[Senate Report 110-443]
[From the U.S. Government Publishing Office]
Calendar No. 939
110th Congress Report
SENATE
2d Session 110-443
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COMPREHENSIVE IRAN SANCTIONS, ACCOUNTABILITY AND DIVESTMENT ACT OF 2008
_______
August 1, 2008.--Ordered to be printed
_______
Mr. Dodd, from the Committee on Banking, Housing, and Urban Affairs,
submitted the following
R E P O R T
[To accompany S. 3445]
The Committee on Banking, Housing, and Urban Affairs,
having had under consideration an original bill (S. 3445) to
impose sanctions with respect to Iran, to provide for the
divestment of assets in Iran by State and local governments,
and to identify countries engaged in transshipment or diversion
of certain sensitive items to Iran, having considered the same,
reports favorably thereon and recommends that the bill do pass.
I. INTRODUCTION
On July 17, 2008, the Senate Committee on Banking, Housing
and Urban Affairs considered a Committee Print, entitled the
``Comprehensive Iran Sanctions, Accountability and Divestment
Act of 2008,'' a bill to impose sanctions with respect to Iran;
to provide for the divestment of assets in Iran by State and
local governments and others; and to identify countries engaged
in transshipment or diversion of certain sensitive items to
Iran, and for other purposes. The Committee voted 19 to 2 to
report the bill to the Senate. The Committee's consideration of
the bill comes at a time of heightened international tensions
surrounding the government of Iran's uranium enrichment
program.
II. PURPOSE
The Comprehensive Iran Sanctions, Accountability and
Divestment Act of 2008 (hereafter ``the Act'') imposes a number
of new sanctions on Iran; provides a legal framework by which
States, local governments and certain other investors can
divest Iran-related energy assets from their portfolios, and
establishes a mechanism to address concerns about sensitive
technologies being diverted to Iran through other countries.
Specifically, the Act tightens the current export and
import ban on Iran, while providing for certain exceptions;
requires the freezing of assets of certain Iranian persons
involved in providing support for terrorism or weapons
proliferation, and their associates; imposes a ban on U.S.
Government contracts for entities found to be subject to
sanctions under the Iran Sanctions Act; expands the definition
of persons subject to the Act; and imposes certain additional
reporting requirements to increase monitoring of investments in
Iran's energy sector. It also allows States and local
governments and private asset fund managers, if they so choose,
to adopt measures to divest from companies who have invested
$20 million or more in the energy sector in Iran. Such measures
may be adopted to reduce the financial or reputational risk
associated with investments in a country subject to
international sanctions. Finally, the Act establishes a system
to strengthen and improve U.S. efforts to combat the diversion
of sensitive dual use technologies to Iran.
III. BACKGROUND AND NEED FOR LEGISLATION
It is in the national interest of the U.S. for Iran to
suspend its non-compliant uranium enrichment program, end its
sponsorship of international terrorism, and halt weapons
proliferation. The need to complement multilateral initiatives
with legislation designed to address these concerns is also
clear. It arises from continued threatening statements made by
officials of the government of Iran and by Iran's persistent
failure to address the concerns of the International Atomic
Energy Agency (IAEA) with regard to its nuclear program. Such
legislation would enhance current economic sanctions, enable
divestment from Iran, and combat the diversion of sensitive
technologies to Iran. By these means, this legislation is
designed to maximize the economic leverage on Iran's
government--from the U.S., our allies, and U.S. and
international investors--to bring that government to the
negotiating table, to change its behavior, and to constrain its
freedom to act in ways inimical to the interests of the
international community.
The Committee recognizes that economic and financial
sanctions are only one tool of statecraft and, to be effective,
must be undertaken as part of a broader diplomatic effort.
Sanctions are a means of providing leverage within a more
comprehensive, coherent, coordinated diplomatic and political
strategy to prompt Iran to cease and forswear all nuclear-
related activities that are in contravention of its
international agreements and responsibilities, and other
behaviors that undermine regional peace and stability.
Multilateral initiatives
The government of Iran has been designated by the United
States as a state sponsor of terrorism since 1984 and is a
long-time financial supporter of terrorist organizations such
as Hezbollah, Hamas, and Palestinian Islamic Jihad. The
government of Iran has consistently misled the United Nations
and the International Atomic Energy Agency about the objectives
and scope of its nuclear activities. For example, IAEA
inspections since 2003 have revealed two decades' worth of
undeclared nuclear activities in Iran, including uranium
enrichment and plutonium separation efforts. Despite a series
of agreements to suspend its activities in this area, Iran has
persisted in these activities, and the measures adopted thus
far by the UN Security Council (UNSC) have proved insufficient
to curtail Iran's enrichment activities.
