Washington DC – The effectiveness of sanctions has been highly debated for decades and is yet to be fully proved or disproved. In the last few weeks, the mere possibility of successfully implementing and monitoring them has also come into question.
On February 15th, Fox News ran a story announcing that the World Bank is potentially violating US sanctions by funneling US taxpayer money into development projects that benefit the energy sector in Iran. Triggering Fox News’s coverage was a letter by Reps. Mark Kirk, R-Ill., and Steven Rothman, D-N.J., to Attorney General Michael Mukasey. According to the report the two Congressmen officially demanded that the Attorney General look carefully into certain actions by the Multilateral Investment Guarantee Agency (MIGA), the World Bank’s political risk insurance program, which reportedly agreed to undersign policies to foreign investors working with the Iranian petrochemical industry.
The facts behind the story broken by Fox News are the following: The World Bank, through MIGA, granted a financial guarantee (in case of the fallout of the project due to political unrest or natural disaster) to a Thai and a Japanese investor that partnered to form a joint venture, the Mehr Petrochemical Company (JV), which is 40% owned by the Iranian Government through the National Petrochemical Company. The joint venture was created for the construction of a HDPE plant in Assaluyeh on the coast of the Persian Gulf about 270 km southeast of Bushehr. It is located next to the South Pars gas field which is jointly shared by Iran and Qatar. The plant is meant to produce polyolefin, including high-density polyethylene (HDPE), which are “low-cost, versatile polymers used in a broad range of applications, from automotive parts to carpets, and from packaging of milk, juice, and laundry detergent to trash bags”, says the MIGA website.
According to Reps. Kirk and Rotham, this World Bank project would be in defiance of the administrative Executive Order 12957 signed by Bill Clinton in 1995 which "explicitly prohibits financing guarantees for the development of Iranian petroleum resources,” the two Congressmen write in their letter to Mukasey. "High density polyethylene is a polyethylene thermoplastic made from petroleum, thereby meeting the definition of a 'petroleum resource.' "
Beyond MIGA
A further look into the World Bank-sponsored activities in Iran reveals that the MIGA-issued guarantee for the Mehr Petrochemical Company is not the only project that could raise issues about compliance with sanction programs targeting the Islamic Republic. Despite the fact that the other recipients of direct Word Bank fund disbursements appear exclusively linked to disaster relief efforts (such as interventions in response to the 2003 earthquake in Bam) and development (water supply and sanitation projects, a primary health care nutrition plan, the repair and modernization of the Teheran sewerage system), two other ventures financed by the International Finance Corporation (IFC), an arm of the World Bank Group, might also prove contentious.
The IFC approved the direct injection of capital funds into two private banks in Iran, Karafarin and Saman, for two different purposes (requiring the disbursement of $2 million and $20 million, respectively). The first project aims at creating a leasing fund through Karafarin Bank, the Karafarin Leasing Company. “The company would focus on medium-term equipment leases. Particular emphasis would be given to servicing the needs of small and medium enterprises (SMEs),” the IFC website says. The second project instead provides credit for $10 million each to Karafarin and Saman Bank with the purpose of supporting the “extension of finance to previously underserved groups, improved credit allocation, provision of new products & services, complement to the government’s industry reform efforts.”
Information gathered from material available in the public domain affords a few interesting insights into the activities of these two banks, and especially Karafarin.
Karafarin Bank is listed as a partner/shareholder to an Iranian engineering company, Absolut Co., that, among other things, works with the petrochemical industry on projects such as an Ammonia and Urea Plant in Kermanshah, a region in the west of Iran. According to the bulletin of Iran’s National Petrochemical Company, the complex is designed to process 65,000 Nm3 per hour of natural gas to produce 1,200 tonnes of ammonia and 2,000 tonnes of urea granulate per day.
Also, according to the website Kompass, an online directory of businesses worldwide, Karafarin Bank is one of three supporting banks for Nestle’-Iran, the other two being Tejarat and most significantly Melli, which was directly designated by the United States as connected to terrorist activities in October 2007. Similarly, Karafarin is listed in the 2004 annual report of the Bahman Investment Company as having taken in charge, as collateral, on behalf of Melli Bank PLC of London and in partnership with Melli Iran’s subsidiary, shares of Bahaman Group and the industrial group Iran Khodro that works in the automotive sector.
