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Companies Trading With Iran Hidden by U.K. to Avert U.S. Law

U.S. President Barack Obama
President Barack Obama signed a law almost a year ago broadening the scope of sanctions against Iran to stunt its nuclear development program. Photographer: Pete Souza/White House via Bloomberg

The U.K. government is determined to keep secret British companies that applied to sell goods with potential military uses to Iran, saying international banks are under U.S. pressure to drop them as clients.

The disclosure of the companies may result in them losing access to bank services, Britain’s Export Control Organization said in reply to a Freedom of Information lawsuit filed by Bloomberg News.

President Barack Obama signed a law almost a year ago broadening the scope of sanctions against Iran to stunt its nuclear development program. Even before then, U.K. banks were cutting off customers with links to Iran to avoid being targeted by American authorities or losing permits to do business in the U.S., said the export agency, which issues licenses to ship supplies with dual military or civilian uses, as well as torture equipment and radioactive material to other countries.

“Publicity in newspapers brings our members, who undertake legal trade with Iran, to the attention of the U.S. authorities, who pursue them, and to their own banks, who withdraw banking facilities,” Martin Johnston, the director general of the British-Iranian Chamber of Commerce, said in a filing supporting the U.K. government position.

The British-Iranian trade group, which promotes exports to Iran on behalf of about 120 companies, says the banks’ behavior “borders on a witch-hunt” that can cause financial mayhem for potential exporters to the Middle Eastern nation.

Export Oversight

The dispute stems from a 2009 Bloomberg News request that the U.K. Department for Business, Innovation and Skills, or BIS, which oversees the export agency, release the names of British businesses that applied to ship controlled goods to Iran in the first half of that year.

“It’s critical to understand who’s doing business with a pariah state,” Mark Stephens, Bloomberg News’s lawyer with Finers Stephens Innocent LLP, said in an interview. “Such vital information shouldn’t be hidden from public scrutiny.”

The case, heard today by a tribunal in London, tests transparency in the licensing process, the accountability of U.K. companies and the release of information in the public interest, Stephens said.

The Bloomberg News request, which BIS denied, was part of an investigation into a string of Iranian air disasters that killed hundreds of people, including a February 2003 crash in which 276 died in central Iran.

The BIS said in an e-mailed statement that it, “would be inappropriate to comment whilst the tribunal is ongoing.”

‘Political Risk’

“Banks have withdrawn banking facilities from companies which do business with Iran, on the basis that the political risk” is too high, Tom Smith, who leads the export agency, said in written testimony.

Philip Coppel, a lawyer for Bloomberg News, argued at the hearing the government’s witnesses exaggerated the potential threat to the more than 500 businesses that sought export licenses to Iran during the disputed period.

“You have no first-hand evidence of a U.S. agency taking retaliatory action against a company simply for applying for and receiving an export license,” Coppel said to Johnston at the hearing.

Bloomberg News, based in New York, sought to find out whether U.K. firms were denied licenses to legally sell civilian aircraft parts to the country. Iranian authorities blamed the crashes on U.S. sanctions blocking imports of aircraft parts.

Public Interest

“The U.K. is one of the largest manufacturers and exporters of civil aviation parts in the world,” Bloomberg News said in a filing in the case. “It was of public interest to know whether U.K. companies were applying to export such products to Iran and were being denied.”

The Information Commissioner’s Office, which oversees U.K. Freedom of Information disputes, initially backed a request from Bloomberg News to release the information. It later reversed the decision after the BIS filed secret third-party responses with the ICO. The Information Commissioner never told Bloomberg News or the public that it was considering the matter.

The Information Commissioner has never explained why it changed its position, according to Bloomberg News.

“The manner in which this was done was obviously alienating and likely to sow suspicion,” Bloomberg News said in a filing. “There is a public interest in safe civil aviation wherever a person may be traveling.”

Kirsty McCaskill, a spokeswoman for the Information Commissioner, declined to comment.


The U.K.’s concern on behalf of British companies may be justified, said Suzanne Maloney, a former State Department official who is now a senior fellow at the Brookings Institution in Washington. The extra-territorial reach of U.S. sanctions is a “not-so-secret” weapon used against Iran, she said.

Banks “have been effectively intimidated into not doing any kind of business with Iran directly or even very indirectly,” Maloney said in an interview. “That’s precisely the impact that people in the U.S. Treasury wanted.”

The U.S. sanctions are overseen by the Treasury’s Office of Foreign Assets Control. U.S. trade-secrets laws prevent the Treasury from disclosing the names of companies seeking licenses to export goods that would otherwise be prohibited by sanctions, according to a U.S. Treasury spokeswoman, who declined to be identified and said she couldn’t comment on the U.K. case.

Treasury Routinely Releases

Clif Burns, who practices export law in Washington at the law firm Bryan Cave LLP, said that Treasury’s Office of Foreign Assets Control, in response to freedom of information requests, routinely releases names of companies applying for licenses to export agricultural products, medicine and medical devices to Iran under a congressional exemption passed in 2000.

“Recently one major U.S. newspaper obtained from OFAC, and published, a list of 100 corporations that had received the most licenses to export these goods to Iran and other sanctioned countries such as Cuba and Sudan,” Burns said in an e-mailed statement.

BIS argued the British company names qualify for an “absolute exemption” from U.K. Freedom of Information requests, tribunal filings show.

Need for Secrecy

The need for secrecy is a result of U.S. pressure on U.K. banks, and the consequences for applicants regardless of whether they ship controlled goods to Iran, according to Smith’s filing. The U.S. sanctions are “extremely wide-ranging” and go much farther than U.K. or European Union sanctions, he said.

Brian Mairs, a spokesman for the British Bankers’ Association, a trade group for the country’s lenders, said that banks may drop clients that trade with Iran in order to reduce the risk of sanctions.

“Banks may choose not to do business with any client with direct or indirect connections to Iran,” Mairs said. The BBA is discussing with its members the potential consequences of the U.K. government seeking to hide the names of companies that may be trading with the country, he said.

Many people in the banking industry aren’t aware that the U.K. government is trying to hide the names of such companies, according to Stephens, Bloomberg News’s lawyer.

Johnston said the threat from U.S. banks is exemplified by “agreements” the country forces on large banks relating to Iran and “heavy penalty payments” that discourage financial institutions from servicing companies trading with Iran.

The U.S. passed sanctions in July 2010 against foreign suppliers of gasoline to Iran, prompting four of Europe’s five biggest oil companies to wind down operations there. The same implied threat exists for companies that apply for legal export licenses to Iran in the U.K., the government’s witnesses say.

“Even if the U.S. government weren’t to take direct action against them, the overall context of U.S. government policy would have a chilling effect on their business,” Smith said.

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