The bid by the United Arab Emirates for American assistance in developing and implementing nuclear energy facilities has raised, once again, the role that the U.A.E plays in the transiting of American goods to Iran. U.S. lawmakers have threatened to block a deal that would permit such cooperation pointing to the U.A.E.’s poor record in export enforcement.

An article just posted on the Wall Street Journal‘s website quotes the response of a U.A.E. official to these charges:

U.A.E. officials say that in the past they have been lax in monitoring the flow of sensitive technologies through the ports. But they say they have stepped up enforcement of U.N. sanctions against Iran and tightened business-license regulations for Iranian nationals. They have also signed on to U.S.-led efforts to track air and sea shipments to Iran.

Over the past three years, U.A.E. officials say, they have shut down 40 Iranian companies operating in Dubai over either export-control violations or lack of proper licenses. In the past six months, Emirati authorities have also blocked more then 10 shipments of goods for potential military use heading to Iran through Dubai, largely from Asia. “We will not allow anyone to use our territory to harm anybody else,” said Yacub al-Hosani, a Foreign Ministry official.

These numbers of shut-downs and enforcement actions, if true, are not in themselves terribly impressive. More importantly, this crack-down is only on exports of certain proliferation and military technologies, but have no effect on the U.A.E.’s role as the transit point for other exports that evade the United States’ comprehensive sanctions against Iran. What this means is that U.S. exporters must still exercise particular due diligence with respect to their exports to the U.A.E. to obtain assurance that the final destinations of these shipments are not in Iran.

At the Bureau of Industry and Security’s (“BIS”) Export Control Forum in Newport Beach, California, on March 16, Tony Christino, a senior policy analyst for BIS, announced that a top priority for BIS as the new administration begins is to attempt to eliminate the jurisdictional overlap between BIS and the Office of Foreign Assets Control (“OFAC”) with respect to exports to Iran. It’s probably not overly cynical for me to suggest that the way that BIS staffers might want to eliminate that overlap is to take stuff from OFAC and give it to BIS. Even so, that’s all well and good and something to be commended, whether it involves centralizing authority for exports to Iran in BIS or in OFAC.

However, one thing that Christino said, at least as reported by the Washington Tariff and Trade Letter (subscription required) is not something that the export community is likely to welcome

Reexports to Iran have been the target of several BIS enforcement actions against both U.S. exporters and foreign reexporters. “Where the problem really seems to arise is that reexporters and distributors don’t seem to understand that they can’t replenish inventory knowing that they have a demand from Iran,” Christino said. When exporting to customers or distributors in the Middle East especially, even without knowledge of a reexport, U.S. firms could face “some kind of jeopardy,” he said.

Say what? Exporters face penalties for exporting goods to customers in the Middle East even without any knowledge of a possible reexport of those goods to Iran? If that’s what Christino meant, or even said, the effect is that U.S. companies should stop exporting completely to the Middle East. I’d like to think that Christino didn’t really say that.

ABOVE:Ali Divandari
Chairman, Bank Mellat

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Today’s online edition of the Wall Street Journal published an interview with Ali Divandari, the Chairman of Iran’s Bank Mellat. That Bank was added to the SDN list in 2007 and since then all U.S. persons that come into possession of any property in which Mellat has an interest must block that property.

The ostensible purpose of the interview was to discuss recent developments in the privatization of Bank Mellat. The Iranian government owns 35% of the bank, but it is selling an additional 15% of its interest in the bank starting at the end of March. The government’s remaining 20% is expected to be sold in 2011.

Divandari said Bank Mellat’s new charter says the government no longer has any control over the bank. Referring to U.S. sanctions, he said that he expects the bank to “have fewer problems” following its partial privatization.

To say that this is, at best, wishful thinking on Divandari’s part is charitable. Bank Mellat wasn’t sanctioned because of the Iranian government’s stake in the bank; instead Bank Mellat was sanctioned because of its participation in Iran’s nuclear proliferation activities, which the Office of Foreign Assets Control described as follows in 2007 when it put the bank on the SDN list:

Bank Mellat provides banking services in support of Iran’s nuclear entities, namely the Atomic Energy Organization of Iran (AEOI) and Novin Energy Company. Both AEOI and Novin Energy have been designated by the United States under E.O. 13382 and by the UN Security Council under UNSCRs 1737 and 1747. Bank Mellat services and maintains AEOI accounts, mainly through AEOI’s financial conduit, Novin Energy. Bank Mellat has facilitated the movement of millions of dollars for Iran’s nuclear program since at least 2003. Transfers from Bank Mellat to Iranian nuclear-related companies have occurred as recently as this year.

Changing the ownership structure of the bank won’t have any impact on this fundamental problem for the bank, so I don’t think that Divandari and his staff should start thinking about U.S.-dollar transactions any time in the near future.