x Abu Dhabi, UAEThursday 27 July 2017

US states cutting all financial links to Iran

Critics say states are forging a foreign policy at odds with attempts by President Obama to improve relations with former foes.

WASHINGTON // Barack Obama may have made diplomatic engagement with Iran a centrepiece of his foreign policy, but state legislatures across the United States have other ideas: an increasing number are adopting bills to divest from companies with ties to the Islamic republic. About 20 US states have gone "terror free" - ridding their pension funds of shares of stock in companies doing business in Iran - or have legislation in the pipeline to do so.

Last month, the states' divestment efforts got a boost when a US House of Representatives subcommittee held a hearing on a federal bill that would give legal protection to jurisdictions that want to divest. States do not need that bill to pass to take action, but its supporters say it could insulate them from potential lawsuits. The movement, modelled after divestment efforts directed at South Africa in the 1970s and 1980s in protest of apartheid, began in Missouri, whose pension fund divested in 2006. Florida followed suit, then California and Illinois and others, including Arizona, Georgia, Louisiana and New Jersey.

Divestment legislation has been introduced in several other states, Pennsylvania, Indiana and Minnesota among them. Some of the bills target just Iran and in some cases apply only to businesses involved in that country's energy sector; others have included Sudan and two additional so-called "state sponsors of terror" identified by the US state department, Syria and North Korea. The legislation affects foreign companies, as US law already prohibits American ones from doing business with Iran. Still, there are loopholes that allow US companies with foreign subsidiaries to operate there.

Critics of the divestment efforts say states should not forge their own foreign policy, potentially working at odds with the federal government which, under the US constitution, has the sole power to conduct foreign affairs. On those grounds, the US Supreme Court in 2000 struck down a Massachusetts bill that effectively barred companies doing business with Myanmar (then named Burma) from being awarded state contracts.

Critics also say that now, while Mr Obama is trying to make a fresh start, is not the time for the imposition of a patchwork of state sanctions that could undermine broader diplomatic efforts. But Josh Shapiro, the Pennsylvania state representative who is the driving force behind divestment legislation under consideration there, believes his effort goes "hand in hand" with the diplomatic ones of the US government.

"The purpose of my legislation is not to stop communication and stop diplomacy, quite the contrary," said Mr Shapiro, who supports Mr Obama's engagement with Iran but also the "carrot and stick" approach the president has talked about. "I think the economic tools only strengthen the hands of our diplomats." Mr Shapiro pushed the Pennsylvania Tobacco Settlement Investment Board, on which he sits, to adopt a resolution prohibiting investment in foreign companies doing business with Iran and Sudan. The board is responsible for managing some US$11 billion (Dh40.4bn) the state received from the settlement of a national tobacco lawsuit.

"I think it is both symbolic and pragmatic in that if states really continue to band together and take away dollars from these terrorist regimes, then the regimes will no longer have the resources to be able to proliferate terror," he said. "I think there is a real tangible effect that the state laws can have." The Conflict Securities Advisory Group, a research outfit in Washington, publishes a database of US and international companies that have business ties to Iran, Sudan, Syria and North Korea and provides "certification" for investment products it deems terror free. At terrorfreecalculator.com, individuals can evaluate their own mutual funds.

On Capitol Hill, Barney Frank, a Massachusetts Democrat who chairs the House financial services committee, and Mark Kirk, an Illinois Republican, have introduced the federal Iran Sanctions Enabling Act. It authorises state and local governments - but does not compel them - to divest from companies that have over $20m of investments in Iran's energy sector. A similar bill overwhelmingly passed the House last year but was not considered in the Senate. Mr Obama, the US president, was the sponsor of the Senate version when he served in that chamber.

Trita Parsi, the founder and president of the National Iranian American Council, testified at last month's hearing against such divestment efforts, saying it is not the threat of new sanctions that will change Iranian behaviour but the potential that existing ones will be lifted. "After a decade and a half of failed economic pressure and three decades of hostility, it is not sanctions or divestments that deserve another chance," he told legislators. "It's diplomacy and the opportunity to use the leverage that existing sanctions provide in the context of a negotiation that should be given the space and time to succeed."

In an interview, Mr Parsi said Mr Obama is trying to forge a new way forward with Iran and to create "a more helpful atmosphere". "We have to build some level of confidence in the diplomatic process to do so," he said. "We do have to set aside other measures if we are truly serious about diplomacy. I do believe the president is, but perhaps others are not." Christopher Holton, head of the Divest Terror Initiative and a vice president at The Center for Security Policy, said he expects several more states to go "terror free" in the near future.

"As Iran continues to behave in the way that they do, and continues to take provocative actions, I think we will see an acceleration of these divestment bills," he said. eniedowski@thenational.ae