Putting Iran on Notice

U.S. companies file disclosures related to their business ties to Iran

March 13, 2013

A growing number of United States companies have been forced to disclose their business ties to Iran following the recent implementation of a sanctions measure.

More than 90 companies, including a number of U.S. companies, have scrambled to file an "Iran Notice" with the Securities and Exchange Commission (SEC), and the number of filings is growing each day.

The filings follow the Feb. 6 effective date of the Iran Threat Reduction and Syria Human Rights Act, a comprehensive sanctions measure that includes a provision requiring any company listed on the U.S. stock exchange to detail contact with Iran.

Those who have submitted an Iran Notice thus far include financial heavyweights such as Citigroup Inc. and JP Morgan Chase & Co., snack food giant PepsiCo, and energy giants ExxonMobil and BP.

Other big name companies that have disclosed ties to Iran include the drug manufacturer Pfizer, resort giant Hyatt Hotels, travel company JetBlue Airways, clothing giant Neiman Marcus, and the media company Thomson Reuters.

The Iran disclosure mandate has cast an unprecedented spotlight on companies that continue to deal with Iran despite increasingly tough sanctions measures meant to isolate the Islamic republic.

"SEC Iran Notices are a potential source of evidence for establishing the business ties between companies and Iran," said Mark Dubowitz, a leading Iran sanctions expert at the Foundation for Defense of Democracies. "Reporters should be reading these disclosure documents carefully for story ideas on who continues to provide material support to the Iranian regime."

The disclosure could spark public relations problems, as prominent U.S. firms are forced to admit their ties to the regime in Tehran, which continues to enrich uranium to levels needed for a nuclear bomb.

"Companies must detail activities and contacts by any of their affiliates, which include not just units and subsidiaries but individuals such as board members and senior executives," the Wall Street Journal noted in a report detailing the problems companies are having complying with the new law.

However, the legal implications could pose larger problems for these companies.

"The fact that companies are going to such lengths to distance themselves from potentially prohibited Iran-related activities indicates that the public disclosure of this in sensitive SEC filings is having the desired effect of making doing business in Iran toxic," said Gary Emmanuel, a securities attorney at the law firm Sichenzia Ross Friedman Ference LLP.

"Companies are right to approach this issue with apprehension," Emmanuel said, explaining that the SEC is required to forward Iran Notices to the president and Congress to review for possible sanctions violations.

"Even if an investigation is not initiated or sanctions are not imposed, the negative publicity that can result from Iran-related disclosure has the potential to have a detrimental effect on the stock price of a public company," he added. "That's what makes the naming and shaming mechanism of the new Iran-related disclosure rules so potent."

Companies have in many cases done business with Iran via their smaller subsidiaries or other related enterprises.

While most of these business dealings are not technically illegal, Iran experts maintain that they are highly unethical given Tehran’s aggressive pursuit of nuclear arms.

Most concerning to sanctions experts and observers on Capitol Hill are those companies that may have aided Iran’s oil and energy sector, which is closely tied to its nuclear activities.

ExxonMobil’s disclosure reveals that the company’s Canadian affiliate sold oil to the Iranian embassy in Canada late last year.

"During the period from January to September, 2012, ExxonMobil’s majority-owned Canadian affiliate, Imperial Oil Limited (IOL), made several fleet sales of motor fuel with an aggregate total sales price of approximately 11,000 Canadian dollars to the Iranian Embassy in Canada," the disclosure states. "IOL’s net profits attributable to these sales were less than 500 Canadian dollars."

"The sales were made without the involvement of any U.S. person and were permitted by U.S. laws in effect at the time," the disclosure adds. "No sales occurred after the Oct. 10, 2012, effective date, and we do not expect any such sales to occur in the future."   

While not illegal, the sale is highly frowned upon by Western officials and others who have advocated in favor of a tighter sanctions regime.

"It is simply wrong for companies to continue doing business with countries like Iran just for the sake of profit," said Mark Langerman, a financial adviser who is managing director at the Patriot Fund, an investment firm that shuns companies tied to Iran. "It’s time we started calling it what it is: Simply put, it's ‘legal subterfuge.’"

BP’s Iran disclosure details multiple dealings with Tehran’s oil sector.

BP, which has no operations in Iranian territory, has a stake in two oil fields in which Iran also invests.

Production in one of these fields was halted in 2010 due to sanctions. BP continues to operate in another field in which an Iranian company has a less than 10 percent stake and dealings remain legal under sanctions, according to the disclosure.

"The Shah Deniz [oil field in Azerbaijan] joint venture and its gas marketing and pipeline entities were excluded from the main operative provisions of the [European Union] regulations as well as from the application of the new U.S. sanctions and fall within the exception for certain natural gas projects," BP writes in its most recent disclosure form.

The oil company adds: "Participants in non-BP controlled or operated joint ventures may purchase Iranian-origin crude oil or other components as feedstock for facilities located outside the E.U. and U.S."

BP was additionally forced to cancel a research program because Iranian nationals were identified as participating, activity that could violate sanctions.

"BP has become aware that a Canadian university had been using graduate students, some of whom were nationals of Iran, on a research program funded in part by BP," the disclosure states.

BP also "distributed dividends" of its stock profits to Naftiran Intertrade Co., a subsidiary of Iran’s national oil company, in March, June, and September 2012, according to the disclosure.

A BP spokesperson declined to discuss the company's Iran Notice filing, saying that the company had nothing to add on the subject. The spokesperson declined to say if the company felt it had aided Iran with its business dealings.

Smaller energy companies and hardware companies also disclosed ties to Iran’s oil sector.

Media giant Thomson Reuters, which operates the Reuters news website, disclosed that it had sold "information and informational materials sold or licensed to the Iranian government," as well as "certain U.S.-sanctioned persons or entities," including banks and universities.

Financial expert Langerman speculated that public scorn would mount as more companies come forward about their dealings with Iran.

"Iran is an existential threat to the United States of America," he said, "and until and unless public companies stop doing business there they are jeopardizing our national security, and that is deplorable."