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 Tehran’s hotels are buzzing with businessmen keen for a slice of a
big new emerging market, more industrially developed than most oil
and gas-rich nations but isolated since the 1979 Islamic Revolution
that turned Iran into a pariah state for most of the West and many
of its Middle Eastern neighbors.
Yet potential foreign investors have found that the removal of
international sanctions in exchange for monitored curbs on Iran’s
nuclear program is only part of the story.
Barriers to entry include resistance from hardliners within Iran who
worry an opening to the world will undermine their entrenched
interests, and fear among foreign investors of falling foul of
residual U.S. sanctions.
Under the nuclear deal, the U.S. and Europe lifted sanctions in
January. But other U.S. restrictions remain. These include a ban on
Iran-linked transactions in dollars being processed through the U.S.
financial system and sanctions on individuals and entities
identified as supporting "state-sponsored terrorism".
The chief target of the anti-terrorism sanctions is the Islamic
Revolutionary Guard Corps (IRGC), the theocratic establishment's
enforcer at home and strike-force abroad. The IRGC is also behind a
business empire, encompassing construction to banking, and is expert
at hiding its involvement.
 Investors and top-tier foreign banks fear U.S. action could shut
them out of the international banking system if they deal, even by
mistake, with sanctioned bodies.
Adding to the uncertainty, Iranian analysts and foreign executives
say, is the rise of Donald Trump, the U.S. tycoon set to clinch the
Republican nomination in this year’s presidential election, who has
threatened to tear up the Iran deal.
Yet even without this uncertainty, prospective dealmakers are
finding themselves blocked.
IRGC TIES
Foreign executives scouting for business in Iran say when they
examine the tangle of ownership behind companies they approach, they
often detect IRGC ties.
Claude Begle, executive chairman of SymbioSwiss, a logistics and
infrastructure company, says he found that one exploratory project
turned up such links.
"We did a lot of due diligence and we found that the names of
institutions appearing on the OFAC (the US Treasury’s Office of
Foreign Assets Control) sanction list are sometimes not far away,"
he said in apparent reference to the Revolutionary Guard.
"When you look at the shareholders structure at the second or third
level, then you see that such names may appear. They are sitting
there."
"Very often when you look at Iran's successful companies, you can
see that. And unless those companies are willing to modify
accordingly their board structures, it will be very hard to raise
international financing to work with such entities."
The central problem for potential foreign investors is that even
unwitting contact with an Iranian counterparty under sanctions could
result in heavy U.S. Treasury penalties, effectively cutting them
off from America’s financial markets - a powerful disincentive for
any globalized business.
 Alexander Gorjinia, part of the second German business delegation to
visit Iran since August 2015, says “the biggest problem is the
banks”.
While businesses and banks may have German go-ahead to operate in
Iran, OFAC “puts the responsibility of establishing whether the
(Iranian) company is clean on the foreign company.”
“The foreign company has to investigate the Iranian company, whether
it is linked to or is part of the Iranian Revolutionary Guard,”
Gorjinia told Reuters.
“It has to investigate their dealings, how they operate behind the
scenes. We have to work with companies that have money in their
pocket and most of them are part of the Revolutionary Guard. This is
what our information tells us.”
European companies feel all these rules are part of a U.S.
administration plan to block business between Europe and Iran, he
complains.
Part of the problem is that units of the Revolutionary Guard are
intervening in several of the wars across the Middle East.
In Iraq, Iran is aligned with the U.S. in the fight against the
jihadis of Islamic State. But in Syria it is on the opposite side
along with Russia, propping up the government of President Bashar
al-Assad, while in Yemen Tehran has backed the Shi’ite Houthi
insurgency that last year prompted U.S. ally Saudi Arabia to launch
an air war across its southern border.
Few expect the U.S. to loosen sanctions on the IRGC and its business
empire against this backdrop.
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FEAR AMONG BANKS
While Western businessmen commonly assume that their Chinese or
Russian counterparts would be less inhibited by US sanctions, one
Chinese executive in Tehran, who asked not to be named, also
highlights the issue that international banks, fearful of being
locked out of US capital markets, are so far spurning Iran.
Representing an oil and gas machinery company, he has visited Iran
several times after the nuclear accord, but has yet to sign a single
deal. Most Iranian companies, he says, even when there is clear
demand for his drilling equipment, “don’t have money to pay”.
“They ask the sellers to provide financing,” he says “but that is
impossible because throughout the world no foreign bank dares to do
business with Iranian banks because they are scared…until the big
(international) banks start doing business, but European banks are
still scared of U.S. banks.”
Iranian leaders are complaining they have been short-changed on the
sanctions relief part of the nuclear deal.
"On paper the United States allows foreign banks to deal with Iran,
but in practice they create Iranophobia so no one does business with
Iran,” Ayatollah Khamenei said last month.
Begle, the Swiss executive, says President Hassan Rouhani earlier
this year asked the visiting Swiss president to press leading Swiss
banks to start financing foreign operations in Iran.
"But of course the Swiss government cannot tell a private company to
do this," Begle says. "It can indicate that it would see it
favorably, it can even consider some guarantees, but after all, it
is a decision for the bank itself."
HOSTILITY
There are other obstacles. The IRGC and other vested interests built
up by hardliners grouped around Ayatollah Ali Khamenei, the Supreme
Leader, are hostile to foreign entry into Iran’s economy.
Khamenei, whose power far outweighs that of Iran’s elected officials
in parliament or the presidency, gave decisive support to the
nuclear deal which greatly strengthened the position of Rouhani, the
reform-minded centrist president.
Rouhani, in coalition with reformists and independent conservatives,
wrested back control of parliament from hardliners in February’s
elections. This, some of his allies believe, should make it easier
for the government to introduce business-friendly laws.
Yet four years ago, parliament passed a law intended to reduce the
state’s role in the economy, put in place credible regulators and
investor guarantees, and eventually get entities like those
controlled by the IRGC to pay taxes. It has not been implemented.
Rouhani embodies popular expectations that IRGC-linked vested
interests seem determined to thwart, some Iranian analysts believe,
because sanctions have enabled them to win and keep control of the
economy.
Hossein Raghfar, professor of economics at Tehran’s Alzahra
University, says “there are many interest groups that have become
very rich because of the economic crisis. They don’t want sanctions
to be lifted.”
Saeed Laylaz, an economist close to Rouhani, says Iran’s economy was
brought to its knees more by mismanagement than by sanctions. Jailed
after hardliners cracked down on protests at the allegedly rigged
presidential vote that gave Mahmoud Ahmadinejad a second term in
2009, he does not underestimate the hostility of vested interests
towards a more open economy.
“I strongly believe some clear part of the regime has and had the
project of creating sanctions against Iran to hide their
mismanagement and their organized looting of economic wealth.”
To change the general atmosphere for business in the country, the
Supreme Leader, the Revolutionary Guard and the judicial system must
all be on board, Laylaz says.
“These are very important elements to attract foreign investment,
just having the support of parliament doesn’t work at all. Because
of this I am not too optimistic about it."
(Created by Samia Nakhoul, editing by Janet McBride)
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