Global Investors Poised to Underwrite Terrorism: Iran returns to the Markets with 500 Million Eurobond; Will U.S. Buy In?

(Washington, D.C.): As the Casey Institute warned in its Perspective of July 14, 2000, Iran
has
now formally embarked on a Eurobond offering in the amount of 500 million euros. Not
surprisingly, the mandate for leadership of the offering was split between a leading French and
German bank (i.e., BNP Paribas and Commerzbank, respectively). What came as a shock to
many, however, was the willingness of a U.S. rating agency, Moody’s, to rate the bond in
possible violation of U.S. sanctions against this State Department-designated terrorist-sponsoring
state. The Treasury Department’s Office of Foreign Assets Control (OFAC) — charged with
enforcing U.S. sanction regimes — reportedly sent a letter to Moody’s in November of 2001 in
the words of a Financial Times article of 5 June, “seeking information on the rating,
and to
establish whether it constituted ‘an unlicensed provision of service.'” Moody’s did not withdraw
its rating until June 3^rd.

Discretionary Cash For Tehran?

Tehran is fully cognizant of the international imprimatur of approval embodied in being able
to
tap successfully global investors for a sovereign offering after some twenty-five years of pariah
status. Naturally, no such government intervention was in evidence when the French rating
agency Fitch gave Iran a B+ designation. It obviously fails to register in Paris, Berlin and
elsewhere in Europe that multiple official reports indicate that the hard-line clerics in charge in
Iran have: 1) stepped up substantially their support of Islamic Jihad and Hizbollah; 2) been
apprehended in the execution of a secret accord with the Palestinian Authority for the large-scale
provisions of lethal weaponry to the Authority, including missiles and C4 explosives; 3)
harbored al-Qaeda leaders and fighters from Afghanistan and reportedly are permitting them to
plot new terrorist attacks from their soil; 4) continued apace in their development of nuclear
weapons and long-range ballistic missile delivery systems (e.g., the Shahab 3, 4 and 5); and 5)
successfully sidelined so-called “moderate” elements in Iran’s body politic.

Next Steps for the White House

The big question now is: Will the Bush Administration allow American institutional and
individual investors to hold this Iranian bond in portfolio by purchasing it through oversea
exchanges? The fact that Moody’s was permitted to rate the bond in the first place and maintain
the rating for some three years is not encouraging.

The Bottom-Line

To be sure, the Administration has a great deal on its plate. Still, it must focus far more
intensely
on the implications for the war on terrorism and proliferation of allowing American legal persons
to purchase this Iranian credit instrument. This is not a hard call. OFAC must immediately
declare this Eurobond off limits to any American investors anywhere in the world. To do
otherwise would be to give an unmistakable wink of approval to a number of allied capitals who
would treat with Tehran and Baghdad tomorrow as full commercial partner if given the
opportunity. The Bush Administration should also urgently intervene with the governments of
France and Germany to discourage banks in their countries from leading this offering for Tehran.
If necessary, the Congress should consider legislative initiatives designed to achieve these
results.

For their part, state treasurers, public pension systems and mutual funds across America
should
publicly declare their unwillingness to hold this paper in portfolio. In 2001, a number of
America’s largest funds acted in such a principled fashion with respect to the PetroChina initial
public offering and holding the stock of Talisman Energy Inc. in response to their partnering
arrangements (or, in the case of PetroChina, that of their parent company) with the terrorist-,
genocide- and slavery-sponsoring Sudanese regime.

Make no mistake: What unfolds from this point forward concerning the fate of Iran’s
sovereign
Eurobond offering — and the discretionary cash it would provide to advance Tehran’s more
odious activities — represents a key litmus test of Bush Administration, congressional and allied
resolve in the war on terrorism. Pretending that this Eurobond offering is not a seminal event
will likely reap a potentially horrific whirlwind down the road for this country and its allies.