The firm is the Islamic Republic of Iran Shipping Lines (IRISL), with about 170 vessels, including some of the newest and largest found in the world’s shipping lanes, as the company has been on a buying spree in recent years.
The carrier is struggling as banks foreclose on mortgaged vessels and insurers refuse to underwrite its operations. This has resulted in several IRISL ships being literally “arrested” – detained on court order – as banks clamor for their money, causing delays to customers and incurring additional financial penalties.
Large portions of the goods shipped by IRISL are supplied by Chinese companies – a factor that raises eyebrows in Washington, which says China is not seriously enforcing UN sanctions.
David Albright, a US nuclear physicist who once inspected Iran’s nuclear facilities for the International Atomic Energy Agency (IAEA), said Iran was a regular purchaser of Chinese goods, including ultra high-strength maraging steel, specialty vacuum pumps, Kevlar and carbon fiber—items needed by Iran’s nuclear and missile programs. Maraging steel and carbon fiber are required, for example, for Iran’s centrifuges.
“Over and over, Iran goes there [to China] to buy things,” Albright, president of the Institute for Science and International Security in Washington, told the Woodrow Wilson International Center for Scholars.
“Iran has consistently used its national maritime carrier to advance its missile programs and to carry other military cargoes,” said Stuart Levey, who just left the post of US Treasury undersecretary for terrorism and financial intelligence.
This all came to a head last September in Singapore, where a sheriff’s sale of three IRISL ships was ordered. The vessels were seized but then released four months later by the court after IRISL found away around US financial restrictions to make its mortgage payments on the ships.
The carrier’s chairman, Mohammad Hossain Dajmar, was scathing of Singapore and the banks after his three ships were impounded by the island-state.
“We had a loan and they [the banks] changed it from a loan to a due payment because of sanctions. In other words, they committed a violation, because the loan contract was signed before the sanctions.”
He also told the Financial Times that sanctions had not hurt the company’s bottom line and that revenue for the eight months from March 2010, was up 40 percent, while shipping transactions had grown 25 percent.
That stretches plausibility, however, given that another four European financial institutions are seeking the arrest of other recently built IRISL ships after alleged defaults on loans totaling $268 million. Last November, two of the vessels were detained—the Decretive in Hong Kong and the Dandle in Malta—at the request of banks.
Japan, the European Union, Canada, Australia, South Korea, Norway, Switzerland and the US have all passed laws enacting sanctions that go beyond the UN sanctions. South Korea temporarily shuttered 102 companies believed to be helping Iran’s nuclear program, including the Seoul branch of Bank Mellat, an Iranian state-owned bank responsible for Korea’s exports to Iran. Mellat also has been sanctioned by the US and the EU as an IRISL lender.
Even countries within the Organization of the Islamic Conference are distancing themselves. Indonesia has told Iran not to proceed with its weapons program, while Malaysia has signed off on a Strategic Trade Law that makes it harder for Iran to use Malaysia as a base for evading sanctions. The law will enable authorities to crack down on companies and seize material bound for export that could be used in weapons of mass destruction. Kuala Lumpur had previously been forced to repudiate allegations it was aiding Iran’s nuclear program.
WikiLeaks cables named two Malaysian companies – Electronic Components and Skylife Worldwide – for possible breaches of sanctions and acting as front companies for Tehran.
“As members of the UN Security Council, Southeast Asian states are obligated to comply with its resolutions. But capacity and political will are areas that often inhibit compliance. Singapore is generally the exception,” Carl Thayer, with the Australian Defense Force Academy in Canberra, told the Bangkok Post.
Thayer said that in the case of Iran, there are different factors at play in each country.
He said Malaysia has begun to tilt more to the US in recent years. However, in Thailand, Universal Transportation Limited had proudly boasted of its position as an agent for IRISL with 14 vessels, despite Thailand being designated a major non-NATO ally by the US.
At the heart of IRISL’s problems are EU sanctions that deny Iran access to European insurers, a huge blow. This has forced the carrier to take up insurance from an Iranian provider, Moallem, which had not previously been involved in maritime insurance. It remains unclear whether Moallem is re-insured by the Iranian state or whether it purchases re-insurance coverage outside the usual European and US markets. This means financing for IRISL’s ships that existed prior to sanctions, although legal in principle, is now a much more risky proposition for the banks concerned, to say nothing of potential damage to a bank’s reputation from dealing with Iran.
IRISL also stands accused of attempting to evade sanctions through a complex network of front companies to take advantage of loopholes in maritime law. The companies amount to a paper shuffle, sharing the same address, staff and office space as the initial IRISL operators.
Levey said, “The company started to use an array of deceptive practices to conceal its identity and skirt sanctions – including falsifying shipping documents, changing names and nominal ownership of vessels and even repainting ships.”
In 2009, IRISL established Hafiz Darya Shipping Company (HDSL), which focused on containers, and Sapid Shipping Lines, which specialized as a bulk carrier. A third company, Hanseatic Trade and Trust, was established to manage four new IRISL vessels.
As a result, another 24 affiliated companies were blacklisted in January. Sixteen were traced to the same Hong Kong address and another four to the Isle of Man. IRISL-owned vessels are often registered in a third country like Hong Kong, Germany or Malta.
The doubtful quality of insurance now held by IRISL and the failure to meet scheduled repayments on loans began prompting creditors to demand repayment in full.
The three IRISL vessels that were seized in Singaporean waters late last year were German-registered and impounded after a court warrant was issued on behalf of French banks Credit Agricole and Societe Generale and The Export-Import Bank of Korea.
The banks were seeking $210 million in alleged loan defaults and damages. The problem wasn’t that IRISL was too poor to pay its debts. It was that US banking restrictions meant IRISL could not make payments that went through American clearinghouses. The problem, in other words, was largely bureaucratic and administrative rather than financial.
But the administrative entanglements can lead to financial problems. As IRISL’s creditors aren’t being paid on time, they have begun demanding full payment of the debts that would normally be repaid over years. But IRISL cannot possibly pay for everything up front.
Additional costs incurred by ship owners for an impounded ship can amount to about $35,000 a day in docking and fuel charges. Further fines are imposed for delays and there are outstanding loans for the 80 new IRISL ships, according to Iranian press reports.
“IRISL’s other older ships are also thought to be at high risk of seizure, having also been re-mortgaged in exchange for new ones,” one Western maritime source told the Bangkok Post. “It is impossible that the company can pay back all the loans ahead of time.”