The UNSC has acted on various resolutions in recent years,
condemning Iran's nuclear activities and urging compliance with
its international obligations. For example, on December 23,
2006, UNSC Resolution 1737 was unanimously approved, banning
supply of nuclear technology and equipment to Iran and freezing
the assets of organizations and individuals involved in Iran's
nuclear program, until Iran suspends enrichment of uranium.
UNSC Resolution 1747 was unanimously approved on March 24,
2007, imposing a ban on arms sales, expanding the freeze on
assets, and setting a deadline for Iranian compliance two
months later. Absent compliance, further sanctions were adopted
in UNSC Resolution 1803 on March 3, 2008, including a sales ban
on dual use items; authorization of inspections of cargo
suspected of containing WMD-related goods; an expanded Iranian
travel ban list; and a call to ban transactions with Iran's
Bank Melli and Bank Saderat.
In addition to UNSC efforts, since 2006 the ``Permanent
Five Plus 1'' (P5+1), comprised of the United States, Russia,
China, France, Britain, and Germany, have proposed a blueprint
for negotiating with Iran including the following proposed
incentives: (1) Negotiations on EU-Iran trade agreements and
acceptance of Iran into the World Trade Organization; (2)
Easing of U.S. sanctions to permit sales to Iran of commercial
aircraft and aircraft parts; (3) Sale to Iran of a light-water
nuclear reactor and guarantees of nuclear fuel (including a
five-year buffer stock of fuel), and possible sales of light-
water research reactors for medicine and agricultural
applications; (4) an ``energy partnership'' between Iran and
the European Union, including help for Iran to modernize its
oil and gas sector and to build export pipelines; (5) Support
for a regional security forum for the Persian Gulf, and support
for the objective of a Middle East WMD free zone; (6) the
possibility of eventually allowing Iran to resume uranium
enrichment if it complies with all outstanding IAEA
requirements and proves that its nuclear program is purely for
peaceful purposes. The P5+1's proposed sanctions for
noncompliance would include: (1) denial of visas for persons
involved in Iran's nuclear program and other high-ranking
Iranian officials; (2) asset freezes of additional Iranian
officials and institutions; a freeze of Iran's governmental
assets abroad; and a ban on some financial transactions; (3) a
ban on sales of advanced technology, arms, and refined oil
products to Iran; and (4) an end to support for Iran's
application to the WTO.\1\
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\1\Congressional Research Service. RS20871--The Iran Sanctions Act
(ISA). July 23, 2008.
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On June 14, 2008, a ``refreshed'' package of P5+1-proposed
incentives was formally presented to Iran by EU envoy Javier
Solana. At the same time, the European Union has taken steps to
impose its own set of targeted financial sanctions, recently
announcing a new round of sanctions against critical Iranian
financial institutions found to be supporting the financing of
weapons proliferation and terrorist activities. The European
initiatives are important steps to increase economic pressure
against the Iranian regime to change its proliferation-related
behavior.
Nuclear intentions, technology diversion or transshipment
In November 2007, a National Intelligence Estimate entitled
``Iran: Nuclear Intentions and Capabilities'' was released.
This report offered a thorough analysis of Iran's capability
and intentions regarding nuclear weapons, taking full account
of its dual use uranium fuel cycle and those of its nuclear
activities that are at least partly civil in nature. The report
concluded with high confidence that Iran had been pursuing a
nuclear weapons program, and halted that program in 2003, but
noted with moderate-high confidence that Iran is keeping open
the option of developing nuclear weapons, and that Iran's
uranium enrichment program may ultimately provide Iran with the
capability to develop a nuclear weapon. The NIE also noted that
the program probably was halted primarily in response to
international pressure, suggesting that Iran may be more
vulnerable to influence on the issue than the intelligence
community had judged previously.
In December 2007, the U.S. Government Accountability Office
submitted a report to Congress assessing the effectiveness of
sanctions on Iran and concluded, among other things, that the
current sanctions regime should be reviewed, and that the
current ban on most trade with Iran may be circumvented by the
transshipment of United States exports through third countries.
