June 17, 2016
A Swedish firm has announced plans to raise capital for investments in Iran, just what the Islamic Republic wants but the Swedes’ efforts are showing just how costly and time-consuming it is to make sure they don’t run afoul of US sanctions.
The appropriately named Pomegranate Investment AB is looking to launch the first initial public offering (IPO) to raise capital for investments in Iran. The firm was set up in 2014 in anticipation of the lifting of sanctions.
Although most EU and UN sanctions were lifted in January, the United States still forbids its own nationals and firms from doing business in Iran, and prohibits dealings with a list of hundreds of Specially Designated Nationals (SDNs) deemed involved in terrorist activity, missile work or human rights violations.
Pomegranate Chief executive Florian Hellmich told the Reuters news agency that Pomegranate, which has raised 80 million euros ($91 million) from European investors since 2014, hopes to launch its IPO in Sweden within 12 months for investments in Iran’s consumer technology sector.
He declined to say how much it might raise, but US and Canadian citizens and corporations will be excluded from the offer because of those countries’ remaining sanctions.
To avoid any risk of infringing a ban on dollar payments to or from Iran passing through US financial institutions a risk that still frightens European banks all transactions will be conducted in euros.
The main challenge for any international company, however, is vetting Iranian partners to ensure they are not linked to anyone on the US blacklist.
“We have learned to operate in a sanctions environment, which means we have had to engage in a high amount of KYC (“Know Your Customer”) legal due diligence of all our partners, including the banks we do business with,” Hellmich told Reuters.
Many Iranian companies have owners who are not easily traceable, making it hard to be certain that investments will not end up, for instance, going into the wide-ranging business empire of the Pasdaran (Revolutionary Guards), which the United States sanctions.
“We have engaged an armada of lawyers who have been advising us in terms of disclaimers and due diligence. Again, it comes back to the cost of doing business. It is time-consuming,” Hellmich said.
And this is what is discouraging many other investors the danger of plugging money into an Iranian investment only to discover later that the Pasdaran are secretly part owners with you.
Hellmich said, “Everyone could have done the work we have done, but nobody has.”
Hellmich is a veteran of emerging markets including Russia, where he was previously with the Moscow-headquartered investment bank Renaissance Capital.
Hellmich said Pomegranate was working with a “combination of Swedish banks and Swiss banks,” but declined to be more specific. “We found regional banks with no US exposure a lot more accommodating in how we do business.”