[Senate Report 111-99]
[From the U.S. Government Publishing Office]
Calendar No. 215
111th Congress Report
SENATE
1st Session 111-99
======================================================================
COMPREHENSIVE IRAN SANCTIONS, ACCOUNTABILITY, AND DIVESTMENT ACT OF
2009
_______
November 19, 2009.--Ordered to be printed
_______
Mr. Dodd, from the Committee on Banking, Housing, and Urban Affairs,
submitted the following
R E P O R T
[To accompany S. 2799]
The Committee on Banking, Housing, and Urban Affairs,
having had under consideration an original bill (S. 2799) to
expand the Iran Sanctions Act of 1996, to provide for the
divestment of assets in Iran by State and local governments and
other entities, to identify locations of concern with respect
to transshipment, reexportation, or diversion of certain
sensitive items to Iran, and for other purposes, having
considered the same, reports favorably thereon and recommends
that the bill do pass.
I. INTRODUCTION
On October 29, 2009, the Senate Committee on Banking,
Housing and Urban Affairs considered a Committee Print,
entitled the ``Comprehensive Iran Sanctions, Accountability,
and Divestment Act of 2009,'' a bill to impose sanctions with
respect to Iran; to provide for the divestment of assets in
Iran by State and local governments and others; and to identify
countries engaged in transshipment or diversion of certain
sensitive items to Iran, and for other purposes. The Committee
voted 23 to 0 to report the bill to the Senate. The Committee's
consideration of the bill comes at a time of heightened
international tensions surrounding the government of Iran's
uranium enrichment program, and ongoing negotiations with
Iran's leaders designed to bring about an end to that
government's illicit nuclear activities and bring Iran into
compliance with international non-proliferation rules.
II. PURPOSE
The Comprehensive Iran Sanctions, Accountability, and
Divestment Act of 2009 (hereafter `the Act') imposes a number
of new sanctions on Iran; provides a legal framework by which
States, local governments and certain other investors can
divest Iran-related energy assets from their portfolios, and
establishes a mechanism to address concerns about sensitive
technologies being diverted to Iran through other countries.
Specifically, the Act extends current sanctions and imposes
new sanctions on multinational firms engaged in exportation of
refined petroleum products to Iran, or in bolstering Iran's
domestic refinery capacity; tightens the current export and
import ban on Iran, while providing for certain exceptions;
requires the freezing of assets of certain Iranian persons
involved in providing support for terrorism or weapons
proliferation, including Iran's Revolutionary Guard Corps, and
associated persons; imposes a ban on U.S. Government contracts
for entities found to be subject to sanctions under the Iran
Sanctions Act; expands the definition of persons subject to the
Act; and imposes certain additional reporting requirements to
increase monitoring of investments and transactions in Iran's
energy sector. It also allows State and local governments and
private asset fund managers, if they so choose, to adopt
measures to divest from companies who have invested $20 million
or more in the energy sector in Iran. Such measures may be
adopted to reduce the financial or reputational risk associated
with investments in a country subject to international
sanctions. Finally, the Act establishes a system to strengthen
and improve U.S. efforts to combat the diversion of sensitive
dual use technologies to Iran.
III. BACKGROUND AND NEED FOR LEGISLATION
It is in the national interest of the U.S. for Iran to
suspend its non-compliant uranium enrichment program, end its
sponsorship of international terrorism, and halt weapons
proliferation. The need to complement multilateral initiatives
with legislation designed to address these concerns is also
clear. It arises primarily from Iran's persistent failure to
address the concerns of the International Atomic Energy Agency
(IAEA) with regard to its nuclear program. Such legislation
would enhance current economic sanctions, enable divestment
from Iran, and combat the diversion of sensitive technologies
to Iran. By these means, this legislation is designed to
maximize the economic leverage on Iran's government--from the
US, our allies, and US and international investors--to bring
that government to the negotiating table, to change its
behavior, and to constrain its freedom to act in ways inimical
to the interests of the international community.
The Committee recognizes that economic and financial
sanctions are only one tool of statecraft and, to be effective,
must be undertaken as part of a broader diplomatic effort.
Sanctions are a means of providing leverage within a more
comprehensive, coherent, coordinated diplomatic and political
strategy to prompt Iran to cease and forswear all nuclear-
related activities that are in contravention of its
international agreements and responsibilities, and other
behaviors that undermine regional peace and stability. The
president's current diplomatic initiative to engage Iran's
government, along with US allies, in negotiations regarding its
nuclear programs is part of that effort.
Multilateral initiatives
The government of Iran has been designated by the United
States as a state sponsor of terrorism since 1984 and is a
long-time financial supporter of designated terrorist
organizations such as Hezbollah, Hamas, and Palestinian Islamic
Jihad. The government of Iran has consistently misled the
United Nations and the IAEA about the objectives and scope of
its nuclear activities. For example, IAEA inspections since
2003 have revealed two decades' worth of undeclared nuclear
activities in Iran, including uranium enrichment and plutonium
separation efforts. Despite a series of agreements to suspend
its activities in this area, Iran has persisted in these
activities, and the several measures adopted thus far by the UN
Security Council (UNSC) have proved insufficient to curtail
Iran's enrichment activities.
The UNSC has acted on various resolutions in recent years,
condemning Iran's nuclear activities and urging compliance with
its international obligations. For example, on December 23,
2006, UNSC Resolution 1737 was unanimously approved, banning
supply of nuclear technology and equipment to Iran and freezing
the assets of organizations and individuals involved in Iran's
nuclear program, until Iran suspends enrichment of uranium.
