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A privately owned German company, Knauf Gips KG, warned its Iranian employees working in Iran that they would be immediately dismissed if caught in antigovernment protests, according to a document reviewed by The Wall Street Journal.

Iran's government pressured Knauf to issue the order after a senior executive was arrested during Friday prayer demonstrations two weeks ago, according to people familiar with the case. The company, which has 22,000 employees around the world, was told that such a letter would be a condition for the executive's release.

The order by Knauf, a drywall-manufacturing company with decades of business history in Iran, shows how foreign companies in Iran are vulnerable to severe repercussions if they don't comply with demands from the regime.

Since protests following Iran's June 12 presidential election, Iran has cracked down on opposition supporters, particularly Iranians or dual nationals employed by Western companies, embassies and the media. Iran has accused some of fomenting a "velvet" revolution and acting as links between opposition leaders and foreign countries.

Protesters have come from all walks of life. The employee at the center of the Knauf controversy is a 34-year-old dual national of Germany and Iran and heads the company's Iran operation. He was released four days after Knauf agreed to issue the order but faces trial, according to the company and others.

Isabel Knauf, a founding... >>>