Iran Sanctions: Impact in Furthering U.S. Objectives Is Unclear  
and Should Be Reviewed (18-DEC-07, GAO-08-58).			 
                                                                 
The 2006 U.S. National Security Strategy stated that the United  
States faces challenges from Iran, including Iran's proliferation
efforts and involvement in international terrorism. To address	 
these concerns, the United States employs a range of tools,	 
including diplomatic pressure, a military presence in the Gulf,  
and sanctions. A U.S. sanction is a unilateral restriction or	 
condition on economic activity imposed by the United States for  
reasons of foreign policy or national security. We were asked to 
review (1) U.S. sanctions targeting Iran and their		 
implementation, (2) reported sanction impacts, and (3) factors	 
limiting sanctions. To conduct the review, we assessed trade and 
sanction data, information on Iran's economy and energy sector,  
and U.S. and international reports on Iran, and discussed	 
sanctions with U.S. officials and Iran experts. 		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-58						        
    ACCNO:   A79048						        
  TITLE:     Iran Sanctions: Impact in Furthering U.S. Objectives Is  
Unclear and Should Be Reviewed					 
     DATE:   12/18/2007 
  SUBJECT:   Combating terrorism				 
	     Foreign trade policies				 
	     International relations				 
	     International trade regulation			 
	     International trade restriction			 
	     Nuclear proliferation				 
	     Program evaluation 				 
	     Sanctions						 
	     Strategic planning 				 
	     Terrorism						 
	     Trade regulation					 
	     Data integrity					 
	     Foreign policies					 
	     Dept. of Commerce Control List			 
	     Iran						 

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GAO-08-58

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Report to the Ranking Member, Subcommittee on National Security and 
Foreign Affairs, House Committee on Oversight and Government Reform:

United States Government Accountability Office:

GAO:

December 2007:

Iran Sanctions:

Impact in Furthering U.S. Objectives Is Unclear and Should Be Reviewed:

GAO-08-58: 

GAO Highlights:

Highlights of GAO-08-58, a report to the Ranking Member, Subcommittee 
on National Security and Foreign Affairs, Committee on Oversight and 
Government Reform, House of Representatives. 

Why GAO Did This Study:

The 2006 U.S. National Security Strategy stated that the United States 
faces challenges from Iran, including Iranï¿½s proliferation efforts and 
involvement in international terrorism. To address these concerns, the 
United States employs a range of tools, including diplomatic pressure, 
a military presence in the Gulf, and sanctions. A U.S. sanction is a 
unilateral restriction or condition on economic activity imposed by the 
United States for reasons of foreign policy or national security. We 
were asked to review (1) U.S. sanctions targeting Iran and their 
implementation, (2) reported sanction impacts, and (3) factors limiting 
sanctions. To conduct the review, we assessed trade and sanction data, 
information on Iranï¿½s economy and energy sector, and U.S. and 
international reports on Iran, and discussed sanctions with U.S. 
officials and Iran experts. 

What GAO Found:

Since 1987, U.S. agencies have implemented numerous sanctions against 
Iran. First, Treasury oversees a ban on U.S. trade and investment with 
Iran and filed over 94 civil penalty cases between 2003 and 2007 
against companies violating the prohibition. This ban may be 
circumvented by shipping U.S. goods to Iran through other countries. 
Second, State administers laws that sanction foreign parties engaging 
in proliferation or terrorism-related activities with Iran. Under one 
law, State has imposed sanctions in 111 instances against Chinese, 
North Korean, Syrian, and Russian entities. Third, Treasury or State 
can use financial sanctions to freeze the assets of targeted parties 
and reduce their access to the U.S. financial system.

U.S. officials report that U.S. sanctions have slowed foreign 
investment in Iranï¿½s petroleum sector, denied parties involved in 
Iranï¿½s proliferation and terrorism activities access to the U.S. 
financial system, and provided a clear statement of U.S. concerns to 
the rest of the world. However, other evidence raises questions about 
the extent of reported impacts. Since 2003, the Iranian government has 
signed contracts reported at about $20 billion with foreign firms to 
develop its energy resources. Further, sanctioned Iranian banks may 
fund their activities in currencies other than the dollar. Moreover, 
while Iran halted its nuclear weapons program in 2003, according to the 
November 2007 National Intelligence Estimate, it continues to enrich 
uranium, acquire advanced weapons technology, and support terrorism. 
Finally, U.S. agencies do not systematically collect or analyze data 
demonstrating the overall impact and results of their sanctioning and 
enforcement actions.

Iranï¿½s global trade ties and leading role in energy production make it 
difficult for the United States to isolate Iran and pressure it to 
reduce proliferation and support for terrorism. For example, Iranï¿½s 
overall trade with the world has grown since the U.S. imposed 
sanctions, although this trade has fluctuated. Imports rose sharply 
following the Iran-Iraq war in 1988 and then declined until 1995; most 
export growth followed the rise in oil prices beginning in 2002 (see 
figure). This trade included imports of weapons and nuclear technology. 
However, multilateral UN sanctions began in December 2006. 

Figure: Iranï¿½s Total Exports and Imports, 1986-2006: 

[See PDF for image] 

This figure is a multiple line graph illustrating Iranï¿½s total exports 
and imports, 1986-2006. The vertical axis of the graph represents 
billions of 2006 dollars from 0 to 80. The horizontal axis of the graph 
represents years from 1986 to 2006. Two lines are illustrated on the 
graph: Imports and Exports. Additionally, the following data is 
depicted: 

1987: U.S. ban on imports from Iran; 
1995: U.S. ban on U.S. exports to Iran; Annual export growth rate, 1987-
2006: 8.6%; Annual import growth rate, 1987-2006: 7.0%. 

Source: GAO analysis of IMF Direction of Trade Statistics, May 2007. 

[End of figure] 

What GAO Recommends:

Congress should consider requiring the National Security Council, in 
collaboration with key agencies, to (1) assess data on Iran sanctions 
and complete an overall baseline assessment of sanctions, (2) develop a 
framework for ongoing assessments, and (3) periodically report the 
results to Congress.

The Department of the Treasury commented that it assesses the impact of 
financial sanctions. We now cite Treasuryï¿½s assessments in our report 
but conclude no overall assessment of all U.S. sanctions has been 
conducted. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?gao-08-58]. For more information, contact Joseph 
A. Christoff at (202) 512-8979 or [email protected]. 

[End of section] 

Contents:

Letter:

Results in Brief:

Background:

U.S. Agencies Implement Numerous Sanctions Targeting Iran:

U.S. Agencies Have Not Assessed the Overall Impact of Sanctions 
Targeting Iran:

Iran's Global Trade Ties Limit U.S. Sanction Influence on Iran's 
Behavior; UN Sanctions Have Recently Been Imposed:

Conclusion:

Matter for Congressional Consideration:

Agency Comments and Our Evaluation:

Appendix I: Objectives, Scope, and Methodology:

Appendix II: U.S. and UN Sanctions Targeting Iran:

Appendix III: Sanctions Imposed Under the Law Currently Known as the 
Iran, North Korea, and Syria Nonproliferation Act:

Appendix IV: Potential Investors in Iran's Energy Sector:

Appendix V: Comments from the Department of the Treasury:

GAO Comments:

Appendix VI: Comments from the Department of Commerce:

GAO Comments:

Appendix VII: GAO Contact and Staff Acknowledgments:

Tables:

Table 1: U.S. Sanction Laws Targeting Iran:

Table 2: Iran's Top Export Markets, by Country, 1994 and 2006:

Table 3: Iran's Top Import Suppliers, by Country, 1994 and 2006:

Table 4: Top Iranian Crude Oil Export Destinations and Country Share, 
2005:

Table 5: Imposition of Sanctions under the Iran Nonproliferation Act 
(INPA) and the Iran and Syria Nonproliferation Act (ISNA), 2001-2007, 
Iran-Related Cases:

Table 6: List of Recent Major Agreements between Iran and Foreign 
Investors in Iran's Energy Sector:

Figures:

Figure 1: Map of Iran:

Figure 2: Iran's Total Exports and Imports, 1986-2006:

Figure 3: Establishment of U.S. and UN Sanctions Targeting Iran:

Abbreviations:

BIS: Bureau of Industry and Security (Department of Commerce): 

CBP: Customs and Border Protection (Department of Homeland Security: 

CCL: Commerce Control List: 

CRS: Congressional Research Service: 

DHS: Department of Homeland Security: 

DOD: Department of Defense: 

EIA: Energy Information Administration: 

EU: European Union: 

FBI: Federal Bureau of Investigation (Department of Justice): 

GDP: gross domestic product: 

IAEA: International Atomic Energy Agency: 

ICE: Immigrations and Customs Enforcement (Department of Homeland 
Security): 

IEEPA: International Emergency Economic Powers Act: 

ILSA: Iran-Libya Sanctions Act of 1996: 

IMF: International Monetary Fund: 

INKSNA: Iran, North Korea, and Syria Nonproliferation Act: 

INPA: Iran Nonproliferation Act of 2000: 

ISNA: Iran and Syria Nonproliferation Act: 

IRGC: Islamic Revolutionary Guard Corps: 

ITR: Iranian Transaction Regulations: 

NSC: National Security Council: 

ODNI: Office of the Director of National Intelligence: 

OFAC: Office of Foreign Assets Control (Department of the Treasury): 

PSV: post-shipment verification: 

UAE: United Arab Emirates: 

UN: United Nations: 

UNSC: United Nations Security Council: 

WMD: weapons of mass destruction: 

[End of section] 

United States Government Accountability Office: Washington, DC 20548:

December 18, 2007:

The Honorable Christopher Shays: 
Ranking Member: 
Subcommittee on National Security and Foreign Affairs: Committee on 
Oversight and Government Reform: House of Representatives: 

Dear Mr. Shays:

The 2006 National Security Strategy stated that the challenges that 
Iran presents to the United States include the country's proliferation 
efforts, involvement in international terrorism, opposition to the 
Middle East peace process, and poor human rights record. To address 
these concerns, the United States employs a range of tools, including 
diplomacy, a military presence in the Gulf, and unilateral sanctions. 
The broad U.S. strategy is intended to deter Iran from developing 
weapons of mass destruction, acquiring advanced conventional weapons, 
and supporting terrorist activities. Sanctions have played an important 
role in the U.S. approach to confronting Iran. A U.S. "sanction" is any 
unilateral restriction or condition on economic activity with respect 
to a foreign country or foreign entity that is imposed by the United 
States for reasons of foreign policy or national security.[Footnote 1]

We reviewed (1) U.S. sanctions targeting Iran and their implementation, 
(2) the reported impact of the sanctions, and (3) factors that affect 
the ability of U.S. sanctions to reduce Iran's proliferation and 
terrorism-related activities.

To determine implementation and assessment of U.S. sanctions involving 
Iran, we identified and reviewed U.S. executive orders and laws that 
established sanctions targeted at Iran. While we focused on Iran- 
specific sanctions, we also reviewed financial sanctions that address 
proliferation and terrorism concerns that the United States can use 
against any party, including Iran, as well as United Nations (UN) 
sanctions. We reviewed data identifying how often sanctions have been 
imposed. Further, to review assessments and information about sanction 
impacts and factors influencing sanctions, we reviewed U.S. agency 
documents and analyzed international trade, energy, and private sector 
data. We interviewed experts on Iran regarding the sanctions and their 
impact. We further reviewed documentation from the United Nations, 
Department of State, and Congressional Research Service (CRS) that 
identifies current proliferation and terrorism-related activities by 
Iran. We also reviewed U.S. classified documents related to the 
imposition of sanctions; however, no classified information is used in 
this report. On the development of nuclear power and Iran's nuclear 
program, we reviewed information from the Department of Energy and the 
International Atomic Energy Agency (IAEA) and the November 2007 
National Intelligence Estimate on Iran. For all objectives, we 
interviewed officials from the Departments of the Treasury, State, 
Commerce, Defense (DOD), Justice, Homeland Security (DHS), and Energy, 
as well as the Central Intelligence Agency. We conducted our review 
from November 2006 to November 2007 in accordance with generally 
accepted government auditing standards. Appendix I contains a more 
detailed description of our scope and methodology.

Results in Brief:

Since 1987, U.S. agencies have been implementing numerous sanctions 
against Iran that fall into three categories. First, Treasury leads 
efforts to implement a comprehensive U.S. trade and investment ban 
against Iran.[Footnote 2] Between 2003 and 2007, Treasury filed 94 
civil penalty cases against companies violating the ban. However, the 
ban may be circumvented by exporters who ship U.S. goods to Iran 
through other countries. Second, State administers sanction laws 
against foreign parties that engage in proliferation or terrorism- 
related activities with Iran. State has imposed sanctions under these 
laws to varying degrees. For example, under one law, sanctions have 
been imposed in 111 instances. Almost one-half of these cases involved 
Chinese entities selling sensitive goods to Iran, and over 30 percent 
of all sanction cases under this law involved parties that were 
sanctioned multiple times. According to a State official, entities 
engaged in conventional arms transfers were the most widely sanctioned, 
followed by those involved in chemical-biological, missile, and nuclear 
activities. Under another law, sanctions have never been imposed. 
Third, Treasury or State can designate parties that engage in 
proliferation or terrorism-related activities involving Iran as subject 
to financial sanctions that freeze their assets and reduce their access 
to the U.S. financial system.[Footnote 3]

U.S. officials and experts report that U.S. sanctions have specific 
impacts on Iran; however, the extent of such impacts is difficult to 
determine. First, according to U.S. officials and experts, U.S. 
sanctions may have slowed foreign investment in Iran's petroleum 
sector, which hinders Iran's ability to fund its acquisition of 
prohibited items and terrorism-related activities. Second, U.S. 
officials state that financial sanctions deny parties involved in 
Iran's proliferation and terrorism activities access to the U.S. 
financial system and complicate their support for such activities. For 
example, in January 2007, the U.S. government sanctioned Bank Sepah as 
a supporter of the proliferation of weapons of mass destruction, 
thereby eliminating its access to the U.S. financial system and 
reducing its ability to conduct dollar transactions. Third, U.S. 
officials have identified broad impacts of sanctions, such as providing 
a clear statement of U.S. concerns about Iran. However, other evidence 
raises questions about the extent of reported economic impacts. Since 
2003, the Iranian government has signed contracts reported at 
approximately $20 billion with foreign firms to develop its energy 
resources, though it is uncertain whether these contracts will 
ultimately be carried out. In addition, sanctioned Iranian banks may be 
able to turn to other financial institutions or fund their activities 
in currencies other than the U.S. dollar. Moreover, while Iran halted 
its nuclear weapons program in 2003, according to the November 2007 
U.S. National Intelligence Estimate, it continues to acquire advanced 
weapons components, enrich uranium, and support terrorism. Finally, 
U.S. agencies do not assess the overall impact of sanctions. Except for 
Treasury, the agencies, do not collect data demonstrating the direct 
results of their sanctioning and enforcement actions, such as the types 
of goods seized under the trade ban or the subsequent actions of 
sanctioned entities.

Iran's global trade ties and leading role in energy production make it 
difficult for the United States to isolate Iran and pressure it to 
reduce proliferation activities and support for terrorism; however, 
multilateral efforts to target Iran have recently begun. From 1987 
through 2006, Iran's exports grew from $8.5 billion to $70 billion, 
while Iran's imports grew from $7 billion to $46 billion.[Footnote 4] 
During that period, the annual real growth rate of Iran's exports was 
nearly 9 percent and about 7 percent for Iran's imports. Both exports 
and imports fluctuated during this period. For example, imports rose 
sharply following the Iran-Iraq war in 1988, and most of Iran's export 
growth has occurred since 2002, coinciding with sharp increases in oil 
prices. Iran's trade included imports of weapons and nuclear 
technology. Second, global interest in purchasing and developing Iran's 
substantial petroleum reserves has kept Iran active in global commerce. 
The growing worldwide demand for oil, coupled with high oil prices and 
Iran's extensive reserves, enabled Iran to generate more than $50 
billion in oil revenues in 2006. However, multilateral efforts 
targeting Iran have recently begun. Beginning in December 2006, and 
again in March 2007, the UN Security Council (UNSC) adopted sanctions 
against Iran.[Footnote 5] Among other things, these sanctions prohibit 
UN member states from supplying Iran with specific nuclear materials or 
technology, require them to freeze the financial assets of certain 
Iranian individuals and companies with ties to Iran's nuclear or 
ballistic programs, and ban the import of all Iranian conventional arms.

We recommend that the Congress consider requiring the National Security 
Council (NSC), in collaboration with the Departments of State, the 
Treasury, Energy, and Commerce; the intelligence community; and U.S. 
enforcement agencies to (1) collect, analyze, and improve data on Iran 
sanctions and conduct a baseline assessment of the impact and use of 
the sanctions; (2) develop a framework for assessing the ongoing impact 
of U.S. sanctions, taking into consideration the contribution of 
multilateral sanctions; and (3) report periodically to the Congress on 
the sanctions' impact.

