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Amendment to S2101

Amendment to S2101

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Published by: Josh Rogin on Mar 27, 2012
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03/27/2012

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Amendment to S.

2101 Section by Section Analysis

Background: No Good Ideas Left Behind

As Iran continues inching closer to “red lines” surrounding its illicit nuclear weapons program, S. 2101 will likely serve as the last legislative vehicle to impose further economic sanctions against the Islamic Republic until December. Therefore, as long as opportunities exist to incorporate new ideas and creative sanctions into the legislation, we should seize upon those opportunities in overwhelming bipartisan fashion. In this way, we keep our promise to the American people and support the President’s stated objective to exhaust every available diplomatic option.

Section 1: Defining Credible Information to Include GAO and CRS Reports

The Iran, North Korea, and Syria Sanctions Consolidation Act of 2011 (S. 1048), of which more than 80 Senators are cosponsors, sought to amend the Iran Sanctions Act to force the Administration to open an investigation into any entity reported by the Government Accountability Office (GAO), the Energy Information Administration (EIA), the Congressional Research Service (CRS) or a similarly credible governmental agency to have violated U.S. sanctions. S. 2101 removed this amendment, instead leaving it up to the President to use his discretion as to whether such reports should be deemed “credible” or not.

This amendment to S. 2101 would revert to the language supported by more than 80 U.S. Senators (i.e. defining “credible information” to include GAO, CRS, EIA and similar government reports).

Amends Section 204 of S. 2101 to ensure that the “credible information” needed to initiate an investigation under the Iran Sanctions Act includes GAO, CRS, EIA and similar government reports.

Section 2: Sanctions Against Service Providers to Iranian Financial Institutions

The amendment seeks to expand sanctions already included in the underlying legislation targeting secure financial communications providers like the Society for Worldwide Interbank Financial Telecommunication (commonly known as “SWIFT”).

Requires the Secretary of the Treasury to submit a report within 90 days on the status of efforts to ensure that SWIFT, Clearstream, and other entities that provide similar services, have terminated the provision of services to, and the enabling and facilitation of access to services for, the Central Bank of Iran and other Iranian financial institutions.

After 90 days, if such service providers have not terminated the provision of services to the CBI or other Iranian financial institutions, authorizes the President to impose sanctions against the entity or its directors.

Requires such service providers to disclose to the Treasury Department any Iranian assets under their management and any services offered to clients holding Iranian assets.

In this case, the term “services” includes communications, financial (including trade and post-trade), hardware, software, or professional consulting services.

Section 3: Expansion of CISADA Financial Sanctions

Section 1245(b) of the FY12 National Defense Authorization Act (“Menendez-Kirk”) designated the financial sector of Iran as a primary money laundering concern because of the threat to government and financial institutions resulting from the illicit activities of the Government of Iran, including its pursuit of nuclear weapons, support for international terrorism, and efforts to deceive responsible financial institutions and evade sanctions. This amendment aligns current financial sanctions against Iran with this designation by expanding CISADA sanctions to include all Iranian financial institutions.

Amends CISADA to prohibit U.S. financial institutions from maintaining correspondent accounts with international financial institutions that maintain correspondent accounts with any Iranian financial institution. Currently, CISADA only extends this prohibition for “designated” Iranian financial institutions.

On the suspicion that international financial institutions are concealing sanctionable activity, requires international financial institutions that maintain correspondent accounts in the United States to biannually disclose to the Treasury Department its dealings with Iranian financial institutions. Failure to disclose forfeits the institution’s privilege of maintaining correspondent accounts in the United States. The Treasury Department is required to post such disclosures online with 72 hours of receipt.

Section 4: Expansion of “Menendez-Kirk” CBI Sanctions

This amendment seeks to expand the financial sanctions contained in Section 1245 of the FY12 National Defense Authorization Act.

Imposes sanctions on international financial institutions that conduct significant transactions with Iranian financial institutions.

Expands sanctions regarding non-oil transactions to cover government-owned international financial institutions.

Maintains current exceptions for humanitarian transactions, exempted oil purchases and the President’s national security waiver authority.

Section 5: Expansion of Sanctions Regarding Insurance and Re-Insurance

CISADA currently prohibits the provision of insurance or re-insurance services for the delivery of refined petroleum to Iran. This amendment seeks to expand such prohibitions to include any sanctionable activity or Iranian entity.

Imposes sanctions with respect to a person determined by the President to have knowingly, provided underwriting services or insurance or reinsurance for any sanctionable activity (under ISA, CISADA, INKSNA or other provision of law); or for any person, with respect to, or for the benefit of, any activity in Iran, or involving an entity that is organized under the laws of Iran or otherwise subject to the jurisdiction of the Government of Iran, or any affiliate thereof.

Maintains CISADA’s exception for underwriters and insurance providers exercising due diligence.

