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Iranian Sanctions Cause Investment Growth in Georgia

Iranian Sanctions Cause Investment Growth in Georgia

A Potential Red-Faced Moment for US and EU Authorities

Shaun M. Hassett, CAMS, CDDP

A recent Wall Street Journal Article’s opening line reads: “Economic sanctions against Iran have made it increasingly hard for Iranians to do business abroad. But Iranian businessmen are flocking to Georgia, a longtime U.S. ally in the Caucasus region, to pursue profits evaporating in much of the world.”

The WSJ article goes on to document a sharp increase of investment by Iranians in the country of Georgia over the past two years, including investments by sanctioned Iranian energy companies and firms tied to Iran’s elite military unit, the Islamic Revolutionary Guard Corps, according to both Iranian and Georgian officials.

The article also states that Iranian nationals have taken the reins of a private Georgian airline, a major trade bank and a scrap-metal plant, and that Iranian products ranging from roofing materials to sour-cherry jam are pouring into Georgian markets, made more attractive by Iran’s weak currency. Iran’s government itself has purchased Georgian land, according to a disclosure to the media by Iran’s agriculture minister. It will be interesting to see how things develop there, particularly in relation to the Iranian controlled trade bank.

Not surprisingly, U.S. officials have been voicing their growing concerns that Iran is seeking to use Georgia and its financial system to evade mounting international sanctions that are aimed at denying Tehran the ability to produce atomic weapons. The US Government has even sent two delegations from the US Treasury to Georgia to consult with government officials about their concerns.

The following day, the Georgian government reported that it froze approximately 150 bank accounts tied to Iranian businesses and individuals in order to comply with United Nations sanctions that are aimed at curbing Tehran’s nuclear program, according to officials in Tbilisi.

The ongoing growth of investment in Georgia has facilitated a “red-faced moment” for both US and European Authorities, as both the US and EU member countries have been diligently working at fostering their relationships with Georgia over the past several years.  It is not in the US Government’s interest to respond publicly via sabre-rattling.

To be clear, sanctions against Iran are wide sweeping and are having demonstrable effects on the Iranian economy.  It is not surprising that Iran is looking to make investments in other countries in order to partially shelter its economy from the effects of sanctions programs in place.

Enforcement of Iranian Sanctions remains to be a high priority.  Recent penalties of financial institutions support this. Bank of Tokyo Mitsubishi, New York Branch was just fined $250M by the New York Department of Financial Services for processing as many as 28,000 transactions over a five-year period (ending in 2007) that involved several sanctioned countries, including Iran. This is above and beyond the $8.6M assessed by the US Treasury’s Office of Foreign Asset Control (OFAC). Readers may recall that in 2012, the New York Department of Financial Services made its sanctions law claim to fame by assessing a $340M penalty against Standard Chartered Bank, New York Branch which is in addition to a separate penalty of $327M assessed by OFAC. In fact of the USD$3.5B in civil money penalties assessed in 2012 for violation of money-laundering and/or sanctions programs, a majority of the cases include a demonstrable nexus to OFAC Sanctions violations.

Meanwhile the day following the WSJ Article referenced above, Georgia announced that is was freezing the assets of 150 Iranian Bank Accounts.

One thing is for certain: It will be interesting to see how the US Government responds to ongoing developments in Georgia concerning Iranian investments as things progress…

If you have questions concerning sanctions compliance issues, please contact us at:

mailto:shassett@feeinc.com               http://www.feeinc.com

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