European Companies: Enter The Iranian Market At Your Own Risk

With the signing of an Iranian nuclear agreement earlier this month, European companies along with leading politicians have moved at astonishingly fast pace to enter Iran’s markets. However, European businesses still face an enormously risky economic environment. While sanctions will soon be lifted, many of the businesses and individuals have a proven record of money laundering, sanctions evasion and other illicit financial activity. How European companies manage this threat remains to be seen.

Leading the rush to rekindle business with Iran was Germany’s economic minister and vice chancellor Sigmar Gabriel, who recently spent the weekend in Tehran with a delegation of business representatives from engineering giants Siemens and Linde , and automobile manufactures Volkswagen and Mercedes. Iran’s state-owned news site IRNA said Germany and the Islamic Republic are slated to hold their first economic conference in over a decade.

Iran has perverted Western technology for oppressive purposes

What went unnoticed in Gabriel’s visit is the misuse of Western technology for repression. Take one salient example: The communications giant Nokia-Siemens (since renamed Nokia Networks) sold Iran advanced surveillance technology in 2008. A year later, the equipment enabled Tehran to disrupt internet usage during the pro-democracy Green Movement protests. Iranians were outraged and urged a boycott of the company.

Until as recently as last month, Iran sought illicit nuclear and missile technology in Germany. According to the country’s domestic intelligence agency, Berlin “anticipates that Iran will continue its intensive procurement efforts in Germany (especially via covert structures).” All of this helps to explain that equipment from Western companies, particularly “dual-use” goods which can be converted into military uses, could advance Iran’s nuclear and armaments programs.

Hence blue-chip companies like Siemens could suffer a reputational black eye – and corresponding drop in sales – if Iran manipulates the technology for nefarious purposes. In 2009, members of the European Parliament adopted a resolution stating that Nokia-Siemens surveillance equipment played a crucial role in the persecution and arrests of Iranian dissidents, and called for a ban on the sale of such technology. American legislators have advocated similar penalties.

Traditionally, many German investors have ignored Iran’s misuse of its technology. In 2010, however, Siemens pulled the plug on its business in Iran because of the damage to its corporate reputation.

France and Germany will rush to Iranian consumers

Germany has over the last decade been Tehran’s leading trade partner in Europe, with pre-sanction bilateral trade hovering around $5 billion euros. Bilateral commerce saw an increase of 42.8% between January and May of 2014, according to the European Union. In the wake of the nuclear deal, the Federation of German Industries anticipates exports to the Islamic Republic could jump to more than €10 billion per year.

French companies are set to mirror their German competitors’ gold rush. Last Tuesday, 50 top executives from French companies were briefed on the Iran nuclear accord, and France’s main business lobby is sending a delegation of about 80 firms to Tehran at the end of September.

“To invest, company bosses need complete safety,” a French diplomat told Reuters. “They need financing, but banks will only finance if they are sure they won’t be penalised later.”

Many of Iran’s banks have played a critical role in financing the country’s illicit nuclear and ballistic-missiles program. The high revenue from Iranian business predicted by industry experts means the desire to report sanctions violations may be diminished. Moreover, the cumbersome Joint Commission that is responsible for adjudicating disputes does not lend itself to snapping back sanctions over Iranian violations.

Are the short-term profits worth it?

As the economic powerhouse of Europe, Germany largely sets the business rules for European trade. But the Germans are not alone. France’s foreign minister Laurent Fabius announced shortly after Gabriel’s trip that he plans to travel to Tehran next week as well.

Iran is rushing to open its doors for business. But European business leaders and politicians will have to consider well whether the prospect of short-term profits is worth joining hands with a radical theocracy that leads the world in terror sponsorship while oppressing its own long-suffering citizens.

Benjamin Weinthal is a research fellow at Foundation for Defense of Democracies. Follow him on Twitter @BenWeinthal