Investment in Iran stock market
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Investment in stock market (part two)

  • Limitations

    • When an investor want to invest in a foreign country, it is important to consider due care to the limitations. The limitations may include the requirements for investment, importing of capital, acting through capital, or exporting of capital or its profit.

  • conditions for starting the investment:

    • According to Article No. 3 of the Regulation,(see part one of this article) limitations described in “Persuasion and Protection of Foreign Investment Act” (10/3/2002) is also applicable to investment in stock exchange market. According to this Act; accepting and permitting foreign investment depends on its results which must be development  and to enhance the production of industrial, mineral, agricultural goods or services.

    • There are four important limitations on accepting of foreign investments:

      • First, it should promote economic growth, technological capacity, and quality of products, job opportunities and exporting capacity.

      • Second, it must not cause to threatening of national security and public interest, destruction of environment, Discomfit in economic system, and Wastage of productions produced through internal investments.

      • Third, it must not include granting concession to the foreign investor. The concession is bestowed specific rights that monopolize the foreign investor.

      • Forth, portion of values of produced goods and services through foreign investment must not exceed 25 percent in each section and 35 percent in each branch, than the value of goods and services supplied in internal market in the time of starting investment.

    • In order to clarify those conditions, we examine some of them separately:

      • The “development criterion” is not an applicable criterion because its first function was for foreign direct investment and is not applicable to investment in stock exchange.

      • “Threatening of national security” is a strictly defined criminal topic in Iran Criminal Code. When an investor wants to invest in a foreign country, it is not possible to determine that if it would cause to threatening the national security. As “development criterion”, it is a criterion related to foreign direct investment. A foreign investor, who wants to invest in stock exchange, only can buy shares of an existing company so it cannot act illegally. If this criterion does not interpret through narrow legal point of view, any kind of foreign investment could be blocked by any vague justification.

      • “Public interest” is a criterion that could be used either for preventing an investor to enter into stock exchange market or to prevent investor from continuing the investment. Of course, this criterion is also vague criterion but at least is a little clearer than the others; one of the essential elements for legal nationalization is “public interest” So at least it is a familiar notion. Since the decision of authorities about accepting or rejecting investor is not a legal decision and thus could not be revised by a legal authority. As we mentioned above, this conditions are originally related to foreign direct investment so they could not be applied to indirect investment properly and correctly.

      • About the criterion of “destruction of environment”: According to Principle No. 50 of Iran Constitutional Law, protection of environment is a public duty of all people. There is a special organization responsible for protecting of environment so if the authorities responsible for examination of requests of investment want to examine this criterion, they must obtain the opinion of this organization. This criterion is a crucial responsibility of investor in foreign direct investment and also is one of duties of investor in oil and gas investment field.

      • Another criterion that has a very vague wording and very wide definition is “discomfit in economic system”. The investment must not result in discomfit in economic system. Discomfit in economic system in fact is a crime described in an Act named “Punishment of Disturbance in Economic System” (December 10, 1990).

    • According to this Act, this crime includes: (this is an unofficial and concise translation of this Act)

      • Disturbance in monetary and foreign exchange system through mass contraband of foreign exchange or counterfeiting of coins or bills or importing or distributing of them;

      • Disturbance in distribution of living needs through overpricing of living goods or hoarding them or mass buying of agricultural products or other living goods in order to monopolize or causing shortage in distribution of them;

      • Disturbance in production system through unlawful selling or abuse of unlawful selling of technical equipment or ingredients in free market, or violation of its rules or mass bribery in any production phase or obtaining any permission that causes damage to production policy.

      • Committing any action in order to export cultural heritage regarded as contraband even if does not result in exporting them. It is not only the crime of contraband but also the crime of discomfit in economic system.

      • Obtaining and recovery of mass finance through accepting of deposits that would result in embezzlement of property of people.

      • Disturbance in exporting system through group actions of any kind, such as fraud in pricing of exporting goods and etcetera.

      • Establishment of any company or group or committee or party that gain money through maximizing participants (pyramidal company).

  • To be continued.

  • See Investment in stock market (part three)

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