News

The Iran Deal: One Year Later

By Simon Chin and Valerie Lincy

On the first anniversary of the nuclear deal with Iran, known as the Joint Comprehensive Plan of Action (JCPOA), Iran Watch is publishing a compendium of its year-long analysis of the agreement. Below are links to articles and reports written on various aspects of the implementation of the JCPOA, including: monitoring and verification; sanctions relief and compliance; licit and illicit procurement; the allegations of Iran’s past nuclear weapons-related work; and Iran’s ballistic missile program.

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Iran Air, Prospective Buyer of Boeing Planes, Linked to North Korean Missile Shipments – July 12, 2016

“Iran Air was removed from the U.S. sanctions blacklist as part of the nuclear deal.  Critics of the proposed Boeing sale have cited Iran Air’s links to the IRGC and the Syrian regime.  But there is another troubling link that has gone unnoticed in the current debate: Iran Air’s suspected facilitation of ballistic missile cooperation between Iran and North Korea.”

 

Simmering Dissatisfaction on Both Sides of Nuclear Deal – April 20, 2016

“Secretary of State John Kerry and Iranian Foreign Minister Javad Zarif met in New York amid dissatisfaction on both sides about the implementation of the nuclear agreement.  Iran has voiced frustration with the slow pace of financial sanctions relief promised by the agreement.  The United States, meanwhile, is concerned about an increase in Iranian ballistic missile tests – an activity not directly addressed in the agreement but relevant to nuclear weapons.

 

New Guidance on U.N. Procurement Channel Raises Larger Questions about Iran Deal Enforcement”– March 17, 2016

“The U.N. procurement channel is just one example of how former restrictions on Iran’s nuclear program were removed faster than new enforcement structures could be put in place.  It is unclear how long it will take for the United Nations, the new Joint Commission, and individual states to get the channel up and running–and whether sufficient information will be publicly released about the channel’s operations and decisions.”

 

Entities Removed from Official Blacklists on Implementation Day – January 29, 2016

“Implementation Day brought a first round of sanctions relief for Iran, including the removal of some 600 individuals and firms from E.U., U.S., and U.N. blacklists.  To clarify the changes to the blacklists and support sanctions compliance, Iran Watch has created an Implementation Day spreadsheet that includes every entity that was removed (with the exception of individual vessels and aircraft).  This spreadsheet will help support continued vigilance with regard to Iran.”

 

Questions Remain in ‘Final Report’ on Iran’s Alleged Weapons Work – December 10, 2015

“The IAEA released its long-awaited final report on Iran’s alleged past nuclear weapons work on Dec. 2.  For most of the 12 issues, the IAEA, in the absence of new information or meaningful disclosures from Iran, has merely reiterated the evidence contained in the 2011 report.  This ‘final’ report fails to present a complete picture of Iran’s past work on nuclear weapons.”

 

Major Iranian Nuclear Entities to Receive Early Sanctions Relief – November 18, 2015

“As part of the nuclear agreement with Iran, 36 entities will be removed from the United Nations blacklist when the deal is implemented.  This represents about one-third of the entities on the U.N. list and covers entities that have been linked to undeclared nuclear work or illicit nuclear procurement.  The removals also set in motion similar action by the E.U. and the U.S.”

 

Iran Nuclear Deal Timeline – November 9, 2015

 

What to Watch for after Implementation Day – October 5, 2015

“As Implementation Day approaches, three issues should receive more scrutiny: how any future illicit procurement by Iran will be handled; the flow of licit Iranian procurement through a newly-established “white channel”; and the agreement’s dispute resolution mechanism.”

 

Parchin: A Troubling Precedent for Inspections in Iran – September 3, 2015

“There appears to be little precedent for managed access procedures in which IAEA inspectors are physically restricted from a site completely and monitor verification activity remotely.  Beyond the specifics of the investigation at Parchin, the reported arrangement could set a bad precedent for limiting access to other sites once the JCPOA is implemented.”

 

What the Iran Deal Says (and Doesn’t Say) about Iran’s Ballistic Missiles – July 30, 2015

“While Iran’s ballistic missile capabilities were not considered a core issue in the nuclear talks, the language of the new U.N. resolution and the terms of the JCPOA have consequences for the future of Iran’s ballistic missile program.  Iran’s efforts to advance its nuclear-capable ballistic missile program – through test launches, production, and illicit procurement – will be made easier, while attempts to punish or deter Iran’s ballistic missile activity will be made more difficult.”

 

How Will Inspections Work in Iran under the Nuclear Deal – July 14, 2015

“President Obama said that inspectors from the IAEA will ‘be able to access any suspicious location.  Put simply … the IAEA will have access where necessary, when necessary.  That arrangement is permanent.’  But what does ‘where necessary, when necessary’ mean in practice? How will inspections work under the newly signed nuclear agreement?  And will this inspections regime actually be ‘permanent’?”

Iran Air, Prospective Buyer of Boeing Planes, Linked to North Korean Missile Shipments

By Simon Chin and Valerie Lincy

The House of Representatives approved two measures last week aimed at blocking Boeing from selling commercial aircraft to Iran.  The vote comes a few weeks after Boeing announced a preliminary agreement to sell commercial aircraft to Iran Air, Iran’s national carrier, in a deal worth an estimated $25 billion.  Iran Air was removed from the U.S. sanctions blacklist in January as part of the nuclear deal.  Critics of the proposed sale have cited Iran Air’s links to the Islamic Revolutionary Guard Corps and the Syrian regime and argued that the Boeing aircraft could be used to fly weapons into Syria and to support terrorism.   But there is another troubling link that has gone unnoticed in the current debate: Iran Air’s suspected facilitation of ballistic missile cooperation between Iran and North Korea.

According to a 2011 report by an expert United Nations panel on North Korea, North Korea and Iran allegedly shared ballistic missile technology with the assistance of Iran Air: “Prohibited ballistic missile-related items are suspected to have been transferred between the Democratic People’s Republic of Korea and the Islamic Republic of Iran on regular scheduled flights of Air Koryo and Iran Air, with trans-shipment through a neighboring third country.”[1]  The unnamed third country that served as a trans-shipment point was reportedly China, which blocked the official release of the report.[2]  When the U.S. Treasury Department sanctioned Iran Air in 2011, it also cited the carrier’s transport of missiles and military dual-use technology using passenger aircraft.[3]

While it is unclear to what extent Iran Air is still supporting Iran’s missile-related procurement, there is no evidence that its behavior has changed.  In response to a question at a press briefing on June 23, State Department spokesperson John Kirby refused to confirm that Iran Air was removed from the U.S. blacklist because it was no longer involved in the activities for which it was sanctioned, including shipping weapons to Syria, or even that the United States was convinced it was no longer engaged in those activities.  Instead, Mr. Kirby stated, “I’m not at liberty to go into the reasons behind the fact that it was removed from the SDN list.  All I could tell you is that we wouldn’t have done that if we weren’t comfortable doing so.”[4] Emanuele Ottolenghi, a senior fellow at the Foundation for Defense of Democracies, has noted that while Iran Air has mostly avoided the Iran-Syria route since the conclusion of the nuclear agreement in July 2015, there were three flights using Iran Air aircraft along known weapons routes to Syria last month.[5]

The Iran-North Korea ballistic missile nexus, cited by the U.N. report in 2011, resurfaced in the first round of U.S. sanctions after the implementation of the nuclear agreement in January.  The Treasury Department targeted five Iranian officials affiliated with the Ministry of Defense of Armed Forces Logistics (MODAFL), which coordinates Iran’s ballistic missile program, and two MODAFL subsidiaries: the Aerospace Industries Organization (AIO), which oversees missile production; and the Shahid Hemmat Industrial Group (SHIG), which is responsible for liquid-fueled missiles.[6]

According to Treasury, SHIG missile technicians and MODAFL officials have traveled to North Korea over the past several years to work on an 80-ton rocket booster being developed by the North Korean government.  This technology would help both countries extend the range of their missiles.  SHIG also coordinates shipments of missile-related goods to Iran from the Korea Mining Development Trading Corporation (KOMID), North Korea’s primary exporter of ballistic missile-related equipment that has been sanctioned by the United Nations, United States, and European Union.  These goods include valves, electronics, and measuring equipment that can be used in tests of liquid-fueled ballistic missiles and space launch vehicles.

