Iran And Trading Partners Will Find Ways To Skirt Sanctions, Analysts Say

Nov 11, 2018
Originally published on November 14, 2018 9:10 am

The Trump administration hopes the sweeping sanctions it has imposed on Iran's oil, shipping and banking industries will cripple its economy and force it to negotiate a new nuclear deal.

But analysts point out that while such economic penalties can be persuasive, there are also ways to circumvent them.

"There will always be both overt and covert activities to work around sanctions, to dodge sanctions or evade them," says Dan Wager, a global sanctions expert at the consulting firm LexisNexis Risk Solutions. "That's something that's gone on for a very long time."

Iran endured global sanctions for years until 2016, when an agreement with the U.S. and other world powers gave the country economic relief in exchange for limiting Tehran's nuclear program. President Trump unilaterally pulled out of that multination deal and placed a raft of U.S. sanctions back on Iran.

Wager says many of the techniques to skirt sanctions are also used for money laundering, including the use of shell companies, freight forwarding companies or other intermediaries to hide the origin or destination of goods. He points to Iran's efforts to procure aircraft parts and components — something Iran critically needs to keep its aging airplanes working.

"There's a vast network of individuals who are out there that will go to a company that provides aircraft components, engine parts, landing gear parts, avionics and electronics, and they will procure them and represent that those goods are being shipped to and paid for by someone in a country where it is allowed," he says. "Once the goods are shipped to there, they are further transshipped onward to Iran."

It's trickier to work around oil sanctions because the crude has to be transported by large tankers on open waters. But Iran still found ways to do it under past rounds of international sanctions, according to Peter Harrell, an adjunct senior fellow with the Center for a New American Security, a think tank in Washington, D.C.

"You saw Iran have its oil tankers turn off the tracking information. They'd kind of take these very convoluted shipping routes to try to disguise that they were Iranian tankers. They change their flag and they change their name ... tactics that a ship can use to disguise its origin," he says.

Nowadays, says Harrell, who worked on sanctions at the State Department during the Obama administration, it's getting easier to track Iranian oil tankers with the help of satellites.

The U.S. government can also look at financial transactions around the world to identify Iranian oil deals. Elizabeth Rosenberg, a former sanctions official at the Treasury Department, says that will help track down — and penalize — any company or country doing business with the Iranians, not just the oil buyers.

"They could also go after the refiners," Rosenberg says. "Who else do those refiners supply with oil, who are their partners and creditors? The shipping companies, the shipping lines, the brokers, who touches them. The web is very broad here," she adds.

Iran exported an average of 2.5 million oil barrels per day before the U.S. pulled out of the agreement in May. U.S. officials say that figure has been cut nearly by half.

The Trump administration wants Iran's oil exports — the country's vital economic engine and tax revenue source — down to zero and says it will punish any country or company that continues to trade with Iran.

The other signatories on the Iran nuclear deal include China, France, Germany, Russia and the United Kingdom. Many of those and other nations want to keep the agreement going.

Earlier this month, the U.S. granted temporary waivers to China, India, Italy, Greece, Japan, South Korea, Taiwan and Turkey, allowing them to continue buying Iranian oil without consequences for six months.

Harrell says energy-hungry nations are willing to risk sanctions that could reduce their access to U.S. markets. He says the countries can use small companies or banks to do the transactions.

"So, you could see countries such as China that's importing oil — instead of the oil being purchased by a great big Chinese company that has lots of business in the United States, it will be purchased by some small company that doesn't really do any business in the U.S. and if it is sanctioned, so what," he says.

Some methods of evading sanctions fall into a gray zone, such as holding payments in an escrow account, something India did the last time Iran was sanctioned. India and China were also involved in a bartering agreement where Iranian oil could be exchanged for industrial machinery, for example.

The European Union is also looking at creating a system for buying Iranian oil that doesn't use U.S. dollars or run through the American banking system. The Special Purpose Vehicle has yet to take shape because large European companies are afraid to run afoul of the Trump administration, says Wager, with LexisNexis Risk Solutions.

"It is certain that anyone from there that willfully violates these sanctions will be targeted by U.S. enforcement agencies," Wager says.

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RACHEL MARTIN, HOST:

The Trump administration has reimposed sanctions on Iran, including its oil industry, shipping and banking sector. Now comes the hard part, though - preventing companies or countries from finding ways around those very sanctions. Here's NPR's Jackie Northam.

JACKIE NORTHAM, BYLINE: The Trump administration hopes its sweeping sanctions will cripple Iran's economy and force it to negotiate a new nuclear deal. Daniel Wager, a financial crimes specialist at LexisNexis Risk Solutions, says sanctions are an effective way to change behavior, but they're not foolproof.

DAN WAGER: There will always be both overt and covert activities to work around sanctions, to dodge sanctions or evade them. That's something that's gone on for a very long time.

NORTHAM: Wager says many of the techniques to skirt sanctions are also used for money laundering, such as setting up shell companies and intermediaries. As an example, he points to Iran's efforts to procure aircraft parts and components, something Iran critically needs to keep its aging airplanes working.

WAGER: There's a vast network of individuals who are out there that will go to a company that provides aircraft components, engine parts, and they will procure them and represent that those goods are being shipped to and paid for by someone in a country where it is allowed. And once the goods are shipped to there, they're further transshipped onward to Iran.

NORTHAM: It's trickier to work around oil sanctions because the crude has to be transported by large tankers on open waters. Still, Peter Harrell, an adjunct fellow with the Center for a New American Security, says, in the past, Iran found ways to get its most important export to customers.

PETER HARRELL: You saw Iran have its oil tankers turn off their tracking information. You know, they'd kind of take these very convoluted shipping routes to try to disguise that they were Iranian tankers. They'd change their flag. They changed change their name. And, you know, all these kind of tactics a ship can use to disguise its origin.

NORTHAM: Harrell, who worked on sanctions during the Obama administration, says Iranian tankers can be tracked nowadays with the help of satellites. And the administration can also look at financial transactions around the world to identify Iranian oil deals. Elizabeth Rosenberg, a former sanctions official at the Treasury Department, says that will help track down and punish anyone doing business with the Iranians and not just the buyers of crude oil.

ELIZABETH ROSENBERG: They could also go after the refiners who. Are their partners and creditors? The shipping company is. The shipping lines, the brokers - who touches them? The web is very broad here.

NORTHAM: The U.S. wants Iran's oil exports, which represent about 80 percent of the country's economy, down to zero. But other countries want to keep the nuclear deal and do business with Iran. Harrell says energy hungry nations are willing to risk sanctions that could reduce their access to U.S. markets.

HARRELL: You could see a country such as China that's importing oil - instead of the oil being purchased by a great big Chinese company that has lots of business in the United States, it'll be purchased by some small company that doesn't really do any business in the U.S. And if it is sanctioned, so what?

NORTHAM: Some methods of evading sanctions fall into a gray zone, such as holding payments in an escrow account, something India did the last time Iran was sanctioned. There's bartering, exchanging oil for, say, industrial machinery. And the European Union is looking at creating a system that doesn't have any connection to the U.S. banking system - all stopgap methods that can help a hobbled Iranian economy despite U.S. efforts to bring it to its knees. Jackie Northam, NPR News.

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