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Editorial: Enforcement Needed

For the past three years, the State Department has publicly said it has been investigating companies for potential violations of the Iran Sanctions Act (ISA). During that same period of time, other governmental agencies—the Government Accountability Office and the Congressional Research Service—have publicly identified companies investing more than $20 million in Iran’s energy sector, which is the maximum that ISA allows.

In addition, several states that have passed Iran divestment laws, such as Florida and Colorado, have published their own lists of companies investing more than $20 million in Iran.

Sometimes a government investigation isn’t necessary. In public filings with the Securities and Exchange Commission (SEC) many companies have voluntarily disclosed investments in Iran and noted the risk that they potentially face from U.S. sanctions.

For example, in multiple annual reports, including in their 2010 statements, Total, StatoilHydro and Royal Dutch Shell admitted that they made investments that likely violated ISA. In 2006, Statoil divulged that it bribed an Iranian official to secure oil and gas development rights in Iran.

Given the evidence that is already publicly available, it’s time for the State Department to reveal its findings and implement the law.

State Department Postpones Action

Congress passed ISA in 1996. Its purpose was to discourage investments in Iran by sanctioning non-U.S. companies investing more than $40 million (reduced to $20 million in 2001) in Iran’s energy sector.

Since ISA became law 14 years ago, three successive presidential administrations—Bill Clinton’s, George W. Bush’s and Barack Obama’s—have failed to sanction a single company. Why is that? Congress has been asking the State Department that question for a long time.

In 2007, then-Secretary of State Condoleezza Rice told The Wall Street Journal that no company had made any investments in Iran that would have triggered an investigation. “We haven’t had to really do much with it because to this point, people are making what I would consider wise and well-considered decisions…”

That same year, then-Undersecretary of State Nicholas Burns insisted that the State Department would implement the law to the best of its ability. “I think there have been no new final oil and gas investment deals, I’m told, since 2004,” Burns told the Senate Banking Committee. (If what Burns says is true, one must ask: What about investments made in the years before 2004? Those would still have violated ISA.)

The trend has continued into the Obama administration. “We would impose sanctions if we find there was a violation of the Sanctions Act,” Deputy Secretary of State James Steinberg said. “[I]n our judgment, there are no investments that we’re aware of that are in violation of the Act.”

State Department officials might want to connect with their colleagues in the Department of Energy (DOE). For years, the DOE has published country reports on Iran, listing the very investments that the State Department has had trouble identifying.

Fifty House members, led by Reps. Mark Kirk (R-IL) and Ron Klein (D-FL), have asked the State Department to be more forthcoming. Citing the Congressional Research Service, the members of Congress wrote a letter to President Obama that listed 23 companies that are likely in violation of ISA. The lawmakers asked Obama if his administration planned to sanction any of the companies listed.

Nine days later, the State Department responded. “We’ve heard the message loud and clear about the Iran Sanctions Act,” Assistant Secretary of State Jeffrey Feltman said in testimony to the House Foreign Affairs Committee. He added that the State Department has “started a process of looking into” the deals mentioned in the House letter and that he expects the preliminary review to be finished “in about 45 days.”

In that preliminary review, the State Department said it found a number of transactions that “appear potentially problematic” and that warranted “more thorough consideration.”

Lawmakers were not satisfied with that answer. Again, Reps. Kirk and Klein wrote a letter, this time to Secretary Clinton, calling on her to reveal the names of the companies with “problematic” business dealings with Iran and sanction them. “Given Iran’s intransigence and the support these companies provide to the Iranians, we urge you to fully enforce the Iran Sanctions Act and levy appropriate sanctions against companies who have violated U.S. law,” said the letter, which 28 other House members signed.

A week later, Clinton appeared before the House Foreign Affairs Committee and tried to reassure the lawmakers. “We have aggressively moved on three fronts to ensure that the review is serious and thorough, and we have a rigorous process in place for implementation,” Clinton said.

In mid-April, Burns conceded that “a number of those cases raised by members of Congress are, in fact, problematic.” However, Burns refused to elaborate on the results of the State Department investigation, saying he would only discuss the efforts in a closed session.

On April 22, the State Department responded to Congressional concerns by writing another letter saying that the investigation is ongoing.

Congress Seeks to Close Loopholes

Congress is unhappy with the slow pace of Iran sanctions efforts. The House and Senate are currently finalizing a new Iran sanctions bill that will target Iran's dependence on refined petroleum. This new bill will seek to close the loopholes in ISA that have allowed multiple administrations to prolong investigations indefinitely while never making a determination that a company has or has not made an illegal investment in Iran.

Strong sanctions remain the best way to peacefully prevent Iran from acquiring a nuclear weapons capability. In order for sanctions to have their full impact, however, they must be fully enforced. ISA has already dissuaded many companies from investing in Iran; enforcement of the law will deter those that still do business in the Islamic Republic.

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