Formal surveys conducted by the Commerce Department to assess
the verification of U.S. exports' end-use also concluded that
technology may be easily diverted to Iran through third
parties. Such concerns were further affirmed in recent reports
by a reputable American non-governmental organization. Black-
market enterprises established through transshipment networks
continue to supply dual use products to rogue regimes such as
Iran and North Korea, facilitating development of their nuclear
technology.\2\
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\2\Government Accountability Office, Institute for Science and
International Security, media reports.
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State and local divestment efforts
In the U.S. in recent years, there has been an increasing
interest by States, local governments, educational
institutions, and private institutions to disassociate
themselves from companies that directly or indirectly support
the Government of Iran's efforts to achieve a nuclear weapons
capability or support international terrorism. Financial
advisors, policy makers and fund managers may find prudential
or reputational reasons to divest from companies that accept
the business risk of operating in countries subject to
international economic sanctions or that have business
relationships with countries, governments, or entities with
which any United States company would be prohibited from
dealing because of economic sanctions imposed by the United
States.
Notwithstanding the wide range of diplomatic and economic
sanctions that have been pursued by the U.S., many States and
localities have begun to enact measures restricting their
agencies' economic transactions with firms that do business
with, or in, Iran. Eleven States have already enacted some form
of divestment legislation, and legislation is pending in
additional state legislatures. Other states and localities have
taken administrative action to facilitate divestment. Also
joining this movement are colleges and universities, large
cities, non-profit organizations, and pension and mutual funds.
Legal and constitutional challenges
Constitutional challenges to State measures which touch
upon international relations typically take one or more of
three forms: (1) that the State measures conflict with and thus
are pre-empted by Federal law under the Supremacy Clause; (2)
that they violate the ``dormant foreign commerce clause''; and
(3) that they violate the so-called ``dormant foreign affairs
doctrine.''\3\
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\3\Congressional Research Service. RL33948--State and Local
Economic Sanctions: Constitutional Issues. July 2, 2008.
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With the reporting of this legislation, the Committee has
concluded that, with respect to each of these challenges,
Congress and the President have the constitutional power to
authorize States to enact divestment measures, and Federal
consent removes any doubt as to the constitutionality of those
measures. Thus the Act explicitly states the sense of Congress
that the United States should support the decisions of State
and local governments to divest from firms conducting business
operations in Iran's energy sector, and clearly authorizes
divestment decisions made consistent with the standards the
legislation articulates. It also provides ``safe harbor'' for
changes of investment policies by private asset managers, and
expresses the sense of Congress that certain divestments, or
avoidance of investment, do not constitute a breach of
fiduciary duties under the Employee Retirement Income Security
Act (ERISA). With regard to pre-emption, the legislation
supports State and local efforts to divest from companies
conducting business operations in certain sectors in Iran by
clearly stating that they are not pre-empted by any Federal law
or regulation.
The Committee recognizes that this legislation attempts to
balance two important interests. The first is the singular
authority of the Federal Government to conduct foreign policy.
The second is the ability of State and local governments and
other entities to invest or divest their funds as they see fit.
The Committee believes it has struck an appropriate balance by
targeting state action in such a way that permits state
divestment measures based on risks to profitability, economic
well-being, and reputations arising from association with
investments in a country subject to international sanctions.
IV. DESCRIPTION OF THE BILL
The Act is meant to strengthen all three major categories
of U.S. sanctions on Iran: the U.S. trade ban against Iran;
restrictions on foreign entities investing over $20 million in
Iran's energy sector; and targeted financial measures against
entities providing financial support for Iran's proliferation
and terrorist activities. The Act would:
Expand the scope of foreign companies
subject to the Iran Sanctions Act (ISA) to include
certain financial institutions, subsidiaries, export
credit agencies and other entities;
Require a semi-annual report on qualifying
investments in companies sanctionable under ISA;
Mandate a U.S. government procurement ban
against ISA-sanctionable companies, while providing a
national interest waiver;
Codify U.S. export and import bans on Iran,
with allowances for food/medicine export licenses, as
well as export and import of certain informational
materials;
Require the freezing of assets of Iranian
officials supporting terrorism and proliferation;
Extend sanctions liability of U.S. companies
to foreign subsidiaries established to circumvent U.S.
sanctions law and invest substantially in Iran's energy
sector;
Authorize appropriations for the Terrorism
and Financial Intelligence Office at the Department of
the Treasury;
Authorize States, local governments and
private asset managers to divest from Iran- related
energy businesses; and
Combat transshipment of sensitive technology
to Iran, by aiding countries to improve export controls
and by further restricting U.S. exports to
uncooperative countries.
