Archive for March 2008
The World Bank Group and its Relationship with Iran
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., which, 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.
Finally, following the round of designations in October 2007, Eren Law Firm, a boutique firm in Washington DC that specializes in economic sanctions and anti-money laundering, published a client memo that listed both Karafarin and Saman Banks as potential future targets of US penalties. One of the authors of the report, Eren Law Counsel Steven Pinter, the former Chief of Licensing at the Office of Foreign Asset Control from 1987 to 2000 told Washington Prism in a phone interview, “The client memo was based upon some news item that we spotted. We don’t have any particular information about the US government’s intentions or classified intelligence analysis.” Mr. Pinter continued explaining that the decision of naming Karafarin and Saman in the report also stemmed from the fact that “the Treasury Department has already designated a number of Iranian banks, based on the evaluation of the US Intelligence Community of what these banks are doing that is inimical to US interests,” such as the development of a nuclear weapons program or offering support to terrorist groups.
The whole of the story highlights the complexities inherent to sanction programs and their implementation, especially in those cases where multilateral and unilateral sanctions are managed simultaneously but separately and when they impose different levels of restrictions. It casts doubts on the overall effectiveness of sanctions, especially in a world where national economies are becoming so entwined as to make it impossible to step back. The story also raises a number of questions as to the extent of control a country retains over funds contributed to international organizations such as the World Bank.
The Legislative Framework
Executive Order 12957, which imposes a ban on investments in the Iranian petroleum sector and which prompted Congressmen Kirk and Rothman to ask for an investigation into the World Bank dealings with the Islamic Republic, is just a part of a broader economic policy targeting Teheran aimed at preventing it from developing nuclear weapons and from sponsoring international terrorism.
In a phone interview, Victor Comras explained to Washington Prism how the targets of US sanctions are determined: “The Departments of State and Treasury work together to designate entities viewed as sponsors of terrorism.” Mr. Comras, who for 35 years worked at the US Department of State on international sanctions and who, from 2002 to 2004, was the UN Security Council Monitor for the sanction resolutions on al-Qaeda and the Taliban, is now a special counsel to Eren Law Firm. “This label has a dual definition; it refers to entities actively engaged in terrorist activities, and also to entities that provide material support to terrorist groups,” Mr. Comras told us. “By this we mean a level of support that goes beyond peripheral and minimal banking services.”
The embargo on such designated entities is implemented through a variety of different means, the most recent of which is represented by the Iran Freedom Support Act (IFSA), which was signed into law on September 30, 2006 by President Bush and which replaces and revises the previously standing Iran and Libya Sanctions Act of 1996 (ILSA). IFSA targets foreign companies that invest over $20 million in one year in Iran’s petroleum industry.
There is also the Executive Order 13382 that was signed by President Bush in June 2005, part of the WMD Proliferation Initiative imposing financial sanctions on foreign citizens and companies found to be assisting Iran in the development of nuclear, chemical or biological arms and their means of delivery.
A fourth piece of the legislation is administered by the US Treasury Department, specifically by the Office of Foreign Assets Control, targeting US citizens and US companies that trade in goods, services and financial assets with Iran. The program stems from a number of Executive Orders and Statutes that were released starting as far back as 1979 that have translated into the Codes of Federal Regulations known as 31 CFR Part 535 (Iranian Assets Control Regulations) and 31 CFR Part 560 (Iranian Transactions Regulations).
Under this framework, the Bush Administration made its latest designations of Iranian entities and individuals that will be subject to the sanctions on March 12th. Bahrain Future Bank B.S.C. was nominated because of its connections with Melli and Saderat Banks, which had been previously identified by the United States as funding the uranium enrichment program and groups supportive of terrorist activities in Iran.
Iran is also subject to multilateral sanctions imposed by the Security Council of the United Nations. The latest resolution is 1803, approved on March 3rd, which builds upon the ones previously implemented. The UN sanction program is looser than the American one, as it exclusively targets “individuals engaged in or providing support for Iran’s proliferation-sensitive nuclear activities or for the development of nuclear-weapon delivery systems” and in its most recent version added only a few names to the list of entities already designated. Interestingly enough, in Resolution 1803 the United Nations warns individuals and organizations against dealing with banks Saderat and Melli, following up on the US designation of these two financial institutions.
Mr. Victor Comras summarized the overall picture in his phone interview with Washington Prism: “The multilateral sanctions in place provide the overriding framework. The US has gone beyond that as far as the number of entities designated.” As such, the World Bank and IFC investments in the Iranian petrochemical industry that spurred the controversy broken by Fox News in February are most likely compliant with the more general UN sanctions, whereas they might in fact be in violation, to some extent at least, of the US ones.
