The New US Sanctions on Iran – Can They Be Effective?

By Victor Comras

Today’s announcement of new US sanctions on Iran follows months of reporting that the US is seeking to convince foreign governments, banks and business to pull away from the Iranian marketplace. The Washington Post reported last August that the U.S. was intent on placing greater economic pressure on Iran’s leadership by hitting directly at the all powerful Iranian Revolutionary Guard Corps (IRGC). But how is the United States to make this more than a symbolic gesture, given the fact that US companies and those under US jurisdiction have long been forbidden from doing business with these entities. As I wrote here last August, targeting the IRGC specifically would have little real impact unless other countries replicate such measures. So, the question remains as to how we intend to use, and enforce, these new designations so that they do have an impact?

The fact is that the IRGC has grown and prospered since UN sanctions were first threatened, and then imposed on Iran in 2006. The IRGC literally sought to make itself the beneficiary of these sanctions. As more and more banks and investment and construction companies considered pulling out of the Iranian market, the IRGC moved in to fill the gap. Ghorb, and other IRGC companies increasingly took over major oil field and construction projects, including the development of the South Pars gas field, the construction of a new Gas/Oil Storage Park and Terminal, the expansion of Tehran’s Metro, and the projected construction of two new major oil and gas pipelines. And they found new international partners to help them finance and carry out these various mega-projects. This new and projected business activity has made the IRGC cash rich, and quite able to devote a portion of these funds to its support for Iraqi insurgents, Hezbollah, and other external terrorist groups. At the same time IRGC components continue to play a lead role in Iran’s Missile and clandestine Nuclear Weapons Development programs.

IRGC companies have established a number of joint ventures with foreign companies to carry out these projects. Oriental Oil Kish, which is now a subsidiary of Ghorb, operates a joint venture with the Japan Drilling Company – Pars Drilling Kish Co, Ltd. Together they handle substantial drilling activities in the South Pars field, where Oriental Kish and Halliburton workers have been reported working side by side. Similarly, Ghorb Nooh and South Korea’s Daelim Industrial Company partnered to build a liquefied natural gas (LNG) tank farm at Tombak on the Hormuzgan coast. Companies in Austria, Bulgaria, Hungary Romania, and Turkey, and Chinese financing, are also reportedly supporting Iran’s Nabucco Gas Pipeline Project due to begin construction in 2008. And IRGC General Mohammad Baqer Zolqadr, one of 15 Iranians banned from traveling in UNSC resolution 1747 visited Russia last April, ostensibly to discuss new military industry deals. This is only a very small sample of the business activities the IRGC has been able to carry out with international cooperation.

The United States has now targeted two additional banks, Bank Melli and Bank Mellat, bringing to four, the number of Iranian banks associated with the IRGC and Iran’s nuclear proliferation and terrorism-supporting activities. (The US previously targeted Bank Sepah and Bank Saderat). Melli and Mellat should been targeted a long time ago since they have long operated in tandem with Saderat and Sepah.

The US has also sought to increasingly use its leverage to “encourage” foreign banks to leave Tehran. This has produced some successes. Credit Suisse, Deutsche Bank, Dresdner Bank, and PNB-Paribas have all reportedly curtailed all or some of their business dealings with Iran. Certain European banks, such as Germany’s Commerzbank pulled back on providing dollar facilities for Iran, but continue to offer Euro facilities for Iranian companies, including IRGC companies. But, unfortunately, there are still quite a number of international banks well established in Tehran to carry out international transactions for and on behalf of IRCG companies and other targeted entities. I include a partial list at the end of this blog. IRGC companies have also been able to channel financing and trade deals through Iranian branch banks in Qatar and elsewhere.

Converting these “new” US sanctions measures on Iran from simple symbolism to having an impact will not be an easy task. Europe demonstrated its reticence to impose more stringent sanctions on Iran when the EU largely rebuffed French President Sarkosy’s proposals for EU – wide sanctions. Germany and others insisted that such sanctions could only be enacted by the Security Council, and that Iran should be permitted more time to negotiate. But, the time to act is now.

In closing, let me repeat what I wrote last August:, which is even more applicable today:

“What will it take to convince our European friends and allies, and Japan to join us even in the absence of a UN resolution. Perhaps these governments, and the companies located in them will think twice about continuing to conduct business as usual with the IRGC and Iran, if they believe the new US designation of the IRGC could entail significant business costs for them also. We need to convince these companies that sensible risk mitigation and good corporate governance means cutting back on their business activities with Iran. And this will depend in large part on their own assessment as to whether the new US designation might really have an impact on their overall business and profitability. Will the Treasury Department take any new regulatory measures to review the actions of overseas branches of foreign banks and companies doing business in the United States that also do business with the IRGC. Will this give new impetus to those in Congress and State Legislatures that are pushing for strengthened measures to encourage US public and private fund divestment in companies doing business with designated terrorist entities? And will this new designation open the door to possible civil litigation against foreign companies doing business with terrorists under the Anti Terrorism Act of 1996. Recent Federal Court rulings have established that foreign companies doing business with terrorist organizations may well be held liable by the victims of terrorism in US courts. (see my blog here) These Rulings could well prove to be among the most important factors in dissuading certain foreign companies that do business in the United States from also conducting business with the IRGC. “

Addendum — Banks Still Doing Business in Tehran.Agricultural Bank of Iran (Bank-e Keshavarzi), Teheran; ANZ Grindlays Bank, Teheran
Banca di Roma, Teheran; Banca Nazionale del Lavoro, Teheran; Banco Central Hispanoamericano, Teheran; Bank Agricultural, Teheran; Bank Center Iran, Teheran; Bank Commerce, Teheran; Bank e Sanat o Madan, Teheran; Bank French Paysbas, Teheran; Bank Fuji, Teheran; Bank Iran Mashhad, Teheran; Bank Markazi Jomhouri Islam, Teheran; Bank Maskan, Teheran; Bank Mellat, Teheran; Bank Melli Iran, Teheran; Bank of Industry and Mine (trading facility), Teheran; Bank of Tokyo, Teheran; Bank Ostan, Teheran; Bank Refah Kargaran, Teheran; Bank Saderat, Teheran; Bank Sepah, Teheran; Bank Sumitomo, Teheran; Bank Tejarat, Teheran; Bank Tokai, Teheran; Berliner Bank, Teheran; Credit Lyonnaise, Teheran; Deutsche-Iranische Handelsbank, Teheran; Deutsche Bank, Teheran; Dresdner Bank, Teheran; Europaeisch-Iranische Handelsbank, Teheran Export Development Bank of Iran (EDBI), Teheran; ING Bank, Teheran; Kredietbank, Teheran; Lloyds Bank, Teheran; Mitsubishi Bank, Teheran; Pamok Bank, Teheran; Swiss Bank Corporation, Teheran; Representative office: Banca Commerciale Italiana, Teheran;
Commerzbank , Teheran

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