Today’s edition of London’s The Guardian reports on a trial in London of three men accused of shipping military aircraft parts to Iran. These parts are used to maintain its aging fleet of U.S. military aircraft sold by the U.S. to the Shah prior to the revolution. The scheme was uncovered when oxygen cylinders used by fighter pilots to breathe at high altitudes were intercepted at Heathrow with bogus paperwork claiming that the oxygen cylinders were for medical use. According to the prosecution, the three men had engaged in parts trade with Iran well in excess of £1.2 million (or almost US$ 1.8 million)

According to the article, the three men maintained U.S. business addresses so that they could acquire the aircraft parts from U.S. suppliers without having to obtain export licenses. The parts were then shipped by the trio back to London using misleading and innocent descriptions of the parts in the export documents.

This once again underscores that U.S. suppliers need to exercise caution even with respect to domestic shipments of export-controlled goods. The Iranian supply network is utilizing every available technique to disguise the ultimate destination of the military parts that it acquires, including setting-up front companies and front addresses in the United States, hoping to diminish scrutiny of the transactions in military-related goods. Although no penalty proceedings have yet been instituted against domestic parts suppliers for ignoring red flags that suggest that a domestic sale might in reality be intended for export, that day may not be far off. Sooner or later, a U.S. parts dealer who supplies a Tomcat part to a U.S. customer without any due diligence on the customer or that customer’s need for the product may find itself looking at the same fines as it would have confronted if it had simply shipped the parts directly to Iran.

According to an article today in the Abu Dhabi daily The National, more than 20 states in the United States have passed laws, or have legislation pending, to require state pension funds to divest stocks of companies doing business in Iran. Although the laws appear to be modeled after similar divestment laws directed at apartheid-era South Africa, they also appear to fly in the face of Crosby v. National Foreign Trade Council, the U.S. Supreme Court opinion, issued in 2000, which struck down similar sanctions that Massachusetts attempted to impose on Burma.

Although I’ve heard some suggest that state divestment laws may be distinguishable from the Massachusetts law thrown out in Crosby, I don’t think that a valid distinction is possible. The Massachusetts law prohibited the state from contracting with companies that did business with Burma. Justice Souter’s opinion, which held that the Massachusetts law was pre-empted by the federal sanctions against Burma, emphasized that “state statute penalizes some private action that the federal Act (as administered by the President) may allow.” In particular, the Massachusetts act penalized past investments whereas the federal law reached only new investments made after the passage of the law. Additionally, the Massachusetts law penalized foreign companies with investments in Burma, whereas the federal sanctions were only directed at U.S. companies.

State divestment statutes are indirect in the same sense that the invalidated Massachusetts statute was. In other words, although they don’t forbid trade with the sanctioned country, they impose penalties on those that do. And the state Iranian divestment statutes are similarly broader than the federal sanctions by targeting foreign subsidiaries of U.S. companies, and foreign companies, which may in certain instances do business in Iran under the federal sanctions.

The only hope for the survival of some of these state-level economic sanctions is the Iran Sanctions Enabling Act of 2009 introduced by Rep. Barney Frank (D – Mass). The law would require the federal government to publish a list of all companies, domestic and foreign, with investments of more than $20 million in the Iranian energy sector. The law would also authorize, but not require, divestment by state and local governments and educational institutions in companies on the list. The likelihood of the proposed bill passing, however, may be limited given the Obama administration’s reported offer to freeze additional sanctions on Iran if Iran suspends nuclear development work and joins talks over the future of its program.

William Dalton, a resident of New Smyrna, Florida, recently agreed to pay a $25,000 fine in connection with misrepresentations he allegedly made to the Bureau of Industry and Security (“BIS”) in connections with efforts to obtain an export classification number for an underwater tracking system. Only $10,000 is immediately payable, with the remainder suspended on the condition that for a period of one year he commits no further export violations.

According to the charging documents, Dalton told BIS licensing officers that the underwater tracking system, which he was seeking to export to China, was a commercial system and that it had not been designed to meet any military specifications. In fact, the charging documents allege, the system was specifically designed to meet specifications provided by the Chinese Navy. There is no indication in the documents that the system was ever in fact exported to China and the fact that the fine was so low seems to suggest this it was not. On the other hand, it’s not clear how BIS became aware of the misrepresentation unless such an export had occurred.

Of course, if the system was exported to China, BIS would be the least of his worries. Rather, his more serious concern would be Directorate of Defense Trade Controls (“DDTC”). If the system was, as alleged, designed for the Chinese Navy, then it would be classified as USML Category XI(a)(1) and export to China would be prohibited by section 126.1 of the International Traffic in Arms Regulations (“ITAR”) and punishable by the DDTC.

