U.S. Sanctions Targeting the IRGC: Existing Measures and the Risk of New Proposals
The Islamic Revolutionary Guard Corps (IRGC) – a central component of Iran’s armed forces – is today one of the most sanctioned entities in the entire world. The IRGC or its special forces unit – the Qods Force – are designated under at least five separate U.S. sanctions programs, including for their role in Iran’s ballistic missile program, its human rights abuses, its involvement in the Syrian civil war, and its support for U.S.-designated terrorist groups. Moreover, current U.S. sanctions impose restrictions on foreign parties, including foreign financial institutions, transacting or otherwise dealing with the IRGC and its designated agents, affiliates, and officials. Together, these sanctions have effectively severed the IRGC from the global financial system, all the while eroding the IRGC’s ability to engage in cross-border commercial transactions.
Despite these broad U.S. sanctions, Congress and the Trump administration are seeking to impose a range of additional sanctions on the IRGC and entities alleged to operate under its ownership or control. The practical consequences for the IRGC of such new sanctions would be negligible, duplicating existing U.S. sanctions. But the damage to the Iran nuclear accord and the danger such measures could pose for the security of U.S. military personnel serving in Iraq would be considerable. Outlined below are current sanctions in place against the IRGC, as well as a brief analysis of the implications of additional IRGC sanctions now under consideration in Congress.
Existing Sanctions Targeting the IRGC
WMD & Ballistic Missile-Related Sanctions
Pursuant to Executive Order 13382, “Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters,” the U.S. Department of State designated the IRGC for its involvement in Iran’s development of ballistic missiles capable of carrying a nuclear warhead. Under EO 13382, any property in the United States or within the possession or control of a U.S. person, wherever located, in which the IRGC holds an interest is blocked and cannot be paid, transferred, withdrawn, or otherwise dealt in, and U.S. persons are broadly prohibited from engaging in transactions or dealings with the IRGC. Furthermore, non-U.S. parties that provide material support to the IRGC, including financial or technical support, would meet the designation criteria laid out in EO 13382 and thus risk being placed on U.S. sanctions lists.
Following passage of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (“CISADA”), secondary sanctions attached to this designation. Specifically, foreign banks risk correspondent or payable-through account sanctions if they facilitate a significant transaction or provide significant financial services to the IRGC. As a result, foreign banks are effectively barred from engaging in most transactions with the IRGC.
Human Rights Sanctions
The IRGC is designated under multiple sanctions authorities for its involvement in Iran’s human rights abuses. Pursuant to Executive Order 13553, “Blocking Property of Certain Persons with Respect to Serious Human Rights Abuses by the Government of Iran and Taking Certain Other Actions,” the IRGC was designated for its responsibility for the serious human rights abuses that occurred in Iran following the June 2009 presidential election. Separately, the IRGC was also designated for its suppression of online information and its role in identifying and arresting protestors involved in the post-election unrest following the June 2009 presidential elections. Both of these designations impose blocking sanctions on the IRGC – i.e., all property and interests in property of the IRGC within the United States or within the possession or control of a U.S. person, wherever located, are blocked – and prohibit U.S. person dealings with the IRGC. Such sanctions entirely duplicate those imposed pursuant to EO 13382.
Following passage of the Iran Freedom and Counter-Proliferation Act of 2013 (“IFCA”), which was incorporated into the National Defense Authorization Act for FY2012, secondary sanctions attached to these designations as well. Specifically, Section 1247(a) of IFCA imposes correspondent or payable-through account secondary sanctions on foreign financial institutions that knowingly facilitate a significant financial transaction on behalf of any Iranian person placed on OFAC’s Specially Designated Nationals and Blocked Persons List (“SDN List”). As a result, foreign banks remain effectively barred from engaging in transactions with the IRGC.
Pursuant to Section 104(c) of CISADA, foreign banks risk the imposition of correspondent and payable-through account sanctions if such banks facilitate a significant transaction or provide significant financial services for the IRGC or any of its agents or affiliates whose property and interests in property are blocked pursuant to the International Emergency Economic Powers Act (“IEEPA”). Moreover, Section 1247(a) of IFCA prohibits foreign banks from knowingly facilitating a significant financial transaction on behalf of the IRGC so long as the IRGC remains on OFAC’s SDN List.
Moreover, Section 302(a) of the Iran Threat Reduction Act (“TRA”) imposes menu-based sanctions on foreign persons, including foreign companies, who materially assist, sponsor, or provide financial, material, or technological support for, or goods or services in support of, the IRGC of any of its officials, agents, or affiliates blocked pursuant to IEEPA, as well as foreign persons who engage in significant transactions with the same. In doing so, Section 302(a) of the TRA effectively severs the IRGC’s commercial relations with the outside world, as non-U.S. persons engaged in transactions with the IRGC or its agents or affiliates blocked pursuant to IEEPA risk the imposition of broad-based U.S. secondary sanctions.
