Designated entities graphic v3.PNG

21 July 2015

What the Iran deal means for blacklisted entities

Nick GillardDominic Williams

Nick Gillard

Nick Gillard is a researcher and analyst at Project Alpha, a King’s College London initiative that works to understand and counter illicit, proliferation-related trade. From 2008 until 2014, he...

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Dominic Williams

Dominic Williams is a researcher working on Project Alpha, in the Centre For Science and Security Studies at King's College London.

Editor's note: The above graphic provides a general overview of timelines for de-listing across various sanctions regimes. National authorities should be consulted for authoritative advice. ** Khatam al-Anbiya, a Revolutionary Guards-controlled construction conglomerate, and its subsidiaries. *** Farayand Technique, Kalaye Electric Company and Pars Trash, all involved in Iran’s centrifuge programme. **** Excludes Malek Ashtar, a military-run university, and the Revolutionary Guards-owned Imam Hossein University and Baghyatollah Medical Sciences University.

Over the past decade, a global patchwork of legal measures has been sewn together by various national authorities with the aim of constraining Iran’s nuclear program. This patchwork makes up the global sanctions regime that Iran has fought so hard to end.

Having been stitched together by dozens of governments, as well as the United Nations and European Union—and with only the loosest of plans to guide it—it’s a patchwork with plenty of knots. Now, with the agreement of the Iranian nuclear deal, known as the Joint Comprehensive Plan of Action, we have been shown the plan the international community will use to try to untangle it.

At face value, the outline of the sanctions relief that the deal proposes is simple. Most sanctions against Iran will be lifted in exchange for Iran capping its nuclear progress and accepting additional verification measures. The UN Security Council will revoke all of its previous resolutions against Iran. The European Union (EU) will reduce most of its sanctions against Iran, over time. The United States will remove many of its. The free flow of everything from oil to gold to Iranian nuclear physics students will eventually be permitted, with some caveats.

But sanctions relief is easier said than done. It’s already hard to understand the intricacies of the major sanctions regimes that are in force across the globe, and the interplay between them—that’s why an entire industry of sanctions consultants and lawyers has appeared over the last decade, who promise to help governments and businesses navigate these treacherous legal waters.

The 159-page nuclear deal agreed to in Vienna will keep these lawyers in business a while yet. It contains more than 100 paragraphs detailing the type of sanctions relief that Iran will get, and another 20 or so paragraphs on when the various stages of sanctions relief will take effect. Read the agreement and you’ll find a tortuous interplay between these provisions that proves that while the agreement was conceived by diplomats and delivered by physicists, it was clearly vaccinated by lawyers, with some painful results.

This complexity has already led to minor scuffles breaking out: the United States has had to defend the deal on the grounds that some thought that Qasem Soleimani, the notorious Iranian general who leads the elite Qods Forces of the country’s Islamic Revolutionary Guard Corps, would be dropped from sanctions. (Soleimani is accused of helping to kill Americans in covert operations in Iraq.) Administration officials have been at pains to state that Soleimani will remain subject to a UN-mandated asset freeze for the next eight years, and that US Treasury and State Department sanctions on Soleimani won’t be removed.

The debate over Soleimani’s removal from different sanctions lists illuminates a broader point that is worth noting—the lack of consistency between the lists, maintained by various authorities, that record and punish those people and companies who have been involved in Iran’s proliferation activities. Analysts call these listings "designations." People and companies are designated by the United Nations or other authorities as being guilty of having assisted in Iranian proliferation—and in turn, national authorities are expected to freeze their assets and deny them visas.

You might expect that these designation lists are all the same—but that’s by no means the case. The three major sanctions regimes against Iran’s nuclear and missile programs—those of the United Nations, United States, and the European Union—are frustratingly disjointed in this respect. The UN Security Council has designated about 40 people and 75 companies on grounds relating to Iranian proliferation. The EU has sanctioned almost 500 companies and more than 100 people, and designated many entities that the United Nations has not. The United States has designated hundreds of Iranian entities using several different legal rationales, making it a Sisyphean task to try to tally them all. Many US-listed entities match up with those sanctioned by the United Nations and the EU, but others have only been sanctioned by the United States. These inconsistencies are at the root of the nuclear deal’s somewhat convoluted provisions regarding sanctions relief.

