Tehran wants to see more economic benefits.

Photographer: Simon Dawson/Bloomberg

Obama Administration Urges States to Lift Sanctions on Iran

Eli Lake is a Bloomberg View columnist. He was the senior national security correspondent for the Daily Beast and covered national security and intelligence for the Washington Times, the New York Sun and UPI.
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After lifting international and federal sanctions related to Iran's nuclear program, the Barack Obama administration is turning its attention to state governments.

On April 8, the State Department's lead coordinator for Iran nuclear implementation, Stephen Mull, sent letters to the governors of all 50 states as well as some local officials. He asked them to reconsider any laws on the books that called for divesting state funds, such as pensions, from businesses interacting with Iran's economy, or laws that would deny contracts to companies that do business with Iran.  

The State Department has signaled this might be coming. Over the summer, Secretary of State John Kerry told Congress he would be asking states not to interfere with the implementation of the 2015 nuclear deal with Iran, which relaxes some economic sanctions.

And over the last month, Iran's leaders have complained they aren't getting everything they're owed under the nuclear agreement. On Friday, the head of Iran's central bank was in Washington, where he delivered a speech warning that the deal -- known as the Joint Comprehensive Plan of Action, or JCPOA -- would be in danger if Iran didn't see more economic benefits.

"Some states have adopted laws designed to incentivize Iran to change its behavior in certain ways," Mull wrote in a letter to Illinois Governor Bruce Rauner, which I obtained over the weekend. "If that is the case in your state, I would urge you to consider whether the implementation of the JCPOA, which verifiably ensures that Iran's nuclear program is and will remain exclusively peaceful, addresses the underlying concerns with Iran articulated in your state's law."

John Kirby, the State Department's spokesman, told me in a statement that similar letters had been sent out to the governors of all 50 states. He said the Iran agreement committed the U.S. to encourage state and local governments to review their sanctions against Iran. While Kirby was careful to say that the agreement itself -- which was never submitted to the Senate as a treaty -- doesn't affect these state and local laws, he did say that changes to U.S. foreign policy as a result of the agreement might.  

"As part of the JCPOA, the United States committed to encourage state and local governments to take account of the changes in U.S. policy as a result of the JCPOA, which could impact state and local laws and regulations," Kirby said.

This is where the State Department has leverage. In 2000, the Supreme Court overturned Massachusetts sanctions against Burma (now Myanmar) on the grounds that it interfered with the president's constitutional authority to conduct foreign policy. 

In this sense, the nudge from Mull is important. More than two dozen states have laws on the books that call for divestment or prohibit granting contracts to entities that invest in areas of Iran's economy like its mining or energy sector. Now that it's U.S. policy to assure foreign banks and businesses that they're safe to invest in some segments of Iran's economy, it's unclear whether the state divestment laws and sanctions are unconstitutional.

Defenders of the state-level sanctions say they shouldn't be lifted because many of them were imposed not only because of Iran's nuclear program, but also its human-rights record, development of ballistic missiles and support for terrorism.

"These state laws are an essential part of the non-nuclear sanctions architecture designed to both deter Iranian illicit behavior and to safeguard pension funds from the risk associated with entering Iran's economy," Mark Dubowitz, executive director of the Foundation for Defense of Democracies, and a leading expert in Washington on Iranian sanctions, told me.

Iran's missile work and support for terrorism is particularly relevant now. Obama himself acknowledged this on April 1 at the conclusion of the nuclear security summit in Washington. He said that Iran had complied with the "letter" of the JCPOA, but was not complying with its spirit. "When they launched ballistic missiles with slogans calling for the destruction of Israel, that makes businesses nervous," Obama said. "There is some geopolitical risk that is heightened when they see that taking place." Add to this the fact that the Financial Action Task Force, the international body that tracks money laundering and terrorist financing, in February designated Iran a country of exceptional concern.  

For these reasons, early reaction from some Republicans in Congress to Mull's letters has been harsh.

Representative Mike Pompeo, a Republican from Kansas, told me that he expected the letters to be an opening salvo from the Obama administration to compel the states to end sanctions on Iran in the president's final months in office. "You send out the sugar-coated letter first," he said. "Then you send out a more threatening, lawyerly letter after the states don't do what you want."

Senator Mark Kirk, a Republican from Illinois and the chairman of the Senate Banking Subcommittee on National Security and International Trade and Finance, feels much the same way. He told me, "The Iranian regime should not get a penny's worth of additional sanctions relief until it first stops supporting terrorists, developing ballistic missiles, engaging in human-rights abuses, and threatening Israel and U.S. national-security interests in the Middle East."

As for Governor Rauner, it looks for now that he won't be taking Mull's advice. When asked for a response to Mull's letter, Rauner's office pointed me to a statement from the governor's spokeswoman back in August.

At the time, she said, "Iran remains the world's leading state sponsor of terrorism and Illinois law would not prevent the implementation of the nuclear agreement now under congressional review. Illinois taxpayers should not be asked to subsidize Iranian terrorism." Eight months later, it looks like Illinois taxpayers will keep their sanctions on Iran, despite requests from the Obama administration.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Eli Lake at elake1@bloomberg.net