We agree that preventing Iran from developing the capability to produce nuclear weapons is a very important U.S. national security objective. We are concerned, however, that both S. 970 and S. 1234 contain provisions that will undermine rather than promote this critical objective.
First, the extraterritorial extension of sanctions would over-ride and preempt provisions of 17 Executive Orders issued over a 28 year period that provided the legal authority for current sanctions. Second, as explained more fully below, extraterritorial extension of sanctions will reignite economic, diplomatic and legal conflicts with our allies that will frustrate rather than promote multilateral action against Iran.
Both S. 970 and S. 1234 propose, among other troubling provisions, that the existing unilateral U.S. prohibitions on trade and investment with Iran by U.S. persons and entities be expanded by making the parent company liable for the actions of its subsidiaries that are domiciled in foreign countries.
The history of similar efforts demonstrates clearly that such a unilateral effort will provoke a negative response from our allies that will divert attention from developing an effective economic and diplomatic multilateral response to Iran:
- During the Soviet invasion of Afghanistan in the early 1980s, the U.S. sought to ban participation in the Siberian pipeline project by European subsidiaries of U.S. companies.
- In response to the U.S. sanctions on the pipeline project, the U.K., France, the Netherlands, and other countries passed blocking statutes, requiring the subsidiaries to honor existing contracts and disobey the U.S. sanctions, thereby putting the subsidiaries and their parents in the impossible position of not being able to obey both U.S. and applicable foreign law at the same time.
- Under considerable pressure from EU governments and American corporations, the Reagan Administration withdrew the extraterritorial measures to avert adverse rulings in multiple pending legal cases in both U.S. and overseas courts. Beginning with the regulations implementing sanctions on Libya in 1986, the United States has repeatedly recognized that extraterritorial sanctions will not work.
The United States and its allies are making progress in assembling broad, multi-national economic and diplomatic action against Iran. Enacting either S. 970 or S. 1234 and thereby imposing mandatory U.S. penalties on entities in the same countries that are assisting us would only undercut the progress that our diplomats are making. At worst, these other governments could use existing or new blocking statutes and other measures to counteract the threat of U.S. penalties.
In targeting our allies for penalties, these bills would draw international attention away from the core problem: Iran’s threatening behavior in seeking nuclear weapons. As Ambassador Nicholas Burns noted on March 29 in testimony before the Senate Foreign Relations Committee, the administration “could not support… modifications to this act now being circulated in Congress that would turn the full weight of sanctions not against Iran but against our allies that are instrumental in our coalition against Iran.” It is counterproductive to penalize entities and individuals in the very countries whose cooperation we need to effectively counteract Iran’s dangerous behavior.
In addition, Section 5 of S. 970 would make the United States more vulnerable to international commercial complaints and damage U.S. global financial leadership by greatly expanding the universe of entities subject to sanctions to include insurers, creditors and foreign subsidiaries. The United States would undoubtedly face complaints and lawsuits from our trading partners questioning their legality if sanctions were imposed on these entities.
Congress must ensure that the world’s focus remains on applying multilateral pressure on Iran and that the United States and our allies continue to present a united front to influence Iran’s behavior. S. 970 and S. 1234 would not further the interests of U.S. national security – indeed, they might detract from current efforts. We respectfully request that any action on these bills be preceded by a thorough and careful review of its potential for counterproductive and harmful consequences.
Coalition for Employment Through Exports
Emergency Committee for American Trade
National Association of Manufacturers
National Foreign Trade Council
National U.S.-Arab Chamber of Commerce
Organization for International Investment
U.S. Chamber of Commerce
U.S. Council for International Business