Thursday 19 May 2016 4:59 am

Five reasons why investing in Iran is too great a risk for British firms

This morning, in a giant ballroom in one of London’s most luxurious hotels, executives from leading corporations will gather for a major investment conference. In some ways, the conference will be like dozens that take place across London each year. However, this one has an unusual and ominous twist: it is organised precisely to encourage British and European financiers to invest heavily in Iran.

According to the conference marketing materials, the event, co-sponsored by the Central Bank of the Islamic Republic of Iran, is designed to help facilitate the re-integration of the country into the global business community. Everything about the event oozes hope for respectability, but it cannot gloss over a simple truth. The conference – whose lead sponsors include entities whose property remains blocked in the United States – is encouraging investment in the world’s leading state sponsor of terrorism, in a country that brutally represses its own people, and one that simply cannot be trusted to play by the rules of the global financial system.

Companies contemplating rolling the dice with the Ayatollah should keep in mind five broad sets of business risk: investing in the Islamic Revolutionary Guard Corps (IRGC); revocation of the Iran nuclear deal; local corruption and criminality; dangers to the safety of staff and their families; and massive reputational risk. But the prospect of breaching the laws of the leading economic powers – most obviously the United States – is perhaps the most urgent risk for British businesses considering work in Iran.

Iran is a largely unknown entity for many businesses, and they could inadvertently find themselves working with entities that are secretly managed or owned by a hugely powerful terrorist organisation – the IRGC. With more than 100,000 members, the IRGC is primarily a military organisation, but it exerts huge economic clout. It controls key strategic industries – like Iran’s energy sector – and has a major role in the black market. Working with the IRGC would be illegal but also difficult to guard against because the group operates through numerous front companies.

Businesses might also find themselves in a difficult legal position were far-reaching sanctions to be reintroduced on Iran. The international nuclear deal agreed to put limits on what Iran can do in the nuclear field. Given Tehran’s past record, it is reasonable to assume that there is a high risk that it will flout this agreement and continue to pursue the development of nuclear weapons. Should this happen, previously lifted sanctions would be reinstated, and international business would quickly flee.

Read more: Don’t bank on global finance returning to Iran

The risk of corruption and criminality is perhaps an obvious one but it bears repeating. The US government considers the entire Iranian financial sector to be a primary money laundering and terror financing concern. That’s not to mention that, in Transparency International’s 2015 Corruption Perceptions Index, Iran ranks 130 out of 168 countries.

In Iran, a country where the security apparatus is large, active, and outside of any conventional control, the risk of hacking and cyber-attacks remains real. Iran is also an aggressive and unstable country, and this compounds the risks. The insurance sector is understandably nervous about underwriting businesses’ activities in such a state.

Then there is the risk to the actual staff who work for the companies that will be investing. The Iranian legal system does not respect human rights and due process. Foreign nationals are at risk of arbitrary arrest and Iranian expatriates are particularly vulnerable. Many companies would look towards expatriate staff to build their operations in Iran – or to recruit new staff – but this would not be a safe and viable model.

Finally, there is a clear reputational risk. This reputational risk should make businesses think hard about self-preservation. The British business community wants to do the right thing, and with that in mind, they must consider some basic truths about the state of Iran. Despite today’s soothing messages, Iran remains the world’s leading state sponsor of terrorism, supporting groups like Hezbollah and Hamas and many others. Furthermore, it is a deeply repressive regime that routinely abuses its own population. Homosexuality is not only illegal but consensual sexual relations between two men are punishable by death. The Iranian state is so keen on the death penalty that it executes more people per capita than any other country in the world.

For Iran to be integrated into the global business community, it must undertake fundamental reforms to attract business; commit itself to peaceful coexistence with its neighbours and those in the West; treat its own citizens with dignity; and put in place the fundamental building blocks of a free market economy. Those delegates walking into today’s conference should keep this in mind as they listen to people talk about investing in Iran as if it were like investing in Western Europe.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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