Treasury Expands Pressure on the Iranian Economy

The U.S. Treasury issued a new round of sanctions yesterday against large, publicly traded Iranian companies. The companies are part of the Bonyad Taavon Basij, “a vast network of businesses providing financial support” to the Basij Resistance Force, a volunteer paramilitary organization subordinate to Iran’s Islamic Revolutionary Guard Corps (IRGC). Treasury used its anti-terrorism authorities under Executive Order 13224 to take this action, which represents the Trump administration’s most significant move against IRGC-connected companies.

The Basij militia “recruits, trains, and deploys child soldiers to fight in IRGC-fueled conflicts across the region,” according to Treasury’s announcement. The Basij also serves as a primary enforcer of internal security, a role in which it has committed serious human rights violations. An additional responsibility of the Basij is to train fighters for deployment to Syria.

By targeting publicly traded companies, including the Iran Tractor Manufacturing Company, Iran’s Zinc Mines Development Company, Bahman Group, Sina Bank, Parsian Bank, and mineral holding company Calcimin, Treasury is hitting the state’s most valuable assets. Obama-era sanctions against companies listed on the Tehran Stock Exchange (TSE) caused short- and long-term negative, abnormal returns that were both statistically and economically significant. The targeted companies’ accounting performance decreased and they tended to decrease their leverage and increase their cash holding ratio as the market perceived them as riskier.

Treasury also sanctioned major investors in the TSE who are part of the Basij support network, including Meh Eghtesad Iranian Investment, Negin Sahel Royal, Andishe Mehvaran Investment, and Tadbirgaran Atiyeh Investment Company. The TSE is one of the markets where Iranian investors put their rials to hedge against inflation as well as depreciation relative to foreign currencies. Targeting the TSE sends a message to investors that the stock market is not a safe place, which may lead them to withdraw assets, thus putting even greater pressure on the rial. In addition to hurting the IRGC, hitting the stock market will put pressure on the armed forces and the business empire of Supreme Leader Ali Khamenei because these three entities jointly control companies whose market capitalization represents 25 percent of the value of the TSE.

Notably, Treasury sanctioned some companies that are not majority owned by the Bonyad Taavon Basij but from which Bonyad Taavon Basij receives benefits via dividends and interest-free lines of credit. Previously, Treasury almost always restricted its designations to companies in which a designated entity, such as the IRGC, held a majority stake or because the company itself was directly involved in prohibited activities such as nuclear proliferation or terror finance.

There is a strong case for broadening Treasury’s focus to include companies in which bad actors own less than a majority stake, since such firms may still play a critical role in financing Iran’s illicit activities. This broader focus paves the way for an aggressive designation campaign, which was not possible while Treasury remained focused only on majority ownership. By expanding its target set, Treasury sends a message to investors that Iran’s market is a complex minefield in which any firm with significant ties to designated entities may face punitive action.

The decision to designate the Bonyad Taavon Basij network represents an important step toward exerting maximum pressure on Tehran. To reach that goal, Treasury will have to investigate and sanction many more firms, since the IRGC and other malign actors control an estimated quarter to a third of the Iranian economy. Other critical steps toward maximum pressure include keeping Iran on the FATF blacklist and disconnecting Tehran from the SWIFT financial messaging system. The U.S. should give the clerical regime no breathing room.