What Does the President’s Decision on Iran Mean for US Sanctions? Not Much, Yet

On October 13, 2017, President Donald J. Trump announced that he would not certify to Congress that Iran is implementing its commitments under the Joint Comprehensive Plan of Action (JCPOA), the agreement reached between Iran and the members of the “P5+1” (China, France, Russia, the United Kingdom, United States, plus Germany) on Iran’s nuclear program in July 2015. The president was explicit that “we cannot and will not make this certification,” and he called on Congress to pass legislation to impose new conditions on US implementation of the JCPOA. The president’s announcement will have broad consequences for the United States’ role in the world, relationships with members of the P5+1, and the long-term sustainability of the JCPOA. However, his decision, when examined in light of US law and practical challenges, is unlikely to have any immediate impact on US implementation of the JCPOA, including the re-imposition of US sanctions on Iran.
 

Immediate Impact of the President’s Decision

The president’s announcement appears more as the fulfillment of a political commitment than a concrete legal step to scuttle the nuclear deal. Both as a candidate and as president, Trump has ferociously criticized the JCPOA as a bad deal and has advocated the “doubling or tripling” of sanctions on Iran as the path to a better outcome.[1] By failing to make the certification to Congress, however, Trump has not re-imposed sanctions on Iran. Rather, he has taken an entirely different step.

"The president’s announcement appears more as the fulfillment of a political commitment than a concrete legal step to scuttle the nuclear deal."

The president is required to make the certification to Congress every ninety days pursuant to the Iran Nuclear Agreement Review Act of 2015 (INARA), [2] and the president made this certification twice previously since his inauguration in January.[3] Congress passed INARA in May 2015, as then President Obama’s negotiating team was closing in on a final agreement with Iran and the P5+1 in Vienna. In order to hold Obama and his successors accountable for the continued viability of the deal, Congress required that the president certify every ninety days that: (1) Iran is implementing the agreement; (2) Iran has not committed a material breach of the agreement, or has cured any material breach; (3) Iran has not taken any action that could significantly advance its nuclear weapons program; and (4) that suspension of sanctions is appropriate and proportionate to the measures taken by Iran and vital to the national security interests of the United States.[4]

Accordingly, Iran could remain fully compliant with its obligations under the JCPOA and Trump could still decide not to make the certification for any number of other reasons. The president’s statement, therefore, is not by itself a repudiation or unwinding of the JCPOA or the United States’ participation in it.

Indeed, the president has chosen not to exercise his own broad authority to re-impose sanctions on Iran, and he will instead throw the decision to Congress. The failure to make the certification under INARA triggers a sixty-day period for expedited consideration of legislation to reinstate the sanctions relieved pursuant to the JCPOA.[5]  Congress can then choose to vote on legislation to reinstate some or all of the statutory sanctions that were relieved pursuant to the JCPOA, using an expedited process involving limited debate and a simple majority vote in the Senate. Alternatively, Congress could consider legislation requiring a different approach to sanctions and the JCPOA, although that legislation would be subject to normal rules of procedure in the House and Senate.

 
Former Obama Administration officials John Kerry and Dr. Ernest Moniz with Kerry’s EU, P5+1, and Iranian counterparts at the Austria Center in Vienna, Austria, on July 14, 2015, before the formal announcement of the agreement concluding the Iranian nuclear negotiations.
Source: Wikimedia.

Legislation is completely unnecessary, however, to re-impose the sanctions that the Obama administration eased to implement the JCPOA. The Obama administration implemented the sanctions relief in the JCPOA through waivers issued by the secretary of state to ease sanctions required by legislation and through general licenses and statement of licensing policy issued by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC).[6]  With a stroke of the pen, President Trump could reverse all of that relief entirely, or by instructing his secretaries of state and treasury, respectively, to withdraw the waivers and licenses. Instead of reinstating the sanctions, the president has left that decision to Congress.

The president’s decision, therefore, is merely to express his disdain for the deal, but not—or at least not yet—to alter the United States’ implementation or its approach to sanctions.

The Prospect of Reinstating Sanctions

Whether reinstated by the president or Congress, revived US sanctions would be challenging to impose and implement immediately. Some sanctions could be reinstated quite easily, while the effectiveness of others would depend on the response from foreign governments, almost all of which remain committed to the JCPOA.