V. SECTION-BY-SECTION ANALYSIS OF BILL
Section 1.--Short Title: This section establishes the short
title of the bill as the ``Comprehensive Iran Sanctions,
Accountability, and Divestment Act of 2008''.
Title I.--Sanctions
Section 101.--Definitions: This section defines terms used
in this title including: agricultural commodity, executive
agency, appropriate Congressional Committees, information and
informational materials, investment, medical device, and
medicine.
Section 102.--Definition of Person and Petroleum Resources
under the Iran Sanctions Act: This section expands key
definitions within the Iran Sanctions Act (ISA). ISA recognizes
the dominant role of Iran's oil and gas industry in generating
revenue for the regime's proliferation and international
terrorism activities, and requires the President to impose at
least two out of a menu of several sanctions on foreign
``persons'' that make an ``investment'' of more than $20
million annually in Iran's energy sector. The sanctions
(Section 6) include (1) denial of Export-Import Bank loans,
credits, or credit guarantees for U.S. exports to the
sanctioned entity; (2) denial of licenses for the U.S. export
of military or militarily-useful technology to the entity; (3)
denial of U.S. bank loans exceeding $10 million in one year to
the entity; (4) if the entity is a financial institution, a
prohibition on its service as a primary dealer in U.S.
government bonds; and/or a prohibition on its serving as a
repository for U.S. government funds (each counts as one
sanction); (5) prohibition on U.S. government procurement from
the entity; and (6) restriction on imports from the entity, in
accordance with the International Emergency Economic Powers Act
(IEEPA, 50 U.S.C. 1701). The President may waive the sanctions
on Iran if the parent country of the violating firm agrees to
impose economic sanctions on Iran (Section 4(c)), or if the
President certifies that doing so is important to the U.S.
national interest (Section 9(c)). Section 102 of the Act would
clarify that foreign companies subject to ISA include financial
institutions, subsidiaries, and other entities, and that the
relevant investments in Iran's energy industry involve not only
petroleum and oil or liquefied gas, but also certain means of
shipping such products, such as tankers and pipelines.
Section 103.--Economic Sanctions Relating to Iran: This
section codifies critical restrictions on imports from and
exports to Iran, currently authorized by the President in
accordance with IEEPA. Consistent with IEEPA, exceptions to the
import ban are made for informational materials that may be
used, for example, in the conduct of news reporting, or in
mapping for air travel over land. Similarly, exceptions to the
export ban include food, medicine, humanitarian assistance,
informational materials, and goods used to ensure safety of
flight for U.S.-made aircraft. Consistent with his authority
under Executive Order 13059, the President is authorized to,
and shall, as necessary, issue such regulations, orders, and
licenses to implement these provisions. In addition, this
section requires asset freezes for persons, including officials
of Iranian agencies specified in ISA, that have engaged in
activities such as terrorism or weapons proliferation under
IEEPA sanction. To limit sanctioned persons' ability to evade
U.S. scrutiny and penalty, this section further stipulates that
the assets freeze should extend to those assets which
sanctioned persons transfer to family members or associates.
The Committee recognizes that agencies involved in implementing
these measures will require time to prepare appropriate
evidentiary materials before executing corresponding sanctions,
which this section requires to be imposed immediately. This
section would also prohibit U.S. or foreign firms from entering
into procurement contracts with the federal government if the
entity meets the criteria for sanctions under ISA. Finally, the
provisions of this section may be waived if such a waiver is
deemed by the President to be in the national interest.
Section 104.--Liability of Parent Companies for Sanctions
Violations by Foreign Subsidiaries: This section strengthens
U.S. law by holding parent companies liable for activities
conducted by foreign subsidiaries that were established for the
purpose of circumventing U.S. sanctions statutes and who engage
in activities which, if committed in the U.S. or by a U.S.
person, would violate U.S. sanctions law. The President may
waive the provisions of this section on national interest
grounds.
Section 105.--Increased Capacity for Efforts to Combat
Unlawful or Terrorist Financing: This section authorizes full
funding for the Office of Terrorism and Financial Intelligence
of the Department of the Treasury consistent with the
President's budget request for fiscal year 2009.
