States Cast Shadow over Iran Nuclear Deal

by Jo-Anne Hart

For anyone who has forgotten that states occasionally conduct their own foreign policy, welcome to the latest potential battleground for implementing the Iran nuclear agreement. Thirty-two states and the District of Columbia have some form of Iran sanctions measures on their books. These sanctions are an important and often-overlooked obstacle to improved U.S.-Iran relations.

The Joint Comprehensive Plan of Action (JCPOA), signed last year between the leaders of the international community (UNSC P5+1) and Iran, offers Iran sanctions relief in exchange for deep and verifiable limits on its nuclear program. The United Nations has certified that Iran is meeting its commitments. The U.S., however, has taken only limited reciprocal steps. It has dismantled nuclear-related sanctions, as well as “secondary sanctions,” so that other countries are now permitted to engage in trade with Iran in the previously prohibited energy, shipbuilding, auto, and financial-services sectors. Unilateral sanctions related to Iran’s human rights record and alleged support of terrorism, however, remain in place. This significantly limits the ability of American companies to do business with Iran.

In addition, the U.S. bars Iran access to the American financial system and restricts dollar-denominated trading with Iran. This makes it difficult for companies to negotiate large oil and aviation deals, which are typically financed in dollars. Foreign banks that are legally free to engage with Iran fear being caught up in American sanctions. That depresses trade and gives Iran a legitimate complaint about delayed economic promises of the nuclear agreement.

Yet Another Obstacle

Enter state governments into this already complex mix. Sanctions on Iran imposed by individual states forbid a broad range of business and financial dealings. Many ban state-controlled pension funds, and/or domestic insurers, from investing in, or contracting with, companies doing business in Iran, especially in the energy and defense sectors. Banking sanctions prohibit financial institutions from maintaining correspondent accounts with any financial institution involved in Iran’s energy or military sectors.

At the Watson Institute for International and Public Affairs at Brown University, we track the promulgation, implementation, and eventual expiration of these state sanctions, through the Iran Implementation Project. We investigate the extent and impact of state-level sanctions on full implementation of the nuclear accord. We are also interested in the role of states in the making (and un-making) of American foreign policy.

The foundation for many state-level sanctions is the 2010 federal statute, the Comprehensive Iran Sanctions, Accountability, and Divestment Act (“CISADA”), which gives state and local governments permission to divest from companies that do business with Iran’s energy sector. The mainstay of state sanctions prior to 2010, the Iran-Libya Sanctions Act, which has been renewed and amended several times since its passage in 1996, restricts investments of more than $20 million in Iran.

The new nuclear deal directly addresses the question of state sanctions. Article 25 requires the United States to “actively encourage officials at the state or local level to take into account the changes in the U.S. policy … and to refrain from actions inconsistent with this change in policy.” This sets up a potential clash between state and executive branch policies regarding Iran.

As required, the Obama administration has begun prodding states with sanctions on Iran. The State Department’s Stephen Mull, who is coordinating implementation, has asked states to rethink and consider revising their sanctions to align with the terms of the nuclear agreement. His letter characterizes existing state sanctions as attempting to “incentivize Iran to change its behavior in certain ways” and argues that since the Iran agreement is now addressing those concerns, state sanctions are no longer needed.

Opponents of the nuclear accord may seek to use state sanctions as an end-run political strategy. Two governors have vehemently rejected any attempt to ease them. North Carolina Governor Pat McCrory vowed that, “so long as I am governor, North Carolina will not subsidize a regime which remains the world’s lead sponsor of terrorism.” Texas Governor Greg Abbott told the Obama administration that he would do the opposite of what it asked:  “Because your administration has recklessly and unilaterally removed critical sanctions, I have called on the Texas Legislature to strengthen the Iran sanctions that Texas already has in place.”

Overcoming State-Level Sanctions

Ending state sanctions is complicated by another factor, the disparate assortment of “sunset provision” laws in many states. The expiration of some state sanctions is pegged to federal government actions. Others leave the endpoint up to the discretion of the state. Several states, including Alaska, Colorado, Arizona, Georgia, Louisiana, Utah, and Washington DC, have no stated mechanism to lift their sanctions.

States invoke a range of conditions to be met for their Iran sanctions to expire, including:

  1. the United States revokes all sanctions imposed against Iran;
  2. Iran is removed from the U.S. State Department’s list of states which support terrorism;
  3. the U.S. president certifies that Iran is not developing weapons of mass destruction;
  4. the president or Congress declares that sanctions are contrary to U.S. foreign policy;
  5. an executive order prohibiting state sanctions;

Some states insist on satisfying all of these conditions. For example, Connecticut and Indiana follow the “all” pattern in Florida’s divestment statute, which makes meeting several provisions mandatory: sanctions will not end until Iran is removed from the terrorist list, and the U.S. revokes all sanctions on Iran, and the President certifies Iran has ceased efforts to develop nuclear weapons, and sanctions are declared in conflict with U.S. foreign policy. Divestment legislation in New Jersey, Rhode Island, and Pennsylvania each require two conditions to be met.

“Or” states like Illinois, South Carolina, Iowa, and South Dakota allow for satisfying one condition among the specified choices. Other states have different provisions for different sanction types. For example, California’s contracting prohibitions end once federal law de-authorizes them (as would happen if CISADA were repealed or amended.) In contrast, California’s insurance divestment sanction would be lifted if Iran is certified not to be developing weapons of mass destruction.

Many state-level sanctions on Iran carry provisions allowing for their lifting if the federal government declares that state sanctions interfere with the conduct of U.S. foreign policy or are pre-empted by federal law. Maryland, Indiana, Illinois, Iowa, Florida, and Massachusetts all include this provision. Mull’s gentle letter to the states this spring resists saying that state sanctions constitute such interference. If the executive branch were to declare that it does, it could trigger sunset conditions in several states.

But it’s likely to be more complicated than that. North Carolina’s Iran divestment directive is to expire if “the President certifies that the state’s sanctions interfere with the conduct of U.S. foreign policy,” for example, but Governor McCrory does not sound inclined to abide by any such certification. Even before the nuclear agreement was completed some state officials made it clear that they would not be guided by it. Don Gaetz, a Florida state senator who sponsored Iran sanctions legislation in 2007, told Reuters, “Our investment sanctions are not tied in any way to President Obama’s negotiations with the Iranians.”

If state-level sanctions on Iran contradict the traditional preeminence of the executive branch in foreign policy, they raise constitutional questions. The Supreme Court has upheld federal preemption of state-level acts that infringe on foreign policy, but these rulings alone may not bind individual states. This year’s presidential election makes consensus even more elusive. State-level sanctions could significantly complicate implementation of the nuclear deal. Iran is demanding its promised access to the global economy. The United States will weaken its credibility as an international partner if intra-governmental disputes and partisan politics obstruct its compliance with signed agreements.

Photo: Texas Governor Greg Abbott (Gage Skidmore via Flickr)

Jo-Anne Hart at the Watson Institute is a faculty collaborator in the Iran Implementation Research Project. [email protected]

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