Evading Sanctions via IRISL, Iran’s Shipping Company

Evading Sanctions via IRISL, Iran’s Shipping Company
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The Islamic Republic of Iran Shipping Lines (IRISL) was established in 1967 (the group has had its current name after the Islamic Revolution in 1979) and commenced its commercial operations by employing two home trade vessels and four larger ocean-going vessels. This is the prime maritime carrier of the Islamic Republic of Iran which has a global presence, a wide network of subsidiaries, and partnership relations and provides a broad range of maritime transport services, including bulk, break-bulk, cargo and containerised shipping. Additionally, IRISL has facilitated shipments of military-related cargo and has engaged in activities related to Iran’s nuclear and ballistic missile development programs. It was named because of this involvement that the company was named in the United Nations Security Council (UNSC) resolutions concerning Iran and listed in multiple sanctions regimes at international, regional and national levels.

Organisationally, IRISL was under the Iranian Ministry of Commerce, however, it has executed logistical services for Iran's Ministry of Defense and Armed Forces Logistics (MODAFL). The latter has the ultimate authority over the Aerospace Industries Organisation of Iran that controls Iran’s ballistic missile research.

UNSC Resolution 1803 from March 2008 called upon all states to inspect the cargoes to and from Iran on vessels owned or operated by IRISL, provided there were reasonable grounds to believe the vessels were transporting goods prohibited under UNSC Resolutions 1737 (2006), 1747 (2007) or 1803. The US Office of Foreign Assets Control (OFAC) designated IRISL and 18 affiliated entities shortly after – in September 2008, pursuant to Executive Order 13382, which aims to isolate financially proliferators of weapons of mass destruction and their supporters. The list of companies included Valfajr 8th Shipping Line Co SSK, which is a subsidiary of IRISL, established as an independent entity in 1989 to specialise in passengers and cargo transportation in the Persian Gulf. Subsidiaries of IRISL in Iran, Egypt, Belgium, China, India, the UK and Malta were also designated.

UNSC Resolution 1929 from June 2010 requested from member states to communicate to the UN any information on transfers of activities by vessels owned or operated by IRISL to other companies that may have been taken in order to evade previous UN sanctions, including renaming or re-registering of vessels or ships. The Annex of the resolution listed three entities that were owned, controlled or acting on behalf of IRISL – Irano Hind Shipping Company, IRISL Benelux NV and South Shipping Line Iran (SSL).

A month later - in July 2010, the EU placed IRISL, and its subsidiaries on the list of entities involved in nuclear proliferation and, consequently, their EU-based funds and economic resources were frozen. Prior to that, the IRISL operations had already been restricted through other measures, including the obligation to provide enhanced customs information.

IRISL is known to have subsidiaries and companies in Barbados, Cyprus, the British Virgin Islands, Egypt, Germany, Hong Kong, the Isle of Man, Malta, Pakistan, Panama, South Korea, the UAE, and the Marshall Islands. Naturally, a company with such strategic importance to Iran and operations serving all continents could not simply cease its activities despite the international pressure on it. The only solution for its management was to set up a strategy to bypass the restrictions. IRISL adopted a number of sanctions evasion tactics that were applied primarily preceding the signature of the Joint Comprehensive Plan of Action (JCPOA) in July 2015, which saw the lifting of the UN and the EU sanctions on the company.

The simplest of tactics was to use generic terms to describe the cargo so that the vessels operated by IRISL or any of its designated subsidiaries did not alert the shipping authorities of the nature and end-user of the shipments.

A March 2011 OFAC report provided further details about the fraudulent measures adopted by IRISL and companies affiliated with to disguise their activities. These include tampering with container prefixes, which are part of the container number and are used to identify each container. The number is a unique alpha-numeric combination of four letters and seven numbers and is covered by the ISO6346:1995 Standard for Freight Containers-Coding, identification and marking. In the past, IRISL used container prefixes registered to other carriers, such as “IRSU” and “XBIU”. On other occasions, the container prefixes were either omitted from the shipping numbers or invalid, incomplete or false container prefixes (such as “ALXU”) were listed. The third option is to simply put in the documentation a vessel that does not exist. Today, there are open-source databases that allow for container prefixes to be checked with more accuracy, which makes this sanctions evasion tactic still usable but with the underlying limitations.

Another method employed by IRISL is the operation of vessels even when their flags have been revoked. As a result of the international sanctions, many countries either revoked or stopped issuing flags to vessels that IRISL or its affiliates were interested in. One such example was Sierra Leone which cancelled its flag for the Irano Hind vessel Amin in June 2012. Irano Hind proper was designated by name by OFAC in September 2008.

One of the most complex and difficult to track sanctions evasion manoeuvres adopted by IRISL is the reliance on offshore and front companies. Complex corporate structures are a classic way to disguise the ownership or control of a business, and this can have legitimate application when entrepreneurs wish to obscure their economic interests because they fear persecution for security or political reasons. Registering a company in an offshore jurisdiction is not illegal either because this allows for better tax conditions, and many entities take advantage of such regimes to maximise their profits. The tricky part with these techniques is that they are widely exploited for sanctions evasion, too, because of the lack of transparency associated with them. Offshore financial centers have very strict privacy laws that forbid the disclosure of shareholder and directors’ names and other details unless a court order is issued. Thus, ownership can be hidden behind multiple layers or shareholders, officers or persons with significant control, and it is very difficult to find who the ultimate beneficial owner is.

By 2010, reports about IRISL’s creation of front companies as a sanction evasion tactic had already started piling up both at government institutions and in the mass media. The scheme has been applied many times ever since – IRISL would set up businesses, sometimes with English names like “System Wise” or “Great Method”, that would look like separate entities, while in reality be acting on its behalf and running the ships owned by IRISL. The directors of these companies would be other companies registered in offshore jurisdictions like the Isle of Man or Samoa or entities located in Hong Kong, Cyprus, China or Turkey. At a certain point, a director, shareholder, or board member would also be involved in many other companies that would ultimately be traced to IRISL or individuals linked to it. Such operations would also involve changing the name, operator or manager of one vessel multiple times.

Currently, IRISL continues relying on these schemes due to the ongoing unilateral US sanctions, which were re-imposed after Washington withdrew from the JCPOA in May 2018. IRISL, 65 of its subsidiaries and associated individuals and 122 vessels, which were identified as property in which IRISL has an interest, were added to OFAC’s Specially Designated Nationals list in November 2018. US authorities continue to be vigilant about the partnerships IRISL seeks to establish in order to further its operations and designate entities that collaborate with it. One recent example is from October 2020, when OFAC blacklisted six companies in Hong Kong and Shanghai and two Chinese individuals for providing services to IRISL, including arranging for port berths for IRISL vessels at Chinese ports and selling, supplying or transferring four large container vessels to IRISL’s subsidiary Hafez Darya Arya Shipping Company (HDASCO).

It is yet to be seen whether the negotiations about the future of the JCPOA will lead to lifting the US sanctions and more specifically, what the timeframe for this step will be. If this does not happen, Iran and IRISL, in particular, are likely to continue relying on the sanctions evasion tactics that have already proven to be working.