Tag Archives: Iran sanctions

Bankers Vices: BNP Paribas and Iran

bnp paribas

BNP Paribas, France’s biggest bank, is reported to be facing a fine of more than $10bn  to settle allegations that it violated US sanctions against Iran and other countries.

The US justice department is pushing the bank to plead guilty to the charges and pay one of the biggest penalties ever imposed on a bank, according to the Wall Street Journal. A deal between the bank and the authorities is still weeks away and the final penalty could yet come in lower than $10bn. The Journal said BNP was seeking to pay less than $8bn, though a person familiar with the bank said its negotiators had not proposed that figure to the justice department…A $10bn fine would be more than five times the biggest amount paid by a bank to settle allegations of violating US sanctions. The US authorities have come down hard on foreign banks, many of them from the UK, for allowing transactions through the US financial system involving parties in Iran, Sudan and other blacklisted countries.

HSBC handed over $1.97bn in 2012, though that fine also settled allegations of money laundering for Mexican drug cartels. Standard Chartered was the next biggest offender, agreeing to pay a total of $667m to the justice department and New York’s banking regulator, mainly for allowing transactions linked to Iran.

On top of the potentially huge fine, BNP Paribas could suffer a temporary ban on processing dollar transactions, a business that is essential to the operations of an international bank. Benjamin Lawsky, New York’s aggressive financial regulator, is said to be seeking a suspension.

In addition to the US justice department, the US treasury department, the attorney’s office in Manhattan, the Manhattan district attorney’s office and Lawsky’s department are all investigating BNP Paribas’s conduct.

Excerpts, Sean Farrell, BNP Paribas faces fine of more than $10bn in US sanctions investigation,Guardian, May 30, 2014

Iran, China and the United States: Unlove Triangle

list

The Chinese government lashed out against the U.S. on April 30, 2014 saying America’s renewed efforts to capture a Chinese national accused of supplying Iran with missile components will only “damage the nonproliferation cooperation.” “The Chinese government is opposed to the U.S. government using domestic law against Chinese enterprises [and] individuals to implement unilateral sanctions,” Chinese Foreign Ministry spokesperson Qin Gang told reporters today. “The U.S.’s approach will not help resolve the issue, but will instead damage the nonproliferation cooperation. What I want to emphasize is that the Chinese government puts a great emphasis on the control of nonproliferation exports, and for any violators of China’s nonproliferation laws and regulations, they will be severely punished by the law.”

Gang’s comments came a day after a number of U.S. federal agencies announced a litany of new enforcement actions targeting Chinese national Li Fangwei, also known as Karl Lee, including a $5 million reward for information leading to Fangwei’s arrest or conviction. For years the U.S. had accused Fangwei of supplying Iran with prohibited materials that could be used in its ballistic missile program.

In addition to the $5 million reward, the U.S. Treasury, which had already taken action against Fangwei and firms to which he’s connected—adding eight additional companies to its list of Specifically Designated Nationals and Blocked Persons. The U.S. Commerce Department also added nine China-based suppliers of Fangwei’s to its own Entity List.

The Department of Justice has charged Fangwei with seven counts related to an alleged scheme to launder money through U.S.-based financial institutions and, if arrested and convicted on all counts, he could spend the rest of his life in prison.  “As alleged, Li Fanwei has used subterfuge and deceit to continue to evade U.S. sanctions that had been imposed because of his illicit trade in prohibited materials with Iran,” U.S. Attorney Preet Bharara said. “Previously having been exposed as a violator of those sanctions, Li spun a web of front companies to carry out prohibited transactions essentially in disguise.”

DOJ Assistant Attorney General John Carlin said the coordinated action against Fangwei was a show of the government’s “all tools” approach shutting down his “proliferation activities.”
Fangwei has previously denied U.S. accusations against him, telling Reuters last year (2013) his company stopped selling to Iran after the U.S. began sanctioning the Middle Eastern country years ago. Fangwei said that before that his company did business with Iran, “but we did not export the goods they said we did, missiles or whatever.”

