Wall St Journal – When the United Nations Security Council blacklisted Iran’s Sepanir Oil & Gas Engineering Co. last year, the company’s main German intermediary terminated their trading relationship, the German firm says—an apparent victory for international sanctions.
But within months, another intermediary had seized on the business opportunity. Hansa Group AG of Duisburg, Germany, ramped up its trade with Iran’s oil and gas sector, the company said, delivering industrial equipment from German manufacturers to a new Iranian company that didn’t appear on the U.N. blacklist.
This week, 18 months after the U.N. sanctions were imposed, Hansa Group said Germany’s export-oversight agency had asked it to halt deliveries to the Iranian firm, as the European discusses updates to its Iranian blacklist. A spokesman from the German agency, known as BaFa, declined to comment.
As the U.S. and EU seek stronger measures to force Tehran to abandon its nuclear program, the rise and fall of Hansa’s supply business shows how the sanctions regime is often forced to play catch-up to businesses in Iran and abroad that quickly adapt.
The June 2010 U.N. sanctions targeted 15 companies belonging to the Islamic Revolutionary Guard Corps, the military-business conglomerate that dominates Iran’s energy sector. The goal was to interrupt the Iranian government’s ability to generate revenue as punishment for a uranium-enrichment program that the international community, despite Tehran’s denials, has concluded is weapons-related.
When the U.N. list came out with Sepanir on it, the company’s CEO recommended to its German equipment suppliers that they work instead with a new company, Petro Karan Shafagh Kish, or Petrokish, according to correspondences between Iranian and German companies seen by The Wall Street Journal.
The new company was registered in Iran in April 2010, after Germany banned exports to Sepanir—a move that followed a U.S. recommendation that the U.N. put Sepanir on its next blacklist.
Petrokish took over Sepanir’s role—to procure all equipment, materials and services for the onshore part of South Pars gas field, according to Petrokish’s website. The website said Petrokish’s staff had years of experience in the role—something that would be possible only if they had been working for Sepanir.
After the sanctions were published in June 2010, Hansa began to move into the business abandoned by Sepanir’s former German intermediary, Salzgitter Mannesmann International GmbH, which “ended cooperation as soon as we learned the Iranian Revolutionary Guards were involved,” a Salzgitter spokesman said.
Hansa took over some contracts that had been drafted between Salzgitter and Sepanir to supply the Iranians with fire-protection equipment and other technical energy-industry needs—fulfilling the orders for Petrokish instead, commercial records show.
In their new incarnation, some of these contracts even inherited the same procurement numbers, says Thomas Pfisterer, the Hansa management board member responsible for marketing.
Mr. Pfisterer said in an interview in October that Hansa had bartered with Petrokish on its own behalf, while separately helping German firms conclude sales in Iran. “We’ve taken market share” from competitors, he said.
From June 2010 through November 2011, according to sales records reviewed by The Wall Street Journal, Petrokish ordered through Hansa more than €150 million ($195 million) in technology.
Mr. Pfisterer said Hansa’s niche in Iran trade was a “gray area of business,” but was legal. The exports to Iran were approved by BaFa, according to Hansa and the suppliers.
On Tuesday, BaFa asked Hansa to halt all deliveries to Petrokish. The request was made in connection with deliberations at an EU meeting on Dec. 1 that informally named new people and entities for sanction, Hansa told its suppliers in a letter seen by the Journal.
A spokesman for the EU declined to comment on the deliberations. The EU is expected to formalize new sanctions at a meeting of foreign ministers in January.
A spokeswoman for Hansa Group said her firm is caught in a “terrible situation.” Its suppliers require Hansa Group to accept delivery and pay for goods it ordered on behalf of Petrokish, but the goods can’t be delivered to the Iranian company. Hansa Group is bargaining “vacate its contracts with the least economic damage,” she said.
Petrokish isn’t entirely dependent on Hansa for European trade. The company also has a trading partner in Switzerland, for example, Iranian commercial records show.
Sepanir and Petrokish officials didn’t respond to requests to comment. It wasn’t clear how much of the sanctioned company’s supply line was rerouted to supply Petrokish.
In one apparent link between the two companies, in mid-2010, Petrokish CEO Alimorad Ettehad also held the position of vice president for procurement at Sepanir, according to correspondences and business cards. Mr. Ettehad didn’t respond to requests to comment. It isn’t clear if he is still linked to both companies.
