other legal entity which is organized under the laws of the United States, any State or territory thereof, or the District of Columbia, if natural persons described in subparagraph (A) own, directly or indirectly, more than 50 percent of the outstanding capital stock or other beneficial interest in such legal entity.

Approved August 5, 1996.

DOCUMENT 12 European Union Council Blocking Regulation

COUNCIL REGULATION (EC) No 2271/96*

of 22 November 1996 Protecting against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Articles 73c, 113 and 235 thereof, Having regard to the proposal from the Commission, Having regard to the opinion of the European Parliament (1), Whereas the objectives of the Community include contributing to the harmonious development of world trade and to the progressive abolition of restrictions on international trade; Whereas the Community endeavours to achieve to the greatest extent possible the objective of free movement of capital between Member States and third countries, including the removal of any restrictions on direct investment – including investment in real estate – establishment, the provision of financial services or the admission of securities to capital markets;

* (1)

Reproduced from the Official Journal of the European Communities, No L309/1-6, 29 November 1996. Opinion delivered on 25 October 1996 (OJ No C347, 18.11.1996).

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Whereas a third country has enacted certain laws, regulations, and other legislative instruments which purport to regulate activities of natural and legal persons under the jurisdiction of the Member State; Whereas by their extra-territorial application such laws, regulations and other legislative instruments violate international law and impede the attainment of the aforementioned objectives; Whereas such laws, including regulations and other legislative instruments, and actions based thereon or resulting therefrom affect or are likely to affect the established legal order and have adverse effects on the interests of the Community and the interests of natural and legal persons exercising rights under the Treaty establishing the European Community; Whereas, under these exceptional circumstances, it is necessary to take action at Community level to protect the established legal order, the interests of the said natural and legal persons, in particular by removing, neutralising, blocking or otherwise countering the effects of the foreign legislation concerned; Whereas the request to supply information under this Regulation does not preclude a Member State from requiring information of the same kind to be provided to the authorities of that State; Whereas the Council has adopted the Joint Action 96/668/CFSP of 22 November 1996 (2) in order to ensure that the Member States take the necessary measures to protect those natural and legal persons whose interests are affected by the aforementioned laws and actions based thereon, insofar as those interests are not protected by this Regulation; Whereas the Commission, in the implementation of this Regulation, should be assisted by a committee composed of representatives of the Member States; Whereas the actions provided for in this Regulation are necessary to attain objectives of the Treaty establishing the European Community; Whereas for the adoption of certain provisions of this Regulation the Treaty does not provide powers other than those of Article 235, HAS ADOPTED THIS REGULATION:

(2)

See page 7 of this Official Journal.

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Article 1 This Regulation provides protection against and counteracts the effects of the extra-territorial application of the laws specified in the Annex of this Regulation, including regulations and other legislative instruments, and of actions based thereon or resulting therefrom, where such application affects the interests of persons, referred to in Article 11, engaging in international trade and/or the movement of capital and related commercial activities between the Community and third countries. Acting in accordance with the relevant provisions of the Treaty and notwithstanding the provisions of Article 7 (c), the Council may add or delete laws to or from the Annex to this Regulation. Article 2 Where the economic and/or financial interests of any person referred to in Article 11 are affected, directly or indirectly, by the laws specified in the Annex or by actions based thereon or resulting therefrom, that person shall inform the Commission accordingly within 30 days from the date on which it obtained such information; insofar as the interests of a legal person are affected, this obligation applies to the directors, managers and other persons with management responsibilities (3). At the request of the Commission, such person shall provide all information relevant for the purposes of this Regulation in accordance with the request from the Commission within 30 days from the date of the request. All information shall be submitted to the Commission either directly or through the competent authorities of the Member States. Should the information be submitted directly to the Commission, the Commission will inform immediately the competent authorities of the Member States in which the person who gave the information is resident or incorporated. Article 3 All information supplied in accordance with Article 2 shall only be used for the purposes for which it was provided.

(3)

Information should be supplied to the following address: European Commission, Directiorate General I, Rue de la Loi/Westraat 200, B-1049 Brussels (fax 32-2) 295 65 05).

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Information which is by nature confidential or which is provided on a confidential basis shall be covered by the obligation of professional secrecy. It shall not be disclosed by the Commission without the express permission of the person providing it. Communication of such information shall be permitted where the Commission is obliged or authorized to do so, in particular in connection with legal proceedings. Such communication must take into account the legitimate interests of the person concerned that his or her business secrets should not be divulged. This Article shall not preclude the disclosure of general information by the Commission. Such disclosure shall not be permitted if this is incompatible with the original purpose of such information. In the event of a breach of confidentiality, the originator of the information shall be entitled to obtain that it be deleted, disregarded or rectified, as the case may be. Article 4 No judgement of a court or tribunal and no decision of an administrative authority located outside the Community giving effect, directly or indirectly, to the laws specified in the Annex or to actions based thereon or resulting therefrom, shall be recognized or be enforceable in any manner. Article 5 No person referred to in Article 11 shall comply, whether directly or through a subsidiary or other intermediary person, actively or by deliberate omission with any requirement or prohibition, including requests of foreign courts, based on or resulting, directly or indirectly, from the laws specified in the Annex or from actions based thereon or resulting therefrom. Persons may be authorized, in accordance with the procedures provided in Article 7 and 8, to comply fully or partially to the extent that non-compliance would seriously damage their interests or those of the Community. The criteria for the application of this provision shall be established in accordance with the procedure set out in Article 8. When there is sufficient evidence that non-compliance would cause serious damage to a natural or legal person, the Commission shall expeditiously submit to the committee referred to in Article 8 a draft of the appropriate measures to be taken under the terms of the Regulation.

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Article 6 Any person referred to in Article 11, who is engaging in an activity referred to in Article 1 shall be entitled to recover any damages, including legal costs, caused to that person by the application of the laws specified in the Annex or by the actions based thereon or resulting therefrom. Such recovery may be obtained from the natural or legal person or any other entity causing the damages or from any person acting on its behalf or intermediary. The Brussels Convention of 27 September 1968 on jurisdiction and the enforcement of judgements in civil and commercial matters shall apply to proceedings brought and judgements given under this Article. Recovery may be obtained on the basis of the provisions of Sections 2 to 6 of Title II of that Convention, as well as, in accordance with Article 57 (3) of that Convention, through judicial proceedings instituted in the Courts of any Member State where that person, entity, person acting on its behalf or inter-mediary holds assets. Without prejudice to other means available and in accordance with applicable law, the recovery could take the form of seizure and sale of assets held by those persons, entities, persons acting on their behalf or intermediaries within the Community, including shares held in a legal person incorporated within the Community. Article 7 For the implementation of this Regulation the Commission shall: (a) inform the European Parliament and the Council immediately and fully of the effects of the laws, regulations and other legislative instruments and ensuing actions mentioned in Article 1, on the basis of the information obtained under this Regulation, and make regularly a full public report thereon; (b) grant authorization under the conditions set forth in Article 5 and, when laying down the time limits with regard to the delivery by the Committee of its opinion, take fully into account the time limits which have to be complied with by the persons which are to be subject of an authorization; (c) add or delete, where appropriate, references to regulations or other legislative instruments deriving from the laws specified in the Annex, and falling under the scope of this Regulation;

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(d) publish a notice in the Official Journal of the European Communities on the judgements and decisions to which Articles 4 and 6 apply; (e) publish in the Official Journal of the European Communities the names and addresses of the competent authorities of the Member States referred to in Article 2. Article 8 For the purposes of the implementation of Article 7(b) and (c), the Commission shall be assisted by a Committee composed of the representatives of the Member States and chaired by the representative of the Commission. The representative of the Commission shall submit to the committee a draft of the measures to be taken. The committee shall deliver its opinion on the draft within a time limit which the chairman may lay down according to the urgency of the matter. The opinion shall be delivered by the majority laid down in Article 148(2) of the Treaty in the case of decisions which the Council is required to adopt on a proposal from the Commission. The votes of the representatives of the Member States within the committee shall be weighted in the manner set out in that Article. The chairman shall not vote. The Commission shall adopt the measures envisaged if they are in accordance with the opinion of the committee. If the measures envisaged are not in accordance with the opinion of the committee, or if no opinion is delivered, the Commission shall, without delay, submit to the Council a proposal relating to the measures to be taken. The Council shall act by a qualified majority. If, on the expiry of a period of two weeks from the date of referral to the Council, the Council has not acted, the proposed measures shall be adopted by the Commission. Article 9 Each Member State shall determine the sanctions to be imposed in the event of breach of any relevant provisions of this Regulation. Such sanctions must be effective, proportional and dissuasive.

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Article 10 The Commission and the Member States shall inform each other of the measures taken under this Regulation and of all other relevant information pertaining to this Regulation Article 11 This Regulation shall apply to: 1. any natural person being a resident in the Community (4) and a national of a Member State, 2. any legal person incorporated within the Community, 3. any natural or legal person referred to in Article 1 (5) of Regulation (EEC) No 4055/86 (2), 4. any other natural person being a resident in the Community, unless that person is in the country of which he is a national, 5. any other natural person within the Community, including its territorial waters and air space and in any aircraft or on any vessel under the jurisdiction or control of a Member State, acting in a professional capacity. Article 12 This regulation shall enter into force on the day of its publication in the Official Journal of the European Communities. This Regulation shall be binding in its entirety and directly applicable in all Member States. Done at Brussels, 22 November 1996. For the Council The President S. BARRETT

(4) (5)

For the purposes of this Regulation, ‘being a resident in the Community’ means: being legally established in the Community for a period of at least six months within the 12-mpnth period immediately prior to the date on which, under this Regulation, an obligation arises or a right is exercised. Council Regulation (EEC) No 4055/86 of 22 December 1986 applying the principle of freedom to provide services to maritime transport between Member States and between Member States and third countries (OJ No L378, 31.12.1986, p. 1). Regulation as last amended by Regulation (EC) No 3573/90 (OJ No C353, 17.12.1990, p. 16).

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ANNEX LAWS, REGULATIONS AND OTHER LEGISLATIVE INSTRUMENTS (6)

Referred to in Article 1 COUNTRY: UNITED STATES OF AMERICA ACTS

1

‘National Defense Authorization Act for Fiscal Year 1993’, Title XVII ‘Cuban Democracy Act 1992’ sections 1704 and 1706 Required compliance: The requirements are consolidated in Title I of the ‘Cuban Liberty and Democratic Solidarity Act of 1996’, see below. Possible Damages to EU interests: The liabilities incurred are now incorporated within the ‘Cuban Liberty and Democratic Solidarity Act of 1996’, see below

2. ‘Cuban Liberty and Democratic Solidarity Act of 1996’ Title I Required compliance: To comply with the economic and financial embargo concerning Cuba by the USA, by, inter alia, not exporting to the USA any goods or services of Cuban origin or containing materials or goods originating in Cuba either directly or through third countries, dealing in merchandise that is or has been located in or transported from or through Cuba, re-exporting to the USA sugar originating in Cuba without notification by the competent national authority of the exporter or importing into the USA sugar products without assurance that those products are not products of Cuba, freezing Cuban assets, and financial dealings with Cuba.

(6)

Further information with regard to the aforementioned laws and regulations can be obtained from the European Commission, Directorate General I.E.3, Rue de la Loi/Westraat 200, B-1049 Brussels (fax: (32-2) 295 65 05).

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Possible damages to EU interests: Prohibition to load or unload freight from a vessel in any place in the USA or to enter a USA port; refusal to import any goods or services originating in Cuba and to import into Cuba goods or services originating in the USA, blocking of financial dealings involving Cuba. Title III and Title IV: Required compliance: To terminate ‘trafficking’ in property, formerly owned by US persons (including Cubans who have obtained US citizenship) and expropriated by the Cuban regime. (Trafficking includes: use, sale, transfer, control, management and other activities to the benefit of a person.) Possible damages to EU interests: Legal proceedings in the USA, based upon liability already accruing, against EU citizens or companies involved in trafficking, leading to judgements/decisions to pay (multiple) compensation to the USA party. Refusal of entry into the USA for persons involved in trafficking, including the spouses, minor children and agents thereof. 3. ‘Iran and Libya Sanctions Act of 1996’ Required compliance: Not to invest in Iran or Libya any amount greater than USD 40 million during a period of 12 months that directly and significantly contributes to the enhancement of the Iranian or Libyan ability to develop their petroleum resources. (Investment covering the entering into a contract for the said dev-elopment, or the guaranteeing of it, or the profiting therefrom or the purchase of a share of ownership therein.) NB: Investments under contracts existing before 5 August are exempted. Respect of embargo concerning Libya established by Resolutions 748 (1992) and 883 (1993) of the Security Council of the United Nations (7).

(7)

See Community implementation of those Resolutions through Council Regulation (EC) No 3274/93 (OJ No L 295, 30.11.1993, p. 1).

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Possible damages to EU interests: Measures taken by the US president to limit imports into USA or procurement to USA, prohibition of designation as primary dealer or as repository of USA Government funds, denial of access to loans from USA financial institutions, export restrictions by USA, or refusal of assistance by EXIM-Bank. REGULATIONS

1. 1 CFR (Code of Federal Regulations) Ch. V (7-1-95 edition) Part 515 – Cuban Assets Control Regulations, subpart B (Prohibitions), E (Licenses, Authorizations and Statements of Licensing Policy) and G (Penalties). Required compliance: The prohibitions are consolidated in Title I of the ‘Cuban Liberty and Democratic Solidarity Act of 1996’, see above. Furthermore, requires the obtaining of licenses and/or authorizations in respect of economic activities concerning Cuba. Possible damages to EU interests: Fines, forfeiture, imprisonment in cases of violation.

9 EXTRATERRITORIALITY AND THE IRAN AND LIBYA SANCTIONS ACT

S

ections V and VI of the Iran and Libya Sanctions Act (ILSA) requires the president of the United States to impose sanctions on foreign nationals who invest in Iranian and Libyan energy resources. This constitutes an extraterritorial application of US laws. Preventing foreign firms access to US markets if they do not comply with the investment sanctions constitutes a secondary boycott. The previous chapter showed that extraterritorial elements of the act and its secondary boycott nature provoked harsh criticism and international condemnation, notably from the European Union. In the decades since World War II, the United States has used extraterritorial measures to achieve certain foreign policy objectives. Traditionally, such measures are applied by: restricting the re-export of US manufactured goods and technology by foreign purchasers; prohibiting foreign export of non-US manufactured goods incorporating US-origin parts and components or technology; extending the jurisdiction of US laws over the foreign business transactions of foreign subsidiaries of US corporations; penalizing foreign companies dealing in expropriated American property. With the enactment of the ILSA, the United States added a new measure: to punish wholly-owned foreign firms investing in Iran or Libya. This amounts to the most radical extension of extraterritorial jurisdiction yet attempted by the United States.

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Although extraterritorial legislation, the attempt to force persons in third countries to comply with one’s own rules and regulations, is internationally recognised to a limited extent, its use in enforcing foreign policy has always been controversial. The ILSA describes itself as: ‘An act to impose sanctions on persons making certain investments directly and significantly, contributing to the enhancement of the ability of Iran and Libya to develop its petroleum resources’. For the United States to be able to impose sanctions, as the ILSA requires, on those beyond its boundaries and be internationally accepted there must be jurisdiction to prescribe. In fact, the question of extraterritoriality is centred, to a large extent, on the definition and interpretation of jurisdiction under international law. In order to examine the validity of the ILSA under the principles of customary international law, the issue of jurisdiction and the subject of US extraterritoriality must be considered. JURISDICTION The term ‘jurisdiction’ has been usefully defined by Christopher Blakesley, Professor of Law at Louisiana State University, as: The authority to affect legal interests – to prescribe rules of law (legislative jurisdiction), to adjudicate legal questions (judicial jurisdiction), and to enforce judgements the judiciary made (enforcement jurisdiction). The definition, nature and scope of jurisdiction vary depending on the context in which it is to be applied. United States domestic law, for example, defines and applies notions of jurisdiction pursuant to the United States constitutional provision relating to the separation of powers. Within the United States, jurisdiction is defined and applied in a variegated fashion depending on whether a legal problem is within the federal or the state sphere. Among the states, the definition and scope of jurisdiction also vary. The international setting gives rise to another set of definitions and applications of the notion of jurisdiction. International law has failed to develop jurisdictional rules that are as comprehensive or precise about the domestic jurisdictional laws of individual nations. Indeed, international law has tended to focus on penal rather than civil jurisdiction. Moreover the set of rules relating to criminal legislative, judicial and enforcement jurisdiction in the international setting is not as well developed as the parallel domestic laws of the various nations.1

1

Christopher L. Blakesley ‘Criminal Law: United States Jurisdiction over Extraterritorial Crime’, Journal of Criminal Law and Criminology, Fall 1982, p. 1109

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Because individual nations interpret international law in differing ways, according to their own bases of law and interest, there is considerable scope for muddle and confusion. As Blakesley points out, ‘the traditional bases of jurisdiction over extraterritorial crime are essential concepts in the language of international law. The decision to grant or deny extradition, for example, often depends on whether the interested nation recognizes the bases of jurisdiction asserted by another.’ In the views of A.L.C. de Mestral and T. Gruchulla-Wesierseki, ‘there is a body of public international law which speaks to the issue of the extraterritorial application of laws. However, the detail of these rules is profoundly influenced by the basic assumptions which are made as the source of obligation in international law.’ 2 The authors cite two widely-differing views on the subject. First, ‘if public international law is seen as the creation of states and is deemed to be dependent upon their prior consent for its very existence only those limitations which have been agreed upon in advance can restrict the capacity of states to extend the reach of their laws beyond national boundaries’.3 Second, if international law is deemed to exist independently on the will of individual states and is deemed to shape and to define the international community, then it is much easier to posit the existence of international rules which place restraints upon state action in this area and which determine the state having jurisdiction in the face of conflicting claims. These two examples illustrate the point that the rules governing extraterritoriality are uniquely dependent upon the view adopted as to the nature of international law itself.4

Other considerations have to be taken into account. For example, attitudes to and traditions of law differ widely among countries, even within individual Western European states. ‘This can lead to very different attitudes in the field of jurisdiction to such questions as jurisdiction over criminal matters, the application of domestic law to nationals abroad and more generally to the legitimacy of submitting persons to a variety of laws at the same time.’ 5 De Mestral and Gruchalla-Wesierseki also question whether the debate about the extraterritorial application of export controls is about law or commercial policy: 2 3 4 5

A.L.C. de Mestral and T Gruchalla-Weseirseki, Extraterritorial Application of Export Control Legislation: Canada and the USA, Kluwer Academic Publishers, 1990, p. 13. Ibid., p. 13. Ibid., p. 14. Ibid., p. 14.

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It is often suggested that the objections raised to extraterritorial export controls have little or nothing to do with law or sovereignty and much to do with the desire to trade and scepticism as to the effectiveness of embargoes and trade descriptions. In response, it is pointed out that the principle proponent of extraterritorial export controls, the United States, had voiced strong objections to the extraterritorial aspects of the Arab boycotts of Israel. In the final analysis, this debate cannot resolve the question. Any attempt to unravel the strands of law and policy is doomed to failure – the two are so closely interrelated. States do have firm views as to the limits of their sovereign powers under international law and as to the wisdom of extraterritorial export controls based on an expansive view of economic security or foreign policy considerations. But the views of states on these two issues do not always coincide, and the practice of states often involves exceptions to their general approach on questions of law and policy thus making generalisation on this matter extremely difficult.6

It is because of the difficulties of defining and securing international agreement on these issues of law and policy that in recent years US courts have attempted to stretch the bases of extraterritorial law enforcement by asserting jurisdiction in cases where narcotics conspiracies overseas have actually been thwarted. The effect of this attempt to extend the traditional bases of extraterritorial jurisdiction has been to muddle further still the language of international law.7 Bases of Jurisdiction There are five accepted traditional bases of jurisdiction over crime: territorial, protective, nationality, passive and universal personality. The Territorial Principle The territorial principle is the primary basis of jurisdiction over crime in the United States, and it sees nations as generally competent to prescribe laws and enforce them within their territories. The US perception of sovereignty is enshrined in Chief Justice Marshall’s words of 1812: The jurisdiction of the nation, within its own territory, is necessarily exclusive and absolute. It is susceptible of no limitation not imposed by itself. Any restriction upon it, deriving validity from an external source, would 6 7

Ibid., p. 15. Christopher L. Blakesley ‘A Conceptual Framework for Extradition and Jurisdiction over Extraterritorial Crimes’, Utah Law Review, vol. 4, 1984, p. 685.

