A Chinese businessman indicted in the United States over sales of missile parts to Iran is still making millions of dollars from the trade, say security officials who monitor compliance with Western and U.N. sanctions.

These officials, speaking on condition of anonymity, said the businessman, Li Fangwei, has earned at least $10 million from illegal sales to Iran since his indictment by the New York County District Attorney in 2009.

Trade sanctions are at the heart of international efforts to curb Iran's nuclear program for fear it is for military ends -- a suspicion Iran rejects. Li's alleged activities may point to Iran's resourcefulness in circumventing those sanctions and turn a spotlight on China's ability to police its own export restrictions.

It is hard to quantify the contribution of foreign firms and individuals to Iran's nuclear and missile programs, but analysts believe some vital components are all but impossible for Tehran to produce at home.

---

Contacted by Reuters on Feb 4, Li said he continued to get commercial inquiries from Iran but only for legitimate merchandise, such as steel products. Li said his company, LIMMT, had stopped selling to Iran once the United States began sanctioning it several years ago.

He dismissed allegations by the security officials that he had used deception, including changes of company names, to supply Iran with Chinese and foreign-made parts such as high-grade alloys that can be used to enrich uranium and guidance devices suitable for missiles.

"Sure, we did business with Iran, but we did not export the goods they said we did, missiles or whatever," Li said. "We still get inquiries from Iranian clients, but we don't respond to them."

A Chinese Foreign Ministry spokeswoman said Beijing was adhering to trade restrictions, including a U.N. ban on helping Iran build missiles that can deliver nuclear warheads.

Officials from Iran, including at firms the security officials said were clients of Li and at the embassy in Beijing, did not respond to requests for comment. A Chinese bank that the security officials said Li used for Iranian business denied it had breached U.N. sanctions.

Targeted by feds, local prosecutor
In 2006, the U.S. Treasury barred Li from the U.S. financial system for allegedly selling goods with potential military uses to Iran.

Three years later, the New York County District Attorney unsealed a fraud indictment against Li and his metals company LIMMT on suspicion they had used false names to process further payments for sales to Iran through several U.S. banks.

The U.S. banks employed by Li were innocent of any wrongdoing because Li and other suspects had concealed their identities, then-District Attorney Robert Morgenthau said.

On Feb 4, Li said that at the time of the indictment he had felt there was no point in saying anything because U.S. courts and prosecutors "don't listen to reason. It's useless."

Three weeks ago, on Feb. 11, the U.S. State Department issued fresh sanctions against Li, saying he had "engaged in missile technology proliferation activities that require the imposition of missile sanctions", and placing additional restrictions on any missile technology trade involving him.

A State Department official said Li had been sanctioned because of his "proliferation to Iran" since his 2009 indictment. Li did not respond to calls seeking comment on the Feb 11 action.

China reacted with irritation to the Feb. 11 measures. Foreign Ministry spokeswoman Hua Chunying said the U.S. step "seriously violates the norms of international relations and harms China's interests" and urged the United States to immediately revoke "these irrational sanctions."

China has no extradition treaty with Washington.

Alloys, gyroscopes
The security officials allege that since the 2009 indictment Li, working in concert with the Iranian Embassy in Beijing, had supplied parts to firms that make Iranian missiles, in particular the U.N.-blacklisted Shahid Bakeri Industrial Group (SBIG). SBIG did not reply to faxes and emails sent by Reuters for comment.

The goods allegedly supplied included 15 metric  tons of high-grade aluminum alloy, more than 20 metric  tons of ultra-high strength steel and 1,700 kg of graphite cylinders.

Li agreed in 2011 to supply 1,500 gyroscopes and accelerometers to SBIG, the security officials alleged, referring to devices that can be used in missile guidance and control systems -- a quantity sufficient for about 500 missiles.

Gyroscopes are "controlled items" under the Missile Technology Control Regime (MTCR), an informal and voluntary partnership between 34 mainly Western countries. China is not a party to the MTCR but has similar export controls of its own.

Li also supplied more specialized devices known as fiber-optic gyroscopes, the officials allege; their main uses are in missiles, robots or remotely operated land or sea vehicles.

The officials accuse Li of advising SBIG and other Iranian clients to change details of shipments, including the falsification of the end-user and supplier details in contracts.

Li denies all the allegations.

Between 2010 and 2012, Li took over $10 million in payments from SBIG alone and travelled often to Iran, the officials allege. He used deception within China to hide his activities, not only from the authorities but from Chinese companies as well, the officials added.

In 2012, they said, Li listed a Chinese company as a false end user to obtain repair equipment he intended to send to SBIG in Iran.

