September 29, 2010 | Wall Street Journal Europe
Iran’s European Helpers
The European Union in July imposed unprecedented sanctions against Iran's energy and financial sectors. But despite the crackdown, some European companies continue to sign up for business deals in Iran that may be both directly and indirectly supporting Iran's nuclear-weapons development.
Take the example of Ceresola TLS. According to a hard copy of the confirmation of a contract we have obtained, the Swiss firm recently signed an agreement worth over €1 billion with Rahab Engineering Establishment in Tehran. According to the contract, Ceresola has agreed to provide Rahab with tunneling technology to facilitate the construction of a metro line in Iran. But in the past, the regime in Tehran has used similar agreements to help hide its nuclear-weapons program. Although the confirmation order lists the deal as a project for a metro line, obtaining heavy earth-moving equipment and technology is also a top priority for Iran's nuclear program. Tehran needs this know-how to hide military nuclear installations deep underground, as it did with the Qom and Natanz enrichment facilities.
A June United Nations resolution lists the similarly named Rahab Engineering Institute as one of the firms involved in “nuclear or ballistic missile activities,” and says the Institute is owned by the government's Islamic Revolutionary Guard Corps. Given Iran's history of simply renaming sanctioned firms or using front companies, it may be no coincidence that both businesses have their offices on the same Valiasr Street in Tehran. Ceresola manager Doris Ceresola, whose name is listed on the confirmation order, refused to comment when asked about the possibility that Rahab Engineering Establishment and Rahab Engineering Institute could be one and the same company.
Ms. Ceresola asked to know how we obtained copies of the confirmation detailing the Swiss company's delivery of sophisticated technology to Rahab. While stating that she was “upset” that Ceresola's contract with Rahab will be exposed, Ms. Ceresola declined to comment on the nature of the contract, or whether the contract violates international sanctions. She also declined to comment on whether Ceresola was worried that its tunnel technology could be misused for Iran's nuclear program.
The Swiss, EU and U.S. governments should get those answers. Specifically, officials should determine if Rahab is in fact related to the Rahab Engineering Institute owned by the Revolutionary Guard and, if so, if it intends to use Ceresola's equipment to build new underground nuclear sites, instead of metro lines. In another example, the Swiss firm Elektrizitäts-Gesellschaft Laufenburg (EGL) signed a gas contract two years ago estimated at between €18 and €20 billion with the state-owned National Iranian Gas Export Company (NIGEC). NIGEC is a subsidiary of the National Iranian Gas Company, which the U.K. placed on its Proliferation Concerns List last year. The U.N.'s June resolution spelled out in its preamble the clear nexus that exists between revenues from Iran's energy sector and its nuclear activities. The U.S. administration has from the start complained about this Swiss-Iranian business contract.
“As we noted in the past when this deal was first announced, oil and gas deals with Iran send the wrong message when Iran continues to defy U.N. Security Council resolutions,” a spokesman for the U.S. embassy in Bern told us. “We have raised our concerns with the Swiss government about this arrangement on multiple occasions.”
The U.S. State Department and U.S. Congress are currently investigating a number of foreign companies to determine if they are in violation of U.S. sanctions against Iran. While the list of the companies being scrutinized has not been made public, U.S officials have told us that they are concerned that EGL's 25-year, multi-billion euro supply agreement could violate EU and U.S. sanctions prohibiting the transfer of technology and technical expertise to Iran. The EGL supply deal may only be a simple purchase agreement. But given its size and complexity, U.S. officials have told us that they fear it may involve the transfer of technology or technical expertise by EGL, which Iran could use to develop its natural gas sector.
Asked about those U.S. concerns, EGL spokeswoman Lilly Frei told us in August: “We are not violating any regulations; and [we] follow the rules. We feel we are not really deserving to come on the sanctions list.”
Neither EGL nor any other company has been sanctioned by the U.S. Senior Obama Administration officials have told us that they are “very, very close” to a decision on which firms will face penalties under U.S. law.
The EGL deal may also expose a loophole in sanctions laws. U.S. and EU rules severely limit investments in Iran's natural gas sector. In the case of U.S. law, the investment limit is $20 million per year. U.S. Congressional foreign policy staffers have expressed to us concerns that by using long-term supply contracts like EGL's to collateralize billions of dollars in energy bonds, the regime could circumvent sanctions to finance its natural gas sector. Bondholders will require evidence that Iran can make payments on these bonds and one way for Iran to do this would be to sign a long-term supply contract, using this guaranteed revenue stream in hard currencies to collateralize the bonds. The EU and U.S. need to close any loopholes that would allow this kind of investment activity.
Another EGL spokesman, Richard Rogers, declined to comment Wednesday on whether his company was concerned that its long-term contract with Iran could be used to collateralize Iranian energy bonds. At the same time, Mr. Rogers said that “the current political environment does not tolerate procurement of Iranian natural gas” through the proposed Trans Adriatic Pipeline project. However, Mr. Rogers also confirmed that EGL is in negotiations with Turkey's state-owned Botas Petroleum Pipeline Corporation, and declined to specify the nature of those negotiations. Mr. Rogers specifically declined to say whether their plans include transporting Iranian gas through a Botas pipeline in the future. Turkey, along with Brazil, voted against the U.N.'s latest round of sanctions on Iran in June. Iran currently provides Turkey with a third of its energy needs.
Like Turkey, Switzerland is not a member of the EU. While the Swiss have always insisted on neutrality, the Swiss daily Neue Zürcher Zeitung reported that officials in Switzerland's economics ministry have criticized Swiss Foreign Minister Micheline Calmy-Rey for not safeguarding U.S. security interests. The EU should capitalize on this discord and put pressure on the Swiss to make sure the country complies with the letter and spirit of international sanctions. The U.S. should also replace Switzerland as the representative of its diplomatic interests in Iran with a country that doesn't interpret “neutrality” as a license to let companies potentially help Iran develop—directly or indirectly—its nuclear-weapons program.
Germany also remains a problem. Europe's biggest exporter to the Islamic Republic provides roughly 60% of the technology Iran uses in its natural gas sector. The German Engineering Federation (VDMA) has long lobbied against the sort of sanctions that now prohibit European companies from investing in Iran's energy projects and providing technology or technical assistance. VDMA's members are the engine behind Germany's 14% increase in exports to Iran during the first six months of 2010 as compared to same period last year. In the Sept. 13 issue of the Handelsblatt, VDMA spokesman Klaus Friedrich referred to the European Commission's plan for mandatory approval of all payments to and from Iran as a “useless monster bureaucracy.”
Chancellor Angela Merkel has still not shut down the Hamburg-based European-Iranian Trade Bank (EIH), which the U.S. Treasury Department has designated as a proliferator for what it says is the bank's role in abetting Iran's nuclear activities and earlier this month barred from accessing the American market. The EIH said in a statement that it “at all times strictly fulfills and observes applicable legal regulations and all sanctions and export guidelines.”
Mrs. Merkel must take action against both the EIH and those members of the VDMA who continue their business with Iran. The Chancellor should be held to the promises she made, including to the U.S Congress and Israeli Knesset, to stop Iran's nuclear drive. The same goes for the rest of Europe.
Mr. Dubowitz is the executive director of the Foundation for Defense of Democracies and heads its Iran Energy Project; Mr. Weinthal is an investigative journalist living in Berlin and a fellow at the Foundation for Defense of Democracies