A fascinating article in today’s Wall Street Journal details how Iran eludes U.S. sanctions on exports to that country. An interview with an Iranian merchant supplies an instructive example of how the merchant obtains iPod accessories from Tennessee-based Griffin Technology:

The owner of an electronics-goods store in affluent North Tehran, who asked to be identified only by his first name, Borhan, recently stopped using bank-to-bank wire transfers to pay for goods because of the restrictions. U.S. companies can’t ship most products into Iran. Borhan says he orders iPod accessories online from Griffin Technology in Nashville, Tenn., and has them shipped to a middleman — a UAE-registered company in Dubai that operates out of a post-office box.

A typical $10,000 order, packed in 10 boxes, costs as much as $800 to ship to Dubai, he says. He pays another $500 to the middleman to unpack the goods in Dubai and reship them to Tehran. To pay for the shipment, he says, he gives cash to an acquaintance in Tehran who sends the money to his brother in Dubai through an informal money-transfer service, or “hawala.” The brother then pays the middleman.

Commissions for the middlemen and for the hawala transfer come out to about $1,000. The payment system takes three days, instead of the 12 hours a bank-to-bank transfer would take. (A spokeswoman for Griffin says it is “unable to control where products end up in the marketplace.”)

The pat response from Griffin — “we can’t control where products end up” — just doesn’t cut it here. If the story of how the merchant ordered the product is true, this transaction doesn’t have red flags; it has red banners the size of a football field draped all over it. A transaction worth $10,000 shipped to a P.O. Box in Dubai is bad enough, but if Griffin checked the IP Address associated with the order it would almost certainly show that the order came from Iran. Game over.

Exporters can’t simply bury their heads, ostrich-like, in the sand and say they just have no idea where their products wind up and that they are “shocked, shocked to find that” their products were ultimately shipped to Iran or another sanctioned country.

Satellite image of the Strait
of Hormuz

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A wire story from Agence France Presse today documents the extent to which trade between Iran and the UAE may be circumventing unilateral U.S. sanctions against Iran:

Thousands of Iranian firms are still doing business in the country’s top trading partner, the United Arab Emirates, despite a US drive to choke Tehran’s economy over its controversial nuclear program. But US banking sanctions are also beginning to bite, industry sources say.

The AFP reporter interviewed Nasser Hashempour, executive deputy president of the Dubai-based Iranian Business Council, who provided one of the reasons the sanctions weren’t having much impact on trade between Dubai and Iran:

Iranian businesses “have not had any problem with local banks because we are considered UAE companies” under local rules requiring at least 51 percent of a business to be owned by an Emirati national, said Nasser Hashempour. …

The same goes for fully Iranian-owned firms operating out of free zones “because they are registered in the UAE and their sponsor is the free zone,” which would pull their licenses if they flouted the rules, he told AFP.

The article goes on to point out that almost 10 percent of the population of Dubai is Iranian and that almost 10,000 Iranian firms are doing business in Dubai.

But the real reason that the sanctions may not have stopped trade in U.S.-origin goods between Dubai and Iran is that Dubai has no interest in making it stop according to a UAE official who, not surprisingly, requested anonymity:

As for unilateral US sanctions, these would have to be applied by private banks and companies and “it is not for the UAE government to tell private companies what to do,” the official added.

That doesn’t appear to be what officials of the UAE were telling the U.S. government when they convinced U.S. officials not to put the UAE on Schedule C to the EAR as a country of “diversionary concern.”

Bottom line for exporters: it’s probably a bad idea to export an item to the UAE unless you have a pretty good reason to believe it’s going to stay in there