Today’s edition of London’s The Guardian reports on a trial in London of three men accused of shipping military aircraft parts to Iran. These parts are used to maintain its aging fleet of U.S. military aircraft sold by the U.S. to the Shah prior to the revolution. The scheme was uncovered when oxygen cylinders used by fighter pilots to breathe at high altitudes were intercepted at Heathrow with bogus paperwork claiming that the oxygen cylinders were for medical use. According to the prosecution, the three men had engaged in parts trade with Iran well in excess of £1.2 million (or almost US$ 1.8 million)

According to the article, the three men maintained U.S. business addresses so that they could acquire the aircraft parts from U.S. suppliers without having to obtain export licenses. The parts were then shipped by the trio back to London using misleading and innocent descriptions of the parts in the export documents.

This once again underscores that U.S. suppliers need to exercise caution even with respect to domestic shipments of export-controlled goods. The Iranian supply network is utilizing every available technique to disguise the ultimate destination of the military parts that it acquires, including setting-up front companies and front addresses in the United States, hoping to diminish scrutiny of the transactions in military-related goods. Although no penalty proceedings have yet been instituted against domestic parts suppliers for ignoring red flags that suggest that a domestic sale might in reality be intended for export, that day may not be far off. Sooner or later, a U.S. parts dealer who supplies a Tomcat part to a U.S. customer without any due diligence on the customer or that customer’s need for the product may find itself looking at the same fines as it would have confronted if it had simply shipped the parts directly to Iran.

According to an article today in the Abu Dhabi daily The National, more than 20 states in the United States have passed laws, or have legislation pending, to require state pension funds to divest stocks of companies doing business in Iran. Although the laws appear to be modeled after similar divestment laws directed at apartheid-era South Africa, they also appear to fly in the face of Crosby v. National Foreign Trade Council, the U.S. Supreme Court opinion, issued in 2000, which struck down similar sanctions that Massachusetts attempted to impose on Burma.

Although I’ve heard some suggest that state divestment laws may be distinguishable from the Massachusetts law thrown out in Crosby, I don’t think that a valid distinction is possible. The Massachusetts law prohibited the state from contracting with companies that did business with Burma. Justice Souter’s opinion, which held that the Massachusetts law was pre-empted by the federal sanctions against Burma, emphasized that “state statute penalizes some private action that the federal Act (as administered by the President) may allow.” In particular, the Massachusetts act penalized past investments whereas the federal law reached only new investments made after the passage of the law. Additionally, the Massachusetts law penalized foreign companies with investments in Burma, whereas the federal sanctions were only directed at U.S. companies.

State divestment statutes are indirect in the same sense that the invalidated Massachusetts statute was. In other words, although they don’t forbid trade with the sanctioned country, they impose penalties on those that do. And the state Iranian divestment statutes are similarly broader than the federal sanctions by targeting foreign subsidiaries of U.S. companies, and foreign companies, which may in certain instances do business in Iran under the federal sanctions.

The only hope for the survival of some of these state-level economic sanctions is the Iran Sanctions Enabling Act of 2009 introduced by Rep. Barney Frank (D – Mass). The law would require the federal government to publish a list of all companies, domestic and foreign, with investments of more than $20 million in the Iranian energy sector. The law would also authorize, but not require, divestment by state and local governments and educational institutions in companies on the list. The likelihood of the proposed bill passing, however, may be limited given the Obama administration’s reported offer to freeze additional sanctions on Iran if Iran suspends nuclear development work and joins talks over the future of its program.