[Senate Report 111-99]
[From the U.S. Government Publishing Office]


                                                       Calendar No. 215
111th Congress                                                   Report
                                 SENATE
 1st Session                                                     111-99

======================================================================



 
  COMPREHENSIVE IRAN SANCTIONS, ACCOUNTABILITY, AND DIVESTMENT ACT OF 
                                  2009

                                _______
                                

               November 19, 2009.--Ordered to be printed

                                _______
                                

 Mr. Dodd, from the Committee on Banking, Housing, and Urban Affairs, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 2799]

    The Committee on Banking, Housing, and Urban Affairs, 
having had under consideration an original bill (S. 2799) to 
expand the Iran Sanctions Act of 1996, to provide for the 
divestment of assets in Iran by State and local governments and 
other entities, to identify locations of concern with respect 
to transshipment, reexportation, or diversion of certain 
sensitive items to Iran, and for other purposes, having 
considered the same, reports favorably thereon and recommends 
that the bill do pass.

                            I. INTRODUCTION

    On October 29, 2009, the Senate Committee on Banking, 
Housing and Urban Affairs considered a Committee Print, 
entitled the ``Comprehensive Iran Sanctions, Accountability, 
and Divestment Act of 2009,'' a bill to impose sanctions with 
respect to Iran; to provide for the divestment of assets in 
Iran by State and local governments and others; and to identify 
countries engaged in transshipment or diversion of certain 
sensitive items to Iran, and for other purposes. The Committee 
voted 23 to 0 to report the bill to the Senate. The Committee's 
consideration of the bill comes at a time of heightened 
international tensions surrounding the government of Iran's 
uranium enrichment program, and ongoing negotiations with 
Iran's leaders designed to bring about an end to that 
government's illicit nuclear activities and bring Iran into 
compliance with international non-proliferation rules.

                              II. PURPOSE

    The Comprehensive Iran Sanctions, Accountability, and 
Divestment Act of 2009 (hereafter `the Act') imposes a number 
of new sanctions on Iran; provides a legal framework by which 
States, local governments and certain other investors can 
divest Iran-related energy assets from their portfolios, and 
establishes a mechanism to address concerns about sensitive 
technologies being diverted to Iran through other countries.
    Specifically, the Act extends current sanctions and imposes 
new sanctions on multinational firms engaged in exportation of 
refined petroleum products to Iran, or in bolstering Iran's 
domestic refinery capacity; tightens the current export and 
import ban on Iran, while providing for certain exceptions; 
requires the freezing of assets of certain Iranian persons 
involved in providing support for terrorism or weapons 
proliferation, including Iran's Revolutionary Guard Corps, and 
associated persons; imposes a ban on U.S. Government contracts 
for entities found to be subject to sanctions under the Iran 
Sanctions Act; expands the definition of persons subject to the 
Act; and imposes certain additional reporting requirements to 
increase monitoring of investments and transactions in Iran's 
energy sector. It also allows State and local governments and 
private asset fund managers, if they so choose, to adopt 
measures to divest from companies who have invested $20 million 
or more in the energy sector in Iran. Such measures may be 
adopted to reduce the financial or reputational risk associated 
with investments in a country subject to international 
sanctions. Finally, the Act establishes a system to strengthen 
and improve U.S. efforts to combat the diversion of sensitive 
dual use technologies to Iran.

                III. BACKGROUND AND NEED FOR LEGISLATION

    It is in the national interest of the U.S. for Iran to 
suspend its non-compliant uranium enrichment program, end its 
sponsorship of international terrorism, and halt weapons 
proliferation. The need to complement multilateral initiatives 
with legislation designed to address these concerns is also 
clear. It arises primarily from Iran's persistent failure to 
address the concerns of the International Atomic Energy Agency 
(IAEA) with regard to its nuclear program. Such legislation 
would enhance current economic sanctions, enable divestment 
from Iran, and combat the diversion of sensitive technologies 
to Iran. By these means, this legislation is designed to 
maximize the economic leverage on Iran's government--from the 
US, our allies, and US and international investors--to bring 
that government to the negotiating table, to change its 
behavior, and to constrain its freedom to act in ways inimical 
to the interests of the international community.
    The Committee recognizes that economic and financial 
sanctions are only one tool of statecraft and, to be effective, 
must be undertaken as part of a broader diplomatic effort. 
Sanctions are a means of providing leverage within a more 
comprehensive, coherent, coordinated diplomatic and political 
strategy to prompt Iran to cease and forswear all nuclear-
related activities that are in contravention of its 
international agreements and responsibilities, and other 
behaviors that undermine regional peace and stability. The 
president's current diplomatic initiative to engage Iran's 
government, along with US allies, in negotiations regarding its 
nuclear programs is part of that effort.

