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Testimony

Missouri State Senate Committee on Jobs, Economic Development, and Local Government

Testimony for Missouri State Senate Committee on Jobs, Economic Development, and Local Government
27th January 2016

Download the full testimony here

Despite the fanfare over the July 2015 nuclear deal, the Iranian regime remains involved in a range of destabilizing activities and illicit conduct. In October and again in November, Iran tested ballistic missiles capable of carrying nuclear warheads in violation of a key UN Security Council resolution.  At the same time, Iran increased its crackdown on its citizens,  expanded its support for Syria’s Assad regime and terrorist organizations like Hezbollah and Hamas,  and remains the leading state sponsor of terrorism.

Iran’s belligerency did not abate even as Implementation Day of the nuclear agreement approached. Less than a week before receiving significant sanctions relief and access to about $100 billion in frozen assets, Iran detained 10 U.S. Navy sailors. Legal and maritime experts state that the seizure contravenes international standards of innocent passage and the intent of the Geneva Convention. 

In the shadow of Implementation Day (which occurred on January 16), Iran released five Americans who had been imprisoned illegally for years. While everyone should be relieved that these innocent victims have returned home, the price paid for their release was high. America pardoned seven Iranians and Iranian Americans who had been charged with or convicted of procuring sensitive technology and equipment for Iran in violation of U.S. law.  The United States also dropped the charges and removed the Interpol red notices against 14 Iranians, including two Mahan Air officials accused of supplying weapons to the Assad regime.  Iran may have learned a dangerous lesson from this exchange: Additional hostages will block new sanctions and prosecutions.

While the Obama administration has repeatedly made it clear that the Joint Comprehensive Plan of Action (JCPOA) does not prevent the imposition of non-nuclear sanctions,  it has done little to respond to the Iranian regime’s threatening behavior. When the administration finally responded to Iran’s provocative ballistic missile tests, it issued sanctions against a procurement network that Tehran can easily reconstitute,  as the regime has done time and again. These designations have minimal, if any, economic impact on Iran.

The JCPOA does not address the full range of Iran’s illicit activities but lifts many of the most impactful sanctions. It also fails to achieve the stated goal of the P5+1: blocking all pathways to an Iranian nuclear bomb. Iran has merely agreed to certain limitations on its nuclear activities – a departure from the original U.S. policy goal of dismantling Iran’s illicit nuclear infrastructure. Unfortunately, even these modest restrictions are fatally flawed because they disappear over time. Iran will mothball certain equipment and reduce enriched uranium stockpiles for 10 to 15 years, after which Tehran can expand its nuclear activities, build an industrial-scale infrastructure powered by easier-to-hide advanced centrifuges, and develop an intercontinental ballistic missile program.

As the United States and its partners dismantle the global sanctions regime, Iran can build greater economic resiliency against future sanctions pressure. The deal provides extensive sanctions relief to Iran, and the impact of this relief will expand over time. Economic forecasts estimate that Iran’s economic growth will expand to 4-5 percent annually for the next three years.  The IMF estimates that Iran’s real GDP growth may reach 5.5 percent in FY 2016/17 and FY 2017/18.  This is a significant rebound from Iran’s negative growth rate of 6 percent in FY 2012/13.

Despite wishful thinking that the nuclear deal will empower the moderate forces in Iran, the deal is more likely to enrich the most dangerous elements of the regime, in particular Iran’s Islamic Revolutionary Guard Corps (IRGC), as well as the massive business interests of Supreme Leader Ali Khamenei. An early indication came last week when the Guardian Council, which vets candidates for Iran’s (flawed and undemocratic) elections, disqualified 99 percent of all reformist candidates for the February parliamentary elections.

Outside the political realm, the IRGC and other radical revolutionaries are positioned to be the primary recipients of the economic benefits in the nuclear deal. The Revolutionary Guards not only direct Iran’s external regional aggression, its nuclear and ballistic missile programs, and its vast system of domestic repression, but they also control a vast business empire.

The IRGC controls large swaths of Iran’s economy. “The IRGC is Iran’s most powerful economic actor,” the U.S. Treasury Department explained, “dominating many sectors of the economy, including energy, construction, and banking”  – precisely those sectors which have received sanctions relief under the JCPOA. Likewise, Supreme Leader Ali Khamenei controls a vast business empire, estimated to be worth at least $95 billion, through a holding company called the Execution of Imam Khomenei’s Order (EIKO, or Setad in Farsi). Sanctions on EIKO were removed by the U.S. government on Implementation Day. It is difficult to image a significant business transaction in the key sectors of Iran’s economy where the IRGC or EIKO won’t be in on the deal. The financial gains from the JCPOA will enable these radical revolutionaries to expand their dangerous activities.

While the JCPOA lifts sanctions on Iran’s nuclear activities, it does not preclude the United States from using economic tools to address the full range of Iran’s illicit activities – despite statements from Iran that it will view any imposition of sanctions, nuclear or non-nuclear, as a violation of the deal. Giving into that interpretation would significantly undermine Washington’s ability to use non-military tools to address national security threats. Instead, American lawmakers – at both the federal, state, and local levels – should take the lead and impose measures to target Iran’s support for terrorism, ballistic missile program, support for the Assad regime in Syria, human rights abuses, and systemic corruption. These steps are not a violation of the JCPOA, but rather an affirmation of the stated U.S. policy to “oppose Iran’s destabilizing policies with every national security tool available.” 

There are significant “non-nuclear” measures that lawmakers should consider to prevent the enrichment of those in the Iranian regime who continue to engage in terrorism and other activities inimical to U.S. interests. At the state level, lawmakers have important levers that they can deploy. My specific recommendations in this testimony are:

1. Reaffirm the authority of state governments to divest public retirement funds from companies that invest in the Iranian energy sector.

2. Expand state-level sanctions efforts by banning government contracts with, and state government procurement from, companies doing business with Iran. State governments should also require divestment of funds from companies doing business with state sponsors of terrorism.

3. Create a watch list of Iranian companies linked to the Revolutionary Guards, the Supreme Leader’s business empire, and/or the Iranian government. State governments could then sanction any company that engages in business with firms included on the watch list.