Interview: Iran’s involvement in Latin America a potential thorn for business

Interview: Iran’s involvement in Latin America a potential thorn for business

With a growing commercial, cultural, and diplomatic presence in Latin America, Iran poses a great political risk to the business community in the region. Iran’s commercial activities in the region, mostly centered around natural resource acquisition, could pose a greater risk than the U.S. originally thought. 

Over the past decade, many U.S. military and high-level officials have expressed concern over Iranian-backed terrorists groups operating throughout the region. Working with drug trafficking groups, Hezbollah and other Iranian-backed terrorist groups seemed to have created a financial and operational network by taking advantage of the pervasive political and police corruption in the region.

While there is a lack of strong evidence to link Iran with terrorist groups working with drug-trafficking organizations in Latin America, officials have also presented worrying evidences that Iran’s growing cultural, commercial, and illicit activities have created a grave political risk to Latin American governments and to the business community.

With regular visits by high-ranking Iranian officials, insignificant trade and commercial agreements, and large numbers of cultural and diplomatic centers in the region, there are evident political and commercial risks for investors present in Latin America.

To get a better sense of the political risk that Iran poses to the business community in Latin America, GRI sat down with Joseph Humire, the Executive Director of the Center for Free Secure Society.

Q: What are Iran’s commercial investments in the region, and how does this pose a threat to the business community in Latin America?

While Iran has engaged in cultural and political activities in many Latin American nations, its commercial investments are quite small. Even though the Islamic Republic publicly discusses its trade agreements and industrial investments in the region, the net worth amount that Iran promises only involves credit. We have seen this through Iran’s credit line deal with Ecuador.

Thus, commercial and trade partnerships are at the bottom of Iran’s priorities and goals for Latin America.

Iran uses commercial activities for three purposes: to cover up shadow activities, acquire natural resources, and obtain preferential deals, particularly through the Bolivarian Alliance of the Americas (ALBA).

Firstly, while 60% of Iran’s commercial activities may be presented through front companies in the region, the rest involves illicit activities, including money laundering for intelligence and military purposes. Furthermore, front companies may not be successful, but will continue to engage in investments and productions to help Iran maintain its foothold in countries like Venezuela.

Secondly, Iran has a particular interest in the mining and natural resource industries to aid its nuclear program, such as through Bolivia’s high level of lithium. Investors and businesses operating in Latin America involved with Iranian joint companies may be at risk of unknowingly aiding Iran’s nuclear program.

In particular, companies in the mining, energy and import-export sectors need to be cognizant that Iran will engage in illicit activities and cheat its way through to support its strategic goals for the region.

Lastly, state-owned enterprises, especially in ALBA nations, are triangulated with Iran. Since Iran maintains an observer status in ALBA, it leverages its preferential deals with state owned companies to do its bidding for money and mining resources.

Due to heavy sanctions from the U.S. and influential international institutions, companies can be sanctioned if found directly tied to the Islamic Republic. This occurred in Venezuela, when PDVASA, a Venezuelan petrol company, was sanctioned by the U.S. for its ties with the Iranian, Chinese and Russian mafias.

Scandals such as these can be highly radioactive for foreign and domestic investors in Latin America.

Q: In the end, might Iranian activity in Latin America be a more substantial political risk than what the U.S. government originally thought?  

First and foremost, we must acknowledge that Iran has issues conducting business with countries that trade with the U.S., as their trade agreements are conducted in dollars and include heavy regulations. However, Venezuela and other nations worldwide are moving away from this financial system, benefiting Iran.

Thus, the Islamic Republic presents a colossal political risk nowadays, particularly due to its potential acquisition of nuclear power and leverage gained during the ongoing nuclear negotiations with the P5+1.

We used to think that Iran’s strategic goals for Latin America were separate from its domestic ambitions. Yet, the more Iran’s global positioning and nuclear program has evolved, the more we realize that the Islamic Republic has two goals: obtain nuclear power and ballistic missiles.

Thus, Iran maintains Latin America as a strategic priority to expand its operations and move past its typical associations with ALBA nations.

Ultimately, Latin America has become a major partner in helping Iran fulfill its two primary goals through its strategic location, political corruption, trade and preferential deals possibilities, and its abundance of natural resources and nuclear materials.

Iran has taken advantage of the region’s porous borders and pervasive corruption to easily smuggle money, drugs and sanctioned materials from one country to the other.

For instance, Iran managed to smuggle tantalum, a sanctioned chemical element needed for nuclear programs, from Brazil into Bolivia. A recent scandal also exposed Venezuela playing the middleman to help Iran in its effort to get nuclear technology from Argentina. These examples of military, smuggling and illicit activities linking Iran can be found in my Congressional testimony.

Q: So how should investors overcome this problem?

As the saying typically goes: “know your customers.”

I advise foreign investors to increase their due diligence programs. As some companies may depend on governments’ credibility when partnering with local enterprises, nations such as Venezuela are not so liable in providing transparent due diligence information.

With limited response from the Obama administration, businesses are also left alone to intensify their compliance efforts themselves, and ensure anti-corruption and business regulations are followed. These efforts may raise production or business costs, but will prevent investors from falling into Iran’s trap.

In conclusion, as Latin America serves as a theatre of operations for Iran, businesses must be careful when investing in military, defense, mining, energy, and banking sectors in nations like Venezuela, Bolivia, Ecuador, and Cuba. Additionally, as Brazil, Argentina, and Uruguay are major trade partners for Iran, investors in these countries could similarly be at risk.

Joseph Humire is the Executive Director of the Center for Free Secure Society. As a global security expert specializing in asymmetric warfare, Mr. Humire has produced leading research and investigations on Islamic extremism and Iran’s influence in the Western Hemisphere, including through his recent book, “Iran’s Strategic Penetration of Latin America,” and in Congressional testimonies.

Categories: Economics, Latin America

About Author

Alicia Chavy

Alicia Chavy is currently pursuing a Master's in Security Studies at Georgetown University. Previously, Alicia worked at Kroll where she conducted due diligence and compliance research for Fortune 500 companies. There, she analyzed open sources intelligence on corruption, fraud, money laundering, and organized crimes perpetuated by companies and senior executives in Spanish, Portuguese, French, and English-language speaking jurisdiction. Alicia also worked at The Asia Group, where she provided political and business risk analysis, and strategic support for Fortune 500 companies working to expand their business presence in the Asia-Pacific region. Prior to her consulting experience, Alicia worked at non-profit organizations where she conducted detailed assessments on foreign policy, security and economic issues in Latin America, Europe, and the Middle East. Alicia Chavy graduated from Georgetown University's School of Foreign Service, earning a Bachelor of Science in International Politics.