These designations, along with a spate of recent tests, confirm that Iran’s ballistic missile program has not slowed, despite the nuclear agreement struck in July 2015.  They also confirm that Iran still relies on illicit procurement networks to fuel its missile progress.  A June report from Germany’s domestic intelligence service found that Iran’s “illegal proliferation-sensitive procurement activities in Germany […] persisted in 2015 at what is, even by international standards, a quantitatively high level.”[7]  The report also noted “a further increase in the already considerable procurement efforts in connection with Iran’s ambitious missile technology program.”  Another recent intelligence report, by Germany’s state of North Rhine-Westphalia, cited nearly 150 WMD-related procurement attempts in that state in 2015, about two-thirds of which were by Iran.[8] Two German intelligence officials interviewed by the Wall Street Journal about these reports said that such illegal procurement efforts by Iran have continued in 2016, though at a slower pace.[9]

Iran Air, therefore, offers a troubling case.  It has been linked by the United Nations to the facilitation of missile-related cooperation between Iran and North Korea—activity that led to the first new U.S. sanctions against Iran after the nuclear agreement was implemented this year.  The U.S. government has not explained publicly why Iran Air was removed from the U.S. blacklist or explicitly stated that Iran Air is no longer engaged in the activity for which it was originally sanctioned.  Meanwhile, Iran has resumed its ballistic missile tests and, as the German intelligence services report, continues to seek sensitive missile-related technology overseas, in violation of U.N. Security Council resolutions.  Given that Iran’s commitment to ballistic missile development is unchanged, even if the Boeing aircraft to be sold to Iran Air are intended for civil aviation purposes, there is no guarantee that these aircraft would not end up supporting Iran’s missile program or other malign activities.

Footnotes: 

[1] “Report of the Panel of Experts established pursuant to resolution 1874 (2009),” United Nations Security Council, May 2011, p. 40, unpublished (via Iran Watch): http://www.iranwatch.org/library/multilateral-organizations/united-nations/un-security-council/report-panel-experts-established-pursuant-resolution-1874-2009.

[2] Tania Branigan, “China Denies Role in North Korea-Iran Missile Trade,” Guardian (U.K.), May 18, 2011, https://www.theguardian.com/world/2011/may/18/china-denies-role-north-korea-iran-missile-trade.

[3] “Fact Sheet: Treasury Sanctions Major Iranian Commercial Entities,” U.S. Department of the Treasury, June 23, 2011 (via Iran Watch): http://www.iranwatch.org/library/governments/united-states/executive-branch/department-treasury/fact-sheet-treasury-sanctions-major-iranian-commercial-entities.

[4] Daily Press Briefing, U.S. Department of State, June 23, 2016 (via Iran Watch):  http://www.iranwatch.org/library/governments/united-states/executive-branch/department-state/state-department-spokesman-john-kirby-comments-boeing-sale-iran

[5] Emanuele Ottolenghi, “The Risks of the Iran-Boeing Deal,” The Hill, June 21, 2016, http://thehill.com/blogs/pundits-blog/international/284269-the-risks-of-the-iran-boeing-deal

[6] “Treasury Sanctions Those Involved in Ballistic Missile Procurement for Iran,” U.S. Department of the Treasury, January 17, 2016 (via Iran Watch): http://www.iranwatch.org/library/governments/united-states/executive-branch/department-treasury/treasury-sanctions-those-involved-ballistic-missile-procurement-iran

[7] Federal Ministry of the Interior, 2015 Annual Report on the Protection of the Constitution, June 2016, p. 30, https://www.verfassungsschutz.de/en/public-relations/publications/annual-reports/annual-report-2015-summary.

[8] Verfassungsschutzbericht des Landes Nordrhein-Westfalen über das Jahr 2015, July 4, 2016, pp. 214-217, https://www.mik.nrw.de/nc/publikationen/produktauswahl.html?tt_products%5Bcat%5D=11.

[9] Anton Troianovski and Jay Solomon, “Germany Says Iran Kept Trying to Get Nuclear Equipment After Deal,” Wall Street Journal, July 8, 2016, https://www.wsj.com/articles/germany-says-iran-kept-trying-to-get-nuclear-equipment-after-deal-1468006075.

Treasury Gives New Guidance, but Banks Still Wary

By Simon Chin and Valerie Lincy

The U.S. Treasury Department released new guidance on June 8 that appears intended to reassure European and other non-U.S. banks wary of doing business with Iran.  In an updated explanatory document published by the Office of Foreign Assets Control, the Treasury Department stated that the U.S. financial system will remain open to foreign banks doing business with non-sanctioned Iranian financial institutions, as long as any U.S. employees in those foreign banks are “ring-fenced” from Iran-related business.  This new guidance, however, merely restates U.S. policy.  It falls well short of the specific assurances that have been sought by European bankers and officials.  As a result, the new guidance is unlikely to have much impact.

The updated guidance is a bit more specific than previous iterations.  It states: “U.S. financial institutions can transact with … non-U.S., non-Iranian financial institutions that … transact with Iranian financial institutions that are not on the SDN list.”   In other words, foreign banks that do business with Iran will still be able to access U.S. financial institutions, as long as they steer clear of sanctioned Iranian companies and individuals.  This statement, however, merely re-iterates a longstanding U.S. position.

The new guidance also reinforces three important U.S. prohibitions.  First, the reference to “the SDN list” implicitly renews the threat of U.S. sanctions by reminding foreign banks that blacklisted Iranian institutions remain off-limits.  These sanctions still target foreign entities for dealing with certain blacklisted Iranian sectors and entities, such as those linked to terrorism or to the Islamic Revolutionary Guard Corps (IRGC).  Second, foreign banks will still be forbidden from “rout[ing] Iran-related transactions through U.S. financial institutions or involv[ing] U.S. persons in such transactions.”  Third, while foreign companies with American managers or directors can do business with non-sanctioned Iranian companies, all U.S. persons “must be walled of or ‘ring-fenced’ from Iran-related business.”

Wary European banks and officials are unlikely to be satisfied by the new language.  According to a June 7 report in Bloomberg, European Union financial ministers unsuccessfully sought to gain more explicit guidance on the reach and application of remaining U.S. sanctions during talks in Brussels in May.  U.S. officials reportedly declined to provide any additional assurances beyond their publicly stated policy.  The Bloomberg report also quoted Francesco Fini, an EU official, as saying that several EU companies have lobbied the European Commission to bring their individual cases to the Treasury Department in order to gain legal clearance to do business with Iran.  France’s government is also reportedly in talks with OFAC in an attempt to gain legal assurance for companies seeking to enter the Iranian market.  The new OFAC guidance does not provide any mechanism for case-by-case clearance or review for individual companies.

The continued reluctance of European and other non-U.S. banks to re-enter the Iranian market is reinforced by their concern about the lack of transparency in Iran and Iran’s weak anti-money laundering and terrorist financing regulations.  As a result, it is difficult for banks to know whom they are dealing with, and whether that party is on the U.S. blacklist, or is controlled by a blacklisted entity.  Foreign companies risk violating remaining U.S. sanctions by doing business—even unknowingly—with blacklisted entities.  According to a report by the London-based law firm Clyde & Co, 58 of 100 British executives surveyed said they are staying out of the Iranian market because of fear of the regulatory penalties that have remained in place after the implementation of the nuclear deal. Thirty percent of the executives said they were so fearful of sanctions that they were even reluctant to discuss plans to enter Iran with their own banks.  Businesses are also fearful of the possibility that sanctions could be re-imposed if Iran violates the deal.

Iran has voiced frustration with the slow pace of the economic benefit it has received.  Iranian banks reportedly have had difficulty processing international financial transactions and repatriating billions of dollars in previously frozen oil revenue from overseas accounts.

Treasury spokeswoman Betsy Bourassa told Bloomberg that U.S. Treasury and State Department officials “have traveled worldwide to meet with government and private sector partners to provide additional clarity on our sanctions.”  Ms. Bourassa attributed some of the slow pace of Iran’s re-integration into the global economy to factors beyond U.S. control, such as Iran’s “destabilizing activity in the region” and a lack of transparency in its financial system.  Daniel Glaser, Assistant Secretary of the Treasury for Terrorist Financing, echoed this position in May, citing the limitations of Iran’s financial system: “If Iran wants access to the international financial system, and Iran clearly does and it’s something that they are entitled to, they need to understand that the international financial system is a rules-based system. And Iran understands those rules and Iran is working to put a system in place that implements those rules. This is something [that] is going to develop over time.”

