By Ali Alfoneh, ,
Published May 07, 2015
On Thursday, as Iran celebrated the birth of Hussein Ibn Ali, the grandson of the Prophet Muhammad whose martyrdom is to Shias what the crucifixion of Jesus is to Christians, the country also celebrated Islamic Revolutionary Guards Corps (IRGC) Day.
The IRGC has defended the regime in Tehran against internal "counter-revolutionaries" since 1979 and external enemies such as during the Iraqi invasion of Iran in 1980 and the following eight years of war.
Yet, thirty one years after the revolution, the IRGC now preys upon the society it was meant to protect, and their involvement in the nuclear issue has subjected Iran to sanctions.
These sanctions are not going to work. The reason is quite simple: they fail to target the financial arm of the IRGC, the engine of Iran’s nuclear program.
The latest round of U.N. sanctions focuses on both the IRGC and Iran’s major banks—an attempt to starve the mainstay of the Islamic Republic and force a cost-benefit analysis that favors negotiations—but ignores the Guard’s parallel banking sector, through which the IRGC manages its financial activities.
Later in the month, Congress approved tough new unilateral sanctions aimed at squeezing Iran’s energy and banking sectors while punishing companies from other countries for doing business with Tehran.
The Iranian political leadership and the IRGC dismissed them both.
“These resolutions are not worth a nickel to the Iranian nation,” said President Mahmoud Ahmadinejad. Hossein Salami, the IRGC’s deputy commander, added that the “Guards are not concerned about the sanctions.”
Unfortunately, Ahmadinejad and Salami have it right. Increasingly, the Iranian economy has become dominated by the IRGC, which has had decades to figure a way around sanctions. Indeed, the Guards’ ability to mask their activities behind front companies—an agile game of hide-and-seek at which the IRGC is clearly the better player—means that the international community is constantly playing catch up. And losing.
Let’s take Khatam al-Anbia Construction Base (GHORB), the engineering arm of the IRGC, which is now under sanction.
Less than a week before last month’s U.N. Security Council action, the Iranian Oil Ministry granted $5 billion to a newly established Khtam al-Owsia Consortium for development of the 13th and 14th phases of the South Pars gas and oil field—a project which will require substantial foreign expertise and technology.
In fact, Khtam al-Owsia is a front for the IRGC’s Khatam al-Anbia construction company, which is under U.N. sanctions.
Changing the name Khatam al-Anbia to Khatam al-Owsia is just one example of how the IRGC hides its assets and circumvents sanctions.
The Islamic Republic’s serial reflagging and renaming of Iran Lines (ISRIL) is another.
In addition, the Guards need to be cut off from internal Iranian support. As foreign nations have become more leery of doing business with the Guards, the Iranian government has filled the gap.
During his first five years in office, Ahmadinejad “privatized” almost $60 billion worth of public assets, substantial amounts of which were purchased by front companies for the Guards.
The IRGC’s expansion into Iran’s private sector has earned some attention but its move into banking and financial services has gone unnoticed.
The Revolutionary Guards’ financial institutions—like the IRGC Cooperative Foundation, the Mehr Finance & Credit Institution, and the Ansar Financial and Credit Institute—operate without fear of sanctions, their reserves brimming with profits and, allegedly, ill-gotten gains from vast smuggling enterprises.
This cash has enabled the IRGC to dominate the Iranian economy and to purchase state enterprises and businesses through the Tehran Stock Exchange.
Yet most of these businesses—ranging from mining and car companies to telecommunications ones—are dependent on outside suppliers, technology and expertise. Remember: Iran is not North Korea. Its economy subsists on exports and imports, and very little is produced at home except crude oil and carpets.
Up to now, Ahmadinejad has had a counterpunch for every American, European, or United Nations blow to the IRGC.
Following the Treasury Department’s February designation of Khatam al-Anbia as “proliferators of weapons of mass destruction,” Ahmadinejad promised to compensate the IRGC for sanctions-related losses.
Indeed, in March, the Oil Ministry gave Khatam al-Anbia a contract for an $850 million pipeline project. The following month, after Turkish companies announced their withdrawal from the development of the third phase of the South Pars oil and gas field, Khatam al-Anbia was granted the $7 billion project to make up for the gap.
By all means, let’s target the IRGC. Let’s exact a price for their adventurism, their support for terrorism, their role in oppression inside Iran and their role in proliferation. But let’s do it effectively.
By sanctioning all companies partly or completely owned by the IRGC the international community can deny them spare parts and technology, cut off foreign investment and paralyze their assets abroad.
This in turn would affect negatively the value of these companies on the Tehran Stock Exchange, and increase transaction and business costs for IRGC owned businesses.
Strangling the IRGC’s access to funding would make it much more difficult for the Guard to establish political patronage through its business enterprises in Iran.
The Iranian people increasingly understand that IRGC commanders are a source of corruption and repression, and not the war heroes they pretend to be.
The Iranian public also recognizes that international sanctions are not designed to harm Iran and Iranians but to change the Iranian regime and the IRGC’s nuclear calculations. But let’s hit them effectively.
Symbolic gestures do not make for effective foreign policy.
Ali Alfoneh is a resident fellow at the American Enterprise Institute.
Fox Forum is on Twitter. Follow us @ fxnopinion.