Pelletreau Highlights "Substantial Gray Area"
In US Sanctions Against Iran
Middle East Economic Survey
25 December 2000
The following is an edited extract from a speech entitled "A
Guide to US Economic Sanctions on Iran" given by US Ambassador Robert
H Pelletreau to a conference of the Eurasia Group in Houston on 28 November.
Mr Pelletreau was US Assistant Secretary of State for Near Eastern Affairs
from February 1994 to January 1997. He is now a partner in the law firm
Afridi and Angell in Washington, DC.
The Current US Sanctions on Iran The current US sanctions on Iran are
contained in the Iran-Libya Sanctions Act, which is due to expire next
summer, and in Executive Order 13059 of 19 August 1997, a more comprehensive
version of the original 1995 Executive Orders, as modified by amendments
in 1999 to permit the sale of agricultural commodities, medicines and medical
equipment to Iran, and in 2000 to permit the import of Iranian carpets,
caviar and pistachio nuts to the United States.
For US companies, the restrictions contained in the Executive Order
and the Iranian Transactions Regulations is-sued by the Office of Foreign
Assets Control (OFAC) of the US Treasury are the most relevant sources
of US law for transactions which they may be contemplating with respect
to Iran. These restrictions are tough and comprehensive in their coverage
as the applicable language dates from the 1995-1997 period of maximum constraint,
whereas the relaxations which have occurred since have been expressed as
limited exceptions to the original texts which have not themselves been
redrafted. Companies must take care not to interpret these exceptions too
liberally lest they un-intentionally become subject to investigation, civil
fines or even criminal charges for sanctions violations. A substantial
gray area exists on which it is advisable to obtain professional advice,
perhaps including an advisory opinion from OFAC before proceeding.
In general, the intent of the 1995 sanctions was to prohibit or discourage
any dealings between Iran and the United States. The exchange of information
and informational materials was allowed because it is protected by the
First Amendment of the US Constitution regarding free speech. Telephone
and postal contact is also allowed. Likewise, travel by US citizens to
Iran is permitted because it also is a constitutionally protected right,
although in the absence of a US Embassy in the country it is not encouraged.
Credit cards may not be used by American travelers as they involve banking
transactions which are still prohibited. Humanitarian donations to relieve
human suffering are allowed. Americans and Iranians can meet and talk and
even exchange information including business information that is in the
public domain, but US business representatives should take care not to
allow their talking, which is permitted, to slip over into dealing or negotiating
or transacting business, which are prohibited. Entering an agreement, even
an executory agreement which would not come into effect until sanctions
are lifted, is prohibited. Attending conferences in Iran or sponsored by
Iran is permitted as is making informational presentations at such conferences,
but a recent OFAC ruling prevents co-sponsoring such conferences with Iranian
OFAC procedures permit applications for licenses and requests for advisory
opinions, either oral or written; and OFAC attorneys, although overburdened,
do their best to provide practical guidelines to companies and individuals
requesting their advice. Thus, licenses have been granted to permit wing
refits for safety reasons on certain Iranian Boeing aircraft, for example,
and to facilitate the activities of certain US non-governmental organizations
in the educational or humanitarian field. In April 1999, a license application
for a Central Asian oil swap was denied, even though this possibility had
been mentioned in the original regulations, and a recent case involving
the analysis of seismic data for NIOC by a US company has attracted the
attention of US officials.
Since July 1999, licenses may be requested for the sale of agricultural
commodities or medicines or medical equipment to Iranian entities, but
the contract terms will be closely scrutinized. The provision of financial
credit or guarantees by US banks, for example, is not permitted. Corn has
been sold under this provision, and representatives of US wheat exporters
were recently in Tehran in uphill competition against exporters from Canada,
Argentina and France who can offer agricultural credits whereas they cannot.
Policies of the Next Administration There has been speculation in recent
weeks that the Clinton Administration might take some further steps in
the di-rection of relaxing sanctions before its term ends on 20 January.
