Mass. sanctions against Iran could be tested

THE BIDEN ADMINISTRATION may revive the “Joint Comprehensive Plan of Action,” the 2015 agreement between the Obama administration and Iran that was discarded by former president Donald Trump.  Diplomats recently concluded five days of talks on the subject in Vienna, with more meetings scheduled for the week of April 26.  According to the Wall Street Journal, senior Biden administration officials stated their willingness to ease some of the sanctions previously imposed on Iran by the United States.

Critics will charge Biden with appeasement and the loss of benefits from the Trump hard line.  A brawl with Congress will follow.  Not many will expect Massachusetts or other states to be in the ring, yet the Bay State and two dozen other states have already laced up their gloves.  For more than 10 years, these states have enforced pension divestment and state purchasing laws withholding state funds from certain companies that do business with Iran.  As the Biden administration changes the course of American policy, these state sanctions will pose thorny questions of diplomacy and federalism.

On August 4, 2010, Massachusetts passed “An Act Relative to Pension Divestment from Certain Companies that Invest in the Republic of Iran.”  The act directs the Massachusetts public pension funds to divest from certain companies “providing goods or services deployed to develop petroleum resources in Iran.”

In an effort to avoid conflict with federal policy, the Massachusetts act has two features.  First, it exempts from state divestment “any company” that the US “affirmatively declares to be excluded from” federal sanctions.  Second, the act has a sunset provision.  The act expires if (1) the US “remov[es] Iran from its list of state sponsors of terrorism and certify[ies] that Iran is no longer pursuing a nuclear capability in violation of its international commitments and obligations,” or (2) the president “declar[es] that [the Massachusetts act] interferes with the conduct of the United States foreign policy.”

The Massachusetts Iran boycott has a long pedigree.  In New England and other colonies, the founding generation considered the boycott of English tea and other products to be a wise alternative to war.  Prior to the Civil War, Massachusetts abolitionists urged private boycotts of Southern goods.  In the 1980s, Massachusetts was one of scores of states and cities to enact divestment and selective purchasing laws regarding South Africa.  In 1996, Massachusetts restricted state purchasing from companies doing business in Burma, though the act was later struck down by the Supreme Court.  Massachusetts today maintains laws restricting state investment or procurement with Sudan, China, and Northern Ireland.

The 2010 Massachusetts sanctions against Iran had federal as well as state supporters.  In 2008, then-US Rep. Edward Markey sent a letter to the Massachusetts state treasurer and legislative leaders urging passage of an Iran divestment bill.  Five other Massachusetts congressmen joined Markey’s letter.  The letter stated that Massachusetts had previously invested $400 million in companies with stakes in Iran’s energy sector.  The letter said: “Curtailing the significant investments by our state pension funds in foreign companies who choose to support Iran is a simple, effective, and peaceful means to exert pressure against nuclear proliferation.”

The 2010 Massachusetts act took a cue from the federal “Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010,” which expressly supported state efforts.  The federal act found “that the United States should support the decision of any state or local government that for moral, prudential, or reputational reasons divests from, or prohibits the investment of the assets of the state or local government in” Iran.   This “savings clause”—modeled on an earlier bill filed by former congressman Barney Frank—grandfathered existing state sanctions and triggered more.  By 2015, nearly two-dozen states (including California, Florida, and New York) had enacted some form of sanctions, including divestment and more aggressive bans on the entry of state contracts with certain companies doing business with Iran.

In 2015, however, the Obama administration cast these state measures into doubt by entering the Joint Comprehensive Plan of Action.  The joint plan provides that “[i]f a law at the state or local level in the United States is preventing the implementation of the sanctions lifting as specified in this JCPOA, the United States will take appropriate steps, taking into account all available authorities, with a view to achieving such implementation.  The United States will actively encourage officials at the state or local level to take into account the changes in the US policy reflected in the lifting of sanctions under this JCPOA and to refrain from actions inconsistent with this change in policy.”

In a Congressional hearing on the JCPOA later in 2015, then-Secretary John Kerry admitted that the JCPOA did not directly impact the state laws, but also said that the administration “will take steps to urge [the states] not to interfere” with the JCPOA because Obama had, as part of the deal, agreed to “actively encourage” the states to repeal their sanctions.

In 2016, the Obama State Department wrote to the states that had imposed sanctions, “urging” them “to consider whether . . . the JCPOA . . . addresses the underlying concerns with Iran articulated in your state’s laws,” and “encouraged” the States “to review whether [their] laws might be affected” by “changes” in US sanctions.

Apparently no state with sanctions repealed or amended them that year.  At least one threatened to double down:  the Texas governor—channeling The Alamo—answered the “encouragement” of the State Department by condemning the JCPOA and promising: “Not only will [Texas] not withdraw our sanctions, but we will strengthen them to ensure Texas taxpayer dollars are not used to aid and abet Iran.”

With the election of Donald Trump in 2016,  potential conflicts between federal and state sanctions against Iran receded as the new administration ramped up US sanctions.  Now, as the Biden administration takes the field, the Massachusetts sanctions will again pose risks of federal-state conflict.

These conflicts have a constitutional backdrop.  The Supreme Court has never definitively ruled on the constitutionalstatus of state sanctions such as divestment and selective purchasing laws.  The court never heard a case challenging the South Africa sanctions of the 1980s.  In 2000, in Crosby v. National Foreign Trade Council, the court held that the Massachusetts Burma law was impliedly preempted by later-enacted federal sanctions.  However, the court left the larger constitutional questions unresolved.

Similarly, in 2003, in American Insurance Assn v. Garamendi, the court struck down the California Holocaust Victim Insurance Relief Act, which required any insurer doing business in the state to disclose information about all the insurance policies issued by the company in Europe during the Nazi regime.  The court held that an executive agreement between the president and Germany preempted the California law.  But the court again declined to address whether an independent judicial power could invalidate a state act touching foreign affairs where (1) there is congressional approvalof a state action that arguably conflicts with presidential action, or (2) no federal statute or presidential action may be said to conflict with the state action.

Many observers question the purpose and utility—if not the constitutionality—of such laws, decrying what they see as state and local meddling in foreign affairs.  The country should “speak with one voice” in these matters, the critics complain.  Others claim that such sanctions are ineffective, indeed counter-productive in spurring change.

Supporters of the sanctions respond that the states should be free to take moral considerations into account in their own investment and procurement decisions – free it is said—to harness their capital to their ideals.  And, as the US Court of Appeals noted in Crosby, states like Massachusetts may sometimes act as catalysts for federal action.  Where—as with Iran and Sudan—there is an express Congressional blessing of state laws, states will play even more than catalytic roles.

As for Iran, cards remain to be played. If the Biden administration reduces or removes sanctions against Iran, its patience with hard-liners in the provinces may wane.  The administration may formally seek executive, legislative, or judicial action against the states to bring them to heel, though such moves may incur political costs.

How will the Bay State navigate the shifting winds of federal policy?  If President Biden removes sanctions, will Massachusetts stand firm?

Thomas A. Barnico teaches at Boston College Law School.  As an assistant attorney general, he argued Crosby v. National Foreign Trade Council before the US Supreme Court.