Multilateral initiatives

    The government of Iran has been designated by the United 
States as a state sponsor of terrorism since 1984 and is a 
long-time financial supporter of designated terrorist 
organizations such as Hezbollah, Hamas, and Palestinian Islamic 
Jihad. The government of Iran has consistently misled the 
United Nations and the IAEA about the objectives and scope of 
its nuclear activities. For example, IAEA inspections since 
2003 have revealed two decades' worth of undeclared nuclear 
activities in Iran, including uranium enrichment and plutonium 
separation efforts. Despite a series of agreements to suspend 
its activities in this area, Iran has persisted in these 
activities, and the several measures adopted thus far by the UN 
Security Council (UNSC) have proved insufficient to curtail 
Iran's enrichment activities.
    The UNSC has acted on various resolutions in recent years, 
condemning Iran's nuclear activities and urging compliance with 
its international obligations. For example, on December 23, 
2006, UNSC Resolution 1737 was unanimously approved, banning 
supply of nuclear technology and equipment to Iran and freezing 
the assets of organizations and individuals involved in Iran's 
nuclear program, until Iran suspends enrichment of uranium. 
UNSC Resolution 1747 was unanimously approved on March 24, 
2007, imposing a ban on arms sales, expanding the freeze on 
assets, and setting a deadline for Iranian compliance two 
months later.
    Absent compliance, further sanctions were adopted in UNSC 
Resolution 1803 on March 3, 2008, including a sales ban on dual 
use items; authorization of inspections of cargo suspected of 
containing WMD-related goods; an expanded Iranian travel ban 
list; and a call to ban transactions with Iran's Bank Melli and 
Bank Saderat. On August 7, 2008, the EU implemented the 
sanctions specified in Resolution 1803, including asserting the 
authority to inspect suspect shipments, and called on its 
members to refrain from providing new credit guarantees on 
exports to Iran. On September 27, 2008, the Security Council 
also adopted Resolution 1835, calling on Iran to comply with 
previous resolutions.
    In addition to UNSC efforts, since 2006 the ``Permanent 
Five Plus 1'' (P5+1), comprised of the United States, Russia, 
China, France, Britain, and Germany, have proposed a blueprint 
for negotiating with Iran including the following proposed 
incentives: (1) negotiations on EU-Iran trade agreements and 
acceptance of Iran into the World Trade Organization; (2) 
easing of U.S. sanctions to permit sales to Iran of commercial 
aircraft and aircraft parts; (3) sale to Iran of a light-water 
nuclear reactor and guarantees of nuclear fuel (including a 
five-year buffer stock of fuel), and possible sales of light-
water research reactors for medicine and agricultural 
applications; (4) an ``energy partnership'' between Iran and 
the European Union, including help for Iran to modernize its 
oil and gas sector and to build export pipelines; (5) support 
for a regional security forum for the Persian Gulf, and support 
for the objective of a Middle East WMD free zone; (6) the 
possibility of eventually allowing Iran to resume uranium 
enrichment if it complies with all outstanding IAEA 
requirements and proves that its nuclear program is purely for 
peaceful purposes. The P5+1's proposed sanctions for 
noncompliance include: (1) denial of visas for persons involved 
in Iran's nuclear program and other high-ranking Iranian 
officials; (2) asset freezes of additional Iranian officials 
and institutions; a freeze of Iran's governmental assets 
abroad; and a ban on some financial transactions; (3) a ban on 
sales of advanced technology, arms, and refined oil products to 
Iran; and (4) an end to support for Iran's application to the 
WTO.\1\
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    \1\Congressional Research Service. RL32048--Iran: U.S. Concerns and 
Policy Responses, October 5, 2009.
---------------------------------------------------------------------------
    On June 14, 2008, a ``refreshed'' package of P5+1-proposed 
incentives was formally presented to Iran by EU envoy Javier 
Solana. At the same time, the European Union has taken steps to 
impose its own set of targeted financial sanctions, announcing 
a new round of sanctions against critical Iranian financial 
institutions found to be supporting the financing of weapons 
proliferation and terrorist activities. This package of 
incentives and sanctions, including a P5+1 ``freeze for 
freeze'' proposal (in which the P5+1 countries would freeze 
further sanctions efforts if Iran agreed to freeze its 
enrichment activity) remains on the table. These initiatives 
are important steps to increase economic pressure against the 
Iranian regime to change its proliferation-related behavior.
    Revelations of a secret new uranium enrichment facility 
being built by Iran near the holy city of Qum--in violation of 
international rules, and previously undisclosed to the IAEA--
helped to prompt a breakthrough in diplomatic talks. In 
September 2009 the Iranian government agreed to discuss a range 
of issues with P5+1 negotiators. Talks took place in October, 
including the first bilateral meeting between the United States 
and Iran since the 1979 revolution. The administration joined 
other P5+1 governments and IAEA officials in insisting on 
prompt access for IAEA inspectors to this facility.
    In general, Iran reportedly agreed to: (1) allow access to 
the Qum facility for IAEA inspectors; (2) allow, in principle, 
reprocessing for medical use of a substantial amount of its 
uranium stockpile by Russia and France under IAEA supervision, 
details of which were to be worked out soon after initial 
discussions; and (3) join another meeting with P5+1 negotiators 
later in October. As administration officials describe it, such 
an agreement would serve as a confidence-building measure among 
all parties involved in the talks, and a basis upon which to 
build broader-based non-proliferation negotiations. Should 
talks fail, intensified multilateral sanctions on Iran would 
follow.
    At the time of the Committee's reporting, Iran has allowed 
IAEA inspectors access to the Qum facility, but failed to 
adequately follow-up on the preliminary agreement reached 
within the P5+1 forum on low-enriched uranium for the Tehran 
Research Reactor. Iran's resistance to finalizing an agreement 
has contributed to a greater willingness among some countries 
to isolate Iran further. Thus, if the ``diplomatic track'' 
should fail, within a short period, the administration has 
indicated its commitment to pursuing a ``pressure track,'' 
which contemplates stronger multilateral and unilateral 
sanctions on Iran.

Iran's deteriorating record on human rights

    The government of Iran continues to engage in systematic, 
ongoing, and egregious violations of human rights and religious 
freedom, including prolonged detention, torture, and 
executions. The government holds political prisoners and has 
intensified a crackdown against women's rights groups, 
religious minorities, ethnic minority rights activists, and 
student activists. Iran's poor record on human rights and 
religious freedom was again evident in the government's 
crackdown on protestors and dissidents following the contested 
June 2009 Presidential elections, when Iranian security forces 
brutally quelled any expression of dissent and attacked 
demonstrators for exercising freedom of expression. The regime 
also has implemented measures to effectively shut down or slow 
electronic communications. Websites have been blocked, access 
to the Internet limited and Internet use slowed, and cell 
phones work only intermittently. Both the human rights and 
religious freedom reports from the State Department, along with 
the 2009 Annual Report from the U.S. Commission on 
International Religious Freedom, conclude that the human rights 
situation worsened in 2008. Recognizing this deterioration, the 
Committee urges the President to take certain actions under 
current law, including prohibiting entry into the United 
States, and freezing immediately the funds and other assets 
belonging to, Iranian government officials responsible for 
particularly severe human rights abuses.