OFAC’s 50 Percent Rule
To ensure that U.S.-designated parties are not allowed to undertake operations through or hide assets in shell (or front) companies, OFAC has adopted a 50 Percent Rule under which “any entity owned in the aggregate, directly or indirectly, 50 percent or more by one or blocked persons is itself considered to be a blocked persons. The property and interests in property of such an entity are blocked regardless of whether the entity itself is [placed on U.S. sanctions lists]…” As a result, U.S. and foreign parties interested in engaging Iran’s market must undertake appropriate due diligence on their Iranian counterparties to ensure that such parties are not owned 50% or more by the IRGC or its designated agents or affiliates, either separately or in aggregate. If non-U.S. parties, for instance, engage in a transaction with an Iranian company in which the IRGC or its designated agents or affiliates have a 50% or greater ownership interest, then those non-U.S. parties could be engaged in sanctionable activities.
Moreover, OFAC has provided notice to U.S. and foreign parties to act with caution in dealing with Iranian entities over which the IRGC or its designated agents or affiliates exercise “control” but have no ownership interest. For example, in its Revised Guidance on the 50 Percent Rule, OFAC states that “U.S. persons are advised to act with caution when considering a transaction with a non-blocked entity in which one or more blocked persons has a significant ownership interest that is less than 50 percent or which one or more blocked persons may control by means other than a majority ownership interest. Such entities may be the subject of future designation or enforcement action by OFAC.” Furthermore, OFAC’s Frequently Asked Questions Relating to the Lifting of Certain U.S. Sanctions Under the JCPOA recommends that foreign parties “exercis[e] caution when engaging in transactions with such entities to ensure that such transactions do not involve Iranian or Iran-related persons on [U.S. sanctions lists].” In other words, OFAC has provided clear warning that such dealings may become sanctionable if the Iranian entity is subject to designation or enforcement action. The practical effect of OFAC’s policy is to dissuade foreign entities from dealing with IRGC-related companies, regardless of whether a specific IRGC-related entity is designated or constructively blocked under OFAC’s 50 Percent Rule.
IRGC-affiliated entities and individuals are also subject to a wide range of other U.S. sanctions authorities. For instance, the IRGC-Qods Force was designated as a Specially Designated Global Terrorist under Executive Order 13324, as well as for its support for the Syrian regime of Bashar al-Assad. These designations blocked the property and interests of property of the Qods Force and subjected the entity to secondary sanctions, as described above.
Current Proposals for Targeting the IRGC
Proponents of additional U.S. sanctions targeting the IRGC have advocated for the Trump administration to designate the IRGC a terrorist group – whether a Foreign Terrorist Organization (FTO) or a Specially Designated Global Terrorist (SDGT) – and to designate hundreds of Iranian companies alleged to be under the ownership or control of the IRGC. Both of these proposals would have few, if any, sanctions consequences for the IRGC, but could undermine continued implementation of the Iran nuclear accord and unnecessarily place at risk U.S. military personnel sharing the battlefield in Iraq with Iran-backed militias.
The Senate has introduced a bill that likely has the effect of designating the IRGC an SDGT pursuant to EO 13224. Such a designation would have no sanctions consequences for the IRGC. Even proponents of the sanctions provision admit as much. It would duplicate existing sanctions by imposing a block on all property and interests in property held by the IRGC and by subjecting the IRGC to secondary sanctions. As a result, U.S. sanctions objectives vis-à-vis the IRGC would not be advanced in any manner whatsoever by designating the IRGC a terror group. However, the U.S. defense establishment has warned that any designation of the IRGC as a terror group could place U.S. military personnel at risk of retaliation from Iran-backed militias in Iraq. Indeed, the Trump administration itself backed off its own proposal to designate the IRGC a terror group after receiving significant pushback from the U.S. defense and intelligence establishments. Designating the IRGC a terror group would thus achieve no U.S. sanctions objectives, but would undermine the security interests of U.S. military personnel overseas.
Pressure is also building for the Trump administration to designate hundreds of Iranian entities alleged to be under the ownership or control of the IRGC. However, such action would have few, if any, sanctions consequences for the IRGC. As discussed above, Iranian entities under the effective ownership of the IRGC or its designated agents or affiliates are already constructively blocked and thus are subject to U.S. primary and secondary sanctions. Moreover, OFAC has cautioned against foreign dealings with Iranian companies under the effective control of the IRGC or its designated agents or affiliates – the practical effect of which has been to dissuade foreign parties from dealing with such entities. Designating hundreds of additional Iranian entities alleged to be under the ownership or control of the IRGC would thus have limited sanctions consequences, while having the effect of deterring foreign trade and investment in the broader Iranian economy. Such a chilling effect could provoke Iran to abandon the nuclear deal and frustrate the objectives of our European allies in cementing stronger commercial ties with Tehran. In such an instance, the United States will be viewed as having taken unilateral steps to undermine the nuclear accord, all without having accomplished its underlying sanctions objectives.