ABOVE: Mansoor Rad
Finance Director
Naftiran

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Just before Thanksgiving, the Office of Foreign Asset Controls (”OFAC”) designated a Swiss corporation and a U.K. corporation as entities controlled by the Government of Iran. The two companies involved were Naftiran Intertrade Co. (NICO) SARL, located in Pully, Switzerland, and Naftiran Intertrade Company Ltd., located in Jersey, Channel Islands. Both are subsidiaries of Naftiran Intertrade Company, which in turn is a subsidiary of the National Iranian Oil Company, an agency of Iran’s Ministry of Petroleum.

Of course, the Iranian Transaction Regulations prohibit transactions with any entity owned by the Government of Iran, wherever located and whether or not the entity has been specifically identified by OFAC as owned by the Government of Iran. A non-exhaustive list of such entities is contained in Appendix A to the Iranian Transaction Regulations which, prior to these two latest additions, contained only financial institutions. The appendix is described by OFAC as a “tool to assist … in complying” with the regulations. Thus, the addition of the Naftiran subsidiaries to that appendix does not have any substantive effect.

Because Appendix A is not exhaustive, it’s not in fact a particularly useful compliance tool. Failing to find a company on the list doesn’t mean that it isn’t owned by the Iranian Government. Nor does the addition of these two companies to the appendix provide any information that is otherwise difficult to obtain. The first result of a Google search on the term “Naftiran” is a website that readily shows the connection of Naftiran Intertrade to the Government of Iran.

Instead one has to suspect that this latest order is simply a part of the ongoing public relations campaign of the U.S. government against Iran. The designation — and this post — should serve as a reminder, however, that Google is an exporter’s best friend. No exporter should ever deal with a foreign company otherwise unknown to it without conducting due diligence on the Company. Part of that due diligence is a Google (or other Internet) search which would have, in the case of Naftiran, revealed the Iranian connection, even without OFAC’s latest order.

The Office of Foreign Assets Control (”OFAC”) today announced that it was adding the Export Development Bank of Iran (”EDBI”) to its list of Specially Designated Nationals and Blocked Persons. The effect of the designation is to freeze all assets of the bank in the United States now or in the future. According to the press release issued in connection with the designation, the Iranian bank is assisting the Government of Iran in connection with its nuclear proliferation activities.

More interesting than yet another Iranian bank designation was OFAC’s simultaneous designation of EDBI’s Venezuelan subsidiary Banco Internacional de Desarrollo. The name of the Venezuelan subsidiary is perilously similar to the Banco Interamericano de Desarrollo, otherwise known as the Inter-American Development Bank, an international banking organization just blocks away from the Treasury Department in Washington, D.C. To make the situation worse, a Google search on “Banco Internacional de Desarrollo” returns the Banco Interamericano de Desarrollo as its first result.

The possibility of confusion, as well as the desire to avoid about 4 million calls to the OFAC hotline, led OFAC to take a step so far unprecedented on the SDN list: it specifically noted that the designation did not cover the Banco Interamericano de Desarrollo. Here’s the entire designation:

BANCO INTERNACIONAL DE DESARROLLO, C.A., Urb. El Rosal, Avenida Francisco de Miranda, Edificio Dozsa, Piso 8, Caracas C.P. 1060, Venezuela; RIF # J294640109 (Venezuela); SWIFT/BIC IDUNVECA; Banco Internacional de Desarrollo, C.A. is a separate and distinct entity from Banco Interamericano de Desarrollo, known in English as the Inter-American Development Bank (IADB), and from Banco Desarrollo Economico y Social De [sic] Venezuela (BANDES), an entity owned by the Government of Venezuela [NPWMD]

And, as you can see, OFAC also gave a “Get Out of Jail Free” card to the somewhat less similarly named Banco Desarrollo Economico y Social de Venezuela. These preemptive exclusions are, to my knowledge, unprecedented on the SDN list.

OFAC has been subject to substantial criticism that it is easier for an SDN to remove itself from the list than for an innocent party with the same or similar name to an SDN to obtain from OFAC an official clarification that the innocent party isn’t on the list. This unusual new designation substantially erodes OFAC’s claim that cases of mistaken identity aren’t its problem.