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imply a diminution of its sovereignty, to the extent of the restriction… in that power which could impose such restriction. All exceptions, therefore, to the full and complete power of a nation, within its own territories, must be traced up to the consent of the nation itself. They can flow from no other legitimate sources.8

In the past, the territorial principle of jurisdiction was strictly applied in the United States. Professor Blakesley quotes an example from 1906 in which a French citizen was suspected of murdering an American in China. The Secretary of State at the time said, ‘the United States government does not exercise jurisdiction over crimes committed beyond the territorial limits of this country… Our [consular officials] can have no authority to try a French citizen charged with crime in that country even though the victim happened to be an American.’ 9 The US Supreme Court later declared that under American law, jurisdiction in criminal matters rests solely with the legislative and judicial branches of government of the state or country in which the crime is committed. Further, the court held that a local criminal statute ‘has no extraterritorial operation and [a party] cannot be indicted [in the United States] for what he did in a foreign country’.10 Aside from crimes committed wholly within the territory of a nation, the principle of territorial jurisdiction also applies when an essential constituent element of a crime is committed within a nation, and that is referred to as ‘subjective territoriality’. Alongside and complementary to subjective territoriality comes objective territoriality, which provides jurisdiction over crimes committed outside a particular nation when the effects, which must be substantial, direct and foreseeable, are felt inside the nation. The effects doctrine has provoked considerable controversy, and its wide-ranging nature, especially its excessive use by US courts, aroused substantial opposition outside the United States. In Consolidated Gold Fields PLC v Minorco,11 the US courts considered jurisdiction relevant wherever a ‘predominantly foreign transaction has substantial effects within the United States’. The most striking aspect of this case is how little is required to satisfy the substantial, direct and foreseeable effect test. In 1988, Minorco, a South African gold company, 8

The Schooner Exchange v McFaddon, Supreme Court of the United States, 11 US (7 Cranch) 74, 85 (1812). 9 MS Department of State, File No 226/16, 17 September 1906, quoted in Christopher L. Blakesley, ‘A Conceptual Framework for Extradition and Jurisdiction over Extraterritorial Crimes’, Utah Law Review, vol. 4, 1984, p. 687. 10 United States v Nord Deutscher Lloyd, 223 US 512,517-18 (1912). 11 Consolidated Gold Fields plc v Minorco, 871 F2d.252 (2nd Circuit, 1989).

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attempted to take over Consolidated Gold Fields, another foreign company. A US court decided that security law could apply extraterritorially simply because Americans had a 2.5 percent share of Consolidated stock. Most of the US claims against non-US persons in the context of economic sanctions are made on the basis of the ‘effect principle’. Recent sanctions against Cuba and the ILSA are good examples of how the United States, by using this doctrine, seeks to apply its laws outside its territory. The Protective Principle The protective basis of jurisdiction, which has been interpreted very narrowly by most nations, relates to perceived harm to national interests, and covers an offence which has or could have a detrimental effect or which poses a danger to a nation’s security, integrity, sovereignty or workings of government, ie espionage, counterfeiting of the state’s seal on currency, or falsification of official documents. There can be overlap between objective territoriality and protective principles. The protective principle permits a nation to prescribe conduct, wherever committed and even if committed by a nonnational, if such conduct is directed against the safety or the functioning of the government of the state. The limits of this principle remain unclear; it is aimed primarily at conduct which occurs outside a nation’s territory and which threatens its security as a state or the operation of its governmental functions, provided the conduct is generally recognised as a crime under the law of states that have reasonably developed legal systems.12

Professor Blakesley quotes the case of the United States v Pizzarousso,13 which accurately demonstrates the protective principle and shows the difference between this principle and that of objective territoriality. An alien was convicted of knowingly making false statements under oath in a visa application to a US consular office in Canada. The court was careful to point out that the violation of the US code took place entirely in Canada; the accused’s entry into the United States was not an element of the offence. In other words, the principle focuses on the ‘nature of the interest that may be injured’ (in the above case the very sovereignty of the United States is perceived as having been affronted) rather than the place where the crime was committed or, for that matter, the nationality of the perpetrator. 12 Kienneth R Feinberg, ‘Extraterritorial Jurisdiction and the Proposed Federal Criminal Code’, Journal of Criminal Law and Criminology, vol. 72, 1981, p. 389. 13 United States v Pizzarousso, 388 F. 2d 8 (2nd Circuit, 1968).

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In Blakesley’s opinion, the protective principle is the ‘the only accepted theory that allows jurisdiction over conduct that threatens potential dangers… to state security, sovereignty, treasury or governmental functions… and because of the significant dangers it poses to relations among nations it is limited to those recognised and stated interests or functions’.14 The Nationality Principle Under this principle, a state may prescribe laws for the conduct of its own nationals abroad. But there is general agreement that the state is not authorized to enforce such jurisdiction by requiring conduct which is illegal under the law of other states. The nationality principle has been used by the United States to justify some of its foreign policy legislation. The Comprehensive Anti-apartheid Act of 1986 stated that ‘no national of the United States may, directly or indirectly or through another person, make any new investment in South Africa’.15 In addition to natural persons, the nationality principle is also applicable to the juridical persons. Therefore, a state has jurisdiction over its companies, wherever their economic activities take place. The issue of the nationality of corporations, partnerships and other forms of enterprise is complex, and has often created problems. Companies may be subject to the jurisdiction of the country where they have been incorporated and at the same time to the laws of the state in which they carry out business activities. There is no universally accepted test for determining the nationality of a company, but generally speaking a company is considered as a national of the state where it is incorporated. The Passive Personality Principle This theory of jurisdiction allows a nation to take legal action against one of its citizens overseas on the basis of that citizen’s nationality. The passive personality theory is becoming an important theory of jurisdiction in the United States. This was not always the case. A celebrated case presenting the US position on the passive personality theory of jurisdiction was the Cutting case, in which a US national was arrested during a visit to Mexico 14 Christopher L. Blakesley ‘Criminal Law: United States Jurisdiction over Extraterritorial Crime’, Journal of Criminal Law and Criminology, Fall 1982, p. 1138. 15 Comprehensive Anti-Apartheid Act of 1986, Pub. L. no 99-440, 310,100, Stat. 1086, 1102 (1986).

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and jailed for criminal libel. The libel had been allegedly committed against a Mexican national in Texas. The Secretary of States, during his protest to Mexican authorities, stated, The assumption of the Mexican Tribunal, under the laws of Mexico, to punish a citizen of the United States for an offence wholly committed and consummated in his own country against its laws was an invasion of the independence of this government… It has consistently been laid down in the United States as a rule of action that citizens of the United States cannot be held answerable in foreign countries for offences that were wholly committed and consummated either in their own country or in other countries not subject to the jurisdiction of the punishing state… To say that he may be tried in another country for his offence, simply because its object happens to be a citizen of that country, would be to assert that foreigners coming to the United States bring hither the penal laws of the country from which they came, and thus subject citizens of the United States in their own country to an indefinite criminal responsibility.16

Recent and rapid recognition of this principle reflects increases in acts of terrorism and other organized attacks on a state’s nationals by reason of their nationality. In 1984, the United States, by enacting the Comprehensive Crime Control Act,17 used the passive personality concept to extend its maritime and territorial jurisdiction to include ‘any place outside the jurisdiction of any nation with respect to an offence by or against a national of the United States’.18 In 1986, following the Achille Lauro incident (in which Palestinians killed an American passenger on a cruise liner they had taken over), the United States adopted the Omnibus Diplomatic Security and Antiterrorism Act of 1986,19 adding into its criminal code a new section which provided for jurisdiction outside the United States where a US national is a victim. The Universal Principle This principle states that some crimes are considered so serious or heinous that a nation apprehending a criminal may assume jurisdiction, regardless of the criminal’s nationality or place of the crime. The oldest example is piracy, accepted by the world community for centuries. Most authorities

16 Cutting Case, 1887, reported in J.B. Moore, Digest of International Law, Washington, vol. 2, 1906, p. 228. 17 18 USC §1203, Pub. L. 98-473, 98 Stat. 1976, 2186. 18 18 USC §12b. 19 18 USC §2231.

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also accept war crimes as being subject to universal jurisdiction. In addition, international conventions have sought to eliminate other major crimes affecting the world community such as the slave trade, the hijacking and sabotage of civil aircraft and genocide. The United States also includes collision or salvage services at sea, fish conservation and human rights violations in this category. A unique characteristic of the universal principle is that it is not subject to a time limit. The Extension of the Bases of Extraterritorial Jurisdiction It is commonly accepted in legal studies in the United States that that nation has, to quote Professor Blakesley, ‘improperly extended the bases of jurisdiction over extraterritorial crime. In doing so, they have failed to perceive or have been reticent to apply or articulate a clear distinction between the protective and objective territoriality principles.’ 20 In an attempt to determine when and how a state may prescribe laws governing conduct beyond its borders, and when that state can legally disregard the sovereignty of another in furtherance of its own national interests, the American Law Institute undertook in 1979 to revise and update the Restatement (Second) of the Foreign Relations Law of the USA (the so-called Restatement Second of 1965). (A restatement, according to Black’s Law Dictionary, is a volume that ‘tells what the law in a general area is, how it is changing and what direction the authors think this change should take’. Although restatements are not binding as law, they have been accorded such high respect by the courts that as of 1 April 1986, over 94,000 citations to them had been recorded.) The Restatement Second sets out to state and clarify existing law, whereas its successor, the Restatement Third of 1986 contains what Kathleen Hixson has called ‘provisions that appear to deviate from traditionally acknowledged principles of international law, particularly Section 401 on categories of jurisdiction, Section 402 on bases of prescriptive jurisdiction and Section 403 on limitations to prescriptive jurisdiction’.21 Some of the most important changes incorporated into the Restatement Third relate to its increase in the number of the categories of jurisdiction from two to three. According to Section 401, under international law a state is subject to limitations on: 20 Christopher L. Blakesley, ‘Criminal Law: United States Jurisdiction over Extraterritorial Crime’, Journal of Criminal Law and Criminology, Fall 1982, p. 1141. 21 Kathleen Hixson, ‘Extraterritorial Jurisdiction under the Third Restatement of Foreign Relations Law of the United States,’ Fordham International Law Journal, vol. 12, 1988, p. 127.

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(a) jurisdiction to prescribe, ie to make its law applicable to the activities, relations, or status of persons, or the interests of persons in things, whether by legislation, by executive act or order, by administrative rule or regulation, or by determination of a court; (b) jurisdiction to adjudicate, ie to subject persons or things to the process of its courts or administrative tribunals, whether in civil or criminal proceedings, whether or not the state is a party to the proceedings; and (c) jurisdiction to enforce, ie to induce or compel compliance or punish non-compliance with its laws or regulations, whether through the courts of by use of executive, administrative, police or other non-judicial action.

Hixson points out that ‘the very definition of international law in the Restatement Third reflects a shift in emphasis favouring a state tribunal’s authority to declare principles of international law. While the Restatement Second identified ‘international law’ as being the American Law Institute’s view of rules that an ‘international tribunal’ would apply in deciding a controversy in accordance with international law, the Restatement Third altered this standard to read ‘an impartial tribunal’. This redefinition opens the possibility that decisions of a federal court could be interpreted as declarations of international law, if it could be successfully argued that the court was an impartial tribunal deciding a controversy in accordance with international law.22 Another important update in the Restatement Third relates to prescription of laws. According to Section 402 of the Restatement Third, a state has jurisdiction to prescribe law with respect to: 1. (a) conduct that, wholly or in substantial part, takes place within its territory; (b) the status of persons, or interests in things, present within its territory; and (c) conduct outside its territory that has or is intended to have substantial effect within its territory; 2. the activities, interests, status, or relations of its nationals outside as well as within its territory; and 3. Certain conduct outside its territory by persons, not its nationals, that is directed against the security of the state or against a limited class of other state interests.

In commenting on the changes, Hixson points out that although the Restatement Third takes a traditional approach to territorial jurisdiction generally, the last subsection (relating to conduct outside its 22 Ibid., p. 132.

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territory) substantially relaxes the more stringent requirements on the effects doctrine found in the restatement second. While the Restatement Second required direct, substantial and foreseeable effects, under the Restatement Third the effect need not be actual but merely intended. Actual but unintended effects would also be sufficient to support jurisdiction. And finally, the Restatement Third eliminates the requirement that the conduct in question be generally recognised as a crime in the international community.23

Conflicts are bound to arise when two states simultaneously try to exercise jurisdiction. The Restatement Third, in Section 403 under the heading ‘Limitation on Jurisdiction to Prescribe’, provides for conflict resolution. 1. Even when one of the bases for jurisdiction under Section 402 is present, a state may not exercise jurisdiction to prescribe law with respect to a person or activity having connections with another state when the exercise of such jurisdiction is unreasonable. 2. Whether exercise of jurisdiction over a person or activity is unreasonable is determined by evaluating all relevant factors, including where appropriate: (a) the link of the activity to the territory of the regulating state, i.e. the extent to which the activity takes place within the territory or has substantial, direct, and foreseeable effect upon or in the territory; (b) the connections, such as nationality, residence, or economic activity, between the regulating state and the persons principally responsible for the activity to be regulated, or between that state and those whom the regulation is designed to protect; (c) the character of the activity to be regulated, the importance of regulation to the regulating state, the extent to which other states regulate such activities and the degree to which the desirability of such regulation is generally accepted; (d) the existence of justified expectations that might be protected or hurt by the regulation; (e) the importance of the regulation to the international political, legal, or economic system; (f) the extent to which the regulation is consistent with the traditions of the international system; (g) the extent to which another state may have an interest in regulating the activity; and (h) likelihood of conflict with regulation by another state. 3. When it would not be unreasonable for each of two states to exercise jurisdiction over a person or activity, but the prescriptions by the two

23 Ibid., p. 134.

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states are in conflict, each state has an obligation to evaluate its own as well as the other state’s interest in exercising jurisdiction, in light of all the relevant factors including these set out in Subsection (2); a state should defer to the other state if that state’s interest is clearly greater.

In conclusion, the United States may assert jurisdiction to prescribe rules of conduct concerning: events occurring outside its territory but having effects within its territory; activities of its nationals without regard as to where those activities may occur; activities of non-nationals that threaten its national security. Assertion of jurisdiction under any of the above situations could only be permissible if the exercise of such jurisdiction is reasonable. THE ENFORCEMENT OF EXTRATERRITORIALITY IN THE ECONOMIC SPHERE Having accepted that a nation may exercise extraterritorial jurisdiction, it then becomes necessary to ascertain whether such jurisdiction should be exercised in a particular case. To some extent, most nations have accepted the principle of extraterritorial application of national economic laws when it comes to materials used in nuclear technology, chemical and technological weapons etc, but have refused to allow its application to become an instrument of a nation’s foreign policy. In fact, the subject of the extraterritorial application of US law, and attempts to impose it on the economic activities of persons or corporations with minimal links to the United States or no link at all, has caused considerable opposition and resentment among America’s allies. Europeans have challenged the United States and retaliated. In some cases, as shown in the previous chapter, they have even enacted ‘blocking legislation’. The United States, with or without the co-operation of its allies, has employed many strategies to impose its objectives on other nations. The Mutual Defence Assistance Act declares that ‘no military, economic or financial assistance shall be supplied to any nation unless it applies an embargo on such shipment, to any nation or combination of nations threatening the security of the United States’.24 On the subject of human rights, the Foreign Assistance Act requires that no development assistance be given to the government of a country which ‘engages in a consistent pattern of gross violations of internationally 24 Mutual Defence Assistance Act 1951, Section 1611, 1976, superseded 1979.

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recognised human rights’.25 The act also instructs US representatives of international financial institutions to take into consideration policy factors when allocating aid: for example, the willingness of Vietnam, Laos and Kampuchea to co-operate in accounting for American servicemen missing in action.26 A further example of US attempts to influence world bodies was witnessed when Israel’s credentials were rejected by the 26th General Conference of the International Atomic Energy Agency on 24 September 1982. This prompted the US delegation to withdraw from the conference. The United States also tried to influence the emigration policy of the Soviet Union by granting or withholding trade concessions such as most favoured nation status. These actions are not regarded as measures aimed at controlling directly the activities of a nation; rather they present the nation with a choice. If it wants US aid, it must also accept American political values and the policies attached to them. The United States also uses the extraterritorial application of its laws as another way to force its thirdcountry partners to comply with its unilateral sanctions. Failure to comply may subject the foreign person to criminal penalties in the United States and to the denial of further transactions involving US commerce. The ILSA is not the only legislation with extraterritorial measures. As most of the US economic sanctions and export controls are being promulgated for foreign policy reasons, its extraterritoriality does not find any support under the agreed jurisdictional principles. Before concentrating on the extraterritorial application of the ILSA, the issues, as they have been applied under the Export Administration Act (EAA) and the International Emergency Economic Powers Act (IEEPA), will be addressed. US EXTRATERRITORIALITY UNDER THE EAA As general export authority for the United States and regulator of most exports, the EAA combines three major extraterritorial elements which are striking examples of US government attempts to control economic activities outside its national borders.

25 Foreign Assistance Act, Section 262(b)4, 1982. 26 Ibid., Section 2151, 1984.

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Re-export Control First comes the control of the re-export of US manufactured goods and technology. The Export Administration Regulations (EARs), under Section 774.1, state: Unless the re-export of a commodity previously exported from the US has been specifically authorised in writing by the Office of Export Licensing prior to its re-export, or is authorised under the permissive re-export provisions of section 774.2, or is otherwise authorised under any provision of Export Administration Regulations, no person in a foreign country, or in the United States may re-export such commodity directly or indirectly in whole or in part, from the authorised country (or countries) of ultimate destination.

The EARs, which implement the EAA, define ‘re-export’ as ‘actual transmission of items subject to EAR from one foreign country to another foreign country’ or ‘release of technology or software subject to the EAR to a foreign national outside the United States’.27 Items subject to EARs include all USorigin items.28 The United States seeks to apply this prohibition to all persons, not only to US nationals or US subsidiaries, abroad. In August 1985, Iran Air purchased three signal generators from Fluke, a German-based company. On the purchase order, Iran Air clearly asked the German company to mark the document ‘for re-forwarding to Tehran, Iran’. Fluke Germany, not having the equipment in stock, ordered the generators from its affiliate, Fluke Holland. The latter then placed the order with Fluke USA. On 17 October 1985, Fluke Germany delivered the generators to Iran Air in Frankfurt for shipment to Tehran. Under the EARs, provision 774.1, the re-export of such equipment required a Department of Commerce licence. Iran Air, unaware of this requirement, had not obtained such a licence. Five years later, the US Department of Commerce Office of Export Enforcement (OEE) initiated administrative proceedings against Iran Air. The OEE charged Iran Air, pursuant to 15 CFR 787.2, with causing the re-export of ‘US origin Fluke signal generators… from… Germany to Iran without obtaining… the re-export authorization required by 15 CFR 774.1’. The administrative law judge did not authorize the imposition of a civil penalty, and correctly noted that the US government had to establish that Iran Air had knowingly violated the law.

27 15 CFR §734.2(b)(4). 28 15 CFR §734.3(a)(2).

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Robert Kugelman, Acting Under Secretary for Commerce, referred the case to the administrative law judge, asserting that the exporter’s knowledge was not an ‘essential element of proof for the imposition of civil penalties’. The judge again refused to accept the Under Secretary’s view. Eventually, the Under Secretary issued a final order imposing a US$100,000 civil penalty against Iran Air and suspended all Iran Air export privileges for 24 months. If the monetary penalty had been paid within 30 days, then the export privileges would have been suspended for 3 months.29 Iran Air filed a lawsuit against the Under Secretary claiming that he had no right to tamper with an administrative law judge decision.30 On 2 July, the US Court of Appeal for the District of Columbia affirmed the Under Secretary’s ruling. The court concluded that under the EAA, the Under Secretary ‘remains the final administrative arbiter on questions of law and policy’. The court required the Under Secretary ‘for a reasoned determination of the appropriate sanction consistent with the facts of the case’. Following the court’s decision, Iran Air and the Department of Commerce agreed on a US$50,000 penalty. There are two significant points in this case. First, Fluke Germany and Fluke Holland knew about the ultimate destination of the generators, but were never charged, or the subject of any proceedings. Second, and particularly relevant to the exporter, the court ruled that under the EAA knowledge is not a necessary element of an export violation. The Control of Foreign Products This covers the control of goods that are non-US manufactured but incorporate technology previously exported from the United States. EAR Section 15 CFR 734.3 restricts independent foreign companies located outside the United States from exporting products made in plants outside the United States if it uses technology made under licensing agreements with US companies. For example, in 1982 US sanctions against the Soviet Union affected Creusot Loire SA, John Brown Engineering Ltd, and Nuovo Pignone SpA, which were using US technology in their products. The US Department of Commerce put these companies on temporary denial order lists which cut them off, not only from the right to export to but also from participating in exports from the United States.

29 United States Department of Commerce, press release, BXA-92-36, 27 August 1992. 30 Iran Air v Kugelman, 996F2d.1253 (DC Circuit, 1993).

