Counterterrorism Blog

Today’s announcement that President Bush intends to designate the Iran Revolutionary Guard Corps (IRGC) as a terrorism supporting organization is certainly welcome, even if it is somewhat redundant. The IRGC has major commercial and investment interests throughout Iran and internationality. It has also been used as a principal investment vehicle for Iran’s leading Mullah’s and other leaders (see my congressional testimony on this here). Hitting the IRGC should also hit Iran's leaders where it hurts -- in their pocketbook. Yet, this new action, in and by itself, will doubtfully have such impact – unless and until it is replicated by other countries. This is because the existing US sanctions on Iran already require all US financial institutions to freeze any assets belonging to the IRGC. They also prohibit any American companies from doing business with them. Of course, several US companies have been able to use loopholes to circumvent these sanctions (see my testimony on the loopholes here). And foreign companies, even those doing extensive business in the United States, have not really felt compelled to break off their dealings with Iran or the IRGC. Unfortunately, this new designation, on its face, does not appear to close any of these loopholes. So the question is why such a new designation now?

The most logical rationale for designating the IRGC as a terrorism supporting entity is to place increased pressure on companies overseas to curtail dealings with the IRGC. Taken in unison by key European countries such as Germany, France and the UK, and with Japan, these measures would severely impact Iran's leadership class. But how can this be accomplished? The best way would be to get a new UN Security Council Resolution which specifically includes the IRGC in the list of designated entities supporting Iran’s rogue nuclear weapons program. The current resolutions (UNSCR 1737 and UNSCR 1747 name only a few such entities, and have left the IRGC free to conduct business activities. (See my previous Blog on the UN's Iran Sanctions Resolutions here) But, progress has been very slow on getting the Security Council to act, given Russia and China’s reticence to enact new sanctions on Iran. So, we can presume that this unilateral action now is a sign that we cannot expect much from the UN at this time. Rather, we will need to use our own leverage to place increased pressure on Iran's leaders.

What will it take to convince our European friends and allies, and Japan to join us even in the absence of a UN resolution. Perhaps these governments, and the companies located in them will think twice about continuing to conduct business as usual with the IRGC and Iran, if they believe the new US designation of the IRGC could entail significant business costs for them also. We need to convince these companies that sensible risk mitigation and good corporate governance means cutting back on their business activities with Iran. And this will depend in large part on their own assessment as to whether the new US designation might really have an impact on their overall business and profitability. Will the Treasury Department take any new regulatory measures to review the actions of overseas branches of foreign banks and companies doing business in the United States that also do business with the IRGC. Will this give new impetus to those in Congress and State Legislatures that are pushing for strengthened measures to encourage US public and private fund divestment in companies doing business with designated terrorist entities? And will this new designation open the door to possible civil litigation against foreign companies doing business with terrorists under the Anti Terrorism Act of 1996. Recent Federal Court rulings have established that foreign companies doing business with terrorist organizations may well be held liable by the victims of terrorism in US courts. (see my blog here) These Rulings could well prove to be among the most important factors in dissuading certain foreign companies that do business in the United States from also conducting business with the IRGC.

The IRGC designation is a step in the right direction. We must now follow-through to show we mean business. We are still the major player in the international economy, and our own economic, trade and financial policies can have a major impact on the cooperation and conduct of others. This is when international leadership and diplomacy really counts.