The Obligations of International Organizations
The question then becomes: Are international organizations at all required to comply with unilateral sanctions imposed by one of their member countries onto another? Do contributing nations have a say over the allocation of the funds donated, and if so, to what extent?
According to a World Bank source, international organizations such as the World Bank and the IFC are only required to comply with UN sanctions. In a phone interview with Washington Prism, the official explains how these international organizations manage the funds they receive by individual countries. “The usage of those funds is recommended by the staff and approved by the board of the Bank. The representatives that sit on the board (Executive Directors) are appointed by the Treasury Departments (Ministries of Economics) of their home countries. The board decides with a majority vote what projects will get how much money.”
Despite the fact that funds contributed to the World Bank and the IFC are allocated independently of the desires of the original donor, individual countries, and especially the most important members, still have significant room to make their voices heard. After all, our source at the World Bank told us, “the Board represents the shareholders, or the governments of the member countries. Representation of a government within the board depends on the country’s capital, it’s proportional. The US for example is the biggest contributor and, as such, has a bigger voting weight than for example a small African country.” According to Fox News, in the 2006 fiscal year alone, the US Treasury Department transferred $1.3 million from its own account to those of the World Bank.
Hence, although the World Bank and the IFC must only comply with UN sanctions, unilateral sanctions still come into play through the discussions among the Board members on how to allocate funds. “The US representatives can say no to fund any project in Iran.” The World Bank official said. “Then the rest of the board will vote and if the Americans are able to carry 51% of the votes then the project won’t get the money. Otherwise it will.”
New sanctions on the World Bank?
There is relatively solid evidence that the World Bank and the International Finance Corporation are investing money in the Iranian energy sector via the petrochemical industry. The two international organizations appear to be also conducting business with Iranian financial institutions that might potentially be tainted by links to proliferation activities and terrorism. Banks such as Karafarin or Saman could theoretically follow Melli, Sepah and Saderat Bank into the list of designated entities.
Nevertheless, it remains extremely complicated, if not at all impossible, to determine the extent of accountability to which the World Bank Group should be held, because only a series of weak links connect its funding to illegal activities.
First of all, the relation between the petrochemical industry, the energy sector and nuclear proliferation in Iran (which is at the core of Fox News’ story), is not as direct as one might think. Adel F. Sarofim, Presidential Professor at the Department of Chemical Engineering at the University of Utah and one of the US’s most respected experts on the petrochemical industry, explained to Washington Prism in an e-mail interview that the connection between these different sectors is the reliance on petroleum resources, although these can be utilized to produce plastic bags as well as fueling a country’s industrial complex. Professor Sarofim told us, “The major oil companies (ExxonMobil, BP, Chevron and Shell) produce fuels (gasoline, diesel, jet) that power our transportation industry. They have also made major investments in renewable energy and are involved in solar energy, wind, geothermal. They have the capital derived from oil sales that they are investing in energy alternatives and are transitioning from being oil companies to energy companies.” Sarofim also believes that there is very little technology or knowledge that could be transferable from the petrochemical industry into the nuclear one, or that developing one of the two could directly and positively impact the development of the other one as well.
Secondly, as far as the financial transactions conducted by Saman and Karafarin Bank and possibly involving Melli, it is hard to say if they are substantive partnerships and caused by direct collaboration, or if they are instead merely the result of the increased interconnectedness of the financial markets in Iran and worldwide.
Third, international organizations such as the World Bank and the IFC are only required to comply with the more general framework of the UN sanctions on Iran. The US can still try to block the funding of projects that it deems in violation of its own unilateral ban, but it must do so through the democratic system that regulates the World Bank Board.
Since the US appoints the largest number of Executive Directors to the Board, this case indicates that either the American delegation is not directly instructed by the US Treasury Department to oppose investments into projects that could violate its sanctions on Iran, or that it is simply unable to bring on board a sufficient portion of the international community.
Washington could possibly impose sanctions directly on international organizations and halt its contributions to the World Bank and the IFC. Or, alternatively, it could rethink its implementation of sanction programs based on the acknowledgment that not only is their effectiveness difficult to assess, but their monitoring alone can become painfully complicated.