You can rest assured that this will probably be the first, last and only Export Law Blog post with a link to a story in a Norwegian Marxist-Leninist-Maoist newspaper called, in English, “The Class Struggle” ( or “Klassekampen” in Norwegian). And it’s not just because we find the concept of a Norwegian Marxist-Leninist-Maoist to be sort of comic, at least in the same sense of say, a Belarusan Scientologist or a North Korean Tory. There is, trust me, a legitimate didactic purpose here.

The article in question (translated here) argues that sanctions enforced by the Office of Foreign Assets Control (“OFAC”) are prohibiting the reconstruction of schools and hospitals destroyed in the January air attacks by Israel on buildings in the Gaza Strip. It’s not at all clear how OFAC sanctions are affecting aid from non-U.S. NGOs. But the article is correct that Hamas’s status as a Specially Designated National (“SDN”) and its control of the government of the Gaza Strip broadly prohibits most transactions, humanitarian or otherwise, by U.S. persons with the Gaza Strip government.

When Hamas gained control of the Palestinian Authority after the January 2006 elections, its status as an SDN led to what I call “constructive sanctions” against the Palestinian Authority — “constructive” in the sense that the Palestinian Authority was not itself listed by OFAC as a sanctioned regime. Thereafter, OFAC issued six general licenses permitting certain humanitarian activities in areas controlled by the Palestinian Authority, provided there were no direct dealings with Hamas. After the takeover of Gaza by Hamas in 2007, the PA, then only in control of the West Bank, formed a new government without Hamas participation, and OFAC permitted all transactions with the West Bank, exclusive of any transactions with any remaining elements of Hamas in the West Bank.

My concern here is with constructive sanctions that require exporters not only to consult OFAC’s lists but also to be aware of complex geopolitical considerations in countries to which they export. Just as an exporter may not know that the CNDD-FDD controls Burundi, it may not know that Hamas controls Gaza. OFAC, of course, knows who’s running Gaza and ought to simply sanction Gaza directly rather than do so indirectly through its sanctions on the controlling political party. It is reasonable to expect exporters to consult a list of sanctioned governments, but not to research the controlling party of a country and then to see whether that party is an SDN or not.

One of our readers has been monitoring the Lloyd’s Register (subscription required) of shipping vessels and noticed something unusual: bunches of Iranian ships were changing their names. For example, on November 16, 2008, the the Islamic Republic of Iran Shipping Lines’ Brilliance became the Mulberry.

No matter how odd a name Brilliance was, it probably wasn’t some desire to give the ship a more nautically correct name that led to the change. Besides changing it to Mulberry probably didn’t reduce the nautical oddness quotient, and I would guess that Iranian sailors on shore leave looking for some good times got more than a little ribbing from sailors from other countries when they said they crewed the Mulberry. (“Hey, is Andy Griffith on your ship too?” “No, smarty, and besides you’re thinking of Mayberry.” “Hey, when does the Gooseberry leave port?” “For the eleventieth time, I told you it’s Mulberry!!!”)

No, the likely reason was that the Brilliance was, on September 10, 2008, added by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) to its lists of Specially Designated Nationals and Blocked Persons, as were all the other vessels of the Islamic Republic of Iran Shipping Lines. Shortly thereafter, the Chairman of IRISL, in an interview with Dow Jones Newswires, pooh-poohed the notion that the sanctions were having any effect on his business.

We have not had any problem with admission of our ships. We have no shipping contracts and have no lines to America, and we have no relation with America’s (shipping) routes. We work with Europe and Asia and when they sell something to Iran, they admit our ships

It makes you wonder then why, just weeks after the new sanctions, IRISL renamed forty-six vessels in its fleet. IRISL probably figured it could rename its ships faster than OFAC could revise its list. Of course, IRISL can’t change the unique I.M.O. number assigned to its ships and contained in each ship’s SDN listing. Still, the Iranians are obviously banking on the likelihood that some shippers may only pay attention to vessel’s name and won’t focus on its I.M.O. number.

For the record, here are the IRISL vessels with post-sanctions name changes:

The lesson here, and it probably shouldn’t be down here after the long table, is checking vessel names isn’t enough. You have to check the I.M.O. number as well.

Oh, and feel free in the comments section, to make fun of the new names, obviously crafted to make the ships sound, well, less Iranian. I mean why else would you name a ship “Lavender” or “Dandelion”? Those are names for soaps or body washes, not ships.