March 25, 2014 | Forbes
Switzerland Is Open To Iranian Business
During his recent appearance before the World Economic Forum in Davos, Switzerland, Iran’s president, Hassan Rouhani said that Iran is “ready to welcome entrepreneurs and big economic companies.”
It remains to be seen whether Iran is now open for business to companies eager to exploit sanctions’ relief enacted by the United States and its European allies under the terms of the Joint Plan of Action, signed late last year in Geneva.
One thing is for sure. Switzerland, aside from playing host to Rouhani’s charm offensive and negotiations over Iran’s nuclear program, is not only ready to join other European companies in their business rush to Tehran; it continues to play host to Iranian procurement efforts.
Switzerland has long filled a trade gap for Iran’s wobbly economy. According to Iran’s state-controlled media, Switzerland claimed the top export slot from Europe over the last ten months, with exports totaling $1.9 billion, a figure roughly confirmed by the Swiss daily Tages Anzeiger, which cited $1.7 billion over a nearly identical time period.
Switzerland is not a member of the European Union. Being outside the EU has thus enabled Bern to ignore those parts of European sanctions that were inconvenient to its economic interests. Donald S. Beyer, the then U.S. Ambassador to Switzerland, complained in June 2012 about lack of Swiss compliance: ”We expressed our disappointment. We would like them to do it [follow the EU on Iran sanctions].”
As if Swiss nonchalance about sanctions and business with Iran were not enough, Iran continues to use Switzerland as an intermediate point in its efforts to sell oil, finance and conduct procurement, and generally speaking cover its sanctioned activities through a thick layer of intermediate companies.
That this is the case was recently made clear when the U.S. Department of Treasury identified an Iranian network of sanctions’ evaders that included European Oil Traders SA (or EOT SA) a Swiss company formerly known as MSL & Co SA.
Mr. Pourya Nayebi, one of three Iranian businessmen implicated by Treasury in facilitating sanctions’ evasion, incorporated the company in Geneva, in December 2010, through the good services of a Swiss-Iranian dual national, who, three months later, closed the company in Geneva and moved it to Stadel, in the Zurich Canton, before resigning his post.
The company has no apparent Iranian connection – Mr. Nayebi, the current president of the company, is a citizen of the Caribbean Island of St. Kitts and Nevis and lives in Dubai. The company is managed by a fiduciary agent and the registry says nothing of the shareholders’ identity. But Treasury thought otherwise and explained that EOT SA was set up “to facilitate deceptive transactions for or on behalf of persons subject to U.S. sanctions concerning Iran.”
What Mr. Nayebi and his associates apparently did in Switzerland is not an isolated case – nor is Switzerland a random choice.
For over a decade, Iranian-backed businesses have chosen Switzerland as a comfortable place to incorporate front companies, with the Zug Canton taking pride of place. Zug has always been a magnet for business – it has the lowest tax rate in tax-friendly Switzerland; it allows unprecedented degrees of discretion for companies by allowing local fiduciary agents to front for the real owners; and, according to a former Iranian manager familiar with his country’s fronting activities in Zug, until recently, banking in Zug allowed customers to open anonymous numbered accounts. Once incorporated, Iranian operations in Zug could thus escape scrutiny and rake huge profits at the same time.
The Iran Foreign Investment Company, which is under U.S. sanctions since 2010, used to have a subsidiary in Baar, in Zug’s Canton, until 2012. Unlike its parent company, SWIFIC Holding, now liquidated, was left undisturbed by sanctions.
IFIC was not alone. Mapna is an Iranian downstream energy conglomerate that include 30-something companies, including some, like Mapna Europe GmbH (incorporated in Dusseldorf, Germany), that were mentioned in 2011 by the British Government as entities of concern for WMD-related procurement. Though not under sanctions, Mapna has been accused of providing cover to Revolutionary Guards’ personnel in Syria; its senior management used to include, until recently, the Revolutionary Guards’ air force former commander.
Mapna’s operation in Zug appears to be Zutec AG. According to commercial registry documents, Mr. Amirpour, the CEO of Mapna Europe, Mapna’s German subsidiary, is Zutec AG’s current director. But one would not know these associations – since ZUTEC is now administered entirely by Swiss citizens who act as fiduciary agents for the real owners, whose identity the Zug cantonal registry of companies does not show.