China Raps US After $5M Bounty Placed on Alleged Weapons Supplier,  ABC News, Apr. 30, 2014

How Iran Defeated the Sanctions

Financial Sanctions against Iran and the Chinese Loophole

How Iran Defeated the Sanctions: the Chinese Connection

nantaz

A Chinese citizen faces U.S. criminal charges that he conspired to export to Iran products that could be used in that country’s nuclear program, the U.S. Justice Department.  Sihai Cheng supplied thousands of parts that have nuclear applications to Eyvaz, a company involved in Iran’s nuclear weapons program, in violation of U.S. sanctions on Iran, federal prosecutors said.

Sihai Cheng of Shanghai and Seyed Abolfazl Shahab Jamili of Tehran allegedly plotted between 2009 and 2011 to send pressure measuring sensors, or transducers, ordered from MKS Instruments Inc. in Andover, USA, to Eyvaz Technic Manufacturing Co., a Tehran-based business that has supplied parts to Iranian nuclear facilities.  Transducers are used in commercial products, but can also be used in gas centrifuges to convert natural uranium into a form suited for nuclear weapons, the indictment states.

Prosecutors said MKS Instruments sent the transducers to China without knowing they were ultimately bound for Iran.

In February 2009, Jamili wrote to Cheng that Eyvaz Technic was seeking to obtain a type of transducer. Eyvaz has “supplied parts for Iran’s development of nuclear weapons,” the indictment states.  After receiving the 2009 e-mail, Cheng allegedly plotted with unidentified coconspirators at MKS-Shanghai, a wholly owned Chinese subsidiary of MKS in Andover, to set up front companies to pose as the intended recipients of the materials, which were ordered from the Andover office.  In addition, MKS-Shanghai employees listed other legitimate Chinese companies as recipients in purchase orders sent to Andover, authorities said.  More than 1,000 orders for MKStransducers with a combined value of over $1.8 million were placed between April 2009 and January 2011, the indictment said. Once the parts arrived in China, Cheng had them shipped to Eyvaz, the Iranian company accused of supplying material for Iran’s nuclear enrichment facilities.

Prosecutors wrote that MKS in Andover “unwittingly assisted MKS-Shanghai in fraudulently obtaining an export license for a large quantity of pressure transducers.”  Authorities say there is evidence MKS products reached the Natanz nuclear enrichment facility in Iran, which began operating thousands of gas centrifuges as early as 2007.  “Publicly available photographs of Natanz [with then President Mahmoud Ahmadinejad] show numerous MKS pressure transducers attached to Iran’s gas centrifuge cascades,” the indictment says.

Excerpt from Chinese national indicted in US over exports to Iran,  Reuters, Apr. 4, 2014 and from Travis Andersen and Jennifer Smith,Men accused of sending nuclear supplies to Iran, Boston Globe, Apr. 5, 2014

A Love Affair with Iran: Glencore and Trafigura

logo of atomic energy organization of iran

Glencore, a commodity trading house run by the billionaire Ivan Glasenberg, traded $659m (£430m) of goods, including aluminium oxide, to Iran last year, the Guardian has established.  The company…has admitted that some of its aluminium oxide ended up in the hands of Iranian Aluminium Company (Iralco).  Trafigura, another commodity trading house, has also admitted to trading an unspecified aluminium oxide (also known as alumina) with Iralco in the past.

The International Atomic Energy Agency has named Iralco as supplying aluminium to Iran Centrifuge Technology Company (Tesa), which is part of the Atomic Energy Organisation of Iran (AEOI). Aluminium oxide is an important material in gas centrifuges used to enrich uranium.  At the time of the Glencore and Trafigura trades with Iralco, it was not illegal or a breach of sanctions to supply Iran with alumina. It is unknown whether Glencore or Trafigura’s alumina passed from Iralco to Tesa, or whether it was used in centrifuge construction.

Since 2006, AEOI has been subject to UN sanctions designed to prevent Iran’s nuclear armament ambitions. Trading with Tesa has been specifically banned under US, EU and UK sanctions since July 2010. Iralco was added to the EU sanctions list in December 2012.  Glencore said it “ceased transactions” with Iralco immediately when it learned of its links with Tesa, and the last trade was in October 2012. “Prior to EU sanctions in December 2012, we were not aware of a link/contract between Iralco and Tesa,” the company said in a statement.  Glencore said it is “reliant on the relevant regulatory bodies/governments to advise us on developments in who we can/can’t do business with”.