Country-based sanctions start to get leaky in the age of the Internet. How does a software download service know whether or not it’s providing a service to an individual in a sanctioned country?

A blogger at PBS’s Mediashift Blog notes that Google has blocked downloads of its new browser Chrome, as well as other Google programs, to residents of Syria and Iran. Well, sorta:

Iranian blogger, Hamid Tehrani, who edits the Iran section for Global Voices, [reports] that Chrome is blocked, along with other Google downloads, in Iran. But it’s relatively easy for Iranian users to get around this obstacle. [Another Iranian blogger reported] in an email (from his Gmail account) that he is still able to access Google services by using a proxy.

“Currently, we are using all of the search engines and portals without any restriction, using the latest versions of Google Earth, Chrome, GTalk and any other downloadable product,” he said. In addition to helping users get around government filtering and censorship, proxies and anonymizers can also fool Google’s servers into thinking that the downloads were going elsewhere rather than to users in Iran.

What’s going on here is that normally each user is assigned an IP address that identifies the user as he or she surfs the Internet. IP addresses are assigned, in part, based on geographical location, and there are blocks of IP addresses that would identify an Internet surfer as Iranian or Syrian (or French, etc.) Google has, apparently, blocked downloads from users with IP addresses allocated to sanctioned countries. An open proxy server, however, can be used by most browsers to connect to the Internet, thereby making the user appear to be coming from the country in which that proxy server is located rather than from the country in which the user is actually located.

The article reports that other web-based service providers have taken alternate approaches to dealing with U.S. sanctions.

Although Yahoo removed Iran from the drop-down list, Iranians were still using Yahoo services, according to Kourosh Ziabari, an Iranian journalist and blogger who wrote about the issue for the citizen journalism site OhMyNews.

“[Iranians are using] Yahoo services, downloading new versions of Messenger, using the different web site parts but not finding the name of their country in the sign-up list,” Ziabari wrote. “In fact, if an Iranian user wanted to sign up for a new account in Yahoo mail, he should have selected the name of the other countries, and then he would proceed.”

Although removing Iran, Cuba, Syria and other sanctioned countries from drop-down lists is certainly a good idea to demonstrate compliance with U.S. economic sanctions, it can hardly be considered sufficient. Websites that provide web services, such as downloads, should also capture IP addresses in order to determine whether a web-based customer is coming from sanctioned country. Arguably, websites that sell non-virtual products (you know, computers, GPS equipment, bricks, etc.) should also capture those addresses. A web-based order from Iran for a shipment to the UAE is a bit of a red flag, n’est-ce pas?

But given the ease of using proxy servers, should websites do more to implement U.S. sanctions? Should Google (and other browser providers) put “kill switches” in downloadable software that would make a direct connection to the Internet, “call home,” and then shut the program down if the home servers indicated the verification connection was coming from a sanctioned country? Or should the program require activation using a code sent to an email address other than a web-based email address? Any other ideas? Or is this just a losing battle that should be abandoned?

The winner of today’s breathlessly exaggerated headline contest goes to the Bureau of Industry and Security (”BIS”) for this:

COMMERCE DEPARTMENT, GOVERNMENT PARTNERS, BREAK UP IRANIAN RING CHARGED WITH PROCURING IED COMPONENTS

Although this headline conjures up a Eliot Ness raid with the culprits being led off in shackles and at gunpoint never to export again, the reality is a bit more mundane. In fact, the headline refers, in part, to a federal grand jury indictment unsealed in Miami today against eight individuals and eight corporations, all allegedly part of the Mayrow General Trading Company network. The defendants were charged in connection with dual-use exports that wound up in Iran, including exported items which could be used in the manufacture of IEDs deployed against U.S. troops in Iraq.

None of the eight individuals or corporations are located in the United States. Whether Britain, Germany, Iran and Malaysia, where the defendants are located, will permit the extradition and prosecution of the individual defendants is a close question, particularly if the defendants’ only contacts with the United States were the purchase of U.S.-origin goods and if the exports to Iran did not break the laws of their countries of residence. (For those individuals located in Iran, of course, it’s not even a close question, and these individuals will be subject to prosecution only if they decide to visit, say, Disneyland or the Grand Canyon or travel to a country that will allow rendition or extradition.)

