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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 Government entities.

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 further constraint.

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.


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