WASHINGTON: The United States identified and blacklisted Tuesday what it called a “major network of front companies” serving Iran’s leadership.
The move targets 37 companies spread across the world, from Iran to Croatia, Germany and South Africa, and is the fourth action the United States has taken in the past week to sanction Iran’s government over its atomic program.
The sanctions prohibit U.S. citizens and companies from dealing with the firms. Any foreign financial institutions dealing with them risk getting cut off from the U.S. financial system.
The Treasury Department said the companies are governed by the Execution of Imam Khomeini’s Order, or EIKO – referring to Iran’s Supreme Leader Ayatollah Ali Khamenei – and earn tens of billions of dollars in profits.
The Treasury said EIKO, established about 10 years ago to manage the investments of Iran’s leadership, works through two main holding companies, Tadbir Economic Development Company and Tosee Eqtesad Ayandehsazan or TEACO.
Tadbir holds investments in banking, construction and energy, while TEACO was established some three years ago to help the regime skirt sanctions through its network of operating companies in central Europe, Germany, South Africa and the United Arab Emirates.
“To maintain the appearance of being a private company, TEACO is ostensibly owned by private Iranian businessmen and investors; however TEACO’s board members were all chosen by EIKO,” the Treasury said.
The companies take advantage of preferential loan rates from Iranian banks and sell and manage real estate holdings, including properties confiscated from Iranians who do not live in the country full-time, Treasury said.
“While the Iranian government’s leadership works to hide billions of dollars in corporate profits earned at the expense of the Iranian people, Treasury will continue exposing and acting against the regime’s attempts to evade our sanctions and escape international isolation,” Undersecretary of the Treasury David Cohen said in a statement announcing the sanctions.
In addition, the statement said, a key mission of EIKO is to assist the government in circumventing U.S. and international sanctions.
“Because of this unique mission, EIKO has received all of the funding it needs to facilitate transactions through its access to the Iranian leadership.”
The Treasury identified the network for sanctions under a 2012 White House executive order that permits the freezing of any assets held by the Iranian leadership in the United States.
The new sanctions marked the first time Iran’s currency, the rial, has been targeted directly with sanctions, the White House said. The sanctions apply to foreign financial institutions that buy or sell significant amounts of the rial, as well as to those who hold significant amounts of the currency in accounts outside Iran.
Officials speaking on condition of anonymity would not specify what constitutes a “significant” transaction.
The hope is that banks and businesses holding Iranian currency will dump the funds, making the rial weaker. Its value has dropped by half since the start of 2012, the White House said.
A senior administration official said the low level of the rial was a key vulnerability for the Iranian government.
“The objective is to take aim at the rial and to make it as unusable a currency as possible, which is all part and parcel of our efforts to apply significant financial pressure on the government of Iran,” the official, who spoke on condition of anonymity, said on a call with reporters.
Another set of sanctions ban the sale or transfer of goods or services to be used in Iran’s automanufacturing sector. Officials said the auto sector is a key source of revenue for the regime. Many of the auto parts and components from subsidiaries are dual-use and could be used in centrifuges or missiles.
Also subject to penalties will be anyone who provides material support to Iranians and others who have been blacklisted under previous U.S. sanctions. An exception will be made for some activities related to a pipeline project to move natural gas from Azerbaijan to Europe and Turkey.
The appetite has been growing in Congress for even tougher measures against Iran, fueled in part by lawmakers’ concerns about key U.S. ally Israel, which considers a nuclear-armed Iran to be an existential threat.
“The clock is clearly ticking,” Secretary of State John Kerry said last month on a visit to Israel.
The U.S. has already targeted other major sectors, most prominently Iranian oil exports, and last week targeted Iranian petrochemicals – the largest source of funding for Iran’s nuclear program after oil.
The United States and other Western powers believe Iran is seeking the ability to make nuclear weapons.Tehran denies the charge, saying its nuclear program is strictly for power generation and medical purposes.
Although Iranian officials have downplayed the effectiveness of the U.S. efforts, the Obama administration says they have had crippling effects.
Crude oil production in Iran has fallen about 700,000 barrels per day since 2012, the White House said last week. Sanctions halved Iran’s oil exports last year, depriving the government of about $3 billion to $5 billion in revenue, increasing already high inflation and hitting the value of the rial currency.
However, there is little evidence they have slowed the nuclear program.
Critics of the sanctions say they only harden the resolve of the Iranian government to continue funding the nuclear program.
For sanctions to work, they need to be accompanied by more diplomacy, said Paul Pillar, a former CIA analyst.
“It’s a fallacy to think that there is some point at which so many sanctions have been implemented that the Iranians will cry uncle,” Pillar said. “They have no incentive to make concessions unless they are led to believe that concessions will bring significant sanctions relief.”
Senior U.S. officials said there would be further sanctions announced in the future to pressure Iran to negotiate about its nuclear program.
Mark Dubowitz, the head of the Foundation for Defense of Democracies, which advocates tougher policies on Iran, said Washington would likely impose sanctions on the Islamic Republic’s construction, engineering, and heavy machinery industries in coming weeks.
The U.S. Treasury Department in 2010 blacklisted the Khatam al-Anbiya industrial conglomerate, which is involved in those industries and is controlled by the Islamic Revolutionary Guard Corps.
Placing sanctions on the industries as a whole would target investments and financing for the industries by companies in foreign countries, Dubowitz said