Update on Pending Iran Sanctions Legislation, Jun 14th, 2010

Jun 14th, 2010

Update on Pending Iran Sanctions Legislation

Update on Pending Iran Sanctions Legislation

The United Nations approved a new Iran sanctions resolution last week , by a 12-2 vote, but rather than satisfying Congress, members are already sending the unmistakable signal that they will follow up with their own (and likely much tougher) Iran sanctions legislation.

Following the June 9 vote in the UN, House Speaker Nancy Pelosi (D-CA) welcomed the UN action but said Congress will “soon move forward on Iran sanctions legislation targeted at Iran’s petroleum industry.” Majority Leader Steny Hoyer (D-MD) said he remains “committed to sending to the President our own, even stronger package of sanctions during the week of June 21, when we pass the Iran Refined Petroleum Sanctions Act conference report.”

Some went further, such as Rep. Ileana Ros-Lehtinen (R-FL), who called the UN resolution a “do-nothing” action that will not prevent Iran from continuing to pursue its nuclear weapons program. Ros-Lehtinen’s sentiment – that the UN resolution is not strong enough – is largely what appears to be driving efforts in Congress.

House and Senate conferees already met on April 28 to begin the process of reconciling the House-passed bill, H.R. 2194, and the Senate-passed bill, S. 2799, and staff is still in the process of trying to shape a final bill. Both bills include language that would require the President to impose sanctions under the Iran Sanctions Act (ISA) against non-U.S. companies that invest in Iran’s petroleum industry, provide assistance that helps Iran expand its refined petroleum industry, or sell or facilitate the sales of refined petroleum to Iran. In light of comments from Pelosi and others yesterday, it has to be expected that members will push to keep some form of these petroleum sanctions in the reconciled bill.

After that, it becomes less clear what other elements might be included. The Senate bill is much broader than the House bill, as it prohibits imports of Iranian-origin goods except for informational materials, requires the U.S. government to identify and report on countries that may pose a risk of diversion of sensitive goods to Iran, and calls for tighter export license requirements against countries that do not improve their export control regimes. The Senate bill also includes language allowing state and local governments to divest from companies doing business in Iran, similar to language approved by the House last year in separate legislation.

The Obama Administration in some ways has encouraged legislation, since Obama himself said in February that UN sanctions could serve as a platform for individual sanctions by UN members. Nonetheless, U.S. officials have signaled for months that they favor a much less aggressive approach than the approach Congress is taking. One of the Administration’s fears is that U.S. unilateral action might result in sanctions against companies from the very countries that worked with the U.S. on the UN resolution, which would reduce multilateral support for sanctions against Iran.

This is why the Administration favors the Senate bill’s language that largely maintains the current waiver flexibility under the ISA, as opposed the House language, which would make waivers more difficult. The Administration has also asked for language that would allow waivers for companies headquartered in countries that supported the U.S. resolution in the UN. The next few weeks will determine whether the U.S. can persuade Congress to make these changes.

There have also been signs that Congress will include additional ideas in the bill. In March, it became clear that House Republicans are sympathetic to U.S. industry arguments that the sanctions should be scaled back because they threaten U.S. export growth, a factor that could lead to further modifications of the language.

But at the same time, Congress is clearly miffed about the failure of successive administrations to sanction any company under the ISA. In addition, recent press reports that the U.S. government has granted millions of dollars in contracts to foreign companies doing business in Iran have created frustration in Congress about the lack of any penalties against companies that may warrant sanctions under the ISA. For these reasons, a final bill may well include language that puts more pressure on the Administration to identify and investigate possible investments in Iran that are sanctionable, or restrict U.S. government contracts with these companies.

We will continue to watch and keep you informed as Congress develops the bill.

Best Regards,

Lucille J. Laufer

Executive Director

The Oriental Rug Importers Association, Inc.
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