VZCZCXYZ0007
PP RUEHWEB

DE RUEHC #2919 2751832
ZNY SSSSS ZZH
P 021811Z OCT 09
FM SECSTATE WASHDC
TO AMEMBASSY PARIS PRIORITY 0000
MISSILE TECHNOLOGY CONTROL REGIME COLLECTIVE

S E C R E T STATE 102919 
 
SIPDIS 
PARIS FOR POL: NOAH HARDIE 
BRASILIA FOR POL: JOHN ERATH 
 
E.O. 12958: DECL: 10/02/2034 
TAGS: MTCRE ETTC KSCA MNUC PARM TSPA FR BR
SUBJECT: IRANIAN SHIPPING IN A POST-UNSCR 1803 ENVIRONMENT 
 
Classified By: ISN/MTR Director Pam Durham. 
Reasons:  1.4 (B), (D), (H). 
 
¶1. (U)  This is an action request.  Please see paragraph 
¶2. 
 
¶2. (C)  ACTION REQUEST:  Department requests Embassy 
Paris provide the interagency cleared paper "Iranian 
Shipping in a Post-UNSCR 1803 Environment" in paragraph 3 
below to the French Missile Technology Control Regime 
(MTCR) Point of Contact (POC) for distribution to all 
Partners.  Info addressees also may provide to host 
government officials as appropriate.  In delivering 
paper, posts should indicate that the U.S. is sharing 
this paper as part of our preparation for the Information 
Exchange that will be held in conjunction with the MTCR 
Plenary in Rio, November 9-13, 2009.  NOTE:  Additional 
IE papers will be provided via septels.  END NOTE. 
 
¶3. BEGIN TEXT OF PAPER: 
 
(SECRET REL MTCR) 
 
Iranian Shipping in a Post-UNSCR 1803 Environment 
 
Summary: 
 
As a follow-up to our 2007 Information Exchange paper on 
the Islamic Republic of Iran Shipping Lines (IRISL), this 
paper discusses the developments of Iranian maritime 
shipping of WMD- and missile-related goods in the wake of 
sanctions imposed under United Nations Security Council 
Resolution (UNSCR) 1803 and United States Executive Order 
(EO) 13382.  These sanctions, in combination with the 
downturn in the global economy, appear to be having 
adverse effects on Iran,s primary maritime carrier of 
controlled items -- IRISL -- and its ability to do 
business, thereby indirectly impacting Iran,s ability to 
deliver sensitive items to its own companies for its 
programs.  In response to these difficulties, IRISL has 
adopted a number of changes to its activities and 
structure in an attempt to disguise its Iranian 
affiliation and avoid sanctions.  The January 2009 M/V 
MONCHEGORSK case demonstrates the extent of these denial 
and deception efforts.  Missile Technology Control Regime 
(MTCR) members should be aware of these deceptive 
techniques and continue to monitor IRISL for application 
of these techniques to more sensitive shipments. 
 
Background: 
 
As noted in our 2007 paper, IRISL is the national carrier 
for Iran and the twenty-third largest shipping line in 
the world in terms of cargo capacity.  Headquartered in 
Tehran, the company is subordinate to the Ministry of 
Commerce and has historically been owned by the Iranian 
government.  Although IRISL was recently privatized, 
having its initial public offering of shares on the 
Tehran stock market in 2008, the government probably 
still maintains control of a significant number of 
shares, although the exact percentage is unclear.  As a 
result of its Iranian domestic and government 
connections, IRISL has long been Iran,s preferred 
maritime carrier for the import of materials for its 
ballistic missile programs. 
 
IRISL,s size and global operations allow the company to 
facilitate the movement of ballistic missile-related 
materials.  The company controls a fleet of about 150 
vessels, including ships they charter, lease, and own. 
This fleet includes modern container ships, breakbulk 
ships designed for carrying general cargoes, and numerous 
bulk carriers designed to carry large quantities of loose 
material.  IRISL maintains a vast network of port calls 
and schedules, although several services have been 
downsized or eliminated in the wake of the recent global 
downturn in trade.  This global reach has long 
facilitated the import to Iran of controlled materials. 
In a 2009 interview, IRISL claimed the company shipped 
30.6 million tons of cargo in the previous Iranian year 
and had revenues of $1.6 billion in 2007.  By its own 
estimates, the company carried approximately 35 percent 
of Iranian cargoes, and had expansion plans designed to 
increase that market share to 50 percent. 
 
This extensive reach enables the company to easily move 
materials and equipment for Iran,s ballistic missile and 
WMD programs into the country.  The use of the Iranian 
flag for some of IRISL,s ships extends the power of 
Iranian law over the ships, and is likely seen as an 
added security benefit by Iran,s military programs. 
Additionally, the company,s numerous services to Iran, a 
market not extensively serviced by other shipping lines, 
provides ease and convenience of transport through direct 
calls in Iranian ports.  Given these factors, IRISL 
serves as the preferred carrier of goods for Iran,s 
ballistic missile, WMD, and military programs. 
 