UNSC Resolution 1747 was unanimously approved on March 24,
2007, imposing a ban on arms sales, expanding the freeze on
assets, and setting a deadline for Iranian compliance two
months later.
Absent compliance, further sanctions were adopted in UNSC
Resolution 1803 on March 3, 2008, including a sales ban on dual
use items; authorization of inspections of cargo suspected of
containing WMD-related goods; an expanded Iranian travel ban
list; and a call to ban transactions with Iran's Bank Melli and
Bank Saderat. On August 7, 2008, the EU implemented the
sanctions specified in Resolution 1803, including asserting the
authority to inspect suspect shipments, and called on its
members to refrain from providing new credit guarantees on
exports to Iran. On September 27, 2008, the Security Council
also adopted Resolution 1835, calling on Iran to comply with
previous resolutions.
In addition to UNSC efforts, since 2006 the ``Permanent
Five Plus 1'' (P5+1), comprised of the United States, Russia,
China, France, Britain, and Germany, have proposed a blueprint
for negotiating with Iran including the following proposed
incentives: (1) negotiations on EU-Iran trade agreements and
acceptance of Iran into the World Trade Organization; (2)
easing of U.S. sanctions to permit sales to Iran of commercial
aircraft and aircraft parts; (3) sale to Iran of a light-water
nuclear reactor and guarantees of nuclear fuel (including a
five-year buffer stock of fuel), and possible sales of light-
water research reactors for medicine and agricultural
applications; (4) an ``energy partnership'' between Iran and
the European Union, including help for Iran to modernize its
oil and gas sector and to build export pipelines; (5) support
for a regional security forum for the Persian Gulf, and support
for the objective of a Middle East WMD free zone; (6) the
possibility of eventually allowing Iran to resume uranium
enrichment if it complies with all outstanding IAEA
requirements and proves that its nuclear program is purely for
peaceful purposes. The P5+1's proposed sanctions for
noncompliance include: (1) denial of visas for persons involved
in Iran's nuclear program and other high-ranking Iranian
officials; (2) asset freezes of additional Iranian officials
and institutions; a freeze of Iran's governmental assets
abroad; and a ban on some financial transactions; (3) a ban on
sales of advanced technology, arms, and refined oil products to
Iran; and (4) an end to support for Iran's application to the
WTO.\1\
---------------------------------------------------------------------------
\1\Congressional Research Service. RL32048--Iran: U.S. Concerns and
Policy Responses, October 5, 2009.
---------------------------------------------------------------------------
On June 14, 2008, a ``refreshed'' package of P5+1-proposed
incentives was formally presented to Iran by EU envoy Javier
Solana. At the same time, the European Union has taken steps to
impose its own set of targeted financial sanctions, announcing
a new round of sanctions against critical Iranian financial
institutions found to be supporting the financing of weapons
proliferation and terrorist activities. This package of
incentives and sanctions, including a P5+1 ``freeze for
freeze'' proposal (in which the P5+1 countries would freeze
further sanctions efforts if Iran agreed to freeze its
enrichment activity) remains on the table. These initiatives
are important steps to increase economic pressure against the
Iranian regime to change its proliferation-related behavior.
Revelations of a secret new uranium enrichment facility
being built by Iran near the holy city of Qum--in violation of
international rules, and previously undisclosed to the IAEA--
helped to prompt a breakthrough in diplomatic talks. In
September 2009 the Iranian government agreed to discuss a range
of issues with P5+1 negotiators. Talks took place in October,
including the first bilateral meeting between the United States
and Iran since the 1979 revolution. The administration joined
other P5+1 governments and IAEA officials in insisting on
prompt access for IAEA inspectors to this facility.
In general, Iran reportedly agreed to: (1) allow access to
the Qum facility for IAEA inspectors; (2) allow, in principle,
reprocessing for medical use of a substantial amount of its
uranium stockpile by Russia and France under IAEA supervision,
details of which were to be worked out soon after initial
discussions; and (3) join another meeting with P5+1 negotiators
later in October. As administration officials describe it, such
an agreement would serve as a confidence-building measure among
all parties involved in the talks, and a basis upon which to
build broader-based non-proliferation negotiations. Should
talks fail, intensified multilateral sanctions on Iran would
follow.
At the time of the Committee's reporting, Iran has allowed
IAEA inspectors access to the Qum facility, but failed to
adequately follow-up on the preliminary agreement reached
within the P5+1 forum on low-enriched uranium for the Tehran
Research Reactor. Iran's resistance to finalizing an agreement
has contributed to a greater willingness among some countries
to isolate Iran further. Thus, if the ``diplomatic track''
should fail, within a short period, the administration has
indicated its commitment to pursuing a ``pressure track,''
which contemplates stronger multilateral and unilateral
sanctions on Iran.
Iran's deteriorating record on human rights
The government of Iran continues to engage in systematic,
ongoing, and egregious violations of human rights and religious
freedom, including prolonged detention, torture, and
executions. The government holds political prisoners and has
intensified a crackdown against women's rights groups,
religious minorities, ethnic minority rights activists, and
student activists. Iran's poor record on human rights and
religious freedom was again evident in the government's
crackdown on protestors and dissidents following the contested
June 2009 Presidential elections, when Iranian security forces
brutally quelled any expression of dissent and attacked
demonstrators for exercising freedom of expression. The regime
also has implemented measures to effectively shut down or slow
electronic communications. Websites have been blocked, access
to the Internet limited and Internet use slowed, and cell
phones work only intermittently. Both the human rights and
religious freedom reports from the State Department, along with
the 2009 Annual Report from the U.S. Commission on
International Religious Freedom, conclude that the human rights
situation worsened in 2008. Recognizing this deterioration, the
Committee urges the President to take certain actions under
current law, including prohibiting entry into the United
States, and freezing immediately the funds and other assets
belonging to, Iranian government officials responsible for
particularly severe human rights abuses.