Volunteering and American Politics
Cleveland, OH – Alexis de Tocqueville, a French political thinker, traveled across the United States in 1831-1832 as a 25 year old, 
and observed American democracy at work. He wrote about the experience in his masterpiece Democracy in America, published in France in 1835. In the two-volume work, Tocqueville reasoned on what he thought were the fundamental pillars of politics in the United States, among which he was particularly impressed by the volunteering nature of civic engagement. The citizens of the United States appeared willing to actively participate in the country’s political life and civil society to an extent that was unknown to Europe. Tocqueville wrote; “When an American asks for the cooperation of his fellow citizens, it is seldom refused; and I have often seen it afforded spontaneously and with great good will”. Such activism, free from the pursuit of immediate personal interests, provided unparalleled basis to the American democracy.
Volunteerism still shapes US political life profoundly and national elections provide a useful point of observation on a phenomenon that remains so exquisitely American. The ongoing presidential campaigns are no exception, with all candidates relying extensively on the unpaid work of volunteers. One-hundred-seventy odd years after Alexis de Tocqueville, I traveled to Ohio to survey Hillary Clinton’s and Barack Obama’s field operations, heavily carried out by volunteers. These activists mobilize for the purposes of bridging the gap between Washington DC politics and communities across the nation, and of energizing citizens to participate in the political process through voting.
The trip originated precisely thanks to the dedication of a volunteer. Mateya Kelley is a young Union organizer with a degree 
from Yale University. She is originally from Illinois but now works in Washington DC. A passionate Obama supporter, Ms. Kelley decided to take two days off to go to Cleveland and volunteer for the get-out-the-vote (GOTV) effort, when, with the elections approaching, campaigns intensify their attempts to bring people to the polls. I followed Ms. Kelley to Cleveland and there I witnessed the work of volunteers from both the Obama’s and the Clinton’s camps.
The headquarters of Obama for America, where Mateya Kelley had to report, were housed on the ground floor of a brick high-rise along Superior Avenue, the wide boulevard that traverses Cleveland from east to west running parallel to Lake Erie, one of the largest water basins in North America. The windows and the walls of the office were covered with Obama posters, desks were jammed in every corner, telephones were ringing frantically while staffers and volunteers were coming and going hectically.
Kyle had been tasked with front desk duties and he was welcoming the many visitors. A man in his early twenties, originally 
from Ohio, Kyle worked for Bank of America in Chicago until February. His employer was then planning on moving him to Pittsburgh and Kyle, who had no intention of relocating there, quit his job and joined the Obama campaign as a full time volunteer. He has been working around the clock ever since, for free, although he cherished the hope of being eventually hired, if the Senator from Illinois was to grab the democratic nomination. “That would definitely be a job I would like,” he said. In the days prior to the vote on March 4th, Kyle saw many volunteers like Ms. Kelley pouring into Ohio from out of state; “Just this past weekend two teachers flew in from Los Angeles at their own expenses to give a hand,” he told me.
The Obama Campaign in Cleveland was run from the downtown headquarters and from a number of so-called staging locations. A staging location is not an office proper; it lacks the administrative side of one. It is an operational base that campaigns put in place to manage the influx of volunteers as effectively as possible. Volunteers arrive, they give their name, phone number and email, and are sent back out on the street very quickly, with a list of addresses that they must visit to remind the residents to go vote.
The field operations for Clinton were managed in a similar fashion to those for Obama. The main difference was that Clinton had two offices but neither of them played the role of headquarters; instead they both managed the full extent of fieldwork for their district. One office was located at the very west of Cleveland, the other at its very east.
The first branch to open was that on Rock River Road, which started business on February 16th. It is housed in a strip mall next to a dry cleaner and to a bakery. Hillary Clinton has been targeting women across the country, and especially in neighborhoods of row houses and middle-class residents such as this one. Not coincidentally, women comprised the vast majority of volunteers 
that I saw at work in the long and narrow rectangular room, walls painted in blue and Hillary for President signs everywhere.
On Rock River Road I met Erin, the office’s super-volunteer. Super-volunteer and super-mom, since Erin has five children; the youngest of them turned one year-old on March 4th, Ohio’s Election Day, and was nestled on his mother’s arms as she ran around the office and made phone calls to voters. Erin was born and raised in Cleveland. She is a homemaker and does some part-time web design on the side. Her husband is a firefighter; “I started supporting Hillary from the day I read her book It Takes a Village. I’ve been waiting for her to officially decide to run since then,” Erin told me. “I like her for the fact that she’s Hillary, a woman that’s been able to rise above all difficulties.”
