August 17, 2017

Memo: H.R. 3425, State Sanctions Against Iranian Terrorism Act

On July 26, 2017, Rep. Ron DeSantis (R-FL-6) introduced H.R. 3425, “State Sanctions Against Iranian Terrorism Act,” a bill that effectively seeks to provide safe passage for U.S. state and local governments to enact additional divestment laws targeting investment in Iran.  By seeking to limit the ability of the federal government to preempt state or local laws contrary to U.S. policy at the federal level, this bill would pose a direct challenge to U.S. commitments under the Joint Comprehensive Plan of Action (JCPOA) – the nuclear accord between the United States, other major world powers, and Iran.  Due to its inconsistency with U.S. obligations under the JCPOA, U.S. legislators should refrain from sponsoring or otherwise providing their support for this legislation absent amendments that ensure that the bill will not cause the United States to act contrary to its express commitments under the nuclear deal.

U.S.’s JCPOA Commitments

Under ¶ 25 of the JCPOA’s Main Text, the United States is obligated to take steps ensuring that state or local laws do not interfere with full implementation of the sanctions lifting specified in the JCPOA.  Moreover, the United States is committed “actively encourage officials at the state or local level to take into account the changes in U.S. policy reflected in the lifting of sanctions under [the] JCPOA and to refrain from actions inconsistent with this change in policy.”  This provision was included as part of the JCPOA due to the fact that a wide range of state and local governments in the United States had enacted state divestment and/or selective procurement laws that sought to punish U.S. and foreign companies that engaged in certain transactions with Iran, including, but not limited to, in Iran’s energy sector.  Due to the U.S.’s lifting of sanctions on Iran’s energy sector as a result of the JCPOA, the Obama administration had taken steps to inform state and local governments about the changes in U.S. policy towards Iran and encouraged state and local governments to amend their own laws in accordance with this new policy. 

Section 202 of CISADA

Under Section 202 of the Comprehensive Iran Sanctions Accountability and Divestment Act of 2010 (“CISADA”), state or local governments in the United States are authorized to “adopt and enforce measures…to divest the assets of the State or local government from, or prohibit investment of the assets of the State or local government in, any person that the State or local government determines has an investment of $20 million or more in the energy sector on Iran or is a financial institution that extends $20 million or more in credit to another person if that person will use the credit for investment in Iran’s energy sector.  Furthermore, Section 202 of CISADA states that such “measure of a State or local government…is not preempted by any Federal law of regulation.”  This latter provision restricts the ability of the U.S. federal government to preempt (or nullify) state or local laws that are contrary to U.S. law or policy at the federal level.  This provision has proved especially problematic for purposes of the U.S.’s JCPOA implementation, as the United States has waived the application of sanctions on foreign companies investing in Iran’s energy sector yet state and local governments are able to maintain the application of similar laws. 

H.R. 3425

H.R. 3425 would pose ever more significant challenges to the ability of the United States to act in conformity with its express JCPOA obligations.  Specifically, H.R. 3425 would amend Section 202 of CISADA by authorizing state and local governments to adopt and enforce state divestment laws that target persons determined to have investments of $10 million or more in Iran’s energy or business sectors.  This amendment lowers the dollar amount of investments required to trigger the application of state divestment laws, while also extending the kinds of investments that can be targeted – i.e., encapsulating investments in Iran’s business sector as opposed to only its energy sector.  Moreover, H.R. 3425 encourages state and local governments to enter into “interstate compacts” to ensure a consistent approach to these divestment laws. 

To ensure that the U.S. federal government is unable to effectively preempt these state divestment laws and ensure that state and local governments act consistent with U.S. foreign policy interests, H.R. 3425 amends subsection (f) of Section 202 of CISADA by stating that any such divestment laws are “authorized and not preempted by any Federal law or regulation, or any policy, agreement, or exercise of waiver authority of the executive branch.”  This provision is intended to preempt any effort by the U.S. federal government to claim what is called “federal policy preemption” – i.e., that there has been an effective change in U.S. federal policy since the enactment of Section 202 of CISADA and, as a result, this new federal policy preempts the application of Section 202 of CISADA, thereby nullifying state divestment laws that are contrary to U.S. commitments under the JCPOA.  In doing so, H.R. 3425 would tie the U.S. federal government’s hands and prevent the Executive branch from taking steps to comply with ¶ 26 of the JCPOA’s Main Text, as indicated above.

Furthermore, H.R. 3425 would amend the sunset provision of CISADA so that Congress is granted an opportunity to disapprove any presidential certification made thereunder.  Under Section 401 of CISADA, CISADA sunsets on the date that is 30 days after the President certifies to Congress that (1) the Government of Iran has ceased providing support for acts of international terrorism and no longer satisfies the criteria for designation as a state sponsor of terrorism; and (2) the Government of Iran has ceased the pursuit, acquisition, and development of nuclear, biological, and chemical weapons and ballistic missiles and ballistic missile launch technologies.  H.R. 3425 would add a new subsection stating that Section 202 of CISADA shall not terminate pursuant to any such certification from the President if Congress enacts a joint resolution disapproving such certification.

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