Blocking Property of the Government of Iran and Iranian Financial Institutions

1. Overview

Purpose and Scope

Executive Order 13599, signed by President Barack Obama on February 5, 2012, aims to exert economic pressure on the Iranian government and its financial institutions. This action is set within a broader U.S. strategy to address perceived threats posed by Iran's nuclear program and other activities viewed as destabilizing. The EO specifically targets Iranian assets, blocking properties of the Iranian government and its financial institutions, including the Central Bank of Iran, which are within the U.S. or within the possession of U.S. persons, including foreign branches. The blocking of these assets is intended to disrupt Iran's financial networks and impair its ability to engage in international finance.

Legal Authority

The EO is enacted under the International Emergency Economic Powers Act (IEEPA), the National Emergencies Act, and specific sections of the National Defense Authorization Act for Fiscal Year 2012. These legal frameworks empower the President to impose sanctions in response to threats to national security, foreign policy, or the economy of the U.S. The decision to implement such measures against Iran highlights a continuation of U.S. policy to employ economic sanctions as a tool to influence foreign government behavior. This EO is part of a series of measures responding to what the U.S. government identifies as Iran's deceptive banking practices and weak anti-money laundering controls.

Actions and Consequences

The order mandates that any property or interests in property of the Iranian government and its financial institutions be frozen if under U.S. jurisdiction. It also prohibits donations to these entities and bars transactions involving funds, goods, or services tied to blocked property. The EO outlines that any attempts to evade or violate these prohibitions are also illegal. This comprehensive approach is designed to ensure strict compliance and to limit Iran's economic activities that could support its nuclear program. The enforcement of these sanctions is intended to send a strong political signal to Iran and to demonstrate U.S. commitment to international norms and security.

2. Legal and Policy Implications

Constitutional Considerations

Executive Order 13599 leverages statutory powers granted by Congress, specifically through IEEPA and NDAA, underscoring the President's authority to direct foreign policy using economic tools. While the EO does not raise significant constitutional issues directly, its implementation could prompt legal debates about the limits of executive power, particularly concerning the blocking and regulation of foreign government assets without judicial review. The EO reflects ongoing tensions between executive discretion in matters of national security and the need for oversight and accountability.

Impact on U.S. Policy Continuity

This executive order represents a continuation of U.S. policy focusing on economic sanctions as a primary tool for addressing international conflicts and securing compliance with international norms. In practical terms, EO 13599 reinforces existing sanctions against Iran stemming from previous executive orders and legislative acts, providing a unified and robust legal framework to inhibit Iran's economic interaction with the international community. It asserts the administration's commitment to a multi-layered sanctions regime targeting entities involved in Iran's nuclear and ballistic missile development activities.

Cross-Border Legal Implications

The EO's extraterritorial reach affects foreign entities affiliated with Iran, particularly through their dealings with U.S. subsidiaries or entities. This broad scope serves to isolate Iran financially, complicating its trade relationships by raising the cost and risk of engaging with the Iranian economy. It pressures other countries to align their domestic sanctions policies with the U.S. approach to avoid secondary sanctions, fostering international compliance and cooperation in putting pressure on Iran.

3. Who Benefits

Strategic Interests of the U.S. Government

One of the primary beneficiaries of Executive Order 13599 is the U.S. government's strategic interests, particularly its aim to prevent Iran from developing nuclear weapons capabilities. By implementing these sanctions, the U.S. enhances its diplomatic leverage, potentially forcing Iran to engage in negotiations about its nuclear program and regional conduct. The order also reinforces U.S. commitments to its allies, particularly in the Middle East, underscoring a commitment to regional stability and security.

Allied Nations in the Middle East

Countries such as Israel and Saudi Arabia, which perceive Iran as a direct threat, benefit indirectly from this EO. The sanctions regime potentially diminishes Iran's ability to advance its geopolitical agenda and reduces its capacity to support proxy groups throughout the region. This benefits allied nations by curbing Iran's influence, which these countries often interpret as aggressive, and supports their strategic security objectives by keeping Iranian financial networks in check.