Nuclear intentions, technology diversion or transshipment

    In November 2007, a National Intelligence Estimate entitled 
``Iran: Nuclear Intentions and Capabilities'' was released. 
This report offered a thorough analysis of Iran's capability 
and intentions regarding nuclear weapons, taking full account 
of its dual use uranium fuel cycle and those of its nuclear 
activities that are at least partly civil in nature. The report 
concluded with high confidence that Iran had been pursuing a 
nuclear weapons program, and halted that program in 2003, but 
noted with moderate-high confidence that Iran is keeping open 
the option of developing nuclear weapons, and that Iran's 
uranium enrichment program may ultimately provide Iran with the 
capability to develop a nuclear weapon. The NIE also noted that 
the program probably was halted primarily in response to 
international pressure, suggesting that Iran may be more 
vulnerable to influence on the issue than the intelligence 
community had judged previously.
    In December 2007, the U.S. Government Accountability Office 
submitted a report to Congress assessing the effectiveness of 
sanctions on Iran and concluding, among other things, that the 
current sanctions regime should be reviewed, and that the 
current ban on most trade with Iran may be circumvented by the 
transshipment of United States exports through third countries. 
Formal surveys conducted by the Commerce Department to assess 
the verification of U.S. exports' end use also concluded that 
technology may be easily diverted to Iran through third 
parties. Such concerns were further affirmed in recent reports 
by a reputable American non-governmental organization. Black-
market enterprises established through transshipment networks 
continue to supply dual use products to rogue regimes such as 
Iran and North Korea, facilitating development of their nuclear 
technology.\2\
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    \2\Government Accountability Office, Institute for Science and 
International Security, media reports.
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State and local divestment efforts

    In the U.S. in recent years, there has been an increasing 
interest by States, local governments, educational 
institutions, and private institutions to disassociate 
themselves from companies that directly or indirectly support 
the Government of Iran's efforts to achieve a nuclear weapons 
capability or support international terrorism. Financial 
advisors, policy makers and fund managers may find prudential 
or reputational reasons to divest from companies that accept 
the business risk of operating in countries subject to 
international economic sanctions or that have business 
relationships with countries, governments, or entities with 
which any United States company would be prohibited from 
dealing because of economic sanctions imposed by the United 
States.
    Notwithstanding the wide range of diplomatic and economic 
sanctions that have been pursued by the U.S., many States and 
localities have begun to enact measures restricting their 
agencies' economic transactions with firms that do business 
with, or in, Iran. Nineteen States and the District of Columbia 
have already enacted some form of divestment legislation or 
otherwise adopted divestment measures, and legislation is 
pending in additional State legislatures. Other States and 
localities have taken administrative action to facilitate 
divestment. Also joining this movement are colleges and 
universities, large cities, non-profit organizations, and 
pension and mutual funds.

Legal and constitutional challenges regarding divestment

    Constitutional challenges to State measures which touch 
upon international relations typically take one or more of 
three forms: (1) that the State measures conflict with and thus 
are pre-empted by Federal law under the Supremacy Clause; (2) 
that they violate the ``dormant foreign commerce clause;'' and 
(3) that they violate the so-called ``dormant foreign affairs 
doctrine.''\3\
---------------------------------------------------------------------------
    \3\Congressional Research Service. RL33948--State and Local 
Economic Sanctions: Constitutional Issues. July 2, 2008.
---------------------------------------------------------------------------
    With the reporting of this legislation, the Committee has 
concluded that, with respect to each of these challenges, 
Congress and the President have the constitutional power to 
authorize States to enact divestment measures, and Federal 
consent removes any doubt as to the constitutionality of those 
measures. Thus, the Act explicitly states the sense of Congress 
that the United States should support the decisions of State 
and local governments to divest from firms conducting business 
operations in Iran's energy sector, and clearly authorizes 
divestment decisions made consistent with the standards the 
legislation articulates. It also provides a ``safe harbor'' for 
changes of investment policies by private asset managers, and 
it expresses the sense of Congress that certain divestments, or 
avoidance of investment, do not constitute a breach of 
fiduciary duties under the Employee Retirement Income Security 
Act (ERISA). With regard to pre-emption, the legislation 
supports State and local efforts to divest from companies 
conducting business operations in certain sectors in Iran by 
clearly stating that they are not pre-empted by any Federal law 
or regulation.
    The Committee recognizes that this legislation attempts to 
balance two important interests. The first is the singular 
authority of the Federal Government to conduct foreign policy. 
The second is the ability of State and local governments and 
other entities to invest or divest their funds as they see fit. 
The Committee believes it has struck an appropriate balance by 
targeting State action in such a way that permits State 
divestment measures based on risks to profitability, economic 
well-being, and reputations arising from association with 
investments in a country subject to international sanctions.

                      IV. DESCRIPTION OF THE BILL

    The Act is meant to strengthen all three major categories 
of U.S. sanctions on Iran: the U.S. trade ban against Iran; 
restrictions on foreign entities investing over $20 million in 
Iran's energy sector; and targeted financial measures against 
entities providing financial support for Iran's proliferation 
and terrorist activities. The Act would:
           Expand the scope of foreign companies 
        subject to the Iran Sanctions Act (ISA) to include 
        certain financial institutions, subsidiaries, export 
        credit agencies and other entities;
           Extend ISA sanctions to firms engaged in 
        activities involving exportation of refined petroleum 
        products to Iran, or involving the development of oil 
        refineries in Iran;
           Require a semi-annual report on qualifying 
        investments in and activities engaged in by companies 
        sanctionable under ISA, including a determination by 
        the President of whether such investment or activity is 
        sanctionable;
           Mandate a U.S. government procurement ban 
        against ISA-sanctionable companies, while providing a 
        national interest waiver;
           Codify U.S. export and import bans on Iran, 
        with allowances for food/medicine export licenses, 
        export and import of certain informational materials, 
        goods and services necessary to ensure safe commercial 
        aviation; and assistance to the IAEA, and for democracy 
        promotion;
           Require the freezing of assets of Iranian 
        officials (including Iran's Revolutionary Guard Corps, 
        its ``front organizations'' and affiliates) supporting 
        terrorism and proliferation;
           Extend sanctions liability of U.S. companies 
        to foreign subsidiaries established to circumvent U.S. 
        sanctions law and which invest substantially in Iran's 
        energy sector;
           Authorize appropriations for the Terrorism 
        and Financial Intelligence Office at the Department of 
        the Treasury;
           Authorize States, local governments and 
        private asset managers to divest from Iran-related 
        energy businesses; and
           Combat transshipment of sensitive technology 
        to Iran, by aiding countries to improve export controls 
        and by further restricting U.S. exports to 
        uncooperative countries.