In March 2008, the United Nations Security Council 
adopted UNSCR 1803, which calls upon all States "to 
inspect the cargoes to and from Iran, of...vessels, at 
their...seaports, owned or operated by...Islamic Republic 
of Iran Shipping Line, provided there are reasonable 
grounds to believe that the...vessel is transporting goods 
prohibited under this resolution or resolution 1737 
(2006) or resolution 1747 (2007)."  In September 2008, 
the United States designated IRISL and 18 of its 
subsidiaries under Executive Order (E.O.) 13382, 
"Blocking Property of Proliferators of Weapons of Mass 
Destruction."  This designation freezes any U.S. assets 
IRISL might have.  At the same time, IRISL and 123 of its 
vessels were also added to the U.S. Department of the 
Treasury,s Specially Designated Nationals and Blocked 
Persons List.  The listing of these ships also includes 
each vessel,s unique International Maritime Organization 
number, which allows for the identification of each 
vessel regardless of its owner or charterer.  By blocking 
these ships and IRISL affiliates, the Treasury Department 
instructs banks to reject any fund transfers involving 
these vessels or entities - effectively restricting IRISL 
from doing business in U.S. dollars.  Since requirements 
for the dispersal of letters of credit insist that the 
name of the transporting ship be included on the bill of 
lading submitted to the bank to prove shipment, banks are 
in a key position to detect the movement of cargoes on 
IRISL ships. 
 
Concurrent with the imposition of sanctions, the global 
economic crisis resulted in a significant drop in the 
flow of international trade by sea.  As the demand for 
shipping declined in late 2008 and early 2009, the entire 
shipping industry has experienced significant financial 
hardship, and responded by reducing services and 
expenses.  Numerous shipping companies have mothballed 
ships for lack of paying cargoes - by some estimates 
these ships amount to ten percent of the global container 
fleet.  IRISL has not been immune to these economic 
pressures.  These larger commercial factors have had a 
significant effect on IRISL,s corporate finances, to the 
extent that the Iranian government announced its 
intentions to provide IRISL additional operating funds. 
 
Post Sanctions Reaction: 
 
Initially, public reactions of IRISL leadership to the 
sanctions were dismissive.  However, changes in IRISL,s 
operating procedures -- implemented since September 2008 
-- suggest that the company is actively taking measures 
to minimize its Iranian identity and associated 
vulnerabilities.  Many of these changes, which probably 
result in additional expenses to the company, have been 
taking place at a time when IRISL is likely suffering a 
significant decline in revenue due to global economic 
conditions.  These changes, while probably motivated at 
least in part by an effort to remain commercially viable 
in the face of sanctions, have the potential to mask the 
movement of shipments to Iran,s missile and WMD programs, 
and in some cases appear to be contrary to expected 
commercial behaviors. 
 
New Names for Ships 
 
Since September 2008, the most noticeable change in 
IRISL,s methods of doing business has been in the 
abandonment of its thirty-year policy of using Iranian 
names and flags for its ships.  Since 1979, when the 
company was nationalized in the wake of the Iranian 
Revolution, the company has been characterized by its 
extensive use of Iranian nationalist symbols in the 
design, dcor, flagging, and naming of its ships and 
fleet - e.g., ships were painted with the company name, 
stack markings included the national colors and coat of 
arms of Iran, ships were registered under the Iranian 
flag, and ships were usually named after Iranian 
provinces, towns, or religious figures, and most had 
"Iran" in the name itself.  Within six months of the E.O. 
13382 designation, IRISL had changed the names of about 
forty of its ships, with some changing their names 
multiple times.  The ships now bear English-language 
names with no symbolic connection to Iran.  Furthermore, 
76 ships have left the Iranian registry and been 
reflagged under flags of convenience: 54 ships have been 
registered in Malta, and 18 have been registered in Hong 
Kong.  Other ships have been registered in Cyprus and 
Germany. 
 
New Owners and Registries 
 
Additionally, commercial sources indicate that IRISL has 
transferred the ownership of many of the listed vessels 
to nominally independent third-party ship-owning or 
management companies.  These companies appear to remain 
connected to IRISL, and there are indications that IRISL 
remains the ultimate financial beneficiary of the ships, 
operations.  The use of these nominally independent 
companies, a long common practice in the shipping 
industry, represents a significant divergence from 
IRISL,s traditional practice, which maintained IRISL as 
its fleet,s registered and beneficial owners. 
 
