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‘Robust’ EU sanctions no match for Tehran’s tricks, experts say

by Cnaan Liphshiz, JTA

November 13, 2012 | 9:46 am

Members of the UK-based NGO Peace Strike demonstrating for peace with Iran in London, Sept. 12, 2012. (PeaceStrike.org)

Members of the UK-based NGO Peace Strike demonstrating for peace with Iran in London, Sept. 12, 2012. (PeaceStrike.org)

With embargoes on Iranian gas and oil firmly in place, the European Union seems determined to tighten a net of sanctions around Iran, as even longtime critics of Europe's trade relations with Iran acknowledge.

In a second round of sanctions this year, the European Union announced that it was prohibiting some transactions between European companies and Iranian banks and limit areas of trade “in order to choke off revenue that Iran is using for its nuclear program,” as British Foreign Secretary William Hague put it last month.

The Israeli Foreign Ministry called the EU’s new package, which slapped a fresh embargo on gas to complement July’s oil embargo, “an important step” and “strong message.”

Still, critics say that the EU’s net has large holes that allow Iran to penetrate Europe through Turkey, China and even Lebanon-based Hezbollah, among other entities. Only blanket sanctions, they say, will prevent Iran from using money from Europe to fuel its nuclear program.

In the EU process, companies suspected of being Iranian fronts can be blacklisted only after review and based on hard evidence. Obtaining such evidence requires much time and effort by intelligence agencies.

“By the time one such company is blacklisted, the Iranians have set up 10 new ones,” said Emanuele Ottolenghi of the Foundation for the Defense of Democracies in Washington.

Ottolenghi says that only an American-style trade embargo on Iran can allow the EU to catch up with Iran’s speedy turnarounds. The U.S. has had a near ban on trade with Iran since the 1980s -- its trade volume of less than $200 million with the Islamic Republic consists largely of grain exports. By contrast, the EU’s volume of trade with Iran was $15 billion in 2011, which marks a 60 percent decline from 2005.

The latest EU sanctions proscribe all import of petrochemical products from Iran; export and import of weapons; nuclear and telecommunications equipment; investment in Iran’s oil industry; and trade in gold with Iran, among other measures.

Certain assets of Iran’s central bank have been seized, but transactions “related to foodstuffs, health care, medical equipment, agricultural or humanitarian purposes, personal remittances and a specific trade contract” are permitted. In total, the EU has blacklisted 471 Iranian entities.

Ottolenghi, the Italian-born former director of the American Jewish Committee’s Transatlantic Institute in Brussels, says that European companies are abiding by the EU sanctions. He expects a third round of European sanctions to be announced in the coming months.

But the Iranian workarounds to the European sanctions are numerous and ingenious, Ottolenghi says, noting a relatively simple Iranian trick: trading with Europe through Turkey, a preferred trade partner of the EU and a country that Iranians may enter without a travel visa.

As Iran’s trade with the EU plummets, its trade with Turkey is reaching record levels: $17.52 billion in the first eight months of 2012 compared to $15 billion in 2011. It stood at a mere $1 billion in 2000, according to the Turkish Statistical Institute. Iran is now Turkey’s third-largest trade partner and main country for exports.

Part of the exports may be proscribed European goods that Iran is buying from Europe through Turkish front companies that are set up and run by Iranians with Turkish nationality on behalf of the Iranian government, Ottolenghi says.

In response to EU sanctions, he says, Iran is transferring business to companies in Ukraine, Taiwan and Japan, among other countries.

“If the U.S. and the EU are serious about sanctions, they need to squeeze these countries about ties with Iran," he said.

Just as European sanctions may be encouraging Turkey-Iran trade relations, they also may drive Iran increasingly to rely on Hezbollah for money laundering and purchases. Hezbollah is not blacklisted anywhere in Europe except in the Netherlands.

“By sanctioning Iran and not Hezbollah, the European Union is virtually inviting Iran to do business through hundreds if not thousands of Hezbollah-affiliated proxies all over the continent,” said Wim Kortenoeven, a former Dutch lawmaker and ex-Middle East researcher for the Center for Information and Documentation on Israel in The Hague.

Claude Moniquet, a former researcher for France’s foreign intelligence service and co-founder of the Brussels-based European Strategic Intelligence and Security Center, said that Hezbollah has a “very large money-laundering operation in Europe,” but added that he does not know whether Hezbollah had the capacity to handle any extra business for the Iranians in Europe.

France reportedly is resisting calls to blacklist Hezbollah in order to preserve relations with its former colony, Lebanon. Hezbollah is a powerful player in Lebanese politics.

Selective sanctions against Iran are doomed to fail, said Moniquet, “because Iran is completely opaque and there’s no way of knowing where the money goes once it reaches Iran.”

Iran’s bilateral trade with China, meanwhile, stands at $45 billion, according to the Iran-China Chamber of Commerce. Neutral Switzerland, which is resisting U.S. and EU pressure to comply with sanctions, is exporting about $330 million’s worth of machinery and pharmaceuticals per year to Iran.

Like many other countries, Turkey, China and Switzerland adhere -- publicly, at least -- to U.N. Security Council resolutions on Iran, but those target only Iranian entities directly involved in nuclear proliferation and human rights violations.

Nikzad Rahbar, an Iranian government spokesman, called European sanctions “a mere propaganda campaign.”

Considering Iran’s booming trade in Asia and elsewhere, the link between sanctions and Iran’s spiraling inflation and rising food prices may not be as straightforward as presented by international media coverage, some argue.

“There is no way to break down how much of it is caused by sanctions and how much is the effect of economical incompetence, corruption and grafting that is so intrinsically a part of the Iranian economical system,” Ottolenghi said.

Kortenoeven says that with Iran’s decades of experience of getting by as a pariah nation, its economy cannot be neutralized by European sanctions. Though sanctions may be compounding the troubles, the economic woes in Iran ultimately are “connected to many internal issues,” he said.

Moniquet cites poor management and a centralist, government-controlled market that discourages growth as the root of Iran’s recent financial woes.

“The sanctions are only making it harder for Iran to transcend its internal problems, but not to the point of collapse,” he said.

Simone Dinah Hartmann of the Vienna-based European coalition Stop the Bomb says the current sanctions make it more difficult for the Iranian regime to obtain nuclear weapons.

But, she said, "The goal should be making it impossible for them. We are clearly not there yet.”

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