Wake up!

American grassroots efforts and politicians prod a somnolent US government to put its money where its mouth is in preventing a nuclear Iran.

By HILARY LEILA KRIEGER
April 26, 2007 12:16
american hostages iran 298

american hostages iran 2. (photo credit: )

 
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If there's one thing Americans can agree on, it's that Ahmadinejad's nuclear program must be stopped. Grassroots efforts and a flurry of bipartisan legislative initiatives are currently trying to squeeze foreign investment in Iran, and with it the Iranian economy. Debra Burlingame was still mourning the loss of her parents when she received news of her oldest brother's death. As she watched the smoldering wreckage of 9/11 on her TV screen in California, she was informed that Charles "Chic" Burlingame III had been piloting American Airlines Flight 77 that had been hijacked and crashed into the Pentagon. Pushed by personal grief and patriotic duty, Burlingame wanted to aid her country. "It was a really frustrating feeling. Everyone wanted to do something to help, and there was nothing I could do from a distance," she recalls. But then Burlingame reflected on a letter - the last - she had recently received from her brother. It had accompanied a check for her share of her parents' estate and contained a direction to "put it to good use, and remember it's a gift from Mom and Dad." "I had that check sitting on my desk. I immediately picked up the phone and called my broker," she recounts. Burlingame put every cent in aeronautic and defense companies, believing they would need bolstering in a time of war. More importantly, she felt the market needed bolstering, as the media were rife with speculation on the dire effect the terror attacks would have on Wall Street. "I wasn't trying to make money. I wanted to help contribute that day to forestalling a precipitous drop in the market," she explains. "I thought it was the most patriotic thing I could do." Whatever comfort Burlingame took from her actions, it was short-lived. She later learned that the companies she had invested in hadn't been screened for ties to countries listed by the State Department as sponsors of terror: Iran, Syria, Sudan, North Korea and Cuba. "I subsequently found out that that fund was a terror-sponsoring fund. I can't tell you how sick that made me feel," she says. Burlingame is not the only one distressed at the thought of American money unwittingly helping the very regimes now threatening the country. She has joined a campaign urging citizens to divest from companies doing business in these places, particularly Iran - and urging Wall Street to screen for such economic ties. These private initiatives dovetail with growing activity by state governments to divest their holdings and pension funds from such companies. Both are supported in pending legislation by congressmen equally distressed that a US administration that talks tough on Iran hasn't done all it could to put its money where its mouth is. These efforts are filling what some perceive as a lack of aggressive administration leadership on the issue. The US could be doing much more under existing laws to hurt Iran financially, such as sanctioning foreign companies investing in its energy sector. Proponents want to know why the government isn't making more use of such options, even as it jawbones Europe and Asia to beg off deals with Iran and stop economic incentives to the Islamic Republic. If Congress and activists like Burlingame have their way, the federal government will no longer have a choice. BUSH ADMINISTRATION officials are the first ones to point to financial screw-tightening as a leading, and effective, strategy to pressure Iran to comply with international demands regarding its nuclear program. The US has in fact stepped up such efforts as the nuclear issue has intensified and says it would like to do more - and see more done - in this vein. "I would say that we have the Iranians somewhere on the defensive now with the sanctions," Undersecretary of State for Political Affairs Nicholas Burns said earlier this month. "Our strategy would be to try to apply multiple points of pressure against the Iranians to drive up the cost to them on their current behavior so that they'll have a greater incentive to negotiate." America has had restrictions on business with Iran since the hostage crisis in 1979, which resulted in the breaking of US-Iranian ties, including financial ones. Various prohibitions on dealings with terror-sponsoring states have limited aid, arms, technological transfers and a host of similar activities. The limitations were significantly expanded and codified when president Bill Clinton banned US trade with and investment in Iran by executive order in 1995. But such unilateral blocks on American businesses have had a limited - or at least unclear - impact. "Some experts believe that US sanctions have slowed Iran's economy, forcing it to curb spending on weapons purchases, but others believe that because the sanctions are not multilateral, the US sanctions have had only marginal effect," the nonpartisan Congressional Research Service wrote in a recent report. Whatever the economic cost might be, Iran certainly has still been able to funnel hundreds of millions of dollars to Hizbullah and Hamas, as well as fund a nuclear program it has shown no sign of abandoning, despite international efforts. And while American economic activity in Iran is restricted - though a few companies make use of a loophole allowing foreign subsidiaries to function there, and trade in rugs, pistachios and caviar was allowed under the Clinton administration