We provided a draft of this report to the Departments of State, the 
Treasury, Commerce, Defense, Energy, Justice, and Homeland Security. We 
also provided a draft to the NSC and the Office of the Director of 
National Intelligence (ODNI). The Department of the Treasury provided a 
formal response emphasizing that, as a result of financial pressure, 
Iran is experiencing increasing isolation from the global community. 
The department also states that Iran continues to pursue nuclear 
capabilities and ballistic missile technology and to fund terrorism. 
This comment reinforces our finding that the overall impact of 
sanctions is unclear. In addition, Treasury noted its assessments of 
the effectiveness of financial sanctions. We revised the report to 
recognize that Treasury assesses the impact of financial sanctions but 
maintain that an overall impact assessment of all U.S. sanctions has 
not been undertaken. Treasury's letter can be found in appendix V.

The Departments of State, the Treasury, Commerce, and Energy provided 
written technical comments. We incorporated these comments into the 
report as appropriate. The Department of Commerce submitted its 
technical comments in a letter that is included in appendix VI. The NSC 
provided brief oral comments and ODNI provided a classified response; 
we considered this information and revised the report as appropriate. 
The Departments of Defense, Justice, and Homeland Security provided no 
comments on the draft report, though Homeland Security supported the 
part of our Matter for Congressional Consideration that specifically 
involves the department.

Background:

Iran is a nation of strategic importance due to its central geographic 
location and huge reserves of fossil fuels. Iran's neighbors include 
Iraq and Afghanistan, two countries with ongoing U.S. and coalition 
military operations, and Pakistan and Turkey, key U.S. allies in the 
global war on terrorism (see fig. 1). Furthermore, Iran borders both 
the Persian Gulf and the Strait of Hormuz, through which roughly one- 
fifth of the global oil supply is exported. According to the Department 
of Energy, Iran has the third largest proven oil reserves in the world. 
Iran's oil export revenues constitute about 80 percent of its total 
export revenue, and accounted for nearly one-fifth of its gross 
domestic product (GDP) in 2004. High oil prices in recent years have 
further boosted Iran's oil export revenues.

Figure 1: Map of Iran:

[See PDF for image] 

This figure is a map of Iran with the international boundary noted as 
well as the national and provincial capitals and surrounding countries. 

Source: GAO. 

[End of figure]

U.S.-Iranian relations have often been strained since the early years 
of the Cold War. Following the U.S.-supported overthrow of Iran's prime 
minister in 1953, the United States and others backed the regime of 
Shah Mohammed Reza Pahlavi for a quarter century. Although it did much 
to develop the country economically, the Shah's government repressed 
political dissent. In 1978, domestic turmoil swept the country as a 
result of religious and political opposition to the Shah's rule, 
culminating in the collapse of the Shah's government in February 1979 
and the establishment of an Islamic republic led by Supreme Leader 
Ayatollah Khomeini. In November 1979, militant Iranian students 
occupied the American embassy in Tehran with the support of Khomeini. 
Shortly thereafter, the United States broke diplomatic relations with 
Iran, which remain suspended to this day.

U.S. Agencies Implement Numerous Sanctions Targeting Iran:

U.S. sanctions to deter Iran's proliferation and support for terrorism 
fall into three categories. First, Treasury leads U.S. government 
efforts to implement a comprehensive trade and investment ban against 
Iran. Second, State is responsible for implementing several laws that 
sanction foreign parties engaging in proliferation or terrorism-related 
transactions with Iran. Third, Treasury or State can impose financial 
sanctions, including a freeze on assets and a prohibition on access to 
U.S. financial institutions, against parties who engage in 
proliferation or terrorism-related activities with any party, including 
Iran. (See app. II for more information regarding the timing and nature 
of U.S. and UN sanctions.)

Treasury's Trade and Investment Ban Prohibits Virtually All U.S. 
Commercial Ties with Iran, but Transshipments May Circumvent Ban:

Treasury administers a ban on almost all U.S. trade or investment 
activity involving Iran.[Footnote 6] The prohibitions of the trade and 
investment ban began with a 1987 ban on Iranian imports and were 
followed by a 1995 ban on U.S. exports to and investment in Iran. These 
prohibitions apply to U.S. persons, including U.S. companies and their 
foreign branches, wherever located.[Footnote 7] U.S. officials stated 
that the ban does not apply to independent foreign subsidiaries of U.S. 
companies.[Footnote 8] Non-U.S. persons are generally exempt from the 
provisions of the ban.[Footnote 9] Trade sanctions against Iran were 
eased in 2000 to allow for the purchase and import from Iran of carpets 
and food products.[Footnote 10] Further, the Trade Sanctions Reform and 
Export Enhancement Act of 2000 lifted, subject to certain exceptions, 
U.S. sanctions on commercial sales of food, agricultural commodities, 
and medical products to several sanctioned countries, including 
Iran.[Footnote 11] The ban also prohibits U.S. financial institutions 
from having direct banking relationships with banks in Iran and banks 
owned or controlled by the government of Iran.[Footnote 12]

According to a Treasury official, the trade and investment ban is aimed 
at making it more difficult for Iran to procure U.S. goods, services, 
and technology, including those that could be used for terrorism or 
proliferation. The official further stated that, as with all U.S. 
economic sanctions programs, the premise of the sanctions is to exact a 
price on the sanctioned entity, which serves as an inducement to change 
the behavior that threatens U.S. national security and foreign policy 
goals. Sanctions also serve to make it more difficult for a sanctioned 
entity to pursue its threatening conduct.

Treasury's Office of Foreign Assets Control (OFAC) administers the 
trade and investment ban and is responsible for reviewing and licensing 
requests to export or re-export goods to Iran, with most items subject 
to a general policy of denial. OFAC is also responsible for conducting 
civil investigations of sanctions violations, which can result in 
warning letters, cease and desist orders, and civil penalties of up to 
$250,000 (or an amount that is twice the amount of the transaction that 
is the basis for the violation) imposed administratively. We found that 
Iran sanctions were involved in 94 out of 425 civil penalty cases that 
OFAC assessed or settled as a result of sanction violations between 
2003 and 2007. In cases where OFAC finds evidence of willful violations 
of the trade and investment ban, it may refer those cases to other 
federal law enforcement agencies for criminal investigation. 
Investigations of potential criminal violations can be conducted by the 
Department of Commerce's Bureau of Industry and Security (BIS), DHS's 
Immigration and Customs Enforcement (ICE), and the Department of 
Justice's Federal Bureau of Investigation (FBI), sometimes acting 
jointly. Criminal prosecutions are pursued by the Department of 
Justice. Under recently enacted legislation, criminal penalties for 
violations of the trade and investment ban can range up to $1,000,000 
and (for natural persons) 20 years in jail.[Footnote 13]

According to officials at key U.S. export enforcement agencies, the 
trade ban may be circumvented by the transshipment of U.S. exports 
through third countries. Officials identified several locations that 
serve as common transshipment points for goods destined for Iran. These 
locations include Germany, Malaysia, Singapore, the United Kingdom, 
and, according to Commerce officials, the United Arab Emirates (UAE) in 
particular.

Two trends underscore the possibility that U.S. goods are being shipped 
to Iran through the UAE. First is the considerable growth in U.S. trade 
flows through the UAE. The United States has become the number one 
supplier of imports to the UAE and Iran is the UAE's largest trade 
partner. Moreover, although trade statistics do not specify the portion 
of UAE exports to Iran that are of U.S.-origin, the UAE transships a 
higher proportion of its U.S. imports than other countries do. 
According to Commerce officials transshipments have been a considerable 
problem in terms of the effectiveness of sanctions in place against 
Iran. The second trend is the high rate of unfavorable end-use checks 
for U.S. items exported to the UAE. The Department of Commerce relies 
on post-shipment verification (PSV) checks as its primary method of 
detecting and preventing illegal transfers, including transshipments, 
of U.S.-origin exports to Iran. However, according to Commerce 
officials, in August 2007, the UAE enacted a comprehensive export, 
reexport, and transshipment control law to better enable the UAE to 
control transshipment of sensitive goods through its ports. The law is 
too new to assess its effectiveness. (Further information is 
classified.)

State Sanctions Foreign Entities under Iran-Specific Laws:

Congress has taken steps to discourage trade by third-country parties 
with Iran by enacting sanction laws that have a "secondary boycott" 
effect. Three U.S. sanction laws discourage foreign parties from 
engaging in proliferation or terrorism-related activities with Iran 
(see table 1). State leads efforts to implement these laws and has 
imposed sanctions under these laws to varying degrees.

Table 1: U.S. Sanction Laws Targeting Iran:

U.S. law: Iran, North Korea, and Syria Nonproliferation Act[A]; 
Sanctionable activities: Transfer to Iran of goods, services, or 
technology listed in various multilateral export control arrangements 
or that contribute to weapons of mass destruction or missile programs; 
Sanctions imposed against foreign parties: Among other things, no U.S. 
government procurement, no U.S. assistance, no licenses for exports 
from the United States to the foreign party of defense or dual-use 
items; Sanctions are discretionary and State has typically imposed 
sanctions for a 2-year period; 
Use of sanctions: Sanctions imposed 111 times since 2000 in Iran-
related cases, including: 
* 52 instances against Chinese parties; 
* 9 instances against North Korean parties; 
* 8 instances against Syrian parties, and; 
* 7 instances against Russian parties. 

U.S. law: Iran-Iraq Arms Nonproliferation Act of 1992[B]; 
Sanctionable activities: Transfer to Iran of controlled goods or 
technology so as to contribute "knowingly and materially" to Iran's 
efforts to acquire destabilizing numbers and types of advanced 
conventional weapons; 
Sanctions imposed against foreign parties: Against persons: No U.S. 
government procurement or export licenses; Against foreign countries: 
Among other things, no U.S. government assistance or support for 
multilateral development bank assistance; Sanctions are mandatory and 
are imposed for a 2-year period against persons and for a 1-year period 
against foreign countries. The President also has the authority to 
impose an additional discretionary sanction against foreign countries; 
Use of sanctions: Sanctions imposed 12 times in 2002 and 2003.

U.S. law: Iran Sanctions Act[C]; 
Sanctionable activities: Investment of $20 million or more within a 12-
month period that directly and significantly contributed to the 
enhancement of Iran's ability to develop its petroleum resources; 
Exports, transfers, or other provision to Iran of any goods, services, 
technology or other items knowing that the provision of such items 
would contribute materially to Iran's ability to acquire or develop 
chemical, biological, or nuclear weapons or related technologies; or 
destabilizing numbers and types of advanced conventional weapons; 
Sanctions imposed against foreign parties: Two of the following 
options: 
* no Export-Import Bank assistance; 
* no export licenses to export certain goods to sanctioned parties; 
* no loans or credits totaling more than $5 million in a 12-month 
period from U.S. financial institutions; 
* no U.S. government procurement; 
* for sanctioned financial institutions, no designation as a primary 
dealer in U.S. government debt instruments, and may not serve as an 
agent of the U.S. government or as repository for U.S. government 
funds, or; 
* additional sanctions, as appropriate, to restrict imports regarding 
the sanctioned party; Sanctions are mandatory and are imposed for a 
period of not less than 2 years; 
Use of sanctions: Sanctions never imposed, though State officials note 
that the law has been used as a tool in diplomatic efforts. 

Source: U.S. public laws, [hyperlink, 
http://www.state.gov/t/isn/c15231.htm], Federal Register.

[A] This law was enacted as the Iran Nonproliferation Act of 2000; 
Restriction on Extraordinary Payments in Connection with the 
International Space Station, Pub. L. No. 106-178, 114 Stat. 38; Syria 
was added to the act in 2005 by the Iran Nonproliferation Amendments 
Act of 2005, Pub. L. No. 109-112, ï¿½4, 119 Stat. 2366, 2369; and North 
Korea was added in 2006 by the North Korea Nonproliferation Act of 
2006, Pub. L. No. 109-2353, 120 Stat. 2015.

[B] Enacted by the National Defense Authorization Act for fiscal year 
1993, Pub. L. No. 102-484, Title XVI, 106 Stat. 2315, 2571-75 (1992). 
We are unable to distinguish between Iran and Iraq sanction cases, as 
this information is classified.

[C] This act was originally enacted as the Iran-Libya Sanctions Act of 
1996, Pub. L. No. 104-172, 110 Stat. 1541; Libya was removed from the 
law in 2006 by the Iran Freedom Support Act, Pub. L. No. 109-293, 120 
Stat. 1344. Proliferation-related sanctionable activities were added to 
the law in 2006.

[End of table]

As table 1 shows, State has imposed sanctions against foreign parties, 
including bans on U.S. government procurement opportunities and sales 
of defense-related items, in 111 Iran-specific cases since 2000 under a 
law currently known as the Iran, North Korea, and Syria 
Nonproliferation Act (INKSNA).[Footnote 14] This law targets foreign 
persons that have transferred goods, services, or technology to Iran 
that are listed on various multilateral export control lists.[Footnote 
15] According to a State official, entities engaged in conventional 
arms transfers were the most widely sanctioned, followed by those 
involved in chemical-biological, missile, and nuclear activities. Since 
2000, almost half of the cases (52) involved Chinese parties, with 
North Korean and Russian parties accounting for 9 and 7 cases, 
respectively. In 2007, Syrian parties were sanctioned in 8 cases. 
According to State officials, in most cases, the full range of 
sanctions authorized under INKSNA is imposed, and sanctions have been 
typically imposed for a 2-year period. Over 30 percent of all sanction 
cases involve parties that were sanctioned multiple times under the 
law--some, primarily Chinese firms, 3 or more times. According to a 
State official, such instances were the result of new proliferation 
activities by these firms. Because the law establishes the sanctions 
that are available, the practical effect of continuing to impose 
sanctions against the same parties is to extend the length of time the 
sanctions are imposed and make the public aware of the firms 
facilitating proliferation with Iran. State officials said that 
generally no consideration of additional penalties or measures is given 
to parties who have been sanctioned multiple times, although some of 
these entities have been sanctioned under other sanction tools. 
However, State officials emphasized that they raise concerns about the 
activities of such entities with foreign governments as appropriate.

In deciding to sanction an entity under INKSNA, State officials 
reported that every 6 months they assess as many as 60,000 intelligence 
reports to identify transfer cases that should be submitted to agencies 
for review. State decides, on a discretionary basis, which parties to 
sanction following a meeting chaired by the NSC that solicits input 
from DOD, Energy, and Treasury and other agencies regarding the 
disposition of each case. According to a State official, the Deputy 
Assistant Secretary-level interagency group reviews cases to recommend 
whether the foreign persons were reportable under the act, and if so, 
(1) whether there was information establishing that a case was exempt 
from sanctions under the act, (2) whether to seek from the foreign 
person additional information concerning the transfer or acquisition as 
provided for in the act, and (3) whether sanctions under the act should 
be applied. The final decision regarding the disposition of each case 
is made by the Deputy Secretary of State. One State official noted that 
there have been several cases in which State decided not to impose 
sanctions because of positive nonproliferation actions taken by the 
foreign government responsible for the firm engaging in the 
proliferation transfer. A foreign government punishing or prosecuting 
the firm responsible for the transfer is one example of the type of 
positive action that has resulted in a decision not to impose 
penalties. Another reason why State may decide not to impose sanctions 
is a concern that such an action, which is made public, may compromise 
the intelligence "sources and methods" used to collect information on a 
particular proliferation case. Once final decisions are made, State 
then submits a classified report to Congress identifying parties that 
have engaged in sanctionable activities and parties that will be 
sanctioned, and ultimately publishes the names of sanctioned entities 
in the Federal Register.[Footnote 16] (See appendix III for a detailed 
listing of these sanction cases.)

Under a second law, the Iran-Iraq Arms Nonproliferation Act of 
1992[Footnote 17] (also shown in table 1), State has imposed sanctions 
12 times. Under this act, mandatory sanctions include prohibiting the 
export to Iran of all goods specified on the Commerce Control List 
(CCL).[Footnote 18] State also can impose sanctions against foreign 
parties, such as a ban on U.S. government procurement opportunities or 
export licenses that knowingly and materially contribute to Iran's 
efforts to acquire destabilizing numbers and types of advanced 
conventional weapons. As with the Iran, North Korea, and Syria 
Nonproliferation Act, decisions under this act include interagency 
input from Commerce, Energy, and DOD, with State in the lead and 
responsible for deciding which cases warrant imposition of sanctions. 
In 2002, State imposed sanctions in 10 instances, 9 of which were 
against Chinese parties.[Footnote 19] In 2003, sanctions were imposed 
against two parties, one Jordanian and one Indian. No sanctions have 
been imposed since 2003 primarily because, according to State 
officials, it is difficult to establish that transfers were made by 
parties who knowingly and materially contributed to Iran's 
proliferation.

