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U.S. Businesses Trade with Iran Despite Sanctions

Aired May 29, 2003 - 19:15   ET


Turning to a story of another hot spot we've been following, the Bush administration appears to be giving Iran more time to change its ways. There has been, of course, increasing speculation in recent days that Iran could be the next U.S. target for regime change. But now U.S. officials tell CNN that a planned high-level policy meeting on Iran has been postponed and indefinitely.

State Department correspondent Andrea Koppel has the story from Washington.


ANDREA KOPPEL, CNN CORRESPONDENT (voice-over): The war in Iraq had hardly ended before the Bush administration put Iran on notice, warning against meddling in post-Saddam Iraq.

DONALD RUMSFELD, DEFENSE SECRETARY: The efforts to try to remake Iraq in Iran's image will be aggressively put down.

KOPPEL: Demanding an end to its alleged nuclear weapons program.

COLIN POWELL, SECRETARY OF STATE: We made it clear over the years that we disapprove of their efforts to develop a nuclear capability.

KOPPEL: Accusing Iran of harboring senior al Qaeda operatives.

ARI FLEISCHER, WHITE HOUSE SPOKESMAN: The steps that the Iranians claim to have taken in terms of capturing al Qaeda are insufficient.

KOPPEL: Allegations Iran denies.

UNIDENTIFIED MALE: There is no way that Iranians would support al Qaeda because they have been fighting with them before even Americans engaged with them.

KOPPEL: But beyond a shared frustration over Iran's alleged actions, no consensus within the president's cabinet as to how to respond.

Officials say the Pentagon is pushing for a harder line, recommending the U.S. remove the People's Mujihadeen, an Iranian opposition group, from a U.S. terrorism list in order to use the group as a vehicle for regime change in Iran. Others at the State Department are urging patience, saying it's too soon to write off Iran's leaders. A senior-level meeting at the White House on Iran policy scheduled for this week postponed indefinitely, State Department officials tell CNN, in order to, among other things, give CIA analysts more time to analyze intelligence and to give Iran time to signal its willingness to cooperate.

POWELL: Our policies are well known, and I'm not aware of any changes in policy.

KOPPEL: But in the wake of the Riyadh bombings private meetings between U.S. and Iranian officials have been temporarily suspended over U.S. suspicions Iran is harboring the suspected al Qaeda masterminds.


KOPPEL: For the time being State Department officials tell CNN the ball is in Iran's court, but they add that if the U.S. concludes that Iran has abandoned its campaign against the war in terrorism, then in fact even Secretary Powell, they say, could be persuaded that there is a justification for toughening U.S. policy on Iran -- Anderson.

COOPER: Andrea Koppel at the State Department. Thanks.

Despite continuing U.S. concerns about Iran, some subsidiaries of big U.S. companies continue doing business there. You might not have known that. CNN financial correspondent Chris Huntington has details.


GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: States like these and their terrorist allies constitute an axis of evil.

CHRIS HUNTINGTON, CNN CORRESPONDENT (voice-over): Iran is in the president's axis of evil because it is widely considered to be the top state sponsor of terrorism in the world.

ROGER ROBINSON, CONFLICT SECURITIES ADVISORY GROUP: Iran created Hezbollah, which is arguably the world's most dangerous terrorist organization. Al Qaeda leaders went from Afghanistan to Iran when we attacked Afghanistan. Iran's the mother of all terrorism.

HUNTINGTON: That is why the United States has imposed trade sanctions against Iran since 1980. Except for importing carpets, caviar, dried fruits, or nuts, it is illegal for any U.S. citizen or company to do business in Iran.

Yet dozens of U.S. corporations have legal operations there. This is Halliburton's office in Tehran. A company spokeswoman tells CNN the subsidiary, called Halliburton Products and Services, helps build drilling rigs in Iran's southern oil fields.

But Halliburton isn't alone. According to one analyst, there are more than 30 U.S. corporations doing business in Iran through foreign subsidiaries or related companies.