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Export by a US Person This covers the control of exports, whatever their origin, by ‘persons subject to the jurisdiction of the USA’. EAR Section 15 CFR 385.2(c) states that a person subject to the jurisdiction of the United States is: any citizen or resident of the United States; any person in the United States, including any corporation organized under the laws of the United States; any corporation, wherever, that is owned or controlled by either of the above. For a better understanding of the extraterritoriality of US export controls it is worth reviewing the Soviet pipeline episode, which caused such a dramatic international confrontation when the United States applied these controls. The Pipeline Controversy In 1981, the Soviet Union and Western European countries agreed to construct a 3000-mile natural gas pipeline from northwest Siberia to western Europe. The European countries were to finance the project and supply the equipment, while the Soviets were to provide 40 billion cubic metres of natural gas annually for 20 years and earn approximately US$10 billion hard currency per year. The economic prospects of this project for both sides were immense. The Germans alone would earn around US$46 billion, and the manufacturer of the pipes would provide 30,000 German jobs for at least three years. But the Reagan administration objected to the project on the grounds that the Soviets would earn hard currency while the Europeans would be beholden to the Soviet Union as a supplier of energy. While the Americans were trying to dissuade the Europeans from involvement in the project, martial law was imposed in Poland and the Solidarity movement was banned. The US administration, believing that the Soviets had orchestrated the crackdown, imposed sanctions against the Soviet Union on 30 December. These sanctions included new restrictions on the export of US-origin oil and gas equipment and the suspension of technology licences. This sanction, however, did not affect the Soviet Union and European countries, and so the project continued. By June 1982, the situation in Poland remained unchanged, and it had become clear that sanctions were only affecting US corporations based in the United States. Therefore, on 18 June, Reagan issued a statement widening the existing control on oil and gas equipment for the Soviet pipeline:

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I have reviewed the sanction on the export of oil and gas equipment to the Soviet Union imposed on December 30, 1981 and have decided to extend these sanction through adoption of new regulations to include equipment produced by subsidiaries of US companies abroad as well as equipment produced abroad under licenses issued by US companies.31

The Department of Commerce, at Reagan’s direction, and pursuant to Section 6 (Foreign Policy Control) of the EAA, on 22 June amended Section 15 CFR 376.12, 379.8 and 385.2, among others. The amendments can be summarized as follows. A person within a third country may not re-export to the Soviet Union oil and gas equipment and components if they are of US origin. No persons in the United States or in a foreign country may export to the Soviet Union foreign oil or gas equipment or components made using US technology or data. Any person subject to the jurisdiction of the United States is required to obtain prior permission from the Office of Export Administration in order to export or re-export non-US goods and technical data if they are to be used in the oil and gas industry in the Soviet Union. A person subject to the jurisdiction of the United States was defined to be: any person wherever located who is a citizen or resident of the United States; any persons actually within the United States; any corporation organized under the laws of the United States or of any state, territory, possession or district of the United States; or any partnership, association, corporation or other organization, wherever organized or doing business, owned or controlled by persons specified in the above definitions. These new sanctions sparked debate within the administration itself, and resulted in the resignation of Secretary of State Alexander Haig on 30 June. The US policy towards the Soviet pipeline issue drew strong and unprecedented reaction from America’s allies. British Secretary of State for Trade, Lord Cockfield, said the regulations were damaging to his country’s trading interests. On 30 June, he issued an Order under the Protection of Trading Interests Act 1980 blocking the sanctions and prohibiting UK companies from complying with the embargo. The Protection of Trading Interests (US Re-export Control) came into operation on 1 July and read: Whereas it appears to the Secretary of State that the measures to which this Order relates have been taken under the laws of the United States of America (‘the United States’) for regulating or controlling international trade and that those measures, in so far as they apply to things done or to be done outside the territorial jurisdiction of the United States by persons 31 Weekly Comp. Pres. Docs, vol. 18 no 24, 820, 21 June 1982.

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carrying on business in the United Kingdom, are damaging or threaten to damage the trading interests of the United Kingdom: Now, therefore, the Secretary of State, in exercise of his powers under section I (I) of the Protection of Trading Interests Act 1980 (‘the 1980 Act’) and of all other powers enabling him in that behalf, hereby makes the following order: 1. This may be cited as the Protection of Trading Interests (US Re-export Control) Order 1982 and shall come into operation on 1 July 1982. 2. The Secretary of State hereby directs that Section I of the article 1980 Act shall apply to the measures referred to in the following article. 3. The measures to which this Order relates are those provisions of parts 374, 376, 379, 385 and 399 of the Export Administration Regulations as amended under the powers conferred on him by the United States Export Administration Act 1979 which affect the re-export or export of goods from the United Kingdom.32

Lord Cockfield directed John Brown Engineering, Smith International, Baker Oil Tools and AAF to ignore the control and continue to supply equipment required by the Soviet Union for the pipeline project. The European Community and its members, as well as Japan, also reacted strongly to the US sanctions, and openly denounced the new measure, protesting through diplomatic channels. The European Community said it considered that the amendments to the Export Administration Regulations of 22 June 1982 are unlawful since they can not validly be based on any of the generally accepted bases of jurisdiction in international law. Moreover, in so far as these amendments tend to enlist companies whose main ties are with the EC member states for the purpose of American trade policy vis-à-vis the USSR, they constitute an unacceptable interference in the independent commercial policy of the EC.33

The French government invoked the Ordre de Requisition de Service, a 1959 law which allows the government to demand services for the need of the country. Under this authority, the French subsidiaries of US corporations like Dresser (France) were ordered to continue their operations. US allies argued that the extraterritorial extension of the sanctions was against international law and called upon the United States to withdraw the measures. They encouraged their companies, and even issued formal orders, to continue their business in relation to the pipeline. 32 Printed in International Legal Materials, vol. XXI no 4, July 1982. 33 ‘European Communities: Comments on the US regulation concerning trade with the USSR’, International Legal Materials, vol. XXI no 4, July 1982.

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US subsidiaries found themselves in the difficult situation of receiving orders from the United States, which were then contradicted by the countries in which they were located. However, most of these companies complied with the orders of the countries of their location and honoured their contracts with the Soviet Union. The US Department of Commerce reacted by issuing temporary denial of export privileges orders for the following companies, prohibiting them from engaging in exporting or re-exporting activities: Dresser (France) SA, France; Nuovo Pignone SpA, Italy; Inso, Sistemi per le Infrastructture Sociali SpA, Italy; Creusot Loire SA, France; John Brown Engineering Ltd, England; John Brown Engineering Gas Turbine, Scotland; John Brown Engineering (International) Ltd, Jersey; Masoud John Brown Ltd, Jersey; AEG-Kanis Turbinenfabrik GmbH, Germany; Mannesman Anlagenbau Aktiengesellschaft, Germany; Essener Hochdruck-Rohrleitungsbau GmbH, Germany; Kocks Pipeline Planug GmbH, Germany. According to US administration officials, non-compliance with the Order would result in the freezing of the assets of the above companies in the United States and the arrest of officials of those firms should they enter the United States.34 Sanctions issued against Mannesmann Anlagenbau were only for participating in the pipeline tender. Mannesmann had signed a contract with V/O Machinimport of the Soviet Union to manufacture 22 gas turbine compressor stations for a portion of the Siberian gas pipeline, but had not supplied any equipment. The US Department of Commerce claimed that it had reason to believe that Mannesman had entered into a contract with the Soviet Union to manufacture gas turbine engines.35 The companies started litigation in US courts. After five months of litigation, under pressure from its allies, the US Congress and the business community, Reagan realized that the absence of co-operation from other countries made the regulations ineffective, and so on 13 November 1982 withdrew the sanctions. This eliminated the chance of obtaining a judicial review of the extraterritoriality of US controls under the EAA. No US court has ruled on the extraterritorial reach of the EAA, but at least one European court has ruled against it. In Compagnie Européenne de Pétrole SA (CEP) v Sensor Nedereland BV on 17 September 1982, Sensor’s adherence to the US controls was rejected. The President of the District Court of The Hague decided that Sensor, a wholly-owned subsidiary of Genosource 34 ‘International Trade report’, US Export Weekly, Bureau of National Affairs, 425, 22 June 1982. 35 Department of Commerce Case no 638, US Federal Register, vol. 47 no 196, 8 October 1982.

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Inc. of Houston, should supply CEP with the 2400 strings of Geophone ordered, by 8 October 1982 at the latest, and that if Sensor failed to deliver, for each day after that deadline it would have to pay a penalty of DFL10,000. Since the failure of the pipeline controls, US administrations have not attempted to assert such broad extraterritorial jurisdiction under the EAA. The Jurisdictional Reach of Export Controls The right of a nation to act unilaterally is limited, and in order to receive effective support from other nations it must act in particular cases within the framework of international law. International law is the means by which nations are supposed to assert and attempt to resolve conflicting legal interests. In the Soviet pipeline dispute, the US government stated its reasons for implementing controls, and these included the wish to advance reconciliation with Poland, the desire to deprive the Soviet Union of a source of hard currency, and concern that Europe could become dependent on Soviet energy supplies. On the other hand, the countries of western Europe insisted on maintaining national sovereignty, thereby increasing exports and obtaining new energy sources. If the Soviet pipeline controls were to have been internationally accepted they would have had to be promulgated within the framework of international law. Regulations controlling exports and imports are issues of sovereignty. States have the right to regulate their own trade, to decide the source of their imports and the destination of their exports. These regulations should not extend beyond territorial boundaries. International law, however, recognises occasions when states can exercise jurisdiction extraterritoriality, as shown earlier. International trade, investment and travel, and the growth of multinational enterprises have created the need for the limits of jurisdiction to be expanded. Traditional bases of jurisdiction can be applied to the area of export control. The following explanations relate to these principles, as they are applicable in the area of export controls, and suggest that the extraterritorial reach of US export controls is not legal with respect to non-US companies operating outside the United States. The Territorial Principle: A state should restrict its law-making to persons and goods within its territory, especially if it is concerned with the economic activity of the state (with no issue of state security involved). This is a fundamental notion enshrined in international law.

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This principle did not provide any basis for the Soviet pipeline regulation which aimed to prevent foreign corporations using previously exported equipment and technology. Neither those firms nor the previously exported US-origin goods and technology were within US territory at the time of the imposition of the controls. The intention of the United States was to regulate the conduct of nonUS citizens and companies. The fact that this is contrary to international law was confirmed by the US Supreme Court in United States v CurtissWright Export Corporation, 299 US 304 (1936): ‘neither the Constitution nor the laws passed in pursuance of it have any force in foreign territory unless in respect of our citizens… and operation of the nation in such territory must be governed by treaties, international understandings and compacts and the principle of the international law’. The Nationality Principle: Each state has the right to regulate the conduct of its nationals wherever they may be. However, entities whose place of incorporation, ownership and principle place of activity are outside the United States are not considered US nationals under international law, and are not ‘subject to the jurisdiction of the United States’. The nationality principle of international law does not suggest that even foreign subsidiaries of US companies fall under US regulations. The nationality of the company is determined by the place of incorporation or the place of registration.36 The United States has, in fact, argued in international fora that foreign subsidiaries of US corporations should be given ‘national treatment’ under local laws and should suffer no prejudice as a result of their ownership by US parent entities.37 Also, US-origin goods and technology outside of the United States are not considered American, as goods and technology do not have nationality, and international law does not accept jurisdiction over persons controlling them. Jurisdiction does not follow US-origin goods once they have been discharged in another country. In American President Lines Ltd v China Mutual Trading Co Ltd, the Supreme Court of Hong Kong refused to recognise the right of the United States to prohibit delivery of US-origin goods situated in Hong Kong. The court ruled that after their discharge, the goods were no longer subject to the jurisdiction of the United States.38 36 Barcelona Traction, Light and Power Co. Ltd (Belgium v Spain), ICI Report, 1970, 3 AT43 Judgement of 5 February. 37 Declaration of OECD Member Countries of International Investment and Multinational Enterprises, 75 Dept, Sr. Bull, 83 (1976). 38 American President Line v China Mutual Trading Co. Ltd, 1953, AMC 1510, 1526 (Hong Kong Supreme Court). See also Moens v Ahlers North German Lloyd, 30 RW 360 (Tribunal of Commerce, Antwerp, 1966).

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A corporation outside the United States, under the amendments issued at the start of the Soviet pipeline controversy, had to obtain written permission from the United States in order to continue with their obligation towards the Soviet Union. This appeared to be in contravention of international law. The United States does not have the right to require foreign companies to be subservient to US trade policy, especially as this may work against the economic interests of foreign countries. The Protective Principle: This emphasizes that a state may exercise jurisdiction when conduct outside its territory by persons who are not its nationals threatens the security of the state or the integrity of governmental functions. The pipeline issue did not threaten the security of the United States or its governmental functions. The protective principle would have applied if the United States and the Soviet Union had been at war and the national security of the United States had been in danger. In fact, the pipeline project had no bearing on US security. The US government did not even invoke the protective principle when amending EAA regulations. In fact the amendments were based on Section 6 of the EAA (foreign policy provisions) and not Section 5 (national security provisions). The ‘effect doctrine’ was not applicable, as exports from Europe did not have direct, foreseeable and substantial effects in the United States. The only effect there might have been was a foreign policy setback or a loss of technological advantage. In general, because of the real danger that it poses to relations among nations, the protective principle has been used in only in a very limited number of cases. The prosecutions for activities committed in a foreign state have generally been limited to serious and universally condemned offences such as treason or traffic in narcotics and to offences by or against military forces… no case is known of criminal prosecution in the United States for an economic offence (not involving fraud) carried out by an alien wholly outside the United States.39

US EXTRATERRITORIALITY UNDER THE IEEPA The other sets of regulations which allow the United States to extend its economic control outside its territory are those handled by the Treasury Department Office of Foreign Assets Control (OFAC). Foreign Assets

39 Restatement Third, 403, reporter note 8.

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Control Regulations (FACRs) provisions govern economic embargoes against particular countries. As shown in an earlier section, until 1977 there were two statutory bases which gave power to a US president to control exports: the EAA of 1969 and the Trading with the Energy Act (TWEA). In 1977, those two bases of export control were consolidated; non-emergency authority was consolidated in the EAA, whereas the TWEA was amended to limit the president’s powers in export control to the duration of declared wars. The IEEPA was enacted to give the president emergency powers to impose trade embargoes. In essence, the substance of the TWEA language was added to the EAA, giving the president the power to reach any persons and property ‘subject to the jurisdiction of the United States’. Prior to 1977 it appears that no statutory bases authorized the president to impose export restrictions on wholly-owned foreign companies or control re-export and goods previously exported. Under the EAA of 1949 and the amendment of 1969, the president could only prohibit exports from the United States, its territory and possessions. The president’s authority to control exports under the TWEA before the 1977 amendment only extended to US subsidiaries or property located abroad if they were in the hands of persons subject to the jurisdiction of the United States. The FACRs (which covered the embargoes against Vietnam, North Korea and Cambodia), Cuban Assets Control Regulations (CACRs) and the Transactions Control Regulations were based on the TWEA, and applied only to persons or property ‘within the United States’ or ‘subject to the jurisdiction of the United States’. None of the TWEA regulations affected wholly-owned foreign corporations or US-origin goods and technological data located outside US territory. The 1977 realignment of the president’s authority to control exports did nothing to broaden his powers to regulate foreign operations. The 1982 Soviet pipeline regulations represented the first attempt to restrict the conduct of wholly-owned foreign companies and to control the reexport of previously exported commodities. With the enactment of the IEEPA, OFAC became responsible for all general US embargoes. The asset freeze under the FACRs has an extensive extraterritorial impact. Under the Iranian Assets Control Regulations (IACRs), the Iranian assets freeze and sanctions were extended to persons ‘subject to the jurisdiction of the United States’ defined as including: any person, wherever located, who is a citizen or resident of the United States;

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any person actually within the United States; any corporation organized under the laws of the United States or of any state, territory, possession, or district of the United States; any partnership, association, corporation, or other organization wheresoever organized or doing business which is owned or controlled by persons specified in the above.40 Such a broad definition of a ‘person subject to jurisdiction of the United States’ was specifically designed to enable the United States to exercise its jurisdiction over branches and subsidiaries of US commercial banks, even when they were established in other countries, and doing business under those country’s laws. Under these restrictions, more than US$5 billion of Iranian assets were frozen by overseas branches of US banks. Litigation brought by Bank Melli Iran to challenge these banks in London and Paris was never finalized, and there were no hearings on these cases. A few years later, a court ruled on a similar case initiated by Libya. The decision of the court presented a potential threat to the future operation of the asset-freezing policy. In May 1986, the Libyan Arab Foreign Bank (LAFB), a Libyan incorporated institution wholly owned by the Libyan Central Bank, sued in London the Bankers Trust Company of New York and Manufacturers Hanover Trust, challenging the blocking provision contained in the Libyan Sanctions Regulations and its applicability to LAFB deposits in the foreign branches of US banks. The High Court of Justice in London granted judgement in favour of LAFB on its claims to recover the deposits plus the interest owed.41 The US Treasury Department accepted this setback and issued licences to Bankers Trust and Manufacturers Hanover Trust to effect payments. Challenges to the extraterritorial reach of American export controls have always succeeded when initiated outside the United States. This is because, despite the increasing frequency with which the United States has applied sanctions with extraterritorial elements, other countries have consistently refused to recognize the legality of these elements. Another highly controversial case of export controls under the TWEA was that concerning Fruehauf.42 In December 1964, Fruehauf-France SA, a majority-owned French subsidiary of Fruehauf Corporation of the United States, signed a contract with Automobiles Berliet SA, another French company, to supply 60 trailers for delivery to the People’s Republic of China. In January 1965, the US 40 31 CFR §535.329. 41 Libyan Arab Foreign Bank v Bankers Trust Co., 1986, L. no 1567, 4048 (QB Sept 2, 1987). 42 Fruehauf Corporation v Massardy, Court of Appeals of Paris, 14 Chamber.

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Treasury Department issued an Order instructing the Fruehauf Corporation not to carry out the contract as it would be in violation of the FACRs of the TWEA. When Fruehauf-France approached Berliet and asked for the contract to be terminated, it refused, and threatened to sue Fruehauf for breach of contract. The minority director of Fruehauf-France instituted proceedings against the Fruehauf Corporation of the United States and the American directors before the Tribunal of Commerce of Corbeil Essonnes on 16 February. The President of the Tribunal appointed a temporary administrator to head Fruehauf-France for three months, with directions to carry out the contract. The Fruehauf Corporation appealed to the Court of Appeals in Paris, but in a decision on 22 May the court affirmed the Order of February and pointed out that the interest of the company was more important than the interest of the shareholders, even if they were the majority. In this case the American authorities did not impose any penalty on the Fruehauf Corporation.43 THE CUBAN DEMOCRACY ACT The collapse of the Soviet Union brought an end to annual subsidies of US$6 billion to Fidel Castro’s regime, forcing Cuba into a steady recession. Taking advantage of this economic hardship, on 23 October 1992 the US Congress enacted the Cuban Democracy Act,44 to exploit the potential for a change of government in Cuba. With the new act, the existing sanctions against Cuba were expanded, to prohibit foreign firms owned or controlled by US nationals from entering into any trade or financial transactions with Cuba. In other words, Section 6005(a) of the act, by abolishing provision 515.559 of the CACRs,45 no longer allows foreign business activity of foreign subsidiaries of American companies with Cuba. The European Community and others opposed this law because it forced US subsidiaries operating within their sovereign territories to comply with US foreign policy objectives on trade with Cuba. Further, a vessel which enters a port in Cuba to trade in goods and services may not, for a period of 180 days following the vessel’s departure, enter a US port. From the perspective of US trade partners, this secondary boycott and the prohibition of trade between Cuba and US foreign subsidiaries 43 Reported in 51 International Legal Materials, 476 (1966). 44 Pub. L. no 102-484, Title XVII §§1702–1712 (22 USC 6001–6010). 45 31 CFR §515.

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amounted to the extraterritorial application of US law, in violation of principles of international law. The Trade Minister of the United Kingdom at the time, Richard Needham, objected to the act, and declared: The British Government, not the US Congress, will determine the UK’s policy on trade with Cuba. I will not accept any attempt to superimpose US law on UK companies. We are extremely disappointed that despite the fact that the UK, fellow EC member states and other countries have made clear our fundamental objections to its extraterritorial scope, this act should be about to become law. That is why I have taken action under the Protection of Trading Interests Act. This will, in particular, prohibit UK-incorporated subsidiaries of US companies from complying with the specified parts of the Cuban Assets Control Regulations. I regret having had to take this step. There was no alternative. We are determined to safeguard the interests of all British companies trading with Cuba, whatever their parentage.46

On 20 September 1992, the European parliament condemned the extraterritoriality of the act and requested that the US administration and Congress put an end to such measures running counter to international law. It also instructed European countries to take appropriate legislative measures for European enterprises and those with registered offices in the European Community to ensure normal trade relations with Cuba: ‘The Community should rebel against this Law by which the United States Congress seeks to prevent enterprises outside American jurisdiction from having trade relations with Cuba’.47 International disapproval of the act was shown by the measures taken by the UN General Assembly. A month after President Bush signed the act on 24 November 1992, the General Assembly adopted resolution 47/19, ‘Necessity of ending economic, commercial and financial embargo imposed by the United States of America against Cuba’. In that and subsequent resolutions carrying the same title, the General Assembly criticized the United States for trying to apply its domestic law to other countries, and stressed the need to eliminate the US unilateral application of its sanctions law, with its effects on the free flow of international trade.48 Canada, Mexico, the European Community and Latin America adopted blocking legislation to prevent the application of the Cuban Democracy 46 International Litigation News, January 1993. 47 Agence Europe report of 21 September 1992 from the Plenary Sessions of the European Parliament, Strasbourg. 48 See also General Assembly Resolution 48/16 of 3 November 1993 and Resolution 49/9 of 26 October 1994.

