IS CANON PROFITING IN THE U.S. FROM DOING BUSS WITH IRAN ?

[Anonymous]

http://www.nytimes.com/interactive/2010/03/06/world/iran-sanctions.html
IS CANON PROFITING IN THE U.S. FROM DOING
BUSS WITH IRAN ?
Profiting
From Iran, and the U.S.
Canon  

$503.2 million in Federal Contracts: $503,151,698
 
  
Active
    
Japan
Canon
Middle East manages sales, marketing and technical activities across 36
countries, including Iran, where Canon has been selling products since
at least 2000, according to the company Web site.

Hewlett-Packard
$17.6
billion     Federal Contracts: $17,547,806,053
Federal Grants:
$32,363,831
 
Withdrew
    
United States
Hewlett-Packard formed a
partnership in 1997 with a newly formed company in Dubai to sell its
products in the Middle East, including to Iran. It also sold services to
the U.S. military while operating in Iran. In January 2009, after its
sales in that country came under scrutiny, the company said it would
cease all business in Iran to go “beyond the letter of the law.”

Understanding
the Terms

    * Withdrew: Company no longer has operations in
Iran.
    * Active, but no new investment: Company finishing up
existing work in Iran but has committed to not making additional
investments.
    * On hold: Company considering whether to make
additional investments.
    * Active: Company continues to do
business in Iran and has announced no plans to leave.
    * Possible
violator of the Iran Sanctions Act: Companies in Iran’s energy sector
whose investments have been deemed by Congress and the State Department
as possible violations of the Iran Sanctions Act, which requires the
President to sanction companies that make an “investment” of more than
$20 million in one year in developing Iran’s vast oil and natural gas
reserves. The law defines “investment” as a deal in which the company
enters into a contract that includes responsibility for the development
of petroleum resources located in Iran or one that provides for general
supervision of another person’s performance of such a contract buys
shares or an equity interest in a development project, or purchases a
share of ownership in that development, or enters into a contract that
allows the company to participate royalties, earnings or profits in that
development. The term investment does not include the entry into
contracts to sell or purchase goods like drilling rigs, technology or
certain types of services.
    * Revenue & benefits from U.S.
government: Includes contracts, grants, Export-Import Bank loans and
guarantees, as well as leases that companies have received to drill
onshore and offshore for oil and gas on federal lands. Leases are
measured in acres.

U.S.
Enriches Companies Defying Its Policy on Iran
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 program.

But Representative Ron Klein, a
Florida Democrat who wrote the contracting provision moving through
Congress with the help of a lobbying group called United Against Nuclear
Iran, said it offered a way forward with or without international
agreement.

“We need to send a strong message to corporations that
we’re not going to continue to allow them to economically enable the
Iranian government to continue to do what they have been doing,” Mr.
Klein said.

An Unused Tool

Sending a strong message was
Congress’s intention when it passed the Iran Sanctions Act in 1996.

The
law gives the president a menu of possible punishments he can choose to
levy against offending companies. Not only do they risk losing federal
contracts, but they can also be prevented from receiving Export-Import
Bank loans, obtaining American bank loans over $10 million in a given
year, exporting their goods to the United States, purchasing licensed
American military technology and, in the case of financial firms,
serving as a primary dealer in United States government bonds or as a
repository for government funds.

Congress is now considering
expanding its purview to a broader array of energy-related activities,
including selling gasoline to Iran, which despite its vast oil and gas
reserves has antiquated refineries that leave it heavily dependent on
imports.

From the beginning, though, the law proved difficult to
enforce.

European allies howled that it constituted an improper
attempt to apply American law in other countries. Exercising an option
to waive the law in the name of national security, the Clinton
administration in 1998 declined to penalize the first violator — a
consortium led by the French oil company TotalFina, now known as Total.

The
administration also indicated that it would waive future penalties
against European companies, winning in return tougher European export
controls on technology that Iran could convert to military use.

Stuart
E. Eizenstat, who as the deputy Treasury secretary handled those
negotiations, said the law let Iran “exploit divisions between the U.S.
and our European allies.”

Waiving it, though, was followed by
additional investments in Iran — and more government largesse for the
companies making them.

In 1999, for instance, Royal Dutch Shell
signed an $800 million deal to develop two Iranian oil fields. Since
then, Shell has won federal contract payments and grants totaling more
than $11 billion, mostly for providing fuel to the American military, as
well as $200 million in Export-Import loan guarantee and drilling
rights to federal lands, records show.

Shell has a second Iranian
development deal pending, but officials say they are awaiting the
results of a feasibility study. In the meantime, the company continues
to receive payments from Iran for its 1999 investment and sells gasoline
and lubricants there.

Records show Shell is one of seven
companies that challenged the Iran Sanctions Act and received federal
benefits.

John R. Bolton, who dealt with Iran as an under
secretary of state and United Nations ambassador in the Bush
administration, said failing to enforce the law by punishing such
companies both sent “a signal to the Iranians that we’re not serious”
and undercut Washington’s credibility when it did threaten action.

Mr.
Bolton recalled what happened in 2004 when he suggested to the Japanese
ambassador that Japan’s state-controlled oil exploration company,
Inpex, might be penalized for a $2 billion investment in the Azadegan
field in Iran. “The Japanese ambassador said, ‘Well, that’s interesting.
How come you’ve never sanctioned a European Union company?’ ” Mr.
Bolton recounted.

Inpex was never penalized, though several years
later it decided to reduce its stake in the Iranian project. And to Mr.
Bolton’s chagrin, the Bush administration did not act on reports about
other such investments, neither waiving the law nor penalizing
violators.