Section 106.--Reporting Requirement to Increase Monitoring
of Investment in Iran: ISA requires the President to impose
sanctions on a U.S. or foreign natural person if the President
determines that the person invested $20,000,000 or more in
Iran's petroleum or natural gas sectors, but the President has
for years failed to do so even though foreign companies have
invested more than the specified amount.\4\ The measure
requires the President, within 180 days of enactment of the
bill and every 180 days thereafter, to report to the
appropriate Congressional Committees on eligible foreign
investments made in Iran's energy sector since January 1, 2008
and the determination of the President on whether such
investments qualify as sanctionable offenses. To address any
national security concerns about the impact of publicizing
certain parts of this report, this section allows for a
classified annex.
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\4\Congressional Research Service. RS20871--The Iran Sanctions Act
(ISA). July 23, 2008.
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Title II.--Divestment
Section 201.--Definitions: This section defines terms used
in this title including: energy sector, financial institution,
Iran, person, state, and State or local government.
Section 202.--Authority of State and Local Governments to
Divest from Certain Companies that Invest in Iran: This section
authorizes States and localities to divest from companies
involved in investments of $20 million or more in Iran's energy
sector and sets standards for them to do so. While not
mandating divestment, this section authorizes State and local
governments, if they so choose, to divest public assets from
certain companies doing business in Iran. In its formulation of
this section, the Committee recognized that divestment actions
are being taken by investors for prudential and economic
reasons, as expressed in subsection (a), including to address
concerns over reputational and financial risks associated with
investment in Iran and to sever indirect business ties to a
government that is subject to international sanctions.
The Committee requires that a State or local government
provide notice to the Department of Justice when it enacts an
Iran-related divestment law. Companies are to be informed in
writing by the State or local government before divestment.
Companies then have at least 90 days to comment on that
decision.
Section 203.--Safe Harbor for Changes in Investment
Policies by Asset Managers: This section adds to measures
authored by the Committee and enacted last year authorizing
divestment from Sudan-related assets (Public Law 110-174),
allowing private asset managers, if they so choose, to divest
from the securities of companies investing $20 million or more
in Iran's energy sector, and provides a ``safe harbor'' for
divestment decisions made in accordance with the Act. A major
concern inhibiting divestment has been the possibility of a
breach of fiduciary responsibility by asset managers who decide
to divest. The Committee thus finds that fund managers may have
financial or reputational reasons to divest from companies that
accept the business risk of operating in countries subject to
international economic sanctions. Fund managers will still be
required to observe all other normal fiduciary
responsibilities. The Securities and Exchange Commission is
required to promulgate rules as necessary that require fund
managers to disclose their divestment decisions made pursuant
to Section 203 of this legislation in regular periodic reports
filed with the Commission.
Section 204.--Sense of Congress Regarding Certain ERISA
Plan Investments: This section expresses the sense of Congress
affirming pension managers' rights to divest from companies
investing $20 million or more in Iran's energy sector in
accordance with an interpretative bulletin issued by the
Department of Labor in 1994, and printed in the Code of Federal
Regulations in section 2509.94-1 of title 29. Under the
regulations, making such ``economically targeted investment''
(ETI) decisions is allowed under sections 403 and 404 of the
Employee Retirement Income Security Act of 1974 (ERISA), as
long as the fiduciary making such a decision has diversified
his portfolio adequately and made the decisions in the interest
of the plan's participants and beneficiaries.
Title III.--Prevention of Transshipment, Reexportation or Diversion
Section 301.--Definitions: This section defines terms used
in this title including: end-user, entity owned or controlled
by the Government of Iran, Export Administration Regulations,
government, Iran, state sponsor of terrorism, as well as
transshipment, reexportation, or diversion.
Section 302.--Transshipment, Reexportation or Diversion to
Iran: This section responds to concerns that companies and
black market proliferation networks are circumventing the U.S.
trade ban on Iran by shipping major weapons components through
one or more foreign countries or by deceiving foreign customs
agencies with false information regarding the items' country of
origin. This section requires the Director of National
Intelligence to identify countries where sensitive U.S.
technology is being illegally transshipped to Iran via other
countries, and to report annually to the Secretaries of
Commerce, State and the Treasury, as well as to Congress.
Section 303.--Destinations of Possible Diversion Concern
and of Diversion Concern: This section establishes incentives
for countries to improve their export control regimes. First,
it requires the Administration to initiate government-to-
government contact with countries of ``possible diversion
concern.'' Such contact would include technical assistance to
develop or strengthen export control systems, facilitate export
control enforcement, improve information sharing, support
legitimate trade in high-technology goods, and prevent
terrorists and state sponsors of terrorism from obtaining
nuclear, biological, and chemical weapons, defense technology,
and components of improvised explosive devices.
