Lawmakers See Lax Enforcement of Iran Sanctions Act

By Jon Fox
Global Security Newswire

WASHINGTON — U.S. senators yesterday suggested tightening restrictions on firms that continue to invest in Iran and eliminating the president’s ability to waive sanctions on those companies (see GSN, March 7).

In a move similar to steps taken to financially isolate North Korea, the Treasury Department has cut off Iran’s largest state-owned bank from any access — direct or indirect — to the U.S. financial system based on its U.S.-alleged role in financing terrorism.

The United States, under an executive order, has also frozen U.S.-based assets of  19 individuals and entities, including another Iranian bank, which the administration says are involved in Iran’s nuclear and missile programs.

Still, in recent weeks pressure has been building in Congress to strengthen restrictions on U.S. and international companies that continue to invest in and deal with Iran, even as the U.N. Security Councils considers punishing Tehran further over its nuclear program (see related GSN story today).

While Iranian officials contend their nuclear research is for peaceful energy-production purposes, the United States and other nations believe it is part of a weapons program (see GSN, Feb. 8).

With representatives of the State, Treasury and Commerce departments testifying before them, members of a Senate banking committee pushed the Bush administration officials on what they see as lax enforcement of the Iran Sanctions Act.

The act allows for the United States to issue a variety of sanctions on entities that do business with Tehran, including preventing companies investing in Iran from raising capital in U.S. financial markets.

“Despite more than $125 billion in reported investments in Iran’s energy sector by foreign investors, not one foreign energy concern has been sanctioned,” said committee Chairman Christopher Dodd (D-Conn.).  “I and other members of the committee are anxious to hear from our witnesses this morning why this has been the practice.”

He later called for an end to the presidential waiver allowed under the law.  “This section of the law ought to go,” he said.  “You’ve got to get a lot tougher than this in my view or we’re going to pay an awful price in the end.”

Dodd, using a poster board chart in the Senate hearing room to illustrate his point, asked Undersecretary of State Nicholas Burns why the act has not been more effective in dissuading significant foreign investments in Iran’s natural gas and oil fields.

Burns said that the act is “useful as a deterrent” and has dissuaded some investment in Iran, “but obviously not all, as your chart shows.”

“There has still been significant activity,” he said. “The problem comes in application.”

Noting that both the Clinton and first Bush administrations used the presidential wavier, Burns said aggressively sanctioning foreign companies could fracture the international alliance that has been brought to bear on Iran.  The act was first passed in 1996 and renewed by Congress last year.

Under President George W. Bush, the administration has not determined that the law has been violated and sanctions therefore triggered.  There have been no sanctions to waive.

“The problem is … we want the pressure of the sanctions to be on Iran itself, and not so much on our allies, because that would disrupt and maybe disassemble our coalitions,” he said.  “Right now we’ve succeeded in getting France and Britain and Germany and Russia and China all on the same music sheet with us.”

Senator Jack Reed (D-R.I.) called for the United States to compile a list of foreign subsidiaries dealing with Iran that are owned by U.S. firms.  “I think that knowledge publicly might go a long way in curtailing the activities of these companies,” he said.

Treasury Undersecretary Stuart Levey said that, while he has no information about how many subsidiaries are involved with Iran, anecdotal evidence leads him to believe companies are pulling out on their own.

“It seems to me that it’s not enough that our current sanction law permits foreign subsidiaries of United States companies to violate the spirit of U.S. law,” Senator Robert Menendez (D-N.J.) said.

Senator Evan Bayh (D-Ind.) questioned why there has only been one finding of a violation of the Iran Sanctions Act over the past decade.  “I find that to be rather incredible,” he said.

In the House of Representatives, both Republicans and Democrats are proposing legislation to make investing in Iran more difficult.  A bill advanced by Representative Tom Lantos (D-Calif.) would end the administration’s ability to grant sanction waivers and would prohibit U.S. nuclear trade agreements with any nation deemed to be aiding Iran’s atomic program.

A bill proposed by Representative Ileana Ros-Lehtinen (R-Fla.) would require U.S. government pension funds to pull investments from any company that has invested more than $20 million in Iran’s energy sector.

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