The de-listing process explained. According to the terms of the deal and a Security Council resolution that accompanies it, designations will be rescinded in two stages.

On what is known as "Implementation Day," when the International Atomic Energy Agency (IAEA) certifies that Iran has made certain promised modifications to its nuclear infrastructure, the United Nations will drop sanctions against the people and companies who have been designated in old Security Council resolutions on Iran—but under the terms of the new Security Council resolution, entities from Iran’s military and missile-development sectors will continue to be subjected to a UN-mandated asset freeze. Concurrently, the United States will de-list many of the Iranian entities on the Treasury and State Departments’ sanctions lists, although it will continue to prohibit Americans from doing business with most of them. And the EU will remove most of its designations, with the exception of those entities that the EU has judged to be core to Iran’s proliferation activities.

Eight years after the milestone of Implementation Day, or whenever the IAEA confirms that there is no undeclared nuclear material in Iran, "Transition Day" occurs. The United States will allow its citizens to conduct trade with previously-designated entities and will de-list an additional 43 entities (mostly people historically involved in covert procurement or nuclear weapons-related research); the UN’s asset freeze of the remaining designated entities will be terminated; and the EU will de-list the Iranian proliferators who didn’t gain relief on Implementation Day.

Importantly, other designations on Iran put in place by the EU and United States, unrelated to the nuclear issue, won’t be part of this process. President Obama has been at pains to stress that sanctions relating to Iran’s support for terrorism and for human rights violations will remain—this includes restrictions on dozens of Iranian entities, including Qasem Soleimani. Soleimani will also stay designated by the EU for his support to terrorism, along with nearly 90 other Iranians that the EU has accused of involvement in terrorism or human rights abuses.

For each sector of Iran’s economy and society that has previously been subjected to designations, there will be winners and losers in the de-listing process. Overall, the deal has clearly been designed to give early relief to Iran’s civilian industries and banks, while delaying or avoiding giving relief to the Revolutionary Guards and military. Here’s how it will function, sector by sector.

The shipping industry. Hundreds of Iranian shipping companies will be removed from what is effectively an EU and United States blacklist of the Iranian shipping industry. But those overseeing the sanctions process have tried to avoid giving the Good Housekeeping Seal of Approval to shipping entities that were involved in transferring arms to the Lebanese Shi’a group Hezbollah or are under the thumb of the Islamic Revolutionary Guards, so a few shipping firms will remain designated. And because the United States wants to stagger the relief it provides Iran’s valuable oil industry, it will retain restrictions on Iran’s oil tanker fleet for longer than anyone else.

Civil aviation. Iran’s civil aviation sector has never been subject to as many designation measures as the shipping industry, which the UN Security Council had singled out as a particularly important channel for Iranian proliferation. So few Iranian airlines were ever designated by authorities outside the United States—and few will need to be de-listed. Certain carriers reportedly involved in weapons-smuggling to Syria and Hezbollah on behalf of the Revolutionary Guards and their Qods Force will remain subject to restrictions.

The oil and gas sector. Iran’s oil and gas sector is bound for substantial sanctions relief under the terms of the deal. Hundreds of US-designated oil and gas companies will be removed from the US Treasury’s Specially-Designated Nationals (SDN) list, although this de-listing is conditional: US persons and companies will still be prohibited from dealing with these firms. A small number of Revolutionary Guard-linked entities involved in the oil and gas sector will remain subject to certain designations.