Active in politics for years, Erin has been a representative to the State Assembly, and she is a pledged delegate in this year’s primaries. “Our District, Ohio’s 10th, grants twelve delegates to each candidate,” Erin explained. “To become one of them, I had to run for the election of January 3rd. I’m the delegate who received the most votes within the Clinton Camp. Even if Hillary only gets one delegate in our district, I will be going to the convention in Denver,” Erin concluded cheerfully. “I have five kids, I need a vacation!”
The other field office of the Clinton campaign is in Cleveland Heights, on the opposite side of the city. It is also housed in a strip mall, and it is larger than the first one, a square room with peach-painted walls and cardboard containers of take-out pizzas lying around.
In Cleveland Heights I spoke to Mary Jo, a middle-aged white woman of Italian descent. She is a realtor with a flexible work schedule: “In these last couple of weeks I’ve dedicated most of my time to this campaign,” Mary Jo told me during a pause from phone-calling. “As soon as Clinton opens field offices in Pennsylvania I’m heading out there too.” Mary Jo is a long-time supporter of the Senator from New York; “I’ve always liked Hillary, for all that she stands for.” Although she has done campaign work for many years, Mary Jo admitted to have never been this passionate before about a candidate.
In the days and hours prior to an election, volunteers carry out three prominent activities; phone-banking, canvassing and offering rides to those citizens who express a desire to vote but don’t have means of getting to their polling places independently. “Today we drove a 105 year-old lady to vote,” Mateya Kelley told me proudly on Tuesday night.
Leaving the Clinton volunteers to their phone duties, I followed Ms. Kelley as she knocked on the doors of two parallel blocks, on E. 84th and E. 85th street, in an inner-city neighborhood in East Cleveland. She had been provided with a list of addresses and a pile of door hangers to be given out to the voters or to be left outside the doors in the case nobody was home. The flyers had Obama’s face on them and the details of the March 4th primary: what time the polls opened and closed, where the closest polling location was, etc. There was also a phone number for people to call, to ask for a ride to voting.
The urban landscape of the neighborhood was saddening. Trash was flying around; bottles, cans and plastic bags were carried by the wind from one side of the street to the other and nobody seemed to be in charge of ever picking them up. Roads were lined up with row houses, but there wasn’t anything pretty about it. Some of the buildings had fallen apart, at least a third of the houses lied abandoned, windows and doors were boarded. When one canvasses during the day, people are rarely at home and volunteers only leave the hangers on the doorknob and move across swiftly. This neighborhood seemed different, and Kelley and I found many residents that opened their doors or were willing to chat while they hung out bored on the sidewalks. Unemployment in Ohio has hit above-average rates and these two streets seemed to be the physical embodiment of that. Needless to say, the population was almost entirely African American. With determination Mateya Kelley knocked on every door that appeared on her list. She reminded everyone she met that Tuesday would be Election Day and she seemed to sway a few undecided towards Obama.
Her job turned out easier than initially thought. The economic devastation that afflicts the area had not broken down the strong sense of community and the political awareness that these streets breathed. Most people were well informed about the specifics of Tuesday’s vote, on the candidates running and their proposals. This is, after all, typical of primary elections; volunteers are sent to canvass those blocks where the party more active supporters live. Ms. Mitchell, an older woman wearing a woolen hat and who uses the aid of a stick to walk, is a true Obama activist who is looking for change. “Here people are always complaining,” she told us lamenting the growing disenfranchisement of her neighbors from politics. “They need to stop, they’re only being lazy. They need to get off their lazy ass and go vote if they want things to change.”
Energizing constituencies like the one in East Cleveland, where people hold strong political views but don’t turn out to vote, is 
precisely the purpose of volunteers like Kyle, Erin, Mary Jo and Mateya, who work for all different campaigns across the country at every election cycle. Their dedication defies even the harshest meteorological conditions. On Tuesday, when Ohio went to the polls, Cleveland was hit by a snow and ice storm. Temperatures dropped below freezing, the roads were so slippery that the average driving speed in town was no more than 5 miles an hour. The wind picked up during the day making it almost impossible to be outside. Yet, the volunteers were out on the streets, in the blizzard, talking to voters until the polls closed at 9pm.
“The Americans are a democratic people who have always directed public affairs themselves,” Alexis de Tocqueville wrote in Democracy in America almost two hundred years ago. The field operations of the 2008 campaigns are an example of the involvement of ordinary people in the political process. This year’s unprecedented voter turn-out, propelled by the army of volunteers on the streets of America, is an indication of the extent of civic participation and of its effectiveness in guaranteeing the workings of a democracy.
Originally reported and written for Washington Prism – Persian Edition