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Act to their nationals. They regard the act, with its misleading title, as part of a mission to remove Fidel Castro through economic strangulation. Professor Wilner of the University of Georgia concludes that ‘the international opposition to the Cuban Democracy Act appears generally united against what is considered an attempt by the United States to impose its will, perhaps it obsession, on the rest of the international community to get rid of the Castro regime by attempting to widen the application of its own punitive economic measures against Cuba’.49 The international condemnation of the Cuban Democracy Act did not change US policy on Cuba. Soon, the international community was faced with another set of controversial Cuban sanctions regulations, of which the targets were not foreign subsidiaries of US corporations but foreign individuals and companies which invested in Cuba, or managed US property nationalized by Fidel Castro. THE CUBAN LIBERTY AND DEMOCRATIC SOLIDARITY ACT OF 1996 On 12 March 1996, President Clinton signed into law the Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1996,50 commonly known as the Helms-Burton Act after its sponsors Senator Jesse Helms and Representative Dan Burton, ideological enemies of Castro. The HelmsBurton Act was a direct reaction to Cuba’s Foreign Investment Act 51 which, on 5 September 1995 in an unprecedented change of policy, Cuba’s National Assembly of Popular Power approved. For the first time in over 35 years, the Foreign Investment Act permitted the establishment of 100 percent foreign-owned corporations to acquire real estate in Cuba, and have direct ownership. The foreign entities were also allowed to invest in all areas of the Cuban economy. After the 1959 Cuban Revolution, Fidel Castro introduced Soviet-style socialism in which the state exercised total control of land and other means of production. The change in the law attracted tremendous foreign investment in Cuba, especially from Mexico, Canada and Europe. The Helms-Burton Act expanded the already broad US economic sanctions against Cuba, primarily through measures directed against companies that invested in or profited from property expropriated or

49 Gabriel M. Wilner, ‘International reaction to the Cuban Democracy Act’, Florida Journal of International Law, vol. VIII no 3, Fall 1993, p. 409. 50 Publ. L. 104-114, 12 March 1996, 110 Stat. 785, 22USC 6021. 51 Ley no 77, Ley de la Inversion Extranjera.

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nationalized by the Cuban government and subject to a claim by US nationals. The Helms-Burton Act tries to prevent foreign investment in Cuba with two provisions. Under Title III, ‘Protection of Property Rights of United States Nationals’,52 American citizens are allowed to sue in the US courts foreign companies and individuals benefitting from the property of US nationals confiscated by the Castro government with a current value of over US$50,000. For example, a Canadian company with a management contract to operate a hotel in Cuba that was owned by a US firm and nationalized, or a British firm that has a joint venture with a Cuban to operate a confiscated factory, faces liability of three times the current value of the hotel or factory. Title IV, ‘Exclusion of Certain Aliens’,53 requires the Secretary of State to deny visas to, and the Attorney General to exclude from the United States, the executives, shareholders and immediate family of foreign investors in confiscated property. The Helms-Burton Act could never achieve its goals because of international opposition and challenges to the act. The European Union brought a complaint to the World Trade Organization (WTO). Shortly after the enactment of the law, Canada and Mexico, two countries with the largest investments in Cuba, passed legislation to stop the application of that law in their countries. Canada’s blocking legislation allows companies found liable under the Helms-Burton Act to counter-sue in Canada and obtain a judgement that would offset any penalties imposed in the United States. It also prevents the enforcement of US judgements in Canada. Canadian companies or nationals ignoring the blocking order would be liable for fines of up to US$1 million.54 Mexico’s antidote legislation provides that courts do not recognise any judgements secured under extraterritorial laws. Mexico also imposes fines of approximately US$300,000, with the amount doubled for a second offence, against companies that comply with Helms-Burton-type laws or co-operate with officials administering such laws.55

52 53 54 55

22 USC §6081. 22 USC §6091. An Act to Amend the Foreign Extraterritorial Measures Act, Bill C-54. The Law to Protect Trade and Investment from Foreign Standards in Violation of International Law.

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THE LEGITIMACY OF THE ILSA Considering the proximity of the timing of the ILSA to the losses of American oil contracts in Iran, it seems clear that the US Congress only considered political and economic concerns, and not the legal consequences of the act. The ILSA, with its unprecedented trade sanctions power over foreign corporations, is one of the most controversial pieces of legislation signed by President Clinton during his first term. The controversy does not stem from the fact that it targets the economies of Iran or Libya. These two countries, Iran since the revolution in 1979 and Libya since 1986, have been subject to all types of US economic sanctions and trade restrictions. The objections to the ILSA arise from the extraterritorial nature of the act, which seeks to implement US foreign policy by imposing sanctions on non-US persons with business interests in the United States. The goal of the law is to inhibit investments in Iranian petroleum resources by putting these assets and interests at risk. The US ultimatum to its trading partners, to ‘deal either with Iran or the United States, but not both’, has not only been the source of outrage in the international community but also prompted debate about its validity under international law. The US assertion of jurisdiction goes substantially beyond its jurisdictional claims in previous legislation with extraterritorial effects. In the Soviet pipeline controversy, the Fruehauf Corporation case, the Cuban Democracy Act and the Helms-Burton Act, US ownership, technical data, components, goods and confiscated property were prerequisites to the application of sanctions. However, the ILSA does not require proof of any US-related component whatsoever before becoming effective. Under the ILSA, the president must impose sanctions against any person, regardless of nationality or residency, who invests $20 million or more in the Iranian petroleum industry. Does the US Congress have the authority to impose its law on non-US persons abroad, and with no affiliation to the United States? The answer to this question depends largely on the authority of the United States to exercise jurisdiction to prescribe law. Reviewing the established jurisdictional principles, it has been shown that the United States, by enacting the ILSA, has exceeded jurisdictional limits permitted by international law, and therefore that enforcement of the required sanctions against the ILSA’s intended targets is not legal.

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The Territorial Principle The most fundamental precept of international law is the sovereignty and equality of each state, and from this flows the territorial principle. This provides a state with jurisdiction to prescribe rules concerning persons, property and activities within its territory. Such principles cannot serve as a jurisdictional basis for ILSA. The United States can only regulate investment activities of foreign persons within the United States, and not beyond its borders as the ILSA requires. Even the objective territoriality principle, or effect principle as it is commonly known, which recognises a state’s jurisdiction over ‘conduct outside its territory that has or is intended to have substantial effect within its territory’,56 cannot justify the application of the ILSA. If the activities outside a state’s boundaries comply with the laws of that country then the ‘effect principle’ cannot be justified. Investment in Iranian petroleum resources is perfectly lawful for non-US companies outside the United States. Secondly, the conduct must have a substantial and direct effect within the United States. Congress justified the ILSA on the grounds that it would limit the development of Iran’s petroleum resources and, therefore, deprive Tehran of income to spend on supporting terrorism. Even if this reasoning is sound, under the accepted bases of jurisdiction, a state cannot utilize the effect principle to regulate conduct that may or may not produce a result in its territory. The principle requires a direct flow from the source, without any deviation or interruption. The only direct effect in the United States, if any, could arise from acts of terrorism allegedly supported by the Iranian government. The effect principle also extends to conduct intended to have substantial effect in the relevant state. Under the ILSA, the president is required to impose sanctions on a person who invests in Iranian petroleum resources, regardless of his intentions or of whether the investment might produce any effect in the United States, such as that stemming from a terrorist act. To summarize, the territorial and effect principles do not provide a jurisdictional basis for the ILSA. The investors that the United States tries to target are not in its territory and their investment activities do not have a direct and substantial effect in the United States. Thus, their conduct is not intended to produce effect in the United States. 56 Restatement Third, Section 402(I)(C).

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The Protective Principle Under the jurisdictional principle, a state can govern conduct outside its territory if this is ‘directed against the security of the state or other offences threatening the integrity of governmental functions that are generally recognized as crimes by developed legal systems’.57 Examples of such offences include espionage, counterfeiting of the state’s seal on currency, and the falsification of official documents. The ILSA regulates investment activities of foreign persons in Iran, not conduct directed against US national security. Further, for the protective principle to justify the the ILSA, developed legal systems must recognize investment in Iranian petroleum resources as a crime. No other country has done this. The Nationality Principle As discussed earlier, international law recognizes a state’s jurisdiction to regulate the conduct of its citizens, either within or outside its territory. The United States has, in the past, used this principle in relation to the activities of foreign branches and subsidiaries of US companies and financial institutions. In the case of the IACRs,58 foreign corporations owned or controlled by US persons were prohibited from engaging in transactions with Iran.59 This was the maximum to which US law had ever stretched, and this was often considered excessive. The ILSA purports to regulate the conduct of wholly-foreign-owned corporations and foreign nationals with no ties to the United States, so the nationality principle does not support it. The Universal Principle Every nation has jurisdiction to prescribe rules to punish a person who has committed an offence that is recognised by the community of nations as one of universal concern. The oldest example is piracy; others include war crimes, the hijacking and sabotage of civil aircraft and genocide, which are all the subjects of international agreement and resolutions of international organizations. The community of nations does not recognise investment activity in Iran as an offence that should be universally condemned. If the investment 57 Restatement Third, Section 402, Comment F. 58 31 CFR §535. 59 31 CFR §535.329.

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activities that are sanctionable under the ILSA were considered serious and heinous crimes, the European Union would not have condemned the passage of such a law. *

*

*

Thus, none of the jurisdictional principles support the extraterritorial application of the ILSA to non-US persons outside the United States. Consequently, the ILSA violates international law. The Restatement Third concludes that even if a state’s assertion of authority satisfies one of the accepted jurisdictional principles, that assertion remains illegal if it is unreasonable in the context in which it is performed. The ILSA, in order to establish legality, must also meet the reasonableness requirement. The Reasonableness Principle If a situation arises in which two or more states claim prescriptive jurisdiction over certain conduct – say one state on the basis of the nationality principle and the other on the basis of the territorial principle – international law requires a state not to ‘exercise jurisdiction to prescribe law with respect to a person or activity having connection with another state when the exercise of such jurisdiction is unreasonable’.60 Assuming that the United States did find legitimate support in any one of the jurisdictional principles to justify the ILSA, then the ultimate legality of the ILSA provisions governing non-US persons abroad would depend on its reasonableness. The Restatement Third, under ‘Limitations on Jurisdiction to Prescribe’, expresses eight factors that must be considered in order to evaluate the reasonableness of exercising jurisdiction over a person or activity. The first assesses ‘the extent to which the activity takes place within the territory, or has substantial, direct and foreseeable effect upon or in the territory’.61 Investment in petroleum resources of Iran is not an activity taking place within the United States. Nor do these investments, as discussed earlier, have a substantial, direct and foreseeable effect in or on the United States. The second factor examines ‘the connections such as nationality, residence or economic activity between the regulating state and the person principally responsible for the activity to be regulated’.62 Investors targeted 60 Restatement Third, Section 403(I). 61 Ibid., Section 403(2)(a).

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by the ILSA are not US nationals and do not reside in the United States. The investment activity has no economic connection to the United States. The ILSA, as declared by Congress, is not based on the economic interests of the United States, but rather on national security interests. The third factor evaluates ‘the character of the activity to be regulated, the importance of regulations to the regulating state, the extent to which other states regulate such activities’.63 The solid opposition of US trading partners to the ILSA clearly demonstrates the unreasonableness, in their eyes, of the act. No other country has regulated investments of foreign nationals beyond its borders. ‘The extent to which other states regulate such activities’ should definitely be considered as carrying more legal weight than the importance of the act to US foreign policy. The fourth factor takes into account ‘the existence of justified expectation that might be protected or hurt by the regulations’.64 Even if the United States has a justified expectation that it should be free to protect itself and its citizens from the alleged terrorist acts of Iran, it remains the case that the ILSA should not have been enacted with such extraterritorial application. Nationals of other countries also have a justified expectation to be free from US regulations. The fifth factor considers ‘the importance of the regulations to the international political, legal or economic system’.65 Firstly, the ILSA was not enacted for economic reasons. Thus, the United States cannot argue the importance of the act to the international economic system. Secondly, if the regulation was important to the international political or legal system, surely even a few countries would have supported it. Countries in general have permitted other states to regulate extraterritorially in cases of terrorism. But the ILSA exists to regulate investment in Iranian petroleum resources. The sixth factor weighs ‘the extent to which the regulation is consistent with the tradition of the international system’.66 If the ILSA was consistent with the tradition of the international system, the international community would not have objected to it so adamantly, and the blocking measures and challenge in the WTO would not have been initiated. International systems have traditionally disapproved of such extraterritorial regulations. The seventh factor examines ‘the extent to which another state may have an interest in regulating the activity’.67 In principle, every state has 62 63 64 65 66

Ibid., Ibid., Ibid., Ibid., Ibid.,

Scetion Section Section Section Section

403(2)(b). 403(2)(c). 403(2)(d). 403(2)(e). 403(2)(f).

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an interest in its own freedom to govern society within its own territory. The world-wide condemnation of the ILSA indicates that these countries have a strong interest in their freedom to decide on their own regulations for controlling where and how their citizens invest their capital. Surely within their own territory, and in connection with their own nationals, they must be seen as having the prior claim. Also, by enacting blocking rules and regulations they have displayed their interest in stopping the United States from regulating the investment activities of their nationals. The eighth factor evaluates ‘the likelihood of conflict with regulations by another state’.68 When the French government instructed Total to go ahead with its investment in Iran, it was convinced that the company could appeal to a French court and obtain an Order to disregard the ILSA. The court ruling, which would find the ILSA contrary to French law, would conflict with US regulations. The blocking legislation enacted in response to the ILSA by several nations would suggest that the potential for conflict with other states’ regulation is high. In conclusion, investors in Iranian petroleum resources are not Americans, and their activities are outside US territory. Furthermore, they have no connection with the United States by way of nationality, residence or economic activity. Neither does their investment in Iran have direct and substantial effect on the United States. No other country has regulated against foreign nationals abroad who invest in Iran, and the traditions of the international system do not support the scope of the ILSA applicability. And sovereign states have a substantial interest in deciding how to regulate the investment activities of their nationals within their borders. The ILSA lacks support from the recognised jurisdictional principles and it does not meet acceptable notions of reasonableness. ECONOMIC COERCION AND UN RESOLUTIONS The UN General Assembly, in three strongly-backed resolutions 69 using almost identical wording, set forth the principle that economic coercion has no place in international relations. ‘No state may use or encourage the 67 Ibid., Section 403(2)(g). 68 Ibid., Section 403(2)(h). 69 Declaration on the Inadmissibility of Intervention in the Domestic Affairs of States and the Protection of Their Independence and Sovereignty, GA Resolution 2131 UN Doc. A/RES/2131 (XX)/Rev.1. (1965); Declaration on Principles of International Law Concerning Friendly Relations and Co-operation Among States in Accordance with the Charter of the United Nations, GA Resolution 2625, UN Doc. A/RES/2625 (XXV) (1970); Charter of Economic Rights and Duties of States, GA Resolution 3281, UN Doc. A/RES/3281 (XXIX) (1974).

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use of economic, political or any other type of measures to coerce another state to obtain from it the subordination of the exercise of its sovereign rights and to secure from it advantage of any kind.’ 70 Economic coercion may be defined as ‘any effort by a nation to influence events outside of its borders by restricting access to its resources, services or consumers’.71 Under the ILSA, the United States is trying to influence Iran’s behaviour by restricting access to its resources, services and consumers. Therefore the ILSA is clearly an instrument of economic coercion. THE UNITED NATIONS REJECTS EXTRATERRITORIAL SANCTIONS The United Nations has also adopted resolutions condemning unilateral extraterritorial sanctions. One of the most recent was directed against the ILSA. On 26 October 1998, the General Assembly called for the immediate repeal of unilateral extraterritorial laws that imposed sanctions on corporations and nationals of other states.72 Only the United States and Israel voted against the resolution. The United States’ argument that such sanctions are a legitimate response to the conduct of rogue states, thus enabling Washington to defend its own interests and the security of the entire world, was rejected by the member delegates. The resolution urged all states ‘not to recognise or apply extraterritorial coercive economic measures or legislative enactments’ unilaterally imposed by any state. The General Assembly also requested the Secretary General to report to its fifty-fifth session on the implementation of the resolution, and placed on the agenda of that session the ‘Elimination of coercive economic measures as a means of political and economic compulsion’. CONCLUSION This chapter has shown that the United States has sought in many different circumstances to enforce its laws beyond its borders. The previous chapter also showed that the goal sought by the application of extraterritorial

70 Declaration on Principles of International Law Concerning Friendly Relations and Co-operation Among States in Accordance with the Charter of the United Nations, GA Resolution 2625, UN Doc. A/RES/2625 (XXV) (1970). 71 Shane M. McGee ‘… or I will take my toys and go home: The Iran and Libya Sanctions Act of 1996’, 20 Houston Journal of International Law, Fall 1997, p. 111. 72 United Nations press release, 26 October 1998.

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jurisdiction was not always achieved. This is because states, even those allied to or friendly with the United States, differ in their attitudes towards the whole subject of territoriality. The United States has been active in prescribing the conduct of persons or bodies outside its borders. But, on the whole, it has not been successful in enforcing these prescriptive measures. Other states have sometimes questioned the basis, under international law, of US measures. On other occasions, they have rejected the measures as being infringements of national sovereignty and running counter to national laws. In their examination of the extraterritorial application of export-control legislation in the United States, A.L.C. de Mestral and T. Gruchalla-Wesierski argue that the United States went far beyond the bounds set by international law. In short, the international community has not been willing to accept the legislative terms dictated by the United States: However powerful the state asserting a position and however strongly the position is argued one state cannot make the international law. In the case of export controls one is constantly struck by the loneliness of the US position. Proponents of the US position have skilfully broken the debate into many fragments. They have sought to show the contradictions in the positions of others by pointing to practice in other areas of law and they have sought to wrap the US in the cloak of multilateral or bilateral agreement on the substantive rules. But on the basic issue of principle, as to whether the various forms of extraterritorial jurisdiction asserted by the US are justified by international law, the US stands alone. The rules of international law governing territory and governing the duty of non-intervention in the affairs of a foreign state act as a brake upon the extraterritorial extension of US export controls.73

The extraterritorial application of US export controls has produced a variety of problems, particularly when it has conflicted with the economic interests of its allies. It has stirred up political animosity among nations and interfered with international trade. Precisely because there is such variety in the way in which countries interpret the subject of extraterritoriality there seems little or no prospect of achieving consensus among nations on how it should be applied. Despite the fact that Western nations find themselves increasingly bound together by economic and political ties, there is still a fundamental instinct among states to protect national interests when the threat of foreign meddling is perceived. Territorialism inevitably wins out 73 A.L.C. de Mestral and T Gruchalla-Weseirseki, Extraterritorial Application of Export Control Legislation: Canada and the USA, Kluwer Academic Publishers, 1990, p. 256.

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over inter-dependence when nations try to stretch their legal arms outside their own borders, as European opposition to the Helms-Burton Act and the ILSA show. Despite the military and economic might of the United States, the country’s attempts to impose its laws on territories beyond its borders have largely failed to dent the instinctive territorialist attitude of nationstates. The United States should have learned by now that the unilateral imposition of trade restrictions is ineffective. It does not produce the desired result of changing the behaviour and policies of the targeted country; its only effect has been to cause international resentment and bring about retaliatory measures.

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he agreement between Iran and the United States that secured the release of the US hostages stipulated that in return for their freedom, the United States would ‘revoke all trade sanctions which were directed against Iran’ during the crisis. President Carter implemented this commitment with an Executive Order in January 1981, and lifted all previous sanctions against Iran. For a short period there was no special barrier to US-Iran economic relations. Three years later, Secretary of State George Schultz, on 13 January 1984, accused Iran of having been involved in the October bombing of the US Marine barracks in Lebanon and designated Iran a supporter of international terrorism. As a result, Iran was subjected to a variety of sanctions. Since 1984, a second wave of US sanctions against Iran has been initiated, and with the exception of one, all have been maintained and steadily increased to the point that Iran is currently subjected to some of the harshest US sanctions of any country in the world. THE SCOPE AND EXTENT OF IRAN SANCTIONS The legal foundation of these sanctions, which are based on numerous presidential and congressional actions, are contained in the following 19 statutes:

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The International Emergency Economic Powers Act (IEEPA), as Amended 1 Export and re-export to Iran of goods, technology, and services of US origin, with the exception of food and medicine, are prohibited. It also prohibits most activity related to trade in Iranian goods and services. US persons may not invest in Iran, or approve, finance, facilitate or guarantee any foreign transactions with Iran. The legislation freezes all Iranian government property within the jurisdiction of the United States. The Iran and Libya Sanctions Act (ILSA) of 1996 2 This act imposes sanctions on US and foreign persons who invest US$20 million or more (or multiple investment of at least US$5 million) in any 12-month period in the development of Iranian petroleum resources. The Iran-Iraq Arms Non-proliferation Act of 1992, as Amended 3 This bans the transfer of goods, technology and services which could contribute to the ability of Iran to acquire advanced conventional weapons, or chemical, biological or nuclear weapons. The Omnibus Consolidated and Emergency Supplemental Appropriations Act of 1999 4 This act restricts bilateral assistance to the government of Russia because of its involvement in assistance, training and export of equipment to Iran for development of nuclear or missile capabilities. It also prohibits the use of funds for direct or indirect assistance or reparations to Iran, and any funding of any government which provides lethal military equipment to Iran.