In addition, the Commerce Department release indicated that 75 companies and individuals had been added to the Entity List in connection with the Mayrow network exports. (The State Department release on the indictment, however, states that there were 100 additions to the Entity List). All exports of U.S.-origin goods to companies and individuals on the Entity List will require a license from the Department of Commerce. Naturally such licenses will generally be denied.

As of this writing, however, the BIS website doesn’t indicate any additions to the Entity List, but it can reasonably be assumed that these additions will appear sooner rather than later. Unlike indictments of foreigners over which the U.S. has precarious criminal jurisdiction, putting members of the network involved in these exports on the Entity List is much more likely to be effective in shutting down the troublesome exports. Once these additions are made, I’ll post a link identifying the companies and individuals involved.

ABOVE: Shahrazad Mir Gholikhan

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In yet another strange turn of events in one of the stranger export prosecutions to wend it’s way through the federal courts, a federal district court in Fort Lauderdale declared a mistrial in the prosecution of Shahrazad Mir Gholikhan for her involvement in a plan to export 3,500 night vision goggles to the Iranian military. According to an article in the South Florida Sun-Sentinel, one juror held out for acquittal after eight hours of deliberations. The prosecution announced that it intended to retry Ms.Gholikhan in October.

The case started when Ms. Gholikhan and her ex-husband Mahmoud Seif traveled to Austria to pick up a pair of night vision goggles in order to re-export them to the Iranian military. She and Seif were arrested by the Austrian authorities, convicted, and sentenced to fifty days jail time in Austria, after which they were returned to Iran. In the meantime, a grand jury indicted Gholikhan and Seif for conspiring to export 3,500 Generation III night vision goggles to Iran.

Since the U.S. and Iran do not have extradition treaties, Ms. Gholikhan could have remained safely in Iran but instead came to the United States in December 2007 to enter a plea agreement under which she would plead guilty to one count and be sentenced to time served in the Austrian jail. After the plea was entered, prosecutors said that a mistake had been made in the sentencing guidelines calculation. As a result, Gholikhan was sentenced to 29 months in jail. Gholikhan then moved to withdraw the plea. Even though that motion was opposed by prosecutors, the judge granted the motion and the case was set for trial on all seven counts of the grand jury indictment.

The trial, which began on September 3, focused on the prosecution’s claims that Gholikhan sent faxes and made phone calls about the night vision goggles before the Vienna meeting under the alias Farideh Fahimi. This was to counter the defense’s claim that Gholikhan only acted as a translator for his husband and was not substantially involved in the planned exports. The Sun-Sentinel article described the thrust of the prosecution’s argument as follows:

Prosecutor Michael Walleisa said Gholikhan’s phone records corresponded to calls placed by Fahimi and faxes sent from Fahimi came from Gholikhan’s fax number.

In his closing argument, Walleisa repeated Fahimi’s words on one of the recorded phone calls: “In this line of work, everyone has two or three names, none of which is their real name.”

Gholikan’s new trial is set for October 14.

We’re back from vacation and we’re back with a grab bag of things:

• University of Tennessee Professor J. Reece Roth was convicted on eighteen counts, including violations of the Arms Export Control Act for permitting foreign graduate students to have access to information relating to an Air Force project on the use of plasma technologies for unmanned aerial vehicles. According to the report on the Knoxville News Sentinel’s website, a key piece of evidence proving that Roth had knowledge that his conduct was illegal was a set of notes that divided the work between an American graduate student and the Chinese graduate student in order to keep export-controlled technical data away from the graduate student. When this arrangement impeded progress on the project, the students were allowed to share data. Roth claimed that he didn’t believe the information was export-controlled until the project netted an actual military product, a claim that would appear inconsistent with his initial division of work on the project between the American and the Chinese graduate student.
• The Denver Business Journal supplies more information on the Platte River Associates prosecution for allegedly violating the Cuba embargo. The attorney for Platte River told the Denver Business Journal that the prosecution arises from training that the company gave to an employee of a Spanish company, Repsol, that had previously purchased geological modeling software used for oil exploration. The employee arrived with seismic data that appeared to relate to the western Caribbean and possibly to Cuba. There is apparently no allegation that Platte River dealt with any Cubans or the Cuban Government, nor any allegation that Repsol actually used the software in connection with a Cuban project. Instead, it now appears that the government’s case is based not on the sale of the software but the training of the Repsol employee. It’s still a tenuous connection without proof that Repsol used the software in connection with dealings with the Cuban government.
• Someone has made a broad-ranging Freedom of Information Act request at the Office of Foreign Assets Control (”OFAC”), apparently seeking copies of all applications for licenses to export agricultural and medical products to Iran. This has prompted OFAC to send letters to licensees requiring the licensees to assert in writing any claims that information in these licenses is proprietary or confidential to the licensee. Does anyone have any information on who may be seeking this information and why? Please let me know in the comments section.

