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 user 2010-03-15 at 11:29:47 am Views: 68
  • #23755

    From Iran, and the U.S.


    $503.2 million in Federal Contracts: $503,151,698
    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.

    billion     Federal Contracts: $17,547,806,053

    Federal Grants:
    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.”

    the Terms

        * Withdrew: Company no longer has operations in
        * Active, but no new investment: Company finishing up
    existing work in Iran but has committed to not making additional
        * 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.

    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.

    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.

    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

    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.

    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

    “We are very aggressive, using a range of tools,” said
    Denis McDonough, chief of staff to the National Security Council.

    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.

    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.

    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.

    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

    “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.

    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

    From the beginning, though, the law proved difficult to

    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.

    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.

    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

    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.

    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

    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

    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.

    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.

    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

    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

    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

    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

    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.

    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.

    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.”