Among the many complexities of the Joint Comprehensive Plan of Action (JCPOA) agreement between Iran and the “E3/EU+3” is the question of what U.S. sanctions will remain in place following implementation of sanctions relief under the JCPOA, scheduled to occur on or around “Implementation Day,” which is expected in spring or summer 2016. At that time, the United States and European Union will cease to apply many “nuclear-related” sanctions directed at Iran, including most U.S “secondary sanctions” applicable to non-U.S. persons. This leaves the question of just what sanctions are considered “non-nuclear” and therefore will remain in effect beyond “Implementation Day”.
This post will explore one type of “non-nuclear” sanction that will continue in force and could have significant implications for non-U.S. companies seeking to enter the Iranian market: U.S. sanctions against Iran’s Islamic Revolutionary Guard Corps (IRGC).
The IRGC is subject to two types of sanctions that will remain in place after Implementation Day:
- Listing as a Specially Designated National (SDN). The IRGC is an SDN, meaning that U.S. persons are prohibited from engaging any transactions or dealings with the organization, and further that non-U.S. persons are restricted from providing “significant” support to the organization under the Iran Freedom and Counter-Proliferation Act, which authorizes secondary sanctions against persons that provide significant support to SDNs.
- Iran Threat Reduction and Syria Human Rights Act (ITRA) sanctions. The ITRA authorizes secondary sanctions against non-U.S. persons who materially assist or support, or engage in significant transactions with, the IRGC or designated IRGC officials, agents, or affiliates.
According to the Iranian constitution, the IRGC stands as the guardian of velayat-e faqih, Iran’s system of Islamic governance. In comparison with the regular Iranian army, which serves to protect Iran’s borders, the IRGC’s official function is to uphold the principles of the 1979 revolution and preserve the Islamic nature of Iran’s government. Reports indicate that the IRGC has approximately 125,000 active military personnel, with another 90,000 personnel in the Basij, the paramilitary group under the IRGC’s command. The U.S. Government has implicated IRGC elements in acts of terrorism and brutal suppression of dissidents in the aftermath of the 2009 “green” uprising in Iran.
So why might the U.S. Government’s continued application of secondary sanctions vis-à-vis the IRGC be of consequence to non-U.S. persons seeking to enter the Iranian market after Implementation Day? Because based on reports, the IRGC controls major sectors of the Iranian economy.
Dr. Emanuele Ottolenghi, a Senior Fellow with the Foundation for Defense of Democracies (a neoconservative-affiliated think tank that is inclined to point out the JCPOA’s weaknesses), recently testified before a subcommittee of the House Committee on Foreign Affairs regarding the reach of the IRGC in the Iranian economy. Dr. Ottolenghi testified that the IRGC owns significant ownership shares in 27 companies that are publicly traded on the Tehran Stock Exchange (TSE) and comprise more than 20% of the value of the TSE. (Note that he did not testify that the IRGC’s shares are valued at 20% of the TSE total, but that it owns significant shares in companies that, put together, add up to 20% of the total.) In support of his position, he cited a paywalled Times article that indicates (before the paywall) that the IRGC “has placed top commanders at the heart of more than 200 Iranian companies.” Dr. Ottolengthi testified that the IRGC is active in the Iranian oil, gas, petrochemical, automotive, transportation, telecommunications, construction, and metals and mining sectors. He identified several companies in which the IRGC owns a significant stake, including Kermanshah Petrochemical Industries Co., Pardis Petrochemical Co., Parsian Oil & Gas Development Co., and Shiraz Petrochemical Co.
Perhaps the best-known IRGC-related entity is the National Iranian Oil Company (NIOC). In September 2012, the U.S. Department of Treasury, Office of Foreign Assets Control (OFAC), describing the IRGC as “Iran’s most powerful economic actor,” publicly determined that NIOC is an “agent or affiliate” of the IRGC and therefore is subject to sanctions under ITRA. Notably, the JCPOA requires the United States to remove NIOC from the SDN List, which “will include resolution of related designations and determinations.” Presumably, this is a reference to OFAC’s September 2012 determination.
What does all of this mean for non-U.S. companies seeking to do business in Iran? First, companies will need to conduct appropriate due diligence to determine whether their Iranian counterparties are affiliated with the IRGC. Second, it will be important for companies to follow legislative and policy developments that could impact this issue. The next post will explore that subject.