Congress or the administration could quite easily reinstate the “primary” embargo prohibitions on US persons, foreign subsidiaries of US persons, and the export of US-origin products to Iran. OFAC eased a number of these prohibitions as part of the implementation of the JCPOA in January 2016 by issuing licenses and a statement of licensing policy. One of those licenses, General License H, authorized the foreign subsidiaries of US entities or individuals to generally conduct business involving Iran, subject to a number of conditions.[7] Another authorized the import of Iranian-origin foodstuffs and carpets into the United States.[8] OFAC also announced a favorable policy toward issuing specific licenses for the export or re-export to Iran of commercial passenger aircraft and related parts and services, which has resulted in a number of Boeing and Airbus sales to Iran over the past year and a half.[9]

The rescission of these authorizations by legislation or executive action would effectively halt the covered business with Iran. Once the authorizations are removed, the activity would not just be subject to a threat of potential action by the US government, but prohibited by the Iranian Transactions and Sanctions Regulations (ITSR)[10] and potentially subject to civil and criminal penalties.[11]  Individuals and entities, both inside and outside the United States, are likely to respect these prohibitions because of the potential for immediate and concrete penalties.

The sanctions that had the most significant impact on Iran from 2010 to 2014 and helped get Iran to the negotiating table, however, would be much more difficult to reinstate after a unilateral decision on the JCPOA by the United States. While rescission of General License H would halt a significant amount of business with Iran by foreign subsidiaries of US companies, it would pale in comparison to the amount of business halted by the “secondary” sanctions imposed on Iran prior to the JCPOA, which threatened the imposition of US sanctions against increasingly broader categories of commercial transactions with Iran. As the United States gradually increased those sanctions, both by legislation and Executive Order, foreign companies and governments wound down their investments in Iran’s energy sector, halted financial transactions with designated Iranian banks, and, eventually, reduced their oil purchases from Iran and withheld the Iranian profits in their domestic banks.

 
Former US Secretary of State John Kerry and Energy Secretary Ernest Moniz with Iranian Foreign Minister Javad Zarif and Dr. Ali Akbar Salehi, the vice president of Iran for atomic energy and president of the Atomic Energy Organization of Iran, on March 16, 2015, in Lausanne, Switzerland, before a discussion about the future of Iran's nuclear program.
Source: US Department of State/Flickr.

Those secondary sanctions were effective, not only because of the threat of restrictions on access to the US market for foreign companies doing covered business with Iran, but also because of the acceptance of those threats by foreign governments which gave their companies no cover. Indeed, many of these countries, especially in Europe, followed the US measures with outright prohibitions on the activities themselves.[13] 

In the face of unilateral US action to rescind its JCPOA commitments, the leaders of Europe, Russia, China, and numerous other countries are unlikely to provide the kind of legitimacy that they offered the US secondary sanctions in the build-up toward negotiations with Iran during President Obama’s first term. Foreign companies will gauge the US appetite for barring major international companies from the US market due to their business in Iran, and may accept the risk. The United States will face a difficult choice whether to impose sanctions on such companies, potentially hurting the US economy and US jobs in the process. A high-stakes game of “chicken” could ensue.

The United States faced a similar situation in the mid-1990s when Congress passed the Iran Libya Sanctions Act of 1996 (ILSA)[14] and the Cuban Liberty and Democracy Solidarity Act of 1996, known as Helms-Burton.[15] The statutes threatened sanctions against foreign companies making large investments in Iran’s oil sector and authorized US lawsuits against foreign companies dealing in expropriated property in Cuba, respectively. The European Union (EU) strongly condemned what it saw as an “extraterritorial” application of US sanctions and passed blocking legislation to encourage its companies to ignore the US measures.[16] The United States was faced with an unattractive choice of imposing sanctions on foreign companies or doing nothing. Successive administrations chose the latter option, until the Obama administration imposed sanctions under ILSA—by then known as the Iran Sanctions Act—for the first time in 2010.[17]

"Foreign companies will gauge the US appetite for barring major international companies from the US market due to their business in Iran, and may accept the risk."

Reinstating the secondary sanctions and then ignoring a tough choice could damage the United States’ ability to effectively use sanctions in the future. US secondary sanctions on Iran were effective from 2010–2014 because foreign companies and governments took the threat seriously. If sanctions are merely re-imposed on paper because they are unrealistic to actually implement, Congress and future administrations will have difficulty compelling foreign companies to respond to the threat of US sanctions, which may be perceived as paper tigers.

Congress could avoid the challenges of implementing these secondary sanctions by passing different legislation altogether. One option would be to pass legislation merely threatening the possibility of future sanctions if certain elements of the JCPOA are not achieved.[17] However, the expedited legislative process provided for in INARA would not apply, and it is yet to be seen whether the president and Senate Majority Leader Mitch McConnell could rally support for a yet-to-be determined piece of legislation. Of course, the final option would be for Congress to do nothing, allowing the president to make a strong statement on the JCPOA while maintaining the status quo with respect to sanctions and US implementation of the deal.[18]

Conclusion

The president’s announcement and failure to make the certification to Congress regarding the JCPOA does not have any immediate legal impact on the status of US sanctions for Iran, although the ensuing uncertainty could act as a further disincentive to foreign companies considering major investments in Iran. He has declined to take action himself to reimpose sanctions on Iran, and instead put the burden on Congress to make the decision on sanctions. Given the difficult choices facing Congress with respect to re-imposing sanctions, it is entirely possible Congress could impose limited measures, take a significant amount of time to consider options, or even take no action at all. Despite the president’s strong words, it will likely be some time before we see major changes to the US sanctions regime on Iran.