Table 1 shows that State has not imposed sanctions against any party 
under a third law--the Iran Sanctions Act--though State officials noted 
that the law has been useful in raising U.S. concerns over Iran. The 
goal of the Iran Sanctions Act (previously known as the Iran-Libya 
Sanctions Act of 1996,[Footnote 20] or ILSA) has been to deny Iran the 
financial resources to support international terrorism or the 
development of weapons of mass destruction (WMD) by limiting Iran's 
ability to find, extract, refine, or transport its oil resources. State 
considered sanctions on one occasion in 1998; however, the U.S. 
government granted waivers to the parties involved.[Footnote 21] In 
that instance, the U.S. government determined that the investments of 
three foreign companies--Total (France), Gazprom (Russia), and Petronas 
(Malaysia)-in the development of Iran's South Pars gas field were 
sanctionable under ILSA. However, the Secretary of State determined 
that it was important to the U.S. national interest to waive the 
imposition of sanctions against these firms. In making this 
determination, the Secretary considered factors such as the desire to 
build an effective multilateral regime to deny Iran the ability to 
acquire WMD and support acts of international terrorism. Further, the 
European Union (EU) had concerns that the use of the act to impose 
sanctions would constitute extraterritorial application of U.S. law. 
The possibility that the EU might take this issue to the World Trade 
Organization for resolution played a role in convincing the U.S. 
government to waive sanctions. In addition, a report on the use of ILSA 
prepared by State and cleared by the NSC noted that the sanctions that 
could be imposed were unlikely to induce the three companies to abandon 
their investments because the companies were insulated from any 
practical negative impact of the sanctions.[Footnote 22]

Targeted Financial Sanctions Freeze Assets of Parties Involved in 
Proliferation and Terrorism-Related Activities:

The U.S. government has taken actions against Iran using targeted 
financial sanctions that can be used against any party that engages in 
certain proliferation or terrorism activities.[Footnote 23] In June 
2005, the President issued Executive Order 13382 to freeze the assets 
of persons engaged in proliferation of WMD and members of their support 
networks.[Footnote 24] This action followed the issuance in September 
2001 of Executive Order 13224 to freeze the assets of persons who 
commit, threaten to commit, or support terrorism.[Footnote 25] 
Executive Orders 13382 and 13224 were both issued under the authority 
of the International Economic Emergency Powers Act (IEEPA).[Footnote 
26] Persons targeted under these financial sanctions are said to be 
"designated" as either WMD proliferators or global terrorists, 
depending on which set of sanctions is employed, and any transactions 
with them by U.S. persons are prohibited.[Footnote 27] According to 
Treasury, the goal of this action is to deny sanctioned parties' access 
to the U.S. financial and commercial systems. Treasury or State can 
make designations under these financial sanctions, which are published 
in the Federal Register.[Footnote 28]

As of October 25, 2007, 53 of the 70 parties designated under the 
nonproliferation financial sanctions were tied to Iranian proliferation 
activities. Of these 53 parties, 48 were either Iranian entities or 
overseas subsidiaries of Iranian banks, 4 were Chinese, and 1 was 
American. Several designations have been made in recent months. For 
example, in June 2007, Treasury designated four Iranian companies for 
their role in Iran's proliferation of WMD.[Footnote 29] On October 25, 
2007, State and Treasury designated 27 entities or individuals under 
Executive Order 13382, including the Islamic Revolutionary Guard Corps 
(IRGC)[Footnote 30] and other companies or individuals affiliated with 
the IRGC, the Ministry of Defense and Armed Forces Logistics, and two 
Iranian banks, including Bank Melli--Iran's largest bank.

With regard to the antiterrorism financial sanctions, Treasury was 
unable to provide us with data on the number of Iran-related 
designations because it does not compile information about the country 
or countries with which the designated entities are involved. We were, 
however, able to identify instances where antiterrorism financial 
sanctions were imposed. For example, on October 25, 2007, under 
Executive Order 13224, Treasury designated the IRGC's Qods Force a 
supporter of terrorism. According to Treasury, the Qods Force provides 
material support to the Taliban, Lebanese Hizbollah, Hamas, and other 
terrorist groups. Treasury also designated Iran's Bank Saderat, which 
is already subject to financial restrictions under the trade ban, as a 
terrorism financier.

U.S. Agencies Have Not Assessed the Overall Impact of Sanctions 
Targeting Iran:

U.S. officials and experts report that U.S. sanctions are having 
specific impacts on Iran; however, the extent of such impacts is 
difficult to determine, and agencies have not assessed the overall 
impact of sanctions. First, U.S. officials report that U.S. sanctions 
have slowed foreign investment in Iran's petroleum sector, which 
hinders Iran's ability to fund proliferation and terrorism-related 
activities. Second, financial sanctions deny parties involved in Iran's 
proliferation and terrorism activities access to the U.S. financial 
system and complicate their support for such activities. Third, U.S. 
officials have identified broad impacts of sanctions, such as providing 
a clear statement of U.S. concerns about Iran. However, other evidence 
raises questions about the extent of reported economic impacts. Since 
2003, the Iranian government has signed contracts reported at 
approximately $20 billion with foreign firms to develop its energy 
resources, though it is uncertain whether these contracts will 
ultimately be carried out. In addition, sanctioned Iranian banks may be 
able to turn to other financial sources or fund their activities in 
currencies other than the U.S. dollar. U.S. and international reports 
also find that Iran continues proliferation activities and support for 
terrorism. Finally, U.S. agencies, except for Treasury's assessments of 
its financial sanctions under Executive Orders 13382 and 13224, do not 
assess the impact of sanctions in helping achieve U.S. objectives nor 
collect data demonstrating the direct results of their sanctioning and 
enforcement actions.

Agencies Report that Sanctions Have Delayed Investment in Iran's 
Petroleum Sector and Had Other Impacts:

State and Treasury officials report that sanctions have had specific 
impacts such as delaying foreign investment in Iran's petroleum sector 
and reducing Iran's access to the U.S. financial system. In addition, 
broad impacts of sanctions, such as their symbolic value, also have 
been recognized.

U.S. Officials State that Iran Sanctions Act Has Contributed to Delays 
in Foreign Investment in Iran's Petroleum Sector:

U.S. officials and experts have stated that U.S. sanctions have played 
a role in slowing Iran's progress in developing its oil and gas 
resources. The Iran Sanctions Act is intended to limit investment in 
Iran's petroleum sector, with an expectation that curbing such 
investment would disrupt the revenue generated by new oil and gas 
investments and reduce Iran's ability to pursue policies that the 
United States deemed unacceptable. A 2004 State Department report noted 
that the law had, among other things, helped delay investment in Iran's 
petroleum sector.[Footnote 31] According to State Department officials, 
there have been no new final oil and gas investment deals in Iran since 
2004. Other experts have similarly noted a slowdown in investment in 
Iran's oil and gas sectors and have cited statements that Iranian oil 
officials had made to that effect. U.S. officials and experts have also 
noted that, while the existence of the Iran Sanctions Act and its use 
as a tool for dialogue with foreign parties may be a contributing 
factor to a slowdown in foreign investment in Iran, Iran's own 
investment policies[Footnote 32] may be contributing to a reduced flow 
of investment.

On the other hand, the Department of State has raised concerns about 
possible energy deals between Iran and potential foreign investors, 
including the reported $16 billion China National Offshore Oil 
Corporation deal for the development of Iran's North Pars gas field. 
Further, the United States has expressed concerns about the estimated 
$4.3 billion preliminary agreement that Royal Dutch Shell, along with 
Spain's Repsol, concluded with the Iranian regime for the construction 
of a liquefied natural gas plant at South Pars, the world's largest 
natural gas field. Also, Indian firms have entered into contracts in 
recent years for the purchase of Iranian gas and oil. The proposed 
construction of a pipeline to deliver Iranian natural gas to India 
through Pakistan is a project about which the United States has 
expressed concerns.

We also found that since 2003 the Iranian government has signed 
contracts reported at approximately $20 billion with foreign firms to 
develop Iran's energy resources. It is uncertain whether these 
contracts will ultimately be carried out, and at least one has already 
been withdrawn. However, these agreements demonstrate foreign firms' 
significant interest in financing or underwriting projects in Iran's 
energy sector. (See app. IV for a listing of recent major agreements 
between Iran and foreign investors in Iran's energy sector.)[Footnote 
33]

U.S. Officials Report that Financial Sanctions Deny Entities Involved 
in Proliferation and Terrorism Access to U.S. Financial System:

State and Treasury officials have testified that financial sanctions 
deny designated individuals and entities access to the funds needed to 
sustain Iran's proliferation.[Footnote 34] For example, in January 
2007, the U.S. government designated Bank Sepah under Executive Order 
13382 as a supporter of WMD proliferation, thereby eliminating its 
access to the U.S. financial system and reducing its ability to conduct 
dollar transactions.[Footnote 35] Further, U.S. financial sanctions 
also have reportedly disrupted Iran's support for terrorism. U.S. 
officials report that the United States has disrupted Hizbollah's 
financial support network by reducing the ability of Iranian banks to 
interact with the U.S. financial system. For example, in September 
2006, Treasury altered the trade ban regulations to cut off Bank 
Saderat, Iran's second largest state-owned bank, from dollar 
transactions due to its support for terrorism.[Footnote 36] Treasury 
officials reported that Iran used Bank Saderat to move millions of 
dollars to terrorist organizations such as Hizbollah, Hamas, and the 
Palestinian Islamic Jihad. This action complicated the bank's financial 
transactions and alerted the world's financial community to Bank 
Saderat's role in funding terrorism.

However, Iran may be able to find alternative financial sources or fund 
its activities in currencies other than the dollar. Treasury officials 
have noted that sanctioned parties often find "workarounds" to lessen 
the sanctions impact, and other financial options can be used.[Footnote 
37] For example, sanctioned Iranian banks may turn to euro or other 
currency transactions to support Iranian government activities. 
Further, in 2006, a Treasury official testified that stopping money 
flows to Iran is particularly challenging because the Iranian 
government draws upon a large network of state-owned banks and 
parastatal companies that is difficult to penetrate.

State and Treasury officials further reported that the effects of U.S. 
financial sanctions have been augmented because several large European 
banks, responding to U.S. diplomatic efforts, have curtailed their 
business with sanctioned Iranian entities and are refraining from 
conducting dollar transactions with Iran. At least 7 of the banks that 
have limited or ended their dealings with sanctioned Iranian entities 
rank among the 20 largest European banks.[Footnote 38] U.S officials 
also report that a number of governments, including France, Germany, 
Italy, and Japan, are beginning to reduce their export credits[Footnote 
39] for goods shipped to Iran.[Footnote 40] U.S. officials have 
contended that such developments have made it increasingly difficult 
for Iran to execute important financial transactions necessary for 
Iran's domestic energy and other projects. U.S. agency officials and 
experts also have cited the increased costs[Footnote 41] to Iran of 
obtaining finance and goods, sometimes resulting in inferior component 
parts. State officials assert that as more countries limit their 
financial interactions with Iranian entities and individuals engaging 
in suspect activities, these parties have been denied access to major 
financial and commercial systems.

Experts and Officials Recognize that Sanctions Have Other Broad Impacts:

U.S. officials and sanction experts state that sanctions have other 
broad impacts. For example, State officials stressed that U.S. 
sanctions serve as a clear symbolic statement to the rest of the world 
of U.S. concerns regarding Iran's proliferation and terrorism-related 
activities. State officials also noted that sanction laws can be used 
as a vehicle for dialogue with foreign companies or countries, and the 
prospect of sanctions can encourage foreign parties to end their 
interactions with Iran. Finally, U.S. officials have stated that 
publicly identifying entities and listing them in the Federal Register 
may deter other firms from engaging in business with sanctioned 
entities.[Footnote 42]

Iran Halted Its Nuclear Weapons Program but Continues to Enrich 
Uranium, Acquire Advanced Weapons, and Support Terrorism:

The extent of the sanctions' impact in deterring Iran from 
proliferation activities, acquiring advanced weapons technology, and 
support for terrorism is unclear. Although Iran halted its nuclear 
weapons program, it continues to enrich uranium, acquire advanced 
weapons, and support terrorism. According to the November 2007 U.S. 
National Intelligence Estimate, Iran halted its nuclear weapons program 
in the fall of 2003. According to the estimate, Iranian military 
entities were working under government direction to develop nuclear 
weapons. However, Iran halted the program because of international 
scrutiny and pressure resulting from exposure of Iran's previously 
undeclared nuclear activities. (See app. II for a timeline of UN and 
international actions with regard to Iran's enrichment activities.)

Although it has halted its nuclear weapons program, Iran continues its 
uranium enrichment program. While enriched uranium can be used for 
nuclear weapons, Iran has stated that its program is for peaceful 
civilian purposes. The Director General of the International Atomic 
Energy Agency[Footnote 43] (IAEA) stated on September 17, 2007, that 
Iran had not suspended its enrichment activities and continued to build 
its heavy water reactor at Arak. This announcement followed a series of 
IAEA discoveries about Iran's nuclear program. In 2002, the IAEA was 
informed of a previously undeclared nuclear enrichment plant in Natanz 
and a heavy water plant in Arak.[Footnote 44] Subsequent IAEA 
inspections revealed that Iran had made significant progress toward 
mastering the technology to make enriched uranium.

Iran also continues to acquire advanced weapons technology, including 
ballistic missile technology, according to Treasury. According to State 
officials, Chinese entities supply certain dual-use items to Iran, 
including some that U.S. officials believe could be used in support of 
Iran's WMD, ballistic and cruise missiles, or advanced conventional 
weapons programs.

The U.S. government also reports that Iran continues to support 
terrorism. We have reported that Iran is one of several countries from 
which Islamic extremism is currently being propagated.[Footnote 45] In 
addition, according to State's 2006 Country Report on Terrorism, Iran 
continues to be an active state sponsor of terrorism.[Footnote 46] The 
report states that the IRGC and Ministry of Intelligence and Security 
influence Palestinian groups in Syria and the Lebanese Hizbollah to use 
terrorism in pursuit of their goals. The report also noted that Iran 
provided guidance and training to select Iraqi Shi'a political groups 
and weapons and training to Shi'a militant groups to enable 
anticoalition attacks. In July 2007, officials of U.S. intelligence 
agencies testified that Iran regards its ability to conduct terrorism 
operations as a key element of its national security strategy.

U.S. Agencies Do Not Assess the Overall Impact of Sanctions and Lack 
Data on Sanction Results:

U.S. agencies do not assess the overall impact of sanctions in 
deterring Iran's proliferation, acquisition of advanced weapons 
technology, or terrorism-related activities, noting the difficulty of 
isolating the impact of sanctions from all other factors that influence 
Iran's behavior. In addition, except for Treasury assessments of 
financial sanctions, agencies do not possess data on the direct results 
of sanctions, such as the types of goods seized that violate the trade 
ban or the subsequent behavior of parties that sell prohibited goods to 
Iran.

Agency Officials Cite Difficulties Measuring the Overall Impact of 
Sanctions on Iran:

State, Treasury, and Commerce officials said that they do not measure 
the overall impact of sanctions they implement. For example, both State 
and Treasury officials emphasized that, with one exception regarding 
one sanction law, they have not attempted to measure the ability of 
U.S. sanctions to deter Iran's proliferation or terrorism-related 
activities. State officials stated it is not possible to isolate the 
impact of sanctions from all other factors that influence Iran's 
behavior, such as the actions of other countries. Further, State 
officials reported that sanctions are just one component of U.S. 
efforts to influence Iran's behavior.

Treasury officials conduct classified assessments of entities 
designated under Executive Orders 13382 and 13224, but report that they 
do not assess the overall impact of sanctions, stating it can be 
difficult to differentiate the impact of various U.S. efforts. For 
example, it is difficult to know where the effects of U.S. diplomacy 
end and the effects of U.S. sanctions begin. State and Treasury 
officials noted that, while the goal of sanctions is to change Iran's 
behavior, such changes take time, and it is not possible to track how 
sanctions imposed today might affect overall behavior in the future. 
Such an exercise would be extremely difficult due to the challenges 
associated with establishing any causal linkage between U.S. sanctions 
and Iran's subsequent behavior. In addition, agency officials noted 
that the sanctions targeting Iran do not constitute a separate program 
or line of effort; thus, these activities are not monitored or assessed 
separately. However, according to Treasury officials, sanctions 
implemented by OFAC constitute a separate program with its own set of 
regulations (the Iranian Transaction Regulations) and OFAC does focus 
specific effort on Iran sanctions. Finally, Treasury and Commerce 
officials stated that it would be difficult to measure either the 
deterrent impact of sanctions or, conversely, the extent to which 
illegal or sanctionable activities continue undetected.

In 2004, State completed a review of the Iran Sanctions Act (then known 
as the Iran-Libya Sanctions Act). The ILSA Extension Act of 2001 
required the President to provide Congress with a report describing the 
extent to which the act had been effective in denying Iran the ability 
to support acts of international terrorism and fund the acquisition of 
WMD by limiting Iran's ability to develop its petroleum 
resources.[Footnote 47] This report stated that actions taken pursuant 
to the act had a "modest positive impact." The 2004 report is the only 
formal assessment U.S. agencies have completed on the broad impact of 
sanctions against Iran.