Missile Sanctions Must Target Iran’s Suppliers

By Matt Godsey and Valerie Lincy

On May 9, a senior Iranian defense official announced the recent test of “a missile with a range of 2,000 kilometers and a margin of error of 8 meters.”[1]  Iran’s defense minister quickly refuted the specifics of this claim, but not the test itself.[2]  This appears to be the latest in a series of Iranian missile tests since last October, all of which are considered by Western officials to be “in defiance of” a new U.N. Security Council resolution that took effect on January 16— the same day as the nuclear agreement.

The response to such activity should be more sanctions aimed at Iran’s missile program.  New sanctions, unfortunately, will not be forthcoming from the United Nations, where they would have the broadest impact.  The new resolution is more permissive in its treatment of Iran’s ballistic missile activity than previous resolutions addressing the country’s missile program.  Instead, it will be up to the United States and other concerned countries to respond.  These sanctions should target not only Iranian entities supporting the missile program, but, more critically, Iran’s extensive network of foreign suppliers.

Since the nuclear agreement took effect, however, only the United States has taken—limited—action against these illicit procurement networks.  In January, a handful of companies and individuals operating in Hong Kong and the United Arab Emirates were blacklisted for supplying material and equipment related to carbon fiber production to Iran’s Navid Composite Materials Company.  These transfers took place “since at least early 2015,” according to the U.S. Treasury Department.  Navid Composite is a subsidiary of U.N.-sanctioned Sanam Industrial Group and carbon fiber can be used in ballistic missile components.  In March, the U.S. Commerce Department targeted a global network of companies supplying U.S.-origin items to “an Iranian party associated with the Iranian Defense Industry.”  This network operated in Hong Kong and U.A.E., but also in India, Malaysia, the Netherlands, Singapore, and Switzerland.

A focus on Iran’s illicit network of foreign suppliers will be critical going forward.  Iran remains dependent on imports to improve the range and accuracy of its missiles.  And the new U.N. resolution maintains restrictions on Iranian imports of missile and missile dual-use technology for a period of eight years.  But while dozens of Iranian missile developers remain on the U.N. blacklist, none of Iran’s foreign suppliers are listed.  The United Nations has never targeted these suppliers and is even less likely to do so now.  Most of these suppliers are not well known and could continue to operate in the absence of robust national enforcement.  National sanctions would help expose these networks, raise their transaction costs, and complicate their operations.

The case of Li Fang Wei (Karl Lee) is an example of the value—and limitations—of such national action.  His infamous case is an illuminating study of how the illicit procurement networks that have supplied Iran’s weapons program operate in practice.   Since at least the early 2000s, he has run a cluster of companies located in Dalian, a port city in northeastern China.  At first, Li traded with Iran using his own company, LIMMT Metallurgy and Minerals Company, or one of the firm’s many aliases.  As he came under greater scrutiny, Li shifted tactics.  He began to establish waves of front companies in China to help carry out transactions, moving on to a fresh set of companies whenever the previous batch came onto the radar of the U.S. government.

In response, Li has been heavily and repeatedly sanctioned by the United States.  He was indicted twice, in 2009 and 2014, for his fraudulent use of the U.S. financial system in carrying out sales to Iran.  He is also the subject of a $5 million reward for information leading to his arrest, a rarity in the proliferation/export control world.  And he has been under continual U.S. State and Treasury Department sanctions for a number of years, with the most recent round of State sanctions coming in September 2015.  But in the absence of action from the Chinese government to shut down individuals like Li and his network, they can continue to operate with relative impunity.

Li’s assistance to Iran’s missile program has been considerable, and reveals Iran’s reliance on foreign goods. The list of missile-related items he has supplied, or attempted to supply, includes accelerometers, gyroscopes, high-grade aluminum alloys, maraging steel rods, tungsten metal powder, tungsten-copper alloy plates, and graphite cylinders.  Equally troubling has been his customer list in Iran: subsidiaries of Defense Industries Organization (DIO) that are directly involved in missile development, including Khorasan Metallurgy Industries, Amin Industrial Group, Shahid Sayyade Shirazi Industries, and Yazd Metallurgy Industries.  Li has also done business with Shahid Bagheri Industrial Group, Iran’s key developer of solid-fueled ballistic missiles.  All of the above-mentioned entities are still sanctioned by the United Nations, because of their involvement in Iran’s missile program.

Iranian officials have made clear that they will not stop missile work as a result of the nuclear agreement.  This means not only the continuation of high-profile tests, but Iran’s continued reliance on foreign procurement networks that support missile development.  In the absence of new U.N. sanctions—or a vigorous oversight body like the now-disbanded U.N. Panel of Experts to investigate violations—it will be up to governments to investigate procurement networks and punish key suppliers, like Li.  This is especially important in the post-agreement environment, when trade with Iran is expected to flow more freely than it has in recent years.

Footnotes: 

[1] “Commander Says Iran Tests 2000km-Range Ballistic Missile,” Tasnim News, May 9, 2016, https://www.tasnimnews.com/en/news/2016/05/09/1070472/commander-says-iran-tests-2000km-range-ballistic-missile

[2] “Iranian DM Denies Test-Firing of Ballistic Missile,” Fars News, May 9, 2016, http://en.farsnews.com/newstext.aspx?nn=13950220001309

The Iran Nuclear Agreement: What Comes Next?

By Valerie Lincy

Remarks at the Heritage Foundation, Washington D.C.

The nuclear agreement between Iran and the P5+1 was officially implemented in January 2016.  As a result, Iran has agreed to restrict the most worrisome parts of its known nuclear program—in particular, its uranium enrichment capability—for a period of about ten years.  It is wrong to assume, however, that the proliferation problem has been resolved, or that the threat has gone away.  It has not; it has just shifted.  Over the long term, there is a risk of a vastly expanded nuclear program because the restrictions imposed on Iran are not indefinite.  What happens in ten years?  In the nearer term, there is the Iranian ballistic missile threat.  Iran’s ongoing development of nuclear-capable ballistic missiles is not an activity covered by the agreement.  There are also questions about how robustly the deal will be enforced because the agreement’s enforcement mechanisms have not been tested yet.

I would like to focus my remarks on these last two points: the enforcement of the nuclear deal—specifically inspections, the dispute resolution process, and the new procurement channel—and how the agreement has loosened restrictions on Iran’s missile work.

Inspections and Verification

Inspections are a major part of enforcing the terms of this agreement and ensuring the transparency the deal promised.  The IAEA is in charge of inspections and making sure that Iran maintains restrictions on its nuclear work.  The IAEA’s first report since the agreement was implemented came out in late February.  Instead of containing more information, there was less.

Before the agreement, the IAEA offered robust quarterly reporting, typically about 20 to 30 pages long.  This included detailed annexes, as well as updates on the IAEA’s investigation of allegations that Iran conducted nuclear weaponization work in the past—the so-called “possible military dimensions” or “PMD” investigation.   The February report, however, was only 10 pages long, offered very little detail, and offered no more reporting on the “PMD” investigation, which the IAEA officially closed despite not reaching definitive conclusions.  The result is less public visibility into Iran’s declared nuclear program, not more.

So there is already a question about IAEA reporting on standard, non-controversial access to declared nuclear sites in Iran.  What about undeclared sites?  If inspectors want access to a site not declared by Iran to be part of its nuclear program, then the IAEA needs to request a challenge inspection.  The agreement allows for this type of inspection, and obtaining access to such sites is a key part of ensuring that Iran is not operating secret sites as part of a clandestine nuclear program.  U.S. intelligence has long predicted that if Iran develops nuclear weapons, it will do so at covert facilities—not by “breakout” at its declared sites.  It is important to remember that many of the sites that today are known and part of Iran’s declared nuclear program were launched in secret.

The agreement is very specific about the process for launching a challenge inspection, which is supposed to take place within 24 days of an initial request by IAEA inspectors.  But how this will work in practice is not known.  The process has not been tested yet under the agreement, and past experience of trying to access undeclared sites in Iran has not been good.  There is the precedent of IAEA efforts to gain access to Parchin, a military site in Iran allegedly connected to nuclear weaponization work that the IAEA had been asking questions about for years.  After years of being stonewalled by Iran and observing extensive renovation at the site, the IAEA was reportedly granted the ability only to observe, via video monitoring, Iranian officials taking environmental samples at designated locations at Parchin.  The experience in other countries, such as Iraq and North Korea, is also cautionary.  In Iraq, inspectors had far more authority on the ground after the end of the First Gulf War, and it was still challenge—there were regular disputes and confrontations over access.

