Wednesday, August 15, 2007

What's better than sanctions? More sanctions!

I had to produce an primer for my boss and coworkers today about the Bush administration's decision to declare the Iranian Revolutionary Guard Corp a 'specially designated global terrorist' and I figured I would share it with my readers:

What happened?

The United States Government designated the Iranian Revolutionary Guard Corps, a subset of the Iranian military, to be a 'specially designated global terrorist group' pursuant to the rules of Executive Order 13224 signed by President George W. Bush on September 23, 2001.

What is Executive Order 13224 and what is an SDGT?

E.O. 13224 allows the U.S. Government to block the property of any person (including corporate persons) in the U.S. that is listed in the order's annex. It also allows the government to block transactions between U.S. persons and anyone listed in the annex.

The Secretary of the Treasury, Secretary of State or Attorney General also have the power to declare a U.S. person or person within the U.S. as being subject to the limitations imposed by the order. The grounds for such a declaration are if that person has 'committed or poses a significant risk of committing acts of terrorism that threaten the security of U.S. nationals or the national security, foreign policy, or economy of the U.S.' or if that person has 'assisted, sponsored, or provided financial, material or technological support or other services' to support acts of terrorism or to persons listed in the annex.

SDGT is just a fancy way of referring to the individuals and groups on in the E.O.'s annex. The simplified list of SDGTs is 11 pages long, while the detailed list is a little over 100 pages long.

What has changed?

In practice, the 'State Sponsor of Terrorism' designator hasn't translated into the same set of restrictions for each country on the state-sponsors list. For Iran, being on the 'bad boys' list means that no U.S. person or person within the U.S. can trade with or conduct transactions in Iran or with the Iranian Government. There is a narrow exception to this rule for importing Iranian trinkets, information, foodstuffs and, most importantly, Persian rugs, through foreign intermediaries.

Being designated an SDGT closes the Iranian Transaction Regulations' import exemptions on trinkets, food and carpets. It also allows the U.S. government to go beyond merely blocking transactions to actually freezing IRCG assets in the U.S. or held by U.S. persons.

It is not clear whether this change will actually have a tangible impact on the IRCG. The U.S. government seized most Iranian government assets shortly after the 1979 revolution. It has imposed an unilateral embargo on Iran continuously since E.O. 12613 was put in place by the Reagan administration.

There have been so few opportunities to legally acquire any Iranian property that I imagine the number of U.S. persons or persons in the U.S. holding IRCG assets is microscopic.

Is this going to be BDA Redux?:

Maybe. If the SecTreas, SecState and AG decide to use their authority to determine whether someone has assisted or provided support for the IRCG liberally, they could prohibit U.S. persons or persons in the U.S. from doing business with foreign firms that do business with the IRCG and its avatars.

That would be same tactic used by the Treasury Department to pressure Banco Delta Asia in Macau into freezing $25 million in North Korean assets. Iran's economy is less isolated from the world market than North Korea, so it is unclear whether the BDA strategy will be effective in this instance.

Either way, it definitely a bad day to be in the Persian carpet business. Maybe the industry should rebrand their products freedom rugs...


Galrahn said...

So what about when you add the sanctions being considered in Congress?

They go considerably further than the executive order action does.

Robot Economist said...

There are actually two pieces of Iran sanctions legislation winding their way through Congress. I was going to deal with them in a separate blog post today.