MICHAEL LEDEEN, AMERICAN ENTERPRISE INSTITUTE: The business of subsidiaries of U.S. firms being able to maneuver around the U.S. sanctions, even though they're legal, and I think that that's starting to rub people the wrong way.

HUNTINGTON: Halliburton's main competitors in the oil field business, Baker Hughes, Smith International, and Schlumberger, have foreign operations in Iran, as well. There's a Swiss-owned Caterpillar dealership in Tehran and General Electric's Canadian unit is in Iran working on a huge hydroelectric project. All of these companies tell CNN they are in full compliance with U.S. trade laws.

Michael Ledeen has studied terrorism in Iran for more than 20 years, and he believes companies doing business there, particularly those working in Iran's oil industry, indirectly help fund terrorism.

LEDEEN: The oil companies are a wholly owned subsidiary of the government. The government's the primary sponsor of terrorism. Plus they have separate organizations that are used to funnel oil profits and other profits into the terror network.

HUNTINGTON: But according to the sanctions, as long as a U.S. company does not own or manage its foreign subsidiary in Iran it's all perfectly legal. In Halliburton's case, its subsidiary in Iran is registered in the Cayman Islands and headquartered in Dubai, with no Americans on staff.

CHRISTOPHER MYERS, LAWYER: If the activities were carried out completely independently of the U.S. operations as part of an ongoing business practices of the foreign subsidiary, that would be all right. If they set that company up offshore with the express purpose of avoiding their obligations under U.S. law, that could be illegal.

HUNTINGTON: Enforcing U.S. trade sanctions is up to the Treasury Department's Office of Foreign Asset Control, or OFAC. And the rules on Iran are posted clearly on OFAC's Web site.

OFAC director Richard Newcomb, who declined to talk on camera, tells CNN that his staff is ready to crack down on any U.S. citizen or company that violates the sanctions.

But penalties for violating the Iran sanctions tend to be modest. Halliburton paid just $15,000 in 1997 to settle a Commerce Department claim that it was improperly shipping oil field equipment to Iran. At the time Vice President Dick Cheney had just come on as CEO at Halliburton, and in that role he was an outspoken critic of U.S. sanctions against Iran.

When CNN asked this week about the Bush administration's policy on U.S. corporate interests in Iran, the vice president's office had no comment and directed us back to OFAC.

But pressure on U.S. companies with ties to Iran is building from institutional shareholders. Pennsylvania now requires its state pension funds to monitor investments for exposure to sponsors of terrorism. And New York City controller William Thompson, who oversees the pension funds for New York City's police force and firefighters, has forced Halliburton and Conoco Phillips to review their business dealings in Iran and Syria.

WILLIAM THOMPSON JR., NYC COMPTROLLER: Those companies, those United States-based companies, have to be really concerned. And if I were in their shoes, I'd take a fast look at the work that I'm doing in these nations. And in the end, I mean, most of them will make the claim it is not a large piece of their business. Well, since it isn't, get out and get out now.

HUNTINGTON: But Thompson failed with General Electric. GE's board convinced shareholders that a review of its business in Iran would be unnecessary because, quote, "We are compliant with U.S. law and regulations which recognize that foreign subsidiaries of U.S. companies can and will do business in Iran."

(on camera) For decades U.S. economic interests in Iran have been at odds with U.S. foreign policy there, particularly when oil has been involved. For now U.S. corporations have all the legal insulation they need to carry on doing business as usual. And the Bush administration, even at a time of heightened terror alerts, shows no sign of trying to change that.

Chris Huntington, CNN, New York.


COOPER: So should the U.S. crack down on companies doing business with Iran or even through their subsidiaries or absent any hostilities with Iran, should they be permitted to continue?

Joining us from Washington to discuss that question are Stephen Moore of the Cato Institute and Peter Brooks of the Heritage Foundation. Gentlemen, thanks for being with us.

