HON Honeywell International Inc

By Asa Fitch and Ian Talley 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (June 6, 2018).

Dozens of major American companies are preparing to pull out of Iran as the Trump administration closes a narrow legal window that has allowed firms to operate there without violating U.S. sanctions.

The companies using the exemption include big conglomerates like Honeywell International Inc., Dover Corp. and General Electric Co. and insurers like Chubb Ltd., many of which sought to profit from growth in the Iranian energy industry. Some of the companies have already booked millions of dollars in revenue from their Iranian business, underscoring the high commercial stakes of the Trump administration's decision to revive economy-crippling sanctions against Iran.

In all, at least 17 U.S.-listed companies did business with Iran using foreign subsidiaries after the Iran nuclear deal went into effect in January 2016. Their total Iran-linked revenues since then amounted to more than $175 million, according to an analysis of Securities and Exchange Commission filings. Many more privately held companies may also have done business in Iran through subsidiaries but aren't subject to SEC disclosure rules.

Now some of those companies are hastening to shut down their foreign subsidiaries' activity with Iran to avoid crushing U.S. sanctions expected to begin taking effect in November.

President Donald Trump's move in May to exit from the nuclear deal spells the end of the Obama administration's so-called General License H, which allowed U.S. companies with foreign subsidiaries to trade, finance, insure and invest in Iran. The exemption afforded by the license was part of the carrot-and-stick approach the Obama administration used to extract concessions from Iran, using the promise of economic rejuvenation through U.S. investment, though only indirectly through foreign subsidiaries.

Mr. Trump and his supporters saw the Iran deal as inadequate because it failed to address Iran's military presence in the Middle East and its development of ballistic missiles capable of reaching U.S. allies like Israel. Like all the other sanction exemptions the administration is revoking over the next six months, U.S. officials say yanking License H is designed to isolate Iran politically, financially and economically as Washington tries to pressure Tehran into a fundamentally new military stance in the region.

"These sanctions will further cut the Iranian regime off from abusing the global financial system," said Sigal Mandelker, Treasury's undersecretary for terrorism and financial intelligence.

The U.S. Treasury says U.S.-based firms operating under that license have until Nov. 5 to wind down their operations or risk penalties -- the same time frame for new bans against other dealings with Iran's economy except for some specially licensed trade in medical and food goods.

The withdrawal has drawn a fiery response from Iran, which has vowed to quickly scale up its nuclear program if European leaders can't work out an agreement to continue the deal without the U.S. On Tuesday, Ali Akbar Salehi, the head of Iran's atomic agency, said the country had constructed new infrastructure for building advanced-enrichment centrifuges, according to the official Islamic Republic News Agency. Centrifuge development hadn't started, however, and the activities at a facility in the central city of Natanz were currently within the strictures of the nuclear deal, he said.

License H was designed to ease crippling sanctions imposed by the Obama administration in 2012 once the nuclear deal took effect in 2016. It gave companies a way around remaining U.S. sanctions on Iran for terrorism, human-rights violations and its ballistic-missile program.

Unlike several European companies such as Siemens AG, Renault and oil giant Total, which made splashy moves into Iran, few American firms drew attention to their Iranian dealings. But many had big plans for a market with a population of around 80 million people and some of the world's largest oil and gas reserves.

Now some are heading for the exit.

Illinois-based Dover, a manufacturing conglomerate, said the revocation of License H would end its business in Iran. Dover had been selling spare parts for pumps used in Iran's energy infrastructure and was set to earn more than $16 million in revenue from contracts signed there since the beginning of 2017, according to regulatory filings.

The Wall Street Journal reported last week that GE is pulling back from its foreign subsidiaries' work in Iran. The company had revenue of about $24.8 million on sales of valves and spare parts for Iran's energy industry, among other contracts, according to regulatory filings.

"We are adapting our activities in Iran as necessary to conform with recent changes in U.S. law," a GE spokeswoman told the Journal last week. "GE's activities in Iran to date have been limited and in compliance with U.S. government rules, licenses and policies."

Honeywell has booked around $115 million of revenues from Iran through its non-U. S. subsidiaries since the beginning of 2016, largely in the past year, according to regulatory filings. Unless Honeywell is able to fulfill $100 million in current contracts by early November, it could lose future potential revenue, given that the firm indicated in its SEC disclosures that those contracts aren't yet completed.

U.S.-based Honeywell spokeswoman Victoria Streitfeld said the company and its non-U. S. subsidiaries "operate within the parameters of all applicable U.S. and international regulations and will continue to do so."

"For those who have live contracts, they'll have to think about how to wind them down," said Patrick Murphy, a Dubai-based lawyer at Clyde & Co. specializing in sanctions regimes.

The License H exemption had limits and brought scrutiny on companies using it. There were restrictions on the use of sensitive technology with national-security implications, and the foreign subsidiaries couldn't employ Americans.

The hoped-for benefits of the nuclear deal never fully materialized for Iran. While the country was able to export more of its oil, average Iranians didn't reap the rewards, as inflation and unemployment rates remained in the double digits and remaining U.S. sanctions deterred investment.

The end of the deal and the withdrawal of License H could cause headaches especially for American insurers. A handful of them have used the permission to cover whole fleets of ships, some of which began calling at Iranian ports after the nuclear deal. Such insurers could face penalties if they don't stop providing protection for ships carrying oil and other cargo into Iranian ports.

Validus Holdings, for example, said in its first-quarter report that its non-U. S. subsidiaries provide coverage for ship cargo to and from Iran, including crude oil and refined petroleum products. The company declined to comment for this article, but said in its March filing that it "intends for its non-U. S. subsidiaries to continue to provide such coverage to the extent permitted by applicable law."

Write to Asa Fitch at asa.fitch@wsj.com and Ian Talley at ian.talley@wsj.com

Corrections & Amplifications GE had revenue of about $24.8 million on sales of valves and spare parts for Iran's energy industry, among other contracts, from 2016 through the first quarter of 2018, according to regulatory filings. An earlier version of this article incorrectly gave the figure as $24.5 million. (June 5, 2018)

(END) Dow Jones Newswires

June 06, 2018 02:47 ET (06:47 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.