Tehran, which some experts say already has enough enriched uranium to make several nuclear weapons, is in the middle of upgrading its stock of more than 10,000 centrifuges. The IAEA said Iran is replacing outdated centrifuges with thousands of more powerful IR-2m models.  Experts at the Institute for Science and International Security (Isis) in London said: “Iran is trying to replace maraging [super-strong] steel end-caps with high strength aluminium end-caps.”  Mark Fitzpatrick, director of Isis’s nonproliferation and disarmament programme, said the new centrifuges could enrich uranium four to five times faster than the existing ones. Iran insists its enriched material is for peaceful use, not for nuclear weapons, but it has refused to allow IAEA inspectors into several of its atomic facilities.

The Guardian has learned that Glencore traded $659m worth of metals, wheat and coal with Iranian entities during 2012. Buried deep in its annual report, one of Glencore’s US affiliates, Century Aluminium, 46% owned by Glencore, states: “During 2012 non-US affiliates of the largest stockholder of the company [Glencore] entered into sales contracts for wheat and coal as well as sale and purchase contracts for metal oxides and metals with Iranian entities, which are either fully or majority owned by the GOI [government of Iran].”…..

Trafigura, which came to global political attention when it was revealed that a licensed independent contractor of a ship it had chartered dumped tonnes of toxic oil slops in Ivory Coast, said: “We can confirm that Trafigura has traded with Iralco in the past. In October 2011, a physical swap agreement was reached whereby Trafigura provided alumina to Iralco in return for aluminium for Trafigura to export worldwide. No deliveries have been made or exports received since new EU sanctions were published in December 2012.

Excerpts, Rupert Neate, Glencore traded with Iranian supplier to nuclear weapon’s programme, Guardian,  Apr. 21, 2013

The Sanction Busters: Iran

Fujairah UAE

The past 15 months have been grim for Iranian businesses which trade with the outside world. America has tightened sanctions against Iran’s financial system; the European Union has put an embargo on its oil; and international traders are wary of dealing with the country.Iranian businesses are used to fighting for survival. The Islamic Republic has faced sanctions of one sort or another since its creation in 1979. Parts for Iran’s ageing civilian airliners trickle in from the black market. A host of sanctioned products, from industrial chemicals to anti-aircraft missiles, come from China. Almost any good can be found in Iran, at a price.  Amir, a manager in a mining business, says he regularly meets British and German suppliers in Turkey, to obtain the most advanced equipment to tap Iran’s mineral wealth. “Foreign firms are terrified of doing something illegal, but in the end they are businessmen,” he says. “The Europeans send our cargoes to Dubai, documented as the final destination. From there we are in charge.” Amir uses Gulf middlemen to change the documents, for a fee of 3-5%, before the goods are shipped to Bandar Abbas, Iran’s largest port.

Because few international banks deal with sanctioned Iranian institutions, Iranian importers have to find roundabout ways of paying suppliers. Amir uses a network of Iranian go-betweens who own companies in South Africa and Malaysia to pay his suppliers’ Western banks. He says 30% of his revenues are spent on avoiding sanctions—not counting the time involved.

The sanctions have hit Iran’s oil industry the hardest. Iran’s government depends on oil for more than half of its revenue, but exports have fallen and grown more volatile. The country’s total production is a quarter less than the 3.6m barrels per day it pumped in 2011.  One way of keeping sales going is to dress up Iranian oil as Iraqi. Another trick is to move Iranian oil onto foreign tankers on the open sea. Once crews have switched off their ships’ tracking beacons, this is all but undetectable. The oil is sold at a discount. Fujairah, in the United Arab Emirates (UAE), is a big market for Iranian oil. Business is down, says Sajad, but European firms still trade with Iran, using Swiss subsidiaries which broker deals with the Iranians and collect the crude using tankers under the flag of a third country.

The sanctions have been a fillip for the few institutions still handling Iranian money. One foreign bank charges 5% on cash moving in or out of Iran, says an Iranian shipping source. Normal business rates are a fraction of a percent, but Iranian firms have little choice.

