Meddling with the Mullahs: an analysis of the Iran and Libya Sanctions Act of 1996.

• Author: Dhooge, Lucien J.

"As the dominant power, [the United States] can afford to add the legitimizing carrot of negotiations to the punitive stick of sanctions."(1)

1. INTRODUCTION

   On August 5, 1996, President William J. Clinton signed the Iran and Libya Sanctions Act of 1996 into law.(2) This statute, dubbed by some as the D'Amato-Kennedy Act after its two chief legislative sponsors,(3) was introduced in the United States (U.S.) Senate as Senate Bill 1228 on September 8, 1995 and in the U.S. House of Representatives as House Bill 3107 on March 19, 1996.(4) The bill received little attention until the summer of 1996 when two events combined to bring its enactment to fruition. On June 25, 1996, a truck bomb was detonated outside of Khobar Towers, a U.S. military housing compound located near Dhahran, Saudi Arabia, resulting in the death of nineteen American servicemen.(5) One month later, on July 17, 1996, Trans-World Airlines Flight 800 inexplicably exploded in mid-air and crashed off the coast of Long Island, New York resulting in the loss of 230 lives.(6) In the atmosphere of outrage and panic over the perceived threat of international terrorism stirred by these incidents, the bill was quickly passed by the Senate on July 16, 1996 and the House of Representatives on July 23, 1996.(7) In response to the national outcry for retaliatory action - and perhaps not wishing to appear weak on the issue of international terrorism in an election year - President Clinton endorsed its provisions two weeks later.(8) The U.S. trade embargo against Iran escalated to a new level at the stroke of the President's pen.

   At its core, the Act has four purposes. Initially, ILSA purports to address the threat to U.S. national security and foreign policy objectives posed by Iranian and Libyan attempts to acquire weapons of mass destruction and sponsorship of acts of international terrorism.(9) However, the sponsors of ILSA acknowledged that unilateral efforts by the United States were insufficient to adequately address these threats.(10) As a result, ILSA attempts to multilateralize U.S. efforts to isolate Iran. Initially, ILSA urges the President to commence diplomatic efforts through the United Nations and consultation with U.S. allies in order to establish a multilateral sanctions regime against Iran, including provisions limiting the development of its petroleum resources.(11) ILSA also authorizes the imposition of economic sanctions upon persons determined by the President to have made investments in Iran of at least $40 million in any one year that directly contributed to Iran's ability to develop its petroleum resources.(12) Persons subject to sanctions must have actual knowledge or reason to know that their investment would directly contribute to Iran's ability to develop its petroleum resources.(13) The President is required to impose at least two sanctions from a list set forth in ILSA against persons deemed to have violated the investment prohibition.(14) This sanctions regime is designed to discourage foreign investment in Iran's petroleum industry, thereby denying it the financial means to sustain its nuclear, chemical, biological and missile weapons programs and sponsorship of international terrorism.(15) Finally, ILSA purports to place additional pressure upon the Libyan government to comply with United Nations Security Council Resolutions 731, 748, and 883 by demanding the cessation of Libyan sponsorship of international terrorism and efforts to acquire weapons of mass destruction,(16) and by demanding the surrender of two Libyan intelligence agents implicated in the bombing of Pan Am Flight 103 on December 21, 1988.(17) Furthermore, all provisions of ILSA applicable to Iran are equally applicable to investments in Libya.(18) The President must report to Congress on a regular basis on his efforts to accomplish the purposes set forth in ILSA.(19)

   The Act attempts to accomplish its purposes with three specific methods. Initially, Section 4(a) of the Act urges the President to immediately commence diplomatic efforts in appropriate international forums and in bilateral negotiations to establish a multilateral sanctions regime against Iran including limitations upon foreign investments in Iran's petrochemicals industry.(20)

   The second method by which the Act accomplishes its purposes is through increased consultation between the President and Congress regarding U.S. policy toward Iran. Sections 4(b) and 10(a)(1) require the President to report to Congress on a periodic basis regarding his efforts to establish a multilateral sanctions regime against Iran.(21) ILSA also requires the President to report to Congress on whether the European Union, the Republic of Korea, Australia, Israel and Japan have legislative or administrative standards providing for the imposition of trade sanctions against persons doing business or having investments in Iran.(22) The President is additionally required to report to Congress on Iran's military capabilities and support of international terrorism including the extent to which the International Atomic Energy Agency has established regular inspections of all nuclear facilities in Iran and Iran's use of its diplomats and representatives to promote acts of terrorism.(23)

