Contracting with the Enemy

How General Electric defied the international community to do business with Iran.

[The Editors: This is the first of a two-part FrontPage investigative series on General Electric and its troubling business practices. The first part explores the company’s ties to rogue nations like Iran. The second part will examine GE’s connections to the Obama administration and the benefits it has derived from high-level access to the White House.]

“We don’t run a charity at GE. We’re in business to make money for our investors.” - General Electric CEO Jeff Immelt

Being called a “state sponsor of terror” would seem to be bad for business. Yet the label has traditionally done little to deter one of the world’s largest companies, General Electric, from pursuing business relations with rogue nations. In fact, GE, like a number of other U.S. companies, has a history of exploiting legal loopholes during times of U.S. and U.N. sanctions in order to continue generating revenues from dangerous regimes – despite full knowledge of the treacherous nature of their clientele. A prime example is GE’s former relationship with Iran amidst allegations that the fundamentalist nation was assisting Iraqi insurgents in their efforts to kill U.S. troops.

Like most viable industrial companies, GE is in a constant state of looking for new business. As one of the world’s largest companies and one of the most recognizable brands in existence, this is only natural. However, GE’s once-troubling close relationships to Iran, Syria and Lybia make an exploration of its past history paramount.

It was not long ago that GE’s ties to rogue nations like Iran and Syria took center stage. In 2004, CBS News, among other outlets, reported on a loophole that allowed GE and related companies to circumvent U.S. sanctions in order to conduct business in countries like Iran and Syria. According to CBS, so long as foreign or offshore subsidiaries were run by non-Americans, legal restrictions on business services to rogue nations did not apply. At the time, former NYC comptroller William Thompson accused GE and its cohorts of helping to “underwrite and support terrorism” by operating in Iran. Thompson said that revenues earned from projects that companies like GE worked on were being allocated for terror-related activities. Additionally, he claimed that GE “violated the spirit of the law.”

In response, GE called CBS’s coverage “shallow and one-sided.” However, as criticism and public angst rose, the company changed course and decided to stop seeking new business in Iran. On Feb. 2, 2005, General Electric spokesman Gary Sheffer said,

“Because of uncertain conditions related to Iran, including concerns about meeting future customer commitments, we will not accept any new orders for business…this moratorium on new orders will be re-evaluated as conditions relating to Iran change.”

Pressures from Thompson and other prominent figures, like Sen. Frank Lautenberg (D-N.J.), who made very public claims that GE, Halliburton and other companies were collecting “blood money” in their dealings with rogue nations, led to this alteration of corporate policy. Still, this reversal did not apply to the contracts that were already in process at the time the decision was made. In fact, it was not until 2008 that GE finally completed Iranian contract work.

Though legal, the original work that was accomplished through a systematic loophole, as well as the continued contract work, violated business ethics and undermined the pressure that the U.S., U.N. and other partners were placing on rogue nations with nuclear and terror-related ambitions, like Iran – nations that were and continue to be bastions of instability. GE’s continued dealings with Iran afforded the state a measure of legal legitimacy, reduced the incentive to comply with sanctions, and ultimately halted the progress the international community was attempting to make in the region.

GE continued to do work on remaining Iranian projects (those contracted before the 2005 suspension) until 2008. This occurred despite U.S. knowledge of the role that Iran was playing in supplying weapons to Iraqi insurgents. Last month, Chip Cummins of The Wall Street Journal mentioned an acquisition that raises some eyebrows about GE’s true commitment to its 2005 business suspension. According to Cummins, in 2007 GE purchased Vetco Gray, a company that was doing business in Iran at the time (though GE has since allowed its contracts to close out). As a result of the actions of at least three unidentified employees, Vetco Gray was fined $26 million in 2004 for violating the Foreign Corrupt Practices Act by making payments to Nigerian customs officials.

Prior to negative press coverage for its engagement with Iran, GE had no qualms about contracting with rogue nations. Consider its relationship with Libya, a nation that was actively involved in terror activities in the 1980’s and 1990’s and was not removed from the U.S. State Department’s State Sponsors of Terrorism list until 2006. In 2004, Fortune magazine reported that, during years of active sanctions against the nation, GE conducted business with Libya through Nuovo Pignone (Italian subsidiary); work in Libya continues today, though U.S. relations with the former rogue nation have improved.

Today, General Electric claims that outside of humanitarian aid neither the main company nor its subsidiaries engage in any business relationships with nations that are presently on the U.S. State Sponsors of Terrorism list (Cuba, Iran, Sudan and Syria). Based on GE’s history, however, the concern for state sponsors of terrorism is likely linked more to public perception and potential business impact than it is to ethical convictions. The company still stands by its handling of Iranian business, claiming on its web site that, “GE at all times acted in full compliance with U.S. and other laws. We have always required our businesses to follow U.S. sanctions and other applicable laws. In fact, our policies have been more restrictive than U.S. law.” But in a sign of its new position, on Sept. 2009, GE became the first company to sign UANI’s public statement claiming that it would not do business in Iran (aside from approved humanitarian work).

Still, the record is clear: Whatever it may say now, the company – with its various arms extending into commercial and consumer finance, aviation, aerospace, healthcare, entertainment and energy – has become proficient at finding loopholes in order to do business with rogue nations. When it comes to getting the job done and driving revenues, GE’s principal concern seems to be for its bottom line – even if it means contracting with the enemy.