Last week the House Foreign Affairs Committee unanimously approved legislation that would expand the Iran and Libya Sanctions Act of 1996. Under the proposed legislation (H.R. 957), sanctions provided under the Iran Sanctions Act could also be imposed on U.S. companies based on business activities of their foreign subsidiaries in Iran.

The Iran Sanctions Act requires the President to impose sanctions on companies that make an investment of $40 million or more that “directly and significantly contributed to the enhancement of Iran’s ability to develop petroleum resources of Iran.” The sanctions that can be imposed on such a company include denial of export privileges, debarment from government contracting and prohibitions of loans to the sanctioned company from U.S. financial institutions.

The proposed legislation increases the scope of the Iran Sanctions Act by modifying the definition of person to include “foreign subsidiaries.” It also modifies the definition of petroleum resources to include “petroleum by-products [and] liquified natural gas” for purposes of the Act.

As is usually the case with unilateral sanctions proposals, very little thought was apparently given as to whether this bill would accomplish anything other than to make it easier for non-U.S. companies to invest in Iran. This lack of analysis extends even to the language of the provision which erroneously cites each of the provisions it is attempting to amend. The definition of “person” is in section 14(14) of the Act, not section 14(13) which H.R. 957 references. Similarly, the definition of “petroleum resources” is in section 14(15) of the Act, not in section 14(14) which H.R. 957 references.

Moreover, H.R. 957 inserts language in the wrong place in the Iran Sanctions Act. It states that “, petroleum by-products, liquified natural gas” should be inserted “after ‘petroleum’ the second place it appears” in the amended section. That would make the provision read as follows:

PETROLEUM RESOURCES.—The term ‘‘petroleum, petroleum by-products, liquified natural gas resources’’ includes petroleum and natural gas resources.

Oops. Clearly the bill’s drafter meant the third place petroleum appears rather than the second place.

That’s a lot of mistakes for a bill that is exactly one page and eighteen lines long.

This bill needs to go back to the drafting table, both for technical and substantive reasons.

UPDATE: As pointed out in the comments, the Iran Freedom Support Act, changed the numbering of the definitions section, so that the sections referenced in the proposed bill are in fact referenced by the correct section numbers. The bill’s placement of the phrase “petroleum by-products, liquified natural gas,” however, remains incorrect.

“Bad cases make bad law.” The truth of that law school axiom has rarely been on better display than in yesterday’s decision by the European Court of First Instance to remove the People’s Mujahideen of Iran (Mujahideen-e-Khalq) from the EU’s list of blocked entities. The PMOI had been added to that list by the E.U. Council in May 2002.

The European court reversed the designation because the PMOI had not been accorded an adequate hearing, because no reasons had been supplied by the Council to justify the decision, and because the procedures used by the Council to designate the PMOI lacked effective mechanisms for judicial review.

The right to a hearing, according to the court, arose because the order designating PMOI blocked PMOI funds. The court acknowledged that the Council had a legitimate interest in countering terrorism and that this could justify a preliminary order without a hearing; it could not, however, justify a decision to deny a hearing by the Council altogether.

The ruling of the court on the Council’s refusal to state reasons for the designation is why I say that this a bad case making bad law. It is difficult to fathom why the Council never stated any reasons to support the designation of the PMOI since the PMOI’s terrorist activities were known to the entire world and admitted openly by PMOI. These activities, many of which risked civilian casualties by targeting buildings in large urban areas, included the following:

Given the PMOI’s demonstrated and public record of terrorism, it is hard to understand why the Council decided to be cagey about supplying any reason at all for the designation. Any one of the above reasons could justify the designation. And even though the PMOI was urging that it had reformed and was no longer a terrorist group, the Council could legitimately insist that more time needed to pass before the Council could be certain that the PMOI had renounced terrorism. The Court of First Instance indicated that there might be a national security basis for not disclosing particular reasons, but since no specific reasons were given by the Council, the court had no occasion to determine whether that exception might apply to any possible justifications for the Council’s action in this case.