Recently, after 50 lawmakers from both parties
complained to President Obama about the lack of enforcement and sent him
a list of companies that apparently violated the law, the State
Department announced a preliminary investigation. Officials said that
they were looking at 27 deals, and that while some appeared to have been
“carefully constructed” to get around the letter of the law, they had
identified a number of problematic cases and were focusing on companies
still active in Iran.

Competing Interests

Among the
companies on the list Congress sent to the State Department is the
Brazilian state-controlled energy conglomerate Petrobras, which last
year received a $2 billion Export-Import Bank loan to develop an oil
reserve off the coast of Rio de Janeiro. The loan offers a case study in
the competing interests officials must confront when it comes to the
Iran Sanctions Act.

Despite repeated American entreaties,
Petrobras had previously invested $100 million to explore Iran’s
offshore oil prospects in the Persian Gulf.

But the Export-Import
Bank loan could help create American jobs, since Petrobras would use
the money to buy goods and services from American companies. Perhaps
more important, it could help develop a source of oil outside the Middle
East.

After The Times inquired about the loan, bank officials
said that they asked for and received a letter of assurance from
Petrobras that it had finished its work in Iran. A senior White House
official, in a Nov. 13 e-mail message, said that while it was the
administration’s policy to warn companies against such investments,
“Brazil is an important U.S. trading partner and our discussions with
them are ongoing.”

But if the administration hoped that the loan
would bring Brazil in line with its objectives in Iran, it would soon
prove mistaken.

On Nov. 23, Iran’s president, Mahmoud
Ahmadinejad, visited Brazil, and the two countries agreed to share
technical expertise on energy projects. Iranian officials said they
might offer Petrobras additional incentives for further investment.

The
visit infuriated American officials, who felt it undercut efforts to
press Iran on its nuclear program while lending international legitimacy
to the Iranian president. Brazil’s relationship with Iran has also
complicated American maneuvering at the United Nations, where Brazil
holds a rotating seat on the Security Council. Just last week, Brazil’s
president, Luiz Inácio Lula da Silva, restated his opposition to the
administration’s sanctions proposal, warning, “It is not prudent to push
Iran against a wall.”

Carter Lawson, the Export-Import Bank’s
deputy general counsel, acknowledged that Mr. Ahmadinejad’s visit was
“problematic for us, and it raised our antenna.” He said that since
December the bank had been operating under a new budget rule requiring
borrowers to certify that they had no continuing operations in Iran’s
energy industry, and was carefully monitoring Petrobras’s activities.

In
the meantime, Petrobras’s Tehran office remains open. And Diogo
Almeida, the acting economic attaché at the Brazilian Embassy in Iran,
said that while Petrobras was currently assessing how much it could
invest in Iran, given the huge discovery off Rio de Janeiro, company
officials were in active discussions with the Iranian government and
were interested in pursuing new business.

Opportunities for
Profit

For all the American rules and focus, there is still
plenty of room for companies to profit in crucial areas of Iran’s
economy without fear of reprisal or loss of United States government
business.

Auto companies doing business in Iran, for instance,
received $7.3 billion in federal contracts over the past 10 years. Among
them was Mazda, whose cars in Iran are assembled by a company called
the Bahman Group. A 45 percent share in Bahman is held by the Sepah
Cooperative Foundation, a large investment fund linked to the
Revolutionary Guards, according to Iranian news accounts and a 2009 RAND
Corporation report prepared for the Defense Department.

A Mazda
spokesman declined to comment, saying the company was unaware of the
links.

Even companies based in the United States, including some
of the biggest federal contractors, can invest in Iran through foreign
subsidiaries run independently by non-Americans.

Honeywell, the
aviation and aerospace company, has received nearly $13 billion in
federal contracts since 2005. That year it acquired Universal Oil
Products, whose British subsidiary is working on a project to expand
gasoline production at the Arak refinery in Iran. Universal recently
received a $25 million federal grant for a clean-energy project in
Hawaii.

In a statement, Honeywell said it had told the State
Department in January of 2009 that while it was fulfilling its Arak
contract, it would not undertake new projects in Iran.

Ingersoll
Rand, another American company with foreign subsidiaries, says it is
evaluating its “minor” business in Iran in light of the political
climate. But for now, according to a spokesman, Paul Dickard, it
continues to sell air-compression systems with a “wide variety of
applications,” including in the oil and gas industries and in nuclear
power plants.

Senator Byron L. Dorgan, a North Dakota Democrat,
tried to close the foreign subsidiary loophole after a furor erupted in
2004 over Halliburton, former Vice President Dick Cheney’s old company,
which had used a Cayman Islands subsidiary to sell oil-field services to
Iran. But he said he was unable to overcome business opposition.

William
A. Reinsch, president of the National Foreign Trade Council, lobbied
against Mr. Dorgan’s bill and has opposed other unilateral sanctions. He
argues that their futility can be seen in the intransigence of the
Iranian government and the way American oil companies have simply been
replaced by foreign competitors. Moreover, many foreign companies with
business interests in Iran are also large American employers; deny them
federal contracts and other benefits, Mr. Reinsch said, “and it’s those
workers who will pay the price.”

But Hans Sandberg, senior vice
president of Atlas Copco, which is based in Sweden, offered a different
perspective. Atlas Copco’s sales of mining and construction equipment to
Iran are dwarfed by its American business, including military
contracts. If forced to choose, he said: “It would be no problem. We
wouldn’t trade with Iran.”

[Author]

March 15, 2010 at 11:29 AM