Rolls-Royce exploited US sanctions loopholes to trade with Iran

Rolls-Royce sold equipment to Iran for decades, a confidential company memo reveals, exploiting a series of loopholes in US sanctions to avoid breaking the law.

The Iranian government amassed the world’s largest collection of the British engineering group’s signature turbine and booked millions of pounds of orders each year, according to a briefing drafted in 2009 for the company’s then chief executive, Sir John Rose.

Trading in Iran appears to have carried on despite the enormous political risk of being seen to avoid US sanctions.

A quarter of Rolls-Royce’s entire £14bn revenue is generated in the US, with much of that reliant on military contracts. The company signed orders worth $224m (£181m) from the Department of Defense in the first half of 2015 alone.

The company appears never to have issued a statement on its decades-long Iranian operation. The only mentions of Iran on Rolls-Royce’s website date from after the softening of US sanctions earlier this year.
Zafar Khan, an aerospace and defence analyst at Société Générale, said he had never heard of Rolls-Royce trading with Iran. “I am little bit surprised, given that it’s under sanction and these guys have a pretty big exposure to the US both on the commercial [aerospace] side as well as defence,” he said.

Relations between Iran and the west deteriorated dramatically throughout the 2000s amid concerns the country was trying to develop a nuclear weapons programme, with the UN security council approving fresh sanctions on Iran in 2006.

US sanctions were first imposed after the Iranian revolution in 1979. In 1995, the then US president, Bill Clinton, signed into law tough measures specifically banning companies from dealing with Iran’s energy sector.

A joint investigation by the Guardian and BBC Panorama has documented Rolls-Royce’s widespread use of middlemen – commercial advisers or agents in industry parlance – in an effort to secure high-value contracts around the world.

The company has been under investigation by the Serious Fraud Office over allegations it paid bribes through intermediaries since 2012. Rolls-Royce said it was fully cooperating with investigations into the allegations and could not comment in detail.

Earlier this year, Australia’s Fairfax Media published an investigation into the oil and gas services firm Unaoil after a leak of the company’s emails.

Police subsequently raided the firm’s headquarters in Monaco as part of an investigation into “a vast, international corruption scandal implicating numerous foreign oil industry firms”, according to a statement released by the Monégasque government.

Unaoil, which has denied carrying out corrupt practices on behalf of Rolls-Royce or any other company, is fighting a court case against the SFO over the legality of the Monaco raid.

In 2008, Unaoil was provisionally appointed Rolls-Royce’s Iranian agent after lobbying to replace an existing firm.

However, the engineering company’s new head of energy was “concerned with the exposure to Iran” and “wanted to get the OK from Sir John Rose to proceed”, according to a Unaoil memo seen by the Guardian.

A seven-page briefing was subsequently drafted for Rose to aid his decision. The document, which was shared with Unaoil by a senior Rolls-Royce executive, details the enormous success Rolls-Royce enjoyed in the country despite what the author described as “the poor investment climate”.

The document highlights the scale of sales of the company’s signature Avon generator turbine – which can be used for a number of tasks.

“Iran is the location of the largest fleet of industrial Avon packages in any country,” said one paragraph. “The R-R Industrial Avon is the Iranian equipment of choice, but export controls and the political environment have resulted in an inability to trade complete new packages.”

Between 1975 and 1995, state-owned oil and gas firms in Iran procured almost 100 Rolls-Royce industrial turbines, according to the memo. By 2009, 69 Avon turbines had been acquired by the National Iranian Oil Company, which is cited in US sanctions.

However, after sanctions were toughened in 1995 the company decided it would no longer sell complete turbines to Iran. Instead, it would supply spare parts and assistance to maintain the operation of the existing Iranian turbines.

“The USA & the UK have strict export controls, that effectively stop R-R Energy from supplying new OEM [original equipment manufacturer] equipment but allow the supply of non USA source parts to support installed equipment,” the document explained.

“Every part shipped to Iran is ‘rated’ by the Department for Business, Enterprise and Regulatory Reform (BERR), and if required, the appropriate export licence is obtained. Technology requiring a licence is not supplied.”

The company generated £69m of orders in the country between 2001 and 2009, according to the briefing, and also signed a “technical assistance agreement” to support a facility that carried out repairs and overhauls on about 10 turbines each year.

Rolls-Royce adopted several measures that distanced its substantial American division from the Iran trades. Components destined for Iran were manufactured outside the US. Payments were made only in sterling and euros, rather than dollars.

“RRPE [Rolls-Royce Power Engineering] is compliant with all UK & US export controls and does not have any US management. Standard practice within RRPE, for all exports of parts, is not to engage US management in the details,” the briefing states. “This ensures compliance with the Iran Transactions Regulations, administered by the US Department of Treasury’s Office of Foreign Assets Control (OFAC).”

The document also claimed “RRPE do not have any US employees”.

By September 2009, Rose had decided to withdraw. According to an email between senior Unaoil staff, the company had “received feedback […] that Sir John Rose has decided that RR will stop doing business in Iran. He feels the financial benefit of Iranian business is far outweighed by the potential risk to RR of there [sic] US customer base reacting to dealing with a company that support Iran.”

The email adds: “They agree there is nothing illegal in what they do, but he is concerned about a political reaction. RR’s largest customer is the US defence industry.”

Rolls-Royce disputed that any aspect of its supply of equipment to Iran had been secret but declined to comment on the record as to what information it provided to US government officials or shareholders.

A spokesperson said: “Rolls-Royce refutes any accusation that it has traded ‘in secret’ in Iran or that it circumvented US sanctions.

“We work with regulators in the UK, US and elsewhere to ensure that we understand and comply with sanctions regimes. We have consistently taken extensive steps to ensure compliance with Iran-related sanctions.” Rose did not respond to requests for comment.

Source: / theguardian /

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