The Trump Administration Has Criminalized the Iranian Economy

State Department Iran coordinator Brian Hook (State Department via Flickr)

by Tyler Cullis

The Trump administration’s “maximum pressure” strategy with respect to Iran is predicated on placing Iran’s economy in perpetual isolation. A not-insignificant part of that effort has involved designating the Islamic Revolutionary Guard Corps (IRGC)—Iran’s premier military outfit—as a Foreign Terrorist Organization (FTO), while simultaneously claiming that the IRGC exercises control over Iran’s entire economy. This effort has now paid off, as evidenced by the saga of the Grace I oil tanker and the U.S.’s efforts to seize the tanker under certain federal criminal forfeiture statutes. Even though authorities in Gibraltar prevented the U.S. from seizing the tanker, the message was that Iran’s economy has been effectively criminalized by Washington.

The consequences are real. Back when certain DC-based groups, most particularly the Foundation for Defense of Democracies, first proposed the idea of designating the IRGC as an FTO, the common wisdom was that an FTO designation would merely replicate those sanctions authorities currently in place with respect to the IRGC. And while that was largely true, a few—myself included—warned that an FTO designation would allow the U.S. government to extend its criminal jurisdiction against foreign parties who continued to trade with Iran, and that this triggering of extraterritorial criminal jurisdiction was the real purpose underlying efforts to designate the IRGC as an FTO.

Those warnings have proven prescient, as the Grace I case confirms. Last week, soon after Gibraltarian authorities determined that the Grace I oil tanker should be lawfully released back into Iran’s custody, the U.S. Department of Justice filed a request for legal assistance with foreign authorities seeking the seizure and forfeiture of the Grace I oil tanker and the Iranian oil contained therein. This request was predicated on a number of alleged sanctions violations, not least of which included an allegation that the Grace I oil tanker was an “asset” of the IRGC, subject to forfeiture due to the IRGC’s status as a U.S.-designated foreign terrorist organization. This was the first apparent effort by U.S. prosecutors to use U.S. federal criminal laws to seize foreign assets and render foreign persons liable for conduct relating to the IRGC’s designation as an FTO.

More intensive efforts may follow. U.S. law provides for extraterritorial criminal jurisdiction over foreign persons outside the United States that knowingly provide material support to an FTO. That means that if a foreign person engages in a transaction or provides a service to the IRGC, that person may be subject to criminal penalties under U.S. law, even if their conduct had no U.S. nexus. Considering that U.S. prosecutors have the discretion to determine who or what constitutes the “IRGC”—including, potentially, private Iranian entities who have been derivatively designated for ties to IRGC-related entities—as well as what constitutes “material” support to the IRGC, the potential scope of this criminal prohibition is enormous and could capture a range of activities commonly believed to be innocuous. Then there is also the federal criminal forfeiture statute that was invoked by the U.S. government in seeking the seizure of the Grace I oil tanker, which renders all assets—foreign and domestic—of an FTO subject to U.S. forfeiture.

What makes the Grace I tanker saga so disturbing is how U.S. prosecutors argued that the IRGC had an interest in the Grace I oil tanker and the oil contained therein because the IRGC allegedly exercises control over Iran’s economy, including its oil sector. Whatever the legal merits of this argument, the U.S. government essentially signaled that it may regard the produce of Iran’s economy as “assets” in which the IRGC maintain an interest, and for which U.S. criminal forfeiture laws may apply. That is a terrible shot-across-the-bow intended to undermine what limited cross-border commercial ties Iran retains.

For its progenitors, the beauty of the IRGC’s designation as an FTO is not only in its contribution to Iran’s economic isolation but also in the perception that it will be politically challenging to undo. Already, legislation has been proposed to amend those laws permitting the Secretary of State the discretion to rescind an FTO designation—including, for instance, by requiring any proposed rescission be subject to Congressional review. Considering the toxicity associated with the IRGC in Washington, the belief is that no future President will dare waste political capital relieving sanctions pressure on the entity.

But the truth is that no successor administration will likely be able to fruitfully recalibrate U.S. policy towards Iran without rescinding the IRGC’s designation. There are proposals for limiting the political repercussions from such a move—including, for instance, by lifting all sanctions targeting Iran that were imposed during the Trump administration and thereafter conducting an intensive Iran policy review to determine whether any of the lifted sanctions should be re-imposed. But there is no doubt that hard challenges lie ahead and difficult choices need be made to mitigate the self-harm to U.S. interests caused by the Trump administration’s actions. Whether Washington will have the stomach to make them is unclear.

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Tyler Cullis

Tyler Cullis is a D.C.-based attorney specializing in the practice of U.S. economic sanctions. His writings have been published in the New York Times, the Washington Post, CNN, and Foreign Affairs, and he is frequently asked to comment on U.S. sanctions developments for major U.S. publications, including the Wall Street Journal, Financial Times, and the Washington Post, amongst others. He can be found on Twitter at @tylercullis.

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9 Comments

  1. This is surely evidence that Trump is not undermining the rules-based international order as he has been charged with doing. Clearly US (and EU) regulations and laws apply internationally, and when the US says “jump” to a country they should ask “how high.” The US also blathers about how China should obey UNCLOS, a treaty which the US has refused to sign. Same deal. Jump! How high?
    Now Iran and China are not obeying the US but that doesn’t keep the US from attempting to sustain and spread its world rule. In fact I think that Iran has led the field in disobedience, inspiring other countries like China to also disobey the master.