Dispute Resolution

Inspections of undeclared sites in Iran are just one area of likely dispute.  There is already disagreement about the pace of sanctions relief.  There could also be disagreement about the approvals or denials of transfers of nuclear technology to Iran.

A newly created Joint Commission was established to handle these disputes.  All parties to the agreement, including Iran, sit on this commission.  According the agreement, disputes are supposed to be resolved quickly—within 15 days.  This seems unlikely, however, because the procedures for how the commission will resolve disputes are highly bureaucratic.  The period of deliberation can be extended, outside advisors can be called in, and disputes can be sent up to the ministerial level.  The mechanism has not been tested, so it is difficult to pass judgment at this point.  But it will be critical to resolve any disputes—small or large—expeditiously and not let any ambiguities linger, or confidence in the agreement will gradually be undermined.

The Procurement Channel

The new U.N. procurement channel is the least well-defined aspect of the agreement and the least publicized.  The nuclear agreement established a dedicated procurement channel for authorized Iranian imports of sensitive nuclear and nuclear dual-use technology.  Before the agreement, Iran was not allowed to import any controlled nuclear and missile-related items, as well as most conventional arms.

The agreement relaxed some of these restrictions, specifically in the nuclear realm.  A Procurement Working Group was created to monitor the sensitive items Iran is now allowed to import.  It will operate for ten years and will review and decide on import requests for controlled nuclear goods.  The review process for requests is to take no more than 30 days.

The IAEA will be allowed to verify end-use locations of some approved nuclear imports that will be going to Iran’s nuclear sector.  Countries are allowed to verify the end use of approved nuclear imports that are intended for a non-nuclear civilian sector in Iran.  These are dual-use goods and technology that have other industrial or scientific application.

There are a number of open questions about how this channel will function:

  • The Procurement Working Group has met but does not appear to have reviewed any proposed sales.  When will goods start flowing into Iran?
  • Will procurement requests and decisions by the Group be made public?
  • How will the end-use of sensitive items from key supplier countries like Russia and China be monitored?  The reality is that countries with the most trade with Iran will be the least interested in doing robust end user or end-use checks.

It will be important to make sure that Iran strictly uses this channel for its imports of controlled technology.

Missiles

The nuclear agreement has made it more difficult to enforce restrictions on Iran’s ongoing development of nuclear-capable ballistic missiles.  Previously, the U.N. prohibited all activity related to missiles capable of carrying nuclear weapons.  U.N. sanctions could be imposed on this activity.

But missiles were not included in the nuclear agreement, meaning the deal’s “snapback provision”—which allows any country to unilaterally re-impose U.N. sanctions on Iran in the case of significant non-performance—does not apply to missile violations.  The restrictions on Iran’s missile program are covered by a new U.N. Security Council resolution that prohibits work on missiles designed to carry nuclear weapons.  This wording allows Iran’s work to proceed because Iran claims its missiles are not designed for this purpose—though the missiles are inherently capable of carrying nuclear weapons and meet the Missile Technology Control Regime’s definition of nuclear-capable missiles.

There is also no longer an explicit U.N. ban on Iranian activity related to ballistic missiles. Under the new resolution, Iran is simply “called upon” not to test.  Iran is not heeding this call, and there have been at least three tests of Shahab-3 missile variants since October 2015.

The new resolution does restrict sales of missile technology to Iran for eight years.  But there is a provision in the resolution under which any country that wants to sell missile technology to Iran can do so by petition to the U.N. Security Council.  The U.N. is expected to tightly control the most sensitive items for the eight-year period, but it may allow certain dual-use imports, ostensibly for civilian purposes.  For instance, imports for Iran’s expanding space program could directly support Iran’s efforts to extend the range of its ballistic missiles.

Going forward, it will be very important to keep strong restrictions on these programs—internationally, to the extent possible, through the U.N., and through national enforcement, including investigations, shutting down illicit procurement networks, interdiction, and sanctions.

Simmering Dissatisfaction on Both Sides of Nuclear Deal

By Simon Chin and Valerie Lincy

Secretary of State John Kerry and Iranian Foreign Minister Javad Zarif met in New York on April 19 amid dissatisfaction on both sides about the implementation of the nuclear agreement.  Iran has voiced frustration with the slow pace of financial sanctions relief promised by the agreement, and Mr. Zarif said the meeting focused on how to “make sure that we will draw the benefits Iran is entitled to from implementation of the agreement.”[1]  The United States, meanwhile, is concerned about an increase in Iranian ballistic missile tests – an activity not directly addressed in the agreement but relevant to nuclear weapons.

Since the deal was implemented in January, Iranian banks reportedly have had difficulty processing international financial transactions and repatriating billions of dollars in previously frozen oil revenue from overseas accounts.  Speaking in Washington on April 15, Iran’s central bank governor, Valiollah Seif, said the Obama administration risks jeopardizing the nuclear deal unless it does more to facilitate Iran’s international financial transactions.  “They need to do whatever is needed to honor their commitments.  Otherwise, the [deal] breaks up under its own terms,” Mr. Seif said.  Specifically, Mr. Seif said that Iran should be permitted to access the U.S. financial system and dollar-denominated transactions through U.S. banks.[2]  U.S. law still prohibits Iran from accessing U.S. banks and the dollar, and U.S. officials have said they would not relent on either demand.

European rules about doing business with Iran are far less restrictive, but European banks have been reluctant to deal with Iran for fear of running afoul of U.S. Treasury regulations.[3]  As a result, the economic “windfall” that the Iranian government hoped to enjoy reportedly has not materialized.   At a dinner hosted by the J Street group on April 18, Secretary Kerry said that Iran, to date, has only recouped about $3 billion of its frozen assets—not the $55 billion to a $155 billion figure often cited. Secretary Kerry’s estimate, for which he did not provide an explanation, seemed to support the Iran’s complaint that it remains largely cut off from the financial system.[4]  The Obama administration reportedly has been exploring ways of facilitating Iranian trade by providing access to dollar-denominated trade without directly touching U.S. financial institutions located in the United States .

Meanwhile, U.S. officials are concerned about Iran’s renewed ballistic missile testing, which had been paused during negotiations.  Since October 2015, Iran has conducted at least three tests of variants of its single-stage, liquid-fueled Shahab-3 missile, which is nuclear-capable.  The most recent test occurred in March, when the Islamic Revolutionary Guard Corps conducted two days of large-scale ballistic missile exercises.[5]  The U.S. intelligence community has long judged that Iran “would choose ballistic missiles as its preferred method of delivering nuclear weapons, if it builds them”—a judgment it renewed in February.[6]

Yet neither the nuclear agreement nor the new U.N. Security Council resolution 2231 allows for sanctions to punish Iran’s missile tests.  The United States and its European allies have called Iran’s recent ballistic missile tests “inconsistent with” and “in defiance of” U.N. resolution 2231.  Yet Western diplomats admit that because of the weakness and ambiguity of the U.N. language, the resolution’s exhortation against Iranian ballistic missile activity is not legally binding and would not trigger new U.N. sanctions.[7]  Neither is there recourse under the terms of the nuclear agreement.  As Secretary Kerry has made clear, neither the conventional arms nor the missile restrictions in resolution 2231 are tied to the JCPOA’s “snapback” sanctions provisions.