Nuclear intentions, technology diversion or transshipment
In November 2007, a National Intelligence Estimate entitled
``Iran: Nuclear Intentions and Capabilities'' was released.
This report offered a thorough analysis of Iran's capability
and intentions regarding nuclear weapons, taking full account
of its dual use uranium fuel cycle and those of its nuclear
activities that are at least partly civil in nature. The report
concluded with high confidence that Iran had been pursuing a
nuclear weapons program, and halted that program in 2003, but
noted with moderate-high confidence that Iran is keeping open
the option of developing nuclear weapons, and that Iran's
uranium enrichment program may ultimately provide Iran with the
capability to develop a nuclear weapon. The NIE also noted that
the program probably was halted primarily in response to
international pressure, suggesting that Iran may be more
vulnerable to influence on the issue than the intelligence
community had judged previously.
In December 2007, the U.S. Government Accountability Office
submitted a report to Congress assessing the effectiveness of
sanctions on Iran and concluding, among other things, that the
current sanctions regime should be reviewed, and that the
current ban on most trade with Iran may be circumvented by the
transshipment of United States exports through third countries.
Formal surveys conducted by the Commerce Department to assess
the verification of U.S. exports' end use also concluded that
technology may be easily diverted to Iran through third
parties. Such concerns were further affirmed in recent reports
by a reputable American non-governmental organization. Black-
market enterprises established through transshipment networks
continue to supply dual use products to rogue regimes such as
Iran and North Korea, facilitating development of their nuclear
technology.\2\
---------------------------------------------------------------------------
\2\Government Accountability Office, Institute for Science and
International Security, media reports.
---------------------------------------------------------------------------
State and local divestment efforts
In the U.S. in recent years, there has been an increasing
interest by States, local governments, educational
institutions, and private institutions to disassociate
themselves from companies that directly or indirectly support
the Government of Iran's efforts to achieve a nuclear weapons
capability or support international terrorism. Financial
advisors, policy makers and fund managers may find prudential
or reputational reasons to divest from companies that accept
the business risk of operating in countries subject to
international economic sanctions or that have business
relationships with countries, governments, or entities with
which any United States company would be prohibited from
dealing because of economic sanctions imposed by the United
States.
Notwithstanding the wide range of diplomatic and economic
sanctions that have been pursued by the U.S., many States and
localities have begun to enact measures restricting their
agencies' economic transactions with firms that do business
with, or in, Iran. Nineteen States and the District of Columbia
have already enacted some form of divestment legislation or
otherwise adopted divestment measures, and legislation is
pending in additional State legislatures. Other States and
localities have taken administrative action to facilitate
divestment. Also joining this movement are colleges and
universities, large cities, non-profit organizations, and
pension and mutual funds.
Legal and constitutional challenges regarding divestment
Constitutional challenges to State measures which touch
upon international relations typically take one or more of
three forms: (1) that the State measures conflict with and thus
are pre-empted by Federal law under the Supremacy Clause; (2)
that they violate the ``dormant foreign commerce clause;'' and
(3) that they violate the so-called ``dormant foreign affairs
doctrine.''\3\
---------------------------------------------------------------------------
\3\Congressional Research Service. RL33948--State and Local
Economic Sanctions: Constitutional Issues. July 2, 2008.
---------------------------------------------------------------------------
With the reporting of this legislation, the Committee has
concluded that, with respect to each of these challenges,
Congress and the President have the constitutional power to
authorize States to enact divestment measures, and Federal
consent removes any doubt as to the constitutionality of those
measures. Thus, the Act explicitly states the sense of Congress
that the United States should support the decisions of State
and local governments to divest from firms conducting business
operations in Iran's energy sector, and clearly authorizes
divestment decisions made consistent with the standards the
legislation articulates. It also provides a ``safe harbor'' for
changes of investment policies by private asset managers, and
it expresses the sense of Congress that certain divestments, or
avoidance of investment, do not constitute a breach of
fiduciary duties under the Employee Retirement Income Security
Act (ERISA). With regard to pre-emption, the legislation
supports State and local efforts to divest from companies
conducting business operations in certain sectors in Iran by
clearly stating that they are not pre-empted by any Federal law
or regulation.
The Committee recognizes that this legislation attempts to
balance two important interests. The first is the singular
authority of the Federal Government to conduct foreign policy.
The second is the ability of State and local governments and
other entities to invest or divest their funds as they see fit.
The Committee believes it has struck an appropriate balance by
targeting State action in such a way that permits State
divestment measures based on risks to profitability, economic
well-being, and reputations arising from association with
investments in a country subject to international sanctions.
IV. DESCRIPTION OF THE BILL
The Act is meant to strengthen all three major categories
of U.S. sanctions on Iran: the U.S. trade ban against Iran;
restrictions on foreign entities investing over $20 million in
Iran's energy sector; and targeted financial measures against
entities providing financial support for Iran's proliferation
and terrorist activities. The Act would:
Expand the scope of foreign companies
subject to the Iran Sanctions Act (ISA) to include
certain financial institutions, subsidiaries, export
credit agencies and other entities;
Extend ISA sanctions to firms engaged in
activities involving exportation of refined petroleum
products to Iran, or involving the development of oil
refineries in Iran;
Require a semi-annual report on qualifying
investments in and activities engaged in by companies
sanctionable under ISA, including a determination by
the President of whether such investment or activity is
sanctionable;
Mandate a U.S. government procurement ban
against ISA-sanctionable companies, while providing a
national interest waiver;
Codify U.S. export and import bans on Iran,
with allowances for food/medicine export licenses,
export and import of certain informational materials,
goods and services necessary to ensure safe commercial
aviation; and assistance to the IAEA, and for democracy
promotion;
Require the freezing of assets of Iranian
officials (including Iran's Revolutionary Guard Corps,
its ``front organizations'' and affiliates) supporting
terrorism and proliferation;
Extend sanctions liability of U.S. companies
to foreign subsidiaries established to circumvent U.S.
