Friends Don’t Let Friends Do Business With Iran
It's impossible to know for certain whether an Iranian business partner is a sponsor of terrorism — until it's too late.
When world leaders arrive in New York this week for the U.N. General Assembly, many will seek to have the United States provide their countries’ companies with “protection” so they may do business with Iran. Because of Iran’s support for terrorism, disrespect for human rights, and nuclear proliferation, it has been under U.S. and international sanctions for decades — and companies have been fined billions for circumventing those sanctions.
President Barack Obama’s administration would like to give companies and banks the green light to financial transactions with the world’s largest state sponsor of terrorism, but here’s the reality: It can’t. Unfortunately, the U.S. government doesn’t know the full scope, scale, and reach of the Islamic Revolutionary Guard Corps (IRGC), the military branch charged with enforcing Iran’s theocratic rule at home and “exporting the revolution” abroad. The IRGC’s tentacles are well hidden in the Iranian economy, making the risk of becoming entangled with the organization an impossible-to-quantify possibility.
Even after the lifting of sanctions, U.S. prohibitions are unambiguous: It is against the law to “facilitat[e] a significant transaction for … Iran’s Islamic Revolutionary Guard Corps or any of its agents or affiliates” that have been identified. The United States designated the Quds Force — the special operations arm of the IRGC — as a terrorist group almost 10 years ago, and other countries have joined suit.
The penalty for getting this wrong, even with tacit U.S. approval, is jail time. This applies not to shareholders, not to affiliates — but to the decision maker. For a French aircraft manufacturer or an Emirati shipping company, staying within the boundaries of U.S. law is critical to maintaining the ability to operate internationally, particularly when they are dependent on American banks.
The United States has seemingly provided a way to avoid this problem: Don’t engage in commerce with the IRGC, the Obama administration says, and Iran is your oyster.
But CEOs, bankers, and board members around the world know that business with Iran is far more complicated than that. Ensuring an Iranian entity is clean exceeds the grasp of even the world’s most capable intelligence agencies — much less any bank or company.
As a member of the House Select Committee on Intelligence, I know that the CIA, Treasury Department, National Security Agency, and others work closely to keep tabs on the IRGC’s operations. Like a drug cartel or mob, the IRGC has had decades to study and practice evading sanctions. One method they have found particularly effective is front companies — setting up fake companies in Iran and other countries to hide the IRGC affiliation. By using a huge, wall-sized poster, the Treasury Department delineates which Iranian individuals, government officials, and military commanders are tied to terrorism and which evasion mechanisms they are utilizing.
The poster’s hard lines and dashed lines map the constantly changing IRGC. It provides an impressive visual representation of the advanced network the IRGC maintains in dozens of critical industries. With this poster and many other tools, our intelligence community tries to keep a pulse on the members of the IRGC’s terrorist regime.
But the poster also contains enormous blank spaces and question marks. There are areas that we wish were filled in, but are empty. Despite the incredible amount of U.S. manpower and resources put into the maintenance of this sophisticated chart, there are many unknowns and imperfections.
Given the gaps in the U.S. government’s understanding of how entangled the IRGC is in the Iranian economy, one can understand how unrealistic it is to expect companies to perform the necessary due diligence before investing in Iran.
Let’s play this out: Say an international company wants to invest in Iran, though it cannot find out much about its Iranian partner on the ground. It proceeds anyway, lured by the encouragement of the Iranian regime and the promise of profit. After some broken promises, it turns out that the company’s Iranian partner is linked to the IRGC, either through a previous designation or a recent action, as the Treasury Department’s poster evolves to track the Iranian partner’s connection to the IRGC. Then the international company is in a bind: Either it violates U.S. sanctions by continuing to do business in Iran, thus forfeiting access to the American market and many others, or it risks losing its investment.
That lose-lose situation could have been avoided. As the former head of two small businesses, I know the legal and reputational risks — not to mention the weighty moral dynamics of these sorts of decisions.
During a recent trip to Europe, where I met with U.S. officials and multinational businesses, these dynamics were on full display. Many of the businesspeople I met were trying to ascertain how to avoid the pitfalls and dangers of working with the Islamic Republic. But if the full power of the U.S. government is not able to fill in the gaps of how Iranian companies are connected to the IRGC, how can we expect foreign and American firms to do so?
Despite this obvious challenge, Obama and Secretary of State John Kerry expect that a friendly meeting is all companies need to overcome this heavy risk. But companies should remember: Those two officials will move on, but a criminal conviction does not.
The Treasury Department’s poster of the IRGC’s business dealings will continue to expand as Iran tries to figure out new ways to evade international restrictions. The gaps in our understanding will continue to grow as well, leaving companies in a bind as they seek to avoid a connection to terrorism.
The responsible choice? Steer clear of business with Iran.
Photo credit: STEPHANE DE SAKUTIN/AFP/Getty Images