A little more than a year ago, it would have been unthinkable for major U.S. corporations to do business with the world's leading state sponsor of terrorism. Yet, here we are. With the signing of last year's Joint Comprehensive Plan of Action nuclear deal, businesses are lining up to work with the Islamic Republic of Iran.
American companies should know better. The financial risks of dealing with Iran are well established. Iran ranks 130 out of 168 on the corruption index attransparency.org. The Islamic Revolutionary Guard Corps (IRGC), the regime's terror-sponsoring Praetorian Guard, controls roughly 35% of the formal economy and wields significant influence over the black market, too.
Iran's theocratic dictator since 1989, Supreme Leader Ali Khamenei, holds assetsvalued at $95 billion. He also controls foundations that reportedly accounted for 7.1% of Iran's gross domestic product in 2006, probably more today. Meanwhile, the U.S. designation of Iran as a terror sponsor has not changed. Nor has its designation of Iran as "a jurisdiction of primary money-laundering concern" pursuant to the Patriot Act.
But even these red flags fail to convey the tangible risks of working in Iran.
For example, the Iranian regime has been known to use force and intimidation to settle business disputes. In May 2004, the IRGC tanks and armed forces rolled onto the tarmac of newly opened Imam Khomeini International Airport, kicking Austrian-Turkish consortium Tepe-Akfen-Vie off the tarmac. The Armed Forces General Staff issued a public statement justifying the move, citing the closure was due to "security concerns" and "the presence of foreign firms operating" at the airport.
In 2006, the IRGC confiscated an oil rig owned by Romanian Grug Servicii Petrolier off of Kish Island in Persian Gulf. The Navy opened fired on Romanian workers with military helicopters and boats before seizing the oil rig and holding the crew hostage.
Iran also has a history of shaking down foreign companies. In 2013 French oil giant Total S.A. paid at least $60 million in bribes in the 1990s to gain access to oil and gas fields. It was then forced to pay another $398 million in fines for doing so.
Halliburton Products and Services, which was involved in oil-drilling projects valued at $310 million with Iranian Oriental Oil Kish Co., became mired in scandal in 2005 after being implicated in paying bribes.
Norwegian Statoil firm also faced for bribery charges allegedly committed in 2002. The company was forced to pay a $3.5 million fine to Norwegian authorities for violating bribery laws.
Even investing in the Tehran Stock Exchange poses dangers.
The TSE lacks the transparency of a modern exchange, and securities laws are opaque. Accurate and real-time data for Iranian stocks is nonexistent. Authorities regularly intervene in the market and rigidly monitor trading, creating artificial conditions. Shares cannot gain or drop more than 5% per trading session. Trading is "politically-motivated process and not based on an economic rationale," according to a seasoned trader.
Sturgeon Capital, a London-based hedge fund, recently identified only about 50 companies, or some 10% of those traded on the Tehran Stock Exchange, that were not exposed to previously or presently sanctioned entities after the nuclear deal. Picking clean stocks is a due-diligence nightmare, as the ownership of many companies are obfuscated, with extremist elements often embedded in the most lucrative firms.
Some investors may see Iran as an emerging-market opportunity, especially after seeing gains of some 31% in the three months following the removal of sanctions in January 2016. Yet, it's worth remembering how investors like Bill Browder had his fortunes pilfered by corrupt Russian oligarchs when he endeavored to ensure greater transparency among the companies whose shares he owned. The opportunity for entrepreneurs to become "activist investors" in Iranian companies are similarly scant.
Alarmingly, the Iranian regime has recently stepped up its arrests of dual nationals doing business in Iran. For example, the IRGC's intelligence organization arrested Iranian-American businessman Siamak Namazi in October 2015, and he has since been held in the notorious Evin prison under dubious espionage charges. The IRGC also arrested Lebanese-American citizen Nazar Zaka, the secretary general of the Arab Information and Communications Technology Organization (IJMA3), when be traveled to Tehran in 2015 to attend a conference on entrepreneurship and employment.
If businesses like Boeing still aren't deterred, Congress is now taking steps to ensure they will be. The House of Representatives on July 8 passed one measure that prohibits the Treasury from using funds to authorize a license necessary to allow aircraft to be sold to Iran, and another that ensures Iran will not receive loans from U.S. financial institutions to purchase aircraft.
But Congress shouldn't have to step in. The dangers of doing business in Iran should be readily apparent. Buyer (and seller) beware.
Jonathan Schanzer, a former terrorism finance analyst at the U.S. Department of the Treasury, is vice president for research at the nonpartisan, Washington-based Foundation for Defense of Democracies, where Amir Toumaj is a research associate.