It arises from the fact that both President Clinton and Secretary Albright
went out of their way at the UN in September to listen to President Khatami
speak and to make encouraging comments afterwards. The President could,
the argument goes, take certain actions as a lame duck which would be harder
to take by a new President who would then be answerable to critics over
the ensuing four or eight years.
In reality, politics in the region makes any sweeping action during
the transition unlikely. Strident Iranian hostility toward Israel and support
for the Palestinians in the latest confrontation, including support for
Hamas, Palestinian Islamic Jihad and Hizballah in a situation where Palestinian
terrorism and suicide bombings have reappeared, make positive gestures
more difficult. In addition, the possible implication of Iran in direct
acts of terrorism against Americans, either as a result of ongoing investigations
into the USS Cole and Al-Khobar bombings or through allegations of defense
lawyers in the Lockerbie trial in the Netherlands, is another reason for
presidential caution. Third, Russia's announcement that it intends to resume
conventional arms sales to Iran, undoing an agreement worked out between
Vice President Gore and then Prime Minister Chernomyrdin, represents a
Two limited steps may nevertheless be possible. One would be revising
the fingerprinting requirement which the INS currently imposes on all Iranian
citizens entering the United States so that US immigration officers at
our ports of entry would not have to subject elderly grandmothers, young
children and obviously peaceful visitors to the delays and humiliation
of having to undergo fingerprinting as possible terrorists. Another would
be establishing some kind of dialogue and possible cooperation between
Iranians and Americans trying to deal with international drug trafficking,
perhaps under the auspices of the United Nations International Drug Control
Program which has set up an office in Tehran to help combat drug trafficking.
Both nations have something to gain from cooperation in this area.
Dick Cheney, before he became a Vice Presidential candidate, in effect
expressed the view that it was time to end the sanctions on US energy companies
because they gave their competitors in Europe and elsewhere a competitive
ad-vantage in the country which today possesses the second largest reserves
of gas and the fifth largest oil reserves in an energy-dependent world
which will need to see these resources developed in the decades ahead.
It is reasonable to expect more communication and contacts as Iran opens
its own doors wider to international activity. Travel and people-to-people
exchanges within President Khatami's "Dialogue among Civilizations"
are likely to expand, includ-ing more contacts between Members of Congress
and the Iranian Majlis.
A further opening of trade to include non-sensitive consumer goods and
services may also be in store, and when the Iran-Libya Sanctions Act expires
next summer, successor legislation is likely to be much more hotly debated
and the result much more balanced than the 1996 act when there were not
business groups such as USA-Engage organized to combat unilateral sanctions
initiatives and when members of Congress were not as questioning of a rigorously
anti-Iranian posture as many of them are today. A more open US policy toward
Iran will be assisted by a reciprocal attitude on the part of Iran's leaders,
but even without it, the case for improved relations with Iran is growing
stronger in policy-relevant circles.
The logic of restoring international trade in both directions and of
encouraging Iran to become part of the global economy and the cyber-economy
is becoming more compelling. History is full of examples where healthy
trade opened the way for the flag and productive political relations, examples
where business leaders have proven to be effective ambassadors.
As the United States reaches out to Iran, it must do a better job of
consulting with governments of the GCC than they did of consulting with
the US when they moved to improve relations with Tehran. It is essential
that Gulf governments understand both the objectives and the limitations
of such a diplomatic initiative. The paramount interest of the United States
is to ensure the security and stability of the Gulf states and the free
flow of oil to the industrialized world. A less hostile relationship with
Iran can assist in achieving this goal.
Iran and the United States will continue to have differences, some deadly
serious, some trivial, some more psycho-logical than substantive, but the
realization is growing that these differences can best be addressed in
a context of re-stored diplomatic relations and of respect for each other's
history, culture, and contributions to human civilization. By applying
these principles, the next US administration can ensure that America's
relations with Iran, after a two-decade interruption, can become correct
and, in areas where our national interests and values permit, even cooperative
and mutually beneficial.