According to an article today in the Abu Dhabi daily The National, more than 20 states in the United States have passed laws, or have legislation pending, to require state pension funds to divest stocks of companies doing business in Iran. Although the laws appear to be modeled after similar divestment laws directed at apartheid-era South Africa, they also appear to fly in the face of Crosby v. National Foreign Trade Council, the U.S. Supreme Court opinion, issued in 2000, which struck down similar sanctions that Massachusetts attempted to impose on Burma.

Although I’ve heard some suggest that state divestment laws may be distinguishable from the Massachusetts law thrown out in Crosby, I don’t think that a valid distinction is possible. The Massachusetts law prohibited the state from contracting with companies that did business with Burma. Justice Souter’s opinion, which held that the Massachusetts law was pre-empted by the federal sanctions against Burma, emphasized that “state statute penalizes some private action that the federal Act (as administered by the President) may allow.” In particular, the Massachusetts act penalized past investments whereas the federal law reached only new investments made after the passage of the law. Additionally, the Massachusetts law penalized foreign companies with investments in Burma, whereas the federal sanctions were only directed at U.S. companies.

State divestment statutes are indirect in the same sense that the invalidated Massachusetts statute was. In other words, although they don’t forbid trade with the sanctioned country, they impose penalties on those that do. And the state Iranian divestment statutes are similarly broader than the federal sanctions by targeting foreign subsidiaries of U.S. companies, and foreign companies, which may in certain instances do business in Iran under the federal sanctions.

The only hope for the survival of some of these state-level economic sanctions is the Iran Sanctions Enabling Act of 2009 introduced by Rep. Barney Frank (D – Mass). The law would require the federal government to publish a list of all companies, domestic and foreign, with investments of more than $20 million in the Iranian energy sector. The law would also authorize, but not require, divestment by state and local governments and educational institutions in companies on the list. The likelihood of the proposed bill passing, however, may be limited given the Obama administration’s reported offer to freeze additional sanctions on Iran if Iran suspends nuclear development work and joins talks over the future of its program.

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