H.R. 2194 Conference Report

The conference report for H.R. 2194 is expected to be considered on the floor of the House on Thursday, June 24, 2010, under a motion to suspend the rules, requiring a two-thirds vote for passage.  The legislation was introduced by Rep. Howard Berman (D-CA) and Rep. Ileana Ros-Lehtinen (R-FL) on April 30, 2009.

The House passed H.R. 2194 on December 15, 2009, by a vote of 412—12.  The Senate passed the bill with an amendment by unanimous consent on March 11, 2010.  This conference report was filed on June 23, 2010.

The conference report would amend the Iran Sanctions Act to impose new economic penalties aimed at forcing Iran to change its conduct, especially ending its nuclear weapons program. Targets range from business entities involved in refined petroleum sales to Iran or support for Iran’s domestic refining efforts to banking institutions involved with Iran’s Islamic Revolutionary Guards Corps or with Iran’s illicit nuclear program or its support for terrorism.  The conference report would augment the sanctions in the versions of the Act passed by the House and the Senate by supplementing the energy sanctions in those versions with additional banking prohibitions. 

In addition, the conference report would also provide a framework by which states, local governments, and certain other investors can divest their portfolios of foreign companies involved in Iran’s energy sector and establishes a mechanism to address concerns about diversion of sensitive technologies to Iran through other countries.  Sanctions would terminate once the president certifies to Congress that Iran has ceased its support for acts of international terrorism and no longer satisfies the requirements for designation as a state-sponsor of terrorism under U.S. law, and has ceased its efforts to develop or acquire nuclear, biological, and chemical weapons and ballistic missiles and ballistic-missile launch technology.

Sanctions:  The conference report would strengthen the U.S. sanctions regime by requiring severe limitations on U.S. banking for foreign financial institutions doing business with relevant Iranian banks.  The legislation further strengthens existing legislation by broadening the categories of transactions that trigger sanctions, by increasing the number of sanctions the president can impose on foreign companies whose activities trigger sanctions, and by requiring the president to investigate reports of sanctionable activities to determine whether sanctionable activity has occurred.

The bill primarily focuses on sales to Iran of refined petroleum and assistance to Iran for its own domestic refining capacity.  Companies engaged in either of these activities would be subject to the same sanctions as companies that invest $20 million or more in Iran’s energy sector (the original category of sanctionable activity established under the Iran Sanctions Act).  Imposition of refined petroleum-related sanctions could have a powerful impact on Iran’s economy and, as a result, on its decision-making regarding its nuclear program.

The legislation additionally would impose sanctions on companies that sell Iran goods, services, or know-how that assist it in developing its energy sector.  Companies that engage in such transactions would also be subject to the same sanctions as companies that invest $20 million or more in Iran’s energy sector. 

H.R. 2194 adds three new sanctions to the menu of six sanctions that already exists under the Iran Sanctions Act. The three new sanctions are: (1) a prohibition on access to foreign exchange in the U.S., (2) a prohibition on access to the U.S. banking system, and (3) a prohibition on property transactions in the U.S.  This section of the conference report would require the president to impose at least three of the nine sanctions on a company involved in sanctionable activity, in addition to other mandatory sanctions.  However, provisions at the end of the bill provide broad waiver authority to the President in implementing these sanctions.

The bill also toughens the sanctions regime by requiring the president to investigate any reports of certain sanctionable activity for which there is credible evidence and make a determination to Congress whether such activity has indeed occurred.  The president would then be expected either to impose or waive sanctions. Under current law, the president is authorized to investigate and make a determination but is not required to do so.  In fact, the president has made only one determination under current law, despite at least dozens of credible reports of sanctionable activity. That determination, in 1998, was made for the purpose of waiving sanctions.

H.R. 2194 is designed to impose additional pressure on Iran by mandating a new financial sanction that, if implemented appropriately, would substantially reduce Iran’s access to major segments of the global financial system. The conference report would require the Secretary of the Treasury, unless the Secretary chooses to invoke the waiver in this section, to prohibit or impose strict conditions on U.S. banks’ relationships with foreign financial institutions that engage in financial transactions that facilitate Iranian efforts to develop WMD or promote terrorist activities, facilitate or contribute to a transaction or provides financial services for a financial institution that the Department of the Treasury has designated to be supporting the proliferation of weapons of mass destruction or financing of international terrorism, or involve the Islamic Revolutionary Guard Corps or its affiliates or agents.

Other major measures in this section include:

• Visa, property, and financial sanctions on Iranians the president determines to be complicit in serious human rights abuses against other Iranians on or after June 12, 2009, the date of Iran’s most recent presidential election;
• A ban on U.S. government procurement contracts for any company that exports to Iran technology used to restrict the free flow of information or to disrupt, monitor, or otherwise restrict freedom of speech;
• An authorization for Fiscal Year 2011 appropriations of slightly more than $100 million each to the Secretary of the Treasury for the Office of Terrorism and Financial Intelligence; to the Secretary of the Treasury for the Financial Crimes Enforcement Network; and to the Secretary of Commerce for the Bureau of Industry and Security, for the purposes of reinforcing the U.S. trade embargo, combating diversion of sensitive technology to Iran, and preventing the international financial system from being used to support terrorism or develop WMD.