Banks. Iran’s banks have faced some of the severest consequences from being designated under various sanctions regimes—particularly those enforced by the US Treasury, which have effectively cut off Iranian banks from the global financial system. While the United States will remove several Iranian banks from its designated list on Implementation Day, nearly all of them will remain off-limits to US persons and companies. The EU, by comparison, will de-list without any caveats most of those Iranian banks it previously sanctioned—including several banks like Bank Mellat, with whom the EU Council has fought long-running legal battles. A few banks with particularly strong ties to Iran’s proliferation activities or the Revolutionary Guards, such as Bank Sepah, will remain blacklisted for longer.

Iran’s civil nuclear agency. The deal will see the de-listing on Implementation Day of the Atomic Energy Organization of Iran (AEOI), Iran’s civil nuclear authority, which operates the controversial facilities at Natanz, Fordow and Arak. In a turn of events that would have been unforeseeable just a few years ago, Americans and American companies will be permitted to do business with the AEOI, re-opening trade channels that have been largely shut since the time of the Shah. (A couple of AEOI front companies that have caused particular consternation to the IAEA in the past will remain subject to UN-mandated asset freezes and EU sanctions until Transition Day).  

Universities. Iran’s universities have largely escaped the perils of being blacklisted, despite being critical to Iran’s nuclear and missile development. On Transition Day, the EU will de-list two universities, Shahid Beheshti and Sharif University of Technology, which have reportedly been involved in nuclear weapon-related research and centrifuge-related research respectively. The military-run Malek Ashtar University will be de‑listed by the United Nations, but will remain subject to an UN-mandated asset freeze, and the United States will continue to blacklist a couple of the Revolutionary Guards’ military colleges.

Military, missile entities and the Islamic Revolutionary Guard Corps. The de-listing process has clearly been designed to avoid delivering relief for as long as possible to Iran’s military and the Revolutionary Guards. Entities and personnel operating under their auspices who have previously been the subject to sanctions—including military commanders, major arms manufacturers, research and development organizations, and ballistic missile producers—will gain the least and latest sanctions relief of all the designated Iranian entities. All will need to wait until Transition Day or later before being de-listed.

Procurers and proliferators. A number of people and companies who have been busted for supplying goods to Iran’s nuclear and missile programs will also have to wait until Transition Day to be de-listed. These include Iranian firms that reportedly supplied electronic equipment to the Natanz centrifuge facility, and individual smugglers such as Hossein Tanideh, who sold specialized valves to Iran’s heavy water program until he was arrested by German police. A handful of procurement agents whom the United States has designated for supplying Iran’s UN‑prohibited programs will remain on the US-designated list, perhaps indefinitely.

Some of the deal’s few obvious mistakes—most likely slip-ups made during the late nights of the negotiation process—can be found in its treatment of a couple of well-known proliferators. Parviz Khaki, an alleged procurer for Iran’s nuclear program who died last July, will not be de-listed until the IAEA gives Iran a clean bill of health, perhaps in a decade’s time. Gerhard Wisser, a German who helped Pakistani nuclear proliferator Abdul Qadeer Khan sell centrifuge technology to Libya but had nothing to do with Iran, will have to wait until then as well before being de-listed.

Looking forward. Complicated as this process will be, it’s only a small element of the overall sanctions relief plan. Sanctions measures restricting trade with various parts of Iran’s economy—such as restrictions on the export of oil, or provision of services to the oil and gas sector—will be relaxed according to other complicated sequencing laid out in the deal’s text. And there are unresolved questions as to how countries outside the EU and the United States will choose to implement sanctions relief measures: Will Canada, for example, which has made its skepticism about the nuclear deal clear, de-list the 600 or so Iranian entities that it has put its own voluntary sanctions on?

These questions will be answered in time. It’s quite possible that there will never be another sanctions regime as broad and far-reaching as the one that is about to be dismantled. Critics of the Iran nuclear deal will mourn its loss, and howl at perceived missteps in the process, such as the storm in a teacup over Qasem Soleimani. Yet the negotiators have done remarkably well in designing in under two weeks a mechanism that looks like it could successfully dismantle 10 years’ worth of aggregated complexity.