1 2 3 4

Pub. L. 95-223, Title II, 91 Stat. 1626, 28 October 1977, as amended, 50 USC §§1701–1706, 1999. Pub. L. 104-172, 110 Stat. 1541, 5 August 1996, note to 50 USC §1701, 1999. Pub. L. 102-484, Div. A., Title XVI, 106 Stat. 2571, 23 October 1992, Note to 50 USC §1701, 1999. HR4326, Division A, Section 102(d) (Foreign Operations), 21 October 1998.

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The Foreign Operations Export Financing, and Related Programs Appropriations Act of 1998 5 Under this act, funds may not be used for indirect or direct assistance, including United States Export-Import Bank support to Iran. The US contribution to international organizations’ programmes in Iran is withheld. The use of funds for any foreign government which provides Iran with lethal military equipment is prohibited. The Foreign Assistance Act of 1961, as Amended 6 This blocks US government assistance, and the support of the United States Export-Import Bank or the Overseas Private Investment Cooperation to Iran. Under this act, US contributions towards international organizations cannot be used for programmes for Iran. In 1994, to protest at a US$477 million loan to Iran, the United States reduced its input to the World Bank by US$14 million. The International Security and Development Cooperations Act (ISDCA) of 1985 7 This legislation embargoes imports of goods and services from Iran. The Antiterrorism and Effective Death Penalty Act of 1996 8 US representatives in international financial institutions are required, under this act, to vote against loans and other financial assistance to Iran. In addition, it prohibits the granting of licences for the export of defence items to Iran. The Internal Revenue Code 9 Foreign tax credit on taxes paid to Iran is denied.

5 6 7 8 9

Pub. L. 105-118, 111 Stat. 2386, 26 November 1997. Pub. L. 87-195, Pt. I, 75 Stat. 524, 4 September 1961, as amended, 22 USC §§2151 et seq., 1999. Pub. L. 99-83, Title V §§504 and 505, 99 Stat. 221, 8 August 1985, 22 USC §§2349aa-8 and 2349aa-9 1998. Pub. L. 104-132, 110 Stat.1214, 24 April 1996. Act of 16 August 1954, C.376, 68A Stat. 285, as amended, 26 USC §901(j), 1998.

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The Department of Defence Appropriations Act of 1987 10 Under this act, entities and their subsidiaries with Iranian government interests are banned from entering into contracts with the US Department of Defence. Also, defence contractors are prohibited from subcontracting to such entities. The National Defence Authorization Act 11 This law prevents US Department of Defence funds being used to provide assistance to Iran. The Spoils of War Act 12 Under this legislation, the transfer to Iran of ‘spoils of war’ in the possession and control of the United States is prohibited. ‘Spoils of war’ is movable property that has become the property of the United States pursuant to the laws of war. The Arms Export Control Act (AECA), as Amended 13 This act prevents the export of munitions and the provision of US government assistance for Iranian munitions. The Export Administration Act (EAA), as Amended 14 Under this legislation, the export to Iran of ‘dual use’ items, or any goods which may contribute to Iranian military capabilities, is prohibited. Reexports of foreign-made goods are also prohibited if they contain more than 10 percent of which is of US origin. The Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 15 This act prohibits the export to Iran of goods and technology that assist Iran to acquire, develop or use chemical and biological weapons. Sanctions against foreign persons who export such goods are mandatory. 10 11 12 13 14 15

Pub. L. 99-500 §101c, 100 Stat. 1783, 18 October 1986, 10 USC §2327, 1998. Pub. L. 104-106, Div. A, Title XII §1341(A), 110 Stat. 485, 10 February 1996, 10 USC §2249a, 1998. Pub. L. 103-236, Title V, §§551–556, 108 Stat. 482, 30 April 1994, 50 USC §§2201–2204, 1998. Pub. L. 90-629, c.1, 82 Stat. 1321, 22 October 1968, as amended, 22 USC §2780, 1998. Pub. L. 96-72, 93 Stat. 513, 29 September 1979, as amended, 50 USC App. §§2405 and 2410a, 1998. Pub. L. 102-182, Title III, 105 Stat. 1245, 4 December 1991), 22 USC §§5601–5606 and 2798, 1998, 50 USCA App. §2410c, 1998.

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The National Defence Authorization Act for 1990–1, as Amended 16 Under this law, individuals and entities are prohibited from exporting to Iran, or facilitating the export of, items listed on the Missile Technology Control Regime (MTCR) annex. The MTCR was created in 1987, and currently 28 countries are members. The regime shares export-policy guidelines and a list of controlled items. Foreign persons who engage in the trade of an item on the MTCR annex to a non-MTCR country are sanctionable, even if the item is not of US origin or produced from USorigin technology. Since 1996, Iran’s Ministry of Defence Logistics, armed forces and State Purchasing Office have been sanctioned under this act. The Foreign Relations Authorization Act for 1994 and 1995, as Amended 17 Though Iran does not request compliance with the Arab League Boycott of Israel, this act prohibits the sale of defence articles and services by the US government to Iran. The act is currently being applied to Iran, Iraq, Libya, Sudan, Syria and Yemen. The Export-Import Bank Act, as Amended 18 This act denies application for loans, guarantees and insurance with respect to Iran. The International Religious Freedom Act of 1998, as Amended 19 The act imposes sanctions on the government of Iran for its alleged violation of religious freedom. *

*

*

The provisions of these sanctions, which form significant barriers to USIran economic relations, can be summarized as: the export and re-export to Iran of any goods, technology and services of US origin are prohibited; 16 Pub. L. 101-510, Title XVII, 104 Stat. 1745 5 November 1990, Sections 71-74 of the AECA, Section 1 1B of the EAA, 22 USC §2797, 2797a-c (1998), 50 USC App. §2410b, 1998. 17 Pub. L. 103-236, Title V, §564, 108 Stat. 483, 30 April 1994, as amended, note to 22 USC §2751, 1998. 18 Pub. L. 99-472 §14, 100 Stat. 1204 12 USC §635i-5, 1996. 19 Pub. L. 105-292, 112 Stat. 2787, 27 October 1998, as amended, 22 USC §6401, 1999.

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imports of Iranian goods and services to the United States are banned; the investment or involvement in any financial transaction of any US person with Iran is restricted; the exportation to Iran of products manufactured outside the United States but using US-origin materials and technology is prohibited; any foreign person’s investment of more than US$20 million in Iran’s energy sectors is sanctionable; the United States refuses to pay a share of any international programme in Iran; US representatives in international financial institutions are required to block loans and other financial assistance to Iran. WHY THE SANCTIONS? We have seen that nearly all existing sanctions against Iran have been motivated by domestic political considerations – the accommodation of the interests of the pro-Israeli lobby in the United States. The drumbeat of US accusations – Iran’s support for international terrorism, violent opposition to the Arab-Israeli peace process, and the development of weapons of mass destruction (and the missiles to deliver them) – all relate to Israel. Nevertheless, officially these are forms of behaviour that the United States finds unacceptable, and must be changed through sanctions. Iran’s Support for International Terrorism Iran’s engagement in certain terrorist activities cannot be denied. But most of those activities have been directed against the foes of the Islamic Republic. The Mojahedin-e Khalq Organization (MKO) and Kurdish Democratic Party of Iran (KDPI) have for the past two decades – sheltering in Iraq, arch enemy of Iran – organized and carried out hundreds of terrorist activities against the Iranian regime inside and outside Iran. Several leaders of the revolution and hundreds of innocent civilians have been killed. MKO, from its offices in Europe and the United States, has openly advocated violence against Iran, and has publicly, through radio broadcasts, called on its mercenaries inside Iran to sabotage and bomb crowded public places. It has been allowed to appeal for funds in the West to finance terrorist activities there. Contrary to the conditions of its members’ asylum, it has been tolerated and given public political platforms and encouragement, furthering the campaign of terrorism acts in Iran, and against Iranian interests abroad. According to the US State Department, ‘in April 1992, they conducted attacks on Iranian embassies in thirteen different countries’.20

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MKO was for many years known by US State Department officials to be an international terrorist organization, but it still had the active support of over 200 members of the US Congress and part of the US administration. Eventually, on 8 October 1997, the State Department officially designated it a foreign terrorist organization. Despite the fact that MKO itself claimed 294 terrorist operations inside Iran during the first nine months of 1997,21 its designation as a terrorist group upset some influential members of the US Congress, who had always enjoyed MKO’s financial contributions to their election campaign. Gary Ackerman, Elena Ros-Lehtinen and Robert Torricelli wrote to President Clinton on 28 October protesting against the terrorist listing of the MKO, claiming the group’s aim as a ‘democratic alternative’ to Iran’s Islamic Republic. When, in 1999, the State Department designated the MKO terrorists and extended that designation to cover the National Council Of Resistance (NCR) and the Muslim Iranian Students Society, the names under which the MKO operated in the United States, Senators Robert Torricelli and Christopher Bond wrote to Secretary of State Madeleine Albright and urged her to ‘look afresh towards the possibilities that exist within Iran’s democratic opposition, including the People’s Mojahedin’. For a quarter of US senators, despite all the existing evidence, the MKO is not a terrorist group, but a democratic one. Like the MKO, the KDPI is also a violent opponent of Iran, and has been supported militarily and financially by Iraq. During the Iran-Iraq War of 1980s, KDPI not only initiated and organized a series of bloody ethnic wars in the northeastern part of Iran, but also often used terrorism and assassination in attacking the Iranian regime. Iran judges its attacks on these two groups to be a national security considerations, and sees these measures as acts of self-defence, rather than acts of state terrorism. Gary Sick, a member of the US National Security Council during the presidencies of Gerald Ford, Jimmy Carter and Ronald Reagan, finds this aspect of Iranian behaviour, so condemned by the United States, similar to that of the Israeli government. This aspect of Iran’s policy closely resembles that of Israel. In fact, Israel’s record of extra-territorial assassinations and kidnappings is far more 20 Pattern of Global Terms 1998, US Deptartment of State, Publication 10610, released April 1999. 21 Gary Sick, ‘United States Sanctions Against Iran: Are They Permanent?’ JIME Review, vol. 10 no 38, Autumn/Winter 1997, p. 38.

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extensive than Iran’s, even if all the cases attributed by the media to Iran turn out to be true. Both states have chosen to strike back at elements that conduct cross-border terrorist operations against their people and their governments. Far more Iranians have been killed and wounded in terrorist attacks than Israelis, and many of Iran’s top leaders bear personal scars from assassination attempts.22

However, this does not mean that Iran has not, at times, engaged in terrorist activities. But these activities have not been part of the Iranian policy for some time, and certainly not since President Khatami’s election in May 1997. Although Iran is still considered by the US State Department a state which sponsors terrorism, a careful reading of Patterns of Global Terrorism 1998, an official State Department report released in April 1999, reveals nothing concrete on Iran’s terrorist activities, and is remarkably lacking in hard evidence. The report itself indicates that ‘Tehran is reported to have conducted several assassinations outside Iran in 1988’. The report implies that their information is based on reports and accusations made by MKO, former Iranian President Bani-Sadr and other opponents of the Iranian regime outside Iran, or by religious factions in Pakistan and Tajikistan, fighting among themselves for political or religious power. No reliable source is quoted. Iran’s official position on terrorism, as outlined by Javad Zarif, Deputy Foreign Minister, is that Iran, as a major victim of international terrorism, has not only condemned terrorism in all its forms and manifestations, but also has proposed a number of practical steps to enhance and promote international cooperation against this menace. The Foreign Minister of Iran, in his speech before this year’s General Assembly, called for serious global cooperation to eradicate terrorism, based on the following criteria: Condemnations and rejection of all forms of terrorism, regardless of identity of victims or perpetrators, and irrespective of their political tendencies and objectives; Refusal to provide sanctuary to terrorists or terrorist groups and prevention of operation by or on behalf of terrorists; and Cessation of all baseless and unsubstantiated propaganda and allegations.23

Khatami, in a CNN interview on 7 January 1998, when asked to respond to the issue of terrorism and support of terrorism, stated, ‘Terrorism should 22 Ibid., p. 37. 23 Dr M. Javad Zarif: ‘US Sanctions Against Iran’, paper presented at a conference of the Institute for Global Leadership on the Sanctions: Rationale and Impact, Geneva, 7–8 November 1996.

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be condemned in all its forms and manifestations, assassins must be condemned… If I learn of any instance of such assistance to terrorism, I shall deal with it, so will our leader, and so will our entire system… Any form of killing of innocent men and women who are not involved in confrontation is terrorism, it must be condemned, and we, in our term condemn every form of it in the world.’ 24 In a public statement, the Iranian government condemned the 1998 bombing of US embassies in Nairobi and Dar Es Salaam, and expressed its sympathy for the victims. Since Khatami took office, Iran has not only condemned all terrorist activities, but has also lifted the fatwa on Salman Rushdie and, for the first time in modern Iranian history, has ordered the arrests of over 30 members of an operational cell within Iran’s Ministry of Security and Intelligence which had conducted a series of terrorist activities for two decades without the knowledge of the authorities. Iran’s Opposition to the Arab-Israeli Peace Process Iran’s opposition to the Arab-Israeli peace process, and its support for the Lebanese Hezbollah are further charges against Iran. It is true that the government of Iran has continuously denounced the Middle East peace process as an unjust compromise for the Palestinian people. But it has also, on many occasions since early 1994, declared that it would not engage in any activity to impede the process. On 7 June 1994, President Rafsanjani, in a news conference in Tehran, declared that Iran’s objection to the peace process stemmed from the fact that ‘Palestinian rights have been denied’, and he added ‘we will not intervene in practice and physically disrupt the process’. Khatami in a much publicized interview with CNN on 7 January 1998, stated, ‘we have declared our opposition to the Middle East peace process because we believe it will not succeed. At the same time, we have clearly said that we don’t intend to impose our views on others or to stand in their way. In our view all Palestinians have the right to… self determination. Only then can there be a lasting peace.’ 25 Iran’s promise not to disrupt the Arab-Israeli peace process was reiterated clearly by Khatami in his recent press conference in Paris. ‘We will not interfere in the Middle East peace process… We will not interfere with the efforts of others.’ 26 24 http:/www.cnn.com/world/9801/07/iran/interview.html. 25 Ibid.

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Iran’s active financial and military support for the Lebanese Hezbollah in the 1980s and early 1990s, and limited financial support of the past few years, are unquestionable. The United States considers Hezbollah a terrorist group, while Iran justifies its support by arguing that the group is a liberation movement confronting Israel’s occupation of southern Lebanon. In Khatami’s view, ‘supporting people who are fighting for the liberation of their land is not supporting terrorism’. Significant on this question is the comment of Iran’s Foreign Minister, Kamal Kharrazi, during a trip to Beirut in November 1998, about Israel’s stated readiness to withdraw from south Lebanon in accordance with UN Security Council Resolution 425. He said, ‘This withdrawal effectively ends the mission of the Hezbollah’. Many analysts understood this comment to mean that Iranian support for the Hezbollah would stop after Israel’s withdrawal. If the peace process develops to the point that all Arab neighbours of Israel agree to a peace treaty, then Hezbollah’s role as the front-line force confronting Israel would no longer be acceptable to Lebanon and Syria. With such developments, Iran’s support for Hezbollah would cease, and once the Palestinians had created their independent state, Iran would have no choice but officially to recognize it. Iran and the Development of Weapons of Mass Destruction The third charge against Iran relates to its alleged development of weapons of mass destruction (WMD), and the missiles to deliver them. ‘The Islamic Republic of Iran, on the basis of Islamic beliefs, considers weapons of mass destruction inhumane and illegitimate.’ These strong words are Foreign Minister Kharrazi’s, before the fifty-second session of the UN General Assembly on 22 September 1997. Karrazi’s strong denunciation of WMD stems from the teachings of Ayatollah Khomeini, who regarded using these weapons as indiscriminate and contrary to Islam. During the Iran-Iraq War, although Iraq extensively used chemical weapons against Iran, causing some 10,000 casualties, Khomeini, stressing the moral considerations involved, did not allow Iran to use these weapons, even in retaliation. In the late 1980s, after the Iran-Iraq War, Iran decided to revive the nuclear power programme begun under the Shah’s regime at Bushehr, the 26 ‘Iran’s Khatami Pledges No Meddling in Middle East Peace Process’, Reuters, 19 October 1999.

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site of two German-built Siemens 1300 megawatt electricity generating reactors that were more than 70 percent completed before the 1979 revolution. In February 1992, Reza Amrollahi, then the President of the Atomic Energy Organization of Iran (AEOI), advised the International Atomic Energy Agency (IAEA), ‘Iran would like to complete construction of the two 1300 Mw power reactors at Bushehr – one of which is 80 percent complete, the other 65 to 70 percent complete, which could provide 10 to 20 percent of Iran’s energy needs’.27 In addition to the urgent need of a larger power-generating capacity, Iran also seeks to familiarize itself with the application of nuclear technology in medicine, agriculture and industry. As a signatory to all international treaties on nuclear weapons, including the Non-Proliferation Treaty (NPT), Comprehensive Nuclear Test-Ban Treaty (CTBT), Iran’s nuclear programme is entirely transparent. Iran is a leader in calling for a nuclear-free zone in the Middle East, and as an active participant in the IAEA has agreed to open the doors of its nuclear sites to the agency’s experts to inspect at any time. In February 1992, IAEA experts visited six suspect sites in Iran, and concluded, ‘all of the facilities and sites selected by IAEA for inclusion in the visit were accepted by the Iranian authorities… The activities… were found to be consi-stent with the peaceful application of nuclear energy and ionizing radiation.’ 28 After another such visit, IAEA Director General Hans Blix, at a press conference in Moscow, indirectly criticized Washington’s allegations about Iranian trafficking in nuclear materials, stressing that ‘the IAEA found no evidence of a nuclear weapons programme in Iran. IAEA Safeguard Division Director General H. Towei declares in a letter to IAEA headquarters that there is no record of Iran obtaining any nuclear materials within the last 12 years.’ 29 In addition to Khomeini’s insistence on the immorality of nuclear weapons, the dominant official view in Iran is that such weapons would damage Iran’s security rather than enhance it. Ayatollah Khamenei, Iran’s spiritual leader, in an address to military commanders, stated that ‘even if it were the case that the Islamic Republic of Iran wanted to make an atomic bomb, the big powers would still have hundreds of them’.30 And according to Akbar Torkan, Iran’s former Defence Minister, ‘acquisition of nuclear 27 Greg J. Gerardi and Maryam Aharinejad, An Assessment of Iran’s Nuclear Facilities, The Non-Proliferation Review, Spring/Summer 1995, p. 209. 28 IAEA visit to Iran, IAEA press release, 14 February 1992. 29 FBIS-TAC-95-004, 7/29/95 (13511). 30 Voice of the Islamic Republic of Iran, 13 July 1992.

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weapons for Iran means holding a ticking time-bomb, having in mind that the great powers have long range and precise missiles… our facilities could easily be targeted and destroyed… The acquisition and use of nuclear weapons is not part of our defence policy.’ 31 Iran claims that its nuclear programme is exclusively dedicated to peaceful use, and categorically denies that it has the desire to acquire nuclear weapons. ‘Iran simply does not, and will not, in light of its own interest, engage in a nuclear weapons program.’ 32 Khatami, in his 7 January 1998 interview with CNN, also declared Iran’s nuclear programme to be designed for ‘peaceful purposes’, and clearly stated that ‘we are not a nuclear power and do not intend to become one’. The position of the Iranian public is contrary to that of the authorities. Most Iranians, as long as they are encircled by nuclear-armed countries, would support a nuclear Iran. Iranians cannot ignore Ukraine, Kazakhstan, Russia and Belarus in the north, Israel and Iraq in the west, India and Pakistan in the east, and the US navy in the south. As to Iranian public opinion on the other two issues of US concern, on the issue of support for any form of international terrorism it is unequivocally opposed, while it is simply indifferent to the Arab-Israeli peace process. US SANCTIONS: PROSPECTS FOR THE FUTURE To prove or refute Iran’s sincerity on the issues of greatest concern to the United States, or to discuss the genuineness of the US evaluations of the situation which gives rise to all these sanctions, are outside the scope of this study. What is certain is that sanctions, even of this magnitude, have failed to achieve any of their major goals. This is not to say that sanctions have had no impact whatsoever on Iran. They have caused additional pain to Iran’s already sick economy, but this has been very marginal. Sanctions that might have had some impact on Iran’s economy can be addressed in four categories: exports, imports, investment and the assistance of international financial institutions. In the 1992–3 fiscal year (March–March), due to inexcusable mishandling of the economy, Iranian imports reached the unprecedented figure of US$26.2 billion. The US share of this figure was at its highest since the 1979 revolution, at about US$750 million. Prior to the 1995

31 Ettelaat, 16 February 1993, p. 2. 32 Reza Amrollahi, comments in Khaleej Times, 9 January 1995, p. 5.

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sanctions, the 1994 figure was about US$320 million, of total imports of US$17.3 billion. In order to meet its obligations on 1992–3 debit arrears, Iran severely limited its imports to about US$20 billion. The US share would have been less than US$400 million, or about 2 percent of Iran’s total annual imports, mostly parts and equipment for its oil industry. Before the imposition of sanctions, the United States was the dominant player in the Iranian oil industry. Within a short period, and at a minimum of cost, Iran discovered that the United States was no longer the world repository of oil technology, and that Canada and a number of European and Asian countries, all close US allies, had acquired the high level of technological skill needed to manufacture sophisticated oil-industry equipment. Those countries, while in some cases paying lip-service to the principles underpinning the sanctions, have relished the chance to take the business that Americans were compelled to drop. The higher cost to Iran, if any, of importing indirectly or substituting less than 2 percent of its requirements cannot have had much impact on Iran’s total economy. The prohibition on US investment in Iran contained in the 1995 sanctions and the secondary boycott mandated by the ILSA are the second category of sanctions which may have hurt Iran. Iran’s foreign-investment policy, the Majles’s interpretation of ‘foreign borrowing’, ‘equity ownership’ and ‘buyback’, and the general political and economic conditions were the reasons for an unfavourable investment climate in Iran. In addition, an immense debt of over US$26 billion in the early 1990s limited Iran’s access to the international capital market and deterred foreign investors from seriously considering large investments in Iran. With a good debt repayment record since 1995, and the changes in Iran’s foreign investment policy, attractive projects in Iran have brought foreign investment. In the second half of 1999, Western companies were vying to invest US$8 billion in 40 projects in Iran.33 This does not mean that the threat of sanctions under the ILSA did not cause a temporary delay in foreign investment in one or two projects in Iran’s oil and gas sectors. But the waiver on action against Total’s involvement in the South Pars field removed any deterrent effect the ILSA might have had on investment in Iran. Closely related to the issue of foreign investment is the effect of US pressure to curtail international economic assistance to Iran. As part of 33 ‘Iran to Start Developing High Oil Field in 2000’, Reuters, 27 December 1999.