Agencies Lack Data on Direct Sanction Results:

In addition, agency officials do not possess data on the direct results 
of sanctions. For example, regarding the trade ban, officials from 
DHS's Customs and Border Protection reported that inspectors are not 
required to document whether or not a given seizure is related to the 
ban. As a result, they are unable to provide complete data on the 
volume or nature of goods seized that violate this ban. Further, 
although Treasury posts on the Internet its OFAC administrative 
penalties, it does not compile information regarding the number of 
cases that involve violations of Iran sanctions (we were able to 
identify such cases after reviewing more than 400 detailed case 
descriptions) and the nature of such violations. FBI officials said 
that, within their counterintelligence division, they classify 
investigations by country of origin but would not be able to 
distinguish cases involving Iran sanctions from other Iran-related 
cases because the bureau's automated data systems do not include such 
information. In addition, complete DHS/ICE data on Iran sanctions cases 
are not available because ICE agents are not required to document the 
country of destination when opening a case, nor is this information 
always subsequently added as the case progresses. Further, a Justice 
official stated that the department prosecutes and organizes its cases 
by statute and does not classify its cases by the specific country or 
nationality of the individual involved in its data system. It is thus 
not possible to identify cases specific to the trade and investment ban 
with Iran. In addition, although agencies cite transshipment as a key 
means of evading the trade ban, they do not collect data that would 
help illustrate the magnitude of the problem.

Further, State does not review whether sanctions imposed under the law 
currently known as the Iran, North Korea, and Syria Nonproliferation 
Act--the law used most frequently to sanction foreign parties--stop 
sanctioned parties from engaging in proliferation activities with Iran 
or are relevant for these parties. The law does not require such a 
review. State officials said that, while they are aware of instances 
where proliferation activities ended following the imposition of 
sanctions on particular firms, such information is primarily collected 
on an anecdotal basis. There has been no overall or systematic review 
of whether sanctioned entities ended their proliferation activities, 
though State officials indicated that they monitor the activities of 
sanctioned parties as part of their daily responsibilities. Further, 
these officials emphasized that State must apply the sanctions 
established by law, such as a prohibition on participating in U.S. 
government procurement opportunities, regardless of their relevance or 
potential impact. State officials acknowledged the likelihood that the 
sanctions established by law may have limited relevance for sanctioned 
parties, which may be illustrated in cases where the same parties are 
sanctioned repeatedly for proliferation activities with Iran.

In addition, OFAC does not compile data on the value of assets frozen 
pursuant to targeted financial sanctions. OFAC tracks information on 
assets frozen in the aggregate, not by the amount of assets frozen for 
each particular party that is sanctioned. OFAC also did not have 
information regarding the number of parties sanctioned under Iran- 
related antiterrorism financial sanctions. According to OFAC, 
systematically tracking these data and information is not a useful 
measure of the efficacy of sanctions.

Iran's Global Trade Ties Limit U.S. Sanction Influence on Iran's 
Behavior; UN Sanctions Have Recently Been Imposed:

Iran's global trade ties and leading role in energy production make it 
difficult for the United States to isolate Iran and deter its 
acquisition of advanced weapons technology and support for terrorism. 
First, Iran's trade with the world--both imports and exports--has grown 
since the U.S. trade ban began in 1987. Although trade has fluctuated 
from year to year, most of the growth has occurred since 2002, 
coinciding with the rise in oil prices. This trade includes imports of 
weapons and nuclear technology. Second, global interest in purchasing 
and developing Iran's substantial petroleum reserves has kept Iran 
active in global commerce. Iran's integration in the world economy has 
complicated U.S. efforts to encourage other countries to isolate Iran; 
however, multilateral efforts targeting Iran have recently begun. 
Beginning in December 2006, the UNSC adopted sanctions against Iran in 
response to Iran's noncompliance with its international obligations. 
These sanctions are still being implemented.

Iran's Strong Global Trade Makes It Difficult for U.S. Sanctions to 
Pressure Iran:

Over the past 20 years, U.S. trade with Iran has decreased, but Iran's 
trade with the rest of the world has increased, in large part due to 
increases in oil prices between 2002 and 2006. Asian countries, 
particularly China, are increasing their trade with Iran. Countries 
such as China and Russia continue to provide Iran with sensitive goods.

Iran's Trade with the United States Decreased Substantially Following 
the Imposition of the Trade Ban:

U.S. trade with Iran declined sharply immediately following the 
adoption of both the 1987 U.S. ban on imports from Iran and the 1995 
ban on U.S. exports to and investment in Iran. However, U.S exports to 
Iran rebounded to some degree when the sanctions were eased in 2000. 
Before the 1987 U.S. import ban, 16 percent of Iran's total exports, 
primarily oil, were shipped to the United States. Following the ban, 
this share dropped to about .1 percent. According to our analysis of 
U.S. trade data, Iran exported $2 billion in goods to the United States 
in 1987, about $10 million in 1988, and less than $1 million annually 
for most of the 1990s.[Footnote 48] Further, 2 percent of Iran's 
imports were from the United States before the export ban in 1995; this 
dropped to almost zero after the ban. Total U.S. exports to Iran 
declined from about $282 million in 1995 to less than $400,000 in 1996. 
By 2000, however, total U.S.-Iran trade had increased to about $218 
million, largely as a result of the relaxation of the sanctions in that 
year to allow for the purchase and import of Iranian carpets. In 2006, 
total U.S.-Iran trade was $247 million.

Our analysis of U.S. trade data indicates that both the export and 
import declines coincided with significant changes in the types of 
goods traded. For example, the top U.S. exports to Iran prior to the 
1995 export ban were in the UN trade category "nuclear reactors, 
boilers, and machinery," while the top exports immediately following 
the ban were in the category "printed books and other informational 
materials." In 2006, the top U.S. exports to Iran were pharmaceuticals 
and tobacco products. The top U.S. import from Iran before the 1987 
import ban was oil, whereas the top import immediately following the 
ban--and also in 2006--was carpets and other textile floor coverings.

Iran's Overall Trade Has Grown Since 1987, and Its Trading Partners Are 
Diverse:

Despite the ban of Iranian imports to the United States in 1987 and the 
ban on U.S. exports to Iran in 1995, Iran's overall trade has 
grown.[Footnote 49] From 1987 through 2006, Iran's exports grew from 
$8.5 billion to $70 billion, while Iran's imports grew from $7 billion 
to $46 billion (see fig. 2).[Footnote 50] The annual real growth in 
Iran's exports between 1987 and 2006 was nearly 9 percent; however, the 
export growth rate between 2002 and 2006 was 19 percent, reflecting the 
steep rise in oil prices since 2002 (see fig. 2).[Footnote 51] Iran's 
imports grew at an average annual rate of about 7 percent between 1987 
and 2006. Iran's exports and imports both fluctuated during this 
period. For example, Iran's imports increased significantly following 
the end of the Iran-Iraq war in 1988, followed by steep declines from 
1993 to 1994, following Iran's major currency devaluation (over 1,800 
percent). Likewise, Iran's exports fluctuated. The growth in Iran's 
exports from 1989 to 1993 was followed by a general decline through 
1998. Exports grew dramatically from 2002 to 2006, coinciding with the 
rise in the price of oil from $25 to $65 a barrel. The overall growth 
in Iran's trade from 1986 to 2006 demonstrates the limits of the U.S. 
trade ban to isolate Iran and pressure it to reduce its proliferation 
activities and support for terrorism.

Figure 2: Iran's Total Exports and Imports, 1986-2006:

[See PDF for image] 

This figure is a multiple line graph illustrating Iranï¿½s total exports 
and imports, 1986-2006. The vertical axis of the graph represents 
billions of 2006 dollars from 0 to 80. The horizontal axis of the graph 
represents years from 1986 to 2006. Two lines are illustrated on the 
graph: Imports and Exports. Additionally, the following data is 
depicted: 

1987: U.S. ban on imports from Iran; 
1995: U.S. ban on U.S. exports to Iran; Annual export growth rate, 1987-
2006: 8.6%; Annual import growth rate, 1987-2006: 7.0%. 

Source: GAO analysis of IMF Direction of Trade Statistics, May 2007. 

Note: Iran's trade figures are provided in constant 2006 dollars using 
an alternative exchange rate developed by the World Bank (see app. I).

[End of figure] 

Figure 2 shows that in the year following the 1987 U.S. ban on Iranian 
imports, Iran's exports to the world did not decline. In fact, Iran's 
exports began growing dramatically in 1989. In the 2 years following 
the 1995 ban on U.S. exports to Iran, Iran's imports from the world 
grew, and have generally continued to grow. Iran has been able to 
readily replace the loss in U.S. trade through trade with other 
countries, and the total value of Iranian imports and exports has 
continued to grow largely uninterrupted.

In addition to the overall growth of Iran's trade since 1987, Iran has 
extensive global trade ties with Europe and the developing world. In 
particular, trade with Asian countries has nearly doubled since 
1994.[Footnote 52] Asian countries accounted for 30 percent of Iran's 
exports in 2006, up from about 16 percent in 1994. Iran's exports to 
China increased from about 1 percent in 1994 to about 13 percent in 
2006. Japan and China were the top two recipients of exports from Iran, 
together accounting for more than one-quarter of Iran's exports in 2006 
(see table 2).

Table 2: Iran's Top Export Markets, by Country, 1994 and 2006 (in 
millions of 2006 dollars).

1994: 
Country: Japan; 
Dollar amount: $5,632; 
Share of Iran's total exports: 15.1%. 

Country: United States; 
Dollar amount: 5,184; 
Share of Iran's total exports: 13.9. 

Country: United Kingdom; 
Dollar amount: 3,427; 
Share of Iran's total exports: 9.2. 

Country: Germany; 
Dollar amount: 2,303; 
Share of Iran's total exports: 6.2. 

Country: Korea; 
Dollar amount: 1,776; 
Share of Iran's total exports: 4.8. 

Country: Turkey; 
Dollar amount: 1,656; 
Share of Iran's total exports: 4.4. 

Country: UAE; 
Dollar amount: 1,493; 
Share of Iran's total exports: 4.0.

Country: Italy; 
Dollar amount: 1,452; 
Share of Iran's total exports: 3.9. 

Country: Greece; 
Dollar amount: 1,349; 
Share of Iran's total exports: 3.6. 

Country: Singapore; 
Dollar amount: 1,344; 
Share of Iran's total exports: 3.6. 

Country: All other; 
Dollar amount: 11,600; 
Share of Iran's total exports: 31.2. 

1994 Total: 
Dollar amount: $37,217; 
Share of Iran's total exports: 100.0. 

2006: 
Country: Japan; 
Dollar amount: $9,941; 
Share of Iran's total exports: 14.2%. 

Country: China; 
Dollar amount: 9,194; 
Share of Iran's total exports: 13.1. 

Country: Turkey; 
Dollar amount: 5,112; 
Share of Iran's total exports: 7.3.

Country: Italy; 
Dollar amount: 4,451; 
Share of Iran's total exports: 6.3. 

Country: Korea; 
Dollar amount: 4,040; 
Share of Iran's total exports: 5.8. 

Country: Netherlands; 
Dollar amount: 3,263; 
Share of Iran's total exports: 4.6. 

Country: South Africa; 
Dollar amount: 2,710; 
Share of Iran's total exports: 3.9. 

Country: France; 
Dollar amount: 2,710; 
Share of Iran's total exports: 3.9. 

Country: Spain; 
Dollar amount: 2,275; 
Share of Iran's total exports: 3.2. 

Country: Greece; 
Dollar amount: 2,066; 
Share of Iran's total exports: 2.9. 

Country: All other;
Dollar amount: 24,420;
Share of Iran's total exports: 34.8. 

2006 Total: 
Dollar amount: $70,181; 
Share of Iran's total exports: 100.0. 

Source: GAO analysis of IMF Direction of Trade Statistics, May 2007.

Note: Percentages may not add to 100 due to rounding.

[End of table] 

Iran's growing trade with China has played a large role in replacing 
the declining share of EU countries' trade with Iran over the past 
decade and contributing to Iran's growing trade with Asian countries. 
In 2006, the EU accounted for nearly one-quarter of Iran's exports to 
the world, down from 33 percent in 1994. Germany and the United Kingdom 
were part of this decline. From 1994 to 2006, Iran's exports to Germany 
declined from about 6 percent to less than 1 percent and from about 9 
percent to less than 1 percent for the United Kingdom.

In 2006, Germany and China were Iran's largest providers of imports, 
accounting for 23 percent of Iran's imports. Although Germany has 
remained the largest supplier of imports to Iran for over a decade, its 
share of Iran's imports has declined from about 19 percent in 1994 to 
12 percent in 2006, while Iran's imports from China increased from 
about 1 percent in 1994 to about 11 percent in 2006 (see table 3). Iran 
increased its imports from Middle East countries from about 8 percent 
to 13 percent, with UAE's share increasing from over 5 percent in 1994 
to about 9 percent in 2006.

Table 3: Iran's Top Import Suppliers, by Country, 1994 and 2006 
(millions of 2006 dollars). 

1994: 
Country: Germany; 
Dollar amount: $4,231; 
Share of Iran's total imports: 18.7%. 

Country: Italy; 
Dollar amount: 1,931; 
Share of Iran's total imports: 8.5. 

Country: Japan; 
Dollar amount: 1,712; 
Share of Iran's total imports: 7.6. 

Country: Belgium-Luxembourg; 
Dollar amount: 1,246; 
Share of Iran's total imports: 5.5. 

Country: UAE; 
Dollar amount: 1,239; 
Share of Iran's total imports: 5.5. 

Country: United Kingdom; 
Dollar amount: 1,041; 
Share of Iran's total imports: 4.6. 

Country: France; 
Dollar amount: 917; 
Share of Iran's total imports: 4.1.

Country: Azerbaijan; 
Dollar amount: 751; 
Share of Iran's total imports: 3.3. 

Country: United States; 
Dollar amount: 665; 
Share of Iran's total imports: 2.9. 

Country: Korea; 
Dollar amount: 612; 
Share of Iran's total imports: 2.7. 

Country: All other; 
Dollar amount: 8,243; 
Share of Iran's total imports: 36.5. 

1994 Total: 
Dollar amount: $22,588; 
Share of Iran's total imports: 100.0. 

2006: 
Country: Germany; 
Dollar amount: $5,631; 
Share of Iran's total imports: 12.3%. 

Country: China; 
Dollar amount: 5,020; 
Share of Iran's total imports: 11.0. 

Country: UAE; 
Dollar amount: 3,972; 
Share of Iran's total imports: 8.7.

Country: Korea; 
Dollar amount: 2,908; 
Share of Iran's total imports: 6.4. 

Country: France; 
Dollar amount: 2,615; 
Share of Iran's total imports: 5.7. 

Country: Italy; 
Dollar amount: 2,537; 
Share of Iran's total imports: 5.6. 

Country: Russia; 
Dollar amount: 1,680; 
Share of Iran's total imports: 3.7. 

Country: India; 
Dollar amount: 1,616; 
Share of Iran's total imports: 3.5. 

Country: Brazil; 
Dollar amount: 1,315; 
Share of Iran's total imports: 2.9. 

Country: Japan; 
Dollar amount: 1,287; 
Share of Iran's total imports: 2.8. 

Country: All other;
Dollar amount: 17,041;
Share of Iran's total imports: 37.4. 

2006 Total: 
Dollar amount: $45,624; 
Share of Iran's total imports: 100.0. 
06: Share of Iran's total imports: 3.7.

Source: GAO analysis of IMF Direction of Trade Statistics, May 2007.

Note: Percentages may not add to 100 due to rounding.

[End of table] 

A regional shift in Iran's import suppliers also took place between 
1994 and 2006. The EU's share of Iran's imports from the world declined 
from 50.5 percent in 1994 to slightly over one-third of Iran's imports 
in 2006, while Asian countries' share has tripled, from 9 percent to 27 
percent.

Other Countries Continue to Provide Weapons and Nuclear Technology to 
Iran:

Other countries' exports to Iran include dual-use or sensitive goods, 
such as arms, aircraft, and nuclear equipment and technology-goods that 
the U.S. statutorily prohibits from export to Iran. For example, 
according to UN trade data, Russia and Spain exported $28.9 million of 
nuclear reactor parts from 2004 to 2005, over 89 percent from Russia. 
Iran also acquired spare parts to U.S.-made fighter jets, parts that 
were sold to other countries as surplus.[Footnote 53] According to 
State officials, Chinese entities supply certain dual-use items to 
Iran, including some that U.S. officials believe could be used in 
support of Iran's WMD, ballistic missile, cruise missiles, or advanced 
conventional weapons programs. According to a CRS report[Footnote 54] 
and the testimony from U.S. intelligence agencies, Iran is becoming 
self-sufficient in the production of ballistic missiles, largely with 
foreign help. Iran is also an important customer for Russia's weapons 
and civil nuclear technology. Additional information detailing Iran's 
purchases of weapons and nuclear technology is classified.

Iran's Prominent Oil-Producing and Exporting Role Limits the Impact of 
Sanctions:

Demand for Iranian crude oil, coupled with high oil prices, helps 
support Iran's economy and limits the effects of the U.S. trade ban. 
Iran is a prominent world oil producer, and its economy relies heavily 
on oil export revenues. Iran ranked fourth in terms of world oil 
production and exports in 2005, exporting about 2.6 million barrels of 
oil per day. Iran has the third largest proven oil reserves and the 
second largest reserves of natural gas worldwide,[Footnote 55] 
according to the Oil and Gas Journal. Oil export revenues represent 
nearly 80 percent of Iran's total merchandise export earnings and 
accounted for about 19 percent of Iran's GDP in 2004.