                 V. SECTION-BY-SECTION ANALYSIS OF BILL

    Section 1.--Short title: This section establishes the short 
title of the bill as the ``Comprehensive Iran Sanctions, 
Accountability, and Divestment Act of 2009''.
    Section 2.--Findings: This section outlines Congressional 
findings regarding Iran's illicit nuclear activities and 
continuing human rights abuses by Iranian security forces.
    Section 3.--Sense of Congress: This section expresses the 
Sense of Congress regarding Iran's continuing illicit nuclear 
activities and ongoing violations of human rights in Iran.

Title I.--Sanctions

    Section 101.--Definitions: This section defines terms used 
in this title, including: agricultural commodity, executive 
agency, appropriate Congressional Committees, information and 
informational materials, investment, Iranian diplomats and 
representatives of other government and military or quasi-
governmental institutions of Iran, medical device, and 
medicine.
    Section 102.--Energy sanctions: ISA recognizes the dominant 
role of Iran's oil and gas industry in generating revenue for 
the regime's proliferation and international terrorism 
activities, and requires the President to impose at least two 
out of a menu of sanctions on foreign ``persons'' that make an 
``investment'' of more than $20 million annually in Iran's 
energy sector. The sanctions (Section 6) include (1) denial of 
Export-Import Bank loans, credits, or credit guarantees for 
U.S. exports to the sanctioned entity; (2) denial of licenses 
for the U.S. export of military or militarily-useful technology 
to the entity; (3) denial of U.S. bank loans exceeding $10 
million in one year to the entity; (4) if the entity is a 
financial institution, a prohibition on its service as a 
primary dealer in U.S. government bonds; and/or a prohibition 
on its serving as a repository for U.S. government funds (each 
counts as one sanction); (5) prohibition on U.S. government 
procurement from the entity; and (6) restriction on imports 
from the entity, in accordance with the International Emergency 
Economic Powers Act (IEEPA, 50 U.S.C. 1701). The President may 
temporarily waive the sanctions on a national of a country if 
he determines that it is vital to the national security 
interest of the U.S. to do so (Section 4(c)), or if he 
certifies that a broader waiver is otherwise important to the 
U.S. national interest (Section 9(c)).
    This section restates the thresholds in ISA, expands key 
definitions within that law, and extends ISA sanctions to firms 
that provide goods, services, technology, information or 
support related to the production of refined petroleum products 
in Iran, or that engage in the exportation of refined petroleum 
products to Iran, subject to a de minimus threshold of 
$200,000, or an aggregate of $1 million in any 12-month period. 
Activities with respect to exportation are defined to include 
providing insurance underwriting, financing, brokering, ships 
or shipping services for these purposes. In addition to the two 
or more sanctions (from the existing ``menu'' of ISA sanction 
options) to be imposed under current law, this section also 
provides for mandatory imposition of three additional sanctions 
on sanctioned firms: on foreign exchange transactions, banking 
transactions, and property transactions. Like existing ISA 
sanctions, these new mandatory sanctions are subject to a 
national interest waiver by the President. More detailed waiver 
reporting requirements are also provided for in this section, 
along with a definition of petroleum products that includes 
gasoline, diesel fuel, jet fuel and aviation gasoline. Finally, 
this section would clarify that foreign companies subject to 
ISA include financial institutions, subsidiaries, and other 
entities, and that the relevant investments in Iran's energy 
industry involve not only petroleum and oil or liquefied gas, 
but also certain means of shipping such products, such as 
tankers and pipelines.
    Section 103.--Other economic sanctions: This section 
codifies critical restrictions on imports from and exports to 
Iran, currently authorized by the President in accordance with 
IEEPA. Consistent with IEEPA, exceptions to the import ban are 
made for informational materials that may be used, for example, 
in the conduct of news reporting, or in mapping for air travel 
over land. Similarly, exceptions to the export ban include 
food, medicine, humanitarian assistance, informational 
materials, goods used to ensure safety of flight for U.S.-made 
aircraft, aid necessary to support IAEA efforts in Iran, and 
democracy promotion initiatives. Consistent with his authority 
under Executive Order 13059, the President is authorized to, 
and shall, as necessary, issue such regulations, orders, and 
licenses to implement these provisions. In addition, this 
section requires asset freezes for persons, including officials 
of Iranian agencies specified in ISA and certain of their 
affiliates that have engaged in activities such as terrorism or 
weapons proliferation under IEEPA sanction. To limit sanctioned 
persons' ability to evade U.S. scrutiny and penalty, this 
section further stipulates that the assets freeze should extend 
to those assets which sanctioned persons transfer to family 
members or associates. The Committee recognizes that agencies 
involved in implementing these measures will require time to 
prepare appropriate evidentiary materials before executing 
corresponding sanctions, which this section requires to be 
imposed as soon as possible. This section would also prohibit 
U.S. or foreign firms from entering into procurement contracts 
with the federal government if the entity meets the criteria 
for sanctions under ISA. Finally, the provisions of this 
section may be waived if such a waiver is deemed by the 
President to be in the national interest.
    Section 104.--Liability of parent companies for sanctions 
violations by foreign subsidiaries: This section strengthens 
U.S. law by holding parent companies liable for activities 
conducted by foreign subsidiaries that were established for the 
purpose of circumventing U.S. sanctions statutes and who engage 
in activities which, if committed in the U.S. or by a U.S. 
person, would violate U.S. sanctions law. The President may 
waive the provisions of this section on national interest 
grounds.
    Section 105.--Prohibition of procurement contracts with 
persons that export sensitive technology to Iran: This section 
would prohibit the head of any U.S. executive agency from 
entering into procurement contracts with an entity that the 
President determines has exported to Iran sensitive 
communications technology to be used for monitoring, jamming, 
or other disruption of communications by the people of Iran.
    Section 106.--Increased capacity for efforts to combat 
unlawful or terrorist financing: This section authorizes 
funding of $64.6 million for the Office of Terrorism and 
Financial Intelligence of the Department of the Treasury, and 
of $104.2 million for the Financial Crimes Enforcement Network.
    Section 107.--Reporting requirement to increase monitoring 
of investment in Iran: ISA requires the President to impose 
sanctions on a U.S. or foreign natural person if the President 
determines that the person invested $20,000,000 or more in 
Iran's petroleum or natural gas sectors, but the President has 
for years failed to do so even though foreign companies have 
invested more than the specified amount.\4\ The measure 
requires the President, within 180 days of enactment of the 
bill and every 180 days thereafter, to report to the 
appropriate Congressional Committees on eligible foreign 
investments made in Iran's energy sector since January 1, 2009, 
or eligible transactions related to bolstering Iran's refinery 
capacity or to exportation of refined petroleum products to 
Iran, the dates of such investments or activity, the name of 
the person engaged in such activity, any federal contracts to 
which they are parties, and the determination of the President 
on whether such investments or activities qualify as 
sanctionable offenses. To address any national security 
concerns about the impact of publicizing certain parts of this 
report, this section allows for a classified annex.
---------------------------------------------------------------------------
    \4\Congressional Research Service. RS20871--The Iran Sanctions Act 
(ISA). November 6, 2009.
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    Section 108.--Sense of Congress on Iran's Central Bank: 
This section urges the President to consider immediately using 
his authority to impose sanctions on Iran's Central Bank and 
any other Iranian bank engaged in proliferation activities or 
support for terrorist groups.
    Section 109.--Sense of Congress on Iran's Revolutionary 
Guard Corps (IRGC): Expresses the Sense of Congress that the 
U.S. should continue to target with sanctions Iran's 
Revolutionary Guard Corps, its supporters and affiliates, and 
any foreign governments determined to be providing material 
support for the IRGC.
    Section 110.--Sense of Congress on Iran and Hezbollah: 
Expresses the Sense of Congress that the U.S. should continue 
to: (1) work to counter support for Hezbollah from Iran and 
other foreign governments; (2) target with sanctions Hezbollah, 
its affiliates and supporters; (3) urge other nations to do the 
same; and (4) take steps to renew international efforts to 
disarm Hezbollah.
    Section 111.--Sense of Congress on multilateral sanctions: 
Expresses the Sense of Congress that, in general, multilateral 
sanctions are more effective than unilateral sanctions against 
countries like Iran, and that the President should continue to 
work with our allies to impose multilateral sanctions if 
diplomatic efforts to end Iran's illicit nuclear activities 
fail.

