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Sony Reports Tech Sales to Iran That May Violate Sanction

Sony Corp. (6758) sold almost $13 million in video and medical equipment to dealers in Dubai that resold the gear in Iran, the company said. The recipients included groups under U.S. sanctions.

In a U.S. filing yesterday, Sony said it sold broadcast equipment, security cameras and video-conferencing gear to dealers who planned to resell or resold the products to groups including the Information Technology Department of the Iranian Police and the Islamic Republic of Iran Broadcasting.

The sales appear to be sanctionable, said a U.S. official who asked not to be identified because he wasn’t authorized to speak publicly.

The law allows the U.S. to seek fines against suppliers of products used to oppress people in Iran. Sony’s dealings were outlined under requirements that businesses report transactions with Iran or others sanctioned under programs relating to terrorism or the proliferation of weapons of mass destruction, according to the Tokyo-based electronics maker’s filing.

“International companies that sell equipment to designated Iranian entities like IRIB run the risk of U.S. sanctions as well as the moral opprobrium from aiding the regime’s repression of the Iran people,” said Mark Dubowitz, executive director of the Foundation for Defense of Democracies, a Washington-based group that researches international terrorism. Dubowitz has advised Congress and the Obama administration on Iran sanctions.

Possible Penalties

Sony “believes that, and maintains policies and procedures designed to ensure that, its transactions with Iran and elsewhere have been conducted in accordance with applicable economic sanctions laws and regulations,” according to the filing. Penalties or sanctions taken against the company could be material if any government disagrees, Sony said.

The company declined to comment beyond the filing, Ryoko Takagi, a spokeswoman for Sony in Tokyo, said by phone today.

John Sullivan, a U.S. Treasury Department spokesman, declined to comment on specific companies and possible investigations. Companies can get a special permit to sell to Iran, he said, and some medical equipment is exempt from the U.S. sanctions.

Sony American depositary receipts closed little changed at $21.19 in New York. In Tokyo, the stock rose 2.1 percent today to 2,078 yen, compared with a 3.2 percent gain in Japan’s benchmark Topix index, and has more than doubled this year.

Tailored Sanctions

Since Sony is based in Japan, it’s not clear the company violated any provisions of a U.S. law meant more to capture domestic businesses with overseas subsidiaries, said Danforth Newcomb, an attorney in the sanctions practice at the law firm Shearman & Sterling in New York.

“It turns on a lot of the detail and careful reading of what they did,” Newcomb said. “The U.S. has adopted extra-territorial sanctions designed to reach non-U.S. persons but those sanctions are considerably more tailored because they have significant foreign-policy ramifications.”

One dealer was a subsidiary of the Islamic Republic of Iran Broadcasting, Sony said in the filing. The company also reported sales of medical instruments -- including printers, paper and monitors -- it said were intended for the Ministry of Health.

Sony said it made the disclosure under the Iran Threat Reduction and Syria Human Rights Act of 2012 and related amendments to the Securities Exchange Act of 1934.

The company said it registered a profit of about $500,000 from the sales.

Mitsubishi UFJ

Japan, the world’s third-largest consumer of oil, has struggled to balance its approach to Iran against its dependence on foreign sources for oil, especially after the Fukushima nuclear accident in 2011 forced the closures of all but two of its 50 atomic plants.

“Iran is an important country for Japan, especially since the Fukushima disaster,” said Osamu Fujisawa, an independent energy economist in Tokyo. “I don’t think it’s paying much attention to other goods.”

The U.S. extended Japan’s exemption in March from sanctions on banks doing business with Iran for a third six-month term as oil purchases declined. In the first five months of the year, Japan’s oil imports from Iran declined about 17 percent from a year earlier.

Mitsubishi UFJ Financial Group Inc. (8306), Japan’s biggest bank by market value, agreed last week to pay $250 million to the state of New York to settle claims it transferred billions of dollars for countries facing U.S. sanctions including Iran, Sudan and Myanmar.

Cisco, ZTE

Last year, San Jose, California-based Cisco Systems Inc. (CSCO), the largest maker of networking equipment, ended a partnership with ZTE Corp. (000063) amid concerns about the Chinese company’s alleged sale of equipment to an Iranian company.

Zhu Jinyun, ZTE’s senior vice president for North America and Europe, said at a Sept. 13 congressional hearing that the company conducts “normal business operations in Iran” and is “gradually reducing our present operations and we are not starting any new business operations in Iran.”

Zhu also said the company hasn’t sold gear to the Iranian government.

Amsterdam-based ING Groep NV (INGA) agreed last year to pay $619 million to settle U.S. charges it falsified financial records to bypass sanctions on countries including Cuba and Iran, the unit of Amsterdam-based ING Groep and the U.S. Justice Department said. Credit Suisse AG in 2006 paid $536 million to settle similar violations.

To contact the reporter on this story: Cliff Edwards in San Francisco at cedwards28@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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