Recent press reports indicate that the Trump administration is considering designating the Islamic Revolutionary Guard Corps (IRGC) as a foreign terrorist organization (FTO) pursuant to Section 219 of the Immigration and Nationality Act. (8 U.S.C. §1189(a)). This apparent deliberation follows recent House (H.R. 380) and Senate (S. 67) introductions of the IRGC Terrorist Designation Act, which directs the Secretary of State to submit to Congress a report on the designation of the IRGC as an FTO. While this listing may seem redundant in light of the secondary sanctions and numerous designations listing the IRGC on the List of Specially Designated Nationals (SDN List) repeatedly pursuant to various authorities, an FTO designation will significantly alter the current sanctions against Iran.
FTO Designation Criteria
The Secretary of State may designate an entity determined to be (A) a foreign organization; (B) that “engages in terrorist activity or terrorism, or retains the capacity and intent to engage in terrorist activity or terrorism”; if (C) “the terrorist activity or terrorism of the organization threatens the security of United States nationals or the national security of the United States.” (8 U.S.C. §1189(a)(1))
In 2007, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) used its counterterrorism authority to designate a branch of the IRGC, known as the Qods Force. As the basis of its designation, OFAC alleged that the IRGC Qods Force provides material support to a number of previously designated terrorist organizations, including the Taliban, Lebanese Hizballah, Hamas, Palestinian Islamic Jihad, and the Popular Front for the Liberation of Palestine-General Command (PFLP-GC). While OFAC has subsequently designated many entities and individuals for their associations with the IRGC Qods Force, the United States government has to date not designated the entire IRGC under a counterterrorism authority. If the Secretary of State designates the IRGC as an FTO, it will likely be based on the alleged activities of the Qods Force.
U.S. financial institutions must block “any funds in which [a] foreign terrorist organization or its agent has an interest.” (31 C.F.R. §597.201) The applicable OFAC regulations define “agent” to include an individual or entity (1) owned by an FTO; (2) controlled by an FTO; or (3) acting or purporting to act directly or indirectly on behalf of an FTO. (31 C.F.R. §597.301)
OFAC generally makes determinations of “control” and “acting for or on behalf of,” which are reflected in its derivative designations. However, U.S. financial institutions are responsible for making these determinations when deciding whether to block the funds in which a potential FTO agent may hold an interest. It will be a significant burden on U.S. banks if they are to be responsible for making determinations on which entities qualify as agents of the IRGC. Under the current sanctions regime, U.S. banks routinely reject payments for which there is no blockable interest but may involve an Iranian party. Following the likely FTO designation of the IRGC, U.S financial institutions will spend considerable resources determining if transactions should be blocked as a result of an interest indirectly held by a party that may be determined to be an agent of the IRGC.
U.S, law prohibits the knowing provision of “material support or resources” to an FTO. (18 U.S.C. §2339B) Material support is both broadly defined as “any property, tangible or intangible, or service,” and specifically includes “currency or monetary instruments or financial securities, and financial services.” (18 U.S.C. §2339B(g)(4))
Section 2339B has separate general and descriptive extraterritorial jurisdiction provisions. Under one of the descriptive provisions, the United States may assert jurisdiction over material support that has no connection to the United States if “after the conduct required for the offense occurs an offender is brought into or found in the United States, even if the conduct required for the offense occurs outside the United States.” (18 U.S.C. §2339B(d)(1)(C))
Non-U.S. companies seeking to re-enter the Iranian market should consider the implications of this broad extraterritorial expansion of U.S. law. Conviction for a violation of Section 2339B may bring a prison sentence of not more than 20 years, or more if the violation results in death, and/or a monetary penalty of not more than $250,000 for individuals and $500,000 for entities. (18 U.S.C. §2339B(a)(1), 3571(b), (c))
We will continue to monitor developments in the U.S. sanctions against Iran and issue updates as significant events occur.