Title II.--Divestment

    Section 201.--Definitions: This section defines terms used 
in this title including: energy sector, financial institution, 
Iran, person, State, and State or local government.
    Section 202.--Authority of state and local governments to 
divest from certain companies that invest in Iran: This section 
authorizes States and localities to divest from companies 
involved in investments of $20 million or more in Iran's energy 
sector and sets standards for them to do so. While not 
mandating divestment, this section authorizes State and local 
governments, if they so choose, to divest public assets from 
certain companies doing business in Iran. In its formulation of 
this section, the Committee recognized that divestment actions 
are being taken by investors for prudential and economic 
reasons, as expressed in subsection (a), including to address 
investor concerns about reputational and financial risks 
associated with investment in Iran and to sever indirect 
business ties to a government that is subject to international 
sanctions.
    The Committee requires that a State or local government 
provide notice to the Department of Justice when it enacts an 
Iran-related divestment law. Companies are to be informed in 
writing by the State or local government before divestment. 
Companies then have at least 90 days to comment on that 
decision.
    Section 203.--Safe harbor for changes in investment 
policies by asset managers: This section adds to measures 
authored by the Committee and enacted last year authorizing 
divestment from certain Sudan-related assets (Public Law 110-
174), allowing private asset managers, if they so choose, to 
divest from the securities of companies investing $20 million 
or more in Iran's energy sector, and provides a ``safe harbor'' 
for divestment decisions made in accordance with the Act. A 
major concern inhibiting divestment has been the possibility of 
a breach of fiduciary responsibility by asset managers who 
decide to divest. The Committee thus finds that fund managers 
may have financial or reputational reasons to divest from 
companies that accept the business risk of operating in 
countries subject to international economic sanctions. Fund 
managers will still be required to observe all other normal 
fiduciary responsibilities. The Securities and Exchange 
Commission is required to promulgate rules as necessary that 
require fund managers to disclose their divestment decisions 
made pursuant to Section 203 of this legislation in regular 
periodic reports filed with the Commission.
    Section 204.--Sense of Congress regarding certain ERISA 
Plan investments: This section expresses the sense of Congress 
affirming pension managers' rights to divest from companies 
investing $20 million or more in Iran's energy sector in 
accordance with an interpretative bulletin issued by the 
Department of Labor in 1994, and printed in the Code of Federal 
Regulations in section 2509.94-1 of title 29. Under the 
regulations, making such ``economically targeted investment'' 
(ETI) decisions is allowed under sections 403 and 404 of the 
Employee Retirement Income Security Act of 1974 (ERISA), as 
long as the fiduciary making such a decision has diversified 
his portfolio adequately and has made the decisions in the 
interest of the plan's participants and beneficiaries.

