On Friday, February 3, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) announced it was designating 25 entities and individuals as Specially Designated Nationals (SDNs) for their involvement in procuring technology and/or materials to support Iran's ballistic missile program, as well as for acting for or on behalf of, or providing support to, Iran's Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF). Identifying information on the individuals and entities is available here.
The impact of these actions on companies is likely to be minimal, as these designations are narrowly targeted at the IRGC and Iran's procurement network. While these designations do not appear to signal a departure (for now) from the Obama Administration's stance on Iran's non-nuclear activities, they do indicate a continued focus on Iran's ballistic missile program and support for terrorism. With the possibility of additional designations in the near future, or the potential expansion of U.S. sanctions against Iran and Iranian entities in response to future provocative actions, companies should ensure that their compliance programs are up to date, and that they have contingency plans in place for any Iran-related business activities.
Basis for Designations
OFAC took these actions pursuant to Executive Orders 13382 and 13224. The former order targets proliferators of weapons of mass destruction and their means of delivery and supporters of such activity. The latter order targets terrorists and those providing support to terrorists or acts of terrorism. As a result, all property and interests in property subject to U.S. jurisdiction of those designated are blocked, and U.S. persons are generally prohibited from any dealings with them. Additionally, secondary sanctions may attach to third-party nationals who engage in business or certain other activities with Iranian SDNs.
In a statement, the Trump Administration said that the Treasury designations came in response to Iran being the world's leading state sponsor of terrorism and supporting violent activities that destabilize the Middle East. It pointed to "belligerent and lawless behavior" taken by Iran since the sanctions relief in the Joint Comprehensive Plan of Action (JCPOA, or the Iran nuclear deal) went into effect on January 16, 2016 (Implementation Day). This behavior includes the "abduction" of 10 U.S. sailors and patrol boats in January 2016, unwarranted harassment of U.S. and Gulf vessels in the Red Sea, and repeated ballistic missile tests.
Most notably, according to Treasury:
- OFAC designated several networks and supporters of Iran's ballistic missile procurement, including a critical Iranian procurement agent and eight individuals and entities in his Iran- and China-based network, an Iranian procurement company and its Gulf-based network, and five individuals and entities that are part of an Iran-based procurement network connected to Mabrooka Trading, which was designated on January 17, 2016.
- OFAC designated a key IRGC-QF-run support network working with Hezbollah, including IRGC-QF official Hasan Dehghan Ebrahimi, his associates Muhammad Abd-al-Amir Farhat and Yahya al-Hajj, and several affiliated companies in Lebanon.
- OFAC designated Ali Sharifi, an individual providing procurement and other services on behalf of the IRGC-QF.
Sending a Signal...
The OFAC designations came within days of a February 1 statement by U.S. National Security Advisor Michael Flynn putting Iran "on notice" for a range of destabilizing activities since Implementation Day. In particular, the Trump Administration emphasized a "provocative" ballistic missile test conducted by Iran in late January 2017, arguing that it violated UN Security Council Resolution 2231. The statement described Iran as being "emboldened" in the wake of the JCPOA, which President Trump has criticized as being "weak and ineffective."
…or Setting a New Course?
The Trump Administration is not—through this action alone—setting a fundamentally different course than the Obama Administration, which also used existing authorities to designate Iranian and foreign individuals and entities for involvement in Iran's ballistic missile program and support for terrorist groups like Hezbollah. In arguing for the merits of the JCPOA, the Obama Administration stressed that the deal was limited to Iran's nuclear program. It emphasized that existing sanctions targeting Iran's ballistic missile program, sponsorship of terrorism, and other problematic activities would continue to be enforced and that such enforcement would not violate the agreement. In this respect, the latest designations may be seen as consistent with—indeed, continuing—a policy tool used by the Obama Administration. The White House conceded in a press briefing that the designations were actually already in the "pipeline" at the beginning of the new administration, which indicates that they were likely prepared by the prior Obama Administration.
It is important at this early juncture not to make hasty judgments about the long-term course that the Trump Administration will adopt. The transition from a presidential campaign to governing—with the attendant implications on real-world policy—is an adjustment for every new administration. It is possible that the Administration's tougher rhetoric on Iran will indeed be matched with confrontational policies. It is also possible that it will not.
Meanwhile, on Capitol Hill, House Republicans and Democrats are interested in crafting bipartisan Iran sanctions legislation. The timetable for moving new statutory sanctions could be as soon as late March 2017, which would coincide with the annual AIPAC Policy Conference. Those discussions are focusing on imposing sanctions for Iranian behavior outside of the nuclear realm so as not to implicate the sanctions relief that was provided to Iran under the JCPOA. As such, the congressional focus is on sanctioning individuals and entities engaged in supporting Iran's ballistic missile program, support for terrorism, and human rights violations. In the Senate, there is also strong interest in imposing more sanctions on Iran, but leaders may be content to see how the Administration decides to proceed. One possibility is the designation of the IRGC as a Foreign Terrorist Organization.
Changes on the Horizon?
Moving forward, the key questions are what policy direction will the Trump Administration take on Iran and what options will it have at its disposal. Most significantly, President Trump will need to make a decision whether to maintain the U.S. commitment to the JCPOA, particularly the sanctions relief. Iran's upcoming presidential election, scheduled for May 19, 2017, could be a major factor in his calculations.
Incumbent President Hassan Rouhani has declared his intent to seek a second term, but already faces several challengers, and more may choose to enter the race. President Rouhani has already faced sharp criticism over the state of the Iranian economy, and the perceived lack of improvement many Iranians have felt since the JCPOA entered into force. Conservative hardline critics of the nuclear deal have charged Rouhani with trading Iran's nuclear program for illusory economic gains, a charge which could gain credibility if the U.S. imposes additional sanctions or rolls back prior sanctions relief. As such, the election will be a referendum, at least in part, on the JCPOA.
We anticipate that the Trump Administration will continue to issue designations in response to problematic Iranian behavior outside of the context of the JCPOA while the Administration settles on a position with regard as to whether to continue to comply with the nuclear deal. We will continue to monitor this space closely and report on the implications for U.S. sanctions and export control laws.