ACCOUNTING FIRM EXECUTIVE DISCUSSES ACTIVITIES OF

C O N F I D E N T I A L SECTION 01 OF 02 BAKU 000900 SIPDIS E.O. 12958: DECL: 09/24/2018 TAGS: ECON EINV PGOV IR AJ SUBJECT: ACCOUNTING FIRM EXECUTIVE DISCUSSES ACTIVITIES OF TEHERAN OFFICE, IRANIAN INVESTMENT CLIMATE, AND IRANIAN BUSINESS ACTIVITIES IN AZERBAIJAN Classified By: Joel R. Garverick, Reasons 4.1 (b) and (d) Summary: -------------- ¶1. (C) Moore Stephens International accounting firm chief discussed with Baku Iran Watcher the firm's consulting activities in Iran and his personal impressions of the Iranian business and investment climate. He stated that Moore Stephens has been hired to advise several Iranian companies on modernization and restructuring, but said results have been almost universally disappointing, as very few of their professional recommendations have been implemented. The Iranian foreign and domestic investment climate is &bad and not getting better,8 in part due to the inability or unwillingness of the GOI to offer meaningful commercial incentives. He said that his Iranian business contacts do not seem to be suffering negative effects from economic sanctions, and suggested that years of sanctions have in some ways been beneficial to Iran,s economy by encouraging self-sufficiency and de facto &infant industries8 policies. He discussed &growing8 commercial activity by ethnic Iranians in Azerbaijan, some of whom are dual nationals and many of which he said have ties to the Mashad area. This increased activity has included openings of small banks and other financial institutions, and significant purchases of real estate. End Summary. Meeting with Head of Moore Stephens Baku -------------- - ¶2. (C) On September 10 Embassy Baku Iran-watcher met with the head of the Baku Office of Moore Stephens, an international accounting firm that also operates in Iran. The executive, a UK national who has lived in the region for thirteen years, helped set up their Teheran office, and has exercised general oversight of it for approximately six years. During the meeting he discussed Moore Stephens' activities in Iran and his personal impressions of the Iranian business and investment climate. Moore Stephens - Iran Operations -------------- ¶3. (U) Moore Stephens is the world's eleventh or twelfth-largest international accounting firm. It has two operations in Teheran - one an audit business, which was described as a franchise with which the Baku office has little involvement; and a management and financial consulting business, with which the Baku office is more directly involved. Much of the Iranian staff formerly worked for Arthur Andersen, and were hired by Moore Stephens after Arthur Andersen went bust. Both operations work with Iranian and foreign individuals and corporate clients. Iranian Management/Modernization Inertia -------------- ¶4. (C) Without providing details, he said that his consulting firm has been hired to advise several Iranian companies, including state-owned companies, on management and financial restructuring, but claimed that the results were almost uniformly disappointing. Generally "the Iranians listen politely to our presentations, nod repeatedly, and do nothing," he claimed. He opined that this outcome is not because Iranian managers "don't get it," but because, due to risk aversion, professional incapacity of some politically-connected company heads, and/or other reasons not entirely clear to him, "they just don't want to be bothered." ¶5. (U) He noted that individual Iranians are extremely clever and capable, and should not be underestimated because of problems like the above. Citing Teheran's "world class" metro system, and Iran's self-sufficiency in food and most industrial and computer products, he argued that "Iranians can do anything, once they've set their minds on it." Iranian Investment Climate - Bad and Not Improving -------------- -------------- ¶6. (C) He flatly asserted that the investment climate in Iran, both foreign and domestic, is "not good, and not getting better - they are the own worst enemies." He asserted that, despite occasional promises to the contrary, the Iranian government is consistently unable or unwilling to provide sufficient tax or other economic/commercial incentives to either domestic or foreign investors. He added that interference by Iranian government entities and/or individuals and investor harassment often continues even after deals are set and underway. Overall, he observed that the Iranian investment and general business climate has BAKU 00000900 002 OF 002 deteriorated noticeably since the end of Khatami's presidency, adding that "our (Iranian) business over the last five years has been flat," and disappointing to Moore Stephens management. Business Impact of Economic Sanctions -------------- ¶7. (SBU) Source claimed that he has never heard Iranian businessmen either here or in Teheran cite or complain about international economic sanctions as a source of problems for them - indeed, he suggested, some clever businessmen are finding ways to actually profit from them through various trade and financial manipulations. He also opined that that U.S. and international sanctions may have actually helped the development of Iran's technical and industrial capacity by promoting self-sufficiency in food, industrial and technological products, and de facto "infant industries" policies. Iranian Business in Azerbaijan ) A "Mashad Mafia"? -------------- -------------- ¶8. (C) Putting on his Azerbaijan hat, the Moore Stephens chief claimed that there has been a steady and expanding increase of Iranian business activity of various kinds in Azerbaijan. He said these consist mainly of joint ventures in financial, construction, and other sectors as well as a significant increase in acquisition of private and commercial real estate, including, he claimed, large-scale purchases by individual Iranians of new apartments in Baku. (Note: new apartment buildings, finished and under construction, dot the Baku skyline. End Note.) ¶9. (C) Source also noted significant business activities by several Iranian dual-national entrepreneurs, including Iranian-Azerbaijani and Iranian-American citizenship holders. According to source, one of these, a client of his, has opened a bank in Azerbaijan "although he knows nothing about banking, and the bank isn't making any profits." He claimed that his client told him that owning this bank is "gives me something to do," and claimed that it has an increasing resale value since it possesses a hard-to obtain Azerbaijani banking license. He added that many Iranian business figures operating here originate from Mashad, and/or also have major business interests there. Iranian Private Life/Attitudes -------------- ¶10. (SBU) Source claimed to have almost never heard any criticism of the U.S. or praise of the regime from any of his Iranian business or personal contacts, and asserted an impression that most of the "sizable" Iranian middle class has no interest in the regime or its policies except to make it as irrelevant as possible to their private lives." He described the current social atmosphere in Iran as notably relaxed from earlier years, and claimed that alcohol is now readily if discreetly available in hotels and elsewhere to those (many) Teheranis who desire it, e.g., offered as "cold tea" in certain restaurants. He also described attending large private parties in homes where wives pushed back their head coverings and alcohol was served. Overall, he claimed that despite prevalent western images, social land personal life in Teheran is "much freer than life in Jeddah or Riyadh." Comment: -------------- ¶11. (C) The Baku Moore Stephens chief was a bit guarded in this initial meeting (e.g., not mentioning any clients by name),but opened up as the discussion went on. He volunteered to meet again, and offered to help arrange a meeting with his Iranian managing partner during on of the latter,s periodic visits to Baku from Teheran. There is clearly a great deal more that can be learned from these sources, and Iran Watcher will work on further developing this and other relationship with Baku-based sources knowledgeable about comercial and economic activity in Iran. End Comment. DERSE