As the Obama Administration moves closer to winning tougher U.N. sanctions against Iran, the loopholes allowing U.S. companies to do business with the Islamic regime may be closing. Honeywell International (HON) and its chief executive officer, David M. Cote, are already feeling the heat.
On May 18, Secretary of State Hillary Clinton announced that longtime holdouts China and Russia had agreed to back new Security Council-imposed sanctions, including ship inspections and an arms embargo. Congress is also close to completing legislation that would ban U.S. companies from doing business with European, Chinese, or Russian outfits that trade petroleum products with Iran or help upgrade its crumbling refineries. The measure, which expands a 1996 law that bars U.S. companies from direct investment in Iran, would target those like Honeywell that do business there through foreign subsidiaries.
Honeywell, based in Morristown, N.J., also faces renewed pressure from the advocacy group United Against Nuclear Iran. UANI on May 18 asked the General Services Administration and Defense Secretary Robert Gates to declare Honeywell ineligible for government contracts until it ends the participation of its wholly owned British subsidiary, UOP, in an upgrade of Iran's Arak refinery and stops selling security equipment to Tehran. The Senate version of the legislation would accomplish much the same.
While Honeywell's dealings with Iran don't violate current law, getting it and other companies to stop using subsidiaries is a matter of asserting America's "moral authority," says UANI President Mark Wallace. It's a lot harder to pressure foreign companies to pull out of Iran "if we can't even convince our homegrown companies to do that," he adds.
Rob Ferris, a Honeywell spokesman, says the company is legally bound to honor existing contracts, though it has committed to accepting no new business in Iran "in anticipation of a change in U.S. law." That's an "inadequate" response for a company that received $12.9 billion in federal contracts from 2000 to March of this year, making it the largest recipient of federal funds operating in Iran, Wallace says.
President Barack Obama regards Honeywell's Cote as one of the CEOs he most admires. Obama named him to a bipartisan budget deficit commission. UANI has some White House clout of its own. It lists as a founder Richard C. Holbrooke, though he resigned from the group before he joined the Administration as special representative to Afghanistan and Pakistan. Gary Samore, senior director for nonproliferation at the National Security Council, was an original board member.
Stuart A. Levey, the U.S. Treasury undersecretary responsible for applying sanctions, says U.S. companies are voluntarily pulling back from Iran after Administration prodding and public pressure. "Some companies are just making a decision based on business and political risk as well as the public attention being paid to this issue," he says.
One success story, says Wallace, is Caterpillar (CAT), which in February barred its overseas subsidiaries from accept- ing orders from Iran. If Honeywell doesn't do the same, he adds, it should brace for more pressure, including a naming-and-shaming ad campaign now in the works.
The bottom line: Tougher U.N. sanctions and interest groups have put multinationals using subsidiaries to trade with Iran in a tight spot.