Application of country-based sanctions in cyberspace may pose some interesting problems and pitfalls as two cases recently reported by the Office of Foreign Assets Control illustrate:

One individual has agreed to a settlement totaling $840 for alleged violation of the prohibitions in the Iranian Transactions Regulations: OFAC alleged that in August 2006, the individual attempted to transfer funds to Me-Gold Kish, Co. in Iran in an apparent attempt to purchase electronic gold without an OFAC license. The individual did not voluntarily disclose this matter to OFAC.

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One individual has agreed to a settlement totaling $400 for alleged violation of the prohibitions in the Iranian Transactions Regulations: OFAC alleged that in June 2006, the individual attempted to purchase electronic gold from Me-Gold Kish Co. in Iran in apparent violation of §§ 560.201, 560.203 and 560.204 of the Iranian Transactions Regulations. The individual did not voluntarily disclose this matter to OFAC.

Although it is possible that the two individuals here knew that they were dealing with a business located in Iran, it is also quite possible that they did not. Me-Gold is an on-line e-currency exchange business. Its current website claims that it is incorporated in Singapore. A company affiliate site states that Me-Gold has offices in Internet City, Dubai. Apparently, however, an earlier version of Me-Gold’s website stated that the company was located on Kish Island, Iran, although there’s no evidence that the fined individuals read that part of the website.

Even though the references to Iran have been scrubbed from Me-Gold’s site, this is a business that the owners could run from their computers in Iran using banks in, and a fake address in, Dubai. If a U.S. citizen does business with the company, he or she will be violating the Iran sanctions without having the faintest idea that, on the other side of his computer screen, are a bunch of people in Iran.

The Bureau of Industry and Security (”BIS”) recently announced settlement agreements with Massachusetts-based Select Engineering, Inc., and with David Rainville, its Vice-President of Administration. Select Engineering agreed to settle charges that it exported medical electrode sensor elements and stainless steel snap connectors used in medical devices to Iran without a license. The items were alleged to have been exported to Iran by means of a transshipment through the UAE. As part of its settlement with BIS, Select agreed to pay a civil penalty of $52,800.

David Rainville was accused by BIS of violating 15 C.F.R. § 764.2(g) by making false representations to the BIS agent during the course of BIS’s investigation of the unlicensed exports. Specifically, it was alleged that Rainville told the investigator that he had spoken with an international trade specialist at the Department of Commerce after the unlicensed export when, in fact, he spoke with the specialist before the export. The specialist was alleged to have told Rainville before the export that an OFAC license would be required. Rainville agreed to a civil penalty of $35,200. (Ouch!)

The perplexing thing about this case is trying to understand why Select went ahead and shipped the items without getting license. Licenses are routinely granted here and are easy to obtain from OFAC. The settlement documents indicate that, in 2001, Select had applied for and obtained an OFAC license to ship the same kind of medical equipment to Iran. And, apparently, an employee of the Department of Commerce had specifically advised the company of the license requirement prior to the export at issue. I suppose that the company didn’t want to wait for license, but they paid a heavy price for their haste and risked criminal prosecution as well.

The Bureau of Industry and Security (”BIS”) issued a non-standard 180-day denial order against various entities, including Iran Air and Ankair, in connection with what BIS believes to be the imminent sale of a Boeing 747 from Ankair to Iran Air. The non-standard denial order provides, in part, that no person may take any action to assist Iran Air in the acquisition of the aircraft in question or to service that aircraft. The denial order also prohibits Ankair from engaging in any transaction related to the aircraft.