In 2005, Japan and China accounted for 27 and 14 percent of Iran's 
crude oil exports, respectively, as shown in table 4.[Footnote 56]

Table 4: Top Iranian Crude Oil Export Destinations and Country Share, 
2005:

Country: Japan; 
Share of Iran's crude oil exports: 27.3%.

Country: China; 
Share of Iran's crude oil exports: 14.4.

Country: Italy; 
Share of Iran's crude oil exports: 9.0.

Country: South Korea; 
Share of Iran's crude oil exports: 8.9.

Country: France; 
Share of Iran's crude oil exports: 7.0.

Country: Turkey; 
Share of Iran's crude oil exports: 6.5.

Country: South Africa; 
Share of Iran's crude oil exports: 6.1.

Country: Greece; 
Share of Iran's crude oil exports: 5.0.

Country: Spain; 
Share of Iran's crude oil exports: 4.7.

Country: Philippines; 
Share of Iran's crude oil exports: 2.8.

Country: All other countries; 
Share of Iran's crude oil exports: 8.2.

Country: Total; 
Share of Iran's crude oil exports: 100.0.

Source: GAO analysis of UN Trade Statistics, Iran's exports of oil 
(commodity grouping, HS2709), other countries reporting, 1989-2005.

Note: Percentages may not add to 100 due to rounding.

[End of table] 

Given the strong demand for Iranian crude oil, bolstered by continuing 
support for Iran's non-oil exports, several private sector and U.S. 
economic experts stated that Iran's near-term growth prospects look 
favorable. However, a sharp drop in oil prices is a risk, and, 
according to the IMF, a further escalation of tensions associated with 
nuclear issues would adversely affect investment and growth.[Footnote 
57] Another concern is Iran's growing gasoline consumption, which is 
heavily subsidized by the government. According to the Department of 
Energy, Iran is the second largest importer of gasoline in the world 
after the United States and has a shortage of refining capacity to 
produce gasoline.[Footnote 58] In 2006, as part of the Iranian 
government's effort to reduce the subsidy on gasoline, the government 
raised the price of gasoline 25 percent and introduced "smart cards" in 
an effort to deter gas smuggling, reduce gasoline shortages, and 
improve the budget situation.[Footnote 59] In addition, according to 
economic experts, Iran has benefited from strong growth in non-oil 
exports in recent years.[Footnote 60] Non-oil exports increase the 
resiliency of Iran's economy and mitigate its vulnerability to falling 
oil prices, as well as provide jobs. As part of the government's policy 
to move away from crude oil exports, Iran is expanding its 
petrochemical production capacity and moving toward export of 
petrochemical products.[Footnote 61]

UN Established Multilateral Sanctions against Iran in 2006:

Multilateral efforts targeting Iran resulted in the imposition of UN 
sanctions in 2006 as a result of concerns that Iran's nuclear program 
might contain a weapons-related component. In July 2006, UNSC 
resolution 1696 demanded that Iran suspend its uranium enrichment 
program by August 2006 or face possible sanctions.[Footnote 62] Iran 
did not suspend these activities, and in December 2006, the UNSC 
unanimously approved UNSC resolution 1737.[Footnote 63] This resolution 
prohibits UN member states from supplying Iran with the nuclear and 
missile-related materials or technology specified in the resolution, as 
well as any other items that would contribute to proliferation- 
sensitive nuclear activities or the development of nuclear weapon 
delivery systems. In addition, UN member states are required to freeze 
the financial assets and other economic resources of individuals and 
entities designated by the UNSC as having ties to Iran's nuclear or 
ballistic missile programs. Further, the resolution provides for a ban 
on the provision of financial services related to the supply, sale, 
manufacture, transfer or use of prohibited items specified in the 
resolution. Iran was required to suspend its enrichment-related, 
reprocessing, and heavy water-related activities and cooperate fully 
with the IAEA by February 2007 or face possible additional sanctions.

The UNSC imposed further sanctions on Iran after the IAEA found that it 
did not suspend its enrichment or heavy water-related activities. In 
March 2007, the UNSC passed resolution 1747,[Footnote 64] which banned 
arms exports from Iran; called upon all UN member states to exercise 
restraint in sales to Iran of certain categories of heavy conventional 
arms; designated additional individuals and entities, including Bank 
Sepah and those affiliated with the IRGC, as subject to the asset 
freeze requirement; and urged UN member states and international 
financial institutions not to enter into new commitments for financial 
assistance to the government of Iran, except for humanitarian and 
developmental purposes. Resolution 1747 reaffirmed Iran's obligation to 
suspend its enrichment, reprocessing, and heavy water-related 
activities and affirmed UNSC intentions to consider additional 
sanctions should Iran fail to comply by May 2007. The IAEA Director 
General confirmed Iran's failure to comply in its report of May 2007. 
State officials noted that this report triggered ongoing consultations 
among six countries regarding next steps, including the possible 
adoption of additional sanctions.[Footnote 65]

UNSC resolution 1737 established a sanctions committee charged with 
monitoring implementation by UN member states of the measures imposed 
under the resolution, including by reviewing required country 
compliance reports. The State Department reported that, as of August 
2007, the UNSC 1737 Sanctions Committee had received reports from 82 UN 
member countries (43 percent) on resolution 1737 and reports from 64 UN 
member countries (33 percent) on resolution 1747.

U.S. officials have stated that UN sanctions enhance the international 
credibility of U.S. sanctions and provide leverage to increase pressure 
on Iran. State officials have noted that multilateral sanctions enhance 
the potential effectiveness of U.S. sanctions. Since UN sanctions have 
been in place for about a year, it is difficult to assess their impact.

Conclusion:

For the past 20 years, U.S. sanctions against Iran have been an 
important element of U.S. policy to deter Iran from weapons 
proliferation and support for terrorism. Congress is considering 
additional sanctions targeting Iran. UN sanctions may also play an 
important role in pressuring Iran, but these sanctions have not yet 
been fully implemented. However, the overall impact of sanctions, and 
the extent to which these sanctions further U.S. objectives, is 
unclear. On the other hand, some evidence, such as foreign firms 
signing contracts to invest in Iran's energy sector and Iran's 
continued proliferation efforts, raise questions about the extent of 
the sanctions' impact. Moreover, U.S. agencies do not systematically 
collect information on the direct results of the multiple sanctions 
they implement, or their data do not provide specific information on 
Iran sanctions. These agencies have not conducted a baseline assessment 
of the impact of the sanctions. Collecting data on the results of 
multiple sanctions against Iran and conducting an overall baseline 
assessment is challenging, given all the agencies involved and the 
complexities of collecting some of the necessary information. However, 
without an overall assessment of the sanctions' impact and subsequent 
reviews on a periodic basis, the Congress and the Administration will 
continue to lack important information for developing effective 
strategies to influence Iran's behavior.

Matter for Congressional Consideration:

Congress and the Administration need a better understanding of the 
impact of U.S. sanctions against Iran and the extent to which sanctions 
are achieving U.S. foreign policy objectives. The Administration needs 
to take a series of actions to first improve the disparate data 
collected on Iran sanctions and then establish baseline information for 
the continuous monitoring and periodic reporting on what U.S. sanctions 
have achieved. Accordingly, we recommend that Congress consider 
requiring the NSC, in collaboration with the Departments of State, the 
Treasury, Energy, and Commerce; the intelligence community; and U.S. 
enforcement agencies to take the following actions:

(1) collect, analyze, and improve data on U.S. agencies' actions to 
enforce sanctions against Iran and complete an overall baseline 
assessment of the impact and use of U.S. sanctions, including factors 
that impair or strengthen them. This assessment should collect 
information, to the extent feasible, from various U.S. agencies and 
consider factors such as, but not limited to, the following:

* the number of goods seized, penalties imposed, and convictions 
obtained under the trade ban (Homeland Security, Treasury, Commerce, 
Justice);

* sensitive items diverted to Iran through transshipment points 
(Commerce and the intelligence community);

* the extent to which repeat foreign violators of Iran-specific 
sanctions laws have ended their sales of sensitive items to Iran (State 
and intelligence community);

* the amount of assets frozen resulting from financial sanctions 
(Treasury and the intelligence community); and:

* the extent of delays in foreign investment in Iran's energy sector 
(State, Energy, and the intelligence community).

(2) develop a framework for assessing the ongoing impact of U.S. 
sanctions, taking into account any data gaps that were identified as 
part of the baseline assessment , and the contribution of multilateral 
sanctions.

(3) report periodically to the Congress on the impact of sanctions 
against Iran in achieving U.S. foreign policy objectives.

Agency Comments and Our Evaluation:

We provided a draft of this report to the Departments of State, the 
Treasury, Commerce, Defense, Energy, Justice, and Homeland Security. We 
also provided a draft to the NSC and the Office of the Director of 
National Intelligence (ODNI). The Department of the Treasury provided a 
formal response emphasizing that, as a result of financial pressure, 
Iran is experiencing increasing isolation from the global community. 
The department's response also states that Iran continues to pursue 
nuclear capabilities and ballistic missile technology and to fund 
terrorism. This comment reinforces our finding that the overall impact 
of sanctions is unclear. In addition, the Treasury noted its 
assessments of the effectiveness of financial sanctions. We revised the 
report to recognize that Treasury assesses the impact of financial 
sanctions but maintain that an overall impact assessment of all U.S. 
sanctions has not been undertaken. Finally, Treasury commented that the 
amount of assets blocked under available financial sanctions is not a 
measure of the program's value. The department also noted that other 
sanction effects, such as the inability of designated parties to use 
the U.S. financial system or the reputational harm that stems from a 
designation, can often be the primary way sanctions have an 
international impact. We have noted the broad positive benefits of 
sanctions in our report. Treasury also told us in an earlier 
communication that it did not disagree with the part of our Matter for 
Congressional Consideration calling for an assessment of assets frozen 
using these financial tools. Treasury's letter can be found in appendix 
V.

The Departments of State, the Treasury, Commerce, and Energy provided 
written technical comments. We incorporated these comments into the 
report as appropriate. The Department of Commerce submitted its 
technical comments in a letter that is included in appendix VI. The NSC 
provided brief oral comments and ODNI provided a classified response; 
we considered this information and revised the report as appropriate. 
The Departments of Defense, Justice, and Homeland Security provided no 
comments on the draft report, though Homeland Security supported the 
part of our Matter for Congressional Consideration that specifically 
involves the department.

As agreed with your office, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies to other 
congressional offices as well as the Departments of State, the 
Treasury, Commerce, Defense, Energy, Justice, and Homeland Security. 
Further, we will provide copies to the NSC and the Office of the 
Director of National Intelligence. We will also make copies available 
to others on request. In addition, this report will be available on 
GAO's Web site at [hyperlink, http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-8979 or at [email protected]. Contact points 
for our Offices of Congressional Relations and Public Affairs may be 
found on the last page of this report. Other contacts and major 
contributors are listed in appendix VII.

Sincerely yours: 

Signed by: 

Joseph A. Christoff: 
Director, International Affairs and Trade: 

[End of section]

Appendix I: Objectives, Scope, and Methodology:

The Ranking Member of the House Subcommittee on National Security and 
Foreign Affairs of the Committee on Oversight and Governmental Reform 
requested that we review U.S. sanctions involving Iran. This report 
addresses (1) U.S. sanctions targeting Iran and their implementation, 
(2) the reported impact of the sanctions, and (3) factors that limit 
the ability of U.S. sanctions to reduce Iran's proliferation and 
terrorism-related activities.

To identify U.S. sanctions targeting Iran and determine the U.S. 
efforts to implement and assess sanctions against Iran, we first 
identified, reviewed, and summarized U.S. executive orders and laws 
that establish sanctions and are targeted at Iran. While we focused on 
Iran-specific sanctions, we also reviewed targeted financial sanctions 
that address proliferation and terrorism concerns and can be used 
against any party, including Iran. In addition, we discussed the 
sanctions with officials from the Departments of State, Treasury, 
Commerce, Defense, Energy, Homeland Security (DHS), and Justice, as 
well as the Central Intelligence Agency.

We submitted several requests for specific data to help illustrate U.S. 
trade ban implementation and enforcement efforts; however, in many 
cases agencies were not able to fully answer our requests. Due to 
limitations in how agencies collect and organize their information, we 
were unable to collect complete data on export licenses issued by 
Treasury, or Customs and Border Protection seizures, Federal Bureau of 
Investigation (FBI) or Immigration and Customs Enforcement 
investigations, or Justice criminal convictions related to sanctions 
against Iran. We could not compile comprehensive data on the number of 
ongoing FBI investigations because the FBI considers such data 
sensitive. We were able to collect data on the extent of civil 
penalties imposed by Treasury, which we assessed to be sufficiently 
reliable for our purposes of showing the number of Iran-specific 
sanction violations since 2003. We were also able to collect data on 
the number of post-shipment verification checks conducted by Commerce 
in the past 5 years, which GAO has previously assessed as reliable.

To determine the use of Iran-specific laws to impose sanctions, we 
reviewed and compiled publicly available information on the Department 
of State's Web site [hyperlink, http://www.state.gov/t/isn/c15231.htm], 
reviewed relevant Federal Register notices, and additional information 
that was declassified. We determined that such data are sufficiently 
reliable for our purposes. State officials explained that they do not 
collect data on direct sanction results, emphasizing that such data 
falls within the purview of the intelligence community. Regarding the 
targeted financial sanctions, we were able to collect data on Iran- 
related designations made under the nonproliferation sanctions, which 
we determined to be sufficiently reliable. However, Treasury could not 
provide data on designations made under the antiterrorism sanctions or 
specify the amount of assets frozen under either set of financial 
sanctions.

To obtain U.S. government views on the impact of sanctions on Iran, we 
collected publicly available testimonies, speeches, and other remarks 
made by U.S. officials from the Departments of State, Commerce, 
Treasury, and DHS from March 2006 through April 2007. We reviewed these 
documents for statements regarding the U.S. government's position on 
the impacts of sanctions on Iran, factors that might lessen their 
impact, UN sanctions, and other issues identified as key to the U.S. 
foreign policy strategy for Iran. We also interviewed U.S. officials as 
well as a judgmentally selected group of experts from think tanks and 
universities and reviewed numerous scholarly articles and testimonies 
to gain additional perspectives on the impact of sanctions on Iran. 
After reviewing the literature on Iran sanctions and conducting a Web- 
based search of universities and other institutions with research 
projects or issue areas focusing on U.S. policies toward Iran, we 
identified a large field of experts. To balance our selection of 
experts to interview, we identified the institutions with which they 
were affiliated. These 39 institutions represented a wide variety of 
perspectives on U.S. foreign policy and, within them, we identified 56 
scholars who have written papers and given presentations on Iran 
sanctions. We then selected six prominent scholars, each from an 
institution having a different political perspective, and with multiple 
publications on Iran sanctions. After reviewing their publications and 
speeches, we interviewed them on a set of questions concerning the 
impact of unilateral and UN sanctions against Iran, factors that might 
hinder impact, and other issues identified as key to U.S. foreign 
policy strategy for Iran.

To obtain information on the impact of sanctions in deterring 
investment in Iran's energy sector, FACTS Global Energy provided us 
with a list of recent major agreements between Iran and foreign firms 
and governments. FACTS Global Energy explained, in response to our 
questions concerning its methodology and the value of the contracts, 
that these are publicly reported figures, though the actual worth of 
the contract may be slightly higher or lower. While FACTS reports that 
some contracts are legally binding, Iran has been involved in several 
instances in which these contracts have not been fulfilled. We also 
substantiated many of these reported agreements based on our review of 
a variety of sources, including expert reports (Congressional Research 
Service [CRS], Economist Intelligence, Global Insight, Energy 
Information Administration); scholarly articles; testimony of senior 
U.S. officials; and other experts. Based on our interviews and checks, 
we determine the data were sufficiently reliable for the purposes of 
indicating the estimated value of publicly announced binding contracts 
between foreign companies and Iran.

To determine the major factors that affect U.S. sanctions ability to 
influence Iran's behavior, we reviewed numerous scholarly articles, 
professional economists' publications, official U.S. documents, and 
testimonies of officials and experts. In addition, we read open-source 
documents, including newspaper and journal articles, both national and 
global. We also interviewed a selected group of experts on Iran, met 
with agency officials, and attended conferences on the subject. In 
addition, we collected and analyzed data from several widely used 
databases of international trade statistics, including International 
Monetary Fund (IMF) Direction of Trade Statistics and International 
Financial Statistics National Income database, the UN trade database, 
U.S. Department of Commerce Trade Statistics, Department of Energy 
statistics, and United Nations Conference on Trade and Development 
Foreign Direct Investment statistics. We also reviewed and analyzed 
proprietary private sector data from an internationally recognized 
consultant on Iran's energy sector. We have determined that these data 
are sufficiently reliable for the purposes for which they were used in 
this report.