Nonetheless, the president’s decision does trigger a legislative process with no guaranteed outcomes. The ensuing debate risks the possibility of the reinstatement of sanctions in a way that damages the credibility of US economic sanctions, the sustainability of the JCPOA, and the successful denuclearization of Iran. Congress and the administration should consider these potential consequences before taking any action.


David Mortlock is a nonresident senior fellow at the Atlantic Council Global Energy Center as well as a partner and chair of the Government Relations group at Willkie Farr & Gallagher LLP. Previously, he was Director for International Economic Affairs at the White House National Security Council.

 

This piece is written and published in accordance with the Atlantic Council Policy on Intellectual Independence. The author is solely responsible for its analysis and recommendations. The Atlantic Council and its donors do not determine, nor do they necessarily endorse or advocate for, any of this report’s conclusions. 

Read about the Atlantic Council’s intellectual independence policy here.

© 2017 The Atlantic Council of the United States. All rights reserved.

 

[1] Elliot Smilowitz, “Trump: Iran deal was so bad it’s suspicious,” Hill, January 2, 2016, http://thehill.com/blogs/ballot-box/gop-primaries/264598-trump-iran-deal-was-so-bad-its-suspicious; Robin Pomeroy, “Iran says new U.S. sanctions violate nuclear deal, vows ‘proportional reaction’,” Reuters, August 2, 2017, https://www.reuters.com/article/us-iran-nuclear-usa-sanctions/iran-says-new-u-s-sanctions-violate-nuclear-deal-vows-proportional-reaction-idUSKBN1AI2N0.

[2] Iran Nuclear Agreement Review Act of 2015, Pub. L. No.114-17, 129 Stat. 201 (2015).

[3] Peter Baker, “Trump Recertifies Iran Nuclear Deal, but Only Reluctantly,” New York Times, July 17, 2017, https://www.nytimes.com/2017/07/17/us/politics/trump-iran-nuclear-deal-recertify.html.

[4] Iran Nuclear Agreement Review Act of 2015, 114 Pub. L. 17 § 135 (d)(6) (2015).

[5] Iran Nuclear Agreement Review Act of 2015, 114 Pub. L. 17 § 135(e)(1) (2015).

[6] US Department of the Treasury, “Guidance Relating to the Lifting of Certain U.S. Sanctions Pursuant to the Joint Comprehensive Plan of Action on Implementation Day,” January 16, 2016, https://www.treasury.gov/resource-center/sanctions/Programs/Documents/implement_guide_jcpoa.pdf.

[7] 31 C.F.R. § 560 (2016).

[8] 31 C.F.R. § 560 App. A, at 3330 (2016).

[9] 31 C.F.R. § 560 (2016); Rick Gladstone, “New Iran Deals for Airbus Jets Increase Pressure on Trump,” New York Times, June 22, 2017, https://www.nytimes.com/2017/06/22/world/middleeast/airbus-boeing-trump-iran-jobs.html. OFAC subsequently issued a number of related general licenses to facilitate sale negotiations and temporary sojourn of aircraft in Iran.

[10] 31 C.F.R. § 560 (2016).

[11] 50 U.S.C. § 1705 (1977).

[12] “EU Iran Sanctions: Ministers Adopt Iran Oil Imports Ban,” BBC News, January 23, 2012, http://www.bbc.com/news/world-europe-16674660.

[13] Iran and Libya Sanctions Act of 1996, Pub. L. 104-172, 110 Stat. 1541, 50 U.S.C. § 1701 Appendix (1996).

[14] Iran and Libya Sanctions Act of 1996, Pub. L. 104-114, 110 Stat. 785, 22 U.S.C. §§ 6021-6091 (1996).

[15] European Commission. EU Regrets Extension of US Sanctions Law Against Iran and Libya [Press release], July 31, 2001, Retrieved from http://europa.eu/rapid/press-release_IP-01-1162_en.htm.

[16] Federal Register. 75 197 62916 (2010).

[17] Michael Wilner, “Decertifying the Iran Deal Would Probably be Mostly Symbolic,” FiveThirtyEight, October 9, 2017, https://fivethirtyeight.com/features/decertifying-the-iran-deal-would-probably-be-mostly-symbolic/.

[18] Peter Harrell, “The Best Course of Action for Congress on Iran? Do Nothing,” Hill, October 9, 2017, http://thehill.com/opinion/international/354479-the-best-course-of-action-for-congress-on-iran-do-nothing.