U.S. Enriches Companies Defying Its Policy on Iran
Published: March 6, 2010
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The federal government has awarded more than $107 billion in contract payments, grants and other benefits over the past decade to foreign and multinational American companies while they were doing business in Iran, despite Washington’s efforts to discourage investment there, records show.
That includes nearly $15 billion paid to companies that defied American sanctions law by making large investments that helped Iran develop its vast oil and gas reserves.
For years, the United States has been pressing other nations to join its efforts to squeeze the Iranian economy, in hopes of reining in Tehran’s nuclear ambitions. Now, with the nuclear standoff hardening and Iran rebuffing American diplomatic outreach, the Obama administration is trying to win a tough new round of United Nations sanctions.
But a New York Times analysis of federal records, company reports and other documents shows that both the Obama and Bush administrations have sent mixed messages to the corporate world when it comes to doing business in Iran, rewarding companies whose commercial interests conflict with American security goals.
Many of those companies are enmeshed in the most vital elements of Iran’s economy. More than two-thirds of the government money went to companies doing business in Iran’s energy industry — a huge source of revenue for the Iranian government and a stronghold of the increasingly powerful Islamic Revolutionary Guards Corps, a primary focus of the Obama administration’s proposed sanctions because it oversees Iran’s nuclear and missile programs.
Other companies are involved in auto manufacturing and distribution, another important sector of the Iranian economy with links to the Revolutionary Guards. One supplied container ship motors to IRISL, a government-owned shipping line that was subsequently blacklisted by the United States for concealing military cargo.
Beyond $102 billion in United States government contract payments since 2000 — to do everything from building military housing to providing platinum to the United States Mint — the companies and their subsidiaries have reaped a variety of benefits. They include nearly $4.5 billion in loans and loan guarantees from the Export-Import Bank, a federal agency that underwrites the export of American goods and services, and more than $500 million in grants for work that includes cancer research and the turning of agricultural byproducts into fuel.
In addition, oil and gas companies that have done business in Iran have over the years won lucrative drilling leases for close to 14 million acres of offshore and onshore federal land.
In recent months, a number of companies have decided to pull out of Iran, because of a combination of pressure by the United States and other Western governments, “terrorism free” divestment campaigns by shareholders and the difficulty of doing business with Iran’s government. And several oil and gas companies are holding off on new investment, waiting to see what shape new sanctions may assume.
The Obama administration points to that record, saying that it has successfully pressed allied governments and even reached out directly to corporate officials to dissuade investment in Iran, particularly in the energy industry. In addition, an American effort over many years to persuade banks to leave the country has isolated Iran from much of the international financial system, making it more difficult to do deals there.
“We are very aggressive, using a range of tools,” said Denis McDonough, chief of staff to the National Security Council.
The government can, and does, bar American companies from most types of trade with Iran, under a broad embargo that has been in place since the 1990s. But as The Times’s analysis illustrates, multiple administrations have struggled diplomatically, politically and practically to exert American authority over companies outside the embargo’s reach — foreign companies and the foreign subsidiaries of American ones.
Indeed, of the 74 companies The Times identified as doing business with both the United States government and Iran, 49 continue to do business there with no announced plans to leave.
One of the government’s most powerful tools, at least on paper, to influence the behavior of companies beyond the jurisdiction of the embargo is the Iran Sanctions Act, devised to punish foreign companies that invest more than $20 million in a given year to develop Iran’s oil and gas fields. But in the 14 years since the law was passed, the government has never enforced it, in part for fear of angering America’s allies.
That has given rise to situations like the one involving the South Korean engineering giant Daelim Industrial, which in 2007 won a $700 million contract to upgrade an Iranian oil refinery.
According to the Congressional Research Service, the deal appeared to violate the Iran Sanctions Act, meaning Daelim could have faced a range of punishments, including denial of federal contracts. That is because the law covers not only direct investments, such as the purchase of shares and deals that yield royalties, but also contracts similar to Daelim’s to manage oil and gas development projects.
But in 2009 the United States Army awarded the company a $111 million contract to build housing in a military base in South Korea. Just months later, Daelim, which disputes that its contracts violated the letter of the law, announced a new $600 million deal to help develop the South Pars gas field in Iran.
Now, though, frustration over Iran’s intransigence has spawned a growing, if still piecemeal, movement to more effectively use the power of the government purse to turn companies away from investing there.
Nineteen states — including New York, California and Florida — have rules that bar or discourage their pension funds from investing in companies that do certain types of business in Iran. Congress is considering legislation that would have the federal government follow suit, by mandating that companies that invest in Iran’s energy industry be denied federal contracts. The provision is modeled on an existing law dealing with war-torn Sudan.
Obama administration officials, while indicating that they were open to the idea, called it only one variable in a complex equation. Right now, the president’s priority is on breaking down Chinese resistance to the new United Nations sanctions, which apply across borders and are aimed squarely at entities that support Iran’s nuclear programAdd to Technorati Favorites.