Exposing the Nutrients: How to Improve Enforcement of Sanctions Against Iran

Can sanctions persuade Iran to renounce its quest for nuclear weapons? The international community's standoff with the Islamic Republic has now entered its eighth year, and there are no signs that Tehran will concede. Some skeptics of sanctions advocate regime change or military action, arguing that sanctions will never dissuade Iran's leadership from attaining nuclear weapons — a scenario too dangerous to contemplate. Others support dialogue and engagement, convinced that a military attack would prove catastrophic and that further sanctions would only hurt ordinary Iranians.

But these critics often forget that the goal of sanctions against Iran is not just to induce policy change but also to disrupt Iran's access to the raw materials and technology on which its nuclear program depends. Although doubts about Tehran's willingness to reassess its policies are well grounded, carefully crafted sanctions can in fact significantly slow Iran's pursuit of nuclear weapons. The United States and European nations can bolster that effort by placing further pressure on Western companies — whether through legal or public means — to avoid conducting business with Iranian firms connected to the vast economic empire of the Iranian Revolutionary Guards Corps.

The IRGC is the regime's strong arm, in charge of defending the ideological purity of the revolution at home and exporting it abroad. In addition to acting as Praetorian Guard, in recent years it has functioned like a corporation, amassing a conglomerate of thousands of companies that operate in every sector of Iran's economy. The IRGC uses its growing clout not only to dominate the economy — including major sectors such as telecommunications, large portions of the energy industry, and, crucially, the nuclear program — but also to colonize Iran's parliament and cabinet. This dual function helps the IRGC play a central role in coordinating Iran's proliferation activities, using front companies to acquire needed assets and materials.

Western governments and companies should err on the side of caution in doing business with IRGC-related firms, avoiding contact entirely rather than unwittingly aiding Iran's nuclear ambitions.

The United States has vigorously pursued the IRGC and its constituent businesses. In 2007, the George W. Bush administration decided to target the IRGC. The State Department and the Treasury Department placed the IRGC's foreign military operations branch, the Qods Force, on its list of terrorist organizations and sanctioned the IRGC as a whole by labeling it a “proliferating entity” — a key player in Iran's efforts to acquire nuclear and ballistic missile technology.

The international community has begun to act against the IRGC as well. UN Security Council Resolution 1929, passed last June, targets Iranian companies — many belonging to the IRGC — that are involved in Tehran's nuclear drive. It forbids governments and corporations from conducting commerce with Iranian businesses demonstrably involved in Iran's procurement efforts, as well as those firms related to domestic nuclear development. Meanwhile, the European Union, United Nations, and the United States have placed sanctions against the IRGC's major conglomerate, Khatam al-Anbiya, a vast collection of companies with its hands in thousands of infrastructure projects, from tunneling and highways to public buildings.

Yet Resolution 1929 only goes so far. No public list identifies all of the IRGC's offshoots. Khatam al-Anbiya, for example, reportedly has 812 subsidiaries, but EU, UN, and U.S. listings of IRGC companies have designated only a small portion of them, leaving the door open to the possibility that Western companies, unaware of their partners' real corporate identity, could still do business with IRGC branches. As for known affiliates, there is a significant discrepancy between blacklisted IRGC companies — whether named in UN resolutions or placed on the lists of various Western governments — and the overall number of companies that the IRGC controls. At present, the UN has designated less than a hundred IRGC-associated entities — a fraction of their total number. Moreover, even businesses that do become publicly identified as IRGC subsidies are not automatically blacklisted by governments. In 2009, for example, a consortium of Iranian corporations known as Etemad-e-Mobin purchased 51 percent of TCI, the Iranian telecommunications company. Iranian media reports identified Etamad-e-Mobin as including two IRGC-controlled investment funds, Tose'eh-ye E'temad and Shahriar-e Mahestan. Although the European Union eventually targeted Etamad-e-Mobin for sanctions last July, these two investment funds escaped pressure.

Blanket sanctions against the IRGC would undoubtedly harm Tehran's nuclear program, but they would be largely pointless unless Western governments could identify each and every IRGC affiliate and provide a list of these companies to Western businesses, which could then more easily avoid illicit relationships. Until now, many Western companies have not investigated their prospective Iranian partners with much diligence — either because they lacked sufficient resources to do so or because they preferred ignorance, hoping not to sacrifice revenue.

