How U.S. officials are finding -- and sanctioning -- Iranian front companies around the world.
Last June, the Treasury Department announced hard-hitting new sanctions against an alleged Iranian front company, its main subsidiary, the subsidiary's subsidiary, and then, for good measure, the subsidiary's subsidiary's two subsidiaries. All the firms, Treasury said, were secretly controlled by the Iranian government.
The daisy chain of punitive measures, diagrammed on an unclassified PowerPoint presentation, highlight a rarely-discussed aspect of Washington's decade-long assault on the Iranian economy. The Treasury Department has gone after dozens of state-owned enterprises like the Iranian central bank, but it hasn't stopped there. Treasury analysts have also spent years painstakingly identifying Iranian front companies around the world, from construction firms to insurance companies, and then lashing each of them with sanctions. The measures have robbed Tehran of billions of dollars of much-needed cash.
When American negotiators sit down with their Iranian counterparts this week for a new round of nuclear talks, Tehran will reiterate its longstanding demand that Washington and its allies lift the sanctions that have brought Iran's economy to a virtual standstill and driven the value of its currency to historic lows. The Obama administration has indicated a willingness to temporarily soften some of the measures in exchange for concrete Iranian concessions, but it has offered no details on which of the sanctions could be part of a deal. Ryan Crocker, the former U.S. ambassador to Iraq and Afghanistan, said the future of those measures was a central part of the discussions he held with senior Iranian officials during last month's U.N. General Assembly.
"The Iranians called them illegal and immoral," Crocker said in an interview. "The message I took away was that meant yes, the sanctions are working."
Crocker, the dean of the George Bush School of Government & Public Service at Texas A&M, said targeted sanctions have rarely persuaded countries to change their behavior. The measures against Iran, he said, have been unusually successful because of how well the Treasury Department and its counterparts have managed to find and freeze Iranian assets.
"They've just been relentless on getting information on violators and then tracking them down," Crocker said.
Some of that work has meant going after single companies that appear, at least superficially, benign. The website of Iran Air, the country's national carrier, advertises a weekly flight to Rome and has pictures of shimmering Iranian mosques and ornate antiquities. The Treasury Department, though, imposed sanctions on the company more than 17 years ago and added harder-hitting measures recently after accusing the company of using its passenger planes to ferry weapons to Syria. The measures have prevented Iran Air from buying spare parts for its aging fleet of Western-made planes or replacing them with newer ones.
Much of Treasury's effort, though, involves the hard work of finding and unraveling networks of Iranian front companies with opaque names, complicated ownership structures, and shadowy subsidiaries. The United States alleges that the firms were set up so the Iranian government could bypass the sanctions that have locked its banks out of the global financial system and required banks in allied countries to freeze more than $50 billion in Iranian assets.
Juan Zarate, a former assistant secretary of the Treasury, said the current efforts to find and sanction Iran's front companies draw from initiatives first put in place in the 1980s against Latin American drug cartels.
"The idea then was to identify drug lords, identify their networks, and then identify the front companies they were using to do seemingly legitimate business," said Zarate, the author of a new book on Treasury's sanctions efforts. "It's the mob boss model."
The ongoing effort has targeted hundreds of individual Iranian companies, banks, and ships with names like the "Songbird" and the "Rainbow." Some of those firms were accused of ferrying weapons to the Assad regime in Syria and Hezbollah's militia in Lebanon, others simply of being quietly owned by the Iranian government. Many weren't alleged to have any direct links to Iran's nuclear programs whatsoever.
Significant numbers of the companies hit by the U.S. sanctions vociferously deny any links to Iran. Treasury said Tehran used One Vision Investments 5, a firm based in Cape Town, "to transfer funds from Iran internationally and to facilitate transactions through South Africa to circumvent U.S. and international sanctions." Gholam Amouhadi, the managing director of One Vision, told a South African newspaper that the American charges were "absolute nonsense."
"We are a property developer. We basically own two sets of buildings," he told the paper. "We don't do any transactions with Iran."
Firms like One Vision have found themselves on American radar screens all the same, with June's crackdown alone imposing punitive measures on it and 36 other companies based in Iran, Germany, South Africa, the United Arab Emirates, and Croatia.
The first target was the inconveniently-named Tosee Eqtesad Ayandehsazan Company, or TEACO. The Treasury's Office of Foreign Asset Control said that TEACO was one of the two primary subsidiaries of the Execution of Imam Khomeini's Order, the organization the Iranian leadership uses to hide its worldwide investments and business holdings. TEACO, according to the Treasury Department, was specifically tasked with overseeing and managing the dozens of foreign companies secretly controlled by Tehran.
In a statement at the time, Treasury said TEACO tried to maintain the appearance of being a private company by listing its owners as a set of Iranian businessmen and investors. All of the company's board members, however, were chosen by the Iranian government, which retained full control of the company and used it to try to evade the Western sanctions. Tehran, Treasury said, had the firm negotiate a construction deal with a European company on its behalf "because TEACO was less visibly connected to the Government of Iran."
Next, Treasury went after one of TEACO's three primary subsidiaries, the Rey Investment Company, which had raised huge amounts of money from donations at shrines and mosques across Iran. The company was initially run by Ayatollah Mohammad Mohammadi Reyshari, a former Iranian minister of intelligence and security. When Reyshari was linked to an embezzlement scheme, Treasury said the Iranian government ousted him and appointed a new managing director.
Washington's final moves against that branch of the TEACO network targeted the Rey Investment Company's own subsidiary, Reyco GmbH, a German-based firm that Tehran was planning to use to purchase a bank for its own use inside the country. Treasury then sanctioned Reyco's two German subsidiaries, MCS International GmbH, which manufactures a wide variety of containers and storage units, and MCS Engineering, which makes industrial measuring equipment. The nominal owners of both firms were appointed by Tehran and answered to senior officials there, Treasury said at the time.
Those types of sanctions are precisely what Tehran wants Washington to lift -- or at least soften -- as part of the ongoing nuclear talks. The Obama administration has hinted that it might be prepared to deal, and Wendy Sherman, the State Department's chief nuclear negotiator, recently asked Congress to hold off on imposing any new sanctions while the talks continued. The bill being crafted together by lawmakers in the Senate would punish companies that do business with the Iranian shipping, construction, and petrochemical sectors. A similar measure passed the House by a whopping 400-20 vote this July.
Crocker thinks the administration is right to ask lawmakers to hold back, at least for the moment. He said that imposing additional sanctions now would make it easier for Rouhani's conservative critics to argue that diplomatic engagement with the West had brought about nothing other than new punitive measures against the country's already-fragile economy.
"New sanctions would weaken those pushing for a deal and allow hardliners to say, 'see, we told you so,'" Crocker said. "We can always push forward with new sanctions legislation down the road. For now, it's better to let that dangle over their heads."