Foreign companies that do business with Iran should be preparing to bolster their due diligence efforts as the U.S. pushes forward with the unprecedented move of designating the country's Islamic Revolutionary Guard Corps as a Foreign Terrorist Organization.

After the designation takes effect April 15, providing support to the IRGC—a military unit that reportedly controls hundreds of companies in Iran's energy, transportation, telecommunications, construction and metals and mining sectors—will be treated as a crime under the authority of the Antiterrorism and Effective Death Penalty Act of 1996.

“This raises the question of whether a non-U.S. company or individual could be prosecuted for engaging in commercial transactions with an Iranian company controlled by the IRGC—that is, whether such activity would be considered 'material support' for the IRGC, even if the dealings are not directly with the IRGC itself,” said Kirkland & Ellis partner Anthony Rapa, an international trade and national security lawyer in Washington, D.C.

Rapa added that “due diligence is now more important than ever” in light of the specter of criminal prosecution, which could mean prison time and massive fines. But ramping up compliance efforts will likely be complicated by the fact that it's difficult to know which companies are under IRGC control.  

“We're already fielding questions about it,” Rapa said. “They [clients] are at least at the stage of really wanting to know how the risk level has changed.”

The Trump administration could use this as an opportunity to provide more clarity on the IRGC's economic reach—or the administration “might also be perfectly happy for companies to throw up their hands and say, 'It's not worth it; we are now withdrawing from Iran,'” Rapa said.  

President Donald Trump noted in a written statement that his administration's latest move against Iran marks “the first time that the United States has ever named a part of another government as a FTO. It underscores the fact that Iran's actions are fundamentally different from those of other governments.”

He added, “It makes crystal clear the risks of conducting business with, or providing support to, the IRGC. If you are doing business with the IRGC, you will be bankrolling terrorism.”

Iran has countered Trump's move by slapping a terrorist group designation on the U.S. Central Command, which oversees military operations in the Middle East along with Central and South Asia.

While the IRGC's designation as a terrorist group could add to the list of compliance headaches for foreign companies, it's unlikely to have any real impact on stateside businesses, as they've already been dealing with harsh Iran sanctions and embargoes.

Michael Gershberg, a partner at Fried Frank in Washington, D.C., and a member of the firm's international trade and investment practice, predicted that, even for foreign entities the “practical effect of this designation may be limited.” He suggested the move could prove to be more symbolic than substantive.

“I think most global companies were probably already hesitant to deal with the IRGC,” he said. “And given how embedded the IRGC is in the Iranian economy, I think the difficulty for foreign companies and U.S. government authorities or prosecutors is going to be identifying which entities are IRGC or are acting on behalf of the IRGC.”

Gershberg added, “At this point, until we see whether the government is going to ramp up enforcement, it's not clear that it's going to have a significant practical effect on most foreign companies.”

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