sanctions law and which invest substantially in Iran's
energy sector;
Authorize appropriations for the Terrorism
and Financial Intelligence Office at the Department of
the Treasury;
Authorize States, local governments and
private asset managers to divest from Iran-related
energy businesses; and
Combat transshipment of sensitive technology
to Iran, by aiding countries to improve export controls
and by further restricting U.S. exports to
uncooperative countries.
V. SECTION-BY-SECTION ANALYSIS OF BILL
Section 1.--Short title: This section establishes the short
title of the bill as the ``Comprehensive Iran Sanctions,
Accountability, and Divestment Act of 2009''.
Section 2.--Findings: This section outlines Congressional
findings regarding Iran's illicit nuclear activities and
continuing human rights abuses by Iranian security forces.
Section 3.--Sense of Congress: This section expresses the
Sense of Congress regarding Iran's continuing illicit nuclear
activities and ongoing violations of human rights in Iran.
Title I.--Sanctions
Section 101.--Definitions: This section defines terms used
in this title, including: agricultural commodity, executive
agency, appropriate Congressional Committees, information and
informational materials, investment, Iranian diplomats and
representatives of other government and military or quasi-
governmental institutions of Iran, medical device, and
medicine.
Section 102.--Energy sanctions: ISA recognizes the dominant
role of Iran's oil and gas industry in generating revenue for
the regime's proliferation and international terrorism
activities, and requires the President to impose at least two
out of a menu of sanctions on foreign ``persons'' that make an
``investment'' of more than $20 million annually in Iran's
energy sector. The sanctions (Section 6) include (1) denial of
Export-Import Bank loans, credits, or credit guarantees for
U.S. exports to the sanctioned entity; (2) denial of licenses
for the U.S. export of military or militarily-useful technology
to the entity; (3) denial of U.S. bank loans exceeding $10
million in one year to the entity; (4) if the entity is a
financial institution, a prohibition on its service as a
primary dealer in U.S. government bonds; and/or a prohibition
on its serving as a repository for U.S. government funds (each
counts as one sanction); (5) prohibition on U.S. government
procurement from the entity; and (6) restriction on imports
from the entity, in accordance with the International Emergency
Economic Powers Act (IEEPA, 50 U.S.C. 1701). The President may
temporarily waive the sanctions on a national of a country if
he determines that it is vital to the national security
interest of the U.S. to do so (Section 4(c)), or if he
certifies that a broader waiver is otherwise important to the
U.S. national interest (Section 9(c)).
This section restates the thresholds in ISA, expands key
definitions within that law, and extends ISA sanctions to firms
that provide goods, services, technology, information or
support related to the production of refined petroleum products
in Iran, or that engage in the exportation of refined petroleum
products to Iran, subject to a de minimus threshold of
$200,000, or an aggregate of $1 million in any 12-month period.
Activities with respect to exportation are defined to include
providing insurance underwriting, financing, brokering, ships
or shipping services for these purposes. In addition to the two
or more sanctions (from the existing ``menu'' of ISA sanction
options) to be imposed under current law, this section also
provides for mandatory imposition of three additional sanctions
on sanctioned firms: on foreign exchange transactions, banking
transactions, and property transactions. Like existing ISA
sanctions, these new mandatory sanctions are subject to a
national interest waiver by the President. More detailed waiver
reporting requirements are also provided for in this section,
along with a definition of petroleum products that includes
gasoline, diesel fuel, jet fuel and aviation gasoline. Finally,
this section would clarify that foreign companies subject to
ISA include financial institutions, subsidiaries, and other
entities, and that the relevant investments in Iran's energy
industry involve not only petroleum and oil or liquefied gas,
but also certain means of shipping such products, such as
tankers and pipelines.
Section 103.--Other economic sanctions: This section
codifies critical restrictions on imports from and exports to
Iran, currently authorized by the President in accordance with
IEEPA. Consistent with IEEPA, exceptions to the import ban are
made for informational materials that may be used, for example,
in the conduct of news reporting, or in mapping for air travel
over land. Similarly, exceptions to the export ban include
food, medicine, humanitarian assistance, informational
materials, goods used to ensure safety of flight for U.S.-made
aircraft, aid necessary to support IAEA efforts in Iran, and
democracy promotion initiatives. Consistent with his authority
under Executive Order 13059, the President is authorized to,
and shall, as necessary, issue such regulations, orders, and
licenses to implement these provisions. In addition, this
section requires asset freezes for persons, including officials
of Iranian agencies specified in ISA and certain of their
affiliates that have engaged in activities such as terrorism or
weapons proliferation under IEEPA sanction. To limit sanctioned
persons' ability to evade U.S. scrutiny and penalty, this
section further stipulates that the assets freeze should extend
to those assets which sanctioned persons transfer to family
members or associates. The Committee recognizes that agencies
involved in implementing these measures will require time to
prepare appropriate evidentiary materials before executing
corresponding sanctions, which this section requires to be
imposed as soon as possible. This section would also prohibit
U.S. or foreign firms from entering into procurement contracts
with the federal government if the entity meets the criteria
for sanctions under ISA. Finally, the provisions of this
section may be waived if such a waiver is deemed by the
President to be in the national interest.