State and Local Divestment Efforts:  The conference report states the sense of Congress that the U.S. should support the decisions of state and local governments to divest from firms conducting business operations in Iran's energy sector and authorizes divestment decisions made consistent with standards spelled out in the legislation. 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.  The legislation supports state and local efforts to divest from companies conducting business operations in Iran by stating that these efforts are not pre-empted by any federal law or regulation.

Prevention of Diversion of Certain Goods, Services, and Technologies to Iran:  In recent years, studies have asserted that Iran continues to circumvent sanctions and receive sensitive equipment, including some of U.S. origin. This equipment, which facilitates Iran’s nuclear activities, may be shipped illegally to Iran via other countries.  The legislation intends to disrupt international black market proliferation. 

This section would require the Director of National Intelligence to report to the president and Congress as to which governments are believed to allow the re-export, transshipment, transfer, re-transfer, or diversion to Iranians of key goods, services, or technologies that could be used for weapons of mass destruction proliferation or acts of terrorism.  Following receipt of that report, the president may designate a country a Destination of Diversion Concern.  Such a designation would provide for the U.S. to work with the host government of that country to help it strengthen its export control system.  If the president determines that the government of that country is unresponsive or otherwise fails to strengthen its export control system so that substantial re-export, trans-shipment, transfer, re-transfer, or diversion of certain goods, services, or technologies continues, the president must impose severe restrictions on U.S. exports to that country.

Other Provisions:  The Act would terminate once the president certifies to Congress that Iran has ceased its support for acts of international terrorism and no longer satisfies the requirements for designation as a state-sponsor of terrorism under U.S. law and has ceased its efforts to develop or acquire nuclear, biological, and chemical weapons and ballistic missiles and ballistic-missile launch technology.

The Act does provide certain waivers granting the Administration some flexibility in implementing sanctions, which some Republican Members have opposed throughout the course of drafting of this legislation.  The president would be authorized to waive sanctions for a period not longer than 12 months on a case-by-case basis for persons under the jurisdiction of governments that are closely cooperating with the U.S. in multilateral efforts to prevent Iran from acquiring or developing WMD.  The president must further certify that the waiver is vital to the national security interests of the U.S. and provide advance notice to Congress.

Finally, the legislation authorizes such sums as may be necessary for the Departments of State, Treasury, and Commerce to implement the Act.

Iran's nuclear program represents a threat to global stability and Iran is pursuing its nuclear program in defiance of the demands of the international community. Iran poses a significant threat to the U.S. and our allies in the Middle East and elsewhere. A nuclear Iran would intimidate its neighbors, be further emboldened in pursuing terrorism abroad and oppression at home, represent an imminent threat to friends and allies of the U.S., and likely spark a Middle East arms race that would deal a blow to U.S. and international non-proliferation efforts and threaten vital U.S. national security efforts.

Since 2006, the U.N. Security Council has called on Iran to suspend its uranium enrichment program and to come into compliance with its international obligations, including fully cooperating with the International Atomic Energy Agency (IAEA) to no effect. The IAEA now estimates that Iran has produced and stockpiled enough low-enriched uranium for two nuclear explosive devices, if further enriched. For these reasons, additional and tougher sanctions are needed in order to persuade Iran to cease its nuclear program.

Iran's economy, and its ability to fund its nuclear program, is heavily dependent on the revenue derived from energy exports. U.S. individuals and companies have been prohibited from investing in Iran's petroleum sector since 1995. Also in 1995, an executive order banned all new investment in Iran by U.S. individuals and companies, and virtually all trade with Iran.

In 1996, Congress passed the Iran and Libya Sanctions Act, now usually referred to as the Iran Sanctions Act, to encourage foreign persons to withdraw from the Iranian market. The law authorized the president to impose sanctions on any foreign entity that invested $20 million or more in Iran's energy sector. Although the law was enacted more than a decade ago, no Administration has sanctioned a foreign entity for investing $20 million or more in Iran's energy sector, despite several such investments.

To further strengthen sanctions targeting the Iranian regime, Congress passed the Iran Freedom Support Act, a bill signed into law by President Bush in 2006. IFSA codified key sections in Executive Orders and strengthened ISA sanctions, including raising certain waiver thresholds to "vital to the national security interests of the United States."

Most recently, on June 9, 2010, the U.N. Security Council adopted Resolution 1929, further targeting Iran's Revolutionary Guard Corps, authorizing an inspection regime for ships suspected to be carrying contraband to Iran, prohibiting countries from allowing Iran to invest in uranium mining and related nuclear technologies, and banning sales of most heavy arms to Iran. Iran has dismissed all U.N. resolutions.

The Congressional Budget Office (CBO) estimates that the conference report for H.R. 2194 would have no net effect on the deficit. CBO notes that the legislation "would reduce customs duties and impose civil and criminal penalties, but CBO estimates those effects would not be significantly in any year."