We are perhaps six weeks away from a deal which would open up a country shunned for nearly four decades.
It is a stable country in a highly unstable region. One with a highly educated but underemployed population, where there are untapped and almost unlimited oil, gas, chromium, copper, iron, lead, and zinc reserves; where the national airline has not bought a new aircraft in 37 years, and where every aspect of infrastructure requires renewal. On signing a deal the Iranian government could gain access to $100 billion in liquid funds.
Iran is a country in serious financial straits but has the financial capacity to transform itself into a 21st Century State. But it knows that in order to do that it must engage with multinational businesses that have the products, skills, knowledge, and technology to assist.
To open its markets and to get its money Iran needs to do a deal — and to do a deal it must commit to openness and transparency around its nuclear program. Then, and only then, will the P5 +1 agree to end 37 years of isolation.
But will that be enough for businesses to flock to Iran? In the case of Russia and the CIS when the wall came down it was. Multinationals were queuing at the door to get in. The peace dividend which arose from the normalization of relations between East and West had a huge impact on business not just in Russia but across Europe and America — the boom years of the 1990s and early 2000s were at least in part due to the opening up of the Russian and CIS markets. But will Iran be the same?
Parking for one moment the difference between the European and U.S. positions on the removal of sanctions and what role Congress may or may not have on timing of sanction relief there is a very significant difference between the market opportunity in Iran now and that of Russia in the early 1990s.
That difference comes in the form of anti-corruption legislation and enforcement which has spread across the globe in the last 10-15 years.
The requirement for businesses to have adequate procedures in place to prevent bribery, to know ultimately who they are doing business with and to know how those entities and individuals do business, can present problems in developed economies.
In a state where religion, politics, the military and business are intertwined, where business ownership information is limited to what appears in gazettes, where there is limited disclosure of ownership of public companies and where there are no litigation records, it becomes almost impossible.
Add to this unique structures such as Bonyads, or “charitable organizations,” and the compliance issue becomes a compliance nightmare. Why? Because while Bonyads are not technically part of the Iranian government, they operate as semi-autonomous organizations, funded by donations and accumulated wealth; they answer, in most cases, directly to Iran’s Supreme Leader, Ayatollah Khamenei. He, in turn, uses their funds to promote a social welfare system and appease hard-line clerics in the country by funding organisations of which they are patrons.
How big is that issue?
The two largest are the Mostazafan Foundation of the Islamic Revolution (the Oppressed People’s Foundation of the Islamic Revoultion) and Setad Ejraiye Hazrate Emam (the Headquarter for Executing the Order of the Imam).
It is estimated that these two Bonyads alone are worth more than a $100 billion and influence between 15% and 25% of the non-energy sector-related industries of Iran.
These are the problems facing multinationals enticed by Iran’s “normalization” dividend.
But the problem is also a problem for Iran.
Unless potential business partners can investigate ownership, can understand how rights have been acquired or transferred, understand their prospective partners’ methods of business operation and their track records, there will be a drag on investment.
Iran must understand that the need for openness transparency and the ability to investigate and verify must go beyond the nuclear or it will continue to find itself starved of what it craves — normalization of business relationships with those who are best positioned to assist.
Bill Waite is a contributing editor of the FCPA Blog. He’s one of the founders of The Risk Advisory Group, established in 1997 with the objective of building Europe’s leading independent risk management consultancy. He serves as the group’s CEO and general counsel. He formerly practiced as a criminal barrister before joining the U.K. Serious Fraud Office in 1991 as a prosecutor. He can be contacted here.