By TJ Fund
General Electric Co. (“GE”) announced in early February that it would no longer accept orders in Iran through foreign subsidiaries, citing “uncertain conditions” in the country. The company will fulfill its obligations under present orders, but will not seek new business in the country. GE’s decision to abandon business in Iran mirrors the recent decisions of other large multinational corporations. U.S. firms Halliburton Co. and ConocoPhillips and UK-based BP PLC all have announced the termination of business development in Iran. German steel-maker Thyssen-Krupp AG has also taken substantial steps to distance itself from Iranian influence in its business, despite the fact that Iran is Thyssen-Krupp’s third-largest shareholder.
Of all the factors that play into such important decisions, first and foremost seems to have been the stance of the U.S. government toward Iran. While BP explained that its departure was based on its understanding that doing business with Iran was “offensive to U.S. interests,” U.S. firms GE, Halliburton and ConocoPhillips had even greater incentive to abandon the Iranian market.
U.S. laws prohibit doing business with Iran because it is on the list of countries officially embargoed by the U.S. The list also includes: (i) limited restrictions on trade and investment with regard to Iraq and Libya; (ii) sanctions against Cuba, Iran, Sudan and Syria that prohibit practically all exports; and (iii) limited sanctions in place against Angola, Burma (Myanmar), Colombia, Liberia, Sierra Leone and the former Yugoslavia. Nations may be placed on the list for engaging in activities the U.S. considers harmful to national and world security or for gross human rights violations. U.S. firms are expressly forbidden from directly doing business with these embargoed nations and their nationals. However, because no formal prohibition exists on business relationships through a foreign subsidiary, a number of U.S.-based multinational firms have developed such relationships.
This practice has drawn ever-increasing levels of criticism from U.S. lawmakers and influential citizens who view the practice as the exploitation of a loophole that contradicts the true intent of the embargo. Lawmakers have openly discussed creating legislation to eradicate this loophole, putting pressure on U.S. companies to adopt a stance more compliant with the intent of the embargo before a government-crafted solution is forced upon them. Penalties for violating export regulations include both criminal (up to thirty years’ imprisonment, and up to a $10,000,000 fine for corporations, $5,000,000 for individuals) and civil (up to over $1,000,000 per violation) penalties based on the specific facts of the violation. Companies seeking to do business (for or not for profit) with embargoed countries or their nationals should seek competent legal advice on the legality and propriety of all actions.
For more information on such matters, please contact TJ Fund at tfund@kmclaw.com or contact Conan Grames at cgrames@kmclaw.com for information regarding U.S. Foreign Trade Controls.