Stephen, I want to start with you. Representative Brad Sherman, a Democrat, is now sponsor a bill that would tighten trade sanctions against any companies doing business in Iran.

You oppose that in general. Why?

STEPHEN MOORE, CATO INSTITUTE: Well, in general I feel it's always a mistake to try to use trade as a foreign policy weapon. In fact, free trade is something that actually tends to improve relations between countries.

And in this case when you're talking about the primary export that Iran has, which of course is oil, it's not going to make any difference whether these American companies are there or not because the truth is the Iranians can sell this oil on the international marketplace. It won't have any effect on the world price of oil, whether we're buying the oil from Iran or we're buying it from somewhere else.

COOPER: All right... MOORE: So I don't see any benefit from us pulling out of being involved in the oil business there in Iran.

COOPER: All right. Peter, it's not a new argument. You know the argument. Other companies will just fill the gap if these subsidiaries of U.S. corporations leave Iran. Should the trade embargo be tightened?

PETER BROOKS, HERITAGE FOUNDATION: I think it should be. This report that you have, I hope, is fully reviewed by the U.S. government. And it is troubling considering what we're finding out about Iran.

I mean, the State Department has said Iran is the most active state sponsor of terrorism in the world today, and its most recent revelations about al Qaeda being there in Saudi Arabia, or in Iran, involved in the Saudi Arabia bombings is terribly troubling.

I'm very concerned that some of your folks have said in the prepackaged piece that we would be -- since there's so much state ownership in Iran, that every dollar, American dollar that goes to Iran will be lining the pockets of the regime and which can be used for terrorism and the pursuit of weapons of mass destruction.

COOPER: You bring up a good point. I want to put it to Stephen. Stephen, these are not mom-and-pop businesses that U.S. money would be supporting. These subsidiaries, basically the money, if it's oil companies, if it's working oil rigs, that money goes to the Iranian government, and you know president Bush has said they are part of the axis of evil.

Why should that go on?

MOORE: That's true. I agree with Peter that this is the country that is the mother lode of harboring terrorists. So I think we have to be very cognizant of that.

My only point is I'm not sure we achieve anything from a foreign policy or a trade perspective by essentially telling American companies they can't do business there. Because the truth is, whether it's Halliburton or a British company or a French company, the Iranians are going to have this oil on the international marketplace.

So I'm just saying that there have got to be better ways of punishing the Iranians than what is really just a symbolic measure that won't hurt the Iranian government.

BROOKS: Well, Anderson, I think there's another issue here. First of all, the economic climate in Iran is very poor. There's only $38 million in foreign direct investment there, which shows you, because the Italians and the French and the Germans and the Japanese can't invest there they're not investing there. The per capita GDP is only $1,500 which makes it third world-like.

So what we probably should do, instead of lifting our own sanctions is multilateralize the sanctions and start pressuring Iran on weapons of mass destruction and terrorism and make others that do have full economic relations with them base their relationship with Tehran on their behavior, such as terrorism and weapons of mass destruction.

So I don't think we should drop ours. I think we should get others to come along with us. Remember, we're all in this war on terror.

COOPER: Stephen, final thought.

MOORE: Well, I just think that if you look throughout the history of trade embargoes and so on to try to achieve foreign policy objectives they almost never work. Look what's happened in Cuba.

So I agree with Peter that this is a situation we have to very closely monitor, we have to keep a very close eye on Iran, but I'm not sure that these trade...

COOPER: And you're saying you disagree with Peter saying getting others to come on board is not the way to go?

MOORE: I'm not sure it's going to work. I mean, we're talking about oil rigs that virtually any company -- or country can go in and make profits off of those oil rigs. I don't think when you're talking about a commodity like oil it's going to make any difference whether the United States is doing business there or not.

COOPER: All right. We're going to have to leave it there. Stephen Moore, Peter Brooks. Appreciate you joining us. It was a good discussion.


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