Section 104.--Liability of parent companies for sanctions
violations by foreign subsidiaries: This section strengthens
U.S. law by holding parent companies liable for activities
conducted by foreign subsidiaries that were established for the
purpose of circumventing U.S. sanctions statutes and who engage
in activities which, if committed in the U.S. or by a U.S.
person, would violate U.S. sanctions law. The President may
waive the provisions of this section on national interest
grounds.
Section 105.--Prohibition of procurement contracts with
persons that export sensitive technology to Iran: This section
would prohibit the head of any U.S. executive agency from
entering into procurement contracts with an entity that the
President determines has exported to Iran sensitive
communications technology to be used for monitoring, jamming,
or other disruption of communications by the people of Iran.
Section 106.--Increased capacity for efforts to combat
unlawful or terrorist financing: This section authorizes
funding of $64.6 million for the Office of Terrorism and
Financial Intelligence of the Department of the Treasury, and
of $104.2 million for the Financial Crimes Enforcement Network.
Section 107.--Reporting requirement to increase monitoring
of investment in Iran: ISA requires the President to impose
sanctions on a U.S. or foreign natural person if the President
determines that the person invested $20,000,000 or more in
Iran's petroleum or natural gas sectors, but the President has
for years failed to do so even though foreign companies have
invested more than the specified amount.\4\ The measure
requires the President, within 180 days of enactment of the
bill and every 180 days thereafter, to report to the
appropriate Congressional Committees on eligible foreign
investments made in Iran's energy sector since January 1, 2009,
or eligible transactions related to bolstering Iran's refinery
capacity or to exportation of refined petroleum products to
Iran, the dates of such investments or activity, the name of
the person engaged in such activity, any federal contracts to
which they are parties, and the determination of the President
on whether such investments or activities qualify as
sanctionable offenses. To address any national security
concerns about the impact of publicizing certain parts of this
report, this section allows for a classified annex.
---------------------------------------------------------------------------
\4\Congressional Research Service. RS20871--The Iran Sanctions Act
(ISA). November 6, 2009.
---------------------------------------------------------------------------
Section 108.--Sense of Congress on Iran's Central Bank:
This section urges the President to consider immediately using
his authority to impose sanctions on Iran's Central Bank and
any other Iranian bank engaged in proliferation activities or
support for terrorist groups.
Section 109.--Sense of Congress on Iran's Revolutionary
Guard Corps (IRGC): Expresses the Sense of Congress that the
U.S. should continue to target with sanctions Iran's
Revolutionary Guard Corps, its supporters and affiliates, and
any foreign governments determined to be providing material
support for the IRGC.
Section 110.--Sense of Congress on Iran and Hezbollah:
Expresses the Sense of Congress that the U.S. should continue
to: (1) work to counter support for Hezbollah from Iran and
other foreign governments; (2) target with sanctions Hezbollah,
its affiliates and supporters; (3) urge other nations to do the
same; and (4) take steps to renew international efforts to
disarm Hezbollah.
Section 111.--Sense of Congress on multilateral sanctions:
Expresses the Sense of Congress that, in general, multilateral
sanctions are more effective than unilateral sanctions against
countries like Iran, and that the President should continue to
work with our allies to impose multilateral sanctions if
diplomatic efforts to end Iran's illicit nuclear activities
fail.
Title II.--Divestment
Section 201.--Definitions: This section defines terms used
in this title including: energy sector, financial institution,
Iran, person, State, and State or local government.
Section 202.--Authority of state and local governments to
divest from certain companies that invest in Iran: This section
authorizes States and localities to divest from companies
involved in investments of $20 million or more in Iran's energy
sector and sets standards for them to do so. While not
mandating divestment, this section authorizes State and local
governments, if they so choose, to divest public assets from
certain companies doing business in Iran. In its formulation of
this section, the Committee recognized that divestment actions
are being taken by investors for prudential and economic
reasons, as expressed in subsection (a), including to address
investor concerns about reputational and financial risks
associated with investment in Iran and to sever indirect
business ties to a government that is subject to international
sanctions.
The Committee requires that a State or local government
provide notice to the Department of Justice when it enacts an
Iran-related divestment law. Companies are to be informed in
writing by the State or local government before divestment.
Companies then have at least 90 days to comment on that
decision.
Section 203.--Safe harbor for changes in investment
policies by asset managers: This section adds to measures
authored by the Committee and enacted last year authorizing
divestment from certain Sudan-related assets (Public Law 110-
174), allowing private asset managers, if they so choose, to
divest from the securities of companies investing $20 million
or more in Iran's energy sector, and provides a ``safe harbor''
for divestment decisions made in accordance with the Act. A
major concern inhibiting divestment has been the possibility of
a breach of fiduciary responsibility by asset managers who
decide to divest. The Committee thus finds that fund managers
may have financial or reputational reasons to divest from
companies that accept the business risk of operating in
countries subject to international economic sanctions. Fund
managers will still be required to observe all other normal
fiduciary responsibilities. The Securities and Exchange
Commission is required to promulgate rules as necessary that
require fund managers to disclose their divestment decisions
made pursuant to Section 203 of this legislation in regular
periodic reports filed with the Commission.
Section 204.--Sense of Congress regarding certain ERISA
Plan investments: This section expresses the sense of Congress
affirming pension managers' rights to divest from companies
investing $20 million or more in Iran's energy sector in
accordance with an interpretative bulletin issued by the
Department of Labor in 1994, and printed in the Code of Federal
Regulations in section 2509.94-1 of title 29. Under the
regulations, making such ``economically targeted investment''
(ETI) decisions is allowed under sections 403 and 404 of the
Employee Retirement Income Security Act of 1974 (ERISA), as
long as the fiduciary making such a decision has diversified
his portfolio adequately and has made the decisions in the
interest of the plan's participants and beneficiaries.
