By Emanuele Ottolenghi, Saeed Ghasseminejad
The slogan of Iran’s largest mobile telecommunication business, the Mobile Communication
Company of Iran (MCI), is “Nobody is alone.” That sentiment is far from reassuring.
MCI is a subsidiary of Iran’s Telecommunication Company (TCI) and thus owned by Iran’s Revolutionary Guards Corps, or IRGC. Clearly, Big Brother is watching you.
By lifting Western sanctions against Tehran’s economy, the Iran nuclear deal is sure to give MCI and numerous other IRGC businesses a handsome dividend.
The Obama administration is adamant that this is not the case. After all, IRGC entities and individuals that Washington targeted over the years for human rights or terrorism-related reasons will remain under US sanctions even after the deal is implemented. The European Union will keep its IRGC designations for another eight years at least. And some entities due to be delisted in 2023 under the agreement will remain sanctioned for their role in Syria’s civil war.
But despite these caveats, the IRGC will still cash in.
The deal lifts sectoral bans on economic activities where the Guard has the upper hand. It unfreezes Iranian state funds for infrastructure projects that IRGC companies will likely win. And it lifts banking sanctions, enabling Guard companies that eluded designation by US and European authorities to reconnect to the global financial system, thus greatly enhancing the IRGC’s cash flow.
TCI and MCI are among the companies that will help the IRGC benefit from the post-deal environment.
The IRGC bought TCI in September 2009 for a whopping $8 billion. It was money well spent. Earlier that year, Iran came under fire when it used high-tech monitoring systems provided by Nokia Siemens to record mobile phone conversations of pro-democracy protesters. Some of these recordings were later used as evidence against pro-democracy activists, some of whom were tortured.
The acquisition strengthened the IRGC’s ability to spy on Iranians, even though banking sanctions later restricted TCI’s and MCI’s abilities to upgrade their technology. The removal of US and European sectoral bans on Iranian banking will now change that.
The automotive sector is another industry likely to yield higher returns to IRGC companies. Iranian automakers, which already enjoyed temporary relief since the November 2013 interim deal, include Iran Tractor Manufacturing Company and Bahman Group, Iran’s third-largest vehicle producer. Both of them are IRGC-owned.
Iranian carmakers’ vast overseas procurement network has been used in the past to supply Iran’s nuclear programs. A 2013 Washington Post investigation revealed that from 2003 until 2013, a German-based Iranian-owned factory producing gas cylinders for hybrid cars also provided access to dual-use technology for Iran’s nuclear designs. The factory made sophisticated machinery which could also be used to manufacture uranium enrichment centrifuges used for producing nuclear fuel.
The nuclear deal weakens the export-control regime against Iran, thus making it easier for such acquisitions to resume under the cover of automotive industry procurement. Unless the Obama administration and its European allies move swiftly to quarantine IRGC-owned automakers from the deal’s dividends by re-sanctioning them, those firms will gain both in revenue and technology transfers.
Under the nuclear deal, Tehran will also be able to resume exports of non-ferrous metals, including copper and zinc, and sign deals to modernize its metallurgic sector. While copper production is firmly in the hands of the state-owned National Iran Copper Industry Company, zinc production is a virtual monopoly of Iran’s Zinc Mines Development Company, or IZMDC.
The IRGC owns the company through an investment company that has been under US sanctions since 2011. IZMDC, however, is not under sanctions and will benefit from the mining bonanza awaiting the Islamic Republic.
The current US definition of what constitutes an IRGC controlling stake in a company requires the Guard to have proven ownership of 50% of a firm’s shares. That metric means that hundreds of public and private Iranian companies that generate billions for the IRGC do not qualify, despite a large presence of IRGC companies among their corporate owners and IRGC executives on their boards. The threshold for what constitutes ownership should consequently be lowered.
The Obama administration could also still designate companies the IRGC controls. Such a designation would have a salutary effect on Western companies looking for business opportunities in Iran, as it would require a more thorough due-diligence process before contracts are signed.
US sanctions may discourage Western companies from doing business with the IRGC, but cannot prevent Guard-owned companies from winning tenders for public infrastructure projects inside Iran. Given its dominant position in the construction sector, the Guard will likely take the lion’s share of projects that Tehran will now be able to finance with the tens of billions of dollars in assets the nuclear deal is set to unfreeze.
The Obama administration insists that the IRGC will not benefit from the economic windfall that the deal grants the Islamic Republic. The Guard’s penetration of Iran’s economy suggests a different story.
Emanuele Ottolenghi is a Senior Fellow at the Foundation for Defense of Democracies and its Center on Sanctions & Illicit Finance, where Saeed Ghas-seminejad is an associate fellow.