After conducting research, the GAO concluded that Congress should consider requiring the National Security Council and key agencies to:

1. Assess data on Iran sanctions and complete an overall baseline assessment of sanctions
2. Develop a framework for ongoing assessments
3. Periodically report the results to Congress

Officials did report that U.S. sanctions involving Iran has slowed foreign investment in the country’s petroleum sector, however other evidence indicates that the extent of the reported impact.

The Iranian government has signed contracts since 2003 reported at $20 billion with foreign firms to develop its energy resources. Even further reports show that sanctioned Iranian banks are funding their activities in currencies other than the dollar. Finally, Iran continues to enrich uranium, acquire advanced weapons technology, and support terrorism even after the numerous sanctions provided by the United States.

Iran has strong global ties and a leading role in energy production, making the U.S. sanctions nearly impossible to isolate Iran and reduce its support for terrorism. In some cases, studies show that Iran’s overall trade with the world has grown since the U.S. imposed sanctions, although this trade has fluctuated because of the Iran-Iraq war and the growing oil prices in 2002. This trade did include imports of weapons and nuclear technology.

More information:

www.gao.gov/highlights/d0858high.pdf (PDF)

www.gao.gov/new.items/d0858.pdf (PDF)

In 2004 the company attempted to export nickel alloy pipes, which are subject to both the Regulations and the Iranian Transactions Regulations. The pipes must have required authorization to be exported from the United States to Iran through the United Arab Emirates. The pipes were declined by a freight forwarder because there was no evidence that the goods were authorized by the U.S. Government to be shipped to Iran. This act alone caused Proclad to be charged with four violations including conspiracy to violate the regulations.

During March and April of 2004 Proclad was in the course of an investigation subject to the Regulations, they were found to be making false statements and/or representations to the BIS’s Office of Export Enforcement concerning the nickel alloy pipes causing two more charges.

Over the course of the entire investigation Proclad was charged with 10 violations:

• Causing, Aiding or Abetting a Violation of the Regulations
• Conspiracy to Violate the Regulations
• Ordering Nickel Alloy Pipes with knowledge that a violation of the Regulations is Intended to Occur
• Taking Actions with the Intent of Evading the Regulations
• Misrepresentation and Concealment of Facts

The company was not only fined the civil penalty of $100,000 but has also been debarred for seven years from any transactions involving any commodity, software or technology exported or to be exported from the United States that is subject to the Regulations. Proclad, its officers, representatives, agents, and employees will be considered “Denied Persons.”

More information:

BIS Order (e2021.pdf) (PDF)

Proclad Website

Chevron had a policy implemented to ensure that these type of instance would not occur; the company in fact required that trader obtain prior written approval for all proposed Iraqi oil purchases from the company’s Director of Global Crude Trading. When a third party purchase was approved, party was required to certify that no illegal payments had been make or would be made in the connection with its acquisition of Iraqi oil.

In four separate instances the SEC alleges that the above-mentioned policy was not followed, resulting in transgression. In one instance, Chevron purchased oil from a small company in Switzerland who had no experience in the oil business, no real business operations and no assets; Chevron still purchases oil from the company on two separate occasions and each purchase included an illegal surcharge passed onto Chevron as an inflated premium. On another occasion, the SEC claims that a trader who is responsible in large of the company’s purchases from Iraq factored the cost of the surcharge into price negotiations with third parties. In addition, the SEC alleges that one of the third party sellers said that the Chevron trader asked him to persuade Iraq to reduce the amount of its surcharges. Lastly, it is assumed that Chevron should have known that it was paying premiums when it approved the Iraqi oil purchases even though there were obvious increases in premiums.

Under the Non-prosecution Agreement with Chevron the U.S. Attorney agreed that the company would not be prosecuted in exchange for $30 million in payments which include:

1. Forfeiture of $20 million to the U.S. Attorney’s Office who will then transfer the money to the Development Fund of Iraq, to be paid as restitution for the benefit of the people of Iraq;
2. $5 million to the New York County District Attorney’s Office;
3. $2 million to the Department of the Treasury’s Office of Foreign Assets Control; and
4. $3 million to be paid to the Securities and Exchange Commission.