To determine the effect of U.S. sanctions on U.S. trade with Iran, we 
used 1986 to 2006 U.S. trade statistics from the Department of 
Commerce, Bureau of the Census Web-based database. We converted these 
data from nominal dollars to 2006 dollars using Department of Commerce, 
Bureau of Economic Analysis U.S. export and import commodity price 
deflators from the online database. We also analyzed these data at the 
2-digit commodity level to determine what goods the United States 
exported to and imported from Iran in various years and the relative 
importance of U.S. trade to Iran for various years encompassing the 
imposition of the trade bans.

We used IMF Direction of Trade Statistics (May 2007 CD ROM) to analyze 
trends in Iran's trade, exports and imports, as well as Iran's trade 
with the world by major country groupings and individual partners, from 
1986 to 2006.[Footnote 66] We determined that the U.S. commodity price 
deflators noted above were not appropriate deflators for the purpose of 
analyzing Iran's global trade. Thus, we converted the annual export and 
import data, which IMF reports in U.S. dollars, into 2006 dollars using 
the following methodology. We converted annual dollar trade flows to 
Iranian rials using an exchange rate conversion factor from the World 
Bank's World Development Indicators Online. This conversion factor, 
known as the DEC alternative conversion factor, is, as a rule, the 
official exchange rate reported in the IMF's International Financial 
Statistics. This alternative conversion factor differs from the 
official rate when the official exchange rate is judged to diverge by 
an exceptionally large margin from the rate actually applied in 
international transactions.[Footnote 67] In such cases, it employs a 
method known as the Atlas method to average exchange rates for a given 
year and the two preceding years, adjusted for differenced in rates of 
inflation between the country and a specified groups of major trading 
countries.[Footnote 68] For 1991 and 1992, for which the World Bank 
does not publish a DEC alternative conversion factor for Iran, we 
constructed conversion rates by applying rates of change exhibited in a 
purchasing power parity conversion rate for Iran, from the World 
Development Indicators Online, from 1990 to1993.

As Iran does not publish separate price indices for exports and 
imports, in their place we use the Iranian gross domestic product (GDP) 
deflator from the World Bank's World Development Indicators Online to 
convert trade flows into 2006 rials. We then use the official 2006 
exchange rate (which happens to be the same as the DEC conversion 
factor) to express these trade flows in constant 2006 dollars. This 
methodology preserves the real growth rates computed in real Iranian 
rials. Thus, it reflects how Iran may view its global trade when 
adjusted for exchange rate anomalies and price inflation.

We obtained general information on other countries' trade in sensitive 
goods (arms, aircraft, and nuclear equipment and technology) from 
publicly available official sources, including State Department reports 
and testimonies, Department of Justice data, the unclassified National 
Intelligence Estimate, and CRS reports and testimonies. To identify 
countries and the value of their exports to Iran of possibly sensitive 
items, we used the global shipping company DHL's online interactive 
product classification tool to identify Harmonized System (HS) trade 
codes in the export control category 0: Nuclear materials, facilities, 
equipment and miscellaneous items. We then used the UN trade database 
to identify countries and their reported value of exports to Iran for 
these items.

The Department of Energy's Energy Information Administration (EIA) 
provided data on Iran's position in world oil and gas reserves and 
production, gasoline consumption, and export earnings.[Footnote 69] We 
calculated Iran's oil export revenue as a percent of Iran's GDP using 
reporting countries' crude oil import statistics from Iran[Footnote 70] 
and GDP data from the most currently available IMF International 
Financial Statistics CD ROM (December 2006). To determine top Iranian 
crude oil export destinations and respective country shares, we used UN 
trade statistics at the 2-digit commodity level (HS2709), for the 
period 1989 to 2005, and ranked countries by dollar value and country 
share of crude oil exports from Iran. For the top recipients of Iran's 
crude oil, we also calculated each country's crude oil imports from 
Iran as a percent of that country's total crude oil imports to 
demonstrate the relative importance of Iranian crude oil to these 
countries. We also used 2-digit commodity level (HS2710 and HS2711) UN 
trade statistics to determine the major suppliers of refined petroleum 
products to Iran.

We based our assessment of Iran's near-term growth prospects on a 
review of economists' reports on Iran, including IMF's 2007 Article IV 
consultation with Iran and country reports on Iran from Economists 
Intelligence Unit and Global Insight. We also utilized proprietary 
information obtained from FACTS Global Energy regarding current 
developments in Iran's energy sector. We supplemented our review with 
reports on Iran from other official sources, including CRS and the 
Department of Energy's EIA.

To determine the development and current status of Iran's nuclear 
program, we reviewed documents from the International Atomic Energy 
Agency, an independent agency affiliated with the United Nations. We 
also reviewed reports by the CRS specific to Iran's nuclear program and 
proliferation concerns. Finally, we reviewed the November 2007 
unclassified National Intelligence Estimate on Iran. We also reviewed 
State and other documents to examine Iran's broad proliferation 
efforts. To identify continued behavior by the government of Iran that 
establishes continued support for terrorism, we reviewed the Department 
of State's 2006 Country Report on Terrorism, other unclassified 
documentation (such as Department of State testimonies and CRS reports) 
as well as classified information.

To trace the development of UN sanctions against Iran for its efforts 
to enrich uranium and possibly develop nuclear weapon capability, we 
reviewed UN Security Council (UNSC) resolutions 1696 (2006), 1737 
(2006), and 1747 (2007) and reports and documents from the UNSC 1737 
Sanctions Committee. We also reviewed documentation from the Department 
of State and CRS. The State Department's Bureau for International 
Organization Affairs declined to meet with us, which precluded direct 
contact with the United Nations. The Bureau stated that negotiations in 
the UNSC were ongoing at the time.

We conducted our review from November 2006 to November 2007 in 
accordance with generally accepted government auditing standards.

[End of section]

Appendix II: U.S. and UN Sanctions Targeting Iran:

Figure 3: Establishment of U.S. and UN Sanctions Targeting Iran:

[See PDF for image] 

The following data is depicted in this figure: 

Year: 1984; 
U.S. government sanctions: Iran designated "state sponsor of 
terrorism." 

Year: 1987; 
U.S. government sanctions: Executive Order 12613 ï¿½ U.S. imports of 
Iranian goods banned. 

Year: 1992; 
U.S. government sanctions: Iran - Iraq Arms Nonproliferation Act of 
1992 ï¿½ sanctions against foreign parties engaging in proliferation 
activities (advanced conventional weapons) that contribute to Iranï¿½s 
efforts in this area. 

Year: 1995: 
U.S. government sanctions: Executive Order 12957 ï¿½ restrictions on U.S. 
involvement with the development of Iran's petroleum resources; 
Executive Order 12959 ï¿½ ban on U.S. imports of Iranian goods, U.S. 
exports to Iran, and U.S. investment in Iran. 

Year 1996: 
U.S. government sanctions: Iran-Libya Sanctions Act of 1996 (ILSA) ï¿½ 
sanctions against parties that invest $40 million or more in the 
development of Iran's petroleum resources. After the first year, 
sanctions shall be applied to nationals of nonwaiver countries who 
invest $20 million or more. 

Year: 1997: 
U.S. government sanctions: Executive Order 13059 ï¿½ consolidation of 
prior executive orders, prohibition on trade and investment activities 
with Iran. 

Year: 2000; 
U.S. government sanctions: Iran Nonproliferation Act of 2000 ï¿½ 
sanctions against foreign persons transferring controlled goods 
(nuclear, biological, or chemical weapons, or ballistic or cruise 
missile systems) to Iran; Lifting of restrictions on certain (1) U.S. 
imports of Iranian goods such as carpets, dried fruits, and nuts; and 
(2) U.S. exports to Iran such as food, agricultural commodities and 
medical products. 

Year: 2003; 
International Atomic Energy Agency (IAEA) and U.N. Security Council 
(UNSC) actions: June: IAEA states that Iran failed to report certain 
nuclear materials and activities and requests cooperation from Iran. 

Year: 2004; 
International Atomic Energy Agency (IAEA) and U.N. Security Council 
(UNSC) actions: November: under the Paris Agreement with the European 
Union-3 (Britain, France, and Germany), Iran agrees to suspend 
enrichment in exchange for renewed trade talks and other aid. 

Year: 2005; 
U.S. government sanctions: Iran Nonproliferation Amendments Act of 2005 
ï¿½ amended Iran Nonproliferation Act of 2000 to include Syria (renamed 
Iran and Syria Nonproliferation Act); 
International Atomic Energy Agency (IAEA) and U.N. Security Council 
(UNSC) actions: August: Iran breaks the seals on its uranium conversion 
facility at Isfahan; IAEA calls on Iran to suspend enrichment-related 
activities. 

Year: 2006; 
U.S. government sanctions: Iran Freedom Support Act ï¿½ amended ILSA to 
(1) add nuclear, chemical, biological, advanced conventional weapons as 
sanctionable, (2) remove Libya from ILSA (renamed Iran Sanctions Act); 
North Korea Nonproliferation Act of 2006 ï¿½ amended Iran and Syria 
Nonproliferation Act to include North Korea (renamed Iran, North Korea, 
Syria Nonproliferation Act); 
International Atomic Energy Agency (IAEA) and U.N. Security Council 
(UNSC) actions: January: Iran resumes enrichment activities. February: 
IAEA votes for a resolution to report Iran to the UNSC. July: UNSC 
resolution 1696 calls for Iran to suspend all uranium enrichment 
related and reprocessing activities. December: UNSC resolution 1737 
requires Iran to suspend its uranium enrichment and reprocessing 
activities as requested under resolution 1696 and decides that all 
states take measures to prevent the supply, sales or transfer of all 
items, goods and technology, which could contribute to Iranï¿½s 
enrichment-related activities or the development of nuclear weapon 
delivery systems. 

Year: 2007; 
International Atomic Energy Agency (IAEA) and U.N. Security Council 
(UNSC) actions: March: UNSC resolution 1747 requires Iran to suspend 
enrichment by May 2007. This resolution widened the scope of the 
previous resolution by banning Iranï¿½s arms exports and freezing the 
assets and restricting travel of additional individuals engaged in the 
countryï¿½s proliferation-sensitive nuclear activities. May: IAEA reports 
that Iran has not suspended its uranium enrichment activities and has 
continued operation of its pilot fuel enrichment plant. 

Source: GAO analysis of U.S. laws and executive orders, as well as UN 
documents, including UN Security Council resolutions. 

[End of figure] 

[End of section] 

Appendix III: Sanctions Imposed Under the Law Currently Known as the 
Iran, North Korea, and Syria Nonproliferation Act:

Table 5: Imposition of Sanctions under the Iran Nonproliferation Act 
(INPA) and the Iran and Syria Nonproliferation Act (ISNA), 2001-2007, 
Iran-Related Cases[A]:

Number of sanctioned parties: [Empty].

Iran Nonproliferation Act of 2000: Sanctions imposed against foreign 
parties from 2001 to 2006: 
Country of sanctioned parties: China; 
Number of sanctioned parties: 46[B].

Country of sanctioned parties: North Korea; 
Number of sanctioned parties: 9.

Country of sanctioned parties: India; 
Number of sanctioned parties: 6.

Country of sanctioned parties: Russia; 
Number of sanctioned parties: 5.

Country of sanctioned parties: Armenia; 
Number of sanctioned parties: 2.

Country of sanctioned parties: Moldova; 
Number of sanctioned parties: 2.

Country of sanctioned parties: Macedonia; 
Number of sanctioned parties: 2.

Country of sanctioned parties: Belarus; 
Number of sanctioned parties: 2.

Country of sanctioned parties: Taiwan; 
Number of sanctioned parties: 2.

Country of sanctioned parties: All others; 
Number of sanctioned parties: 5. 

Total, Number of sanctioned parties: 81.

Iran and Syria Nonproliferation Act: Sanctions imposed against foreign 
parties in 2006 to 2007.

Country of sanctioned parties: Syria; 
Number of sanctioned parties: 8.

Country of sanctioned parties: China; 
Number of sanctioned parties: 6.

Country of sanctioned parties: Sudan; 
Number of sanctioned parties: 3.

Country of sanctioned parties: Malaysia; 
Number of sanctioned parties: 3.

Country of sanctioned parties: Russia; 
Number of sanctioned parties: 2.

Country of sanctioned parties: Iraq; 
Number of sanctioned parties: 2.

Country of sanctioned parties: Mexico; 
Number of sanctioned parties: 2.

Country of sanctioned parties: Pakistan; 
Number of sanctioned parties: 2.

Country of sanctioned parties: All others; 
Number of sanctioned parties: 2.

Total, Number of sanctioned parties: 30.

Both Acts Combined: Sanctions imposed against foreign parties, 2001 to 
2007.

Country of sanctioned parties: China; 
Number of sanctioned parties: 52.

Country of sanctioned parties: North Korea; 
Number of sanctioned parties: 9.

Country of sanctioned parties: Syria; 
Number of sanctioned parties: 8.

Country of sanctioned parties: Russia; 
Number of sanctioned parties: 7.

Country of sanctioned parties: India; 
Number of sanctioned parties: 6.

Country of sanctioned parties: Malaysia; 
Number of sanctioned parties: 3.

Country of sanctioned parties: Sudan; 
Number of sanctioned parties: 3.

Country of sanctioned parties: All others; 
Number of sanctioned parties: 23.

Total, Number of sanctioned parties: 111.

Sources: [hyperlink, http://www.state.gov/t/isn/c15231.htm], Federal 
Register.

[A] The Iran Nonproliferation Act of 2000 (INPA) was amended to include 
Syria in 2005 (the Iran and Syria Nonproliferation Act, or ISNA), and 
North Korea in 2006, and is now known as the Iran, North Korea, and 
Syria Nonproliferation Act (INKSNA).

[B] For the total number of sanctions involving parties from specific 
countries, in particular China, the total number of sanction cases 
includes multiple instances of sanctions that were imposed against the 
same party.

[End of table]

[End of section]

Appendix IV: Potential Investors in Iran's Energy Sector:

The following table illustrates various major agreements between Iran 
and foreign firms and governments in Iran's energy sector.[Footnote 71] 
The table is not intended to imply a complete or thorough listing of 
foreign deals. Because several of these deals are in progress, we are 
making the conservative assumption that these agreements, at a minimum, 
express commercial interest between Iran and the foreign party to 
trade, finance or underwrite a project in Iran's energy sector.

Table 6: List of Recent Major Agreements between Iran and Foreign 
Investors in Iran's Energy Sector:

Date: March 2003; 
Type of agreement: Binding Contract; 
Country/Investor: France, Technip-Coflexip; 
Type of investment: Construction of an ethylene cracker on Kharg 
Island. (Petrochemical); 
Amount: $232 million; 
Status: Completed.

Date: May 2003; 
Type of agreement: Binding Contract; 
Country/Investor: South Korea, Daelim; 
Type of investment: Engineering, Procurement and Construction (EPC) 
contract for 645,000 ton/year (t/y) capacity ethyl-benzene plant in 
Assaluyeh. (Petrochemical); 
Amount: $600 million; 
Status: To be completed in 2008.

Date: January 2004; 
Type of agreement: Binding Contract; 
Country/Investor: Japan, INPEX; 
Type of investment: Development of the Azadegan oil field. (Oil); 
Amount: $4.45 billion; 
Status: INPEX withdrew in 2006 from the project due to the political 
environment in Iran. National Iran Oil Company (NIOC) has since offered 
this project to domestic companies.

Date: April 2004; 
Type of agreement: Binding Contract; 
Country/Investor: Japan, consortium consisting of Japan's Toyo 
Engineering Corp. and Chiyoda Corp; 
Type of investment: Construction of a 670,000 t/y ammonia and urea 
plant in Assaluyeh. (Petrochemical); 
Amount: $220 million; 
Status: To be completed in late 2007.

Date: August 2004; 
Type of agreement: Binding Contract; 
Country/Investor: Brazil, Petrobras; 
Type of investment: Exploration and Development Contract for the Tusan 
block. If commercial volumes of hydrocarbons are found, Petrobras will 
be awarded the contract for the development of the field(s). (Oil); 
Amount: $34 million; 
Status: Near completion.

Date: January 2005; 
Type of agreement: Binding Contract; 
Country/Investor: Consortium: South Korea, Daelim; UK's SembCorp Simon-
Carves; 
Type of investment: EPC Contract for a 300,000 t/y LDPE at the Amir 
Kabir petrochemical plant. (Petrochemical); 
Amount: $242 million; 
Status: To be completed in 2008.

Date: March 2005; 
Type of agreement: Binding Contract; 
Country/Investor: Thailand, PTT Exploration and Production (PTTEP); 
Type of investment: Exploration and development contract for the Saveh 
block. If commercial volumes of hydrocarbons are found, PTTEP will 
invest up to $39 million for further appraisals of the block. Upon 
completion of exploration for commercial hydrocarbon reserves, PTTEP 
will be awarded the contract for the development of the field(s). 
(Oil); 
Amount: $5.4 million (Minimum exploration contract); 
Status: In progress.

Date: May 2005; 
Type of agreement: Binding Contract; 
Country/Investor: China, China National Petroleum Corporation (CNPC); 
Type of investment: Exploration and development contract for the 
Kuhdasht Block. If commercial volumes of hydrocarbons are found, CNPC 
will invest up to $51 million for further appraisals of the block. Upon 
completion of exploration for commercial hydrocarbon reserves, CNPC 
will be awarded the contract for the development of the field(s). 
(Oil/Gas); 
Amount: $18 million (Minimum exploration contract); 
Status: In progress.

