Trade deals are so complicated. On political listservs these days, experts argues on all sides and no one trusts politicians to make such complicated decisions. Oh well!
Doing business in today’s global marketplace can be fraught with liability – especially when the location is the Middle East and a hotbed of controversial governments, regimes, and histories of violence. The real dangers, however, can lie in the complex rules and regulations governing how business may be done in a country that poses a risk to U.S. national security.
The Office of Foreign Assets Control – familiarly known as OFAC – is an agency of the U.S. Department of Treasury that enforces economic sanctions and trade embargoes. The agency is tasked with ensuring that legislation and Executive Orders declaring national emergencies are enforced in accordance with United States’ economic policy interests, foreign policy goals, and national security objectives.
In addition to regimes targeted with country-wide embargoes, OFAC maintains a blacklist of Specially Designated Nationals and Blocked Persons (the SDN List) of persons with whom U.S. persons are prohibited from engaging. Sanctions may prohibit direct involvement or even indirect action – like financing or facilitating the actions of another person. One of the primary targets of economic sanctions—and the biggest target behind OFAC enforcement actions—is Iran.
Recently, Politico released documents exposing the contentious and sometimes unfriendly prospect of doing business in Iran’s newly opened and growing economy. Global leaders like U.S. firms, GE, Boeing, Intel, and Merck, along with corporations like Finnish multinational Nokia and Germany’s Diamler AG have acted quickly in opening their doors to Iran. In doing so, proponents of the nuclear deal with Iran are hoping engagement by legitimate and reputable businesses will help to foster a stable economy and free market society – decreasing black market goods and bolstering legitimate business as a way of life. They also hope that economic prosperity may empower the moderate factions in Iran, hoping the old adage is true—that capitalism paves the way for democracy.
There are also real reputational risks when conducting business in Iran. For instance, the Islamic Revolutionary Guard Corps (IRGC), a paramilitary organization that supports terrorism across the Middle East and is on the SDN list, has large shares of the major markets in Iran. What’s more, it isn’t always entirely clear which Iranian companies are owned or controlled by the IRGC. As a result, companies need to take substantive compliance and due diligence steps to ensure that they are not transacting with bad actors.
Even back home, a foray into Iranian markets is not without resistance – even as sanctions are eased by OFAC pursuant to the Joint Comprehensive Plan of Action agreed to last year by Tehran, and the P5+1 group of world powers, which includes the United States. After inking a multibillion dollar deal to provide passenger aircraft to Iran, Boeing may face legislative action by the Republican-led Congress seeking to bar the sale.
Efforts to limit global business interests and investments in Iran are being led by some organizations who have been sending letters to global business executives urging them not to conduct business with Iran.
Many of the responses, like those of GE and Nokia, confirmed what trends are showing: global businesses want to enter the Iranian markets. Sir Martin Sorrell, CEO of the British communications service company, WPP, may have phrased his rebuke of UANI best when he replied that engagement is a better policy than isolation.
Many hope that the more companies that do legitimate business in Iran – under the watchful eye of OFAC or other agencies – the more transparency there will be in a country with such economic potential. Already, six of the 10 Dow Jones leaders have begun to build business relationships in Iran. With each new global business partner added, Iran’s economy will move further out of the shadows.
OFAC sanctions attorney Oliver Krischik commented, “Even with the lifting of nuclear-related secondary sanctions in January, it is important for U.S. companies to know that the primary sanctions prohibiting U.S. persons from interacting with Iran are still in effect. Misinformation in the media about the lifting of sanctions has caused regrettable confusion, particularly as sanctions violations are strict liability offenses.”
Even as some of the sanctions against Iran are lifted for foreign persons, OFAC still maintains strict control and scrutiny over any business dealings established after the embargo. There are safeguards in place and companies seeking to take advantage of Iran’s growing economy must adhere to complex OFAC regulations. It’s a case where the cost of deviation from the regulations can mean severe financial and possibly criminal penalties. The risk is further compounded by the prohibition on doing business with Iranian persons sanctioned for non-nuclear reasons, like human rights abuses, terrorism, and ballistic missile testing.
If Boeing is going to supply passenger planes to a defunct Iranian airline, the result might be increased travel and tourism and more business leaders willing to hedge an investment. Additionally, increased sales for Boeing mean economic growth and jobs at home. Maybe congressional leaders should consider that before they begin striking down deals that are good for American workers, too. Better yet, maybe voters should think about that before the next election.