More information:

SEC news release

The following areas have been taken off of the prohibited list:

• Southern Sudan, Southern Kordofan/Nuba Mountains State
• Blue Nile State
• Abyei
• Darfur
• 4 official camps for internally displaced persons in Khartoum

This will allow for export/import trade activities involving goods, services and technology to the above mentioned areas without a license. If the transaction involves property or assets held by the government of Sudan or a denied persons, relates to Sudan’s petroleum or petrochemical industry, or involves transshipment through regions of Sudan that are prohibited, a license must be obtained from OFAC.

More information:

OFAC news release

Nicholas Burns, US Undersecretary of State, stated Thursday, March 29th, that the State Department would not support the current legislation being discussed. This legislation would require the enforcement of penalties of companies investing in Iran. Mr. Burns said that the act as it reads currently would “turn the full weight of sanctions not against Iran but against our allies that are instrumental in our coalition against Iran.”

The bills currently under consideration would close loopholes that allow US companies’ foreign subsidiaries to invest in Iran and would require pension funds to name companies in their portfolios which are investing in Iran. US companies known to have interests in Iran include General Electric, Dresser-Rand, Xerox, Overseas Shipholding Group, Inc., and Halliburton among others. There are many companies who manage to do business with Iran and other sanctioned countries through offshore subsidiaries or with Treasury-granted licenses. These companies are getting increased criticism as tensions worsen between the US and Iran. Many of these companies state that they are severing connections, or at least will sever them when current contracts expire. The bills under consideration would ban much of this business unless a special export license was obtained.

The UN Security Council recently passed a second set of Iranian sanctions. These call for countries to be vigilant in restraining their export credit relationship but fall short of requiring a cessation of export credits. The administration continues to encourage international banks to cease transactions with Iran.

Sources:

• The Daily Bugle, March 30, 2007, Item # 12
• Beurs.NL March 29,2007
• The Wall Street Journal March 27, 2007

Changes include a ban on Iranian arms exports and a freeze on the assets of 28 entities with involvement in Iran’s nuclear programs. Many of these entities are linked to Iran’s Republican Guard.

The new sanctions are considered modest by most standards. The United States and the Europeans favored stronger measures and the Chinese and Russians were in favor of a less stringent approach. The goal is the make it clear to the Iranians that their failure to comply with demands to suspend their enrichment activities will have consequences. Iran defiantly rejected the sanctions and stated that it would not suspend its nuclear programs. Iranian officials maintain that their nuclear activities are solely for the purposes of energy production.

Source:

• WashingtonPost.com March 24, 2007, Author: Alexandra Olson

1. Guidelines for consistent implementation of the program
2. Specifying which goods and technology will be affected. Companies who wish to export such goods will have to apply for proper authorizations from the appropriate member state
3. Prohibition on providing technical or financial assistance to any parties listed in Annex I or Annex II of the Regulation
4. Authorization for Member States to override the above prohibition when certain criteria are met:
   1. Confirmation by the UN that transaction will not contribute to Irans’s nuclear program
   2. Appropriate end-use guarantees in contract
   3. Commitment by Iran not to use transaction for nuclear program
5. A freeze in funds or assets controlled by individuals or entities listed in Annex IV and Annex V

Penalties for violation of the regulations will be set out by individual Member States.

Source:

• Steptoe & Johnson Publications International Law Advisory:
  EU Draft Regulation Implementing Trade Restrictions on Iran March 14, 2007

The bill will allow the President to waive provisions of the Atomic Energy Act of 1954 assuming that certain conditions are met by India. These conditions include the negotiation and implementation of a nuclear cooperation agreement between the two countries.

The implications could be great for US and other companies who are already in discussions with Indian officials in preparations for the new Indian market. The Indian government anticipates boosting its civil nuclear capacity in the range of 50,000 watts in the coming 20-25 years. This will create opportunities for companies in the nuclear power market worldwide.

The legislation that has hindered India/US cooperation in the past 30 years stemmed from India’s detonation of a nuclear test in 1974 and India’s claims that the Non-Proliferation Treaty was discriminatory. After a multitude of meetings between US and Indian officials over the past several years, the US decided that the time was right to relax the regulations if India agreed to a number of conditions. These include the agreement to not detonate another nuclear weapon. Another “deal-breaker” would be if the US determines that the new cooperation is benefiting India ’s weapons program.

