Yesterday the Senate Finance Committee held a hearing on the Iran Counter-Proliferation Act of 2007, which was introduced on March 22 by Senator Gordon Smith and has 70 sponsors equally divided between Democrats and Republicans.

Among the proposed sanctions is a provision that would make U.S. parent companies liable for activities of their foreign subsidiaries that would violate the sanctions against Iran if such activities had been undertaken by the parent company. This reverses current law which allows foreign subsidiaries to trade with Iran as long as no U.S. persons are directly involved in the trading activities and as long as the subsidiary has legitimate additional business activities other than trading with Iran. (The article linked above from Congressional Quarterly by Matt Karode misreads the bill and claims that it would penalize U.S. subsidiaries of foreign parent companies for the parent company’s trading with Iran).

The legislation would ban all exports to Iran other than “food and medicine grown, produced or manufactured in the United States.” The impact of this proposed provision on the Trade Sanctions Reform Act of 2000, which permits exports of medical devices in addition to food and medicine, and the Berman Amendment, which permits exports of informational materials, is unclear since the legislation doesn’t explicitly repeal the prior legislation. Nor is it clear that Congress understands that this provision would also prohibit exports under section 560.528 of the Iranian Transaction Regulations of goods, services and technology to insure the safety of civil aviation.

Imports are also banned by the proposed legislation. Currently imports of foodstuffs and carpets from Iran are permitted.

Other provisions of the proposed legislation include:

• A prohibition of U.S. actions that would lead to accession of Iran to the World Trade Organization;
• A requirement that the President freeze the assets of Iranian diplomats, government officials and their family “at such time as the United States has access to [their] names”; and
• A reduction of U.S. contributions to the World Bank based on amounts loaned by the Bank to Iran.

This post is only peripherally related to export law, but it does involve Iran, blocked assets, terrorism, Persian antiquities and a fascinating conundrum of statutory construction. So bear with me, you won’t be sorry.

The conundrum is posed by the decision of a federal district court on March 31 in Rubin v. The Islamic Republic of Iran, 2008 WL 857522* (D. Mass. 2008). The plaintiffs obtained a default judgment against Iran after being injured in a Hamas terrorist attack and are trying to levy on Persian antiquities alleged to be the property of Iran but in the custody of Harvard University and Boston’s Museum of Fine Arts. The district court held that the plaintiffs could levy against those assets under section 201 of the Terrorism Risk Insurance Act.

The antiquities at issue were initially blocked in 1979 by Executive Order 12170. After the release of the U.S. hostage, Executive Order 12281 unblocked “all uncontested and non-contingent liabilities and property interests of the Government of Iran.” The Terrorist Risk Insurance Act of 2002 provides that “blocked assets” are subject to execution in satisfaction of a judgment against the blocked party. And that’s where the fun begins.

Harvard and the MFA argued, quite reasonably, that the plaintiffs could only execute against the antiquities if it was uncontested that Iran owned them, in which case they were unblocked by Executive Order 12281 and therefore not subject to execution under the Terrorist Risk Insurance Act. The court rejected this argument, also quite reasonably, by saying that the plaintiff’s motion to execute on the antiquities made the ownership contested, meaning that the items were blocked and subject to the provisions of the Terrorist Risk Insurance Act.

In other words, Catch 22 is that the antiquities are only subject to levy if Iran’s ownership is uncontested, but Iran’s ownership isn’t uncontested because the antiquities are subject to levy. All liability for headaches caused by trying to solve this paradox is hereby expressly disclaimed.

*Westlaw subscription required.

ABOVE: Strait of Hormuz

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Some excellent reporting by Eric Lipton in an article in today’s New York Times suggests that the UAE is mostly giving lip service to export control.

Yousef al-Otaiba, an adviser to the crown prince of the United Arab Emirates, said his country was more closely monitoring goods that it re-exported while blocking items that might help Iran build weapons systems. But trade experts and Iranian traders in Dubai said there was little evidence that the new export control law was being broadly enforced.

“It has virtually had no effect, to be honest,” said Nasser Hashempour, deputy president of the Iranian Business Council in Dubai. “If someone wants to move something — get it to Iran — it is easy to be done.”

Both Commerce and State have a more optimistic assessment, but, sadly, any proof of this was classified:

At the Commerce and State Departments, officials said they were encouraged by actions the Emirates had taken in some recent cases — the details of which are classified — that relied on their new authority under the export law. But they said an export licensing system must still be introduced and other enforcement steps taken.

Even so, Lipton quotes interviews with business in the UAE claiming that it’s business as usual with Iran:

S. M. Mir Ebrhimi, chief executive of Reza Nezam Trading, which operates mostly out of Iran, said he continued sending products with American-made components as usual. Mohammad Kazem, supervisor at Al Musafer Tourism and Cargo, said he had not even known his business was on the warning list. He said that the company followed the law, disputing any suggestion by American authorities that he had shipped prohibited items to Iran. He also said that he had seen no more inspections or spot checks by Emirati authorities.

(Full disclosure: Eric Lipton interviewed me in connection with the article, which includes a quote from me)