Date: July 2005; 
Type of agreement: 
Binding Contract; Country/Investor: Consortium: UK, Costain Oil, UK, 
Gas and Process; Spain, Dragados; 
Type of investment: EPC of Bid Blonad 2 gas processing plant. (Gas); 
Amount: $1.42 billion; 
Status: To be completed sometime in 2010-2011.

Date: July 2005; 
Type of agreement: Binding Contract; 
Country/Investor: Consortium: South Korea, Hyundai Engineering and 
Construction Co; German, Linde; 
Type of investment: EPC of a 1.2 million t/y ethylene plant. 
(Petrochemical); 
Amount: $1.3 billion; 
Status: To be completed sometime in 2009-2010.

Date: August 2005; 
Type of agreement: Binding Contract; 
Country/Investor: Italy, Tecnimont; 
Type of investment: Construction of a 300,000 t/y LDPE plant at Sanadaj 
(Kordestan). (Petrochemical); 
Amount: $292 million; 
Status: To be completed sometime in 2009-2010.

Date: November 2005; 
Type of agreement: Binding Contract; 
Country/Investor: Italy, Tecnimont; 
Type of investment: Construction of 300,000 t/y LLDPE/HDPE plant 
(Petrochemical); Construction of 30,000 t/y Butene-1 plant at 
Khorramabad (Lorestan) (Petrochemical); 
Amount: Total contracts worth: $536 million; 
Status: To be completed in 2010.

Date: November 2005; 
Type of agreement: Binding Contract; 
Country/Investor: Japan, Mitsui Engineering & Shipbuilding Co. (MES); 
Type of investment: EPC contract for 300,000 t/y HDPE petrochemical 
plant in Ilam province. (Petrochemical); 
Amount: $288 million; 
Status: To be completed in 2010.

Date: May 2006; 
Type of agreement: Binding Contract; 
Country/Investor: German ABB Lummus; 
Type of investment: EPC contract for the expansion of Abadan oil 
refinery to increase gasoline production. (Oil refining); 
Amount: $478 million; 
Status: To be completed sometime in 2009-2010.

Date: June 2006; 
Type of agreement: Binding Contract; 
Country/Investor: China, China Petroleum & Chemical Corporation 
(Sinopec); 
Type of investment: Exploration and development contract for the 
Garmsar Block. If commercial volumes of hydrocarbons are found, Sinopec 
will be awarded the contract for the development of field(s); 
Amount: $19.6 million (Minimum investment); 
Status: In progress.

Date: August 2006; 
Type of agreement: Binding Contract; 
Country/Investor: China, China Petroleum & Chemical Corporation 
(Sinopec); 
Type of investment: Upgrade 8 existing units of the Arak refinery in 
the Markazi province and add 14 more units to increase gasoline 
production; 
Amount: $1.6 billion; 
Status: To be completed in 2010.

Date: September 2006; 
Type of agreement: Binding Contract; 
Country/Investor: Norway, Norsk Hydro ASA; 
Type of investment: Exploration and development contract for the 
Khorramabad Block. If commercial volumes of hydrocarbons are found, 
Norsk Hydro will invest up to $58 million for further appraisals of the 
block. Upon completion of exploration for commercial hydrocarbons 
reserves Norsk Hydro will be awarded the contract for the development 
of the field(s). (Oil); 
Amount: $49 million (Minimum exploration contract); 
Status: In progress.

Date: October 2006; 
Type of agreement: Binding Contract; 
Country/Investor: Italy, IRASCO s.r.l, subsidiary of Iran International 
Engineering Company (IRITEC); 
Type of investment: Kharg and Bahregansar associated gas gathering & 
Natural Gas Liquids (NGL) recovery project. (Kharg NGL project) 
(Natural Gas); 
Amount: $1.6 billion; 
Status: To be completed in 2010.

Date: November 2006; 
Type of agreement: Nonbinding Memorandum of Understanding (MOU); 
Country/Investor: Australia, Liquefied Natural Gas Limited (LNG Ltd); 
Type of investment: Development of Salkh (Qeshm 4) and Southern Gashu 
gas fields and the construction of a 3.4 mtpa LNG plant (Qeshm LNG) on 
Qeshm Island. (Natural gas); 
Amount: This is a preliminary agreement, no details available; 
Status: Under negotiations.

Date: November 2006; 
Type of agreement: Binding Contract; 
Country/Investor: Consortium: German, ABB Lummus; 
Type of investment: EPC Contract for increasing of gasoline production 
in Bandar Abbas oil refinery. (Oil refining); 
Amount: $442 million; 
Status: To be completed in 2010.

Date: December 2006; 
Type of agreement: Nonbinding; MOU; 
Country/Investor: China, China National Offshore Oil Corporation 
(CNOOC); 
Type of investment: Development of the North Pars gas field for LNG 
Exports. (Natural Gas); 
Amount: $16 billion; 
Status: Under negotiations.

Date: December 2006; 
Type of agreement: Binding contract; 
Country/Investor: China, Sinopec; 
Type of investment: EPC contract for gasoline production unit at Tabriz 
refinery. (Oil refining); 
Amount: $144.7 million; 
Status: To be completed in 2009.

Date: December 2006; 
Type of agreement: Nonbinding; MOU; 
Country/Investor: Iran and Belarus (Inter government agreements); 
Type of investment: Development of the Jofeir oil field. (Oil); 
Amount: NIOC announced negotiations with Belarusian party is near 
completion and the contract is expected to be signed in July 2007; 
Status: Under negotiations.

Date: January 2007; 
Type of agreement: Nonbinding; MOU; 
Country/Investor: Malaysia, SKS Ventures; 
Type of investment: Development of the Golshan and the Ferdos gas 
fields for LNG exports. (Natural Gas); 
Amount: $16 billion; 
Status: Under negotiations.

Date: February 2007; 
Type of agreement: Nonbinding contract; 
Country/Investor: Netherlands, Shell; Spain, Repsol; 
Type of investment: Development of Phases 13 and 14 (Persian LNG). 
Shell (25%), Repsol (25%). (Natural Gas); 
Amount: $4.3 billion; 
Status: Contract effectiveness is subject to Persian LNG final 
investment decision (FID). Start-up depends on; project FID.

Date: February 2007; 
Type of agreement: Binding contract; 
Country/Investor: Korea, Daelim; 
Type of investment: Agreement on the construction of LNG and LPG 
storage tanks for the Iran LNG plant and the construction of port and 
dock facilities. (Natural Gas); 
Amount: $500 million; 
Status: To be completed in 2014-2015.

Date: March 2007; 
Type of agreement: Binding contract; 
Country/Investor: Consortium: South Korea, Daelim; German, Lurgi and 
UHDE; 
Type of investment: EPC contract for upgrading the Isfahan oil 
refinery. (Oil refining); 
Amount: $1.72 billion; 
Status: To be completed in 2012.

Date: April 2007; 
Type of agreement: Binding contract; 
Country/Investor: Indonesia, Star Petrogas; 
Type of investment: EPC contract for Bandar Abbas condensate splitter. 
(Oil refining); 
Amount: Approximate worth of contract at $2 billion; 
Status: To be completed in 2010.

Date: May 2007; 
Type of agreement: Nonbinding Heads of Agreement (HOA); 
Country/Investor: Austria, OMV; 
Type of investment: OMV has 20% share in the development of South Pars 
Phase 12 and holds 10% share in Iran LNG Project. OMV also agreed to 
buy 2.2 mt LNG from Iran LNG Project. (Natural Gas); 
Amount: Early planning stages, no details; 
Status: Under negotiations.

Date: May 2007; 
Type of agreement: Nonbinding; MOU; 
Country/Investor: Iran and Oman (inter government agreement); 
Type of investment: Construction of a 670,000 t/y ammonia and urea 
plant in Assaluyeh. (Petrochemical); 
Amount: This is a preliminary agreement, no details available; 
Status: Under negotiations.

Date: May 2007; 
Type of agreement: Nonbinding; MOU; 
Country/Investor: Iran and Oman (inter government agreement); 
Type of investment: Construction of a gas pipeline from Iran to Oman 
and the cooperation in LNG production and development of Hengam gas 
field. (Natural gas); 
Amount: This is a preliminary agreement, no details available; 
Status: Under negotiations.

Date: May 2007; 
Type of agreement: Nonbinding; MOU; 
Country/Investor: Iran and Iraq (inter government agreement); 
Type of investment: Construction of an oil pipeline. (Oil 
infrastructure); 
Amount: This is a preliminary agreement, no details available; 
Status: Under negotiations.

Source: FACTS Global Energy:

Note: Contract worth stated in this list only constitutes those 
contracts signed with foreign companies. For exploration and 
development contracts, the contract value (minimum-maximum range 
applies only for exploration activities. Should oil and gas reserves be 
found, new contracts for field development are required to be signed. 
Heads of Agreement (HOA) and Memoranda of Understanding (MOU) are not 
normally binding or completed deals. These are typically preliminary 
stage agreements with the intention to create a legally binding 
contract and are used to identify the principal elements of the deal. 
In general, typical preliminary stages can include Letter of Indication 
or Letter of Interest, MOU, Letter of Intent, HOA, and Confirmation of 
Intent. In the table, a binding contract means that it is a done deal 
and is legally binding. Nonbinding deals such as MOUs and HOAs and 
preliminary agreements and are generally beyond the stage of a Letter 
of Interest (i.e., expressed commercial interest to trade, finance or 
underwrite the project). We did not independently review the contracts.

[End of table]

[End of section]

Appendix V: Comments from the Department of the Treasury:

Note: GAO comments supplementing those in the report text appear at the 
end of this appendix. 

Department of The Treasury: 
Under Secretary: 
Washington, DC: 

December 6, 2007: 

Mr. Joseph Christoff: 
Director, International Affairs and Trade: 
Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Mr. Christoff: 

Thank you for the opportunity to review the draft Government 
Accountability Office (GAO) report entitled, Iran Sanctions: Impact in 
Furthering U.S. Objectives Is Unclear and Should Be Reviewed (GAO-08-
58). Please find attached recommended clarifications to the draft 
report. 

As a result of the collective efforts of the international community 
and financial leaders to apply financial pressure on Iran, the country 
is experiencing increasing economic, financial, and political isolation 
from the global community.

Iran remains a danger to the security of people worldwide. Iran 
continues to pursue nuclear capabilities and ballistic missile 
technology and sends hundreds of millions of dollars each year to 
deadly terrorist groups, all the while attempting to mask these 
activities through deceptive financial practices. In additional to the 
comprehensive country sanctions maintained against Iran, the Treasury 
Department, in cooperation with its partners in the interagency 
community, has implemented targeted financial measures aimed at 
altering this illicit conduct emanating from Iran. The U.S. 
Government's efforts have been reinforced by two unanimous United 
Nations Security Council Resolutions, 1737 and 1747, targeting Iran's 
nuclear and ballistic missile pursuits.

A key component in our efforts to sustain the pressure on Iran has been 
the voluntary response we have seen from the private sector, thereby 
reinforcing governmental actions. We have shared information with the 
private sector about how Iran employs deceptive financial practices to 
send money to terrorist groups and pursue nuclear capabilities and 
missile programs. Further, we have notified private financial 
institutions about Iran's attempts to lure reputable banks unwittingly 
into those activities. As they become aware of this misconduct, 
financial institutions across the globe are refusing to deal with Iran 
in any currency, determining the business is too risky.

As a further result of this international pressure, foreign-based 
branches and subsidiaries of Iran's State-owned brinks are increasingly 
isolated, threatening their viability. The OECD has also taken notice 
and increased Iran's risk classification for the likelihood that the 
country	will pay its external debts to its second-worst rating, thereby 
increasing the cost of financing for Iranian companies and invoking a 
devastating reduction in the foreign investment Iran needs to develop 
its vast oil reserves. 

The report drafted by the GAO specifically recommends that the National 
Security Council, in collaboration with the Departments of State, 
Treasury, Energy and Commerce, the intelligence community, and U.S. 
enforcement agencies collect, analyze, and improve agencies' actions to 
enforce sanctions against Iran and develop a baseline assessment of
their impact. The Treasury Department continues to assess the 
effectiveness of its authorities that have been used against Iranian 
entities or Iranian interests. These assessments, which not publicly 
available, are designed to determine the specific impact of Treasury 
actions and their success in meeting policy goals. [See comment 1] 

As a part of this larger recommendation, GAO also recommends the 
Treasury Department consider the amount of Iranian assets frozen 
pursuant to Treasury's terrorism and WMD proliferation sanctions 
programs as a component of this assessment. The Iranian program is 
primarily a rejection-based program, with over 25,000 rejected 
transactions valued at over $5 billion since 1997. While some terrorism 
and proliferation-based designations of foreign entities involve an 
Iranian nexus, the amount of assets that are blocked as a result of 
these designations is typically peripheral to their objective, and not 
a measure of the Iran program's value. These frozen assets do not 
reflect the inability of designated parties to use the U.S. financial 
system or transact business with U.S. persons, the international 
isolation that designated vanities face due to the use by international 
financial institutions of the Office of Foreign Assets Control's 
Specially Designated Nationals (SDN) list, or reputational and 
diplomatic harm that stems from a designation. These broader effects 
can be severe and are often the primary way in which sanctions deliver 
impact internationally. [See comment 2] 

Thank you for your efforts and should you have any additional questions 
please do not hesitate to contact me or my staff. 

Sincerely, 

Signed by: 
Stuart A. Level: 

Attachment: 
Comments Matrix: [See commend 3] 

[End of letter] 

The following are GAO's comments on the Department of the Treasury's 
letter dated December 6, 2007.

GAO Comments:

1. GAO has acknowledged Treasury's efforts to identify the impact of 
financial sanctions as appropriate in the report. While Treasury 
assesses such impact, we maintain that a larger impact assessment of 
all U.S. sanctions has never been undertaken.

2. Our report acknowledges various broad positive impacts of sanctions.

3. Treasury's letter included an attachment with numerous technical 
comments that we incorporated into the report as appropriate.

[End of section] 

Appendix VI: Comments from the Department of Commerce:

Note: GAO comments supplementing those in the report text appear at the 
end of this appendix.

The Secretary Of Commerce: 
Washington, D.C. 20230: 

November 1, 2007: 

Mr. Joseph Christoff: 
Director, International Affairs and Trade: 
Government Accountability Office: 
Washington, DC 20548: 

Dear Mr. Christoff:

Thank you for the opportunity to comment on GAO's draft report Iran 
Sanctions: Impact in Furthering U.S. Objectives is Unclear and Should 
be Reviewed, GAO-08-58.

The Department of Commerce has two technical comments on the report. 
One comment is enclosed and the other comment is classified and will be 
provided separately. [See comment 1] 

Sincerely, 

Signed by: 
Carlos M. Gutierrez: 

Enclosure: 

[End of letter] 

U.S. Department of Commerce: 
Comments on: 
Iran Sanctions: Impact in Furthering U.S. Objectives is Unclear and 
Should Be Reviewed, GAO-08-58. 

p. 10, footnote 8. Add: Sanctions were recently extended by the 
Department of Commerce's July 12, 2007, addition of five Iranian 
entities to the Entity List. All reexports of any item subject to the 
Export Administration Regulations now require an export license, with a 
presumption of denial, to the listed entities. [See comment 2] 

[End of enclosure] 

The following are GAO's comments on the Department of Commerce's letter 
dated November 1, 2007. 

GAO Comments: 

1. We reviewed Commerce's classified technical comment and considered 
it in revising our report. 

2. We incorporated this information into the report. 

[End of section] 

Appendix VII: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Joseph Christoff, (202) 512-8979 or [email protected]: 

Staff Acknowledgments: 

In addition to the person named above, Tet Miyabara, Assistant 
Director; Kathryn Bernet; Lynn Cothern; Aniruddha Dasgupta; Martin De 
Alteriis; Leslie Holen; Bruce Kutnick; Grace Lui; Roberta Steinman; 
Anne Stevens; and Eddie Uyekawa made key contributions to this report. 

[End of section] 

Footnotes: 

[1] The House Committee on Ways and Means defined "unilateral 
sanctions" as such in a February 18, 1998, letter to the U.S. 
International Trade Commission Chairman. 

[2] Exec. Order No. 13059, 62 Fed. Reg. 44,531 (Aug. 19, 1997). 

[3] See Exec. Order No. 13224, 66 Fed. Reg. 49,079 (Sept. 23, 2001); 
Exec. Order No. 13382, 70 Fed. Reg. 38,567 (June 28, 2005). 

[4] We are reporting global trade data in constant 2006 dollars. This 
reflects the real value of Iran's trade. (See app. I for further 
explanation regarding the method used to adjust the nominal trade 
figures reported by the International Monetary Fund [IMF] into 2006 
dollars). 

[5] S.C. Res. 1737, U.N. SCOR, 61ST Sess., U.N. Doc. S/RES/1737 (2006); 
S.C. Res. 1747, U.N. SCOR, 62ND Sess., U.N. Doc. S/RES/1747 (2007). 