Here’s a picture of the jet in question, which was once used by Martinair Cargo, parked at Schiphol in May 2008 prior to its delivery to ACT Airlines, a Turkish cargo airline based in Istanbul. How the 747 then wound up in the hands of Ankair, a charter passenger airline, is unclear.

But the involvement of Ankair in this transaction necessitates a completely off-topic digression into the history of Ankair and the story of its misconceived logo. Ankair was once World Focus Airways. An MD-83 which World Focus leased to and operated for AtlasJet crashed in November 2007 on its approach to an airport in Isparta, Turkey, killing all 57 people on board.

Because of the negative publicity generated by the crash, the company sought to re-brand itself as Ankair, short for Anka Air. Anka derives from the Turkish word for phoenix - anka kuşu. As if the image of resurrection from the ashes wasn’t sufficiently unfortunate in light of the crash that led to the re-branding, the airline’s logo (pictured below) has been the object of mirth given the striking similarity between the phoenix that precedes Ankair and the letter “W.”

If this little bit of history piques your interest in Ankair, rest assured that the non-standard denial order wouldn’t prohibit you from flying on one of Ankair’s charter flights.

This article in the International Herald Tribune explores the prevalence of American brand name products in Iran and Sudan notwithstanding sanctions that prohibit most exports to the two countries. As we’ve noted before, much of these products are re-exported from other countries, with large quantities of American products being exported from Dubai to Iran.

Two products that are ubiquitous in both countries make it through another route:

Leaving the airport at Khartoum, one of the first things you see is the ultimate symbol of American capitalism: the classic form of a Coca-Cola bottle printed on multicolored banners, next to a huge billboard for its rival, Pepsi.

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Coca-Cola and PepsiCo have both secured export licenses from the Office of Foreign Assets Control of the U.S. Treasury, using legislation that allows blacklisted states to buy U.S agricultural commodities, medicines and medical equipment.

Coca-Cola said the syrup on which the company’s beverages are based qualified as an agricultural product. Pepsi said that its brands were produced in Sudan under “an OFAC license,” but declined to comment on the Iranian arrangement.

Although Coke syrup doesn’t immediately seem to be an “agricultural product,” the list of eligible products is quite broad and includes a broad number of prepared food products, including coffee and tea extracts. Although soft-drink extracts aren’t explicitly mentioned, they probably fall under USHTS classification 2106.90 — “food preparations not elsewhere specified” — which is included on the list of agricultural products covered under the Trade Sanctions Reform Act which permits agricultural exports to sanctioned countries.

Interestingly Coca-Cola relies on an OFAC license for agricultural products rather than the exemption under OFAC regulations for Iran and Sudan which would permit activities in Iran and Sudan by foreign subsidiaries of Coca-Cola as long as no U.S. persons aren’t involved in the foreign subsidiaries activities in the sanctioned country. That is, I think, a smart move given the difficulty of proving that foreign subsidiaries of U.S. companies act without any involvement by U.S. persons.

Pepsi’s refusal to comment on how it dispenses Coke its soft drinks in Iran, suggests that it may be relying on the foreign subsidiary exception. As long as cola syrup is seen by OFAC as an agricultural product, it’s hard to see why Pepsi relies on the foreign subsidiary exception rather than simply getting an OFAC license to export the syrup to Iran for bottling.

Even if activities in Sudan and Iran might be legal under OFAC licenses, these activities might be magnets for public criticism, particularly in Sudan. Coke seems to have cleverly sidestepped even this issue:

A Coca-Cola spokesman, Dana Bolden, said the primary motive for operating in Sudan and Iran was “to ensure quality control and protect our trademarks with the independent bottler.”
… Bolden also said the company was reinvesting all the proceeds from its sales in Sudan into programs that benefit the country. “We have committed more than $5 million over the next three years for programs aimed at building communities in Sudan.”

This, of course, doesn’t respond to the issue that Coke products in Iran might provide just the caffeine boost that its nuclear scientists need to build the bomb. Word is, however, that the average Iranian nuclear scientist prefers Austria’s Red Bull energy drink to Coca-Cola.