Finally, the court held that the designation procedure lacked adequate provisions for judicial review. Decisions of the Council to designate a terrorist group could only be appealed on the following limited grounds: “lack of competence, infringement of an essential procedural requirement, infringement of the EC Treaty or of any rule of law relating to its application or misuse of powers.” The court found that in order to ensure the right to a fair hearing and to a statement of reasons the reviewing court would necessarily have the right to a fuller review of the record and actions of the Council.

The Council, it seems to me, made a critical mistake in its decision not to hold a hearing or to provide reasons for the designation, particularly where the case for designating the PMOI was so strong. This mistake led to directly to a decision by the Court of First Instance that was broader than it might have been and which may haunt the Council in its efforts to designate terrorist groups and individuals in the future.

A headline to an article in today’s Washington Post breathlessly announced: “U.S. Bans Sale of iPods to North Korea.” The copy editor at the WaPo, however, jumped the gun since the ban is not yet in place. The article was also inaccurate in several other respects which we, at ExportLawBlog, feel compelled to correct.

First, the background. The current sanctions regime against North Korea forbids imports from North Korea but permits exports to Korea of all items not otherwise subject to export control. On October 14, shortly after North Korea’s nuclear test explosion, the U. N. Security Counsel passed UNSCR 1718 which stated that U.N. Member States (such as the U.S.) are required to take all actions necessary

to prevent the direct or indirect supply, sale or transfer to the DPRK, through their territories or by their nationals, or using their flag vessels or aircraft, and whether or not originating in their territories, of . . . luxury goods.

The resolution did not define luxury goods, so the U.S. has been busy developing a provisional list which you can find here in the United States’ “30-Day Report for the UN Security Council on Efforts Toward Implementing UNSCR 1718.” This report was released on November 13 by the Bureau of International Security and Non-Proliferation (“ISN”) at the State Department. That list is still identified as provisional, and I can find no record that ISN or OFAC have taken any official action to give the list force of law, although such action may be imminent. So, if you’re planning on sending an iPod to North Korea, you had better hop to it.

The WaPo article also made it sound like the list targeted brand name goods:

The Bush administration wants North Korea’s attention, so like a scolding parent it’s trying to make it tougher for that country’s eccentric leader to buy iPods, plasma televisions and Segway electric scooters. . . . [T]he list of proposed luxury sanctions, obtained by The Associated Press, aims to make Kim’s swanky life harder: No more cognac, Rolex watches, cigarettes, artwork, expensive cars, Harley Davidson motorcycles or even personal watercraft, such as Jet Skis.

In fact the luxury goods list is not brand-specific and is quite general. It doesn’t target Harley Davidson motorcycles but all motorcycles. The iPod is not singled out since the list bans all “personal digital music players,” thus effectively crushing the last hope of Microsoft to find someone to buy its new Zune music player. Cognac is forbidden but only because the list forbids all exports of “wine, beer, ales, and liquor” to North Korea.

Leaving aside the WaPo‘s inaccurate coverage of the issue, what will be the impact of these sanctions, if and when implemented? First, it seems that the purpose of the list is little more than an effort to annoy North Korea’s conspicuous-consumer-in-chief and will have little impact on any actual trade. Under Secretary of State Nicholas Burns admitted as much in his testimony to the House International Relations Committee on November 16:

Further, we have defined a list of luxury goods banned for transfer to North Korea. The U.S. currently sends very few, if any, of these goods to the DPRK, but these new regulations will ensure that we are in full compliance with Resolution 1718

Nor is it likely that the sanctions will in fact lead to much annoyance in Pyongyang, because Kim Jong Il will likely be able to get all the proscribed luxury goods that he needs on the black market or even from U.N. member countries that don’t implement UNSCR 1718. And even if Kim Jong Il couldn’t get these goods, it seems unlikely that the dictator will abandon his nuclear aspirations over an iPod or a glass of Chateau Margaux.