Potential Designation of the IRGC as a Foreign Terrorist Organization and What It Could Mean for the Iran Deal

The Trump Administration recently floated the idea of designating Iran’s Islamic Revolutionary Guard Corps (IRGC) and the Muslim Brotherhood as Foreign Terrorist Organizations (FTOs).  This post focuses on the potential designation of the IRGC as an FTO, while a future post will discuss the implications of designating the Muslim Brotherhood as an FTO. The IRGC proposal, reportedly slated to be rolled out in February, apparently has stalled in the face of objections from the US Department of State and the US Department of Defense.  Fueling the reported objections have been concerns over Iran’s role in combating the Islamic State (IS), particularly in Iraq, where IRGC-backed militias have played a key role in combating IS forces. In addition to raising such national security concerns, a designation of the IRGC as an FTO could seriously impact sanctions relief under the Joint Comprehensive Plan of Action (JCPOA) agreement regarding Iran’s nuclear program.  How so?  By making it a criminal offense for all persons worldwide to provide “material support” to the IRGC, which, as discussed in a previous post and as discussed below, reportedly controls major sectors of Iran’s economy. So what would designating the IRGC as an FTO entail?  The Antiterrorism and Effective Death Penalty Act of 1996 (AEDPA), signed into law by President Clinton, authorizes the Secretary of State to designate an organization as an FTO following a determination that:

• the organization is a foreign organization;
• the organization engages in terrorist activity or retains the capability and intent to do so; and
• the terrorist activity of the organization threatens the security of US nationals or of the United States.

The State Department maintains a list of designated FTOs on its website. What are the consequences of an FTO designation?  First, as required by the AEDPA and as implemented by the Foreign Terrorist Organizations Sanctions Regulations (31 C.F.R. Part 597), US financial institutions are required to block the property and interests in property of FTOs, and to report to the Department of Treasury the existence of such blocked funds.  Furthermore, pursuant to Executive Order 13224 and the Global Terrorism Sanctions Regulations (31 C.F.R. Part 594), practically all FTOs also are designated as Specially Designated Global Terrorists (SDGTs), meaning that all US persons—including US citizens, US lawful permanent residents, persons located within the United States, and entities organized under US law and their foreign branches—are required to block their property and interests in property. However, the severity of the above restrictions notwithstanding, it is the AEDPA prohibition against providing “material support” to FTOs that garners much of the publicity in the FTO context.  Specifically, the AEDPA makes it a criminal offense to provide “material support” to a designated FTO, and explicitly provides that this prohibition has extraterritorial application.  The statute provides that jurisdiction exists where, inter alia, “after the conduct required for the offense occurs an offender is brought into or found in the United States, even if the conduct required for the offense occurs outside the United States” (emphasis added).  A material support charge is serious business—individuals face up to 20 years’ imprisonment and penalties of up to the greater of $250,000 per violation or twice the pecuniary gain from the activity, while companies are subject to penalties of up to $500,000 per violation or twice the pecuniary gain from the activity. Not surprisingly, statutes that purport to apply extraterritorially tend to invite due process challenges, and the AEDPA has been no different, although at least one US Court of Appeals has upheld the extraterritoriality provision of the AEDPA.  In United States v. Al Kassar, the US court of Appeals for the Second Circuit affirmed the convictions of foreign nationals who were arrested in Romania and Spain and extradited to the United States on charges of conspiring to provide material support to FARC, the Colombian terrorist organization, in its efforts to attack the US military in Colombia.  The defendants appealed the conviction on due process and other grounds.  Regarding the due process argument, the Second Circuit held that

[i]n order to apply extraterritorially a federal criminal statute to a defendant consistently with due process, there must be a sufficient nexus between the defendant and the United States, so that such application would not be arbitrary or fundamentally unfair.

The court concluded that the appellants had been provided sufficient due process, reasoning that “[f]or non-citizens acting entirely abroad, a jurisdictional nexus exists when the aim of that activity is to cause harm inside the United States or to US citizens or interests.”  See United States v. Al Kassar, 660 F.3d 108, 118 (2d Cir. 2011). While the appellants in Al Kassar specifically intended to harm US nationals, other AEDPA case law suggests that even where a defendant does not intend to engage in acts in the United States or to harm US nationals abroad, there is a sufficient nexus with the United States purely by virtue of the defendant knowingly providing material support to a designated FTO.  In United States v. Ahmed, the court upheld the indictment of an Eritrean national apprehended in Nigeria and charged in the United States with providing material support to Al Shabaab, an FTO based in Somalia.  The government did not allege that the defendant intended to engage in acts in the United States or to harm US nationals.  Nonetheless, the court held that there was as sufficient nexus with the United States, reasoning that

[o]ne of the required elements for the designation by the Secretary of State is the finding that ‘the terrorist activity or terrorism of the organization threatens the security of United States nationals or the national security of the United States.’ Further, . . . ‘the person must have knowledge that the organization is a designated terrorist organization . . ., that the organization  has engaged or engages in terrorist activity . . ., or that the organization has engaged or engages in terrorism . . . .’ Taken together, the designation and knowledge requirements ensure that there is a nexus to American interests so as to render the prosecution neither arbitrary nor fundamentally unfair.

See United States v. Ahmed, No. 10 CR 131, 2011 US Dist. LEXIS 123182, at *6-7 (S.D.N.Y. Oct. 20, 2011). So what would all of this mean for non-US companies seeking to do business in Iran?  The IRGC, as noted above, is a major player in Iran.  However, it already is subject to a raft of US sanctions restrictions, even after implementation of the JCPOA.  Notably, non-US persons remain subject to “secondary” sanctions to the extent they provide significant support to the IRGC, meaning that they are subject to the denial of certain privileges of doing business with the United States—including loss of trade privileges and access to the US financial system—where they engage with the IRGC.  This has proven to be vexing for non-US companies seeking to do lawful business in Iran following implementation of the JCPOA, given the IRGC’s potentially pervasive influence on the Iranian economy.  Contributing to the headaches over the IRGC is lingering uncertainty over whether a non-US person is subject to sanctions only for providing direct support to the IRGC or its designated affiliates, or if it is also sanctionable to provide support to IRGC-controlled-or-affiliated companies not specifically identified by the US Government. An FTO designation would seriously raise the stakes in this context by introducing the threat of criminal prosecution.  Furthermore, such a designation would only exacerbate the uncertainties around dealing with Iranian companies with potentially murky ties to the IRGC.  For example, if a European company were to engage in a major transaction with an Iranian company indirectly owned or controlled by senior IRGC officers—as up to 200 Iranian companies may be—could that company be charged with providing material support to an FTO?  The AEDPA does not seem to shed much light on this.  It defines “material support” broadly, but simply provides that it is an offense to provide such support “to” an FTO—leaving unanswered the question of how direct the nexus with the FTO must be. Designating the IRGC as an FTO could prove to be a fateful decision with serious implications for national security, US diplomatic relations, and sanctions relief under the Iran deal.  And yet, in light of President Trump’s professed hostility for the Iran deal, coupled with his stated intention to leave the deal in place but get “tough” with Iran, the proposal may resurface before long.