January 27, 2016 | Missouri State Senate Committee on Jobs, Economic Development, and Local Government

Missouri State Senate Committee on Jobs, Economic Development, and Local Government

Download the full testimony here

Chairman Schmitt, members of the Senate Committee on Jobs, Economic Development and Local Government, on behalf of the Foundation for Defense of Democracies and its Center on Sanctions and Illicit Finance, I thank you for the opportunity to testify.

Today, as you hold this important hearing on Missouri’s investment policies and the leading state sponsor of terrorism, Iran, Iran’s President Hassan Rouhani is touring Europe, accompanied by a large, high-profile delegation of Iranian corporate executives. They are there to reap the great economic benefits of the Joint Comprehensive Plan of Action (JCPOA). Numerous contracts worth billions of dollars are being signed as you debate whether this house should pass legislation to defund corporations doing business with state sponsors of terrorism. Iran is the foremost state sponsor of terrorism and Iran’s Islamic Revolutionary Guard Corps (IRGC) is the principal instrument through which Tehran trains, finances, arms, equips, and spreads terror across the Middle East and beyond. The IRGC is also the custodian of Iran’s best-kept military secrets, including its clandestine nuclear military program and ballistic missile program. As the regime’s Praetorian Guard, it is also charged with defending the Islamic Revolution from enemies at home and spreading the revolution abroad. Over the years, the IRGC has zealously fulfilled these tasks, quashing pro-democracy protesters inside Iran and sponsoring terrorism and Islamist movements abroad.

The IRGC is also a dominant player in Iran’s economy and the likeliest beneficiary of the JCPOA. This testimony will focus on the JCPOA impact on the IRGC and its dominant position in Iran’s economy. The JCPOA dismantles specific United Nations and European Union sanctions, and significantly diminishes the scope and reach of U.S. sanctions. In doing so, the JCPOA creates a major “stimulus package” for Iran’s economy. The IRGC derives much of its domestic clout from its position of dominance within Iran’s economy. Thus, the IRGC and the supreme leader’s business empire will be the main beneficiaries. Their economic ascendance will fortify their domestic political influence.

As export and trade restrictions are lifted, previously prohibited Western technology will make its way back to Iran. The challenge of denying the IRGC access to banned technology – including dual-use technology and equipment for monitoring dissidents – will become even more arduous. The demise of sanctions will also facilitate the acquisition of advanced weaponry that will improve Tehran’s conventional military capabilities, as well as its support for the Bashar al-Assad regime in Syria, Hamas in the Gaza Strip, Hezbollah in Lebanon, and Houthi rebels in Yemen.

To be clear, the United States is set to maintain its sanctions on the IRGC. The JCPOA does not alter them. Moreover, the European Union will not delist most IRGC entities on its sanctions list until Transition Day, roughly eight years from now. But as this testimony explains, after the bulk of Iran sanctions were lifted on Implementation Day on January 16, the remaining measures against the IRGC are insufficient. They will not isolate the Guards and the supreme leader’s business interests from the benefits that the JCPOA will generate. Instead, additional sanctions, regulations, and due diligence efforts are needed from both governments and the private sector.

First, on Implementation Day, the JCPOA required the European Union, United States, and United Nations to lift or suspend sanctions against entire sectors of the Iranian economy. The IRGC and the supreme leader’s business interests are active in many sectors – some of which they dominate almost completely. IRGC companies will get the lion’s share of public contracts and business opportunities.

Second, numerous companies, which have served as accessories to IRGC nuclear and ballistic missile programs and its support for the Assad regime and its crimes against humanity, were removed from sanctions lists. De-listed entities include the entire network of companies and subsidiaries controlled by the supreme leader, as well as Iran’s aviation industry and state-owned shipping firms, and companies where the IRGC has a significant ownership interest.

The delisting was not the result of a demonstrable change in these entities’ patterns of behavior. Now that these companies are delisted, there are no guarantees they will cease the illicit conduct that caused them to be sanctioned in the first place – instead, there is ample reason to believe they will redouble that activity.

Third, and most critically, companies owned or controlled by the IRGC that have until now eluded designation by the U.S., EU, or UN are likely to benefit from the post-JCPOA windfall, as the business community will accept them as legitimate business partners. The same is true for IRGC senior executives that eluded sanctions until now.

This testimony will explain the IRGC’s role in the Iranian economy, demonstrate how the IRGC uses profits from its “legitimate” businesses to fund its illicit activities, and provide recommendations to mitigate the risk for state pension funds to invest in companies tainted by business ties with the IRGC. State governments’ steps to defund Iran will send a strong signal to the international business community: those who enter contractual relations with economic players of a state sponsor of terrorism risk becoming an accomplice to terror financing. It is imperative for state legislatures to shield their own investments from such companies.