You won't find Khatam al-Anbiya traded on a public stock exchange, but if you own stock in a company that is developing Iran's energy resources, you may well be doing business with it. Is that a risk worth taking?
Consider why not: To do business in Iran, you need an Iranian partner, which often means Khatam al-Anbiya (its full name is Gharargah Sazandegi-ye Khatam al-Anbiya, or Ghorb) -- perhaps Iran's biggest company. Ghorb is the parent of 812 affiliate companies which, according to estimates by the U.S. Treasury Department and Western intelligence services cited by Time Magazine, collectively employ around 40,000 people and have won approximately 1,700 government contracts, including billions of dollars in energy-related contracts awarded without a competitive bidding process. Ghorb faces few challengers: It is affiliated with Iran's Islamic Revolutionary Guard Corps (IRGC), the hard-line regime loyalists who crush competition and jail, beat and kill members of the country's democratic opposition.
Last week, the U.N. Security Council passed another sanctions resolution against Iran and added Ghorb to the list of 40 companies, including 15 connected to the IRGC, whose assets must be frozen. In 2007, the U.S. Treasury Department designated Ghorb because of its links to the IRGC, itself designated by Treasury that same year for its role in supporting nuclear proliferation and terrorism. In 2010, Treasury also added to the list four of Ghorb's affiliate companies -- the Fater Engineering Institute, the Imensazen Consultant Engineers Institute, the Makin Institute, and the Rahab Institute -- as well as Ghorb's director, IRGC general Rostam Qasemi.
At the time of the 2010 designations, Treasury undersecretary Stuart Levey explained that "As the IRGC consolidates control over broad swaths of the Iranian economy, displacing ordinary Iranian businessmen in favor of a select group of insiders, it is hiding behind companies like Khatam al-Anbiya and its affiliates to maintain vital ties to the outside world. Today's action exposing Khatam al-Anbiya subsidiaries will help firms worldwide avoid business that ultimately benefits the IRGC and its dangerous activities."
Ghorb puts perpetuating its own rule first, and earning profits second. As many as one third of Iran's ministers of parliament are former IRGC officials, and every key economic ministry in its government is under an IRGC-linked minister, giving the group tremendous political influence and allowing it to win prime contracts without any real competition. If by some strange twist of fate the Revolutionary Guards should lose a bid, they take it by force. In 2004, when a Turkish contractor won a contract to modernize Tehran's airport, the Guards forcibly removed it from the grounds.
As a result, even before the U.N. Security Council, the United States and other countries began going after companies that operate in Iran, Ghorb offered an object lesson in the hazards of doing business with Iranian partners. If this is how the Iranian government treats its friends, the Turks, imagine how it would treat everyone else.
Originally founded as the construction and engineering branch of the IRGC at the end of the Iran-Iraq War, Ghorb initially focused on reconstruction, but it soon ventured into other fields. Today, Ghorb and the many other IRGC front companies that have sprung up beneath it have stakes in telecommunications and energy, logistics and services, and automobiles -- of which Iran is the largest manufacturer in the Middle East. They also enjoy a continuing monopoly over construction and civil engineering projects, from dams to bridges, and highways to metropolitan underground light railways.
Ghorb is an integral part of the IRGC power structure. Its head is the IRGC's Commander in Chief, currently Major General Mohammad Ali Jafari, and its CEO, under his authority, is always a high-ranking IRGC officer. Many IRGC projects are military in nature, and the group diverts much of the technology and expertise it acquires from Western companies for seemingly innocuous projects to unsavory ends. In addition to the Iranian regime's clandestine nuclear and ballistic missile programs, these include brutal repression of its domestic political opponents, and a vast smuggling business of electric appliances and gasoline.
At the Pittsburgh G20 Summit in September 2009, President Barack Obama, then-British Prime Minister Gordon Brown and French President Nicolas Sarkozy exposed a new Iranian underground uranium enrichment plant near Qom. Imagine the embarrassment for Wirth and Herrenknecht, two German companies that had supplied Ghorb and one of its subsidiaries with the tunnel boring machinery necessary to construct the facility. Given Ghorb's dominance of Iran's energy sector, the scores of companies that do business with it risk similar embarrassment or worse. And if these companies feel little shame in doing business with a brutal and dangerous regime, it falls to statesmen to do their job and put these companies to a choice by imposing sanctions that cut them off from lucrative markets in the U.S., Europe, Canada, Australia and elsewhere.
Any company that does business in Iran risks becoming an unwitting accomplice to the IRGC's nefarious activities, tarnishing its reputation in the process. Yet even when companies provide services and technologies that cannot be diverted to illicit projects, partnering with the IRGC entails some complicity with its activities. In June 2006, then-Ghorb deputy head Brigadier General Abdol Reza Abed confirmed in an interview with a local daily that the organization's funds finance various national defense projects, including arming and training Hezbollah.
Predictably, because Iranian businesses do not face genuine competition, they're not genuinely competitive. IRGC companies like Ghorb rely on low-skilled conscripts and uniformed IRGC soldiers as a work force, and the ease with which they win contracts reduces their incentive to reward merit or professionalism. It shows. In spite of Iran's enormous oil and gas reserves, its energy industry is rusting. In the first four years of Ahmadinejad's tenure as Iranian president, foreign direct investment in Iran dropped by 64 percent, as the threat of sanctions poisoned the air and the government replaced competent technocrats with IRGC loyalists.
Iran's energy industry is now in such bad shape that Iranian energy officials predict that the country could become a net importer of oil unless it can secure at least $25 billion annually in new capital investment. Iran's ambitious expansion projects often lag years behind schedule. And both the Iranian people and the Western companies that do business with the regime end up paying the price for the IRGC's cronyism, inefficiency and incompetence.
No matter how you look at it, it's clear that when Ghorb wins, everyone else loses. The Iranian people lose from their government's choice to award important contracts on the basis of political loyalties rather than product quality. International partners lose money and their reputations as they join these projects. And the entire region loses, because the richer the IRGC becomes, the more resources it has to perpetuate Iranian subversion and repression at home and abroad.
The United States, and other western allies, have only just begun designating the IRGC front companies that operate in the Iranian energy sector. Business with the Iranian regime is going to get even riskier.
Mark Dubowitz is executive director of the Foundation for Defense of Democracies and leads its Iran Energy Project. Emanuele Ottolenghi is a senior fellow at FDD based in Brussels and author of the forthcoming book Iran: The Looming Crisis (London, Profile Books: 2010).