as a goodwill gesture - European and Asian business is booming. According to congressional figures, there has been more than $126 billion of foreign investment in Iran since 1999. In 2005, according to the State Department, $22b. in export credits or loan guarantees were made available to Iran by OECD credits. AS THE threat of a nuclear Iran looms ever closer, the US has expanded its arsenal of financial weapons to assault the Iranian economy. The State Department has shepherded through the UN Security Council sanctions preventing the export of arms to Iran and freezing the assets of organizations and individuals involved in nuclear and missile efforts, as well as holding discussions with many of the major companies negotiating business deals in Iran urging them to reconsider. Meanwhile the Treasury, using expanded powers under a 2005 executive order as part of a new strategy for blocking Iran, in the last several months has approached more than 40 banks around the world and made the case for them not to do business with Iran on financial grounds. Stuart Levey, the undersecretary of treasury for terrorism and financial intelligence, a position created in 2004, has been holding these discussions. At a trade conference in Dubai in March, he outlined what he tells the banks. "Iran under its current regime is an example of a country where there are heightened risks to investing," he said. "The regime's dogged pursuit of a nuclear program in defiance of UN Security Council resolutions and its insistence on arming and supporting terrorist groups like Hizbullah are threatening the stability of the region and the international community. "These policies have implications for your businesses - especially when that business deals with government enterprises. I am sure you would agree that your companies want to take every precaution to avoid being involved with terrorism or other dangerous activities." The risks, he pointed out, are a generally unstable business climate, compounded by Iran's penchant for deceptive practices - it often asks to have its name removed from transactions, for instance - the possibility of running afoul of American antiterror laws and, increasingly, the threat of UN sanctions. These concerns have an effect on the Islamic Republic's business partners, as he told the Dubai conference: "As the evidence of Iran's deceptive practices has mounted, financial institutions and other companies worldwide have begun to reevaluate their business relationships with Iran. Many leading financial institutions have either scaled back dramatically or even terminated their Iran-related business entirely." He stressed that "they have done so of their own accord, many concluding that they did not wish to be the banker for a regime that deliberately conceals the nature of its business." His list of examples includes big-name financial institutions, such as Swiss bank UBS, that have announced an end to dealings with Iran, while other foreign financial institutions have refused to issue new letters of credit to Iranian businesses and the OECD decided in early 2006 to raise Iran's risk rating. "It's been incredibly effective," says Michael Jacobson, who served under Levey until he left the Treasury in March. "To governments, when you're talking about these issues, it's foreign policy - political calculations enter into it, what they think of the US factors into it. When you're talking to financial institutions, it's a business decision. When you're able to convince them it's a risky business venture, that has an impact." AND NOT just on international corporations, but on Iran. "The sanctions and the international efforts against Iran have weakened the government of [President Mahmoud] Ahmadinejad and put him on the defensive in his own political system," Burns told a hearing of the Senate Committee on Banking, Housing and Urban Affairs in March, noting an "extraordinary episode when the newspaper controlled by the supreme leader, [Ayatollah Ali] Khameini, criticized Ahmadinejad about a month ago for his handling of the nuclear issue." In another instance, Iran's Oil Ministry admitted it would have problems supplying oil if current international limitations continue. These statements, administration officials say, have heightened an internal debate in Iran over the wisdom of intransigence on the nuclear issue. But shaking up Iran isn't enough; the idea is to stop a nuclear weapons program. So far the Islamic Republic has shown no inclination to halt uranium enrichment as the Security Council resolution demands - it actually increased production after receiving a UN ultimatum to stop - let alone cry economic uncle. "There are definitely indications that it's hurting Iran. The question is will that actually change its behavior? And that's the part that's really hard to tell," acknowledges Jacobson, now an analyst with the Washington Institute for Near East Policy. Many congressmen don't want to take any chances with the answer to that. Hawks warn about time running out before Iran has nuclear capabilities, and doves want to stop Iran without resorting to military action - and in the middle are members espousing both views. As Sen. Evan Bayh (D-Indiana) put it at the banking committee hearing: "The clock is ticking. We don't know with precision when Iran will reach the point of no return with regard to a nuclear capability. The effort here is to try to avoid the necessity to resort to military force. And so, you know, we want to be aggressive sooner rather than later when it comes to this situation." That desire has led to a flurry of bipartisan legislative initiatives to squeeze foreign investment