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this pressure, US representatives in international financial institutions are required to block credits and financial assistance to Iran. Sanctions statutes also block any US contributions to the programmes of international organizations in Iran. Under these pressures, and other US interventions since 1994, the World Bank’s lending programmes to Iran – of about US$400 to US$500 million a year – were cancelled. The difference between interest rates charged by commercial banks and those of the World Bank is the only cost to Iranian economy, and this is not significant. Since 29 October 1987, long before comprehensive US sanctions were imposed on Iran, the importation into the United States of goods and services of Iranian origin was prohibited. The headline-grabbing news in early 1995, that ‘for the first time, America has overtaken Germany to become Iran’s biggest trading partner, responsible for some US$4 billion of Iran’s overseas business’ 34 was misleading. Though admittedly major US oil companies, like Exxon, Caltex, Coastal and Bay Oil, were purchasing about 750,000 barrels per day of Iranian crude, this trade was not categorized as US importation of Iranian goods. The 1987 import ban prohibited importation of Iranian goods ‘into the United States’, but did ‘not apply to the importation into locations outside the United States’.35 Based on this provision, US oil companies were legally permitted to purchase Iranian oil for sale in third countries. Such trade was later prohibited, under Executive Order 12957 of 15 March 1995. The relevant provision of the Office of Foreign Asset Control restricted any ‘transactions by US persons in locations outside the United States with respect to goods or services which the United Sates person knows, or has reason to know, are of Iranian origin or owned or controlled by the Government of Iran’.36 Within three months, with new sales contracts, Iran’s adjustment to the breaking of ties with US oil companies were complete. Accepting that shifting partners, as some reports suggested, cost Iran between 30 and 80 cents a barrel in discount, the impact on Iran could not have been significant. In contrast, the impact on the Iranian economy of non-oil exports to the United States has been significant. Prior to the US import ban of 1987, Iran’s exports of non-oil products reached US$980 million in 1986. The US share of this figure was about US$83 million (or 8.5 percent). Considering that Iranian non-oil exports between 1987 and 1998 were approximately 34 The Economist, 15 February 1995. 35 31 CFR §560.404. 36 31 CFR §560.411.

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US$33 billion, the US share of imports, in absence of sanctions, would have been about US$3 billion. Iran has faced difficulties in certain areas. It has had to find non-US buyers for Iranian oil, purchase parts and equipment from third countries possibly at a higher price, and reschedule its debts with less favourable terms. Iran has also had to cope with the ban on non-oil goods exports to the United States, the suspension and cancellation of international economic assistance and the sudden drop in value of Iranian currency when sanctions were imposed in 1995. All these factors have hurt the Iranian economy. The price of this additional pain – especially to an economy already reeling from the aftermath of a revolution, eight years of war, the mismanagement and indecisiveness of its leaders, and above all in which ideology controls all aspects of life – was acceptably low, and could not have had an impact sufficient to change Iran’s behaviour or alter its foreign policy. It is true that if Iran had not had to endure US economic and political pressure its economy would have been in a better shape. Surprisingly though, since 1995, when the United States imposed its most comprehensive sanctions on Iran, the Iranian economy, as presented by various economic sources, has been healthier and more stable.37 It is also true that since mid-1997 significant changes towards a more open and just society have been taking place in Iran. Experts are virtually unanimous in their belief that those changes, especially on the issues that sanctions were supposed to change, were not the result of US economic and political pressure. It was Khatami’s pragmatic politics and policies that has made Iran a country that no longer uses terrorism as a policy instrument, lives in peace with its neighbours, honours its international obligations and has developed friendly relations with the entire international community, with the exception of Israel and the United States. Khatami’s victory in May 1997, with almost 70 percent of the vote, was decided entirely on domestic issues, and not US pressures on the Iranian public. Most scholars and sanctions experts who have studied Iran’s sanctions agree that US measures against Iran have not deterred the Iranian behaviour to which the United States objects. The ineffectiveness of these sanctions is apparent from these studies. If US policy-makers are unschooled in the theory of sanctions, they should consult some of the great quantity of 37 See Bank Markazi Iran, Economic Trends (quarterly), Economic Report (annual) and Bulletin (quarterly); also IMF, International Financial Statistics (monthly and annual), Jahangir Amuzegar, ‘Adjusting to Sanctions: The Toll in Iran’, Foreign Affairs, May/June 1997 and ‘Iran’s Economy and the US Sanctions’, Middle East Journal, vol. 51 no 2, Spring 1997.

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analytical and scholarly literature, which nearly all suggests that US unilateral sanctions have not only been ineffective but have also hurt US interests. One such recent study is Ambassador Ernest H. Preeg’s excellent book, Feeling Good or Doing Good with Sanctions.38 The author convincingly demonstrates that in general ‘unilateral sanctions do not achieve their intended objective, but do adversely affect other US interests’.39 In 1997, the Washington-based Centre for Strategic and International Studies (CSIS) undertook a major project on US unilateral economic sanctions. The task was to analyse the costs and benefits of these sanctions, to propose effective alternatives and to recommend policy changes in formulating and implementing new sanctions. The steering committee was comprised of executive branch officials, congressional staffers, scholars, practitioners, policy analysts and nongovernmental leaders. Chaired by members of Congress from both parties and both houses, the committee released two outstanding reports 40 and the excellent book already mentioned. The study concluded that ‘nearly all unilateral sanctions fail nearly all the time’.41 The reports suggest that ‘engagement with countries whose behaviour is offensive has a better record of accomplishment, with less damage to US interests, than does cutting off most economic and political contact through comprehensive unilateral sanctions’.42 Feeling Good or Doing Good with Sanctions, a more detailed part of the CSIS sanctions project, focused on past, current and potential comprehensive unilateral US sanctions. In particular, Vietnam, as a past victim of US sanctions, Iran and Cuba as current targets, and China and Myanmar (Burma), as potential ones. The technical assessment and extensive arguments made throughout the study clearly establish that in none of the five cases have unilateral sanctions accomplished their primary objectives, nor will they in the future. The economic and political impact of the sanctions 38 Ernest H. Preeg, Feeling Good or Doing Good With Sanctions: Unilateral Economic Sanctions and the US National Interest, Center for Strategic and International Studies Press, 1999. See also Gary Clyde Hufbauer and Kimberly Ann Elliott, Tess Cyrus and Elizabeth Winston, US Economic Sanctions: Their Impact on Trade, Jobs and Wages, Institute for International Economics, 1997; Richard N. Haass (ed.), Economic Sanctions and American Diplomacy, The Council on Foreign Relations, 1998. See also research papers, documents etc released by USA Engage, www.usaengage.org. 39 Ibid., p. 221. 40 Joseph J. Collins and Gabrielle D. Bowdoin, Beyond Unilateral Economic Sanctions: Better Alternatives for US foreign Policy, Center for Strategic and International Studies, 1999; Douglas Johnston Jr. and Sidney Weintraub, Altering US Sanctions Policy: Final Report of the CSIS Project on Unilateral Economic Sanctions, Center for Strategic and International Studies, 1999. 41 Joseph J. Collins and Gabrielle D. Bowdoin, Beyond Unilateral Economic Sanctions: Better Alternatives for US foreign Policy, Center for Strategic and International Studies, 1999, p. vi. 42 Douglas Johnston Jr. and Sidney Weintraub, Altering US Sanctions Policy: Final Report of the CSIS Project on Unilateral Economic Sanctions, Center for Strategic and International Studies, 1999, p. vii.

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on Iran, and US commercial and security interests, is analysed and examined in detail.43 The study reckons that US unilateral sanctions policy against Iran, as of early 1999, is having a substantial adverse impact on US interests with little redeeming value. It is having only a small negative effect on Iran, principally from the embargo on US imports from Iran. The sanctions against US exports to and investment in Iran is having a substantial short-term and potentially much larger longer-term adverse impact on US commercial interests and, through exclusion of US firms from the Iranian petroleum sector, on the US geopolitical position in central Asia as well.44

If most analyses of the effectiveness of US unilateral sanctions recognise that these measures have little adverse impact on the Iranian economy, while their cost to the United States outweighs the potential benefit, ‘then the logical conclusion is that it is in the US interest to lift these sanctions unilaterally’.45 The prospect for such a move is unlikely. The shadow of a fearsome beast, AIPAC, on many Capitol Hill legislators – more concerned about votes for their party than a reasonable foreign policy goal – is unlikely to allow such a move in the foreseeable future. However, the sweeping victory of the Iranian reformists in the February 2000 parliamentary elections provides President Clinton with an excellent opportunity to ease some of these sanctions and score points with Tehran. Allowing Iran Air flights to New York and lifting the ban on importation of Iranian products would be positive gestures if opening a dialogue with Tehran is on the agenda. Now that US public opinion on Iran has shifted, these limited measures would be unlikely to increase congressional wrath.

43 ‘Iran: National Security Interest at Bay’ in Ernest H. Preeg, Feeling Good or Doing Good With Sanctions: Unilateral Economic Sanctions and the US National Interest, Center for Strategic and International Studies Press, 1999, pp. 47–87. 44 Ibid., p. 83. 45 Ibid., p. 81.

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INDEX AAF (company) 377 Abdi, Abbas 21 Abu Musa, island of 14 Acharnians (Aristophanes) 25 Achille Lauro incident 367 Ackerman, Gary 403 acquisitions 290 Act to Expedite the Strengthening of National Defense (1940) 37–8 ad-Din Shah, Mozaffar 5 Adath Yisrael Synagogue, Washington DC 178 Administrative Procedures Act 41 advanced conventional weapons, definition of 175 AECA (Arms Export Control Act) 66, 99, 171, 176, 186–7, 400 AEG-Kanis Turbinenfabrik GmbH 378 AEOI (Atomic Energy Organization of Iran) 106–7, 134, 136, 407 Afghanistan 28, 44, 77 Agip (company) 299 Agricultural and Food Act (1981) 44 agricultural commodities 198–9, 207–8, 235 bulk 275–6, 277, 278–80, 282–3, 286–7 Agricultural Cooperative Bank of Iran 270 Agricultural Development Bank of Iran 270 agricultural embargo protection 44 agricultural grants 154 Ahmad, Shah of Persia 6 AIPAC (American Israel Public Affairs Committee) 166, 178, 186, 187–90, 306–7, 309–12, 333 aircraft Iran Air 373–4, 413 Pan Am Flight 103, 296, 309, 310, 320 sabotage of 368, 390 safety of 238 TWA flight 800 310

Al-Ahram (newspaper) 325 Al-Wafd (newspaper) 325 Albania 26 Albright, Madeleine 330–1, 403 Algeria, see Algiers Declaration Algerian Central Bank 94–5, 109–10, 111, 119–20, 121–4 Technical Agreement 125–30 Algiers, meeting in (1979) 21 Algiers Declaration 86, 91–5, 108–30, 135 implementation of 96–101 All Fall Down (Sick) 1 American Association of Retired People (AARP) 177 American Electronics Association (AEA) 50 American Israel Public Affairs Committee, see AIPAC American Jewish Congress 313 American Law Institute 368–9 American President Lines Ltd v China Mutual Trading Co. Ltd 380 American-Spanish War 37 Amnesty International 17 Amrollahi, Reza 407 ancient Greece 25 Andreyev, Vladimir 324 Anglo-Iranian Oil Company (AIOC) 9 anti-boycott laws 311–12, 327–8 Anti-Terrorism and Effective Death Penalty Act (1996) 399 anti-terrorism controls 154–7 apartheid 31, 186, 366 Arab-Israeli peace process 405–6 Arab-Israeli War (1973) 14 Arab League 50, 187 boycott by 311–12, 328 Arafat, Yasser 177 Archer, Bill 302, 303, 306, 320 Aristophanes 25

424

arms control sanctions Arms Export Control Act 66, 99, 171, 176, 186–7, 400 chemical and biological 48, 52, 154–5, 161, 171, 314, 400 Export Administration Act 37 Iran-Iraq Non-proliferation Act (1992) 164, 171–6, 187, 398 Iran Missile Proliferation Sanctions Act 332–3, 335 and South Africa 28 validated licences for 154, 162 Wassenaar Arrangement 51, 52 Arms Export Control Act, see AECA arms purchases 14 Article 16 of League of Nations 28 Article 39 of UN Charter 27 Article 41 of UN Charter 27–8 Atomic Energy Organization of Iran, see AEOI Australia 315, 320 Australian Group (AG) 165 Automobiles Berliet SA 383–4 Axworthy, Lloyd 323 Azerbaijan 8, 183, 193 baggage, accompanied 159, 226, 236, 257 Bahaism 334 Baker Hughes Incorporated 184 Baker Oil Tools 377 Bakhtiar, Shahpour 19, 20 balance of payments crisis (1971) 35 ballistic missiles 333 Baltic State Technical University 334 Bandar Abbas, port of 71 Bani-Sadr, Abolhassan 22, 67, 91, 404 Bank Tejarat 273 Bank Tosiaiyi Keshahvarzi 270

INDEX

Bank Markazi Iran, see Central Bank of Iran Bank Maskan 270 Bank Mellat 270 Bank Melli Iran 270–1, 383 Bank of England 99, 121–4 Technical Agreement 125–30 Bank of Industry and Mine 271 Bank Refah Kargaran 271 Bank Saderat Iran 271–2 Bank Sanat va Madan 272 Bank Sepah 272–3 Bank Taavon Keshavarzi Iran 273 Bankers Association for Foreign Trade (BAFT) 302 Bankers Trust Company of New York 383 banks and banking credit 220, 223, 260, 286, 287, 291, 297, 410 depository institutions 221, 232–3, 259, 268–9, 286, 317 domestic transactions 55–6 escrow 125–30 Iran and Libya Sanctions Act 305–6, 307, 316–17, 342 Iran Oil Sanction Act 290–1 letters of credit 217 loans 220, 223, 228, 260, 291, 297, 302, 316, 342 owned or controlled by Iranian government 269–74 prohibitions 215 services 200–1 Banque Centrale d’Algerie, see Algerian Central Bank Barshefsky Charlene 328 Ba’th Party 168 Battle, Laurie 39 Baum, Philip 313 Bazargan, Prime Minister Mehdi 20–1 Bennet, Senator 293 Benouataf, Lakhdar 130 Bereuter, Representative Doug 300 Berger, Sandy 178 Berlin blockade (June 1948) 39 Berman, Representative Howard 163, 293, 294 Bessekhouad, Mohamed 130

Biological Disarmament Convention (1972) 161 Black, Justice 137 Black’s Law Dictionary 368 Blair, Tony 330 Blakesley, Professor Christopher 361–2, 364, 365, 368 Blix, Director General Hans 407 Bond, Christopher 403 bonded warehouses 222, 244 ‘Boston tea party’ (1774) 25 Brazil 320 Britain Anglo-Iranian Oil Company 9 and Cuban Democracy Act 385 historical links with Iran 5, 6 and Iran hostage crisis 71, 83 and opposition to ILSA 321–2 role in overthrow of Mossadegh 11 and Siberian pipeline controversy 376–7 use of sanctions 29 withdrawal from Persian Gulf (1971) 168 Brittan, Sir Leon 320–1, 324, 331 brokering services 261, 281, 286–7 Brownback, Sam 332 Bryce, James 131 Brzezinski, Zbigniew 19, 21, 179 Bulgaria 26 bulk agricultural commodities 275–6, 277, 278–80, 286–7 list of eligible 282–3 bunkering 269 Bureau of Economic and Business Affairs 318 Bureau of Export Administration (BXA) 50–1, 262 Burma 412 Burns, Nicholas 325 Burton, Representative Dan 295, 386 Bush, President George 48, 49, 164, 385 Bushehr nuclear reactors, Iran 406–7

425 Caltex 440 Campbell, Senator 293 Canada 203–5, 304, 323, 365, 385, 386–7, 409 Carbo, Joseph Coll I. 324 Carswell, Robert 72 Carter, Barry E. 24 Carter, President Jimmy and Dames & Moore v Regan case 139–45 during Iran hostage crisis 66, 67, 75, 397 and EAA embargoes 43, 44 end to litigation 54 Executive Order 12170 68–70, 87 Executive Order 12205 77–9, 86–7 Executive Order 12211 79–82 Executive Orders 12276–12285 95, 96, 98 failure to consult Congress 53 Hostage Settlement Agreement 86 and human rights in Iran 17 statement of freeze regulations 107 and Shah of Iran 2, 21 Caspian Sea 193 Castro, Fidel 31, 384, 386 Central Bank of Iran, The 68–9, 94, 119–20, 121–4, 270, 274 Centre for Strategic and International Studies (CSIS) 412–3 Charette, Hervé de 323 Chas T. Main International Inc. v United States 105 chemical and biological weapons 48, 154–5, 161, 314 Chemical and Biological Weapons Control and Warfare Elimination Act (1991) 171, 400 chemical exports, 160–2 Chemical Weapons Convention (CWC) 52 Cheney, Richard B. 30, 188 China, People’s Republic of 35, 39, 42, 48, 52, 96, 320, 321, 324, 383 Chirac, President Jacques 321, 323 Chretien, Prime Minister Jean 288

426 Christian missionaries 4, 5 Christians, Iranian 334 Christopher, Warren M. 114, 118, 120, 179, 182, 187 and Germany’s trade with Iran 321 condemnation of Iran 190–1 on state sponsor of terrorism 293 Chrysler 71 CIA (Central Intelligence Agency) 10–11, 179 CISA (Comprehensive Iran Sanctions Act ) (1995) 179–80 claimants 94, 96, 100 former hostages 103–4 private sector 105–7, see also litigation Clark, Ramsey 66, 82 Clawson, Dr Patrick 170, 184 Clinton, President Bill 49, 52, 166, 170, 178–9, 182 Executive Order 12957 183, 195, 248, 410 Executive Order 12959 192–4, 195, 202, 248 Executive Order 13059 203–7, 246–50 Executive Order 13094 (1998) 334 and ILSA 312–13, 330–1, 336–49, 360 and Jewish lobby 189–90, 313 and LIBERTAD Act 386 policy shift towards Iran 208 seeking multilateral support 288–9, 301 and Total oil company 328–30 veto on IMPSA 333 Coalition for Export Control Reform 49 Coastal and Bay Oil 410 Cockfield, Lord 376–7 COCOM (Co-ordinating Committee on Multilateral Export Controls) 31, 39, 41, 46, 47, 48, 51, 162, 165 codevelopment (or coproduction) agreements 173 Cold War 29, 165, 166, 169 Commerce Control List 162–2 commercial encryption items 52

SANCTIONING IRAN

commodities trading 238 commodity controls list (CCL) 42–3 Commodity Credit Corporation 176 communications personal 216 sanctions on 28, 57–8 telecommunications 48–9 communism 29, 30, 35, 39, 40 Compagnie Européenne de Pétrole SA (CEP) v Sensor Nederland BV 378–9 companies, see private sector companies Comprehensive Antiapartheid Act (1986) 186, 366 Comprehensive Crime Control Act 367 Comprehensive Iran Sanctions Act, see CISA Comprehensive Nuclear TestBan Treaty (CTBT) 407 Comprehensive US Sanctions Against Iran: A Plan for Action (AIPAC) 178, 186, 187–90 computer technology 180–1, 262–3, 266 Congo 31 Congress of the United States 32 and Battle Act 39 on chemical and biological weapons prevention 161 Dames & Moore v Regan case 142–51 Export Administration Act 37, 43, 46–7, 48, 49–50, 52 export controls 40, 41 IEEPA 62–5 and ILSA 314–18, 331–3 limitations of presidential power 53–6 and multilateral sanctions 314–15 Mutual Security Act 39–40 NDAA 164–5 review of presidential emergency powers 35–6 and secondary boycotts 311 and trade with Iran 163 and TWEA 34 CONOCO (US oil company) 182–3, 187, 188, 289