Title III.--Prevention of transshipment, reexportation or diversion of 
        sensitive technologies

    Section 301.--Definitions: This section defines terms used 
in this title including: end user, entity owned or controlled 
by the Government of Iran, Export Administration Regulations, 
government, Iran, state sponsor of terrorism, as well as 
transshipment, reexportation, or diversion.
    Section 302.--Transshipment, reexportation or diversion to 
Iran: This section responds to concerns that companies and 
black market proliferation networks are circumventing the U.S. 
trade ban on Iran by shipping major weapons components through 
one or more foreign countries or by deceiving foreign customs 
agencies with false information regarding the items' country of 
origin. This section requires the Director of National 
Intelligence to identify countries where sensitive U.S. 
technology is being illegally transshipped to Iran via other 
countries, and to report annually to the Secretaries of 
Commerce, State and the Treasury, as well as to Congress.
    Section 303.--Destinations of possible diversion concern 
and of diversion concern: This section establishes incentives 
for countries to improve their export control regimes. First, 
it requires the Administration to initiate government-to-
government contact with countries of ``possible diversion 
concern.'' Such contact would include technical assistance to 
develop or strengthen export control systems, facilitate export 
control enforcement, improve information sharing, support 
legitimate trade in high-technology goods, and prevent 
terrorists and state sponsors of terrorism from obtaining 
nuclear, biological, and chemical weapons, defense technology, 
and components of improvised explosive devices.
    If countries fail to cooperate with such initiatives, then, 
under subsection (b), the Administration would be required to 
designate a country as a ``Destination of Diversion Concern,'' 
consistent with the Department of Commerce's proposed rule, 
which was published as 15 CFR Part 740 [Docket No. 0612242560-
7024-01], but never implemented. Such a measure would stop 
transshipment flows that, according to the Department of 
Commerce, are augmenting the capabilities of terrorists and 
state sponsors of terrorism, and significantly undermining 
international counterproliferation efforts. The Department of 
Commerce stated in its proposed rule that in recent years, 
diversions have contributed to a number of major cases 
involving the violation of U.S. export control laws for dual 
use goods. Under this section, exports to a country designated 
as a ``Destination of Diversion Concern'' would be subject to 
additional licensing requirements; more stringent license 
review, which could result in fewer approvals or more 
conditions on licenses; delayed authorizations due to increased 
end user checks; and finally, a decrease in authorizations due 
to diversion risks for such countries. This section provides 45 
days for the Secretary of Commerce to assemble a list of 
controlled items, which should include items already on an 
existing Commerce Control List linked to Iranian terrorist 
activities as well as products from the Control List developed 
for restricting North Korea's proliferation activities. 
Licensing requirements under this section are required within 
180 days after the date of the Act's enactment. The President 
may waive the imposition of the licensing requirement on 
national interest grounds.
    Section 304.--Report on expanding diversion concern system 
to countries other than Iran: This section requires the 
Director of National Intelligence to report to Congress on 
whether or not to extend the measures in this title to 
countries that allow diversion to other countries seeking 
weapons of mass destruction or supporting international 
terrorism.

Title IV.--Effective date and sunset

    Section 401.--This section sets an effective date for the 
Act 120 days after the date of the enactment of this Act. It 
also describes the circumstances under which the provisions of 
the Act will terminate, including certification by the 
President that Iran has ceased to provide support for acts of 
international terrorism, and stopped the pursuit, acquisition, 
and development of weapons of mass destruction.

                              VI. HEARINGS

    On July 30, 2009, the Committee on Banking, Housing, and 
Urban Affairs held a public hearing entitled ``Minimizing 
Potential Threats from Iran: Assessing Economic Sanctions and 
Other Policy Options.'' Witnesses included: Honorable Joseph 
Lieberman, United States Senator, Connecticut; Ambassador R. 
Nicholas Burns, Professor of the Practice of Diplomacy and 
International Politics, John F. Kennedy School of Government, 
Harvard University; Dr. Matthew Levitt, Director, Stein Center 
on Counterterrorism and Intelligence, Washington Institute for 
Near East Policy; Dr. Suzanne Maloney, Senior Fellow, Saban 
Center for Middle East Policy, The Brookings Institution; and 
Ms. Danielle Pletka, Vice President, Foreign and Defense Policy 
Studies, American Enterprise Institute.
    On October 6, 2009, the Committee held another public 
hearing entitled, ``Minimizing Potential Threats from Iran: 
Administration Perspectives on Economic Sanctions and Other 
U.S. Policy Options.'' Witnesses included: Honorable Sam 
Brownback, United States Senator, Kansas; and Honorable Robert 
P. Casey, United States Senator, Pennsylvania; Honorable James 
B. Steinberg, Deputy Secretary of State, U.S. Department of 
State; Honorable Stuart A. Levey, Under Secretary for Terrorism 
and Financial Intelligence, U.S. Department of the Treasury, 
and Mr. Daniel O. Hill, Acting Undersecretary for Industry and 
Security, U.S. Department of Commerce.

                      VII. COMMITTEE CONSIDERATION

    The Committee on Banking, Housing, and Urban Affairs met in 
open session on October 29, 2009, and by a vote of 23-0 ordered 
the bill reported, as amended.

 VIII. CONGRESSIONAL BUDGET OFFICE COST ESTIMATE AND REGULATORY IMPACT 
                               STATEMENT

    Section 11(b) of the Standing Rules of the Senate, and 
Section 403 of the Congressional Budget Impoundment and Control 
Act, require that each committee report on a bill contain a 
statement estimating the cost and regulatory impact of the 
proposed legislation. The Congressional Budget Office has 
provided the following cost estimate and regulatory impact 
statement.