If India meets the conditions set forth by the United States, controls on nuclear-related exports to India will, in all likelihood, be relaxed. The Nuclear Regulatory Commission and the Department of Energy could allow transfers of nuclear reactors, technology, and related equipment to India. The conditions are complex and may take some time to complete so it may be quite a while until nuclear cooperation can actually begin.

But when Indian Prime Minister Manmohan Singh bid farewell to Washington this past July after meeting with President Bush, he left with a huge prize. The United States had just committed to essentially rewrite the rules for trade in nuclear technology in favor of India, which of course continues to operate a nuclear weapons program external to the NPT. In his joint statement with Singh, Bush praised India as a “responsible state” with a “strong commitment to prevent WMD proliferation” and asserted that “India should acquire the same benefits and advantages as other such states”. To that end, the American president said he would “also seek agreement from Congress to adjust U.S. laws and policies, and the United States will work with friends and allies to adjust international regimes to enable full civil nuclear energy cooperation and trade with India”. In addition, the US committed “to remove certain Indian organizations from the Department of Commerce’s Entity List”.

The Bush Administration took the first concrete steps to implement its new stance toward India on August 30 when it published a final rule, amending the EAR effective immediately, which eases restrictions on exports and reexports to India of items controlled for unilateral nuclear nonproliferation reasons. The new regulation removes the “X” from beside India in Column NP 2 of the Commerce Country Chart and thereby eliminates several license requirements for exports and reexports to India, including those for the following items:

• ECCN 1A290: depleted uranium
• ECCN 1C298: graphite for non-nuclear end-uses
• ECCNs 2A290, 2A291, 2A292, 2A293, 2B290, 2D290, 2E001, 2E002, 2E290: nuclear plant equipment and related software and technology
• ECCNs 3A292 and 3E292: certain oscilloscopes and related technology

In addition, the Entity List is now that much shorter with the removal of the following Indian organizations:

• Indian Space Research Organization (ISRO) Telemetry, Tracking and Command Network (ISTRAC)
• ISRO Inertial Systems Unit (IISU), Thiruvananthapuram
• ISRO Space Applications Center (SAC), Ahmadabad
• Department of Atomic Energy (DAE) Tarapur (TAPS 1 & 2)
• DAE Rajasthan (RAPS 1 & 2)
• DAE Kundankulam 1 & 2 (this power plant, still under construction, was never explicitly named to the Entity List, but now that the Indian Government has agreed that it will be placed under IAEA safeguards once work is completed

In removing unilateral nuclear nonproliferation sanctions on India and reducing the number of that country’s organizations subject to the sanctions of the Entity List, the administration has now completed the two major steps toward its goal of a new nuclear relationship with India that it can accomplish entirely within the existing authority of the executive branch. As the Bush-Singh joint statement itself admits, further movement toward greater civilian nuclear cooperation will require the assent of the US Congress and the multilateral Nuclear Suppliers Group. The irony of the US seeking NSG acquiescence to increased nuclear technology transfers to India is especially rich when one considers the origins of that regime.

The NSG is a child of India’s 1974 nuclear test in the Thar Desert of Rajasthan, which spurred governments to take action to stem the export of nuclear materials and equipment to India and other states demonstrating a proliferation risk. In his testimony before the House Committee on International Relations earlier this month, Under Secretary for Arms Control and International Security Robert G. Joseph hinted that some US allies participating in the NSG might be amenable to the US proposals for full peaceful nuclear cooperation with India (he specifically mentioned the UK). Still, the NSG operates by consensus, so it will be interesting to see if a State Department office not recently known for its diplomatic achievements (current US ambassador to the United Nations John Bolton was Joseph’s predecessor) can win one for the home team.

(Historical tangent: Graphite can be used as a neutron moderator in nuclear reactors, enabling chain reactions. Nazi Germany’s quest for a nuclear weapon failed largely due to their use of impure, boron-laden graphite in their reactors.)

Now NRC will only retain jurisdiction over nuclear grade graphite for nuclear end use. That means graphite with both a purity level of less than five parts per million boron equivalent and planned for use in a nuclear reactor. The BIS regulation updates ECCN 0C005 to mirror the NRC’s slimmed-down jurisdiction and also creates a new ECCN 1C298 for graphite with a purity of less than five parts per million boron equivalent and a density greater than 1.5 grams per cubic centimeter. Graphite classified under 1C298 will carry a license requirement to countries listed in NP Column 2 on the Commerce Country Chart (pdf).