Category: Public Policy

Among other things, the measure establishes three new sanctions, in addition to the menu of six sanctions that already exists under the Iran Sanctions Act (ISA), including: (1) a prohibition on access to foreign exchange in the U.S.; (2) a prohibition on access to the U.S. banking system; and (3) a prohibition on property transactions in the U.S. The law would require that the President to impose at least three of the possible now-nine sanctions on an entity in violation of ISA.

In addition to restricting new types of financial and energy sector transactions, if approved by the Congress and signed into law the act would codify longstanding executive orders and limit goods exempted from the embargo. The measure will also hold U.S. financial institutions accountable for actions by their foreign subsidiaries. According to Congressional documents released this week, other major highlights of the measure include provisions to:

1. Expand the scope of sanctions authorized under ISA by imposing sanctions on foreign companies — including insurance, financing and shipping companies — that sell Iran goods, services, or know-how that assist it in developing its energy sector;
2. Ban U.S. banks from engaging in financial transactions with foreign banks doing business with the Iranian Revolutionary Guard Corps or facilitating Iran’s illicit nuclear program or its support for terrorism
3. Ban U.S. government procurement contracts for any foreign company that exports to Iran technology used to restrict the free flow of information or to disrupt, monitor, or otherwise restrict freedom of speech and require a certification from a company bidding on a U.S. government procurement contract that it is not engaged in sanctionable conduct.
4. Provide a legal framework by which U.S. states, local governments, and certain other investors can divest their portfolios of foreign companies involved in Iran’s energy sector. Strengthen efforts to stop black-market diversion of sensitive technologies to Iran.
5. Increase substantially the criminal penalties for sanctions violations by U.S. entities.

The text of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 is available here (pdf).

Every year the Secretary of State must provide “detailed assessments” to the Congress of each foreign country that, among other things, is using its territory as a sanctuary for terrorist organizations or where significant acts of international terrorism occurred.  In the case of Venezuela, for several years there has been growing concern of Venezuelan activities in support of terrorist entities and terrorist states.  In the most recent Country Reports on Terrorism (2008), Venezuela was “re-certified as “not cooperating fully” with U.S. antiterrorism efforts under Section 40A of the Arms Export Control Act”.  It also states that Venezuela continues to maintain close relations with the Colombian terrorist group FARC and with state sponsor of terrorism Iran.  The Venezuelans have failed to systematically “police the 1,400-mile Venezuelan-Colombian border to prevent the movement of groups of armed terrorists or to interdict arms or the flow of narcotics.”  There is likely much more information that remains classified. 

For the foreseeable future, it is highly unlikely that Venezuela will be designated a state sponsor of terrorism or even the lesser category, terrorist haven; however, U.S. companies and other persons doing business in Venezuela from the United States should already be taking reasonable precautions when engaging in transactions with certain Venezuelan entities.  A cursory review of the Department of the Treasury’s specially designated nationals (SDN) list generates over 100 hits in Venezuela.  There are numerous individuals, banks and travel agencies that U.S. persons are prohibited from doing business with unless you have prior authorization from Treasury’s Office of Foreign Assets Control (OFAC).  Most of these SDNs have been included on the list for suspected links to terrorism or terrorism-related activities including money laundering and even ties to Hezbollah.  There are severe criminal and civil penalties for doing business with SDNs, including fines and jail.

If additional sanctions were ever imposed on Venezuela, it would have a significant economic impact to the Venezuela economy as well as to businesses in the South Florida region and the Gulf region.  Venezuelan exports to the United States account for more than 60% of Venezuela’s total exports.  This figure includes unrefined crude oil for which Venezuela needs U.S. refining capacity or it would be in tough straits.  U.S. exports to Venezuela – about 25% of Venezuela’s total imports – include items such as agriculture (not likely to be directly affected by sanctions), consumer goods, heavy machinery, chemicals, as well as travel and other private services such as business, professional and technical services.  U.S. businesses in South Florida would be the more immediately impacted, as would petroleum companies in the Gulf region and the U.S. Virgin Islands. 

As was the case during most of the prior Bush Administration,  a piecemeal and targeted sanctions approach will continue as the U.S. weighs its options toward Venezuela.  In the meantime, U.S. and foreign entities working from the U.S. should continue to scrub all transactions with Venezuelan companies and persons to ensure that they are not engaging in unauthorized transactions with SDNs.  

For additional information see “Ensign to State Department: Review Venezuela’s Status as a Terrorist State“.