Indeed, some Western firms may insist that they can continue to conduct business with suspected IRGC shells as long as those shells remain undesignated by government sanctions. But a more comprehensive public list of IRGC companies could discourage Western businesses from engaging in partnerships with IRGC-related firms for fear of reputational damage. This could reduce Iran's trade with Western nations to a trickle, severely disrupting its economy and nuclear procurement program. Given that the IRGC is designated as a proliferating entity by the U.S. government, companies caught engaging with IRGC affiliates may incur the wrath of U.S. authorities, which could cost them business in U.S. markets and lead to financial sanctions.

Additionally, Western diplomatic sources, speaking on condition of anonymity, indicate that exposing IRGC companies makes it easier for governments to add such entities to existing blacklists. Given the IRGC's propensity for employing shell companies to hide illicit activities, it is often difficult for government officials to navigate the designation process. If a business thought to be IRGC-related is publicly identified, government agencies can better investigate its identity and operations. This may then lead to a designation by one or more Western governments. Even if a business is not designated as IRGC-affiliated, however, the mere act of public identification is useful. If some governments prove reluctant to designate a firm even after its exposure, designation by one government alone could raise the reputational and monetary risk faced by Western companies for associating with IRGC shells.

But identifying Iranian entities linked to the IRGC is not easy. Take the Ghomroud water conveyance system, a network of tunnels built earlier in the last decade in the Isfahan mountains to improve nearby water supply. Two European companies — Germany's Wirth and Italy's Seli — supplied tunnel-drilling machinery and ventilation equipment. On the surface, the project appeared legitimate. But according to documents that were, until recently, available on Wirth's Web site, the Iranian building contractor for the project was Gharargahe Sazandegi Ghaem, a subsidiary of Khatam al-Anbiya, the IRGC's largest company. This means that the Iranians could have later used the technology provided by European companies to construct nuclear and ballistic missile facilities, which are often located underground. Given that prospect, Western governments and companies should err on the side of caution in doing business with IRGC-related firms, avoiding contact entirely rather than unwittingly aiding Iran's nuclear ambitions.

The Ghomroud project illustrates how important it is to identify existing links between the IRGC and Iran's business community in preventing Western companies from supplying sensitive technology that could be diverted to the nuclear program. At the time of the Ghomroud delivery, Gharargahe Sazandegi Ghaem had not been designated or publicly identified as an IRGC company — the U.S. Treasury did so only in 2007, four years after the machinery had been delivered. Had that association been made public, such knowledge alone might have prevented the deal; indeed, Wirth itself withdrew from the Iranian market after information about Gharargahe Sazandegi Ghaem became widely known.

How, then, can IRGC companies be identified? Exposing them through open sources, available to all Western companies seeking business partnerships with Iranian firms, is difficult but not impossible. Iranian corporations put at least some basic information in the public domain, and Western governments and companies can sift through it to find clues regarding IRGC connections.

In exploring this open-source information about Iranian firms, there are a number of features that should arouse Western suspicion. The existence of overseas operations that lack basic transparency is the first sign of illicit behavior. Another is involvement in substantial projects — often energy-related — that provide no indication of the corporation's expertise in the given project and no paper trail. Extensive operations in diverse areas, from infrastructure and logistics to services and finance, suggest a reach so broad that the IRGC is likely involved. The associates of specific individuals at the helm of Iranian companies can reveal connections to the IRGC as well. Another sign of possible IRGC involvement can be found on the Web sites of Iranian corporations, some of which contain noticeable discrepancies in the information provided in the English and Farsi versions or given by the mother companies and their subsidiaries. Such indicators often suggest IRGC connections and, if publicized, can help Western companies avoid conducting improper business with IRGC-related firms while spurring Western governments to sanction them officially.

The European Union, United Nations, and United States should work with Western companies to engage in due diligence about their prospective Iranian business clients. Designating as many of them as possible for their lack of transparent practices, their role in proliferation activities, and their possible links to the IRGC would also inflict a grievous wound on Iran's procurement efforts by discouraging Western businesses from partnering with questionable Iranian firms. Ultimately, these are the companies that finance Tehran's illegal nuclear program and enable the regime to jail, torture, and kill its democratic opponents. Preventing them from profiting from Western companies will ultimately help close, one by one, the conduits through which Iran keeps its nuclear program running.

Sanctions may not end Iran's longstanding attempt to attain nuclear proficiency. But with new initiatives aimed at exposing Iranian companies for illicit activities, they may considerably weaken and slow the nuclear program. Western countries should redouble their efforts and ensure that Iran's procurement networks and IRGC companies, at home and abroad, are named, shamed, and banished from the polite company of the corporate world.

EMANUELE OTTOLENGHI is a Senior Fellow at the Foundation for Defense of Democracies and the author of the forthcoming book Iran: The Looming Crisis.