                                                 November 17, 2009.
Hon. Christopher J. Dodd,
Chairman, Committee on Banking, Housing, and Urban Affairs,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for the Comprehensive Iran 
Sanctions, Accountability, and Divestment Act of 2009.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is John Chin.
    Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

Comprehensive Iran Sanctions, Accountability, and Divestment Act of 
        2009

    Summary: The bill would authorize appropriations for two 
programs in the Department of the Treasury that combat 
financial crimes, and for the Bureau of Industry Security (BIS) 
in the Department of Commerce, which helps certain countries 
improve controls over their exports. The bill also would 
require the Department of State to impose new sanctions on 
persons that supply refined petroleum products to Iran or 
support the production of such products in Iran. In addition, 
the bill would expand an existing ban on imports from Iran to 
cover all products of Iranian origin and would extend the 
application of existing sanctions to foreign subsidiaries of 
U.S. parent corporations.
    CBO estimates that implementing the bill would cost $550 
million over the 2010-2014 period, assuming appropriation of 
the necessary amounts. CBO estimates that the bill would have 
no significant effects on direct spending and revenues.
    The bill contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA) and would impose no 
costs on state, local, or tribal governments.
    The bill would impose private-sector mandates, as defined 
in UMRA, by prohibiting imports from and exports to Iran and by 
expanding sanctions under the Iran Sanctions Act. The cost of 
complying with those mandates would depend on the value of lost 
profits to importers and exporters under the trade ban, and 
whether and how some measures would be applied under the bill. 
Therefore, CBO cannot determine whether the aggregate cost to 
comply with the mandates in the bill would exceed the annual 
threshold for private-sector mandates established in UMRA ($139 
million in 2009, adjusted annually for inflation).
    Estimated cost to the Federal Government: The estimated 
budgetary impact of the bill is shown in the following table. 
Most of the costs of this legislation falls within budget 
functions 150 (international affairs), 370 (commerce and 
housing credit), and 800 (general government).


----------------------------------------------------------------------------------------------------------------
                                                                    By fiscal year, in millions of dollars--
                                                              --------------------------------------------------
                                                                2010    2011    2012    2013    2014   2010-2014
----------------------------------------------------------------------------------------------------------------
                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Department of Treasury Programs:
    Estimated Authorization Level............................     169     177     180       0       0       526
    Estimated Outlays........................................     128     175     179      44       0       526
Department of Commerce Programs:
    Estimated Authorization Level............................       3       3       3       3       3        15
    Estimated Outlays........................................       2       3       3       3       3        14
Department of State Programs:
    Estimated Authorization Level............................       2       2       1       0       0         5
    Estimated Outlays........................................       2       2       1       0       0         5
Reports:
    Estimated Authorization Level............................       1       1       1       1       1         5
    Estimated Outlays........................................       1       1       1       1       1         5
    Total Changes:
        Estimated Authorization Level........................     175     183     185       4       4       551
        Estimated Outlays....................................     133     181     184      48       4       550
----------------------------------------------------------------------------------------------------------------

    Basis of estimate: For this estimate, CBO assumes that the 
bill will be enacted early in calendar year 2010 and that 
spending will follow historical patterns for existing and 
similar programs.

Spending subject to appropriation

    The bill would authorize appropriations for programs in the 
Department of Treasury and the Department of Commerce and would 
authorize new sanctions administered by the Department of 
State. In total, CBO estimates that implementing those programs 
and sanctions would cost $550 million over the 2010-2014 
period, assuming appropriation of the necessary amounts.
    Department of the Treasury programs. Section 106 would 
authorize the appropriation of $169 million for 2010 and such 
sums as may be necessary for 2011 and 2012 for the Office of 
Financial Terrorism and Financial Intelligence and the 
Financial Crimes Enforcement Network. Those offices received a 
total of about $165 million in 2009. Based on information from 
the Department of the Treasury, CBO expects that $169 million, 
adjusted for anticipated inflation, would be sufficient for 
fiscal years 2011 and 2012 to continue the efforts of those 
offices. On that basis, CBO estimates that implementing section 
106 would cost $526 million over the 2010-2014 period.
    Department of Commerce programs. Title III would establish 
new programs within BIS to improve controls over certain 
domestic exports. The bill would require the Secretary of 
Commerce, in consultation with the Secretary of State and the 
Secretary of the Treasury, to identify a list of countries that 
have inadequate export and reexport controls and fail to 
control exports that divert U.S. goods to unknown parties.
    BIS would be authorized to help those countries strengthen 
their systems to control exports. If, after one year, a country 
on the list fails to cooperate with efforts to improve its 
export control system or is found to be involved in the illegal 
diversion of U.S. exports, it would be subject to more 
stringent export licensing requirements for certain 
technologies.
    Based on information from BIS, CBO estimates that about 20 
staff members would be needed to track export enforcement 
trends, to monitor activities within the countries of concern, 
to help such countries improve their export control systems, 
and to implement the new licensing requirements. CBO estimates 
that implementing those provisions would cost $14 million over 
the 2010-2014 period.
    Department of State programs. Section 102 would amend the 
Iran Sanctions Act of 1996 (which will expire on December 31, 
2011) to prohibit any foreign exchange, banking, and property 
transaction with a person that the President determines has 
supplied refined petroleum products to Iran or supported the 
production of such products in Iran. Based on information from 
the Department of State, CBO estimates that about 10 additional 
staff members would be needed to gather and analyze 
information, provide advisory opinions, and administer blocked 
property. CBO estimates that implementing this provision would 
cost $5 million over the 2010-2012 period.
    Reports. Several sections of the bill would require the 
Director of National Intelligence and the President to provide 
the Congress with a variety of reports about Iran, including 
details of investments in and trade with Iran by the United 
States and other countries. Based on the costs to prepare 
similar reports, CBO estimates that, in total, preparing those 
reports would cost about $1 million annually.

