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Copyright © 2019 The American Israel Public Affairs Committee

Guest Editorial: Risky Business in Tehran

By Senator Joseph I. Lieberman and Ambassador Mark D. Wallace

There is a dangerous misconception, perpetuated largely by Iranian interests, that the implementation of the Joint Comprehensive Plan of Action (JCPOA) signals that Iran is now open for business. But in reality, the nuclear agreement was very narrowly focused on one issue. It was transactional, not transformational. Today, Iran remains the world’s leading state sponsor of terrorism and its abysmal record and behavior on so many important issues demonstrates that it should never get the benefit of the doubt, let alone the benefit of the world’s business.

Since the nuclear accord went into effect, Iranian Supreme Leader Ayatollah Ali Khamenei, President Hassan Rouhani, Foreign Minister Javad Zarif, and many other regime officials have complained bitterly that the West—namely the United States—should be doing more to ensure the speedy flow of foreign investment into Tehran’s troublesome economy. On May 31, Foreign Minister Zarif dubbed the reluctance to engage with Iran by some of the powerhouses of the global financial system—including Deutsche Bank, Société Générale, and HSBC—a “psychological barrier” to doing business with Iran that the United States has a special responsibility to remedy. But the political class in the Islamic Republic has no one to blame but themselves for the risks inherent in investing in the Ayatollah.

United Against Nuclear Iran (UANI) has written to hundreds of banks, corporations, institutional investors, and related entities, warning them of the multiple and specific risks associated with Iran. Those risks include: banking risk; unavailability or deficiency of insurance coverage; enforcement and imposition of sanctions independent of the JCPOA; unwittingly doing business with the Islamic Revolutionary Guard Corps (IRGC); and impairment of corporate reputation and future business opportunities outside Iran.

U.S. and European banks have been prudently wary, largely as a result of Iran’s own actions, to finance new business ventures in Iran. Along with the serious money laundering issues—Iran remains designated as a jurisdiction of primary money laundering concern under Section 311 of the USA PATRIOT Act—strong penalties remain for those institutions that directly or indirectly facilitate prohibited transactions.

Companies will also find that their business operations and assets in Iran are either uninsurable or subject to inadequate coverage and/or extraordinary insurance premiums because of the highly unstable and risk-laden political, legal, and business environment. According to the Financial Times, “the insurance market remains averse to new Iranian business given that facilitating trade with Iran remains illegal for U.S. citizens and entities, thereby constraining trade further.” Research from the law firm Clyde & Co “shows that 85 per cent of respondents at London-based insurance companies said U.S. sanctions ‘negatively impact their risk appetite for Iran-related business…Even those London based insurers with no U.S. operations are very concerned about the remaining U.S. sanctions.’”

Notwithstanding the terms of the JCPOA, broad sanctions relating to Iran’s sponsorship of international terrorism and human rights violations remain in effect. According to the U.S. Treasury Department, “more than 200 Iran-linked companies and individuals will remain designated by the United States and subject to direct U.S. and secondary sanctions [outside of U.S. jurisdiction].” The penalties imposed for violating sanctions are significant, including asset freezes, prohibitions on transactions with the U.S. financial system, and bans on importation of U.S.-origin goods. Civil or criminal penalties may also be assessed under the U.S. Anti-Terrorism Act and the Iranian Transactions and Sanctions Regulations.

It is also important to understand that business is routinely intertwined with state-sponsored terror in Iran. Thus, doing business with Iran in many cases means doing business with the IRGC, a terrorist organization sanctioned by the United States and the international community. For example, the U.S. Treasury Department has determined that the National Iranian Oil Company is an “agent or affiliate” of the IRGC. This designation leaves international energy companies at grave risk of unwittingly partnering with the IRGC or worse, funding terrorism.

Furthermore, while it is flatly illegal for American and international companies to do business with the IRGC, corporate compliance officers and country managers will be unable to discern if their companies are doing business with a reputable Iranian company or one that is secretly operated, managed, or even owned by the IRGC due to the countless shadowy front companies that are its wholly owned subsidiaries.

If that’s not enough, companies will have to carefully weigh the risks to their reputations that will accrue from an association with a country best known for sponsoring terrorism and violating fundamental human rights, including public executions and the torture of its own citizens. Almost all of the companies with which UANI has corresponded scrupulously maintain and tout their human rights policies, portraying themselves as responsible corporate citizens. In this regard, it is difficult—if not impossible—to reconcile those public commitments to corporate social responsibility with Tehran’s checkered track record. Companies concerned about how they will be viewed by the public in the age of instantaneous social media rebuke would be wise to heed the admonition of Warren Buffet who once said: “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”

Finally, a company that shortsightedly embraces business opportunities in Iran will likely be cut off from more lucrative opportunities in countries that oppose its hegemonic policies. The choices can be stark. Invest in the economies of, for instance, the United States, Britain, France, Germany, Japan, Saudi Arabia, Kuwait, the United Arab Emirates, the other Arab Gulf countries and even Israel with a combined GDP of over $32 trillion, or take a gamble on Iran’s economy with a GDP of under $400 billion. There is a real risk that companies investing in Iran will lose market share or will be banned entirely from some of these markets.

In the end, betting on Tehran for the sake of short-term financial gain is not worth the long-term peril—for companies, their investors, and their reputations. It’s a no-brainer.

Joseph I. Lieberman represented Connecticut in the U.S. Senate from 1989 to 2013, and is chairman of United Against Nuclear Iran. Mark D. Wallace served as U.S. ambassador to the United Nations, representative for U.N. Management and Reform, from 2006-2008, and is chief executive of United Against Nuclear Iran.

The opinions expressed in this article are the authors’ own and do not necessarily reflect the views of AIPAC.

Tags: Near East Report Near-East-Report