by Tyler Cullis

The Trump administration’s “maximum pressure” strategy with respect to Iran is predicated on placing Iran’s economy in perpetual isolation. A not-insignificant part of that effort has involved designating the Islamic Revolutionary Guard Corps (IRGC)—Iran’s premier military outfit—as a Foreign Terrorist Organization (FTO), while simultaneously claiming that the IRGC exercises control over Iran’s entire economy. This effort has now paid off, as evidenced by the saga of the Grace I oil tanker and the U.S.’s efforts to seize the tanker under certain federal criminal forfeiture statutes. Even though authorities in Gibraltar prevented the U.S. from seizing the tanker, the message was that Iran’s economy has been effectively criminalized by Washington.

The consequences are real. Back when certain DC-based groups, most particularly the Foundation for Defense of Democracies, first proposed the idea of designating the IRGC as an FTO, the common wisdom was that an FTO designation would merely replicate those sanctions authorities currently in place with respect to the IRGC. And while that was largely true, a few—myself included—warned that an FTO designation would allow the U.S. government to extend its criminal jurisdiction against foreign parties who continued to trade with Iran, and that this triggering of extraterritorial criminal jurisdiction was the real purpose underlying efforts to designate the IRGC as an FTO.

Those warnings have proven prescient, as the Grace I case confirms. Last week, soon after Gibraltarian authorities determined that the Grace I oil tanker should be lawfully released back into Iran’s custody, the U.S. Department of Justice filed a request for legal assistance with foreign authorities seeking the seizure and forfeiture of the Grace I oil tanker and the Iranian oil contained therein. This request was predicated on a number of alleged sanctions violations, not least of which included an allegation that the Grace I oil tanker was an “asset” of the IRGC, subject to forfeiture due to the IRGC’s status as a U.S.-designated foreign terrorist organization. This was the first apparent effort by U.S. prosecutors to use U.S. federal criminal laws to seize foreign assets and render foreign persons liable for conduct relating to the IRGC’s designation as an FTO.

More intensive efforts may follow. U.S. law provides for extraterritorial criminal jurisdiction over foreign persons outside the United States that knowingly provide material support to an FTO. That means that if a foreign person engages in a transaction or provides a service to the IRGC, that person may be subject to criminal penalties under U.S. law, even if their conduct had no U.S. nexus. Considering that U.S. prosecutors have the discretion to determine who or what constitutes the “IRGC”—including, potentially, private Iranian entities who have been derivatively designated for ties to IRGC-related entities—as well as what constitutes “material” support to the IRGC, the potential scope of this criminal prohibition is enormous and could capture a range of activities commonly believed to be innocuous. Then there is also the federal criminal forfeiture statute that was invoked by the U.S. government in seeking the seizure of the Grace I oil tanker, which renders all assets—foreign and domestic—of an FTO subject to U.S. forfeiture.

What makes the Grace I tanker saga so disturbing is how U.S. prosecutors argued that the IRGC had an interest in the Grace I oil tanker and the oil contained therein because the IRGC allegedly exercises control over Iran’s economy, including its oil sector. Whatever the legal merits of this argument, the U.S. government essentially signaled that it may regard the produce of Iran’s economy as “assets” in which the IRGC maintain an interest, and for which U.S. criminal forfeiture laws may apply. That is a terrible shot-across-the-bow intended to undermine what limited cross-border commercial ties Iran retains.

For its progenitors, the beauty of the IRGC’s designation as an FTO is not only in its contribution to Iran’s economic isolation but also in the perception that it will be politically challenging to undo. Already, legislation has been proposed to amend those laws permitting the Secretary of State the discretion to rescind an FTO designation—including, for instance, by requiring any proposed rescission be subject to Congressional review. Considering the toxicity associated with the IRGC in Washington, the belief is that no future President will dare waste political capital relieving sanctions pressure on the entity.

But the truth is that no successor administration will likely be able to fruitfully recalibrate U.S. policy towards Iran without rescinding the IRGC’s designation. There are proposals for limiting the political repercussions from such a move—including, for instance, by lifting all sanctions targeting Iran that were imposed during the Trump administration and thereafter conducting an intensive Iran policy review to determine whether any of the lifted sanctions should be re-imposed. But there is no doubt that hard challenges lie ahead and difficult choices need be made to mitigate the self-harm to U.S. interests caused by the Trump administration’s actions. Whether Washington will have the stomach to make them is unclear.