If countries fail to cooperate with such initiatives, then,
under subsection (b), the Administration would be required to
designate a country as a ``Destination of Diversion Concern,''
consistent with the Department of Commerce's proposed rule,
which was published as 15 CFR Part 740 [Docket No. 0612242560-
7024-01], but never implemented. Such a measure would stop
transshipment flows that, according to the Department of
Commerce, are augmenting the capabilities of terrorists and
state sponsors of terrorism, and significantly undermining
international counterproliferation efforts. The Department of
Commerce stated in its proposed rule that in recent years,
diversions have contributed to a number of major cases
involving the violation of U.S. export control laws for dual
use goods. Under this section, exports to a country designated
as a ``Destination of Diversion Concern'' would be subject to
additional licensure requirements; more stringent license
review, which could result in fewer approvals or more
conditions on licenses; delayed authorizations due to increased
end-user checks; and finally, a decrease in authorizations due
to diversion risks for such countries. This section provides 45
days for the Secretary of Commerce to assemble a list of
controlled items, which should include items already on an
existing Commerce Control List linked to Iranian terrorist
activities as well as products from the Control List developed
for restricting North Korea's proliferation activities.
Licensing requirements under this section are required within
180 days after the date of the Act's enactment. The President
may waive the imposition of the licensing requirement on
national interest grounds.
Section 304.--Report on Expanding Diversion Concern System
to Countries Other than Iran: This section requires the
Director of National Intelligence to report to Congress on
whether or not to extend the measures in this title to
countries that allow diversion to other countries seeking
weapons of mass destruction or supporting international
terrorism.
Title IV.--Effective date and sunset
Section 401.--This section sets an effective date for the
Act 120 days after the date of the enactment of this Act. It
also describes the circumstances under which the provisions of
the Act will terminate, including certification by the
President that Iran has ceased to provide support for acts of
international terrorism, and stopped the pursuit, acquisition,
and development of weapons of mass destruction.
VI. HEARINGS
On March 21, 2007, the Committee on Banking, Housing, and
Urban Affairs held a public hearing entitled ``Minimizing
Potential Threats from Iran: Assessing the Effectiveness of
Current U.S. Sanctions on Iran.'' Witnesses included: Honorable
R. Nicholas Burns, Under Secretary for Political Affairs,
Department of State; Honorable Stuart Levey, Under Secretary
for Terrorism and Financial Intelligence, Department of the
Treasury; and Mr. Mark Foulon, Acting Under Secretary for
Export Administration, Department of Commerce.
VII. COMMITTEE CONSIDERATION
The Committee on Banking, Housing, and Urban Affairs met in
open session on July 17, 2008, and by a vote of 19-2 ordered
the bill reported, as amended.
July 31, 2008.
Hon. Christopher J. Dodd,
Chairman, Committee on Banking, Housing, and Urban Affairs,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for the Comprehensive Iran
Sanctions, Accountability, and Divestment Act of 2008.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Susan Willie.
Sincerely,
Peter R. Orszag.
Enclosure.
VIII. CONGRESSIONAL BUDGET OFFICE COST ESTIMATE AND REGULATORY IMPACT
STATEMENT
Section 11(b) of the Standing Rules of the Senate, and
Section 403 of the Congressional Budget Impoundment and Control
Act, require that each committee report on a bill contain a
statement estimating the cost and regulatory impact of the
proposed legislation. The Congressional Budget Office has
provided the following cost estimate and regulatory impact
statement.
Summary: Comprehensive Iran Sanctions, Accountability and
Divestment Act of 2008.
The bill would authorize appropriations for two programs in
the Department of the Treasury that combat financial crimes,
and for the Bureau of Industry Security (BIS) within the
Department of Commerce, which helps certain countries improve
their controls over exports. This legislation also would limit
trade with Iran and allow the President to impose sanctions on
certain individuals. Finally, the bill would allow state and
local governments to divest their assets from entities that
make certain investments in Iran's energy sector.
CBO estimates that implementing the bill would cost $121
million in 2009 and $496 million over the 2009-2013 period,
assuming appropriation of the necessary amounts. In addition,
CBO estimates that enacting the bill would reduce revenues by
about $6 million over the 2009-2018 period. Enacting the
legislation also could increase revenues and direct spending
because additional criminal penalties might be imposed, but we
expect that any such increase would not be significant because
of the relatively small number of cases likely to be involved.