The Obama administration has come under increasing pressure, not least from Congress, to take unilateral action in response to these tests, but thus far it  has only issued relatively minor sanctions against a few entities linked to Iran’s missile program.  Speaking on April 7 at a meeting with the foreign ministers of the Gulf Cooperation Council, Secretary Kerry, said that the U.S. and its Gulf allies were “prepared to work on a new arrangement to find a peaceful solution to these issues.”  Secretary Kerry said that the Iranians must first “make it clear to everybody that they are prepared to cease these kinds of activities that raise questions about credibility and questions about intentions.”[8]

This argument appears unlikely to change Iran’s behavior.  Mr. Zarif, speaking at a press conference in Tehran on April 10, rejected Secretary Kerry’s calls for a “new arrangement,” stating: “It is crystal clear that the Islamic Republic of Iran’s missile and defense capabilities are not negotiable, and if the US is serious about defense issues, it should decrease the amount of weapons sold to the regional countries.”[9]

Footnotes: 

[1] Louis Charbonneau, “U.S., Iran Discuss Fulfilling Nuclear Deal Pledges to Tehran,” Reuters, April 19, 2016, http://www.reuters.com/article/us-iran-nuclear-kerry-idUSKCN0XG2H9

[2] Jay Solomon, Asa Fitch, and Benoit Faucon, “Iran’s Central Bank Chief Warns Banking-Access Issues Jeopardize Nuclear Deal,” Wall Street Journal, April 15, 2016, https://www.wsj.com/articles/irans-central-bank-chief-warns-banking-access-issues-jeopardize-nuclear-deal-1460745930

[3] Jonathan Saul, “British Banks Seen Holding Back Iran Trade Due to Fear of U.S. Penalties,” Reuters, April 11, 2016, http://www.reuters.com/article/us-iran-banks-idUSKCN0X825G

[4] “Kerry Says Iran’s Cash ‘Windfall’ From Nuclear Deal only $3 Billion,” Radio Free Europe/Radio Liberty, April 19, 2016, http://www.rferl.org/a/us-secretary-state-kerry-iran-cash-windfall-from-nuclear-deal-only-3-billion/27683164.html

[5] “Iran Successfully Test-Fires Ghadr Missiles,” Iran Watch, News Brief, March 9, 2016,  http://www.iranwatch.org/news-brief/iran-successfully-test-fires-ghadr-missiles

[6] James R. Clapper, “Statement for the Record: Worldwide Threat Assessment of the US Intelligence Community,” Senate Armed Services Committee, February 9, 2016, https://www.dni.gov/files/documents/SASC_Unclassified_2016_ATA_SFR_FINAL.pdf.

[7] Louis Charbonneau, “Exclusive: Iran Missile Tests Were in ‘Defiance Of’ U.N. Resolution – U.S., allies,” Reuters, March 30, 2016, http://www.reuters.com/article/us-iran-missiles-idUSKCN0WV2HE

[8] Bradley Klapper, “US Open to ‘New Arrangement’ on Iran’s Missile Tests,” Associated Press, April 7, 2016, http://bigstory.ap.org/article/ff0aa48a68494bdd9eef9b26baba49bf/bahrain-kerry-treads-carefully-human-rights

[9] “Zarif: No JCPOA Possible Over Iran’s Defense Program,” Mehr News Agency, April 10, 2016, http://en.mehrnews.com/news/115693/No-JCPOA-possible-over-Iran-s-defense-program

New Guidance on U.N. Procurement Channel Raises Larger Questions about Iran Deal Enforcement

By Valerie Lincy and Simon Chin

This week, the United Nations published some guidance about a critical part of the nuclear agreement with Iran: the procurement channel.  Sales to Iran of items controlled by the Nuclear Suppliers Group (NSG) and of non-listed items with nuclear applications must pass through this channel, following a review by the newly created Procurement Working Group.  The role of this group was set forth in the nuclear agreement, but little information had been released about how it will function in practice.

The recent guidance – in the form of two short PowerPoint presentations – comes about two months after the agreement was officially implemented, with Iran scaling back parts of its nuclear program in exchange for sanctions relief.  Because the deal was implemented faster than initially anticipated by Western diplomats, restrictions on Iran’s nuclear program have been loosened without the structure necessary to ensure that Iran, as well as any government or company that wants to engage in business with Iran, is complying with the remaining – and considerable – constraints.

A number of these restrictions relate to procurement.  Iran built up its nuclear and missile capabilities using material and equipment acquired illicitly from abroad.  The nuclear agreement is meant to guard against such procurement – at least on the nuclear side – by scrutinizing the sensitive items Iran is once again allowed to import, as well as the end-users in Iran allowed to participate in this trade.

The scrutiny is to be overseen by the Procurement Working Group, comprised of one member from Iran and one member from each of the P5+1 countries, plus the E.U. High Representative.  According to the information released this week, the group is one of several entities involved in monitoring and approving Iranian nuclear imports.  This bureaucracy may hinder the channel from functioning expeditiously, with the possibility of foot-dragging at each level.

Export proposals must be made by countries – not companies – to the U.N. Security Council, through a U.N. facilitator and the Security Council Affairs Division of the U.N. Department of Political Affairs.  Individual countries seeking to export goods through the procurement channel must establish their own internal mechanisms for putting forth proposals.  It is unclear whether many countries have had the necessary time to do so.

Each export proposal then will be passed from the Security Council to a Joint Commission that was established by the agreement.  The Procurement Working Group, which is subordinate to this Commission, reviews the request and issues a recommendation.  The group operates by consensus and is intended to make decisions within 30 working days.  Its recommendation is then sent back to the Security Council for a final decision, and the exporting state is informed.

This mechanism is meant to function for ten years and review transfers of not only tangible items but also the provision of “technical assistance or training, financial assistance, investment, brokering or other services related to the supply, sale, transfer, manufacture, or use” of these items. The broad scope of the procurement channel – and the sheer volume of requests that may pour in – could place enormous stress on the working group given the short timeline for reviewing proposals.

Each export proposal must include a description of the item, its proposed end-use and end-use location, as well as information about the exporting entity, the end-user in Iran, and any other parties to the transaction, including agents, brokers, consignees, or freight forwarders.  Proposals must also include an end-user certification form from either the Atomic Energy Organization of Iran (for the nuclear sector) or Iran’s Ministry of Foreign Affairs (for non-nuclear civilian sectors).  All of these elements must be screened and potentially investigated by the working group.

The recent guidance also confirms exceptions to the channel that were spelled out in the nuclear agreement, including light-water reactor technology and related reactor fuel, imports to modify the Arak heavy water reactor, and trade in natural and low-enriched uranium (LEU) to help maintain Iran’s 300 kg cap on LEU.  Transfers of these goods would have to be reported to the Security Council and to the International Atomic Energy Agency (IAEA), and supplier countries would be responsible for ensuring proper end-use.

The Joint Commission and the Procurement Working Group have additional functions, such as providing expertise on end-use verification to exporting states and responding to requests for guidance from third parties, within nine working days, according to the recent guidance.  Reports on procurement channel decisions will apparently be made every six months to the Security Council.  It is not clear if these reports will be made public, or if they will be combined into a more general report on implementation made by the U.N. Secretary General to the Security Council.  According to the guidance, “the operation of the procurement channel will be subject to the confidentiality of the U.N.”  This means that procurement requests, working group recommendations, and Security Council decisions may not be made public.

Violations of procurement rules will be handled by the Joint Commission and the Security Council.  Under prior United Nations resolutions, a dedicated U.N. committee was charged with monitoring the implementation of sanctions against Iran, and an expert panel focused on investigating and reporting on possible violations.  This Panel of Experts was one of the most valuable international instruments for scrutinizing and publicizing illicit Iranian activity.  However, in response to demands from Iranian negotiators, both the U.N. committee and the Panel of Experts were dissolved as part of the nuclear agreement.  It appears there will now be less transparency about procurement and sanctions violations than before, much like the reduced detail about Iran’s nuclear program included in IAEA reports since the implementation of the nuclear agreement.

The procurement channel is just one example of how former restrictions on Iran’s nuclear program were removed faster than new enforcement structures could be put in place.  It is unclear how long it will take for the United Nations, the new Joint Commission, and individual states to get the channel up and running—and whether sufficient information will be publicly released about the channel’s operations and decisions.  The implementation of the nuclear deal in January was hailed as a diplomatic milestone.  But the agreement’s success in reining in Iran’s nuclear ambitions cannot be known until it has been in place for some time and its enforcement mechanisms have been tested.

CEO of U.S. Metallurgical Company Charged with Illicit Export of Metallic Powder to Iran

By Simon Chin and Valerie Lincy

The CEO of a New York-based metallurgical company has been arrested on charges of illegally exporting a specialized metallic powder from the United States to Iran, the U.S. Justice Department announced on March 1.  According to the criminal complaint, Erdal Kuyumcu, a naturalized U.S. citizen of Turkish descent, allegedly exported over a thousand pounds of a thermal spray powder to Iran, via transshipment through Turkey, in two shipments in 2013.  The metallic powder is composed primarily of cobalt and nickel and can be used to coat gas turbine components, which have aerospace, missile production, and nuclear applications.