A diplomat in Iran's Beijing Embassy helped Li, who is about 40, arrange meetings with defense officials when he visited Tehran, the security officials allege. In the Iranian capital, the officials said, some contacts knew him only as "The Tailor" to conceal his identity.

Critical components
The officials alleged that some of his clients were not always satisfied with the quality of his goods but kept on using him, perhaps for lack of choice.

Asked in Beijing whether China knew of Li's purported activities, Foreign Ministry spokeswoman Hua said China's position was "clear and steadfast" on non-proliferation: China had always upheld U.N. Security Council resolutions on non-proliferation. If a Chinese individual or company was doing anything illegal, it would be dealt with.

An internal report for the U.S. Congress in December concluded that sanctions, respected by China, were making it increasingly tough for Tehran to obtain certain critical components and materials for its missiles.

From 2004 to 2007, Chinese arms transfer agreements with Iran totaled about $300 million at today's prices; between 2008 and 2011 total arms transfer agreements dropped to less than $50 million, according to the report by the non-partisan Congressional Research Service (CRS) on Iranian missiles.

Li said his company, LIMMT, had stopped selling to Iran once the United States began sanctioning it several years ago. He did not indicate a date, but the U.S. Treasury first sanctioned LIMMT in June 2006, citing its alleged support of and role in the proliferation of weapons of mass destruction to Iran.

"We used to export steel, things like that. Nothing to do with missiles," he said.

At two buildings in the northeastern city of Dalian which the security officials said had been used by Li, people either had never heard of him or said he had left some years ago.

Additional reporting by William Maclean, Ben Blanchard and Michael Martina in Beijing and Dalian, Marcus George in Dubai, Dan Williams in Jerusalem, and Mark Hosenball, David Ingram and Anna Yukhananova in Washington.

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LONDON - Iran is using old tankers, saved from the scrapyard by foreign middlemen, to ship out oil to China in ways that avoid Western sanctions, say officials involved with sanctions who showed Reuters corroborating documents.

The officials, from states involved in imposing sanctions to pressure Iran to curb its nuclear program, said the tankers - worth little more than scrap value - were a new way for Iran to keep its oil exports flowing by exploiting the legal limitations on Western powers' ability to make sanctions stick worldwide.

Officials showed Reuters shipping documents to support their allegation that eight ships, each of which can carry close to a day's worth of Iran's pre-sanctions exports, have loaded Iranian oil at sea. Publicly available tracking and other data are consistent with those documents and allegations.

"The tankers have been used for Iranian crude," one official said. "They are part of Iran's sanctions-busting strategy."

---

Dimitris Cambis, the Greek businessman who last year bought the ships - eight very large crude carriers, or VLCCs - to carry Middle East crude to Asia, flatly denied doing any business with Tehran or running clandestine shipments of its oil to China.

Cambis said he had not been involved in shipping before but had bought the tankers as part of a new venture he runs from the United Arab Emirates. He denied trading with Iran - though he has contacts there from his previous work in the oil industry.

Related story: Skulduggery at sea: Iran uses tankers off Malaysia to evade oil embargo

He denied his vessels have loaded oil from Iran while at anchor in the Gulf. Known as ship-to-ship transfers, or STS, such movements are hard to track as crews can switch off tracking beacons or not update their recorded positions for periods to conceal that one vessel has come alongside another.

Cambis also explained a stop in Iran by one of his tankers - recorded in publicly available tracking data - as having been only for an emergency repair, not to load an oil cargo.

"There is no Iranian vessel that has done any STS with us," Cambis told Reuters in Athens in response to the officials' allegations of taking oil from Iranian tankers owned by Tehran shipping group NITC. "We have nothing to do with NITC."

The officials involved with sanctions dispute his account and showed documents detailing several ship-to-ship loadings. They said all eight of the tankers were involved in Iran trade.

In one instance in early December, according to the shipping documents shown to Reuters by the officials, an NITC tanker named Marigold loaded Iranian crude onto the Leycothea, one of Cambis's eight ships, while both were at anchor off the UAE emirate of Sharjah. Public tracking showed Cambis's tanker made a call about a month later to Zhanjiang oil terminal in China.

Loading at sea lets vessels pick up a cargo without visiting the country of origin of the crude. Officials allege the tankers are also used as offshore storage for Iranian oil which can then be transferred onward to other ships, concealing its origins.

Officials in Iran, which rejects Western allegations it is seeking nuclear weapons, did not respond to requests for comment.

Muddying waters
Experts on sanctions law said that by operating outside the European Union, ship-owners had no clear obligation to observe rules barring EU companies from buying Iranian oil, though banks and insurers with EU or U.S. business ties are giving a wide berth to firms they suspect of dealing with Iran, given U.S. and EU efforts to penalize such firms within their own jurisdiction. 