Iran’s ability to acquire equipment for its energy industry through companies that don’t appear on U.N., U.S. or EU blacklists is a challenge for the bureaucracies that assemble the sanctions.
Michael Mann, spokesman for European High Representative for Foreign and Security Policy Catherine Ashton, said sanctions work at a political level as well as a practical level, and are updated as needed. “We do our best to follow the trail when entities try to evade sanctions by changing their identities,” he said.
At least one Iranian firm has been found evading sanctions through cosmetic changes: Iran’s state shipping company has changed the names and ownership registrations of vessels that appear on sanctions lists, The Wall Street Journal reported in April.
U.S. Undersecretary for Terrorism and Financial Intelligence David Cohen said: “If Petrokish is a successor to Sepanir, then it is up to us, and the U.N., to update the sanctions list.”
Mr. Cohen referred questions about any efforts to sanction Petrokish to the State Department. “We do not comment on whether we have ongoing investigations into specific sanctions cases,” said a State Department official.
“I would note, however, that as a result of the United States’ comprehensive embargo on Iran, U.S. persons and entities are prohibited from engaging in virtually any transactions with any Iranian-based firm,” the official added.
Meanwhile Petrokish has taken down its website contents, posting an “under construction” message saying the company is shifting its “scope of activities to fields out of the energy sector.”
Several German companies contacted by the Journal said they had sold goods to Salzgitter for shipment to Iran until the U.N. designation of Sepanir last year. But after that, they said, they took up contracts with a new intermediary, Hansa.
In at least one case, the shift from Sepanir to Petrokish created some confusion in Germany.
During a March meeting arranged by Hansa at the German office of a fire-protection equipment seller, a Petrokish representative recorded a memo on stationery bearing the logos of the Revolutionary Guard and the already-sanctioned Sepanir, according to a review of the document.
The memo was submitted to BaFa as part of an export-permit application by the equipment seller, Minimax GmbH & Co. KG.
BaFa spotted the logos, and asked Minimax to clarify the role of Sepanir in its sales to Iran, said Thorsten Gieseke, a Minimax project manager who attended the Hansa-Petrokish meeting.
Mr. Gieseke said Minimax had been a client of Salzgitter and Sepanir before sanctions, that the stationery was brought to the meeting by a Petrokish representative, and that Minimax didn’t notice the logos. BaFa eventually approved the export. A BaFa spokesman declined to comment.
On Thursday, the spokeswoman said Minimax is canceling all of its business with Iran.
Such deals are eased by the ability of companies in Germany to get underwriting. For example, this year Samson AG, which makes special valves used in gas fields, has obtained partial guarantees by at least three German banks for about €29 million in shipments via Hansa: Deutsche Bank AG and state-owned German banks Commerzbank AG and Landesbank Baden Würtemberg AG, or LBBW.
Deutsche Bank said its guarantees were issued for domestic transactions and that they didn’t know the goods would be exported to Iran. The bank investigated the matter after an inquiry by the Journal and concluded it had done nothing wrong.
Commerzbank declined to comment; LBBW said it “exercises special caution during all the necessary compliance checks it conducts.”
The shipments were eventually approved for export by BaFa.
Sonja Stegemann, who handles order processing at Hansa, said Hansa never tried to hide its business relationships with Iran, and the bank guarantees were arranged by Hansa’s clients.
Hans Grimm, who oversees exports at Samson, said he was halting deliveries in accord with the BaFa order on Tuesday.
Write to David Crawford at [email protected]
Trade Rerouted
Iran kept up a German supply line, despite sanctions
February 2010 The U.S. proposes new U.N. sanctions targeting entities controlled by Iran’s Revolutionary Guards
April German export oversight agency BaFa bans shipments to Sepanir Oil & Gas Engineering Co.; a new Iranian firm, Petro Karan Shafagh Kish, is registered
June The U.N. sanctions Sepanir; the company’s German intermediary halts business relations with Iran
December Officials at Hansa Group take up deals with Petrokish that were negotiated with Sepanir’s German suppliers
November 2011 Hansa says it plans to end Iran business; Petrokish has ordered over $195 million in goods through Hansa
Dec. 13 Hansa says it has been asked by BaFa to halt deliveries to Petrokish, as EU weighs new sanctions