Kuyumcu, the CEO of Global Metallurgy LLC in Woodside, New York, allegedly acted as an intermediary for a procurement network involving companies in Iran and Turkey.  According to the complaint, an Iran-based procurement agent placed orders for the metallic powder with a metallurgical company based in Istanbul, Turkey.  The owner of the Turkish company turned to Kuyumcu for help in fulfilling the orders.  Kuyumcu obtained the metallic powder from a supplier in Ohio, providing the name of the Turkish company as the false end-user.  The powder was then shipped from Global Metallurgical in New York to the Turkish company in Istanbul, after which it was sent to the unnamed end-user in Iran.  The complaint alleges two illicit shipments of the powder: the first in March 2013 of 670 pounds of the powder worth $22,076.50; and the second in July 2013 of 330 pounds of the material worth $11,170.50.

This case fits the pattern of Iran-based procurement networks using Turkey as a transshipment point for illicit exports of U.S.-origin goods.  Individuals and companies seeking to evade U.S. export restrictions rely on non-embargoed countries, such as Turkey, for transshipment to end-users in Iran.  According to the complaint, Turkey is often a transshipment point for American goods destined for Iran—goods that are accompanied by falsified end-user information.  In the Kuyumcu case, the Turkish metallurgical company was falsely represented to be the end-user of both shipments of the metallic powder.  The scheme was uncovered through a post-shipment verification check conducted by the U.S. Department of Commerce at the Turkish company.

Other recent high-profile export control cases have also involved transshipment through Turkey.  Arthur Shyu, a manager of Hosoda Taiwan Co. Ltd., was arrested in April 2015 for allegedly shipping sensitive U.S.-origin microelectronics to Iran using an Istanbul-based company called Golsad Istanbul Trading. AAG Makina, a Turkish equipment manufacturer, settled one charge in March 2015 of illegally forwarding U.S.-origin valve parts to Iranian petrochemical companies.

The Iranian procurement ring led by Hossein Tanideh that supplied specialized valves for the heavy water reactor at Arak in 2010 and 2011 also used Turkey as a transshipment point.  In this case, the procurement agents set up shell companies in Istanbul to obtain the valves and then shipped them to Modern Industries Technique Company (MITEC), the Iranian firm responsible for the design and construction of the Arak reactor.  MITEC, which had been under U.N., U.S., and E.U. sanctions, was removed from all three lists in January 2016, as part of the nuclear agreement.

As the cases described above demonstrate, Iran has relied on illicit procurement networks in strategic diversion points, such as Turkey, to advance its nuclear and missile programs.  Even with the nuclear agreement in place, Iran may continue to procure missile and arms related items illicitly because it does not accept an ongoing U.N. ban on such trade.  Therefore countries should exercise extra vigilance in exporting such items to known transshipment hubs, like Turkey.  If these countries served as a hub for illicit trade in the past – when stringent international sanctions were in place – there is every chance that their role will expand in the future, as trade flows to Iran increase.

Who are the Iranian Sanctions Violators Pardoned on Implementation Day?

By Simon Chin and Valerie Lincy

On January 17, 2016 – the day after implementation of the nuclear deal with Iran – President Barack Obama announced the details of another agreement with Iran: four Americans who had been detained in Iran were released, and, in exchange, clemency was granted to six Iranian-Americans and one Iranian serving sentences or awaiting trial in the United States.

President Obama said that the Americans, including Washington Post journalist Jason Rezaian, had been “unjustly detained by Iran,” and called the exchange “a one-time gesture to Iran given the unique opportunity offered by this moment and the larger circumstances at play.”[1] Federal prosecutors, in a subsequent court filing in one of the cases, echoed the President’s language, stating that the deal was “a one-time, unique agreement based on extraordinary circumstances.”[2]

In his statement, the President emphasized that the individuals granted clemency in the United States “were not charged with terrorism or violent offenses.” Indeed, all but one case related to violations of U.S. export control laws and sanctions on Iran. As part of the exchange, the United States also agreed to drop charges and remove Interpol arrest notices (“red notices”) against fourteen Iranians who had been fugitives from prosecution in the United States and whom the U.S. government had not been able to locate or extradite. These fourteen Iranians were all facing charges related to sanctions violations.

In their February 1 court filing, prosecutors explained that the President’s actions would not “in any way impact how the Department of Justice prosecutes future cases involving citizens of Iran or any other country who violate the domestic laws of the United States. This includes individuals who violate the United States trade embargo on Iran, which remains in place with the exception of a few activities that will be licensed by the United States Department of Treasury.”[3]

The U.S. government’s statements notwithstanding, observers have raised concerns about the potential precedent set by the exchange. David Locke Hall, a former federal prosecutor who worked on cases involving illicit Iranian procurement, argued in the Wall Street Journal that the deal “diminishes any deterrent effect [the pardoned men’s] arrests and convictions may have had. It also erases years of hard work by investigators and prosecutors.”[4] Mr. Hall also wrote that “the administration’s actions send a clear signal to federal agents and prosecutors that their labors produce nothing more than political capital, to be traded away when it is politically expedient.” As a result, he warned, future prosecutions of export-enforcement cases—which “are always difficult and labor intensive”–may be less likely.

The export violations committed, or allegedly committed, by the individuals granted clemency as part of this exchange are described below.

Bahram Mechanic: A dual U.S. and Iranian citizen who allegedly was involved in a procurement network that supplied U.S.-origin microelectronics, including items with applications in surface-to-air and cruise missiles, to end users in Iran. Mechanic was the majority owner and Chairman of the Board of Faratel Co., located in Iran, and the majority owner of its sister company, Smart Power Systems Inc., located in Houston, Texas. According to the indictment, Mechanic placed order requests for the sensitive electronics with Arthur Shyu and his company, Hosoda Taiwan, who then procured the items and shipped them either directly to Iran or through Turkey via Golsad Istanbul Trading. The end user in this network was allegedly Faratel, which designs and produces uninterruptible power supplies, including for the Ministry of Defense, Atomic Energy Organization of Iran, and Iranian Centrifuge Technology Company. Mechanic was indicted on 22 counts related to sanctions violations and money laundering in 2015. He had pleaded not guilty and had been held in a Houston jail awaiting trial.

Tooraj “Roger” Faridi: A dual U.S. and Iranian citizen who was a co-defendant in the Mechanic case. He was a vice president of operations at Smart Power Systems and an engineer at Faratel. Prosecutors alleged that Faridi assisted Mechanic by processing orders from Faratel, organizing the procurement network, and procuring and shipping export-controlled items to Faratel in Iran. Faridi also allegedly directly shipped controlled items from Smart Power Systems in the United States to Faratel in Iran. He was indicted in 2015 on three charges related to sanctions violations. Faridi had pleaded not guilty and was free on bail awaiting trial.

Khosrow Afghahi: A dual U.S. and Iranian citizen who was also a co-defendant in the Mechanic case. He was the managing director and part owner of Faratel and the minority owner of its sister company, Smart Power Systems. Afghahi also assisted Mechanic in operating the procurement network. In 2015, Afghahi was indicted on four criminal charges related to sanctions violations and money laundering. He had pleaded not guilty and had been held in a Houston jail awaiting trial.

Nader Modanlo: A dual U.S. and Iranian citizen who was convicted in 2013 of conspiracy to defraud the United States, violating the Iran Trade Embargo, and money laundering. Between January 2000 and November 2007, he conspired to supply Iran with satellite technology and hardware. He facilitated contact with POLYOT, a Russian government-owned aerospace enterprise, which led to the launch of an Iranian satellite from Russia on October 27, 2005. He had served as chairman and managing member of New York Satellite Industries, LLC, which received $10 million from a front company, Prospect Telecom, as consideration for facilitating the agreement between Iran and POLYOT, as well as for providing telecommunications services as part of that agreement. Modanlo was released from a federal prison in Virginia on January 17, 2016, where he had been serving an eight-year prison sentence.

Ali Saboonchi: An Iranian-American who was convicted in 2014 of attempting to export industrial parts to end-users in Iran via transshipment through the United Arab Emirates or China. He was the founder and operator of Ace Electric Company in Maryland and was charged with being part of a procurement network that sought industrial parts and components for Iranian customers. He was convicted on eight criminal counts related to sanctions violations in 2014 and was serving a two-year sentence in a federal prison in Virginia. He was released on January 17, 2016.

