EXCLUSIVE:Firms Contracting With U.S. Government Flout Iran Sanctions Law, Watchdog Says

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Published July 30, 2010

| FoxNews.com

Two multinational corporations that have earned millions of dollars in U.S. government contracts are conducting business with Iran in violation of the recently signed sanctions law, according to an Iran watchdog group that has provided its research to FoxNews.com. 

United Against Nuclear Iran, a non-profit devoted to monitoring the rogue nation, claims that the Danish shipping giant Maersk and Komatsu, a Japanese firm that specializes in construction equipment manufacturing, are flouting U.S. law by continuing to do business in Iran. 

The group sent a letter this week detailing its allegations to the CEOs of both companies, as well as Defense Secretary Robert Gates. The Pentagon was notified because the bulk of the firms' government contracts were with the Defense Department. 

Komatsu denied the charges; Maersk said the company was reviewing the new sanctions law. 

A State Department official told FoxNews.com that any such charges could entail an investigation that could take several weeks or even longer before any action could be taken. The official would not say whether the Obama administration is scrutinizing either of the firms in light of the new law. 

But United Against Nuclear Iran President Mark Wallace, a former U.N. ambassador under John Bolton, said the companies are going to have to choose between doing business with Iran and doing business with the United States. He described firms like Maersk and Komatsu as part of a dying breed, with new sanctions passed at the U.S., European Union and United Nations levels making it increasingly harder to conduct business in Iran. 

"The climate is much tougher," he said. "Hopefully these companies will choose the right way." 

If they don't, Wallace said, the U.S. government must cut ties with the firms. And he said his organization is prepared to mobilize its supporters against them. 

"We hope we don't get there," he said.

According to federal government records, Maersk has earned $4 billion in U.S. government contracts over the past decade, more than 90 percent of which were with the Defense Department. Komatsu has earned nearly $40 million in the same period, with almost 90 percent from Defense Department work. 

United Against Nuclear Iran alleges that both firms are in violation of the sanctions provision that restricts firms from knowingly investing in Iran's energy sector. Under the law, businesses cannot make annual investments of $20 million or more that enhance the country's petroleum development and cannot provide goods or services worth $5 million or more that support the oil and gas sector. The law prescribes a host of sanctions for the president to impose on any violators, including the severance of federal government contracts. 

It's unclear, however, whether the Iran work conducted by Maersk and Komatsu constitutes a direct energy sector investment that exceeds the allowed amounts. 

The State Department official said the administration would certainly consider investigating the claims but cautioned that sometimes the evidence just isn't there. The official said that nothing can be done until new regulations are issued and the various departments work out which areas of the law they will be responsible for enforcing; energy sector violations likely will fall under the State Department. Any investigation would entail interviews with company officials and intelligence sources and a review of news coverage in the relevant countries, in this case Denmark and Japan. 

"We're going to work very carefully through this," the official said about the implementation of the law. 

The letter to Maersk specifically alleges: 

-- Maersk operates two Iran offices, one in Tehran and one in Bandar Abbas, registered to Maersk Iran A.S. 

-- Maersk Iran operates several container terminals in Iran. 

-- Maersk ships use the port of Bandar Abbas and other terminals, carrying shipments that appear to relate "directly to Iran's petroleum and gas industries." 

-- Maersk does business with Tidewater, a port operator reportedly tied to the Islamic Revolutionary Guard Corps, which the State Department designates as a terror group. 

The letter to Komatsu alleges: 

-- Komatsu subsidiary Komatsu Middle East FZE has an office in Tehran. 

-- Komatsu Middle East "has enabled the sale, assembly and manufacture of construction equipment that has been used in Iran's energy sector." 

-- Komatsu has business ties with distributors that contribute to Iran's energy sector. 

Komatsu denied that it was in violation of the U.S. sanctions law, acknowledging the activity of its "liaison office" in Tehran but rejecting the claim that the firm's work constituted an investment in the energy sector. 

"To our best knowledge, none of the business ties in Iran would constitute any violation of the recently passed U.S. law. First of all, Komatsu does not have any direct investment in Iran," Kuniko Urano, general manager in the firm's Tokyo Communications Department, said in an email to FoxNews.com. Urano said the Tehran office has equipment assets worth about $200,000. 

As for the firm's work selling construction equipment and other products through distributors Mehvar and HEPCO, Urano said neither is in the energy sector. 

"Komatsu does not have any capital interest in them. Komatsu Ltd. maintains a policy to refrain from dealing with the government or any customers that are engaged in energy development projects in Iran," Urano said, adding that the firm checks orders from Iranian distributors to screen for any proposed sale that could end up in the energy sector or in any way connected to terrorism or the military. 

Urano said nobody from the U.S. government has contacted the firm with concerns about its Iran presence, but that "Komatsu takes its social responsibilities very seriously and will continue to carefully study the latest developments." 

Maersk Vice President and General Counsel James Philbin said in a statement emailed to FoxNews.com that the firm was "analyzing the consequences of the new sanctions with regards to getting an overview of their impact." 

"Our policy is to respect and comply with all local legislation wherever we operate," Philbin said. 

United Against Nuclear Iran has a history of pressuring corporations to get out of Iran. Before the latest sanctions bill was signed, the organization launched a campaign against Caterpillar, putting up a billboard outside its Peoria, Ill., headquarters that showed images of the company's equipment next to the face of Iranian President Mahmoud Ahmadinejad, with a caption that suggested the company was helping to build "tomorrow's nuclear Iran." Caterpillar in February announced it would bar its subsidiaries overseas from doing business with Iran. 

The group's letters to Gates urged the secretary to cut ties with both firms should they refuse to abandon "sanctionable business activities in Iran." The Defense Department referred questions to the State Department. 

The Iran sanctions law was months in the making and highly touted by administration officials. 

When President Obama signed the law on July 1, he described the legislation as "the toughest sanctions against Iran ever passed by the United States Congress." He said it would make it harder for the Iranian government, which lacks significant refining capability, to modernize its oil and natural gas sector and explicitly outlined the consequences for businesses than run afoul of the law. 

"It says to companies seeking procurement contracts with the United States government -- if you want to do business with us, you first have to certify that you're not doing prohibited business with Iran," Obama said. 

United Against Nuclear Iran spokeswoman Kimmie Lipscomb said the law is as tough as they say. The question is whether it will be enforced. 

"The law really does have teeth -- significantly more so than anything that's been passed. The difficulty does come in just enforcing it," Lipscomb said.

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