The bill contains no intergovernmental mandates as defined
in the Unfunded Mandates Reform Act (UMRA) and would not affect
the budgets of state, local, or tribal governments.
The legislation would impose private-sector mandates, as
defined in UMRA, by prohibiting imports from and exports to
Iran. It also could impose mandates by freezing the assets of
certain individuals under conditions specified in the bill. In
addition, the bill would require financial institutions that
hold the funds and other assets of the individuals subject to
the sanction to report such information. Finally, the bill
could impose a mandate on exporters by specifying additional
license requirements on exports to certain countries that are
designated by the Secretary of Commerce as Destinations of
Possible Diversion Concern. The cost of complying with those
mandates is uncertain because it would depend on whether and
how some measures would be applied and because CBO lacks
information on the value of lost profits to importers and
exporters under the trade ban. Therefore, CBO cannot determine
whether the aggregate cost to comply with the mandates in the
bill would exceed the annual threshold for private-sector
mandates established in UMRA ($136 million in 2008, adjusted
annually for inflation).
Estimated cost to the Federal Government: The estimated
budgetary impact of the bill is shown in the following table.
The costs of this legislation fall within budget functions 150
(international affairs), 370 (commerce and housing credit), and
800 (general government).
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By fiscal year in millions of dollars--
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2009 2010 2011 2012 2013 2009-2013
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CHANGES IN SPENDING SUBJECT TO APPROPRIATION\1\
Department of the Treasury Programs:
Estimated Authorization Level............................ 153 158 163 0 0 474
Estimated Outlays........................................ 117 156 161 38 0 472
Department of Commerce Programs:
Estimated Authorization Level............................ 3 3 3 3 3 15
Estimated Outlays........................................ 2 3 3 3 3 14
Reports:
Estimated Authorization Level............................ 2 2 2 2 2 10
Estimated Outlays........................................ 2 2 2 2 2 10
Total Changes:
Estimated Authorization Level............................ 158 163 168 5 5 499
Estimated Outlays........................................ 121 161 166 43 5 496
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\1\Enacting this legislation also would reduce revenues by $2 million over the 2009-2013 period and $6 million
over the 2009-2018 period.
Basis of estimate: For this estimate, CBO assumes that the
bill will be enacted near the start of fiscal year 2009 and
that spending will follow historical patterns for similar
programs.
Spending subject to appropriation
The bill would authorize appropriations for programs within
the Department of the Treasury and the Department of Commerce.
In total, CBO estimates that implementing those programs would
cost $496 million over the 2009-2013 period, assuming
appropriation of the necessary amounts.
Department of the Treasury Programs. Section 105 would
authorize the appropriation of $153 million for 2009 and such
sums as may be necessary for 2010 and 2011 for the Office of
Financial Terrorism and Financial Intelligence and the
Financial Crimes Enforcement Network. Based on information from
the Department of the Treasury, CBO expects that $153 million,
adjusted for anticipated inflation, would be sufficient for
fiscal years 2010 and 2011 to continue the additional efforts
of those offices to ensure the international financial system
is not used to support terrorism. Under that assumption, CBO
estimates that implementing section 105 would cost $472 million
over the 2009-2013 period.
Department of Commerce Programs. Title III would establish
new programs within BIS to improve controls over certain
domestic exports to an end-user that cannot be identified or to
an entity that is owned or controlled by the government of
Iran. The bill would require the Secretary of Commerce, in
consultation with the Secretary of State and the Secretary of
the Treasury, to identify a list of countries that have
inadequate export and reexport controls and fail to control
exports that divert U.S. goods to unknown parties.
BIS would be authorized to help those countries strengthen
their systems to control exports. If, after one year, a country
on the list fails to cooperate with efforts to improve its
export control system or is found to be involved in the illegal
diversion of U.S. exports, it would be subject to additional
export licensing requirements for certain technologies.
Based on information from BIS, CBO estimates that about 20
staff members would be needed to track export enforcement
trends, to monitor activities within the countries of concern,
to help such countries improve their export control systems,
and to meet the new licensing requirements. CBO estimates that
implementing those provisions would cost $2 million in 2009 and
$14 million over the 2009-2013 period.
Reports. Several sections would require the Department of
the Treasury and the President to provide the Congress with a
variety of reports about Iran, including details of investments
in Iran by the United States and other countries. The bill also
would require a report on international efforts to promote the
peaceful uses of nuclear fuel. Based on the costs to prepare
similar reports, CBO estimates that preparing those reports
would cost about $2 million annually.