in Iran, and with it the Iranian economy. "Iran legislation in some form is going to pass both bodies and get to the president" declares Rep. Brad Sherman (D-California). "I don't know how strong it will be, but the atmosphere here is such that we're going to make a real effort to get something done." Sherman is drafting legislation that would remove tax penalties for those who choose to sell their stocks in companies doing business with Iran and reinvest the money elsewhere. Others would force federal pension funds to divest from businesses with ties to Iran, remove legal barriers to certain state divestment activity and limit sales of American airplane parts needed by Iran. But the broadest is the Iran counter-proliferation act, sponsored by House Foreign Affairs Committee chairman Tom Lantos (D-California) and Sen. Gordon Smith (R-Oregon). Under their bill, the Iran Revolutionary Guard Corps, which controls about a third of the country's industry, would be added to the terror list; the US would be forbidden to enter into nuclear deals with Russia as long as it has nuclear relationships with Iran; a ban on future free trade agreements with countries doing business with Iran would be called for; assistance to the World Bank would be reduced in proportion to its aid to Iran; and more money would be allocated for the Treasury's efforts and democracy promotion. At its core, however, it strengthens the Iran Sanctions Act of 1996 (known as the Iran and Libya Sanctions Act until Libya gave up its nuclear weapons program and was removed from the State Department's terror list). While the US government had reined in American business with Iran, this act gave the US government the authority to sanction foreign companies investing more than $20 million in Iran's energy sector, which accounts for about 80 percent of its exports. In its decade on the books, however, the White House has never seriously implemented the sanctions, using the waiver it has discretion to apply on offenders. The House version repeals that waiver. TESTIFYING BEFORE congressional committees has taken on a ritualistic character for Burns. At each meeting, he sits at microphone facing the fanned out tribunal of members, reads a repetitive summary about policy on Iran and faces a barrage of questions which also tend to repeat themselves. Among the regular queries was the one posed by Ileana Ros-Lehtinen (R-Florida) during a House Foreign Affairs Committee meeting in early March, which touched on Lantos's legislation. "Why have we not implemented the sanctions that are available to us?" she asked. "We tell the international community, you don't have to wait for the UN Security Council to act; you can impose sanctions. Yet we don't do that ourselves, even though we've passed this law in various ways in different years." Burns responded, as usual, by saying, "Rather than focus the full attention of our national weight from the Congress and the administration on our allies, we'd rather focus it on Iran." At the banking hearing, at which he said he thought the Iran Sanctions Act had been applied just once, Burns explained, "The problem is, as you try to build a diplomatic coalition to oppose the Iranians, we want the pressure of the sanctions to be on Iran itself, and not so much on our allies, because that would disrupt and maybe even disassemble our coalitions... If we turn around and sanction them but not the Iranians, they might be less willing to support us on some of these diplomatic efforts, like denying Iran a nuclear weapon." Levey, who appeared with Burns before the committee, confronted a similar question from Sen. Robert Menendez: (D-NJ): "You mean we'll get weaker sanctions than the ones that we have right now?" Levey replied, "I think the theory would be we wouldn't get any sanctions at the United Nations, potentially, without having a coalition." Some suggest less noble reasons for the administration's reluctance to impose sanctions, noting that US companies such as Halliburton, of which Vice President Dick Cheney used to be CEO, have had subsidiary operations in Iran. Others point to different economic considerations, such as the interests of free trade. National Trade Council president Bill Reinsch, who opposes the pending sanctions legislation, says it's appropriate for the administration to tell American companies which countries they can or can't do business with. But, he continues, "This is about the US government telling French, German, Italian, Chinese companies how to behave. The issue is the extent to which you have the right to be extraterritorial." He warns that slapping sanctions on companies that do business with Iran could lead their host countries to file complaints against the US at the World Trade Organization, the specter of which was first raised in the mid-'90s when the Iran Sanctions Act was first passed. That means the US will "most likely be looking [at] a trade crisis," he concluded. BUT PATRICK CLAWSON, an expert on Iran and the economy at the Washington Institute for Near East Policy, said that the reaction of Europeans might be different now than it was when the Iran Sanctions Act was introduced. If at that time the response was "outrage" at the US overstepping its bounds, he said that it's "a very different environment" now. "This time around, the attitude of many European governments in part seems to be that the Iranians are asking for it. The United States might be being a little bit pushy, but it does have a point here." There's also the issue of global economic fallout and touchy subjects like the oil market. Without foreign firms bringing in the technology Iran needs to fully