It is rare for me to write anything about the sanctions debate going on in Congress. However, it is unprecedented for me to write back-to-back stories on actions Congress is seeking to take on sanctions.  That said, desperate times call for desperate measures, and anti-Iran Deal members of Congress are getting desperate. This post is dedicated to H.R. 3460 which passed in the House last week.  The bill, introduced by Rep. Peter J. Roskam (R-IL-6), seeks to suspend the President’s ability to provide relief from sanctions as described in certain portions of the Joint Comprehensive Plan of Action (“JCPOA”) until January 21, 2017.

This bill includes the suspension of the President’s ability to remove any foreign person identified in Attachment 3 or Attachment 4 of Annex II of the JCPOA from the List of Specially Designated Nationals and Blocked Persons (“SDN List”) maintained by the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”).  There are no caveats to suggest that the ability is only suspended to the extent the removal from the SDN List is part of an agreement reached between Iran, the U.S., and other nations, over Iran’s disputed nuclear program.  In other words, were this bill to become law, the President, and thus OFAC, would have no ability to remove those parties identified above from the SDN List until January 21, 2017, regardless of circumstances.

This is a bad idea. Suspending the President’s ability to remove parties from the SDN List, whether in relation to the Iran Deal or otherwise, ultimately has the effect of weakening the Government’s bargaining position, provides cause for SDNs to engage in ever evasive tactics to circumvent sanctions, and ultimately strips targeted sanctions of their main intended effect.  What is lost on many who have injected themselves into the sanctions debate in recent years is that sanctions are not intended as a punitive measure, but rather to compel a change in behavior.  Indeed, the use of U.S. economic sanctions is designed to isolate bad actors from the U.S. financial system and convince them that only a credible change in behavior will lead to sanctions lifting. As Acting Undersecretary for Terrorism and Financial Intelligence, Adam Szubin, has stated, “[s]anctions are a means to an end; [their] ultimate goal…is behavioral change.” For example, OFAC has repeatedly stressed that it has removed hundreds of persons and/or entities from the SDN List “upon a showing of behavioral change.” See Adam Szubin, Sanctions 101: Part II – Enforcement and Its Effects, U.S. Dept. of the Treasury (June 2, 2014).  In short, the reason why targeted sanctions are so effective is because the SDN retains a hope that they can be removed. It is this hope that causes them to change their conduct and to act in manners not contrary to U.S. policy. Depriving the Executive of the ability to rescind designations signals to SDNs that there is no need to change behavior, as there is no reward for doing so.

As someone who has represented SDNs in the past, one of the first, and most significant hurdles to overcome in the representation is convincing the SDN that OFAC will truly rescind the designation if the SDN changes their behavior.  For example, in the counter narcotics program there is no clear signal from OFAC or the U.S. government that once certain requirements are met a designation will be removed.  As such, those clients more often seek to challenge the legal basis of the designation straight on. Compare this with SDNs designated under the Burma sanctions program, where the possibility to be delisted, and the conditions for delisting, are far more clear. In the context of Burma SDN reconsiderations, OFAC and the State Department have directly communicated the criteria for delisting to SDNs. This has had a significant effect on Burmese SDNs who have received the message, as many of those seeking reconsideration have been withdrawing from controversial projects involving other SDNs and the Burmese military, adopting corporate social responsibility policies, and openly demonstrating support for the democratic transition in Burma.

The difference in these two examples is that the Burmese SDNs are being informed that delisting is possible, and the U.S. government is clearly identifying what the criteria for delisting is.  If Rep. Roskam gets his way, however, the leverage gained through this type of carrot and stick approach will be lost, and we’ll be left with Iranian SDNs who have no incentive to change their behavior. That’s not how sanctions are supposed to work, and regardless of the fact that this bill likely won’t pass into law, it shows a fundamental misunderstanding amongst some lawmakers on how to properly use sanctions; a dangerous proposition considering Congress’ insistence on playing an ever increasing role in the deployment of sanctions to further U.S. foreign policy.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrariassociatespc.com