Sometimes the fear of sanctions is more effective than the sanctions themselves. A customer in the UAE owed $1.3m to Sajad’s shipping firm but would only send it in costly small instalments. Sajad flew to the Gulf to pick up the balance in cash. “I was nervous about what I would say to customs from either country if they checked my suitcase,” he says. “I decided I would tell the truth. I am not a criminal.” But no one did.

Dodging sanctions in Iran: Around the block, Economist, Mar. 3, 2013, at 68?

Sanctions Against Iran and the Afghan Loophole

How Iran Copes with Actions?

The Flight of Gold: what Afghanistan, China and Iran have in common

gold

Packed into hand luggage and tucked into jacket pockets, roughly hewed bars of gold are being flown out of Kabul with increasing regularity, confounding Afghan and American officials who fear money launderers have found a new way to spirit funds from the country.  Most of the gold is being carried on commercial flights destined for Dubai, according to airport security reports and officials. The amounts carried by single couriers are often heavy enough that passengers flying from Kabul to the Persian Gulf emirate would be well advised to heed warnings about the danger of bags falling from overhead compartments. One courier, for instance, carried nearly 60 pounds of gold bars, each about the size of an iPhone, aboard an early morning flight in mid-October, according to an airport security report. The load was worth more than $1.5 million.

The gold is fully declared and legal to fly. Some, if not most, is legitimately being sent by gold dealers seeking to have old and damaged jewelry refashioned into new pieces by skilled craftsmen in the Persian Gulf, said Afghan officials and gold dealers.  But gold dealers in Kabul and current and former Kabul airport officials say there has been a surge in shipments since early summer. The talk of a growing exodus of gold from Afghanistan has been spreading among the business community here, and in recent weeks has caught the attention of Afghan and American officials. The officials are now puzzling over the origin of the gold — very little is mined in Afghanistan, although larger mines are planned — and why so much appears to be heading for Dubai.

“We are investigating it, and if we find this is a way of laundering money, we will intervene,” said Noorullah Delawari, the governor of Afghanistan’s central bank. Yet he acknowledged that there were more questions than answers at this point. “I don’t know where so much gold would come from, unless you can tell me something about it,” he said in an interview. Or, as a European official who tracks the Afghan economy put it, “new mysteries abound” as the war appears to be drawing to a close.

Figuring out what precisely is happening in the Afghan economy remains as confounding as ever. Nearly 90 percent of the financial activity takes place outside formal banks. Written contracts are the exception, receipts are rare and statistics are often unreliable. Money laundering is commonplace, say Western and Afghan officials.  As a result, with the gold, “right now you’re stuck in that situation we usually are: is there something bad going on here or is this just the Afghan way of commerce?” said a senior American official who tracks illicit financial networks.

There is reason to be suspicious: the gold shipments track with the far larger problem of cash smuggling. For years, flights have left Kabul almost every day carrying thick wads of bank notes — dollars, euros, Norwegian kroner, Saudi Arabian riyals and other currencies — stuffed into suitcases, packed into boxes and shrink-wrapped onto pallets. At one point, cash was even being hidden in food trays aboard now-defunct Pamir Airways flights to Dubai.

Last year alone, Afghanistan’s central bank says, roughly $4.5 billion in cash was spirited out through the airport. Efforts to stanch the flow have had limited impact, and concerns about money laundering persist, according to a report released last week by the United States Special Inspector General for Afghanistan Reconstruction.  The unimpeded “bulk cash flows raise the risk of money laundering and bulk cash smuggling — tools often used to finance terrorist, narcotics and other illicit operations,” the report said. The cash, and now the gold, is most often taken to Dubai, where officials are known for asking few questions. Many wealthy Afghans park their money and families in the emirate, and gold dealers say more middle-class Afghans are sending money and gold — seen as a safeguard against economic ruin — to Dubai as talk of a postwar economic collapse grows louder. But given Dubai’s reputation as a haven for laundered money, an Afghan official said that the “obvious suspicion” is that at least some of the apparent growth in gold shipments to Dubai is tied to the myriad illicit activities — opium smuggling, corruption, Taliban taxation schemes — that have come to define Afghanistan’s economy.