Revenues and direct spending
Prohibition on Imports. The bill would prohibit the
importation to the United States of any product of Iran. Based
on the composition of recent imports from Iran, CBO expects
that the aggregate trade volume subject to customs duties would
decrease, reducing revenues by an estimated $2 million over the
2009-2013 period and $6 million over the 2009-2018 period.
Civil and Criminal Penalties. The bill would impose civil
and criminal penalties for violations of the new sanctions.
Collections of civil penalties are recorded in the budget as
revenues. Collections of criminal penalties also are recorded
in the budget as revenues, deposited in the Crime Victims Fund,
and later spent without further appropriation. CBO estimates
that any additional revenues and direct spending that would
result from those penalties would not be significant because of
the relatively small number of cases likely to be involved.
Estimated impact on state, local, and tribal governments:
The bill contains no intergovernmental mandates as defined in
UMRA and would not affect the budgets of state, local, or
tribal governments.
Estimated impact on the private sector: The legislation
contains private-sector mandates, as defined in UMRA. However,
CBO cannot determine whether the aggregate cost to comply with
those mandates would exceed the annual threshold for private-
sector mandates established in UMRA ($136 million in 2008,
adjusted annually for inflation).
The bill would impose mandates on certain businesses by
banning all imports from and exports to Iran, with the
exception of agricultural commodities, medicine, medical
devices, certain informational materials, and other
humanitarian assistance. According to the Department of
Commerce, in 2007, the United States imported from Iran
approximately $173 million in goods, mostly carpets and
foodstuffs, and exported $146 million in goods, mostly items
that would be excluded from the export ban. The cost of the ban
is uncertain because CBO lacks information on the value of lost
profits to importers and exporters.
The bill also could impose private-sector mandates by
directing the President to freeze the funds and other assets of
certain Iranian government officials, and the assets of their
family members and associates to whom such officials have
transferred assets on or after January 1, 2008. Some of those
individuals may reside in the United States. Because the
Iranian government officials who would be subject to sanctions
have not been named, the cost of that mandate also is
uncertain. The bill also would impose a mandate on financial
institutions that hold funds and other assets of persons
subject to sanctions by requiring them to report such
information. CBO expects the cost to comply with this reporting
requirement would be small.
Finally, by imposing new license requirements on exporters
of certain products, conditioned upon whether the country where
exports are sent has been designated as a Destination of
Possible Diversion Concern, the bill could impose a mandate.
Because of uncertainty about what countries would be
designated, if any, and what products would be subject to
additional licensing requirements for export to those
countries, the cost of complying with the mandate is unknown.
Previous CBO estimates: On June 26, 2008, CBO transmitted a
cost estimate for the Iran Sanctions Act of 2008 as ordered
reported by the Senate Committee on Finance on June 18, 2006.
Both bills contain provisions for the Department of the
Treasury programs and the prohibition of imports from Iran. The
Iran Sanctions Act of 2008 contained provisions for exchange
programs with Iran and contributions to the International
Atomic Energy Agency, as well as modified tax treatment for
certain costs incurred by oil companies after the imposition of
the sanctions that are not included in this bill. The Finance
Committee's bill would require a ban on trade with Iran. It
also would require the President to freeze the assets of
certain family members and associates of Iranian government
officials subject to sanctions, and would require any financial
institution that holds funds and other assets of any designated
person to report such information. The cost of complying with
those mandates is uncertain because of a lack of information
about import markets and the assets that would be subject to
the sanction. The differences in CBO's estimates of the costs
of the two bills reflect differences in the legislative
language.
On July 11, 2007, CBO transmitted a cost estimate for a
similar bill, H.R. 1400, the Iran Counter-Proliferation Act of
2007, as ordered reported by the House Committee on Foreign
Affairs on June 26, 2007. H.R. 1400 contained similar language
authorizing programs of the Department of the Treasury. H.R.
1400 also imposed private-sector mandates by requiring
sanctions on certain imports and exports with Iran, but CBO
expected that the direct cost of complying with those mandates
would fall below UMRA's annual threshold.
On February 27, 2007, CBO transmitted a cost estimate for
H.R. 957, a bill to amend the Iran Sanctions Act of 1996 to
expand and clarify the entities against which sanctions may be
imposed, as ordered reported by the House Committee on Foreign
Affairs on February 15, 2007. That bill is similar to sections
102 and 104 of this legislation, and the estimated costs for
those sections are the same. CBO determined that H.R. 957
contained no new mandates as defined in UMRA.