October 24, 2017

Memo: H.R. 3329, the Hizballah International Financing Prevention Amendments Act of 2017

On October 25, 2017, the House is set to vote on H.R. 3329, the ‘Hizballah International Financing Prevention Amendments Act of 2017.’ The bill, as drafted, imposes new sanctions that appear to be targeted at Iran’s support for Hizballah, including any Iranian financial institutions and government agencies or instrumentalities that provide material support to Hizballah. As such, the bill could pose potential issues for future U.S. compliance with the Joint Comprehensive Plan of Action (“JCPOA”) — the nuclear accord between the U.S., other major world powers, and Iran.

Lawmakers should clarify that the intent of H.R. 3329 is not to violate the JCPOA and that passage of the legislation is not an invitation for the White House to utilize the authorities to violate or otherwise undermine the JCPOA. Furthermore, lawmakers should utilize debate over the bill as an opportunity to urge the Trump administration to restore U.S. credibility and international unity by recommitting to uphold U.S. obligations under the JCPOA in full.

U.S.’s JCPOA Commitments

Under the JCPOA, the United States is committed to refrain from re-imposing the sanctions lifted under the nuclear accord and specified in Annex II to the JCPOA. This includes, but is not limited to, a commitment to remove certain Iranian individuals and entities from U.S. sanctions lists, effectuating the end of sanctions as applied to such parties. Moreover, the United States is obligated to “prevent interference with the realization of the full benefit by Iran of the sanctions lifting specified [under the JCPOA],” and to “refrain from any action…that would undermine its successful implementation.” Finally, for purposes relevant herein, the United States is required to “refrain from any policy specifically intended to directly and adversely affect the normalization of trade and economic relations with Iran inconsistent with [its] commitments not to undermine the successful implementation of the JCPOA.” Indeed, the United States has the positive obligation under the JCPOA to “agree on steps to ensure Iran’s access in areas of trade, technology, finance and energy.”

Bill Poses a Threat to U.S.’s JCPOA Commitments

H.R. 3329 poses potential threats to U.S. commitments under the JCPOA, particularly the commitments to refrain from re-imposing sanctions lifted under the nuclear accord and to prevent interference with Iran’s realization of the full benefit of the JCPOA’s sanctions lifting. Lawmakers should clarify that the legislation is not intended to violate or enable the administration to utilize the authorities to act inconsistent with U.S. obligations under the JCPOA.

Mandatory Sanctions on Foreign Parties Engaged in Sanctionable Activities

The bill imposes mandatory sanctions on foreign parties that provide material support to groups, organizations, media outlets, and foreign persons that are related to or acting for or on behalf of Hizballah. Section 101 of the bill mandates the President to impose blocking sanctions on any foreign person that is determined to knowingly assist, sponsor, or provide significant financial, material, or technological support to certain Hizballah-related entities and media outlets, as well as to any other parties engaged in fundraising or recruitment activities on behalf of Hizballah. While the bill does provide for the President to exercise waivers if doing so is vital to the U.S. national security interest, the bill nonetheless forces the President to brief Congress before effecting any such waiver as to its justification. As a result, Congress intends to exercise intense scrutiny and oversight on the President’s use of waivers.

Setting the Stage for the Re-Designation of Iranian Banks?

The bill also requires the President to submit a report to Congress as to whether Iranian banks are engaged in sanctionable activities related to Hizballah, including, but not limited to, the provision of support to entities designated for acting for or on behalf of Hizballah (e.g., Bank Saderat). For instance, the bill amends Section 102 of the Hizballah International Financing Prevention Act of 2015 by mandating the President to submit to Congress an annual report identifying each foreign bank that engages in activities sanctionable under that earlier legislation, including, but not limited to, knowingly facilitating a significant transaction for Hizballah or for parties placed on OFAC’s SDN List for acting for or on behalf of Hizballah. The President’s report is limited to those foreign banks that operate in or are organized under the laws of a U.S.-designated state sponsor of terrorism (e.g., Iran). As a result, this specific provision appears intended to set the stage for the President to designate additional Iranian banks under Executive Order 13224, which could effectuate the re-designation of and re-imposition of U.S. sanctions on Iranian banks and seriously impede Iran’s access to the global financial system in violation of U.S. commitments under the JCPOA.

Mandatory Sanctions on Government Agencies or Instrumentalities

Furthermore, the bill mandates the President to impose sanctions on agencies or instrumentalities of a foreign State, if such agencies or instrumentalities are engaged in the provision of significant financial or material support for, or arms or related material to, Hizballah or entities owned or controlled by Hizballah. Moreover, if the foreign State for which an agency or instrumentality has been so sanctioned under this bill is a U.S.-designated state sponsor of terrorism, then the President shall require a license under the Export Administration Regulations (“EAR”), 15 C.F.R. Parts 734-770, to export or re-export to that foreign State (e.g., Iran) any item designated as EAR99, other than food, medicine, medical devices, or similarly licensed items. It is unclear whether this requirement would derail licensed activities such as the Personal Communications General Licenses to facilitate the provision of information and free expression in Iran. Currently, under existing U.S. sanctions regulations, OFAC exercises full and complete control over the export of U.S. items to Iran.

CISADA Amendment

Finally, the bill amends Section 104(c)(2) of the Comprehensive Iran Sanctions Accountability and Divestment Act (CISADA) of 2010 by effectively adding an interpretive note explaining that if a foreign bank facilitates efforts of the Iranian government to provide support for Hizballah or its affiliates, then that foreign financial institution could be the subject of correspondent and payable-through account sanctions, which would effectively terminate its access to the U.S. financial system.

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