Even though numbered accounts are no longer allowed, Switzerland remains hospitable to those willing to keep their operations discreet. One way Iranian companies do so is by incorporating and then moving companies across cantons – as EOT’s example shows. This simple procedure makes tracing companies more difficult, especially if they change names in the process, as EOT did. Another way is by handing over companies to fiduciary agents who shield real owners from the spotlight.
As a result, Switzerland, with its tradition of banking secrecy and corporate discretion, plays host to Iranian companies dealing with everything, from oil to the automotive sector, from precious metals to financing, including companies that are under sanctions.
The automotive sector, which came under U.S. sanctions in June 2013, has been using, Switzerland to hide the identity of its companies and their operations. These sanctions have been now suspended under the nuclear interim nuclear. Still, Iranian carmakers seem to prefer the discreet legal disguise offered by Swiss corporate laws to openly declaring themselves, as big companies would do when setting up an overseas subsidiary.
Iran’s biggest automaker, Iran Khodro, or IKCO, controls two companies registered with a fiduciary agent in Geneva, both formally owned by IKCO’s subsidiaries in London and Dusseldorf, Germany, or more accurately, by their managers. Saipa, Iran’s second biggest car maker, also appears to be active through a namesake in Geneva, which is engaged in the trade of spare parts for the automotive industry and is run from his own home address by the same dual Swiss-Iranian national who registered EOT on behalf of Mr. Nayebi.
Sometimes, shareholders’ names are available – but as is often the case with Iranian front companies, ownership is with individuals who either still work or formerly worked for Iranian public companies – thus giving them and their fiduciary agents an added layer of plausible deniability.
Everybody knows, for example, that Naftiran Intertrade Company LTD or NICO, an overseas subsidiary of the National Oil Company of Iran, or NIOC, moved its offices from the British channel island of Jersey to Pully, Switzerland. NICO was designated by OFAC in 2008; it was sanctioned in 2013 under Executive Order 13382 for aiding Iranian proliferation efforts. Iran never made too much effort to conceal NICO’s role in sanctions’ evasion. In an interview to Iranian media, on January 18, 2012, Seifollah Jashanshaz – then the CEO of NICO and a senior executive of NIOC – acknowledged that NICO was ‘at the forefront’ of efforts to sell Iranian oil despite international sanctions. He claimed that NICO helped sell half a million barrels of oil a day and called NICO ‘a sentinel against sanctions.’
Less known is that once Naftiran’s role in helping Iran sell its energy products and procure its technology became public, the company and its executives have been engaged in a cat-and-mouse game of incorporating, liquidating and reopening companies in Switzerland. NICO remains officially owned by NICO LTD – the Jersey-based company, which has now relocated its legal residence to the friendlier offshore jurisdiction of Labuan, Malaysia. Meanwhile, a number of Iranian former associates have been busy setting up new companies. Some have since been sanctioned – like Pearl Energy (November 2010) or Petro Suisse Intertrade (July 2012).
The U.S. Department of Treasury claimed that Pearl Energy Services was a subsidiary of Pearl Energy Company, an entity established by a Bank Mellat subsidiary to aid Iran’s oil industry. In fact, according to Swiss commercial registry papers, Pearl Energy Services, which is now being liquidated, was wholly owned by NICO’s former CEO, it included on its board the managing director of Bank Mellat Turkey, Mr. Sheikh Tabagh Younes Hormozi, and is being liquidated by another Iranian, Mr. Abdollah Emadi Allahyari, a former managing director for the London branch of the UN sanctioned Bank Sepah – the bank of Iran’s Revolutionary Guards, or IRGC. But it matters little that these companies were shut down. Companies come and go – their managers remain active in Switzerland, thanks to its hospitable corporate conditions, to set up fronts needed to elude sanctions.
Over the years, some of these companies have been exposed and targeted by Western governments – but while Iranians have become more elusive as a result, their host, Switzerland, appears not to have taken notice of how easily its corporate laws lend themselves to Iran’s sanctions’ evasion efforts.
U.S. Department of State’s Undersecretary of state for political affairs, Wendy Sherman, recently responded to Iranian President’s Rouhani’s comments by saying that Iran is, in fact, not open for business.
Closing down Iran’s access to Switzerland for its sanctions’ busting operations would go a long way to make sure she is right on the mark.
Emanuele Ottolenghi is a Senior Fellow at the Foundation for Defense of Democracies, where Mr Benjamin Weinthal is a Research Fellow.