August 8, 2016

Memo: The Iran Sanctions Act of 1996 and its Possible Extension

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With the Iran Sanctions Act of 1996 (ISA) set to expire on December 31, 2016, several bills have been offered that would extend the legislation for a decade or more. Below, we answer key questions on the ISA and how its potential extension or expiration could impact existing sanctions authorities, as well as U.S. obligations under the Joint Comprehensive Plan of Action (JCPOA).

What is the Iran Sanctions Act and why is it significant?

ISA was the first significant extraterritorial U.S. sanction imposed on Iran. Originally passed as the Iran and Libya Sanctions Act of 1996, ISA authorized the U.S. to sanction foreign entities for investing in Iran’s energy sector, with the aim of denying Iran the financial means to pursue weapons of mass destruction (WMD).

ISA has since been expanded through successive legislation – including the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA) and the Iran Threat Reduction and Syria Human Rights Act of 2012 (TRA) – authorizing sanctions on entities involved in the sale of WMD-related technology or advanced conventional weaponry to Iran, the sale of gasoline to Iran, participation in Iran’s gas, oil, petrochemical or uranium mining sectors, and the transportation of Iranian crude oil.

While the ISA’s expiration has put it in the spotlight, it has been far from the most impactful sanction on Iran. Direct financial sanctions on Iran in 2010, combined with robust international enforcement following the implementation of UN Security Council Resolutions, had a far greater economic impact on Iran than the ISA.

What does the JCPOA require with respect to the ISA?

In exchange for decades-long limits on Iran’s nuclear program, the United States and its negotiating partners committed to lift all U.S. nuclear-related sanctions. This includes waiving and eventually repealing most of the sanctions imposed under ISA.

Upon confirmation of Iran’s full implementation of its initial nuclear-related obligations on January 16, known as “Implementation Day,” the Obama administration waived the application of many ISA provisions, including those targeting non-U.S. persons for:

  • Investment and involvement in Iran’s gas, oil and petrochemical industries (4.3.2.);
  • Sales of gasoline to Iran (4.3.4.); and
  • Associated services, such as transportation of Iranian crude oil (4.3.6.).

Section 5(b) of ISA remains in place, which authorizes sanctions on any entities that contribute knowingly to the ability of Iran to acquire or develop WMD or “destabilizing numbers and types of advanced conventional weapons.” However, this section is duplicative of other authorities – such as Executive Order 13882 – and is thus not necessary to maintain or expand sanctions on entities engaged in such activities.

Critically, to lock in Iranian nuclear-related concessions such as the ratification of the IAEA Additional Protocol, the U.S. is obligated to seek legislative action to terminate all U.S. nuclear-related sanctions, including those provisions of the ISA for which the President is currently exercising his waiver powers. This occurs on “Transition Day,” either 8 years from “Adoption Day” on October 18, 2023 or upon the IAEA reaching its “Broader Conclusion” that all nuclear material in Iran is in peaceful activities – whichever is earlier.

For how long is the ISA typically extended?

The ISA was originally set to expire five years after its enactment in 1996, and has been successively extended for five-year periods. This includes the “ILSA Extension Act of 2001” (Public Law 107-24), the “Iran Freedom Support Act” passed in 2006 (Public Law 109-293), and CISADA enacted in July 2010 (Public Law 111-195) which extended the ISA through December 31, 2016.

It is worth noting that many of the current legislative proposals to extend the ISA go well beyond the traditional five-year extension and would likely keep the law on the books beyond Transition Day when the U.S. is obligated to seek its termination.

What happens if the ISA is not renewed?

If the ISA is not renewed, the President would still retain full authority to re-impose ISA sanctions on the basis of existing authorities. Most critically, the President can utilize the powers granted him or her via the International Emergency Economic Powers Act (IEEPA) to re-impose ISA-related sanctions on Iran should Iran be found in material violation of the nuclear accord. As a result, the administration’s ability to snap back sanctions would be unaffected by the potential lapse of the ISA.

Under IEEPA, the President is granted a virtual carte blanche to impose sanctions in order to respond to a “national emergency.” For Iran, the Executive’s invocation of a national emergency under IEEPA has been in place since March 15, 1995. The Obama administration most recently extended this state of emergency for an additional year on March 9, 2016. Thus, under IEEPA, the President has the authority to re-impose all of the sanctions under ISA and beyond, making ISA duplicative of existing authorities.

This is the view of the Obama administration, as well. Stephen Mull, the State Department’s lead for overseeing implementation of the JCPOA, stated before the Senate Banking Committee that “[h]aving the ISA in place or not is not necessary for snapping-back. We have sufficient authority through various executive orders.” Acting Treasury Under Secretary for Terrorism and Financial Intelligence Adam Szubin also testified before the Senate Banking Committee and indicated that he’s “not aware of any discussions within the administration that would lead to our snapback leverage being dissipated – in a year, in two years, at any point.”

Fears that ISA’s lapse would undermine the ability of the U.S. to “snapback” sanctions in the event Iran breaches its commitments are overblown given the authorities bestowed in IEEPA. Regardless of whether the ISA is extended or lapses at the end of the year, the President will retain full authority to re-impose ISA or other sanctions under existing IEEPA authorities.

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