by Tyler Cullis
This week, the Senate and House introduced resolutions expressing congressional support for state and local divestment measures targeting foreign companies engaged in certain trade-related dealings with Iran. Both resolutions, which have attracted bipartisan support among congressional opponents of the Iran nuclear deal, threaten to complicate the Obama administration’s implementation of U.S. sanctions relief for Iran. As a result, the moves risk undermining the agreement—known as the Joint Comprehensive Plan of Action (JCPOA)—between the United States, other major world powers, and Iran.
Unknown to most observers, more than two dozen U.S. states have enacted state divestment or selective procurement laws that restrict the ability of state pension funds and other state entities to invest in or procure goods or services from foreign companies engaged in certain energy-sector investments in Iran. These measures were protected from what is known as “federal preemption” when Congress authorized them in the Comprehensive Iran Sanctions Accountability and Divestment Act (“CISADA”) of 2010. The largest U.S. states—including California, New York, Florida, and Illinois—all have state divestment and/or selective procurement laws remaining on their books.
Following the conclusion of the JCPOA, opponents of the nuclear agreement expressed concern that President Obama would take an expansive view of his executive authorities and seek the preemption of these state divestment laws, especially since the administration would lift similar measures at the federal level pursuant to the nuclear accord. By preempting these laws, the president would nullify their legal basis by expressing his belief that they contradicted existing federal law on the subject. As a result, congressional opponents have now proposed with these two resolutions that the 2010 CISADA authorization for such state or local divestment measures remains effective post-JCPOA.
Passage of these resolutions would complicate the provision of U.S. sanctions relief to Iran and could threaten to undermine the sustainability of the nuclear accord. Recognizing that state or local U.S. laws could potentially impede the implementation of sanctions relief, Iran had pressed U.S. negotiators to agree to take all necessary action to ensure full and effective implementation.
As a result, the U.S. is obligated under § 25 of the JCPOA to “take appropriate steps” to ensure that state or local laws do not “prevent the implementation” of sanctions relief for Iran. This includes, but is not limited to, a requirement that the U.S. “actively encourage officials at the state or local level to take in account the changes in the U.S. policy…and to refrain from actions inconsistent with this change in policy.”
In fact, this provision merely commits the United States to take action should state divestment measures interfere with U.S. implementation of sanctions relief. In conversations I have had with European diplomats, few expressed serious concern over these state divestment measures, though all have noted that their concern is muted partly because they don’t know the impact these state or local measures will have once federal sanctions on Iran are lifted. Only after U.S. implementation of sanctions relief can the true impact of these state divestment laws be accurately measured.
Nonetheless, the passage of these Senate and House resolutions threatens to complicate whatever action the Obama administration plans to take, if needed. By expressing the sense of Congress concerning the 2010 CISADA provision on certain state or local divestment measures targeting Iran, congressional opponents of the nuclear agreement are evidently seeking to undermine the Obama administration’s ability to adequately litigate the issue should it reach the federal courts.
Litigation is, after all, where this case may end up. Similar state divestment and selective procurement laws have been the subject of extensive litigation in U.S. federal courts. The best-known case is Crosby v. National Foreign Trade Council (2000), in which the Supreme Court struck down a Massachusetts law prohibiting state agencies from procuring goods or services from any foreign company conducting business with Burma, following the Court’s determination that the Massachusetts law interfered with the federal statutory scheme that Congress had enacted.
Title II of CISADA was drafted in response to Crosby. In order to avoid the outcome in that case and create a more favorable set of facts should the issue ever be litigated, Iran hawks pressed for congressional authorization of state divestment laws targeting foreign companies engaged in certain investments in Iran’s energy sector. By providing its imprimatur for state or local divestment measures, Congress effectively barred the president from preempting these state laws on the basis of his own authority. The Crosby precedent was thus avoided.
Following the conclusion of the JCPOA, however, the president could assert broad executive authorities to claim that § 202 of CISADA was no longer effective in light of the substantial change of circumstances between the U.S. and Iran regarding the nuclear issue. Having resolved the nuclear dispute and absent any contrary opinion from Congress, the president could have utilized more far-reaching legal theories—such as federal policy preemption—to preempt CISADA § 202 and ensure the full and effective implementation of sanctions relief as outlined under the JCPOA.
Passage of the Senate and House resolutions, though, would block this legal avenue. Expressing its sense that CISADA § 202 remains good law post-JCPOA, Congress would effectively undo any argument from the Obama administration to the contrary. Lacking any credible alternative arguments to preempt state or local divestment laws tailored to the demands of CISADA § 202, the president would be forced to suffer the pain that these state or local measures might cause for U.S. implementation of sanctions relief. Such an eventuality could undermine Iran’s own implementation of its nuclear-related commitments.
Right now, the Obama administration must signal that it is taking serious action to impede the progress of both Senate and House resolutions. Failure to do so would be a show of bad faith to the Iranians that the U.S. intends to ensure that Iran receives the benefit of its bargain under the JCPOA. It would also violate the U.S. commitment to “take appropriate steps” to prevent interference with the provision of sanctions relief to Iran.
As of now, bipartisan support for the resolutions is limited to those who voted against the nuclear agreement this past summer. Supporters of the JCPOA have yet to signal their intent to back the resolutions. However, by styling this as a non-binding resolution, congressional opponents have cleverly advanced their effort to undermine the nuclear agreement. In the weeks ahead, the Obama administration must demonstrate the same intelligence and force of will in tackling what will prove a perplexing issue.