By Spencer Swartz
August 24, 2010
NV, one of the world’s biggest plastic and chemical producers, will end its business operations in Iran to shield itself against penalties the U.S. could soon impose on companies for violating trade sanctions.
The Dutch-based company’s board approved the decision early this month after months of deliberation, according to David Harpole, a LyondellBasell spokesman.
In the past year, a number of companies—including many of Iran’s gasoline suppliers—have cut business ties with Iran because of worries about legal consequences in the U.S. and elsewhere, and public-relations concerns. They include PLC, which halted gasoline sales, and Corp., which suspended car exports.
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LyondellBasell’s decision means it will stop all licensing of its proprietary technology and services to Iranian petrochemical companies, which have depended heavily on technology from European concerns to produce plastics and other high-value products derived from natural gas.
Mr. Harpole said the move would be “immaterial” to LyondellBasell’s overall operations.
But the decision is a blow to the Iranian government, which is trying to build the country’s petrochemicals industry to diversify the economy.
Iran exported some $6.5 billion of petrochemical products in 2009, according to Facts Global Energy, a Singapore-based consultancy that tracks the Iranian energy sector. That is a small amount compared with the value of Iran’s oil exports.
LyondellBasell’s Mr. Harpole said that the mounting pressure over sanctions played a decisive role in the board’s decision to halt its Iranian operations. The company—which has extensive U.S. operations, particularly in Texas—is also ending its business ties in Syria and Sudan. Those countries are also covered by existing U.S. sanctions.
The decision also reflects LyondellBasell’s desire to avoid legal problems after exiting bankruptcy protection in April. The company plans to list 566 million shares on the New York Stock Exchange any day, according to Mr. Harpole, to beef up its capital position and help fund its growth plans.
He said the company recently made a “voluntary disclosure” about the nature of its past business in Iran to the U.S. agency that enforces sanctions, the Office of Foreign Assets Control, which is a unit of the Treasury Department.
He declined to elaborate. OFAC wouldn’t comment on LyondellBasell’s case or whether other companies had made similar disclosures.
The Obama administration could soon announce plans to sanction or warn companies, primarily from Europe and Asia, that they are in violation of U.S. sanctions against Iran.
“The administration is in the final stages of reviewing cases of potentially sanctionable activity [of companies] under U.S. law and expects to be making decisions on those cases soon,” a senior official said.
The official declined to specify which companies are being targeted, but a person familiar with the matter said the State Department is considering action against about 10 companies. The companies could face civil or even criminal penalties depending on the nature of any confirmed violations, but such action could take months.
The U.S. last month adopted new sanctions against Iran, primarily targeting the country’s energy sector.
For the first time, the rules require firms to effectively choose between doing business in the U.S. or Iran. Australia, Canada, the European Union and the United Nations have also passed their own versions of sanctions against Iran in recent months.
U.S. companies have long been barred from doing business in Iran. A report earlier this year from the U.S. Government Accountability Office, an oversight agency and arm of Congress, cited 41 companies, nearly all from Europe and Asia, with operations in Iran’s oil, natural gas and petrochemical industries from 2005 to 2009.
LyondellBasell, German engineering firm Uhde GmbH and Italy’s SpA, an energy and engineering-services firm, were named in the GAO report as firms with business in Iran’s petrochemical sector in the past five years. Other foreign companies like them also work in Iran’s petrochemical sector, analysts say.
Uhde is a unit of German industrial conglomerate AG. Alexander Wilke, a ThyssenKrupp spokesman, said that “to the best of our knowledge, all group companies are in full compliance with U.S. sanctions against Iran.” Maire Tecnimont didn’t respond to requests for comment.
Analysts say that actually levying penalties against companies for violations of U.S. sanctions could be a long, drawn-out process posing many hurdles.
OFAC has to establish a variety of legal criteria, including whether a company’s apparent violation was part of a “pattern or practice” and whether a company demonstrated “reckless disregard” of U.S. sanctions law, in order to determine what action can be taken, according to agency enforcement guidelines. If OFAC thinks a company’s actions could lead to a violation, the company may receive just a cautionary letter.
Illustrating the barriers to the imposition of sanctions, the recent GAO report said that in 1998 the U.S. made its first and only determination that a company’s investments violated existing U.S. sanctions against Iran. In that case, the sanctions were eventually waived because they were deemed to conflict with American foreign-policy interests.