Arah Ghahreman: An Iranian-American who was convicted in 2015 of trying to acquire U.S.-made navigation equipment for end-users in Iran. Prosecutors argued that Ghahreman acted as the procurement network’s agent in the United States and sought to acquire the U.S.-origin goods for illegal export. He had been serving a 78-month sentence before his release in January 2016.

Nima Golestaneh: An Iranian national who pleaded guilty in 2015 to charges related to his involvement in the October 2012 hacking of a Vermont-based defense contractor. He was arrested in Turkey in 2013 and extradited to the United States in 2015. According to his plea agreement, Golestaneh was part of a conspiracy to hack the computer network of Arrow Tech Associates Inc. in Vermont in order to steal information. Golestaneh admitted that he acquired servers in other countries in order for his co-conspirators to launch the attacks while masking their identity and location. He had been held in a New York jail awaiting sentencing before he was freed.

The export violations allegedly committed by the individuals located outside the United States against whom charges were dismissed are described below.

Alireza Moazami Goudarzi: An Iranian citizen who allegedly attempted to export military and civilian aircraft parts from the United States to Iran. According to prosecutors, these included parts for an attack helicopter and for military aircraft. In 2012, Goudarzi was charged with six criminal counts in the United States related to sanctions violations and money laundering. He was arrested in Kuala Lumpur, Malaysia by Malaysian authorities, pursuant to a provisional arrest warrant, but was subsequently released from custody. The United States has since not been able to locate Goudarzi. On January 19, 2016, prosecutors filed a request to dismiss all charges against Goudarzi. The judge in the case asked that prosecutors explain the “significant foreign policy interests” that justify dropping charges. Prosecutors submitted this explanation on February 1, 2016, and the case is still pending.

Matin Sadeghi: A Turkish national who was a co-defendant in the Mechanic case. He operated Golsad Istanbul Trading Ltd., a shipping company located in Istanbul, Turkey that allegedly served as the transshipment point for dual-use U.S.-origin electronics exported illegally to Iran. Sadeghi allegedly acted as a “cut out” for Mechanic’s procurement network, allegedly received shipments from Arthur Shyu in Taiwan and sending them to Faratel in Iran. In 2015, Sadeghi was charged with six criminal counts related to sanctions violations. The charges against him were dropped on January 19, 2016.

Seyed Abolfazi Shahab Jamili: An Iranian citizen who allegedly operated an import-export business in Iran that procured nuclear-related equipment via China. Jamili was the operator of Nicaro Eng. Co., Ltd., a Tehran-based company used to ship parts into Iran. U.S. prosecutors alleged that between 2005 and 2012, Jamili purchased thousands of Chinese manufactured parts with nuclear applications from Sihai Cheng, a Chinese national. The end-user of these parts was allegedly Eyvaz Technic Manufacturing Company, an Iranian company that remains blacklisted by the United States and the European Union. Jamili also allegedly conspired with Cheng to obtain U.S.-made pressure transducers—equipment that can be used in gas centrifuges for uranium enrichment. Jamili was charged with ten criminal counts in 2013. All charges were dropped on February 3, 2016.

Koorush Taherkhani: An Iranian citizen who allegedly used his Dubai-based firm, Tig Marine Engineering Services, as a front company to acquire U.S.-made navigation equipment for end-users in Iran. In 2013, Taherkhani, along with his company and two other employees of Tig Marine, were charged with nine criminal counts related to Iran sanctions violations and money laundering. The charges against Taherkhani and Tig Marine were dropped on January 21, 2016. This was the same case involving Arah Ghahreman, whose sentence was commuted by President Obama.

Jalal Salami: A dual U.S. and Iranian citizen and owner of Pastek Solutions, a company located in San Marcos, California. He is alleged to have been involved in a conspiracy to procure electronic components from the United States for end-users in Iran through transshipment in Malaysia. In 2011, Salami was charged with 29 criminal counts related to the alleged conspiracy. The charges against Salami were dropped on January 15, 2016.

Sajad Farhadi and SeyedAhmad Abtahi: Farhadi and Abtahi are both Iranian citizens who were allegedly involved in the same conspiracy as Salami. They both worked for SunSem Sdn, Bhd., a company located in Kuala Lumpur, Malaysia, which allegedly served as the transshipment point for U.S.-origin electronic components en route for Iran. Farhadi oversaw the daily operations of SunSem in Malaysia, while Abtahi helped managed SunSem operations from Iran and allegedly identified the specific electronic components to be purchased from U.S. companies. They both faced 13 criminal counts. The charges against Farhadi and Abtahi were dropped on January 15, 2016.

Amin Ravan: An Iranian citizen alleged to have smuggled military antennas from the United States to Hong Kong and Singapore. In 2011, Ravan and his Iran-based company IC Market Iran were charged with three criminal counts. According to the indictment, Ravan worked with Singapore-based Corezing International in order to acquire the antennas and disguise their intended destination in Iran. Ravan was arrested in Malaysia in 2012 and U.S. authorities had sought his extradition. The charges against Ravan were dropped on January 26, 2016.

Behrouz Dolatzadeh: An Iranian citizen who allegedly conspired to purchase U.S.-made assault rifles and import them into Iran. Dolatzadeh was charged with two criminal counts in 2012. According to the indictment, Dolatzadeh, who was working for Tehran Fanavar International Group, agreed to purchase thousands of assault rifles, via transshipment through Syria, from a federal agent posing as a sales representative in January 2011. Between October 2011 and January 2012, he also sought to purchase additional assault rifles via the Czech Republic. According to Reuters, Dolatzadeh was appointed to the boards of three technology companies linked to a conglomerate, Setad Ejaiye Farmane Hazrate Emam, which is controlled by Iran’s Supreme Leader. Dolatzadeh was reportedly indicted in 1995, in a separate case involving the attempted export of U.S.-made radio equipment to Iran.[5] He was initially convicted in a Czech court on local charges of arms smuggling and sanctions violations but was freed after a Czech appeals court overturned the conviction, ruling that the case had been entrapment. The U.S. charges against him were dropped on February 1, 2016.

Hamid Arabnejad, Gholamreza Mahmoudi, and Ali Moattar: Three Iranian citizens who held positions at Mahan Air and were alleged to have conspired to import U.S.-made Boeing aircraft into Iran on behalf of their company. Arabnejad (managing director), Mahmoudi (vice president of business development), and Moattar (consultant to the managing director) were charged along with Mahan Air with two criminal counts in 2014. According to the indictment, the three Mahan Air officials used a front company to obtain three Boeing airplanes on behalf of Mahan Air through a leasing arrangement. Mahan Air also sought to obtain three additional Boeing planes using a similar arrangement with an airline in Iceland. The charges against the three were dropped on January 20, 2016.

Mohammed A. Sharbaf (aka Mohammad Ali She’rbaf): An Iranian citizen alleged to have conspired to procure U.S.-origin forklift parts in violation of U.S. sanctions. Sharbaf was charged with six criminal counts in 2005. According to the indictment, Sharbaf, president and managing director of Sepahan Lifter Company—a forklift company based in Esfahan, Iran—sought to import forklift parts from the United States via Dubai-based Sharp Line Trading, owned by Khalid Mahmood. The charges were against Sharbaf were dropped on February 4, 2016.

Mohammad Abbas Mohammadi: An Iranian citizen who allegedly conspired to procure U.S.-origin aircraft parts for use in civilian and military aircraft and export those parts from the United States to Iran. Mohammadi was charged with eleven criminal counts in 2013, including violations of the International Emergency Economic Powers Act, Iranian Transactions Regulations, and the Arms Export Control Act. According to the indictment, between March 2011 and December 2012, Mohammadi conspired to procure American-made aircraft parts and engines for Iranian Aircraft Industries—an entity controlled by the Government of Iran—for use in the Iranian government’s military and civilian aircraft fleet. The conspiracy involved an unnamed Turkish company used for transshipment and two procurement front companies for Iranian Aircraft Industries in Iran: TEM Co and ERI. The charges against Mohammadi were dropped on January 19, 2016.