exploit its oil resources, less oil can be expected from Iranian fields. That could impact on already fragile oil prices. "There's a risk that prices could jump," acknowledges Clawson. But the impact of decreased production in Iran could be mitigated by the actions of other oil producers, and he notes that "it appears that so far Saudi Arabia is interested and prepared to make the necessary investments." To the fear that multinationals could hurt the American market by choosing to opt out of the American economy in favor of business with Iran, Clawson simply says, "I would not worry about that." He agrees that "it's not in the US's interest to [mix] trade and politics... one doesn't want to go down this road if one doesn't have to." But "the trade-off is worth it in the case of Iran." Binyamin Netanyahu, who came to town last month in part to stump for an Iranian divestment campaign, argues the administration should be using all the tools at its disposal. Indeed, all the reasoned explanations offered by Burns et al. haven't satisfied critics, who still press for more aggressive action. Bayh told Levey at the banking hearing: "I understand the possible financial backlash. But there are greater stakes in this dialogue than that." "Being nice to the Europeans because we don't want to alienate them and jeopardize cooperation with them is something we could have entertained 10 years ago. But we don't have a lot of time," Sherman contends. "Going slow along with the Europeans is going to lead us to a situation where Iran's nuclear capabilities will be an accomplished fact. We'll have good European relations and a nuclear Iran. If we have to ruffle a few European feathers to get action on Iran, we should be willing to live with that." He also isn't convinced by the argument that future UN resolutions could be sabotaged. "Given that they came three and one half years after the extent of Iran's nuclear program came to light, the last round of UN sanctions is laughable," he says. "It's not enough to make these guys change their mind." Burns, in his Senate banking committee testimony, did acknowledge that the threat of stronger sanctions legislation gives the government greater leverage when it talks to foreign companies contemplating deals with Iran. "We do have an opportunity here to try to convince these companies not to go forward. And frankly, we also tell them that there is the Iran Sanctions Act, that the Congress is considering modifications in it," he said. "And so the specter of that is useful to the administration." BURLINGAME WANTS to use the threat of the American consumer to make the same point. She also wants the government to be taking action and is incensed that the US wouldn't be using every option it has to cut off money to Iran. "Every tool that we can use, like these economic tools, we're foolish not to use them, absolutely foolish," she says. Burlingame is part of the "terror-free" investment campaign. The idea is that individuals will divest from companies doing business with terror-sponsoring states, or pressure their investment managers to offer funds free of these businesses. A second arm of the campaign is trying to convince major investment vehicles, such as pension funds and university endowments, to screen out companies doing business with these countries. The effort is loosely modeled on the South Africa divestment campaign of the 1980s and has a coalition of supporters ranging from the Center for Security Policy, a neoconservative think tank leading the Divest Terror Initiative, to the American Israel Public Affairs Committee to a growing number of state legislatures and treasurers. Almost 30 states have already passed or are considering divestment legislation, most of which focuses on Sudan. The bills are varied, however, with some only calling on retirement boards to consider the issue of state sponsors of terror while others mandate screening. Bills like that introduced in Ohio in March, which would require the state to get rid of investments in companies doing business in Iran, are being held up as an example of the kind of comprehensive legislation desired. According to a CSP study, on average between 15% and 23% of major public pension funds - representing more than $1b. in stock alone - are invested in businesses doing business with Iran. CSP's divestterror.org has compiled a list of the "dirty dozen" top companies which do business in terror-sponsoring states. The vast majority are European and they include German communications giant Siemens AG, France's Total SA oil and gas company and the South Korean automaker Hyundai. But purging funds of all of the more than 400 publicly traded companies that do business in terror-sponsoring states is no simple matter. The Conflict Securities Advisory Group, a data-crunching operation established by Roger Robinson, maintains a subscribers-only list of businesses with ties to terror-sponsoring states, which it updates by scouring reams of information gleaned from market reports, Securities Exchange Commission filings, the media and more. "It took about 10 of us [working] seven days a week for seven months to construct the initial database," according to Robinson. Based on CSAG's research, the Roosevelt Investment Group became the first investment house to offer a mutual fund free of companies with ties to terror-sponsoring nations. In addition, states such as Missouri that have wanted to purge their pension funds without waiting for a legislative mandate have used CSAG's services to do so. Reinsch of the National Trade Council says innocent investors have a lot to lose. He says that an Illinois effort to sell off certain