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WASHINGTON—New U.S. guidelines on foreign investment in Iran sparked concerns that the measures would benefit Tehran's elite military unit, the Islamic Revolutionary Guard Corps.

Senior Obama administration officials have said they are hoping Iran's economic reintegration into the global economy could help cement last year's nuclear deal and strengthen President Hassan Rouhani, viewed as a relative political moderate.

On Friday, the Treasury Department released updated guidelines that indicated Washington wouldn't seek to sanction foreign companies doing business with blacklisted Iranian entities, provided they maintain only minority interests in ventures.

"It is not necessarily sanctionable for a non-U.S. person to engage in transactions with an entity that is not on the [sanctions list] but that is minority owned, or that is controlled in whole or in part, by an Iranian or Iran-related person on the [list]," the guidelines say.

U.S. law bans Iranian banks and companies from conducting business through the American financial system. But Treasury clarified in its guidance that Tehran could legally gain access to dollars through non-U.S. banks and institutions, provided they have no direct contact with the U.S. financial system.

"Foreign financial institutions, including foreign-incorporated subsidiaries of U.S. financial institutions, may process transactions denominated in U.S. dollars or maintain U.S. dollar-denominated accounts that involve Iran or persons ordinarily resident in Iran," the Treasury guidelines say.

The new guidelines sparked criticism from Republican lawmakers over the weekend.

"The new guidance overturns the long-running understanding that the U.S. dollar cannot be used to facilitate international trade with any Iranian entities, let alone sanctioned entities. And by allowing foreign subsidiaries of U.S. companies to transact business with Iranian entities, the president is ignoring the clear text of a law passed by Congress," Sen. Tom Cotton (R., Ark.) said on Sunday.

Sen. Mark Kirk of Illinois, who chairs a Senate banking committee with oversight over Iran sanctions law, said the new guidelines amounted to the White House granting Tehran new concessions.

Meanwhile, Rep. Mike Pompeo (R., Kan.) said Treasury's changes "green-light business with terrorists. The updated FAQs remove barriers for foreigners to engage with firms the Islamic Revolutionary Guard Corps controls. From this and other appeasements, it appears the Obama administration has given up on any democratic or pro-Western future for Iran."

Treasury has sought to dissuade foreign companies from doing business with the IRGC, which is widely viewed as the most dominant player in Iran's economy. The U.S. has designated dozens of IRGC companies over the past decade for their alleged roles in funding international terrorism, arms trafficking and committing human-rights abuses against Iranian citizens.

Iranian officials have increasingly complained that the U.S. has undercut Tehran's business prospects and the nuclear agreement by maintaining bilateral sanctions.

Treasury officials said on Sunday that their new guidance doesn't amount to a concession and is part of the department's regular review of its sanctions programs.

In recent weeks, the administration has approved the sale of dozens of Boeing Co. commercial aircraft to Iran, in the biggest transaction between the two countries since the 1979 Islamic revolution. The White House has indicated the U.S. might support Tehran's bid to join the World Trade Organization.

Still, allies of the White House in promoting the nuclear deal are pressing President Barack Obama to do more in his final months in office, including establishing a direct financial channel between the U.S. and Iran. They played down the overall impact of Treasury's new guidelines.

"We should not ignore the fact that the United States is unique in the world in continuing to impose a comprehensive trade and investment embargo with Iran despite resolution of the nuclear issue," said Tyler Cullis of the National Iranian American Council.

A number of former U.S. Treasury officials, however, have voiced increasing fears in recent weeks that the Obama administration was significantly weakening Washington's ability to exert financial pressure on Iran.

They said Tehran has done nothing since last year's nuclear agreement to reduce its support for militant groups in the Middle East and said Iran remains a central player in fueling Syria's civil war.

"The administration seems to be doing everything possible—from roadshows to new interpretations of regulations—to encourage business with Iran," said Juan Zarate, who served as a senior Treasury and White House official in the George W. Bush administration. "At a time of growing concern about Iran's adventurism, support to terrorism, and clerical and IRGC control of the economy, this seems to be a moment for the U.S. and the world to be applying even more scrutiny—not less."

Write to Jay Solomon at jay.solomon@wsj.com

(END) Dow Jones Newswires

October 09, 2016 21:35 ET (01:35 GMT)

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