Footnotes: 

[1] Statement by President Barack Obama on Implementation Day, January 17, 2016, available at http://www.iranwatch.org/library/governments/united-states/executive-branch/white-house/statement-president-obama-implementation-day

[2] Declaration of John P. Cronan, U.S. v. Alireza Moazami Goudarzi, S.D.N.Y., 12 Cr. 830 (PKC), February 1, 2016. http://www.iranwatch.org/sites/default/files/goudarzi_declaration_of_support.pdf

[3] Declaration of John P. Cronan, U.S. v. Alireza Moazami Goudarzi, S.D.N.Y., 12 Cr. 830 (PKC), February 1, 2016. http://www.iranwatch.org/sites/default/files/goudarzi_declaration_of_support.pdf

[4] David Locke Hall, “Meet the Friends of Iran’s Military Pardoned by Iran,” Wall Street Journal, January 20, 2016, https://www.wsj.com/articles/meet-the-friends-of-irans-military-pardoned-by-obama-1453335742

[5] Steve Stecklow, “Exclusive: Iranian linked to Setad wanted by U.S. for attempted arms smuggling,” Reuters, December 18, 2013, http://www.reuters.com/article/us-setad-fugitive-idUSBRE9BH0D020131218

Chinese Man Convicted on Charges of Exporting U.S.-Origin Pressure Transducers to Iran

On January 27, 2016, Chinese national Sihai Cheng pleaded guilty to six counts related to the export of American-made pressure transducers to Iran in violation of U.S. export laws.  He had been extradited from the United Kingdom to the United States to face the charges on December 5, 2014.

Also indicted in the case were Iranian national Seyed Abolfazl Shahab Jamili, who allegedly bought the transducers from Cheng, Jamili’s Iran-based company, Nicaro Engineering, and Eyvaz Technic, the Iranian end-user. Eyvaz Technic has been sanctioned by both the United States and the European Union for its involvement in Iran’s nuclear program. According to the European Union, Eyvaz has supplied vacuum equipment to Iran’s Natanz and Fordow uranium enrichment facilities, and has provided pressure transducers to Kalaye Electric Company, a centrifuge testing facility located in Tehran.

In 2005 Cheng allegedly began selling Jamili thousands of Chinese-manufactured parts with nuclear applications, such as vacuum pressure valves, electronic switches, and stainless steel bellows. Jamili in turn sold these goods to Eyvaz, which apparently supplied them to the Iranian government. On Jamili’s instructions, Cheng often shipped the parts directly to Eyvaz in Tehran using commercial air freight delivery services. Jamili informed Cheng in a 2007 e-mail that the parts he needed were for a “very big” and “secret” project. Beginning in February 2009, Jamili worked with Cheng to obtain higher quality pressure transducers for Eyvaz: those manufactured either by Edwards Limited, a British firm, or by the American company MKS. Eyvaz even specified the model number of the export-controlled MKS pressure transducers it sought — the “722a model.” Pressure transducers have a variety of commercial applications but are also used to regulate gas pressure in centrifuges during uranium enrichment.

After receiving Jamili’s request, Cheng contacted an unnamed employee at MKS Instruments Shanghai, a wholly-owned subsidiary of MKS Instruments in Andover, Massachusetts. This employee then set up two shell companies in China and used these companies as false end-users for the pressure transducers obtained from the United States. Other employees at MKS Shanghai listed legitimate Chinese companies as customers on the intra-office purchase orders they submitted to MKS headquarters in the United States. MKS-Andover, in turn, unwittingly used this information to apply for the requisite export licenses from the U.S. Department of Commerce. Once the parts arrived at MKS-Shanghai, they were diverted, and then sold to Cheng.

Between April 2009 and January 2011, Cheng ordered more than 1,000 pressure transducers worth over $1.8 million through employees at MKS-Shanghai. On Jamili’s instruction, the transducers were then shipped from China to Tehran in small batches so as to avoid attracting attention from the manufacturer. In his e-mails with MKS-Shanghai employees, Cheng claimed he represented the Shanghai office of Hong Kong Sohi Technology Co. Ltd., a trading firm he used to conduct his transactions.

Although the indictment is unclear as to the exact number of transducers that reached Iran, a publicly-available photograph shows former Iranian President Mahmoud Ahmadinejad standing next to MKS transducers mounted on centrifuges in Iran’s Natanz uranium enrichment plant.

This is not the first time MKS’s Shanghai office has been implicated in illicit diversion of dual-use pressure transducers. In May 2012, Chinese citizen Qiang Hu was arrested in North Andover, Massachusetts and charged with illegally supplying pressure transducers to end-users in China in violation of U.S. export laws. Hu, the sales manager at MKS-Shanghai, later pled guilty to using fraudulent end-user information to deliver over $6.5 million worth of MKS export-controlled pressure transducers to unauthorized customers. In both cases, MKS employees created shell companies to pose as end-users for their illegal transactions.

Cheng was held in custody in the United Kingdom following his arrest in February 2014.  He was extradited to the United States on December 5, 2014, made an initial appearance at the U.S. District court in Boston on December 8, and was arraigned on December 12.  Cheng pleased guilty to six counts of conspiracy to commit export violations, conspiracy to smuggle goods, and illegal exports of U.S. goods to Iran and was sentenced to 9 years in federal prison on January 27, 2016.  On February 8, 2016, Cheng filed a motion to appeal his case.

Sources:

[1] “Indicted Chinese National Lands at Boston’s Logan International Airport to Face Federal Prosecution for Supplying Iran with Nuclear Production Parts”, Press Release, U.S. Attorney’s Office for the District of Massachusetts, December 5, 2014.

[2] Assented-to Motion for Order of Excludable Delay from December 12, 2014 through January 22, 2015, Case No. 1:13-cr-10332-PBS, U.S. District Court, District of Massachusetts, December 12, 2014.

[3] “Chinese National Detained in United Kingdom for Illegally Exporting U.S. Manufactured Parts with Nuclear Applications,” Press Release, U.S. Department of Justice, April 4, 2014.

[4] Indictment, United States of America v. Sihai Cheng, aka Chun Hai Cheng, aka Alex Cheng; Seyed Abolfazl Shahab Jamili, Nicaro Eng. Co., Ltd., and Eyvaz Technic Manufacturing Company, Case No. 13cr10332, U.S. District Court, District of Massachusetts, November 21, 2013.

[5] “Additional Treasury and State Designations Targeting Networks Linked to Iranian WMD Proliferation and Sanctions Evasion,” Media Note, U.S. Department of State, December 12, 2013.

[6] “Council Regulation (EU) No 267/2012 of 23 March 2012 concerning restrictive measures against Iran and repealing Regulation (EU) No 961/2010,” Official Journal of the European Union, L 88/76, March 24, 2012.

[7] “Chinese National Charged with Illegal Export of Sensitive Technology to China,” Press Release, U.S. Attorney’s Office for the District of Massachusetts, May 23, 2012.

[8] Affidavit of Special Agent Catherine L. Donovan, United States of America v. Qiang Hu, aka Johnson Hu, Case No. 12cr10188, U.S. District Court, District of Massachusetts, May 18, 2012.

[9] Rule 11 Hearing (Redacted), United States of America v. Qiang Hu, aka Johnson Hu, Case No. 12cr10188, U.S. District Court, District of Massachusetts, November 12, 2013.

[10] Indictment, United States of America v. Qiang Hu, aka Johnson Hu, Case No. 12cr10188, U.S. District Court, District of Massachusetts, June 13, 2012.

[11] “Suspect in Iran Export Case Held Without Bail”, WBSM, December 8, 2014.

[12] Assented-to Motion for Order of Excludable Delay from December 12, 2014 through January 22, 2015, Case No. 1:13-cr-10332-PBS, U.S. District Court, District of Massachusetts, December 12, 2014.

[13] Judgment in a Criminal Case, United States of America v. Sihai Cheng, Case Number 1:13cr10332-PBS, United States District Court, District of Massachusetts, February 1, 2016.

[14] Notice of Appeal, United States of America v. Sihai Cheng, Case Number 1:13cr10332-PBS, United States District Court, District of Massachusetts, February 8, 2016

Related Library Documents: 

Council Regulation (EU) No 267/2012 Concerning Restrictive Measures Against Iran and Repealing Regulations (EU) No 961/2010
Additional Treasury and State Designations Targeting Networks Linked to Iranian WMD Proliferation and Sanctions Evasion
Chinese National Detained in United Kingdom for Illegally Exporting U.S. Manufactured Parts With Nuclear Applications
Indicted Chinese National Lands at Boston’s Logan Airport to Face Federal Prosecution for Supplying Iran with Nuclear Production Parts