   Finally, ILSA provides for the imposition of economic sanctions upon persons who, with actual knowledge, make an investment of $40 million or more in any twelve month period which directly and significantly contributes to the enhancement of Iran's ability to develop its petroleum resources.(24) These sanctions include prohibitions upon transactions between the sanctioned person, U.S. financial institutions and the Export-Import Bank of the United States, procurement sanctions, and import and export sanctions.(25) Sections 4(c), 5(f), 9(a) and 9(c) grant the President broad authority to grant exceptions and waivers as well as delays in the imposition of sanctions.(26) In any event, sanctions imposed pursuant to ILSA must remain in effect for a period of two years or until either Iran or the sanctioned person modifies their objectionable behavior.(27)

   International reaction to the adoption of ILSA was universal, immediate and unequivocally hostile. Canada, the largest trading partner of the United States, amended its Foreign Extraterritoriality Act to provide for fines and prison terms for company managers who comply with orders entered pursuant to the Act.(28) The European Union filed a formal protest to ILSA with the United States on August 8, 1996.(29) European Union officials objected to ILSA as "an extreme case of extraterritorial legislation"(30) and an inappropriate and ineffective means of combating international terrorism.(31) European Union officials warned the United States that the imposition of sanctions against European firms transacting business in Iran would seriously damage relations and would lead to the enactment and enforcement of retaliatory measures against American business interests.(32) The European Union also threatened to initiate a challenge to ILSA before the World Trade Organization (WTO) as a violation of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT).(33)

   Even U.S. Persian Gulf allies living directly under the threat of Iranian expansionism expressed doubts about further American attempts to isolate Iran as exemplified by ILSA. A statement issued at the conclusion of the eighth summit of the Organization of the Islamic Conference,(34) held in Tehran in December 1997, criticized U.S. attempts to penalize countries doing business with Iran.(35) This criticism was echoed in a statement issued at the end of the annual summit of the Gulf Cooperation Council(36) in December 1997 welcoming Iranian overtures to lessen tensions in the Persian Gulf.(37) The leader of one of the U.S. closest Gulf allies, Sheik Hamad bin Khalifa Al-Thani of Qatar, called for dialogue between Iran and the U.S.,(38) and Saudi Arabian Crown Prince Abdullah offered to act as an intermediary in such discussions.(39)

   This article examines the provisions of ILSA and its consistency with the U.S. international and national interests. This article first examines in detail the history preceding the adoption of ILSA with specific concentration on diplomatic and economic relations between the U.S. and Iran since 1979 and the resultant imposition of U.S. trade sanctions against Iran. It then examines the specific provisions of ILSA with emphasis on its most controversial element - the imposition of unilateral economic sanctions upon persons who invest in Iran's petrochemicals industries. Finally, this article analyzes ILSA in light of the U.S. international and national interests. This article concludes that ILSA is inconsistent with the promotion of the international and national interests of the United States.

2. HISTORICAL BACKGROUND OF THE IRAN AND LIBYA SANCTIONS ACT

   Although a complete history of the volatile relationship between the United States and Iran is beyond the scope of this article, a brief review of the recent highlights of this relationship is in order to place ILSA in its proper context. Modern Iranian history began in 1921 when Reza Khan, an Iranian officer of the Persian Cossack Brigade, engineered a coup d'etat against the government of Ahmad Shah of the Qajar dynasty.(40) Reza Khan ousted Ahmad Shah and gained complete control of the government in 1925.(41) Reza Khan subsequently declared himself Shah, ruling as Reza Shah Pahlavi until his forced abdication following the occupation of Iran by British and Soviet forces in September 1941.(42) Reza Shah Pahlavi was succeeded by his son, Mohammad Reza Pahlavi, who ruled Iran until January 1979.(43)

   Mohammad Reza Pahlavi's regime faced two serious threats to its existence during its thirty-eight year tenure. The first threat occurred in 1951 when Premier Mohammed Mossadeq, an advocate of the nationalization of British petroleum interests in Iran,(44)...