By Arshad Mohammed
WASHINGTON (Reuters) - The United States' latest sanctions on Iran target Tehran's ability to sell crude oil but they give President Barack Obama wide latitude to pull his punches and avoid imposing penalties.
Below is a description of the sanctions that Obama signed into law on December 31, the timelines to carry them out, the ways Obama can avoid imposing them and the ambiguities in the law that must be interpreted by the administration.
U.S. lawmakers crafted Section 1245 of the National Defense Authorization Act for Fiscal year 2012 as part of a campaign to restrain Iran's nuclear program, which the United States suspects of being designed to produce nuclear weapons.
Iran says its program is for civilian purposes to generate electricity so it can export more of its valuable oil and gas.
What actions can trigger sanctions?
The sanctions target foreign financial institutions that conduct petroleum and non-petroleum transactions with Iran's central bank or other blacklisted Iranian financial entities.
For non-petroleum transactions, from February 29 the law requires the president to punish private banks that "knowingly conducted or facilitated any significant financial transaction with the Central Bank of Iran" or other blacklisted entities.
For oil-related transactions, from June 28 the law allows the president to sanction foreign banks that carry out financial transactions "for the purchase of petroleum or petroleum products from Iran" provided several conditions are met.
Foreign central banks and state-owned financial institutions are only subject to the sanctions for petroleum transactions, allowing them to conduct other business with the Central Bank of Iran without risk of running afoul of the new law.
The law provides a blanket exception for sales of food, medicine or medical devices to Iran, which are not subject to the sanctions.
It also requires the president to block assets of Iranian financial institutions if they fall under U.S. jurisdiction. According to a congressional aide, at present such transactions are "bounced" or rejected.
What sanctions are permitted under the law?
Three sets of punishments are possible:
- the president can prohibit a foreign bank from opening certain accounts in the United States, substantially curtailing their access to the U.S. financial system;
- the president can prevent foreign banks from maintaining such existing accounts or, in a lesser punishment, "impose strict conditions" on such accounts;
- the president can impose a series of other sanctions under the International Emergency Economic Powers Act (IEEPA), which among other things gives him the authority to block any transaction involving assets under U.S. jurisdiction and to regulate or prohibit foreign exchange transactions, bank transfers and imports or exports of currencies or securities.
What latitude does the president have to avoid sanctions?
The legislation offers several ways for the president to avoid imposing sanctions if he so chooses.
In the case of non-petroleum transactions by private banks, before applying sanctions the president must first "determine" that the bank has "knowingly" carried out or facilitated a "significant" financial transaction.
The terms "knowingly" and "significant" are not defined in the legislation, giving the president some discretion as to how he may interpret them.
Before applying sanctions on foreign banks for petroleum transactions, the law calls for the following steps:
-- By February 29, and every 60 days thereafter, the U.S. government must send Congress a report on the availability and price of non-Iranian oil and petroleum products.
-- By March 30, and every 180 days thereafter, the president must make a determination whether the price and supply of non-Iranian oil and petroleum products is sufficient to allow consumers to "significantly" cut their purchases from Iran.
-- The president can only apply sanctions for petroleum transactions if he determines there is enough non-Iranian supply for countries to "significantly" reduce their Iranian purchases.
-- The law gives the president an explicit exemption under which he can choose not to apply sanctions if he determines that the country with primary jurisdiction over the bank has "significantly reduced" its volume of crude oil purchases.
The phrase "significantly reduced" is not defined, again giving the administration some discretion.
Finally, the law provides broad "waiver" authority under which the president may waive sanctions for up to 120 days, and every 120 days thereafter, if he determines that it "is in the national security interest of the United States."
If he does so, he must also submit a report to Congress "providing a justification for the waiver" and describing any concrete cooperation he has received, or expects to receive, as a result of the waiver.
The law also requires the president to encourage oil producers to increase their output and to try to persuade countries that buy oil from Iran to ensure Iran uses the revenues to buy only non-luxury consumer goods from them.
What has the administration said about how it may implement the new law?
Relatively little. Congressional aides said U.S. officials are still working on how they will implement the law and they are expected to issue rules in the coming weeks to define some of the ambiguous language and to give banks enough time to ensure they are in compliance by February 29.
When he signed the law, Obama said unspecified parts of it interfered with his authority to conduct foreign relations by directing the administration "to take certain positions in negotiations or discussions with foreign governments."
"Should any application of these provisions conflict with my constitutional authorities, I will treat the provisions as non-binding," he added, without elaborating.
What terms in the law may be defined in the upcoming rules?
The law provides no definition for the following terms:
-- "knowingly conducted or facilitated";
-- "any significant financial transaction";
-- "to permit a significant reduction" in the volume of petroleum and petroleum products purchased from Iran;
-- "significantly reduced its volume of crude oil purchases from Iran."
(Reporting By Arshad Mohammed; Editing by Vicki Allen)