Caterpillar Prohibits Sales of Equipment Bound for Iran

The lobby group that claimed credit for Caterpillar’s reversal, United Against Nuclear Iran, has turned up the heat recently on U.S. and European companies. The group is led by a number of former Democratic and Republican national-security officials, including R. James
Woolsey, former director of the Central Intelligence Agency under President Bill

 Clinton.

By CHIP CUMMINS

DUBAI—Caterpillar Inc. has prohibited its non-U.S. subsidiaries from accepting orders known to be headed to Iran, the heavy-equipment manufacturer said in a letter to a lobbyist group.

Caterpillar, of Peoria, Ill., has acknowledged in the past that its equipment is sold in Iran despite U.S. sanctions that prohibit most American exports to the Islamic Republic. The company has said its foreign subsidiaries have conducted limited sales to independent dealers outside Iran, which resell to customers inside the country. Caterpillar has said those sales have been in full compliance with U.S. export regulations.

As recently as late last year, closely held Arya Machinery, with offices in Tehran, marketed itself on its Web site as Iran’s exclusive dealer of Caterpillar equipment. A senior sales executive at the company told The Wall Street Journal in October that Arya buys equipment from a Caterpillar subsidiary in Europe.

While it may be legal, it has become increasingly difficult for many multinationals to shoulder the public-relations burden that has come with even limited business with Iran. German engineering conglomerate Siemens AG in late January said it would wind down its Iranian business and not accept any more orders from the country.

Meanwhile, the Obama Administration has threatened tighter economic sanctions, with or without the United Nations Security Council, should Iran continue to defy international pressure to curb its nuclear-enrichment program. That has heightened political and reputational risk for companies continuing to sell products or services there, even though that business may be relatively small.

And even as the U.S. threatens fresh sanctions, Treasury Department officials have quietly tightened enforcement of existing export restrictions related to American business dealings with Iran, trying to close loopholes. There is no indication that the Treasury’s Office of Foreign Assets Control, the agency that enforces sanctions, has raised issues with Caterpillar’s Iranian sales.

The lobby group that claimed credit for Caterpillar’s reversal, United Against Nuclear Iran, has turned up the heat recently on U.S. and European companies. The group is led by a number of former Democratic and Republican national-security officials, including R. James Woolsey, former director of the Central Intelligence Agency under President Bill Clinton. UANI President Mark Wallace was a deputy campaign manager for former President George W. Bush in 2004 and then served as an ambassador-level diplomat to the U.N during the Bush administration.

UANI recently erected a billboard near Caterpillar’s Illinois headquarters featuring Caterpillar equipment and Iranian President Mahmoud Ahmadinejad. The billboard read, “Today’s work/Tomorrow’s Nuclear Iran? Stop Cat’s Business in Iran.” UANI said it would take the billboard down after Caterpillar’s decision. 

“We applaud Caterpillar’s decision to prohibit its non-U.S. subsidiaries from doing business in Iran,” Mr. Wallace said in a press release over the weekend announcing the decision. “All responsible companies that transact business in Iran through the veil of a foreign subsidiary should take this as a wakeup call.” 

In a letter to Mr. Wallace, dated Feb. 25 and released by UANI, Caterpillar Chairman and Chief Executive James Owens defended the company’s past practices. He said Caterpillar’s indirect business with Iranian buyers amounts to less than two-tenths of one percent of 2009 world-wide sales. He said many of the sales of Caterpillar products inside Iran weren’t connected to its foreign subsidiaries, and the company “has no legal means to control” this secondary market. 

In an emailed statement Monday, a Caterpillar spokesman said the company “now has gone a step further by prohibiting its non-U.S. subsidiaries from accepting any orders for Caterpillar machines, engines and new parts where the subsidiary knows that the product would be shipped to Iran.” 

UANI also has targeted Royal Dutch Shell PLC. The Anglo-Dutch oil giant has only a small presence in Iran: it operates a lubricants-marketing business and acts as an adviser to China Petroleum & Chemical Corp., or Sinopec, on the big Yadavaran oil project. Also, in 2008 it entered into a service contract to develop the South Pars fields, part of a huge liquefied-natural-gas project called Persian LNG in the northern Gulf. Shell, which says it hasn’t reached a final decision on whether to proceed with the project until all the commercial and engineering work is complete, declined to comment on whether it would follow Caterpillar in divesting from Iran.

Shell says it is in full compliance with its disclosure and listings obligations, and a spokesman said “any accusations to the contrary are misleading.” But he added that Shell was monitoring the situation and would comply if there is an international agreement on further trade sanctions on Iran.

Part of Shell’s problem is that it has to conform to both U.S. and European Union law on Iran, and sometimes they conflict. The U.S. sets a limit of $20 million in any 12-month period on certain investments made in Iran, but the EU prohibits compliance with that investment limit. Shell says it didn’t exceed that limit in 2008 but has in the past and may in the future, and lists that as a possible risk factor in its annual filing to the U.S. Securities and Exchange Commission.

General Electric Co. has done business in postrevolution Iran through foreign subsidiaries, selling energy-related products and health-care equipment. But as rhetoric heated up on Iran’s nuclear activities in the middle of the last decade, GE’s board voted in 2005 to stop new business there. GE acquired new business in Iran in 2007 when it bought foreign oil-field-services firm Vetco Gray but has allowed those contracts to wind down. Currently, the company sells some health-care equipment to Iran under humanitarian programs but donates the profits to charity. Those sales are allowed by the U.S. government.

UANI, beginning in September 2008, had challenged GE, of Fairfield, Conn., to demonstrate it was no longer doing business in Iran. On Sept. 18, 2009, General Electric’s chief counsel, Brackett Denniston, signed a public declaration saying GE wouldn’t engage in business in Iran except for authorized humanitarian goods and services. UANI certified that GE wasn’t doing business in Iran and removed GE from its list of about two dozen U.S. companies it alleged were doing business with Iran. GE is the first and only company to sign the declaration, according to UANI.

“We thought it was worthwhile for the security of our businesses and the reputation of the company and our shareholders and employees,” said Peter O’Toole, a GE spokesman.