Could The JCPOA be in Violation of a 2012 Iran Sanctions Law Signed by President Obama?

President Obama and Iranian President Rouhani

UN General Assembly, September 2015

Source: New York Post

James Rosen of Fox News published an intriguing investigative report, “EXCLUSIVE: US Officials conclude Iran Deal violates federal law”.   A 2012 Federal Iran sanctions law signed into law by President Obama has provisions closing sanctions loopholes for US licensed foreign subsidiaries during business in Iran that could make compliance with the JCPOA illegal.  The State and Treasury Department officials contend that a 1977 federal law gives the President broad authorities to include possible licensing of foreign subsidiaries of US firms to do business with Iranian entities.  A former Obama National Security official contends that there will still be sanctions regime that would prevent American firms from engaging in commercial activities in Iran.   This latest development might bolster possible Congressional and State litigation, especially in the later case, as the JCPOA doesn’t cover sanction laws passed by more than two dozen states.

This is an interesting development that might still yet be another basis for litigation against the President. It concerns the  conflict  between  2012 Iran Threat Reduction Act  and Syria Human Rights Act   (ITRA) prohibition against lifting of sanctions against foreign subsidiaries of US corporation and Section 5.1.2 of Annex II provides that in exchange for Iranian compliance with the terms of the deal, the U.S. “shall…license non-U.S. entities that are owned or controlled by a U.S. person to engage in activities with Iran that are consistent with this JCPOA.”   Moreover, as this Fox News report points out:

 ITRA stipulated, in Section 218, that when it comes to doing business with Iran, foreign subsidiaries of U.S. parent firms shall in all cases be treated exactly the same as U.S. firms: namely, what is prohibited for U.S. parent firms has to be prohibited for foreign subsidiaries, and what is allowed for foreign subsidiaries has to be allowed for U.S. parent firms.

What’s more, ITRA contains language, in Section 605, requiring that the terms spelled out in Section 218 shall remain in effect until the president of the United States certifies two things to Congress: first, that Iran has been removed from the State Department’s list of nations that sponsor terrorism, and second, that Iran has ceased the pursuit, acquisition, and development of weapons of mass destruction.

 Credit Arkansas junior Senator Tom Cotton for raising the legality of the lifting of the foreign subsidiary loop hole restriction vis a vis the provisions of ITRA   during Senate Banking Committee confirmation hearings for Adam Szubin Acting Undersecretary of the Treasury for Finance and Terrorism.   The Fox News report noted:

Szubin said the foreign subsidiaries licensed to do business with Iran will have to meet “some very difficult conditions,” and he specifically cited ITRA, saying the 2012 law “contains the licensing authority that Treasury would anticipate using…to allow for certain categories of activity for those foreign subsidiaries.

Elsewhere, in documents obtained by Fox News, Szubin has maintained that a different passage of ITRA, Section 601, contains explicit reference to an earlier law – the International Emergency Economic Powers Act, or IEEPA, on the books since 1977 – and states that the president “may exercise all authorities” embedded in IEEPA, which includes licensing authority for the president.”

State Department spokesperson John Kirby at today’s Daily Press invoked the authority of the Administration to license foreign subsidiaries under IEEPA saying:

Under the International Emergency Economic Powers Act, the president has broad authorities, which have been delegated to the secretary of the Treasury, to license activities under our various sanctions regimes, and the Iran sanctions program is no different.

Politico cited former Obama National Security official Chris Backemeyer who served from 20102 to 2014 saying , “there will be no real sanctions relief of our primary embargo….We are still going to have sanctions on Iran that prevent most Americans from…engaging in most commercial activities.”

Sen. Ted Cruz suggested otherwise to the Szubin and Kirby statements:

Any U.S. company that follows through on this, that allows their foreign-owned subsidiaries to do business with Iran, will very likely face substantial civil liability, litigation and potentially even criminal prosecution. The obligation to follow federal law doesn’t go away simply because we have a lawless president who refuses to acknowledge or follow federal law.

 Will the Senate Banking Committee launch hearings on this development and pass a resolution sponsoring litigation that minority Democrats might block again? There are states who have adopted comparable language in state Iran sanctions authorized by a 2010 federal comprehensive sanctions law.

In our NER article on the question of states having the authority to bring possible federal litigation over sanctions relief, we noted this comment from an August 2015 Steptoe International Compliance blog post on the JCPOA and State Sanctions:

The Iran nuclear deal (JCPOA) does not say much about Iran sanctions imposed by US state governments. … These state restrictions can be more extensive in scope than US federal sanctions. For example, some state restrictions (e.g. in Florida) attach automatically to the parent entity of the company who engages in certain Iran activities. Laws in many states provide for the lifting of Iran sanctions when the President removes Iran from the list of countries that support terrorism; but the JCPOA does not do that, and, as a result, Iran sanction laws in most states will remain intact.

 The JCPOA compliance conflicts with the federal ITRA law coupled with no coverage of state sanctions laws by the Iran Nuclear deal question the legality of the President’s actions.  This latest development might bolster possible litigation by 14 States who’s Governors signed a letter in September 2015 opposing the Iran nuclear pact. Stay tuned for developments.

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