Title III.--Prevention of transshipment, reexportation or diversion of
sensitive technologies
Section 301.--Definitions: This section defines terms used
in this title including: end user, entity owned or controlled
by the Government of Iran, Export Administration Regulations,
government, Iran, state sponsor of terrorism, as well as
transshipment, reexportation, or diversion.
Section 302.--Transshipment, reexportation or diversion to
Iran: This section responds to concerns that companies and
black market proliferation networks are circumventing the U.S.
trade ban on Iran by shipping major weapons components through
one or more foreign countries or by deceiving foreign customs
agencies with false information regarding the items' country of
origin. This section requires the Director of National
Intelligence to identify countries where sensitive U.S.
technology is being illegally transshipped to Iran via other
countries, and to report annually to the Secretaries of
Commerce, State and the Treasury, as well as to Congress.
Section 303.--Destinations of possible diversion concern
and of diversion concern: This section establishes incentives
for countries to improve their export control regimes. First,
it requires the Administration to initiate government-to-
government contact with countries of ``possible diversion
concern.'' Such contact would include technical assistance to
develop or strengthen export control systems, facilitate export
control enforcement, improve information sharing, support
legitimate trade in high-technology goods, and prevent
terrorists and state sponsors of terrorism from obtaining
nuclear, biological, and chemical weapons, defense technology,
and components of improvised explosive devices.
If countries fail to cooperate with such initiatives, then,
under subsection (b), the Administration would be required to
designate a country as a ``Destination of Diversion Concern,''
consistent with the Department of Commerce's proposed rule,
which was published as 15 CFR Part 740 [Docket No. 0612242560-
7024-01], but never implemented. Such a measure would stop
transshipment flows that, according to the Department of
Commerce, are augmenting the capabilities of terrorists and
state sponsors of terrorism, and significantly undermining
international counterproliferation efforts. The Department of
Commerce stated in its proposed rule that in recent years,
diversions have contributed to a number of major cases
involving the violation of U.S. export control laws for dual
use goods. Under this section, exports to a country designated
as a ``Destination of Diversion Concern'' would be subject to
additional licensing requirements; more stringent license
review, which could result in fewer approvals or more
conditions on licenses; delayed authorizations due to increased
end user checks; and finally, a decrease in authorizations due
to diversion risks for such countries. This section provides 45
days for the Secretary of Commerce to assemble a list of
controlled items, which should include items already on an
existing Commerce Control List linked to Iranian terrorist
activities as well as products from the Control List developed
for restricting North Korea's proliferation activities.
Licensing requirements under this section are required within
180 days after the date of the Act's enactment. The President
may waive the imposition of the licensing requirement on
national interest grounds.
Section 304.--Report on expanding diversion concern system
to countries other than Iran: This section requires the
Director of National Intelligence to report to Congress on
whether or not to extend the measures in this title to
countries that allow diversion to other countries seeking
weapons of mass destruction or supporting international
terrorism.
Title IV.--Effective date and sunset
Section 401.--This section sets an effective date for the
Act 120 days after the date of the enactment of this Act. It
also describes the circumstances under which the provisions of
the Act will terminate, including certification by the
President that Iran has ceased to provide support for acts of
international terrorism, and stopped the pursuit, acquisition,
and development of weapons of mass destruction.
VI. HEARINGS
On July 30, 2009, the Committee on Banking, Housing, and
Urban Affairs held a public hearing entitled ``Minimizing
Potential Threats from Iran: Assessing Economic Sanctions and
Other Policy Options.'' Witnesses included: Honorable Joseph
Lieberman, United States Senator, Connecticut; Ambassador R.
Nicholas Burns, Professor of the Practice of Diplomacy and
International Politics, John F. Kennedy School of Government,
Harvard University; Dr. Matthew Levitt, Director, Stein Center
on Counterterrorism and Intelligence, Washington Institute for
Near East Policy; Dr. Suzanne Maloney, Senior Fellow, Saban
Center for Middle East Policy, The Brookings Institution; and
Ms. Danielle Pletka, Vice President, Foreign and Defense Policy
Studies, American Enterprise Institute.
On October 6, 2009, the Committee held another public
hearing entitled, ``Minimizing Potential Threats from Iran:
Administration Perspectives on Economic Sanctions and Other
U.S. Policy Options.'' Witnesses included: Honorable Sam
Brownback, United States Senator, Kansas; and Honorable Robert
P. Casey, United States Senator, Pennsylvania; Honorable James
B. Steinberg, Deputy Secretary of State, U.S. Department of
State; Honorable Stuart A. Levey, Under Secretary for Terrorism
and Financial Intelligence, U.S. Department of the Treasury,
and Mr. Daniel O. Hill, Acting Undersecretary for Industry and
Security, U.S. Department of Commerce.
VII. COMMITTEE CONSIDERATION
The Committee on Banking, Housing, and Urban Affairs met in
open session on October 29, 2009, and by a vote of 23-0 ordered
the bill reported, as amended.
VIII. CONGRESSIONAL BUDGET OFFICE COST ESTIMATE AND REGULATORY IMPACT
STATEMENT
Section 11(b) of the Standing Rules of the Senate, and
Section 403 of the Congressional Budget Impoundment and Control
Act, require that each committee report on a bill contain a
statement estimating the cost and regulatory impact of the
proposed legislation. The Congressional Budget Office has
provided the following cost estimate and regulatory impact
statement.