  2. The IRGC has no where to go anymore; whether on sea, land or air. Financially it is crippled. It cannot sustain itself anymore. It hopes to get aggressiveness from the Opposition and it won’t.

    Non-violent secular opposition in Iran is very deep and widespread. Videos of their behaviour are everywhere. Basically they are trapped. They will fight amongst each other and self-destruct.

    Ironically, the only thing that could help them, would be a US attack. They would beg you all for one. Wouldn’t that be just perfect for the radical chic theories we read here so often.

  3. This is an insightful article that presents the lengths to which the U.S. anti-Iran team will go to crater Iran’s economy preparatory to mass uprisings, coup attempts and possible civil war despite the fact that JCPOA is an act of the Security Council authorized with full support of all permanent members plus the EU. U.S. actions against Iran represent a serious threat to the international order. This threat is compounded by the absence of a forum thru which resolution of this crisis can be achieved other than a decisive defeat of Trump in the 2020 election.

    The sanctions against Khamenei and Foreign Minister Zarif appeared to be aimed at discouraging negotiations between Trump and Iran. It appeared that Pompeo feared that Zarif might connect with Trump as Trump connected with Kim and thereby opening the possibility of negotiations before Iran’s present government could be toppled. But based on the logic of this article these sanctions against Khamenei and Zarif may be more than symbolic, given how the designation of the iRGC as a terrorist organization is being used.

    Whoever is pushing this all out effort to force regime change in Iran should consider the secondary and tertiary consequences. A much worst catastrophe could emerge in Iran than in Syria. Millions may die. The continued dependence of much of the world on oil from the region would amplify such a catastrophe globally. Normal, human decisionmakers would encourage stability to avoid such catastrophic risks.

    Given that regime change were to be achieved and within say a decade Iran were to be stabilized, the rest of the world including Europe, Asia and Africa would see the consequences of the misuse of U.S. power over the global financial system. Defensive measures are likely to have been taken to neutralize such U.S. power. However, such power could become critical in the future to address real global terrorist problems such as a metastasizing ISIS, but the present misuse would have weakened the tools needed to counter such real threats.

    JCPOA has been effective to address nuclear weapons proliferation with Iran. Real non-nuclear threats exist. Addressing them requires addressing the security needs of Iran as well as of Saudi Arabia and Israel. Until the critics of JCPOA address this reality their criticism has no substance. ISIS threatened to overrun Iraq and Syria. Iran was also threatened. Iran committed resources to fight ISIS in both countries. Given no threat from ISIS and other Sunni jihadist terrorist groups there would be no compelling reason for Iran’s support for fighters in Syria.

    Rouhani won a decisive 2nd term election victory in 2017 with a mandate to implement JCPOA to bring the benefits of sanctions relief to the long suffering people of Iran. Given continued adherence to JCPOA by all signatories Rouhani was positioned to push for reforms that would have strengthened the power of civilian government vis a vis the IRGC. Rouhani would have also been positioned to succeed Khamenei as Supreme leader further enhancing prospects for reforms strengthening civil vs military power. This future appears to have been destroyed by Bolton’s plan for regime change. MeK cannot provide the leadership to drive for reforms in Iran. If MeK were to be put into power by the U.S. it could only hold onto power thru force and repression. But the people of Iran are unlikely to tolerate the heavy hand of the U.S. There appears to be no plausible positive outcome to Bolton’s plan for regime change.

  4. On August 16, the US Dept of Justice filed a seizure warrant in the U.S. District Court for the District of Columbia for the Oil Tanker “Grace 1”. Liz Sly wrote in WaPo on Aug 17 that “The warrant marks the first attempt by the United States to interdict a ship since President Trump walked away from the international deal over Iran’s nuclear program and imposed tough new sanctions.” As Tyler Cullis writes, “This was the first apparent effort by U.S. prosecutors to use U.S. federal criminal laws to seize foreign assets and render foreign persons liable for conduct relating to the IRGC’s designation as an FTO.”
    So, the US power holders, possibly Iran Coordinator, Brian Hook, or perhaps the Director, Office of Foreign Assets Control (OFAC), instructed the UK government to seize the Grace 1 at Gibraltar because of its connection with the IRGC, and the UK forced Gibraltar authorities to do so, but they used as justification that it violated EU Sanctions on Syria. And then the Gibraltar court decided that justification and seizure was illegal and Adrian Darya-1 left Gibraltar after 6 weeks. Now the adventure on the high seas of the Mediterranean has gotten exciting as those US power brokers scheme on how to seize the Adrian Darya 1, under US law of course. In any case, the US “will take every action” [Pompeo’s words] to prevent Iranian oil being delivered to Syria at Baniyas; by the way, who sabotaged the Baniyas oil pipelines to prevent off-loading of oil? Or, who would sabotage a ship-to-ship oil transfer in the middle of the night in mid-ocean? Can’t wait to learn of the next moves. One thing is clear: those US power holders are having the time of their lives.

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