Financial Transparency Advocates

Advocates for stringent financial regulation and transparency may also view this executive order favorably. By highlighting deficiencies in Iran's anti-money laundering practices and targeting deceptive financial activities, the EO aligns with global efforts to strengthen the integrity of the international financial system. This benefits initiatives aiming to combat money laundering and terrorism financing, reinforcing international norms around legal and transparent financial transactions.

4. Who Suffers

The Iranian Economy

The most immediate impact of Executive Order 13599 is felt by the Iranian economy, particularly its financial institutions. Blocking assets curtails their ability to engage in international transactions, impairs liquidity, and restricts access to foreign markets. This causes economic hardship, exacerbates inflationary pressures, and leads to broader economic instability within Iran, affecting sectors reliant on foreign imports and investments.

Iranian Financial Institutions

Iranian banks, including the Central Bank of Iran, face significant operational challenges due to the asset freezes mandated by the EO. Their exclusion from the international financial system limits their operational capacity, negatively affects their creditworthiness, and forces them to rely on more expensive and less transparent financial networks. This isolating effect increases the cost of doing business for Iranian financial institutions and restricts their global reach.

Civilians in Iran

While the EO targets government and financial entities, civilians bear indirect consequences. Economic destabilization translates to increased unemployment, inflation, and a reduced standard of living. Access to essential goods and services becomes more cumbersome and costly, creating social discontent and placing a burden on the everyday lives of Iranian citizens, despite the intent to pressure political and economic elites within the country.

5. Historical Context

Long-standing Sanctions Regime

Executive Order 13599 forms a part of the long-standing strategy of the United States to apply economic pressure on Iran, stretching back several decades. Sanctions have been a cornerstone of U.S. foreign policy since the Iranian Revolution in 1979 and were significantly expanded following Iran's pursuit of nuclear capabilities. This EO fits within a continuum of strategies designed to influence Iran's behavior through economic isolation, supplementing diplomatic efforts aimed at curbing Iran's nuclear ambitions.

Iran Nuclear Deal Dynamics

The EO was issued within the complex context of ongoing negotiations over Iran's nuclear program. It aimed to strengthen the U.S. bargaining position by demonstrating readiness to escalate economic measures. These preparations highlighted the U.S. strategy of using both the carrot and stick approach, offering potential relief if Iran complied with U.N. Security Council resolutions, while simultaneously displaying a willingness to apply greater pressure if necessary.

Geopolitical Considerations

The timing of this EO reflects geopolitical considerations linked to U.S. relationships with Middle Eastern allies concerned about Iran's regional influence. Beyond nuclear concerns, the EO targets Iran's financial networks supporting its military and paramilitary operations abroad. This underscores the administration's broader Middle East policy to counter Iran's regional power projection and address the security concerns of key partners in the region.

6. Potential Controversies or Challenges

Legal Challenges and Humanitarian Concerns

Executive orders of this nature often encounter legal challenges, particularly around their implementation and scope. Humanitarian groups may argue that the order indirectly harms civilians, leading to essential goods shortages. As a result, legal disputes could arise from claims of undue human suffering, potentially prompting calls for exemptions or alterations to better safeguard humanitarian provisions and civilian needs.

Implementation and Compliance Issues

Ensuring compliance with the EO presents logistical challenges, particularly for multinational corporations with ties to both the U.S. and Iranian markets. These compliance complexities could lead to inadvertent violations, triggering penalties and necessitating rigorous due diligence and legal scrutiny. Affected corporations must navigate these sanctions carefully to avoid substantial fines and reputational damage.

Diplomatic Backlash

While many Western allies support the U.S. stance on Iran, there is potential for friction with other nations that maintain economic ties with Iran. Countries benefitting from trade relations with Iran may initiate diplomatic dialogues to mitigate the impact on their economies. Furthermore, nations that disagree with the U.S. viewpoint on Iran might criticize the EO as a unilateral approach damaged multilateral diplomatic efforts.