Actions to Enforce the Iran Sanctions Act and Implement Contractor Certification Requirement

Since the fall of 2010, State has sanctioned 13 foreign firms under the ISA—2 for investments in Iran’s energy sector and 11 for supplying refined petroleum products.

State imposed various sanctions on each firm, listed 10 in EPLS making them ineligible to receive U.S. government contracts, and was in the process of listing the remaining 3 firms in EPLS at the time of this report. To enforce the ISA, State has increased its staff to review available information on companies’ activities in Iran’s energy sector, including information indicating whether affiliated parent companies should be held accountable, relying heavily on the intelligence community and U.S. embassies to corroborate the information. The final decision on whether to apply sanctions is made by the Secretary of State or a delegee after the information and evidence of potentially sanctionable activity is vetted through State and other agencies when applicable. In addition to sanctions, State officials told us that they have been successful in persuading firms to end their business dealings with Iran, and that the number of foreign firms involved in Iran’s energy sector has declined. However, they acknowledged that some firms are still operating in Iran’s energy sector, and they are continuing their efforts to enforce the ISA.

In September 2010, the administration revised the FAR, as required by CISADA, to include a requirement for prospective contractors to certify that they or any firm owned or controlled by them are not engaging in activities for which sanctions may be imposed under section 5 of the ISA. The certification was subsequently added to the governmentwide electronic system for maintaining various certifications and representations that are required for contractors to do business with the government. The FAR was also revised to include remedies upon determination of false certification and procedures for obtaining waivers to the certification requirement, which would be needed if it was in the national interest for an agency to contract with a firm that has engaged in sanctionable activity.

However, none of the 13 firms sanctioned by State under the ISA held government contracts or were registered to respond to solicitations for contracts, or submitted an offer after the certification requirement went into effect, so there is no evidence of false certifications or the need for waivers.

Why GAO Did This Study

It is the policy of the United States to deter Iran from developing its nuclear program, supporting terrorism, and abusing human rights by limiting the development of Iran’s energy sector, which is vital to its economy and government. The Iran Sanctions Act of 1996 (ISA), as amended, provides for sanctions against firms determined to have made certain investments in Iran’s energy sector.

While the ISA applies to all firms, U.S. firms were already prohibited from investing in Iran under a U.S. trade embargo, and the ISA was enacted to encourage foreign firms to withdraw from the Iranian market. However, no sanctions have been imposed under the ISA by any prior administration.

The Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA) amended the ISA by expanding the energy-related activities for which sanctions could be applied to include firms determined to have provided to Iran or invested in Iran’s development of refined petroleum products.

Sanctions include excluding firms from receiving U.S. government contracts. CISADA also directed that the Federal Acquisition Regulation (FAR) be revised to require firms seeking U.S. government contracts to certify that neither they nor any firms owned or controlled by them are engaged in activities for which sanctions may be imposed under section 5 of the ISA. If a contractor submits a false certification, agencies may terminate the contract, or suspend or debar the contractor, in accordance with procedures in the FAR, from government contracts. The certification requirement may be waived in the interest of national security. The Department of State (State) is responsible for enforcing the energy-related sanctions under the ISA, as amended.

In response to your request, this report (1) identifies State actions and processes to enforce energy sector-related sanctions under the ISA and (2) describes the implementation of the contractor certification requirement and identifies any indications of false certifications or the need for waivers of the certification requirements. We are issuing a separate report covering firms identified in open sources as selling refined petroleum products to Iran from July 2010 through December 2011.

For more information, contact Belva M. Martin at (202) 512-4841 or martinb@gao.gov.