holdings would have meant a 50% reduction in the pension fund's yield. He quips, "A whole bunch of retired police officers and firemen would have gotten hosed." BUT MISSOURI State Treasurer Sarah Steelman maintains that it's possible to make investment funds "terror-free" without hurting the bottom line, using the performance of her state's holdings as an example. "From a financial standpoint, the results have been impressive," she says, reporting that the rate of return actually went up in the new fund she established. In fact, Robinson founded CSAG because he sensed a market opportunity. He opened shop once the SEC identified, in early 2001, a new type of shareholder risk - that posed by companies doing business in terror-sponsoring states. The SEC has since opened a Global Security Risk office, which sets disclosure requirements for companies with activities in these countries. A new class of risk to share values - stemming from possible infractions of American law, bad publicity, poor government safeguards and lawsuit liability should companies be found complicit in terror attacks - meant someone needed to tell investors how to steer clear of it. "We take the client through becoming Iran free," says Robinson, who notes that that can mean different things to different people, with variables such as the level of involvement a company has with the country and the volume or type of its business there. In virtually every case of Iran divestment to date, however, companies providing humanitarian goods such as food and medicine haven't been targeted. And those companies that have pulled the plug on their Iran business cite unwanted risk as the reason. General Electric, for instance, decided in February 2005 that its subsidiaries wouldn't take on any new contracts in Iran, which means all of its business dealings there will end in early 2008 when the current contracts run out. "We are getting out because of uncertainty related to future conditions in Iran, both from a business standpoint and a political standpoint," said GE spokesman Gary Sheffer. The decision was made soon after a 60 Minutes piece on the company's practices there and that of other American businesses, including Halliburton, was aired, though Sheffer said GE had been reviewing its involvement in Iran prior to the broadcast. Though GE is not the only multinational company to quit Iran, many observers doubt the ability of divestment efforts to succeed. "It was easier to build the international consensus against South Africa," suggests one former government official who tracks economic policy. "With Iran, there are a lot of countries that are skeptical about the danger Iran poses - and Iran is a good business partner." Veteran Sudan activist Eric Reeves also says that the Iran issue lacks one of the core components that has energized the Sudan campaign: a compelling emotional issue - with equally compelling visuals - that fires up a coalition of activists. "If you're going to galvanize political constituencies, you need the imagery that Darfur provides in ghastly abundance," argues Reeves, a professor at Smith College. He adds that Sudan divestment tapped into existing networks of activists, such as the human rights organizations and faith-based groups. "People talk about it [Iran], but where are you going to get the grassroots support for this? Without grassroots, it won't work. You need people who are going to make noise continually. You simply have to have people out there, sharing the outrage." IT MIGHT BE the case that most of the current divestment backers are part of the establishment or right-wing in their political orientation, but that doesn't keep Jennifer Laszlo Mizrahi of The Israel Project from insisting that grassroots activists from across the political spectrum are out there. For one thing, she has poll results showing that Americans overwhelmingly oppose investing in companies with ties to terror-sponsoring states. In one question, 86% of respondents said they were unwilling to do business with such companies. In another, 80% said they would choose a slightly lower rate of return on their investments if they could be sure they were terror-free. The poll of 800 American adults from across political and geographic lines was conducted in March by Luntz Maslasky Strategic Research with a 3.5% margin of error. Mizrahi says a wide coalition of American can be tapped for divestment, since Iran is an issue everyone wants to do something about, and do it peacefully. That point was driven home to her at a recent focus group she held with self-described liberals. "Every person in the room saw Iran as a threat to America. Every person in the room was looking for a non-military solution. So this is a natural, unifying way to bring those [issues] together," she says. She adds that emotive pictures are unnecessary. "The Iran issue is far more compelling that the Darfur issue" to Americans, she offers, saying that the latter needs pictures for advertisements to get people's attention. "We don't have to spend a dime to communicate the threat of Iran to the American people, because Iran keeps doing things to communicate that itself," she says. And if the divestment campaigners do want an image, they have at least one photograph to use: the 9/11 hijackers crashing into the Twin Towers. Though Burlingame has heard criticism that these countries targeted by divestment are being wrongly linked with September 11, she dismisses it. "The purpose of this divesting from terror project isn't to punish countries that were involved in 9/11. The purpose is to prevent another 9/11."

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