November 17, 2009.
Hon. Christopher J. Dodd,
Chairman, Committee on Banking, Housing, and Urban Affairs,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for the Comprehensive Iran
Sanctions, Accountability, and Divestment Act of 2009.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is John Chin.
Sincerely,
Douglas W. Elmendorf.
Enclosure.
Comprehensive Iran Sanctions, Accountability, and Divestment Act of
2009
Summary: The bill would authorize appropriations for two
programs in the Department of the Treasury that combat
financial crimes, and for the Bureau of Industry Security (BIS)
in the Department of Commerce, which helps certain countries
improve controls over their exports. The bill also would
require the Department of State to impose new sanctions on
persons that supply refined petroleum products to Iran or
support the production of such products in Iran. In addition,
the bill would expand an existing ban on imports from Iran to
cover all products of Iranian origin and would extend the
application of existing sanctions to foreign subsidiaries of
U.S. parent corporations.
CBO estimates that implementing the bill would cost $550
million over the 2010-2014 period, assuming appropriation of
the necessary amounts. CBO estimates that the bill would have
no significant effects on direct spending and revenues.
The bill contains no intergovernmental mandates as defined
in the Unfunded Mandates Reform Act (UMRA) and would impose no
costs on state, local, or tribal governments.
The bill would impose private-sector mandates, as defined
in UMRA, by prohibiting imports from and exports to Iran and by
expanding sanctions under the Iran Sanctions Act. The cost of
complying with those mandates would depend on the value of lost
profits to importers and exporters under the trade ban, and
whether and how some measures would be applied under the bill.
Therefore, CBO cannot determine whether the aggregate cost to
comply with the mandates in the bill would exceed the annual
threshold for private-sector mandates established in UMRA ($139
million in 2009, adjusted annually for inflation).
Estimated cost to the Federal Government: The estimated
budgetary impact of the bill is shown in the following table.
Most of the costs of this legislation falls within budget
functions 150 (international affairs), 370 (commerce and
housing credit), and 800 (general government).
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
--------------------------------------------------
2010 2011 2012 2013 2014 2010-2014
----------------------------------------------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION
Department of Treasury Programs:
Estimated Authorization Level............................ 169 177 180 0 0 526
Estimated Outlays........................................ 128 175 179 44 0 526
Department of Commerce Programs:
Estimated Authorization Level............................ 3 3 3 3 3 15
Estimated Outlays........................................ 2 3 3 3 3 14
Department of State Programs:
Estimated Authorization Level............................ 2 2 1 0 0 5
Estimated Outlays........................................ 2 2 1 0 0 5
Reports:
Estimated Authorization Level............................ 1 1 1 1 1 5
Estimated Outlays........................................ 1 1 1 1 1 5
Total Changes:
Estimated Authorization Level........................ 175 183 185 4 4 551
Estimated Outlays.................................... 133 181 184 48 4 550
----------------------------------------------------------------------------------------------------------------
Basis of estimate: For this estimate, CBO assumes that the
bill will be enacted early in calendar year 2010 and that
spending will follow historical patterns for existing and
similar programs.
Spending subject to appropriation
The bill would authorize appropriations for programs in the
Department of Treasury and the Department of Commerce and would
authorize new sanctions administered by the Department of
State. In total, CBO estimates that implementing those programs
and sanctions would cost $550 million over the 2010-2014
period, assuming appropriation of the necessary amounts.
Department of the Treasury programs. Section 106 would
authorize the appropriation of $169 million for 2010 and such
sums as may be necessary for 2011 and 2012 for the Office of
Financial Terrorism and Financial Intelligence and the
Financial Crimes Enforcement Network. Those offices received a
total of about $165 million in 2009. Based on information from
the Department of the Treasury, CBO expects that $169 million,
adjusted for anticipated inflation, would be sufficient for
fiscal years 2011 and 2012 to continue the efforts of those
offices. On that basis, CBO estimates that implementing section
106 would cost $526 million over the 2010-2014 period.
Department of Commerce programs. Title III would establish
new programs within BIS to improve controls over certain
domestic exports. The bill would require the Secretary of
Commerce, in consultation with the Secretary of State and the
Secretary of the Treasury, to identify a list of countries that
have inadequate export and reexport controls and fail to
control exports that divert U.S. goods to unknown parties.
BIS would be authorized to help those countries strengthen
their systems to control exports. If, after one year, a country
on the list fails to cooperate with efforts to improve its
export control system or is found to be involved in the illegal
diversion of U.S. exports, it would be subject to more
stringent export licensing requirements for certain
technologies.
Based on information from BIS, CBO estimates that about 20
staff members would be needed to track export enforcement
trends, to monitor activities within the countries of concern,
to help such countries improve their export control systems,
and to implement the new licensing requirements. CBO estimates
that implementing those provisions would cost $14 million over
the 2010-2014 period.
Department of State programs. Section 102 would amend the
Iran Sanctions Act of 1996 (which will expire on December 31,
2011) to prohibit any foreign exchange, banking, and property
transaction with a person that the President determines has
supplied refined petroleum products to Iran or supported the
production of such products in Iran. Based on information from
the Department of State, CBO estimates that about 10 additional
staff members would be needed to gather and analyze
information, provide advisory opinions, and administer blocked
property. CBO estimates that implementing this provision would
cost $5 million over the 2010-2012 period.
Reports. Several sections of the bill would require the
Director of National Intelligence and the President to provide
the Congress with a variety of reports about Iran, including
details of investments in and trade with Iran by the United
States and other countries. Based on the costs to prepare
similar reports, CBO estimates that, in total, preparing those
reports would cost about $1 million annually.