Considine, Jill 302 Consolidated Gold Fields PLC v Minorco 364–5 contracts 279, 318, 319 Convention on the Prevention and Punishment of Crimes against International Protected Persons 73 Cooper, Richard 71–2 copyrights 226–7, 266 Cottam, Richard W. 4, 6, 9, 10 counterfeiting 390 counter-narcotics 207 Court of Appeals 106, 137, 151 Coverdell, Senator 293 Crane, Philip M. 303–4 credit, 220, 223, 260, 286, 287, 291, 297, 410 Creusot Loire SA 374 cruise missiles, definition of 175 Cuba 48, 51, 55–6, 70, 96, 357–8 Cuban Assets Control Regulations (CACRs) 382, 384 Cuban Democracy Act (1992) 180, 384–6 Cuban Liberty and Democratic Solidarity Act, see Helms-Burton Act cultural exchanges 24, 28, 57–8 Curtiss-Wright Export Corporation 380 customs procedures 244–5 Customs Service 47 Cutler, Lloyd N. 67 Cutting case (1887) 366–7 Cyprus 29, 31 Czechoslovakia 39 D. Mendeleyev University of Chemical Technology 334 D’Amato, Senator Alphonse 164 CISA (1995) 179–86 Iran Foreign Oil Sanction Act, 289–96 Iran Foreign Sanctions Act proposal 186–90 on Iran sanctions legislation, 306 and Iran-Turkey pipeline 325–6 letters to foreign oil companies 298–9

INDEX

and row with Senator Kennedy 309–10 speaking before House committee 300 and Total investment in Iran 329–30 and US concessions on ILSA 331–2 Dames & Moore v Regan (1981) 54–5, 56, 86, 106–7, 131–53 Dar Es Salaam embassy, bombing of 405 Davis, Richard J. 89 DDGM (Diesel Division of General Motors of Canada) 203–5 de Mestral, A.L.C., and Gruchalla-Wesierseki, T. 362–3, 395 debits 286, 287 debt repayments 58, 238, 260, 409 Democratic Party 166 ‘Demonstration of resolve’ 31–2 denial of entry to US 290 denial order lists 200, 374, 378 Denmark 34 Department of Commerce (US) 42–3, 46, 47, 49, 154, 156, 262 denial order lists 200, 374, 378 export controls on chemicals 160–2 on illegal shipments 185 Office of Export Enforcement 373–4 Siberian pipeline controversy 376, 380 Department of Defence Appropriations Act (1987) 400 depository institutions 221, 232–3, 258–9, 268–9, 286, 317 Desert Storm 169 destabilization 31 detention of shipments 242 Deutch, John 179 Deutsch, Karl 16 Deutsch-Iranische Handelsbank AG 273 Diesel Division of General Motors of Canada, see DDGM diplomatic and political measures 24–5, 57

diplomatic pouches 235 discretionary sanctions 172–3, 290–1 distribution licences 48 District Court 106, 131–7 Dole, Bob 293 Domenici, Senator 293 Downey, Arthur T. 184 Dresser (France) SA 377, 378 dual containment policy 166–76, 331 dual use goods, control of 133, 163, 171, 180, 185 Duffy, Judge 105 EAA (Export Administration Act) (1979) 33, 35, 37–46, 186, 311, 382, 400 amendments (1985) 46–8, 48–53 extraterritorial measures in 372–81 ‘Eagle Claw’ rescue mission (1980) 90 EARs (Export Administration Regulations) 51–2, 373, 374 East Germany 76 ECA (Export Control Act) (1949) 38–40 economic assistance 410, 411 ‘effect doctrine’ 381, 389 effective date 318, 346 30-day delayed 230–1, 267–8 definition of 217, 257 Eggleton, Art 323 Egypt 43, 166, 169, 324–5, 335 Eisenhower, President Dwight 9–10 Eizenstat, Stuart E. 208, 326 El Salvador 288, 292 Electro-Motive Division of General Motors 203 Electronic Data Systems Corporation v Social Security Organization of the Government of Iran 105 Elf Aquitaine 298 embargoes arms 28, 66 grain 44, 45, 311 high-technology 44, 155–6 trade 26, 86–9, 101, 179–80, 192–5, 192–207, 305, see also sanctions emergency repairs 269 Emmanuel, Rahm 178

427 employment 263 environmental activity 30 Erbakan, Prime Minister Necmettin 325–6 escrow 125–30 Escrow Agreement (1981) 94, 121–4 espionage 365, 390 Essner HochdruckRohrleitungsbau GmbH 378 Ethiopia 26 Ettelaat (newspaper) 17 Europaeisch-Iranische Handelsbank AG 273 Europalas 2000 334 European Community (EC) 83, 377 European Economic Community (EEC) 40 European Recovery Programme 38 European Union (EU) 295, 297–8, 300, 315 blocking regulation 326–8, 350–9 compromise on ILSA 330–1 and Cuban Democracy Act 384–5 oppositon to ILSA 320–2, 323–4, 325 evasions 214 Executive Order 12282 101 Executive Order 12283 102 Executive Order 12981 50 Executive Order 12170 (1979) 68–70, 83, 87 Executive Order 12205 (1980) 77–9, 86–7 Executive Order 12211 (1980) 79–82, 88 Executive Order 12294 (1981) 86, 98, 104, 136 Executive Order 12613 (1987) 156–7, 196, 248 Executive Order 12957 (1995) 183, 195, 248, 410 Executive Order 12959 (1995) 192–4, 195, 202, 248 Executive Order 13059 (1997) 203–7, 246–50 Executive Order 13094 (1998) 334 Executive Orders 12279–12281 105 Executive Orders 12276–12285 (1981) 95, 96, 98, 135 executory contracts 276, 277–8, 285

428 Export Administration Act, see EAA Export Administration Regulations, see EARs Export Control Act, see ECA Export Control News (periodical) 180–1 Export Facilitation Act (1990) 48 Export-Import Bank 155, 290, 297, 300, 301, 341 Export-Import Bank Act 176, 401 export licences, see licences Export Trading Companies Act (1982) 45 exports agricultural commodities 207–8, 235, 298–9 arms, see arms control sanctions bulk agricultural commodities 275–80, 282–3, 286–7 chemical 160–2 dual purpose goods 133, 163, 171, 180, 185 European Community 83 Executive Order 12205 77–9 Export Administration Act 33, 35, 37–46, 46–53, 186, 311, 382, 400 food and medicine 207–9 foreign policy and 160–5 gifts 265 information and information materials 269 Iranian Transaction Regulations 198–9, 214 legal services 236–7 services 223, 233 technology 266–7, 374, 376 violations 52, 185, 242, 339, 374, see also reexportation expropriation 30, 34, 54–5, 58 extraterritorial jurisdiction 361–3 export controls 379–81 extension of bases of 368–71 nationality principle 366, 380, 390 passive personality principle 366–7 protective principle 365–6, 381, 390 reasonableness principle 391–3

SANCTIONING IRAN

territorial principle 363–5, 379–80, 389 universal principle of 367–8, 390–1 extraterritorial legislation under the EAA 372–81 European Union blocking regulation against 350–9 under the IEEPA 381–4 and ILSA 360–96 Exxon 410

foreign availability 48, 50 Foreign Investment Act (National Assembly of Popular Power, Cuba) 386 foreign investments 290, 297 definition of new 220 Helms-Burton Act 386–8 in Iran 409 Iran and Libya Sanctions Act 312, 317–18, 339–40, 360 facilitation 215, 256, 262 Iran Oil Sanctions Act FACRs (Foreign Assets 302–3, 305–6 Control Regulations) 84, Iranian Transactions 381–4 Regulations on 215, 255 Fain, Irving J. 311–12 reasonableness principle Faircloth, Senator Lauch 391–3 289, 293, 333 Foreign Operations Export Federal Deposit Insurance Financing, and Act 317 Related Programs Federal Register 340 Appropriations Act Federal Reserve Bank of New (1998) 399 York 68, 94–5, 99, foreign policy 24 110–11, 119–20, 121–4, contradictions in 321 136, 137, 342 dual containment 166–76, Technical Agreement 331 125–30 export controls 40, 43, Feeling Good or Doing Good 160–5 with Sanctions (Preeg) extraterritorial legislation 412 350–9, 360–96, 372–84 Feinberg, Richard 178 non-intervention pledges financial assets 58 99, 109 frozen 28, 67–70, 83–6, rationales for imposing 105–7, 382–3, see also sanctions 30–2 IEEPA foreign property 56, 86, interest on 103, 119–20 106–7, 131–53 unfreezing of Iranian 93–6, Foreign Relations 100, 109–12, 119–20, Authorization Act (1994) 121–4 186, 401 financial institutions, see Foreign Relations Law banks and banking 368–71 financial services 200–2, Foreign Sovereign 286–7 Immunities Act, see FSIA ban on 193 foreign subsidiaries 290, brokering 261, 281, 286–7 316, 380, 388 sanctions on 302–3 foreign trade zones 222, 244 First World War (1914–18) 37 France 328, 377, 378 fish conservation 368 Freedenberg, Paul 163 Fluke (company) 373–4 Freedom for Russia and food exports 207–8 Emerging Eurasian Forbes, Representative 293 Democracies and Open Ford, President Gerald 42 Markets Support Act Foreign Affairs (periodical) 169 (1992) 176 foreign aid grants 154 Freedom of Information Act Foreign Assets Control 89 Regulations, see FACRs Fruehauf-France SA 383–4 Foreign Assistance Act FSIA (Foreign Sovereign (1961) 33, 155, 171, Immunities Act) (1976) 175–6, 207, 371, 399 148–50

INDEX

Fullbright, Senator William 189 Future Trading Act (1982) 45 G7 group of countries 165, 170, 193–4, 288 Gallagher, Dermot 324 Gannon, John 291–2 Gasiorowski, Mark 11, 12 Gazprom 328, 332 Gejdenson, Representative Sam 48, 49–50, 295, 300 General Declaration (Algiers Accord) 93 general licences 194–5, 219, 280, 281 executory contracts 276, 285 General Motors (GM) 203 Geneva Protocol (1925) 161 genocide 368, 390 Genosource Inc., Houston 378–9 Gephardt, Representative Richard 49 Germany 71, 321, 323, 375, 378 Nazi 34 Gholam Reza Azhari, General 18 Ghotbzadeh, Sadeq 73 gifts, authorized 226, 265 Gilman, Representative Benjamin 293, 295, 299, 310, 329, 331–2 Gingrich, Newt 49, 302 Glavkosmos 334 Glickman, Dan 208 global trade restrictions 305 goods definitions of 158, 175 Iranian-origin 22, 196, 218, 223, 233–4, 257–8, 265, 410 Gorbachev, Mikhail 32 Government Trading Corporation (GTC) 209 Grafit Research Institute 334 grain embargoes 44, 45, 311 Gramm, Senator Phil 293, 295 Greater Tunb, island of 14 Greece 26, 39 Grinzberg, Alexander 43 Gulf Co-operation Council (GCC) 166, 169 Ha’aretz (newspaper) 333 Hague, The (Netherlands) International Court of Justice (ICJ) 69, 73–4, 90, 100, 112

Iran-United States Claims Tribunal 94, 98, 104, 115–18, 135, 160, 193, 198, 227–8, 229 Haig, Alexander 376 Haiti 28 Halabja, Iraq 161 Halifax Summit (1995) 288 Hamas 167, 191 Hamilton, Alexander 131 Hamilton, Congressman Lee 301–2 Hashimoto, Hirosho 324 Heiser, David 178 Helms, Senator Jesse 293, 332, 386 Helms-Burton Act 322–3, 326, 331, 357, 386–8 Hezbollah 167, 191, 405, 406 High Court of Justice, London 383 high-technology products 44, 155–6, 163 hijacking 368, 390 Hillman, Ambassador Jennifer 304–5 Hixson, Kathleen 368–9 Hong Kong 380 Hostage Act (1868) 142–4 hostage compensation 95, 101, 103 Hostage Settlement Agreement (1981), see Algiers Accord hostages, see Iran hostage crisis House of Representatives 48, 49, 50 Armed Services and Foreign Affairs Committee 49, 174 Banking, Finance and Urban Affairs Committee 69 Banking and Currency Committee 311–12 Banking and Financial Services Committee 302–3 Bill HR2619 295 Bill HR3107 299–301, 322 Bill HR3231 46 Bill HR3489 48–9 Foreign Affairs Committee 163 IMPSA 333 International Relations Committee 293–4, 299–300, 302–3, 307 International Relations subcommittee 50

429 Ways and Means Committee 302, 303, 306–7, 309–10, 319 household goods 236 Housing Bank of Iran, see Bank Maskan Hufbauer, Gary C., Schott, Jeffrey J. and Elliott, Kimberly, A. 24, 25, 31, 32 human rights 17, 28, 30, 42, 334–5, 368, 371–2 humanitarian donations 87, 216, 232, 372 Hussein, Saddam 168 Huyser, General Robert 20 IACRs (Iranian Assets Control Regulations) 84–6, 87, 160, 382, 390 IAEA (International Atomic Energy Agency) 372, 407 IEEPA (International Emergency Economic Powers Act) 33, 34, 36, 59–65, 398 BXA under 51 extraterritorial measures of 381–4 limitation of presidential authority and 53–6, 105, 173–4 President Carter use of 43, 67, 133, 138–9 President Clinton use of 192, 316 President Reagan use of 47 ILSA (Iran and Libya Sanctions Act) (1996) 308, 311, 312–13, 398 Congress and 314–18, 331–3, 336–7 definitions applying 346–9 document 336–49 and European Union 320–2, 323–4, 325, 326–8, 330–1, 358–9 extraterritorial measures of 360–96 ignored by Total 328–30 legitimacy of 388 presidential waivers 315, 330–1, 332, 338, 343–5 State Departments interpretation of 318–20 Immigration and Naturalization Service, see INS Immigration and Naturalization Services v Chadha (1983) 56

430 import licences, see licences imports bans on 79–82, 156–7, 187, 197–8, 214 gifts 265 information and information materials 236 Iranian-origin goods 265, 408–9 Iranian Transactions Regulations (ITRs) on 157–60, 258 oil sanctions 290 services 225–6 IMPSA (Iran Missile Proliferation Sanctions Act) 332–3 India 51 Indyk, Martin 166–7, 178 ineligible purchasers 278, 279 information and information materials 216, 219–20, 232, 236, 256, 258, 269 Inhofe, Senator 293 Inouye, Senator 289, 293 Inro Scientific Centre 334 INS (US Immigration and Naturalization Service) 56, 67 Inso, Sistemi per le Infrastructture Sociali SpA 378 Institute for National Strategic Studies 184 Internal Revenue Code 399 International Atomic Energy Agency, see IAEA International Banking Act (1978) 317 International Claims Settlement Act 146 International Court of Justice (ICJ), The Hague 69, 73–4, 90, 100, 112 international diplomacy 25 International Emergency Economic Powers Act, see IEEPA international law and export controls 379–81 extraterritorial 361–3 and legitimacy of the ILSA 388–93 International Monetary Fund (IMF) 188 International Religious Freedom Act (1998) 335, 401

SANCTIONING IRAN

International Security and Development Co-operation Act (ISDCA) (1985) 157, 192, 399 International Space Station 335 investments, see foreign investments Involvement by Invitation (Samii) 5 Iran 53–4, 54, 163 ‘anti-US’ campaign 21 compulsory modernization under Reza Shah 6 Conoco oil contract 182–3 coup in 1953 9–12 development of WMD 406–8 during Second World War 7–8 economic embargo against 77–83, 86–9, 101, 112–13 effects of Shah’s modernization programme on 15–16 election victory of reformists 335, 413 extent of sanctions on 397–402 external financial expertise 5–6 five-prong challenge to US 167 frozen assets 66–79, 83–6, 107, 109–12, 119–20, 121–4 government owned financial institutions 269–74 hostage crisis, see Iran hostage crisis idealized image of United States pre-WW2 6–7 imports, 408–9 ITRs definintion of 196, 217–18 opposition to Arab-Israeli peace process 405–6 religious freedom in 334–5 Revolution in 1, 17–20 sanctions eased during 1998–9 207–9 sanctions effect on economy 408–11 and support for international terrorism 402–5 US dual containment policy and 166–70, 331 US’s sixth-largest trading partner 163

‘White Revolution’ 12–13 Iran Air 373–4, 413 Iran and Libya Sanctions Act, see ILSA Iran and the United States (Cottam) 4 Iran Brief (Timmerman) 184 Iran-Contra affair 98, 155 Iran Foreign Oil Sanction Act (1995) 289–96 Iran Foreign Sanctions Act proposal 186–90 Iran hostage crisis (1979–80) 3, 21–2, 23 Algiers Declaration 86, 91–101, 108–30, 135 ‘Eagle Claw’ failed rescue mission 90 economic embargo during 77–83, 86–9, 101, 112–13 four-point plan for hostage release 91 hostages leave Iran 93 Iranian assets frozen 66–79, 83–6, 119 United States’ allies and 71–2, 82–3 Iran-Iraq Non-proliferation Act (1992) 164, 171–6, 187, 398 Iran-Iraq War (1980–8) 96, 154–5, 161, 168, 406 Iran Missile Proliferation Sanctions Act, see IMPSA Iran Nonproliferation Act (2000) 335 Iran Oil Sanctions Act (1996) 299–301 final version of 307–8 House of Representatives version 297–9 reaction to 301–7 Iran Overseas Investment Bank Limited 273–4 Iran-Turkey gas pipeline deal 325–6 Iran-United States Claims Tribunal, The Hague 94, 98, 104, 115–18, 135, 160, 193, 198, 227–8, 229 Iranian Assets Control Regulations, see IACRs Iranian Government missions 229 Iranian-origin goods 222, 223, 233–4, 265, 410 ITRs definition of 196, 218, 257–8

INDEX

Iranian Railways 203–5 Iranian Revolution (1979) 1, 17–20 Iranian Transactions Regulations, see ITRs Iraq 28, 48, 154–5, 161, 168 Iran-Iraq Arms Non-proliferation Act 171–6 support for terrorism in Iran 403 US dual containment policy and 166–70, 331 Islam 166 Islamic Jihad 191 Islamic Republic (newspaper) 92 Islamic Republican Party 91 Israel 50, 166, 167, 169, 288, 292, 311, 315 and IMPSA 333 and International Atomic Energy Agency 372 lobbying US 177 and Middle East peace process 405–6 self-defence against terrorist attacks 403–4 Italimpianti 71 Italy 26, 71, 378 ITRs (Iranian Transactions Regulations) amendments (March 1999) 251–74 amendments (July 1999) 208–9, 275–83 amendments (October 1999) 284–7 definitions 196–7, 217–21 and Executive Order 12613 157–60, 194 and Executive Orders 12957/12959 195–203, 210–45 Ivory Coast 288, 292 Jackson, Justice 131–2, 138 Jackson, Senator Henry 42 Jackson-Vanik Amendment 42 Japan 26, 27, 40, 72, 304, 315, 320, 324, 377 Jay, John 131 Jefferson, President Thomas 26 Jennings, Peter 182 Jersey 378 Jewish-Americans lobbyists 177–91, 306–7, 313 Jewish Institute for National Security Affairs, see JINSA

Jews 42, 177–8, 334 JGC (Japanese company) 298 Jibril, Ahmad 191 JINSA (Jewish Institute for National Security Affairs) 188 John Brown Engineering Gas Turbine 378 John Brown Engineering Ltd 374, 377, 378 John Brown (International) Ltd 378 Johnson, President Lyndon B. 35 journalists 82, 89, see also news organization offices jurisdiction, see extraterritorial jurisdiction Kampuchea 372 Kantor, Mickey 178 Kazakhstan 193 KDPI (Kurdish Democratic Party of Iran) 402, 403 Kempthorne, Senator 293 Kenan, George 169, 170 Kennedy, President John F. 12, 13 Kennedy, Senator Edward 296, 309–10 Khalq, Fedaiyan-e 21 Khalq, Mujahedian-e 21 Khamenei 183, 407 Khan, David 313 Kharrazi, Kamal 406 Khatami, President Mohammad 330, 404–5, 406, 408, 411 Khomeini, Ayatollah Ruhollah 10, 12, 20, 21, 91, 406, 407 King, Representative Peter 182, 187, 193, 293 Kinkel, Klaus 321, 323 Kirkpatrick, Jeanne 188 Kissinger, Henry 14, 21, 168 Kitchen, Paul 40 Kocks Pipeline Planug GmbH 378 Kohl, Helmut 191 Kohl, Senator 289, 293 Korea, Republic of 315 Korean War (1950–3) 35, 39 Kugelman, Robert 374 Kurdish Democratic Party of Iran, see KDPI Kurds 161, 402, 403 Kuwait 169 Kyle, Senator 293