Section 7: Expansion of Energy Sanctions Against Iran

Despite sanctions against Iran’s energy sector for more than 25 years, several major Iranian energy firms continue to profit from international commerce with revenue potentially being diverted to proliferation activities. UN Security Council Resolution 1929 provides a basis to declare Iran’s energy sector a zone of proliferation concern with sanctions against entities that conduct business with Iranian energy companies (except for purchases of oil exempted under the “Menendez-Kirk” amendment).

Expresses the sense of Congress that, as noted in United Nations Security Council Resolution 1929 (2010), the revenues derived by the Government of Iran from its energy

sector may be used to fund its proliferation-sensitive nuclear activities, and that the Iranian energy sector should be regarded as a zone of proliferation concern in which no legitimate international business should be conducted.

Imposes sanctions on any entities that conduct transactions with, or invest in, entities that are 1) organized under the laws of Iran or otherwise subject to the jurisdiction of the Government of Iran, and 2) involved in the development, production, extraction, transportation or financing of petroleum, refined petroleum products, natural gas, or petrochemical products.

Imposes sanctions on entities that provide goods, services, or technology to an entity described above. “Services” include transportation, insurance, reinsurance, software, hardware, financial, professional consulting, engineering, specialized energy information, and support services.

Maintains the exception for oil transactions established under the Menendez-Kirk amendment so as not to adversely impact the oil markets.

Provides the President with a national security waiver authority.

Section 7: Sanctions Against Iran’s High-Tech and Telecommunication Sectors

On March 20, 2012, the President said with regard to Iran: “Technologies that should empower citizens are being used to repress them. Because of the actions of the Iranian regime, an electronic curtain has fallen around Iran – a barrier that stops the free flow of information and ideas into the country, and denies the rest of the world the benefit of interacting with the Iranian people, who have so much to offer… The United States will continue to draw attention to the electronic curtain that is cutting the Iranian people off from the world. And we hope that others will join us in advancing a basic freedom for the Iranian people: the freedom to connect with one another, and with their fellow human beings.” This amendment seeks to support the President’s pledge to draw attention to Iran’s “electronic curtain” by declaring Iran’s telecommunications and technology sectors “zones of electronic repression.”

Includes findings presented by the Administration on March 20, 2012 with regard to the Government of Iran’s electronic repression of the Iranian people.

Expresses the sense of Congress that the Government of Iran uses advanced technology and telecommunication systems to commit human rights abuses against its citizens and that, therefore, the telecommunication and technology sectors of Iran should be regarded as zones of electronic repression with which no legitimate international business should be conducted unless for the purpose of establishing free and safe communications for the Iranian people.

Imposes sanctions on any entities that conduct transactions with, or invest in, entities that are 1) organized under the laws of Iran or otherwise subject to the jurisdiction of the Government of Iran, and 2) involved in the development, manufacturing, provision, maintenance, repair, installation, construction, supply or transportation of telecommunications or other technology.

Imposes sanctions on entities that provide goods, services, or technology to an entity described above. “Services” include software, hardware, professional consulting, engineering, specialized information, and support services.

Exempts OFAC-licensed entities working to provide free and safe communications to the people of Iran.

Provides the President with a national security waiver authority.

Section 8: Technical Correction to Oil Exemption in “Menendez-Kirk” Amendment

The “Menendez-Kirk” amendment sought to provide a path for countries to avoid sanctions with respect to oil transactions with the Central Bank of Iran by creating an exception for countries that significantly reduced the volume of imports of crude oil from Iran. This exception was to apply only to oil transactions while maintaining a strict prohibition on non-oil transactions. However, due to a technical drafting error, the Administration interpreted the exemption created in Section 1245(d)(4)(D) to apply to all transactions by a financial institution. In other words, just by reducing oil imports, a country’s financial institutions could bypass the prohibition on non-oil transactions in addition to oil transactions. This could unintentionally create a global imbalance whereby countries who do not import Iranian crude and, therefore, cannot significant reduce such imports are subject to sanctions for non-oil transactions with the CBI while other countries that reduced their oil imports are allowed to conduct such transactions. To address this technical problem, this amendment would:

Amend Section 1245(d)(4)(D) to make clear that an “exception” to sanctions can be provided just in the case of financial transactions conducted by financial institutions with respect to petroleum; and

Make this change effective retroactive to the date of enactment of the FY12 NDAA.

Section 9: Expansion of Divestment Authorities for States and Local Governments

CISADA authorized States and local governments to divest public funds from companies that invest in Iran’s energy industry. It did not, however, authorize the denial of business licenses to such companies. This amendment seeks to do just that so states like California can pass such pending legislation.

Expresses the sense of Congress that the United States should support the decision of any State or local government to prohibit the issuance of licenses to conduct business in the State or locality to any person that engages in investment activities in the energy sector of Iran. Amends CISADA to authorize States and local governments to prohibit the issuance of licenses to conduct business in such State or locality to any person that engages in investment activities in the energy sector of Iran.

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