Revenues and direct spending

    The bill would have an insignificant effect on revenues and 
direct spending.
    Prohibition on imports. Under current law, nearly all goods 
of Iranian origin are prohibited from being imported into the 
United States. Exceptions now exist for certain foodstuffs and 
carpets. Section 103 would impose a complete ban on all Iranian 
goods.
    Based on data from the United States International Trade 
Commission on recent imports from Iran and CBO's most recent 
forecast of total U.S. imports, CBO estimates that the bill 
would reduce revenues by less than $500,000 over the 2010-2019 
period, net of income and payroll tax offsets.
    In recent years, most of the taxable value of imports from 
Iran consisted of fruit juice, caviar, and certain nuts and 
dried fruits. The remaining imports, which are not subject to 
tariffs, consisted largely of other foodstuffs and carpets. In 
2008, the value of imports subject to tariffs was about $26 
million, yielding roughly $500,000 in customs duties. If the 
bill were to be enacted, CBO assumes that most of the newly 
banned imports would be replaced with taxable imports from 
other countries, reducing the loss of customs duties.
    Under the bill, the ban on imports would terminate if the 
President certifies that Iran no longer satisfies the 
requirements for designation as a state sponsor of terrorism 
and has ceased efforts to acquire and develop certain weapons 
technologies. For this estimate, CBO assumes that the President 
will not make such a certification during the 2010-2019 period.
    Civil and criminal penalties. Section 104 would impose 
civil and criminal penalties for violations of existing 
sanctions on the part of foreign subsidiaries of U.S. parent 
companies. Collections of civil penalties are recorded in the 
budget as revenues. Collections of criminal penalties also are 
recorded in the budget as revenues, deposited in the Crime 
Victims Fund, and later spent without further appropriation. 
CBO estimates that any additional revenues and direct spending 
that would result from those penalties would not be significant 
because of the relatively small number of cases likely to be 
involved.
    Estimated impact on state, local, and tribal governments: 
The bill contains no intergovernmental mandates as defined in 
UMRA and would impose no costs on state, local, or tribal 
governments.
    Estimated impact on the private sector: The bill contains 
private-sector mandates, as defined in UMRA. Because the cost 
of complying with most of the mandates would depend on the 
value of lost profits to importers and exporters and whether 
and how some measures would be applied under the bill, CBO 
cannot determine whether the aggregate cost the mandates in the 
bill would exceed the annual threshold for private-sector 
mandates established in UMRA ($139 million in 2009, adjusted 
annually for inflation).
    The bill would impose mandates on some businesses by 
banning all imports from and some exports to Iran. The cost to 
comply with the mandates would be the forgone net income 
attributed to the sale of those items prohibited under the 
sanctions. According to the United States International Trade 
Commission, in 2008 entities in the United States imported from 
Iran $102 million in goods, mostly food items and collectible 
works of art, and exported about $40 million in goods, which 
would be prohibited. The cost of the ban, measured as the 
forgone net income, is uncertain because the value assigned to 
those goods as marked for sales or distribution cannot be 
determined.
    By expanding sanctions under the Iran Sanctions Act, the 
bill could impose mandates on entities in the United States 
that engage in transactions with businesses or countries 
sanctioned under that act. The bill would require the President 
to sanction any entity that provides Iran with refined 
petroleum resources, or engages in an activity that could 
contribute to Iran's ability to import such resources. Entities 
sanctioned for those actions would effectively be prohibited 
from engaging in business with persons in the United States. In 
addition, the bill would require the President to impose 
certain sanctions on entities that invest more than a specified 
amount of money in businesses involved in Iran's petroleum 
industry. Should the President impose sanctions, persons in the 
United States involved in transactions with entities sanctioned 
under the bill would be required to cease those transactions. 
The bill would allow the President the discretion to make 
exceptions in applying such sanctions in cases deemed to be 
important for the national interests of the United States. The 
cost of the mandates, if imposed, would be the forgone net 
income from the prohibited transactions and would depend on the 
sanctions applied by the President.
    The bill also could impose private-sector mandates by 
directing the President to freeze the funds and other assets of 
certain Iranian persons, and the assets of their family members 
and associates to whom they have transferred assets on or after 
January 1, 2009. Some of those individuals may reside in the 
United States. Because those subject to sanctions have not been 
identified, the cost of that mandate is uncertain.
    Finally, by imposing new license requirements on exporters 
of certain products, conditioned upon whether the country where 
exports are sent has been designated as a Destination of 
Possible Diversion Concern, the bill could impose a mandate. 
Because of uncertainty about what countries would be 
designated, if any, and what products would be subject to 
additional licensing requirements for export to those 
countries, the cost of complying with this mandate cannot be 
determined.
    Previous CBO estimate: On May 13, 2009, CBO transmitted a 
cost estimate for H.R. 1327, the Iran Sanctions Enabling Act of 
2009 as ordered reported by the House Committee on Financial 
Services on April 28, 2009. H.R. 1327 would authorize state and 
local governments to adopt or enforce measures to sell certain 
of their investments in Iran's energy sector--or prohibit 
buying such investments--without concern they are interfering 
with the federal government's conduct of foreign affairs. Title 
II of the Comprehensive Iran Sanctions, Accountability, and 
Divestment Act of 2009 contains similar language concerning 
divestment from certain companies that invest in Iran. CBO 
estimates that neither H.R. 1327 nor Title II of the 
Comprehensive Iran Sanctions, Accountability, and Divestment 
Act of 2009 would have a significant effect on the federal 
budget.
    Estimate prepared by: Federal Spending: Department of the 
Treasury Programs--Matthew Pickford; Department of Commerce 
Programs--Susan Willie; Department of State Programs and 
Reports--John Chin; Federal Revenues: Zachary Epstein; Impact 
on state, local, and tribal governments: Burke Doherty; Impact 
on the private sector: Marin Randall.
    Estimate approved by: Theresa Gullo, Deputy Assistant 
Director for Budget Analysis.

                                  
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