431 Lake, Anthony 167, 168–9 Lambton, Anne 6 Lang, Ian 321 Lantos, Representative Tom 300 Laos 372 Latin America 385 Le Munyon, Jim 163 Leach, James 302–3 League of Nations 26, 27, 28 Lebanon 98, 169, 405, 406 bombing of US Marine barracks in 154, 397 legal services 236–7 Leida, Phil 178 Lesser Tunb, island of 14 letters of credit 217, 224 Liberia 28 LIBERTAD (Cuban Liberty and Democratic Solidarity Act) (1996) 322–3, 326, 331, 357, 386–7 Libya 28, 43, 70, 96, 161 Iran and Libya Sanctions Act (1996) 296, 299, 301, 302, 304, 305, 306, 308, 336–49 litigation over assetsfreezing policy 383 Libyan Arab Foreign Bank (LAFB) 383 Libyan Sanctions Regulations (LSRs) 312 licences 48, 52, 158–9, 163, 165, 172, 316 Commerce Control List 162 general 194–5, 219, 276, 280, 281, 285 General Licences 1–12 (OFAC) 194–5 Iranian Transactions Regulations on 225–38, 264–9, 276–81, 285–6 ITR definitions 219 technology or software 262–3 Lichtblau, John 289 Lieberman, Senator 293 Likud 177 litigation American President Lines Ltd v China Mutual Trading Co Ltd 380 Bank Melli Iran 383 Consolidated Gold Fields PLC v Minorco 364–5 Dames & Moore v Regan (1981) 54–5, 56, 86, 106–7, 131–53

432 Fruehauf-France v Fruehauf Corporation of the US 384 General Motors v OFAC 204–5 hostage compensation 103–4 Iran-United States Claims Tribunal 94, 98, 104, 115–18 Libyan Arab Foreign Bank 383 Shah’s assets 102 Siberian pipeline controversy 378 United States v CurtissWright Export Corporation 380 United States v Pizzarousso 365 loan defaults 83 loans 220, 223, 238, 260, 291, 297, 302, 316, 342 loans, rescheduling 238 lobbying 177–91, 306–7, 313 Lockerbie disaster 296, 309, 310, 320 Lott, Trent 310, 329, 332 Maariv (Tel Aviv newspaper) 178 McCain, Senator John 180, 190 McConnel, Senator 293 McCurry, Michael 182 McHenry, Donald F. 76 Mack, Senator 293 McKeel, John D. Jr 103 McMahon, C. W. 130 Madison, James 131 Magaziner, Ira 178 Mahdavi, Abdulreza 11 Majlis (Iran’s consultative assembly) 5, 9, 11, 91, 92, 409 Malloy, Michael 24, 56, 315 management services 319 Manchuria 26 mandatory sanctions 171, 173, 290 Mannesman Anlagenbau Aktiengesellschaft 378 Manufacturers Hanover Trust 383 market reform 30 Marpes Ridgeway 71 Marschalk Co. v Iran National Airlines Corporation 105 Marshall, Chief Justice 363–4

SANCTIONING IRAN

Marshall Plan 38, 39 Marxist-Leninist regimes 29 medical supplies 207–8, 277 Megarian decree (432BC) 25 mergers 290 Mexico 366–7, 385, 387 MFN (most favoured nation) status 42, 372 Mikva, Abner 178 Milani, Dr Mohsen 4, 6, 16, 17 military aggression 29, 30, 31, 43 military exchange agreements 173 Miller, William 66 Missile Technology Control Regime (MTCR) 165, 186 MKO (Mojahedin-e Khalq Organization) 402–3 money laundering 155 Morgan, Congressman James 301–2 Moscato, Guglielmo 299 Moscow Aviation Institute 334 Moslem Students 21–2 Moso Company 334 Mossadegh, Muhammed 9–10 MTN (Multilateral Trade Negotiations) 47 multilateral co-operation 165, 180, 193–4, 288, 292, 294, 301, 304–5, 315 multilateral development bank assistance 173 multilateral sanctions regime 337–9 Murphy, Richard 170 Muslim Iranian Students Society 403 Mutual Defence Assistance Control Act (1951) 39, 371 Mutual Security Act (1954) 39–40 Myanmar (Burma) 412 Nabavi, Behzad 91, 95 Nairobi embassy, bombing of 405 Namibia 31 narcotics trade 30, 207, 381 Nasser, President Gamal Abdel 31 National Council of Resistance 403 National Defence Authorization Act, see NDAA

national emergencies 46, 53–4 consultation and reports 62–3 Iran hostage crisis, see Iran hostage crisis presidential powers 33–7, 53–6, 60–5, 107, 173–4 savings provisions 63–5 National Emergency Act, see NEA National Foreign Trade Council (NFTC) 184 National Front 17, 19 national interests 189 National Iranian Oil Company (NIOC) 182 national security controls 49 National Security Council 166, 178 nationality principle of jurisdiction 366, 380, 390 NATO (North Atlantic Treaty Organization) 30, 71 naval blockades 27 NDAA (National Defence Authorization Act) (1993) 164–5, 400 amendment to 401 NEA (National Emergency Act) (1978) 36, 63–4, 67, 192 Needham, Richard 385 Netanyahu, Prime Minister Benjamin 333 Neutrality Act (1935) 37 new investment, definition of 220 New York Clearing House (NYCH) 302 New York Times 9, 13 news organization offices 234–5 Nimitz, USS Nixon, President Richard M. 13–14, 35, 41–2 Nobari, Alireza 92 Non-Proliferation Treaty (NPT) 407 Noriega, Manuel 31 North Atlantic Treaty Organization, see NATO North Korea 181 North Vietnam 70 Norway 34 Nuclear Non-Proliferation Act (1978) 33, 171 nuclear proliferation 30, 31, 51–2, 167, 314, 332, 406–8

INDEX

Nuclear Proliferation Prevention Act 186 Nuclear Suppliers Group (NSG) 165 nuclear testing 51 Nuovo Pignone SpA 374, 378 objective territoriality 365, 389 OFAC (Office of Foreign Assets Control) 84, 87, 101, 105, 134, 157, 193, 194, 195, 319 amendment of ITRs 208–9 and General Motors 203–7 responsibility for general US embargoes 381–2 Office of Export Enforcement (OEE) 373 Office of Foreign Assets Control, see OFAC offshore transactions 202–3, 223, 262 oil industry 267 ‘development’ under ILSA 319 importation into US 410 investment sanctions 299–308, 312, 317–18, 339–40, 360 during Iran hostage crisis 71 Iranian revenues in 1970s 15–16 Iranian Transactions Regulations 157, 160, 215–16 nationalisation of AIOC 9–10 NIOC and Conoco contract 182–3, 289 oil crisis in 1970s 14 oil sanctions 66–7, 289–308 prohibited transactions under EO 12957 202 reports on oil transactions 239 specific licences for importation 229–30 technology 409 US allies dependence on Iran’s 325 US companies buying Iranian oil 179 Omnibus Consolidated and Emergency Supplemental Appropriations Act (1999) 33, 398

Omnibus Diplomatic Security and Antiterrorism Act (1986) 367 Omnibus Trade and Competitiveness Act, see OTCA Operation Ajax 10, 11 Operation Staunch (1983) 154, 168 OTCA (Omnibus Trade and Competitiveness Act) (1988) 47, 160 overflights of Iranian airspace 235 Overseas Private Investment Corporation (OPIC) 155 Owen, Roberts 69 Paeman, Ambassador Hugo 322, 323 Pahlavi, Ashraf 102 Pahlavi, Mohammed Reza, Shah of Iran 1, 2, 7, 11–20, 21, 91 assets of 92, 96, 100, 101, 113–14 fall of 168 Pahlavi, Reza, Shah of Iran 6 Pahlavi, Shams 102 Pahlavi family 102 Pakistan 51, 335, 404 Palestine 169, 177, 367, 405 Pan Am Flight 103 296, 309, 310, 320 Paperwork Reduction Act 245 Parisien, Le (newspaper) 323 passive personality principle of jurisdiction 366–7 passport controls 88 patents 226–7, 266 Patrikis, Ernest T. 130 Paved with Good Intentions (Rubin) 2–3, 5 payment terms 280 payment transfers 280 penalties 63, 240–3, 301, 302, 315, 344 civil 373–4 Pericles 25 persecution 334–5 Persian Constitution (1906) 5, 6, 17 Persian Gulf Arab states 320 personal communications 216 personal effects 236 Petronas 328 phosphate exports 44

433 piracy 367, 390 Placke, James 184 Plyus Scientific Production 334 pocket vetoes 48 Poland 31, 44, 375 political isolation 169–70 Popular Front 191 Postal Service strike 35 Preeg, Ambassador Ernest H. 412 prepenalty notices 242–3 presidency of the United States, 32 EAA 37–57 emergency powers 33–7, 60–5, 107, 173–4 limitation of powers 53–6, 105, 173–4 sanctions role as world policeman 316 TWEA 33–4, 382 waivers 174, 315, 330–1, 332, 338, 343–5 Pressler, Senator 289, 293 Prevention of Genocide Act (1988),161 private sector companies 50, 366 and anti-boycott laws 311–12 and export controls 44, 45 export violations 52 foreign subsidiaries 290, 316, 380, 388 litigation against Iran 105–7 nationality principle 366 procedures customs 244–5 licence 243 procurement bodies, eligible 287 procurement sanctions 172, 187, 290, 342 property 34, 63–4, 84–5, 105 foreign 54–5, 105 Protection of Trading Interests Act 376–7, 385 protective principle of jurisdiction 365–6, 381, 390 Public Law 95-223 36–7 Qadafi, Colonel Muammar 296 Qom, holy city of 17 quotas 24, 58 Rabin, Prime Minister Yitzak 177

434 Rafsanjani, President Ali Akbar Hashemi 182, 405 Rajaei, Mohammad Ali 91 re-exportation control 199–200, 204–6, 214, 224, 259, 260–1, 263–4, 373–4 Reagan, President Ronald, 45, 47, 56, 95–6, 155 Executive Order 12294 86, 98 Executive Order 12613 (1987) 156–7, 248 hostages in Iran 93 Siberian pipeline embargo 311, 327, 375–9 reasonableness principle 391–3 recordkeeping 279 Regan, Donald T., see Dames & Moore v Regan; Regan v Wald Regan v Wald (1984) 55–6 Regency Council 20 Rehnquist, Justice 131–53 Reich, Robert, 178 Reinsch, William A. 52, 185 religious freedom 334–5 reporting requirements 174, 279 reports 239–40, 338 ILSA 344–6 Republican Party 166 Restatement Second 145, 368–70 Restatement Third 368–71, 391–3 Rifkind, Malcolm 321–2 ‘risk factors’ lists 52 Robin, Robert 178 Rockerfeller, David 21 Roosevelt, President Franklin 8, 34, 35 Ros-Lehtinen, Elena 51, 403 Ross, Denis 178 Ross, Stanley 178 Rostow, Gene 188 Roth, Congressman Toby 49, 50, 51 Roth, Senator William 309, 310–11, 320, 332 Rubin, Alice 178 Rubin, Barry 2–3 4, 5, 8, 10 Rubin, James P. 329 Rushdie, Salman 405 Rusk, Dean 12 Russia 5, 6, 320, 324, 334, see also Soviet Union Russian Space Agency 335 Rwanda 28

SANCTIONING IRAN

Sadat, President Anwar 19 St Germain, Fernand 69 salvage services 368 Samii, Kuross 3, 4 sanctions communications measures 57–8 conditions of termination 343 CSIS study of 412–13 cultural 57–8 definition of 23–5 diplomatic and political measures 57 and dual containment policy 166–70, 331 economic 58 exemptions 87 extraterritorial 316–17, 322–3, 325, 334, 360–96 foreign investment 289–96, 312, 317–18, 339–40, 360 history post-1945 27–30 history pre-1945 25–7 multilateral 337–9 oil 289–308 policy shift in US 207–9 rationales for imposition of 30–1 secondary boycott 305–7, 311, 320, 322, 327–8 unilateral 71, 77–89, 179–86, 314–15, 379 United Nations 28, 75–6 waivers 174, 315, 328, 330–1, 332, 338, 343–5 weapons, see arms control sanctions sanctity of contract 47 Sanjabi, Karim 19 Santorum, Senator 293 Sarbanes, Senator Paul 295 Saudi Arabia 166, 169, 328, 335 Saunders, Harold 72 SAVAK (secret police) 15, 17 savings provisions 63–5 Schiff, Ze’ev 333 Schifter, Dan 178 Schultz, George 154, 397 Schulz, Ann Tibitts 7 Scientific Research and Design Institute of Power Technology 334 Scotland 378 Scowcroft, Brent 170 scuba gear 155–6 Second World War (1939–45) assets freeze 70

economic sanctions during 26–7 export of war materials 37–8 Iran during 7–8 secondary boycott 305–6, 307, 311, 320, 322, 327–8, see also Iran and Libya Sanctions Act Secretary of the Treasury 243, 249 Securities Industry Association 302 Security Council, see United Nations, Security Council security law 365 Segal, Ely 178 Seidman, Ricki 178 Senate, United States 39, 48, 49, 50 Armed Services and Foreign Affairs Committee 174 Banking, Housing and Urban Affairs Committee 50, 52–3, 289, 291, 296 Bill S979 46 Foreign Relations Committee 98–101, 189 IMPSA 333 services exportation of 223, 233, 259 importation of 225–6 management 319 re-exportation of 259 Settlement Declaration (Algiers Agreement) 94, 115–18 Shah of Iran, see Pahlavi, Mohammed Reza, Shah of Iran Shamir, Yitzhak 166 Sharif-Emami, Prime Minister Ja’far 18 Shaw, Representative 293 Shcharansky, Anatoly 43 Shelby, Senator 293 Sher, Neal M. 187 Shiite movement 17 Sick, Gary 1, 2, 189 403 Sirri oil fields, Iran 182–3, 289 slave trade 368 Smith, Representative Chris 335 Smith International 377 Snowe, Senator 293 Societa Italiana per Conduitte d’Acqua 71

INDEX

software 262–3, 266 Solidarity movement 375 Soloman, Anthony 71–2 Somalia 28 Somerset, D.H.F. 130 South Africa 28, 31, 46, 186, 366 South Pars gas field 328–9 Southern Rhodesia 28 sovereignty 363–4, 365, 366, 368, 379, 389 Soviet Union 31, 32, 39, 40–1, 372 and Ba’th Party 168 collapse of 49, 51, 166, 384 export restrictions to 38–9 invasion of Afghanistan 44 invasion of Azerbaijan 8 sanctions on products with US technology 374 Siberian pipeline embargo 311, 327, 375–9, 380 US trade agreement with 42 use of sanctions 29 veto of UN sanctions against Iran 76–7 Spain 324 specific licences definition of 219 Executive Order 13059 on 248 Iranian Transactions Regulations on 228, 229–30, 234–5, 236, 238, 244 Iranian Transactions Regulations amendments on 264, 277–8, 280, 281, 286 Sperry Univac computer 43 Starr, Kenneth 51 State Livestock and Logistic Company 209 Steinberg, Dan 178 Stoessel, Walter J. 96, 98–101 strikes 35 students Iranian in US education 67 Moslem Students 21–2 Muslim Iranian Students Society 403 subjective territoriality 364 Suez Crisis (1956) 29 Sullivan, Ambassador William 18, 19 Supplementary Agreements (Algiers Accord) 94–5 Supreme Court, Hong Kong 380

Supreme Court, United States Clinton’s Jewish nominees for 178–9 Dames & Moore v Regan 54–5, 56, 105–7, 131–53 Regan v Wald 55–6 on territorial principle 364 United States v CurtissWright Export Corporation 380 Survival 170 Switzerland 72 Syria 161, 163

435

TWA Flight 800 initially linked to 310 and US concessions on ILSA 331–2 Thomas, Senator 293 Timmerman, Kenneth 184–5 Tocqueville, Alexis de 131 Tonkin Gulf Resolution (1964) 41 Torkan, Akbar 407–8 Torricelli, Robert 403 Total (oil company) 183, 188, 289, 298, 299, Tabriz, rioting in (1978) 17 328–30, 331, 332 Tajikistan 404 Towei, Director General H. takeovers 290 407 tariffs 24, 58 Townshend Act 25 Tarnoff, Peter 184, 291–2, trade balances 40 293–4 trade contracts 230–1, 267–8 TASS news agency 43 trade deficit 47 Technical Agreement (Algiers trade embargoes 26, 86–9, Accord) 95, 125–30 101, 179–80, 192–207, technical data 38 305 technical exchange agreeTrade Expansion Act 66 ments 173 trademarks 226–7, 266 technical sanctions 58 Trading with the Enemy Act technology 262–3 see TWEA definition of 175, 220, 373 transhipments 222, 259 export control of 226–7, travel 374, 376 accompanied baggage 159, illegal transfer of 52 226, 236, 257 re-exportation of 204–6 restrictions 56, 82, 88–9, Tehran conference (1943) 8 217, 256–7 telecommunication exports treason prosecutions 381 48–9 Treaty of Amity (1955) 73 territorial principle of juris‘Triangle of Fortune’ 16 diction 363–5, 379–80, Tribunal of Commerce of 389 Corbeil Essonnes 384 terrorism Truman, President Harry 35 Comprehensive Iran Tudeh (Iranian communist Sanctions Act 180, 181 party) 10 Congress’s findings on Turkey 29, 31, 166, 169, 336–7 325–6, 335 against Iran 402–6 Turkmenistan 193 Iran’s support for 191, 402–6 TWA Flight 800 310 Lebanon military barracks TWEA (Trading with the bombing 154, 397 Enemy Act) 33–7, 55, Lockerbie disaster 296, 382 309, 310, 320 and passive personality UNCITRAL (United Nations principle 367 Commission on as rationale for sanctions International Trade Law) 30, 31 94, 116 sanctions to prevent ‘Undertakings’ (supplefunding of 293–4, 296, mentary agreement) 94, 297, 298, 303, 306, 313, 119–20 314 unilateral sanctions 71, state sponsors of 52, 154, 77–89, 179–86, 314–15, 167, 168, 289 379

436 UNITA (National Union for Total Independence of Angola) 28 United Kingdom, see Britain United Nations (UN) Article 39 of UN Charter 27 Article 41 of UN Charter 27–8 Commission on International Trade Law, see UNCITRAL General Assembly 385, 393–4 and Iran hostage crisis 72–83 Security Council 27–8, 72–7, 343 Security Council Resolution 425 406 Security Council Resolution 457 72 Security Council Resolution 461 75, 77 Security Council Resolution 883 300 United Nations Drug Control Programme (UNDCP) 207 United States antagonism to Iran and Libya 320 boycott of English goods 25 ‘cliency’ relationship with Shah 11–13 Congress, see Congress of the United States Court of Appeals 67 Department of Commerce, see Department of Commerce Department of Defence 14, 49 Department of Energy 67 Department of Justice 243 dual containment policy, 166–76, 331 embassy hostage crisis, see Iran hostage crisis export controls on citizens 375, 376

SANCTIONING IRAN

foreign policy contradictions 321 global containment strategy 8–9 historical relationship with Persia 3 House of Representatives, see House of Representatives leading user of economic sanctions 29–30 munitions list 173 Nixon Doctrine in Iran 14 non-intervention in Iran pledge 99, 109 policy on Cuba 385–6 rationales for imposing sanctions 31–2 reaction to Iranian revolution 1 role in overthrow of Mossadegh 10–11 Senate, see Senate, United States Shah’s admission to 21 State Department 96, 318–20, 404 Supreme Court see Supreme Court Treasury Department 69, 70, 82, 84, 319 use of extraterritorial legislation 350–9, 360–96, 372–84 United States v Pizzarousso 365 universal principle of jurisdiction 367–8, 390–1 Uruguay 47 Uzbekistan 288 Vance, Cyrus 19, 71, 82 vest foreign property 54–5, 105 Vienna Convention of Consular Relations (1963) 73 Vienna Convention of Diplomatic Relations (1961) 73 Vietnam 372, 412

Vietnam War (1964–75) 21, 35, 41 violations, export 52, 242, 339, 374 visas 225, 265, 290, 365 ‘exclusion of certain aliens’ 387 waivers general 328 presidential 174, 315, 330–1, 332, 338, 343–5 Wall Street Journal 307 war crimes 30, 368 Washington Institute for Near East Policy 166, 170 Wassenaar Arrangement (1996) 51, 52 Watanabe, Eiji 298 Watergate 35 weapons of mass destruction, see WMD Weinberg, Barbi 166 Welch, C. Richard 295 Welch, David 304, 305–6 White House 178, 308 ‘White Revolution’ 12–13 Wilner, Professor 386 WMD (weapons of mass destruction) 167, 169, 306, 406–8 Woolsey, Jim 188 workers rights 30 Workers Welfare Bank of Iran 274 World Bank 170, 188, 410 World Jewish Congress 189, 313 WTO (World Trade Organization) 317, 324, 327–8, 331, 387 Wyatt, Bill 186 Yemen 31 Yugoslavia 26, 28 Zahedi, General Ardeshir 10, 19 Zarif, Javad 404 Zoroastrians 334