Congress's Ill-Timed Iran Bills
This month, the Bush administration tightened the screws on Iran yet again. Its move to formally designate Iran's elite Revolutionary Guard Corps as a terrorist organization is the latest in a wave of state, federal and international efforts to pressure the regime of President Mahmoud Ahmadinejad into reconsidering its nuclear weapons program and increasingly aggressive sponsorship of terrorism throughout the Middle East.
Five bills are pending in Congress that would encourage divestment and eliminate loopholes in the Iran Sanctions Act, among other things. At the state level, bills are pending in at least 13 legislatures to compel state pension funds to divest from companies and financial institutions doing business with Iran; in Florida and Louisiana, such measures have become law. More broadly, the U.N. Security Council will consider a third resolution in September responding to Iran's failure to suspend its uranium enrichment program.
There is growing recognition that Iran's nuclear activities must be stopped, and the voluntary divestment movement is gaining ground. Yet this moment of harmonious convergence -- possible only because of the gravity of the threat from Iran -- may come to an abrupt end if Congress has its way.
Most of the bills pending in the House and Senate would, if passed, tighten the provisions of the Iran Sanctions Act (formerly known as the Iran-Libya Sanctions Act) and strip the president of authority to waive U.S. sanctions on a variety of firms, many in Europe. Currently, the act allows the president to waive sanctions on firms that invest more than $20 million in Iran's energy sector or to choose from a menu of sanctions, ranging from a slap on the wrist to major penalties.
Soon after the Iran-Libya Sanctions Act became law in 1996, the Clinton administration made clear to European governments that it had no intention of implementing its provisions. European leaders, uniformly insistent that engagement with Iran was the most effective means of moderating Iranian misbehavior, roundly rejected efforts to punish Tehran's business partners. The Clinton administration, and later the Bush administration, looked away as tens of billions of dollars flowed into Iran's energy sector. European investment in Iran skyrocketed with no pressure from London, Paris or Berlin on nuclear or terrorism issues. And with Iran earning upwards of 85 percent of its foreign currency from the sale of petroleum and related products, it was possible to draw a direct line from that investment to the funds available to the regime for nuclear weapons, missiles and funding for terrorist groups.
Congress acquiesced in this executive disregard for more than a decade. Yet, just as lawmakers have gotten riled about enforcing the law, European nations are beginning to grasp the importance of curtailing their economic ties with Tehran. Since early last year, France, Germany and Britain, among other European Union nations, have cut back export credits -- essentially taxpayer subsidies -- to companies doing business in Iran. Germany's export credit agency, Hermes, has reportedly cut guarantees 30 percent and aims to cut a further 10 percent this year. Deutsche Bank last month announced that it is ceasing to do business with Iran. Two major British banks, HSBC and Standard Chartered, have cut back significantly. The French Embassy touts hundreds of millions in French divestment from Iran in recent years.
On principle, many European foreign and finance ministries continue to resent American hectoring on trade with Iran. A senior German Foreign Ministry official recently characterized Treasury Department lobbying against business with Iran as "outrageous." Such protestations notwithstanding, word has quietly spread from Paris, London and Berlin that banks and companies now do business with Iran at their own risk.
Japan, once Iran's top trading partner, has also begun to cool its once warm relations, though not to the same extent as the Europeans. But it is a model when compared with China and Russia, which have raced to do business where the West has pulled back. Indeed, China and Russia have been facilitators not just for Iran's energy sector but also for its missile and nuclear programs.
As Congress watches the international community crawl toward a consensus, slapping down European firms that irresponsibly continue to underwrite Iran's energy sector will be tempting. To be sure, Europe could do much more. But the European Union has come a great distance since the 1990s, and with each month, Europeans are doing more to withdraw support from the Iranian economy.
A more appropriate focus of congressional action would be Russian arms and nuclear sales to Iran and growing Chinese investment in Iran's energy sector. Closing loopholes that permit U.S. firms to do business with Tehran through subsidiaries would also show admirable consistency.
For many years, a key element of Iranian strategy has been to divide Europe from the United States, leaving America with only unilateral options. It would be a cruel irony if, just as European governments finally begin doing the right thing, Congress deepens the Atlantic rift.
The writer is vice president of foreign and defense policy studies at the American Enterprise Institute.