These changes are probably intended to facilitate IRISL,s 
ability to move cargoes by obscuring its involvement in 
routine transfers.  While IRISL executives insist these 
changes are unrelated to international sanctions, this 
drastic change to past practice would seem to indicate 
otherwise.  Furthermore, these changes represent a 
significant cost for IRISL in registry fees and 
affiliated expenses.  In addition to the fees paid as 
part of the registration process, the flag used can also 
impact operating costs such as port fees - countries can 
provide discounted rates and tariffs for ships of their 
own flag.  Interviews with independent Iranian shippers 
indicate that operating under foreign flags of 
convenience is more expensive for an Iranian ship.  Since 
IRISL is currently experiencing a significant decline in 
income given the global economic crisis, incurring such 
significant expenses in a period of severely declining 
revenue is contrary to expected commercial practices. 
 
Financial Issues 
 
According to trade publications, IRISL started to have 
difficulty paying for its new-build ship orders in South 
Korea as early as December 2008.  In April 2009, these 
shipyards refused to deliver three new-build ships that 
IRISL had ordered in 2006 due to IRISL,s failure to make 
its payments.  While the global decline in trade and the 
resulting decline in the value of ships have affected 
many shipping companies, ability to finance new builds, 
IRISL was the first and most prominent shipping line to 
default on its payment obligations, implying that the 
company may be in severe financial straits. 
 
M/V Monchegorsk Case 
 
Another example of a change in IRISL,s operations is the 
case of the M/V MONCHEGORSK.  On January 19, 2009, the 
USS SAN ANTONIO conducted a consensual boarding of the 
M/V MONCHEGORSK in the Red Sea.  Owned by a Russian 
company and registered in Cyprus, the MONCHEGORSK bore no 
overt connections to Iran.  However, examination of the 
ship,s documents revealed that it was under charter to 
IRISL, carrying arms-related materiel bound for Syria 
from the Iranian Defense Industries Organization, which 
is designated under UNSCR 1737.  Cyprus, the flag state, 
recalled the ship.  The cargo was inspected in a Cypriot 
port, and continues to be detained in Cyprus.  The 
Republic of Cyprus confirmed the cargo included arms- 
related materiel and reported the incident to the UN 
Security Council,s Iran Sanctions Committee which 
determined the transfer was in violation of UNSCR 1747, 
which prohibits Iran from the "supply, (sale) or transfer 
... (of) arms or related materiel."  While this cargo was 
not associated with Iran,s or Syria,s ballistic missile 
programs, the Monchegorsk case suggests a willingness by 
Iran and IRISL to employ evasive measures beyond renaming 
and reflagging in order to move goods in violation of 
international sanctions. 
 
At the time IRISL chartered the M/V MONCHEGORSK, several 
of the company,s own ships were laid up outside of Bandar 
Abbas, Iran.  These ships, each of which would have been 
capable of carrying a shipment of ammunition to Syria, 
had been anchored for several months, probably for lack 
of cargo.  Chartering M/V MONCHEGORSK likely required 
additional costs given that it would probably have been 
less expensive for IRISL to use one of its own ships to 
deliver the arms to Syria instead of paying another 
company to charter a ship and crew.  However, IRISL 
apparently chartered the MONCHEGORSK not to save money, 
but to obscure the Iranian origin of the sensitive 
shipment. 
 
This shipment would likely not have been identified if 
not for the boarding of the ship and inspection of its 
cargo and documents.  The ship chartering sector can be a 
very dynamic sector of the industry; ships can be 
chartered for short time periods or specific voyages. 
Charter arrangements are not always publicized - while a 
chartered container ship will often be included on a 
shipping line,s published schedule, a chartered general 
cargo ship conducting a point-to-point delivery on a 
short-term voyage charter is rarely common knowledge. 
The use of chartered ships with third-country flags and 
ownership therefore has the potential to obscure the 
origins of sensitive cargoes. 
 
Conclusion: 
 
IRISL likely continues to support Iran,s ballistic 
missile programs and the company countermeasures to 
sanctions may make it more difficult to identify 
sensitive shipments.  While this is likely an effort 
primarily to ease the impact of sanctions on its vast 
commercial business, the measures implemented can easily 
obfuscate the Iranian affiliation of the ships, line, and 
cargo.  MTCR Partners must remain vigilant to the true 
IRISL affiliation of reflagged, renamed, and chartered 
Iranian cargo ships.  This can most easily be done 
through a ship,s International Maritime Organization 
number, which remains the same throughout its life. 
 
Iran,s attempt to use chartered ships to transport 
restricted materials presents the risk that shipments of 
sensitive materials for Iran,s missile and other WMD 
programs may go undetected.  While it remains to be seen 
if IRISL will try to use this method again, vigilance is 
required to detect and identify the methods that Iran 
could use to defy sanctions. 
 
END TEXT OF PAPER. 
 
¶4.  (U)  Please slug any reporting on this or other MTCR 
issues for ISN/MTR.   A word version of this document 
will be posted at www.state.sgov.gov/demarche. 
CLINTON