[6] A ban on imports of Iranian goods and services was enacted in 
October 1987 via Executive Order 12613, 52 Fed. Reg. 41940 (Oct. 29, 
1987). In March 1995, the President issued Executive Order 12957, 60 
Fed. Reg. 14615 (Mar. 15, 1995) prohibiting U.S. involvement with 
petroleum development in Iran. Executive Order 12959, 60 Fed. Reg. 
24757 (May 6, 1995) was issued 2 months later, banning specified 
exports and investment. Finally, on August 19, 1997, the President 
signed Executive Order 13059, 62 Fed. Reg. 44531 (Aug. 19, 1997) which 
consolidated prior executive orders and prohibits virtually all trade 
and investment activities with Iran by U.S. persons, wherever located. 

[7] Executive Order 13059 defines "U.S. persons" as "ï¿½any United States 
citizen, permanent resident alien, entity organized under the laws of 
the United States (including foreign branches), or any person in the 
United States." 

[8] Some U.S. companies have come under scrutiny for dealings by their 
foreign subsidiaries with Iran. For example, the U.S. company 
Halliburton announced in 2005 after criticism of a subsidiary's 
involvement with Iran that its subsidiaries had completed all 
contractual commitments with Iran and that it would no longer operate 
there. 

[9] With some exceptions, the ban does prohibit foreign persons from 
reexporting sensitive U.S.-origin goods, technology, or services to 
Iran. Executive Order No. 13059, ï¿½ 2(b). Sanctions were recently 
extended by the Department of Commerce's July 12, 2007, addition of 
five Iranian entities to the Entity List. All reexports of any item 
subject to the Export Administration Regulations now require an export 
license, with a presumption of denial, to the listed entities. 

[10] See Iranian Transaction Regulations: Licensing of Imports of, and 
Dealings in, Certain Iranian-Origin Foodstuffs and Carpets, 65 Fed. 
Reg. 25,642 (May 3, 2000). 

[11] Agriculture, Rural Development, Food and Drug Administration, and 
Related Agencies Appropriations Act, 2001, Pub. L. No. 106-387, Title 
IX, ï¿½ 906, 114 Stat. 1549, 1549A-69 (2000). This law enacted as U.S. 
policy the principle that commercial sales of food, other agricultural 
products, medicine, and other medical products shall not be used as a 
tool to conduct foreign policy or to address national security 
objectives. 

[12] Our previous work noted that sanctions can increase the costs of 
trade and finance to the sanctioning nation (in this case, the United 
States) because it loses commercial transactions and profits with the 
target nation. See GAO Economic Sanctions: Effectiveness as Tools of 
Foreign Policy, GAO/NSIAD-92-106 (Washington, D.C. Feb. 19, 1992). 

[13] International Emergency Economic Powers Enhancement Act, Pub. L. 
No. 110-96, ï¿½ 2, 121 Stat. 1011 (2007) (codified at 50 U.S.C. ï¿½ 1705). 

[14] The Iran Nonproliferation Act of 2000 (INPA) was amended to 
include Syria in 2005 (the Iran and Syria Nonproliferation Act, or 
ISNA), and North Korea in 2006, and is now known as the Iran, North 
Korea, and Syria Nonproliferation Act of 2006 (INKSNA), Pub. L. No. 106-
178, 114 Stat. 38 (codified as amended at 50 U.S.C. ï¿½ 1701 note). 

[15] The act refers to controls established under numerous multilateral 
export control lists, including under the Australia Group, Chemical 
Weapons Convention, Missile Technology Control Regime, Nuclear 
Suppliers Group, and the Wassenaar Arrangement. 

[16] The Department of State's International Security and 
Nonproliferation (ISN) Bureau was in charge of this effort until 2007 
when the department's Verification, Compliance, and Implementation 
(VCI) Bureau took over this responsibility. 

[17] Pub. L. No. 102-484 (codified as amended at 50 U.S.C. ï¿½ 1701 
note). 

[18] The Iran-Iraq Arms Nonproliferation Act applies to Iran specific 
sanctions against Iraq as established in section 586G of the Iraq 
Sanctions Act of 1990, as contained in the Foreign Operations, Export 
Financing, and Related Programs Appropriations Act, 1991, Pub. L. No. 
101-513, ï¿½ï¿½ 586-586J, 104 Stat. 1979, 2047-55 (1990). These sanctions 
include a prohibition on exports of items on the CCL, which falls 
within the Export Administration Regulations and establishes all items 
that are determined to have a potential "dual use" - that is, a use 
that has both a commercial and military or other strategic application. 
See 50 App. U.S.C. ï¿½ï¿½ 2401-2420; 15 C.F.R. Pt. 774, Supp. 1. Such 
exports to Iran can only be allowed if a presidential waiver is granted 
citing that a waiver is essential to the national interest of the 
United States. See Pub. L. No. 102-484, ï¿½ 1606. State officials in the 
Economic, Energy and Business Bureau (EEB), the bureau responsible for 
coordinating this waiver process, report that such waivers are granted 
infrequently. 

[19] For sanctions imposed under this act, we are unable to provide 
information that specifies which sanctions were due to proliferation 
activities with Iran and which were due to proliferation activities 
with Iraq. Such information is classified. 

[20] Pub. L. No. 104-172. Libya was removed from the act in 2006 by the 
Iran Freedom Support Act, Pub. L. No. 109-293, and the act is now known 
as the Iran Sanctions Act. 

[21] Waivers are available under this act if the President determines 
that a waiver is important to the U.S. national interest. 

[22] For example, the report stated that Petronas had only limited 
connections to the United States and Total had divested many of its 
U.S. assets prior to entering into the South Pars contract. 

[23] In addition to these financial sanctions, other broad sanction 
tools available for use against any violating party, including Iran, 
include Executive Order 12938, which targets proliferation of WMD. 
Exec. Order No. 12938, 59 Fed. Reg. 58,099 (Nov. 14, 1994). Since 1998, 
this order has been used to impose sanctions against multiple parties 
that have engaged in proliferation activities related to Iran's nuclear 
or missile programs. 

[24] Exec. Order No. 13382, 70 Fed. Reg. 38,567 (June 28, 2005). 

[25] Exec. Order No. 13224, 66 Fed. Reg. 49,079 (Sept. 23, 2001). 

[26] Pub. L. No. 95-233, Title II, 91 Stat. 1625 (1977) (codified at 50 
U.S.C. ï¿½ 1701 et seq). IEEPA grants certain authorities to the 
President to deal with unusual and extraordinary threats if the 
President declares a national emergency with respect to such threat. 
For example, under IEEPA, the President may prohibit transactions 
involving any property in which a foreign country or national thereof 
has any interest by any person subject to the jurisdiction of the 
United States. 

[27] A U.S. person is defined as any United States citizen or national 
or permanent resident alien anywhere in the world; entity organized 
under the laws of the United States or any jurisdiction within the 
United States (including foreign branches); or any person in the United 
States. 

[28] Treasury also posts information on its Web site and publishes 
designations in its Specially Designated Nationals (SDN) list. Treasury 
officials note that U.S. financial institutions use the SDN list to 
identify and freeze assets of sanctioned parties. 

[29] The designated entities are Pars Tarash, Farayand Technique, Fajr 
Industries Group, and Mizan Machine Manufacturing Group. 

[30] The IRGC is a component of Iran's military, focusing on national 
security, internal and border security, and law enforcement. 

[31] While official data on U.S. investment in Iran are incomplete, 
available figures indicate negligible U.S. investment in Iran, even 
prior to the adoption of the investment ban in 1995. 

[32] For example, according to the Department of Energy's Energy 
Information Administration (EIA), Iran utilizes buyback contracts, 
which are arrangements in which the contractor funds all investments, 
receives remuneration from the Iranian government in the form of an 
allocated production share, then transfers operation of the field to 
Iran after a set number of years, at which time the contract is 
completed. However, according to U.S. Iran country report, the buyback 
of 5 to 7 years has not given contractors sufficient time to recoup 
their investment costs. Also, according to a State Department report, a 
number of other negative elements in addition to the relative 
difficulty of reaching satisfactory arrangements affect foreign 
investment in Iran: prohibitions on foreign ownership of natural 
resources, sometimes unappealing financial and other contractual terms, 
alleged corruption, and political uncertainty are among the other 
negative elements. 

[33] A recent project by the American Enterprise Institute (AEI) cites 
300 companies from 38 countries that, as of May 2007, have, at a 
minimum, expressed commercial interest to trade, finance, or underwrite 
a project in one of Iran's economic sectors. 

[34] According to Department of Treasury sources, targeted financial 
measures are "directed specifically at individuals, key regime members, 
front companies, and financial institutions." Targeted financial 
measures are aimed at "conduct" not a country. Some of these targeted 
measures require financial institutions to freeze funds and close the 
accounts of designated actors, effectively denying these actors access 
to the traditional financial system. 

[35] Additional Designation of Entities Pursuant to Executive Order 
13382, 72 Fed. Reg. 7,919 (Feb. 21, 2007). 

[36] Iranian Transaction Regulations, 71 Fed. Reg. 53,569 (Sept. 12, 
2006). 

[37] According to Treasury officials, states engaged in sanctionable 
activities have been subject to sanctions and export control 
restrictions for decades and have adopted a variety of evasive 
techniques. 

[38] These seven banks are HSBC (UK), UBS (Switzerland), Barclays (UK), 
Sociï¿½tï¿½ Gï¿½nï¿½ral (France), ABN (Netherlands), Standard Chartered (UK), 
Deutsche Bank (Germany). 

[39] An export credit is a loan to the buyer of an export, extended by 
the exporting firm when shipping the good prior to payment, or by a 
facility of the exporting country's government. In the latter case, by 
setting a low interest rate on such loans, a country can indirectly 
subsidize exports. An export credit guarantee is a government-sponsored 
credit guarantee for commercial financing of exports, often to protect 
a country's exporters against potential loss due to nonpayment by 
foreign buyers. 

[40] According to a Treasury official, "Iran is one of the largest 
beneficiaries of official export credits and guarantees, with $22.3 
billion in exposure reported by OECD countries as of the end of 2005." 
Exposure means that the countries that provided export credit 
guarantees are now vulnerable, or responsible, for the payment should 
something go amiss with the exports, such as the foreign buyer not 
paying. 

[41] In early 2006, the OECD raised Iran's risk rating, and the IMF 
reported in its 2007 Article IV consultation with Iran that Iran's 
sovereign debt was downgraded by Fitch due to perceived increase in 
country risk. 

[42] Treasury also posts information on its Web site and publishes 
designations in its Specially Designated Nations list. 

[43] The International Atomic Energy Agency (IAEA) is an independent 
agency affiliated with the UN established in 1957 to control and 
promote the use of atomic energy. Currently, the IAEA has safeguard 
agreements through the Treaty of the Non-Proliferation of Nuclear 
Weapons with more than 150 member states. 

[44] In the Arak heavy water plant, heavy water is extracted from 
regular water by replacing the hydrogen atom with the deuterium 
isotope. It is used in certain types of nuclear reactors where 
plutonium is bred from natural uranium. Plutonium is used in nuclear 
weapons and for nuclear power production. 

[45] GAO, International Affairs: Information on U.S. Agencies' Efforts 
to Address Islamic Extremism, GAO-05-852 (Washington, D.C.: Sept. 16, 
2005). 

[46] In 1984, the Secretary of State designated Iran as a state sponsor 
of terrorism for its repeated support for acts of international 
terrorism. The effects of this designation include restrictions on U.S. 
foreign assistance, a ban on defense exports and sales, certain 
controls over exports of dual-use items, and various financial 
restrictions. 

[47] ILSA Extension Act of 2001, Pub. L. No. 107-24, ï¿½ 3, 115 Stat. 
199. 

[48] We are reporting U.S. trade statistics from the Department of 
Commerce in 2006 dollars. 

[49] Oil-related exports average approximately 80 percent of Iran's 
total exports. 

[50] We are reporting global trade data in constant 2006 dollars. This 
reflects the real value of Iran's trade. (See app. I for further 
explanation regarding the method used to adjust the nominal trade 
figures reported by the IMF into 2006 dollars). 

[51] Growth rates are calculated using ordinary least square, which 
takes into account the value of trade for each year over the designated 
time period, calculates the slope of the best fitting regression line, 
and ensures that extreme changes in a single year do not give a 
distorted average growth rate for the period. 

[52] In 1994, EU countries received one-third of Iran's exports and 
provided 50 percent of Iran's imports. At the same time, developing 
countries' share of trade with Iran has increased from 32 percent of 
Iran's exports in 1994 to 47 percent in 2006, and from 34 percent to 60 
percent of Iran's imports over the same period, due in large part to 
growth of trade with China, India, Korea, and other Asian countries. 

[53] GAO, Sales of Sensitive Military Property to the Public, GAO-07-
929R (Washington, D.C.: July 6, 2007). 

[54] CRS, Iran: U.S. Concerns and Policy Responses, RL32048, Ken 
Katzman (Washington, D.C.: June 2007). 

[55] According to the Oil and Gas Journal, Russia has the largest 
reserves of natural gas in the world. 

[56] Japan's and China's Iranian crude oil imports comprised 12.6 and 
11.1 percent, respectively, of these countries' total crude oil imports 
in 2005. Also of note, Turkey, South Africa, Greece, and the 
Philippines obtained more than 25 percent of their crude oil imports 
from Iran. 

[57] To assess the impact of future oil prices on the Iranian economy, 
the IMF and Iranian officials constructed a medium term budget and 
economic model. Assuming the agreed upon budget reforms will be 
implemented, the economy can achieve an annual average growth rate of 
4.5 percent over the 2007-2008 to 2011-2012 period and a fully financed 
budget if average long-term oil prices are $65 per barrel. If long-term 
oil prices fall below $55 per barrel, the budget and implied growth 
rates would not be sustainable. 

[58] According to one energy expert, Iran is in the midst of a major 
country-wide refinery expansion and upgrade program, and there is also 
a push to process more of its expected condensate supplies and at least 
partially reduce its gasoline dependence. 

[59] Smart cards were introduced as a means to limit drivers' 
consumption of subsidized gasoline. 

[60] According to economic experts and Iranian country authorities, 
Iran has experienced a rapid increase in non-oil exports in the last 
decade. More recently, however, Iran has taken steps to diversify and 
promote non-oil exports. According to academic researchers, non-oil 
exports as a percentage of total exports were just over 3 percent in 
1979. In 2000, the last year for which data are available, non-oil 
exports stood at almost 27 percent of total exports. In addition to 
petrochemical products, non-oil exports includes carpets, fresh and 
dried fruits, detergents and soaps, chemical products, ready-made 
clothes, metallic mineral ores, iron, and steel. 

[61] Petrochemicals are a large group of chemicals derived from 
petroleum and natural gas, which are used for a variety of commercial 
purposes. The term petrochemicals refers to feedstocks-the chemicals 
used in petrochemical plants and the finished products made from 
feedstocks. Petrochemical products include common items such as 
plastics, soaps and detergents, solvents, fertilizers, rubbers, paints, 
drugs, rocket propellants, and synthetic fibers. Petrochemicals are 
also found in products as diverse as aspirin, luggage, surfboards, 
carpets, and phonograph records. 

[62] S.C. Res. 1696, U.N. SCOR, 61st Sess., U.N. Doc. S/RES/1696 
(2006). 

[63] U.N. Doc. S/RES/1737. 

[64] U.N. Doc. S/RES/1747. 

[65] These six countries are the United States, the United Kingdom, 
France, China, Russia, and Germany. 

[66] According to the IMF, data are collected from Iran's trade 
partners as well as from Iran. IMF staff use their best judgment to 
determine bilateral and global trade flows. 

[67] According to the World Bank, during most of 1986 to 2006, Iran's 
official exchange rate did not reflect the actual market exchange rate 
(the official exchange rate and the market exchange rate do coincide 
beginning in 2003). 

[68] These major trading countries include the G-5 countries (France, 
Germany, Japan, the United Kingdom, and the United States) through 
2000. From 2001, these countries include the Euro Zone, Japan, the 
United Kingdom, and the United States. 

[69] EIA calculates net export revenues as the weighted average spot 
price of Iranian crude oil multiplied by Iran's' net oil exports 
multiplied by number of days in the year. EIA calculates Iran's net oil 
exports as Iran's total liquids production (production of crude oil and 
condensates, natural gas plant liquids, and refinery processing gain or 
loss) less Iran's total petroleum consumption. 

[70] EIA provided the reporting countries import statistics of their 
petroleum imports from Iran. These data are comparable to UN trade 
statistics data for the same 2-digit petroleum commodity breakdown, 
2709. 

[71] All contracts are partner arrangements between Iran and the 
foreign party. However, we have not listed the Iranian partner. For 
example, both the first and second contracts are with National Iranian 
Petrochemical Company (NIPC). For the remaining contracts, other 
Iranian partners include, for example, National Iran Oil Company 
(NIOC), National Iranian Gas Company (NIGC), National Iranian Oil 
Refining and Distribution Company (NIORDC), among others. Also, 
consortiums are partnerships with Iranian companies. 

[End of section] 

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