Sanctions experts routinely point out that Iran cannot repatriate most of these funds, and see this as proof that sanctions have been successful. While there is no doubt that such restrictions are a problem for the Islamic Republic and have contributed to its economic distress, the regime has devised ways of moving its revenue abroad and, in the process, conducting business and procuring technology without having to rely on its own banking system.

IFIC company papers show how this can be done. In 2010, IFIC Holding financed a Dubai-based company called South Isfahan Power Plant FZCO. The company was established for the sole purpose of buying and re-exporting components for a power plant in Iran, which was established with the help of IFIC Holding and World Bank funds in 2004.

Sanctions have targeted Iranian involvement in the European Union energy sector since 2010, so Iran can no longer buy parts directly from European manufacturers like IPM. But a Dubai-chartered company can; especially if, as IFIC’s annual financial statements show, its funding comes from an offshore banking unit incorporated in Bahrain. That banking unit, however, is owned by Iran’s Bank Saderat. In short, funds that technically come from Germany and Bahrain to finance an import-export operation in Dubai are, in fact, ultimately used to buy merchandise destined for Iran.

This is only one example of how Iran has adapted to the financial restrictions imposed by sanctions. A network of companies, intermediaries, subsidiaries, money collectors, and carriers ensure that, technically speaking, nothing and nobody is violating sanctions. These networks include a multitude of companies established by Iranian proxies in Jebel Ali, Dubai, and elsewhere in the region. From there, getting the procured technology to Iran can be easily arranged.

A variation on this method involves setting up front companies to take over contracts and businesses from a sanctioned Iranian entity. Such cases have surfaced repeatedly in recent years. In December 2011, the Wall Street Journal reported that the U.S.-sanctioned entity Sepanir, owned by Iran’s elite Revolutionary Guards, had established a front company for this purpose. Iran’s Bandar Abbas port operator, Tidewater Middle East PLC (not to be confused with the New Orleans-based Tidewater, Inc.) did the same when the U.S. Treasury linked it to the Revolutionary Guards in July 2011.

Given that Western governments need solid evidence in order to sanction a specific company, all Iran needs to do when one of its businesses is exposed is close it and transfer its activities to a new company. That company will then have a completely clean record, even if, as it is often the case, it has the same shareholders, managers, and even the same address as its sanctioned predecessor. Until Western governments can prove wrongdoing, the new company is free to do business.
IFIC is conveniently located on one of Düsseldorf’s most central and commercial streets. Its address is Königsallee 76, right next door to the local office of Bloomberg News. But Iran does not only invest funds, which perhaps requires a prestigious office in Düsseldorf’s financial and shopping district. Over the years, it has also shown a keen interest in the acquisition of factories, less in hope of making a profit than of gaining access to critical technology.

One such factory is MCS International GmbH, located in the small industrial town of Dinslaken, approximately 45 minutes outside Düsseldorf. Until its recent closure due to bankruptcy, MCS was a world-renowned producer of cylinders used in hybrid cars and missile fuel tankers. These products are made of carbon fiber and hardened steel—key ingredients needed for Iran’s nuclear program.

Due to its activities from 2002 onward, MCS International and its owner Reyco were sanctioned by the U.S. Treasury Department on June 4, 2013, after the American government concluded that they were part of an elaborate network of companies controlled by Iran’s Supreme Leader. The convoluted story of how the Iranian regime came to own this factory, and in the process to gain access to crucial dual-use technology, offers a glimpse at the sophisticated methods employed by the regime.

In 2003, two German-incorporated Iranian front companies bought a German company called Zweite Kalypso. The Iranians renamed it MCS International. Three years later, one of the two Iranian companies, Reyco, bought the other one out, becoming sole owner of MCS International. The shell company proceeded to acquire full ownership of the Dinslaken factory, then called Mannesmann Cylinder Systems. MCS International promptly changed the factory’s name to its own, retaining the initials of the factory’s original name and ensuring a façade of continuity. But while the new name conveyed an impression of business as usual, the new owners had something different in mind.

Around the same time, Reyco bought a Croatian company that was also on the verge of bankruptcy: Cylinder System. According to Cylinder System’s website, Reyco bought 50 percent of the company in 2006 and within a year increased its share to 68 percent. MCS International and Cylinder System continued to have the same owner and even shared a manager until late 2010. The U.S. Treasury found that, at one point, the Iranian regime considered using CSC as a conduit to buy a German bank. If that is the case, then the Iranian interest in these companies did not derive from their profitability. The regime saw them as tools in the pursuit of other goals.

Source: / thetower /