American International Group's ongoing struggle to pay back its US$167.7 billion government bailout may be set to get a small boost from an unlikely source: strong demand in heavily sanctioned Iran for Chinese-made cars and motorcycles. AIG, now 80.6 per cent-owned by the US government, is poised to reap tens of millions of dollars in proceeds from the planned Shanghai stock market listing of a small mainland car company doing big business in Iran, according to a South China Morning Post investigation. For more than a decade, US trade sanction regulations have broadly prohibited American companies and individuals wherever they are located from doing direct or indirect business with Iran. AIG has a minority stake in Chongqing-based Lifan Industry Group, a small, private firm that exports motorcycles to Iran, and also has a licensing agreement with a local Iranian factory to assemble its cars from imported kits. Lifan, 13.5 per cent-owned by an AIG subsidiary, plans to raise at least 1.48 billion yuan (HK$1.72 billion) in a proposed Shanghai stock market listing that goes before a China Securities Regulatory Commission committee today for a preliminary approval hearing. 'AIG acquired and maintains a non-controlling and minority interest in Lifan,' AIG's New York-based vice-president of media relations, Mark Herr, said yesterday in an e-mailed statement. 'At the time of the investment, Lifan had a de minimis [minimal] amount of sales to Iran. The investment by AIG was not in violation of US law,' the statement said. Despite AIG's liquidity troubles, which it is also seeking to ease in an up to US$20 billion Hong Kong listing of its Asian insurance arm, AIA, the firm remains a giant of the US insurance and finance industries. The fact that AIG stands to profit, albeit modestly, from its indirect business ties to Iran while still being supported by US taxpayer dollars is likely to exacerbate the sensitivity of the issue on Capitol Hill, where next month's midterm elections loom large. And on America's Main Street, federal bailouts of Wall Street's fallen titans remain a bitterly contentious issue. Doing business with Iran is becoming increasingly sanctionable, not only in the US but also in the European Union, and the United Nations in June took up the issue. Enforcers tend to focus on blatant cases of illicit finance, trade in arms or nuclear technologies, but regulations, particularly in the US, appear to cast a wider net. With regard to AIG's case, a Treasury Department spokesman said yesterday the matter did not appear to be a violation of US sanctions. The department declined to elaborate. According to the Iranian Transaction Regulations of the US Treasury Office of Foreign Assets Control: 'No United States person, wherever located, may engage in any transaction or dealing in or related to ... goods, technology, or services for exportation, re-exportation, sale or supply, directly or indirectly, to Iran or the Government of Iran.' This and other aspects of the regulations could represent a potential Iran sanctions liability for AIG, Erich Ferrari, a Washington-based lawyer who focuses on US trade sanctions, said. What is clear is that pressure on Iran has grown in recent months with the introduction of new and tougher US and UN sanctions designed to help contain the Middle Eastern nation's nuclear weapons programme. The tougher sanctions are making more and more non-US firms wary about doing business with Iranian firms, regardless of where they are located. Among those who have recently cut or curtailed business ties to Iran are Japan's Toyota Motor Corp, South Korea's Kia Motors, Germany's Daimler and insurer Allianz, Britain's Lloyds and Royal Dutch Shell. But while much of the world may be backing away from business links to Iran, the tougher US-driven stance has also opened the Middle Eastern nation's door more widely to economic ties to the mainland, which does not unilaterally restrict trade with Iran. China's imports from Iran now exceed US$10 billion a year, with oil accounting for much of that total. Iran in turn looks to the mainland increasingly as a source of investment to help develop its vast natural resources, and as a key importer of basic manufactured goods like electronics and household appliances. AIG, by way of its stake in Lifan, appears to have been unwittingly caught in the middle of the mainland's warming economic embrace of Iran. In July 2008, just months before AIG was effectively nationalised in the wake of the global financial crisis, the insurance firm's investment arm paid 605.33 million yuan (HK$703.51 million) for a 13.5 per cent stake in Lifan, according to the firm's filings to the regulators. The deal made AIG the largest outside shareholder after Lifan's founder and majority owner, Yin Mingshan and his family, who still control 82.3 per cent of the firm. But it secured AIG a seat on Lifan's board of directors that was filled by a vice-president of AIG Global Investment Corp's Greater China direct investment team, Stewart Thong Kwee Chee, a Malaysian. Lifan had previously been an exporter of mainland-made motorcycles to Iran, but around the time of AIG's investment it was in the process of pushing deeper into the Iranian market with cars. In 2007, it signed an exclusive distributorship agreement with the Kerman Motor Company to import and assemble from kits of the budget Lifan 520 car, according to press releases on Lifan's website. In July 2008 - the same month AIG finalised its investment in the firm - Lifan and Kerman held a ribbon-cutting ceremony to mark the start of sales that was attended by China's ambassador to Iran and local politicians. The two companies planned to sell 5,000 locally assembled cars in 2008 and 15,000 units last year, with capacity to reach a total of 20,000 units per year, according to the website. At the same time, the motorcycle business was growing. Iran did not rank among Lifan's top 10 motorcycle export destinations in 2008, according to its filings to the mainland securities regulator. But in 2009 four of the top 10 buyers of Lifan's motorbike exports were in Iran - together they bought 117.35 million yuan worth of bikes. Calls yesterday to Lifan's public relations department went unanswered. A person familiar with AIG's stake in Lifan said that in 2007 when it was conducting due diligence it was aware of the company's sales to sanctioned countries. The issue was keeping those sales from reaching a substantial level, but there is no clearly stated 'substantial' level in terms of sanctions law. Lifan currently exports to more than 70 countries and regions. AIG set a target of keeping Lifan's sales to sanctioned countries at or below 5 per cent of total revenue and that line has not been crossed, according to the person. As to the sensitivity of the matter given AIG's subsequent massive government bailout, the person said: 'AIG wasn't owned by the government when the investment was made.' AIG's stake in the mainland manufacturer is held via a British Virgin Islands (BVI) firm called Ideal Star Holdings, which in turn owns Hong Kong-registered Join State Limited, which holds the 13.5 per cent stake in Lifan, according to Lifan's regulatory filings and Hong Kong companies registry filings. In March this year, AIG sold part of its asset management business, now called PineBridge Investments, to Richard Li Tzar-kai's privately held Pacific Century Group for US$277 million. The sale to PineBridge included a minority stake in Ideal Star, and thus indirectly a share of AIG's Lifan stake. But AIG remains the controlling shareholder of the BVI firm, despite the fact that its appointee to Lifan's board of directors, Thong, now works for PineBridge, according to stock exchange filings by Tiangong International, another PineBridge portfolio company. Thong could not be reached for comment. So what does AIG stand to gain from Lifan's proposed stock market listing? The deal has not been priced yet, and AIG cannot sell the shares until one year after the listing date. But based on the Chinese carmaker's targeted listing proceeds, AIG should see at minimum a 24 per cent return on its initial investment, or a profit of at least 146 million yuan - which now must be partly shared with PineBridge. For a company on the hook to the US government for more than US$160 billion, that's not a lot.