There are also indications that Iran could be dipping into the Afghan gold trade. It is already buying up dollars and euros here to circumvent American and European sanctions, and it may be using gold for the same purpose.  Yahya, a dealer in Kabul, said other gold traders were helping Iran buy the precious metal here. Payment was being made in oil or with Iranian rials, which readily circulate in western Afghanistan. The Afghan dealers are then taking it to Dubai, where the gold is sold for dollars. The money is then moved to China, where it was used to buy needed goods or simply funneled back to Iran, said Yahya, who like many Afghans uses a single name.

Excerpt, MATTHEW ROSENBERG, An Afghan Mystery: Why Are Large Shipments of Gold Leaving the Country?, NY Times, Dec. 15, 2012

Money Laundering: the HSBC case

HSBC avoided a legal battle by agreeing Tuesday (Dec. 11, 2012) to pay $1.9 billion to settle a U.S. money-laundering probe.  Europe’s largest bank by market value will pay the biggest penalty ever imposed on a bank after facing accusations it transferred funds through the U.S. from Mexican drug cartels and on behalf of nations such as Iran that are under international sanctions…It’s the latest scandal to hit banks since the financial crisis started in 2008. Hours earlier, Standard Chartered PLC, another British bank, signed an agreement with New York regulators to settle a money laundering investigation involving Iran with a $340 million payment…

Money laundering by banks has become a priority target for U.S. law enforcement. Since 2009, Credit Suisse, Barclays, Lloyds, and ING have all paid big settlements related to allegations that they moved money for people or companies that were on the U.S. sanctions list.  HSBC conceded that its anti-money laundering measures were inadequate and that it has taken big steps in beefing up its controls. Among other measures, it has hired a former Treasury undersecretary for terrorism and financial intelligence as its chief legal officer….

Jimmy Gurule, a former assistant U.S. Attorney General and currently a law professor at the University of Notre Dame, said the settlement made a “mockery” of the criminal justice system.  “The message sent by the U.S. Department of Justice is that if you are going to engage in large-scale money laundering for Mexican drug cartels, make sure and do it within the scope of your employment working for a bank because you won’t be prosecuted regardless of the egregious nature of your criminal conduct,” he said.

A U.S. law enforcement official said the sum HSBC was paying would include $1.25 billion in forfeiture — the largest ever in a case involving a bank — and $655 million in civil penalties….Under what is known as a deferred prosecution agreement, the financial institution will be accused of violating the Bank Secrecy Act and the Trading With the Enemy Act, the official said. The source spoke only on condition of anonymity because officials were not authorized to speak about the matter on the record.

Last summer, a Senate investigation concluded that HSBC’s lax controls exposed it to money laundering and terrorist financing.  In regard to HSBC and Mexico, the Senate investigative committee reported that in 2007 and 2008 HSBC Mexico sent about $7 billion in cash to the United States. It said such a large amount indicated illegal drug proceeds.  HSBC affiliates also skirted U.S. government bans on financial transactions with Iran and other countries, according to the report from the Senate Permanent Subcommittee on Investigations. And HSBC’s U.S. division provided money and banking services to some banks in Saudi Arabia and Bangladesh thought to have helped fund al-Qaida and other terrorist groups, the report said.

The report also blamed U.S. regulators, claiming they knew the bank had a poor system to detect problems but failed to take action.  Sen. Carl Levin, D-Mich., the committee chairman, cited instances in which HSBC had promised to fix deficiencies after being sanctioned by regulators but failed to follow through.  Levin also said the Office of the Comptroller of the Currency, the U.S. agency that oversees the biggest banks, tolerated HSBC’s weak controls against money laundering for years and said agency examiners who had raised concerns were overruled by their superiors.

HSBC, which in 2011 had net income of $16.8 billion and operates in about 80 countries, has grown quickly in recent years by acquiring banks around the world that became its affiliates. Its far-flung subsidiaries operated with a degree of autonomy that left top bank officials with less than full authority and control, experts say. Each affiliate had its own officer to oversee compliance with laws to prevent money laundering.

HSBC to pay $1.9B to settle money-laundering case, Associated Press, Dec. 11, 2012