Revenues and direct spending
The bill would have an insignificant effect on revenues and
direct spending.
Prohibition on imports. Under current law, nearly all goods
of Iranian origin are prohibited from being imported into the
United States. Exceptions now exist for certain foodstuffs and
carpets. Section 103 would impose a complete ban on all Iranian
goods.
Based on data from the United States International Trade
Commission on recent imports from Iran and CBO's most recent
forecast of total U.S. imports, CBO estimates that the bill
would reduce revenues by less than $500,000 over the 2010-2019
period, net of income and payroll tax offsets.
In recent years, most of the taxable value of imports from
Iran consisted of fruit juice, caviar, and certain nuts and
dried fruits. The remaining imports, which are not subject to
tariffs, consisted largely of other foodstuffs and carpets. In
2008, the value of imports subject to tariffs was about $26
million, yielding roughly $500,000 in customs duties. If the
bill were to be enacted, CBO assumes that most of the newly
banned imports would be replaced with taxable imports from
other countries, reducing the loss of customs duties.
Under the bill, the ban on imports would terminate if the
President certifies that Iran no longer satisfies the
requirements for designation as a state sponsor of terrorism
and has ceased efforts to acquire and develop certain weapons
technologies. For this estimate, CBO assumes that the President
will not make such a certification during the 2010-2019 period.
Civil and criminal penalties. Section 104 would impose
civil and criminal penalties for violations of existing
sanctions on the part of foreign subsidiaries of U.S. parent
companies. Collections of civil penalties are recorded in the
budget as revenues. Collections of criminal penalties also are
recorded in the budget as revenues, deposited in the Crime
Victims Fund, and later spent without further appropriation.
CBO estimates that any additional revenues and direct spending
that would result from those penalties would not be significant
because of the relatively small number of cases likely to be
involved.
Estimated impact on state, local, and tribal governments:
The bill contains no intergovernmental mandates as defined in
UMRA and would impose no costs on state, local, or tribal
governments.
Estimated impact on the private sector: The bill contains
private-sector mandates, as defined in UMRA. Because the cost
of complying with most of the mandates would depend on the
value of lost profits to importers and exporters and whether
and how some measures would be applied under the bill, CBO
cannot determine whether the aggregate cost the mandates in the
bill would exceed the annual threshold for private-sector
mandates established in UMRA ($139 million in 2009, adjusted
annually for inflation).
The bill would impose mandates on some businesses by
banning all imports from and some exports to Iran. The cost to
comply with the mandates would be the forgone net income
attributed to the sale of those items prohibited under the
sanctions. According to the United States International Trade
Commission, in 2008 entities in the United States imported from
Iran $102 million in goods, mostly food items and collectible
works of art, and exported about $40 million in goods, which
would be prohibited. The cost of the ban, measured as the
forgone net income, is uncertain because the value assigned to
those goods as marked for sales or distribution cannot be
determined.
By expanding sanctions under the Iran Sanctions Act, the
bill could impose mandates on entities in the United States
that engage in transactions with businesses or countries
sanctioned under that act. The bill would require the President
to sanction any entity that provides Iran with refined
petroleum resources, or engages in an activity that could
contribute to Iran's ability to import such resources. Entities
sanctioned for those actions would effectively be prohibited
from engaging in business with persons in the United States. In
addition, the bill would require the President to impose
certain sanctions on entities that invest more than a specified
amount of money in businesses involved in Iran's petroleum
industry. Should the President impose sanctions, persons in the
United States involved in transactions with entities sanctioned
under the bill would be required to cease those transactions.
The bill would allow the President the discretion to make
exceptions in applying such sanctions in cases deemed to be
important for the national interests of the United States. The
cost of the mandates, if imposed, would be the forgone net
income from the prohibited transactions and would depend on the
sanctions applied by the President.
The bill also could impose private-sector mandates by
directing the President to freeze the funds and other assets of
certain Iranian persons, and the assets of their family members
and associates to whom they have transferred assets on or after
January 1, 2009. Some of those individuals may reside in the
United States. Because those subject to sanctions have not been
identified, the cost of that mandate is uncertain.
Finally, by imposing new license requirements on exporters
of certain products, conditioned upon whether the country where
exports are sent has been designated as a Destination of
Possible Diversion Concern, the bill could impose a mandate.
Because of uncertainty about what countries would be
designated, if any, and what products would be subject to
additional licensing requirements for export to those
countries, the cost of complying with this mandate cannot be
determined.
Previous CBO estimate: On May 13, 2009, CBO transmitted a
cost estimate for H.R. 1327, the Iran Sanctions Enabling Act of
2009 as ordered reported by the House Committee on Financial
Services on April 28, 2009. H.R. 1327 would authorize state and
local governments to adopt or enforce measures to sell certain
of their investments in Iran's energy sector--or prohibit
buying such investments--without concern they are interfering
with the federal government's conduct of foreign affairs. Title
II of the Comprehensive Iran Sanctions, Accountability, and
Divestment Act of 2009 contains similar language concerning
divestment from certain companies that invest in Iran. CBO
estimates that neither H.R. 1327 nor Title II of the
Comprehensive Iran Sanctions, Accountability, and Divestment
Act of 2009 would have a significant effect on the federal
budget.
Estimate prepared by: Federal Spending: Department of the
Treasury Programs--Matthew Pickford; Department of Commerce
Programs--Susan Willie; Department of State Programs and
Reports--John Chin; Federal Revenues: Zachary Epstein; Impact
on state, local, and tribal governments: Burke Doherty; Impact
on the private sector: Marin Randall.
Estimate approved by: Theresa Gullo, Deputy Assistant
Director for Budget Analysis.