INA Gonna Sanction Somebody

Unwilling as usual to take what flows from the pens of Bill Gertz (Washington Times) and David Sanger (NYT) as the final word on anything, Jeffrey Lewis has been doing a bit of digging into the recent imposition of Iran Nonproliferation Act sanctions on two Indian companies -- Sabero Organics Gujarat and Sandhya Organics Ltd. Get the full details on ArmsControlWonk, but basically Jeffrey had the crazy (to major media reporters at least) idea to just email the Indian firms and ask them what they sold to Iran. Even more crazy, he got a prompt response: phosphorus oxychloride. Which raises the question: what is it?

Phosphorus oxychloride (US Export Control Classification Number 1C350.c.3) is a chemical weapons precursor. It's on the least restrictive of the three Chemical Weapons Convention schedules -- the one for stuff that may be produced in large commercial quantities for applications not banned under the convention. In other words, this chemical has a lot of innocuous industrial uses -- something the framers of the CWC recognized.

India and Iran are both parties to the CWC so there's no obligation under that agreement for the Indian exporter to even obtain an end-use certificate from their Iranian customer, let alone an overarching export prohibition.

Phosphorus oxychloride is also on the Australia Group control list. India does not participate in the AG, although supposedly they do subject most items on the AG list to their own national export controls. What that means on a practical basis -- what is permitted to be exported where and how effectively the laws are enforced -- I have no idea. Obviously though the export of phosphorous oxychloride to Iran is not a problem.

Of course if the chemical is of US origin (or contains controlled US content exceeding 10 percent by value) then its shipment from India to Iran would violate the unilateral US embargo, which prohibits many reexports of US items from third countries to Iran. But I haven't seen any USG statements yet accusing the Indian firms of violating the embargo per se.  Rather, they hang their hat on the INA -- a nifty statute which doesn't require evidence of embargo violations for sanctions to kick in. "Credible information" that a "foreign person" transferred any number of nuclear, chemical, biological or missile proliferation-assisting items to Iran is all that's required. The country of origin of those items is irrelevant.

This is all going to remain pretty fuzzy unless someone from the US Government clarifies things or additional enforcement actions (requiring the public disclosure of more evidence) are pursued against the Indian companies.

UPDATE: Lewis has more, including details on the chemical exported by the second Indian firm -- trimethyl phosphite -- the export control status of which is similar to phosphorus oxychloride. Also, today the Federal Register published the State Department's official notice of the sanctions. Among other penalties, no military exports are permitted to these companies and no dual-use export licenses will be issued for shipments to them.

Comments

[Michael Deal]

Actually, the 10 percent de minimis rule is not the only way for a foreign entity to escape the ITR: It will suffice if the U.S. origin goods are "substantially transformed". ITR Section 560.205(b)(1) provides:

(b) The prohibitions of paragraph (a)
of this section shall not apply to those
goods or that technology subject to export
license application requirements
if such goods or technology have been:
(1) Substantially transformed into a
foreign-made product outside the
United States;

The 10 percent de minimis rule for foreign producers provided by 560.205(b)(2) is an alternative to the "substantially transformation" test. Of course, its important to realize that the rules applied to foreign producers are by no means identical to rules applied to U.S. exporters. U.S. firms that supply a foreign producer are effectively limited by the 10 percent rule, and even then it does apply univerally, e.g., it excludes products intended for use in the Iranian petroleum industry. A lot of people in the oil field industry get tripped up by the exclusion.