ABOVE: Avi Jorisch

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Avi Jorisch, who used to be a policy advisor at the Treasury Department’s office of Terrorism and Financial Intelligence, wrote an Op-Ed in the Wall Street Journal titled “How Iran Skirts Sanctions: Could a U.N. agency be helping Tehran to launder money?” Jorisch’s article reaches some rather, er, surprising, ahem, conclusions about the scope of U.S. economic sanctions against Iran.

Mr. Jorisch’s article details the supposedly nefarious dealings of the Asian Clearing Union, which he erroneously refers to as a “United Nations office headquartered in Tehran.” The Asian Clearing Union, while formed during discussions sponsored by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) in 1974, is an independent multilateral organization.

Like all currency clearing unions, the Asian Currency Union allows participating countries to engage in trade with each other without converting local currency to a hard currency (such as euros or dollars) for each transaction. Rather member countries must only obtain hard currencies to clear any net deficit in that currency in their union accounts at the end of the settlement period. Even then currency swap arrangements among member countries may delay or eliminate the need for hard currency conversion at the end of the settlement period. The end goal of the Asian Currency Union, like other such clearing unions, is, obviously, to facilitate trade between the member countries, which, at this time, are Bangladesh, Bhutan, India, Maldives, Burma, Nepal, Pakistan and Sri Lanka.

Jorisch refers to the Asian Clearing Union as a “classic money laundering instrument … [used] to circumvent the U.S. sanctions program. But let’s take a look at a sample transaction that has Mr. Jorisch’s knickers in a knot:

Imagine the Iranian regime wants to buy machinery from an Indian company that insists on getting paid in dollars.

Whoa, Ari, hold your horses there. The Iranian Transactions Regulations only cover exportation by United States persons or re-exportation by foreign persons of U.S-origin goods. If the Indian seller here is exporting Indian made goods to Iran, the U.S. sanctions have not been violated. And even if a U.S. correspondent bank is involved, U.S. law only prohibits the bank’s participation, not the transaction between India and Iran. Finally, if the Asian Clearing Union means that the transaction can be cleared in dollars without a U.S. bank ever being involved, then, I think that’s not what we call skirting the Iran Sanctions but rather what should be called a legally-structured transaction. Simply put, the United States doesn’t rule the world, and it doesn’t have jurisdiction to enforce U.S. sanctions against Iran against everyone on the planet.

The House Committee on Foreign Affairs yesterday approved proposed legislation, the Iran Refined Petroleum Sanctions Act of 2009, which would, if adopted, further tighten sanctions on Iran. In an appropriations measure sent to the President earlier this month, companies that sold more than $1,000,000 dollars in refined petroleum products to Iran or engaged in services worth more than $1,000,000 that contributed to the ability of Iran to import such products would be precluded from selling oil to the Department of Energy for the Strategic Petroleum Reserve. Under the House’s proposed legislation companies that imported only $200,000 of petroleum products into Iran, or provided only $200,000 worth of services assisting such imports, would be subject to the sanctions provided under the Iran Sanctions Act. Those sanctions include. among the six available sanctions, denial of export licenses and prohibitions of imports into the United States.

Of course, U.S. companies are already prohibited from exporting petroleum products to Iran, so the appropriations measure and the House proposal are both directed at foreign companies that provide gasoline to Iran. Iran gets most of its gasoline from British Petroleum (BP), France’s Total, Switzerland’s Vitol and Glencore, the Swiss-Dutch firm Trafigura, and India’s Reliance.

When the Iran Sanctions Act, which prohibited investments over $20 million in Iran’s energy sector, became law in 1996, the EU threatened a row at the WTO claiming that such secondary boycotts violated the U.S.’s WTO obligations. The Clinton administration used the national security exception in section 9(c) of the Act to avoid imposing sanction on European companies investing in Iran’s energy sector. That option would remain available to the White House under the proposed House legislation but not under the appropriations measure which would appear to automatically impose the sanction of forbidding sales to the Strategic Petroleum Reserve.

Leaving aside the WTO implications of the House’s proposed legislation, there is a good argument that it would be counterproductive to U.S. interests. No one seriously claims that gasoline is materially contributing to Iran’s nuclear proliferation activities. Instead, the measure is intended to impose severe hardship to Iran’s economy. Average Iranians would be just as hard hit, if not more so, by the sanctions as the Iranian government. This is not likely to generate any good will for the United States among Iranians currently disaffected with their own government. When people can’t drive to their jobs, who are they going to blame?

Hansa India, a ship owned by Hamburg-based Leonhardt & Blumberg and chartered by that firm to the Islamic Republic of Iran Shipping Lines (“IRISL”), was boarded earlier this month in the Gulf of Suez by U.S. troops, who discovered AK-47 ammunition that Iran was exporting in violation of U.N. sanctions. The eight containers of ammo were believed to be destined for the Syrian army or the militant group Hezbollah. German authorities intervened and requested that the U.S. Navy divert the Hansa India to Malta where Maltese customs officials seized the cargo.

Lloyd’s List reports today that German prosecutors searched the offices of Leonhardt & Blumberg looking for evidence relating to the sanctions-busting shipment.

“I regret that bullet casings [sic] have been carried on the ship, but there was no possibility for me to prevent that,” Frank Leonhardt told Lloyd’s List.

I don’t know, but maybe not chartering the ship to IRISL might have been a good start at preventing illegal weapons shipments.

The standard charter contract includes a ban on carrying such cargo. Mr Leonhardt added that he was in talks with the charterer and that IRISL had put the responsibility for the incident on the freight forwarder.

As loyal readers know, we here at Export Law Blog are never shy about blaming freight forwarders for export violations, but I think IRISL is pushing it here. A more credible argument would be that somehow or other a shipment of pistachios had miraculously metamorphosed into bullets and cartridges.

Interestingly, although the Office of Foreign Assets Control (“OFAC”) added what it thought were all the IRISL’s vessels to the SDN list, thereby prohibiting U.S. persons from having any transactions with the listed vessels, the Hansa India was not among them. Interestingly this suggests that there may be a number of vessels chartered to IRISL that aren’t listed. Because IRISL is itself sanctioned, dealing with these chartered vessels could also be seen as a violation of OFAC rules even though the vessel itself hasn’t been placed on the SDN list.