"Such ships would be used to delete traces of a trade taking place," a London-based ship broker said.

While Iran has its own substantial tanker fleet, capable of carrying over 72 million barrels, the 2 million barrels that each of the eight tankers can move would be a useful addition to its capacity, analysts said - particularly as their foreign ownership and management could help conceal the Iranian origin of the oil, making it easier to obtain insurance, finance and other ship services that are affected by EU and U.S. sanctions.

Cambis said that between August and November he bought the eight ships: Leycothea, Glaros, Nereyda, Ocean Nymph, Seagull, Zap, Ocean Performer and Ulysses I. The first five are now managed by his firm, Sambouk Shipping, in Sharjah and he is in the process of transferring management of the remaining three.

In other movements indicated by the shipping documents, the Nereyda was also involved in a separate ship-to-ship transfer with NITC's Rainbow in the Gulf in November, while the Glaros took an offshore transfer from the Marigold there in December.

The Nereyda was later recorded arriving at a terminal in China in December. The Glaros appears to have remained in the Gulf since that December transfer, according to tracking data.

Asked about publicly available ship tracking data showing that the Glaros stopped at Iran's Larak Island oil terminal on October 20 last year, Cambis provided what he said was an affidavit by the ship's master describing an emergency repair carried out by Iranian divers when the tanker was headed to Saudi Arabia.

The master, named as I. Bonoutas, could not be reached for comment. Cambis denied loading any oil in Iran. After its stop at Larak, Glaros's next recorded visits, according to ship tracking data, were at Chinese ports between November 24 to December 1.

The eight tankers, built up to 20 years ago, can carry about 16 million barrels of oil among them, shipping databases show.

Iranian crude exports declined to an average of 1.5 million barrels per day (bpd) in 2012, down about 1 million bpd from 2011 levels, data from the International Energy Agency showed.

NITC blacklisted
The eight tankers were bought last year for a total of about $204 million, ship trading sources said - reflecting prices only 3-4 percent above their worth as raw metal. The purchases have been the object of considerable discussion among ship brokers - not least because they would more typically have been broken up.

A ship dealer based in London said, however: "They can carry on trading for as long as people are willing to employ them.

"There's really not much that any authorities can do." 

NITC has been blacklisted by the West and the EU has imposed an outright ban on providing ship insurance that would benefit Iran. The exit from Iran of top providers of ship certification, vital for port access, and the removal of Iranian vessels from international registries have added to operational challenges.

While NITC has expanded its fleet in recent months, experts say access to additional foreign tankers would give Tehran more flexibility in maintaining exports.

"The key word for the Iranians is resistance as in the Supreme Leader's declaration of a resistance economy," said Scott Lucas, a specialist on Iran at Birmingham University.

"This is not an economy which is going to produce growth but it is one which is going to try and avoid a domestic collapse."

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Copyright 2013 Thomson Reuters. Click for restrictions.

LONDON -- In the summer of 2008, Iranian security agents arrived at the family home of Saleh Hamid, who was visiting his parents in Iran during a break from his university studies. 

The plainclothes agents, he says, shackled him and drove him blindfolded to a local intelligence detention center. There, he says, they beat him with an iron bar, breaking bones and damaging his left ear and right eye.

Hamid says the authorities accused him of spreading propaganda against the regime and contacting opposition groups outside Iran. The evidence? His own phone calls.

---

"They said, ‘On this and this day you spoke to such and such person,'" says Hamid, now 30 and a human rights activist in Sweden. "They had both recorded it and later they also showed me the transcript."

Hamid was not the only one. The Iran Human Rights Documentation Center and other human rights groups say they have documented a number of cases in which the Iranian regime has used the country's communications networks to crack down on dissidents by monitoring their telephone calls or Internet activities.

Now a Reuters investigation has uncovered new evidence of how willing some foreign companies were to assist Iran's state security network, and the regime's keenness to access as much information as possible.

Documents seen by Reuters show that a partner of China's Huawei Technologies Co. Ltd. offered to sell a Huawei-developed "Lawful Interception Solution" to MobinNet, Iran's first nationwide wireless broadband provider, as MobinNet was preparing to launch in 2010.

The system's capabilities included "supporting the special requirements from security agencies to monitor in real time the communication traffic between subscribers," according to a proposal by Huawei's Chinese partner seen by Reuters.

Huawei also gave MobinNet a marketing presentation on a system that features "deep packet inspection" -- a powerful and potentially intrusive technology that can read and analyze "packets" of data that travel across the Internet. Internet service providers use DPI to guard against cyberattacks and improve network efficiency, but it also can be used to block websites, track Internet users and reconstruct email messages.

Huawei says it has never sold either system to MobinNet and doesn't sell DPI equipment in Iran. But a person familiar with the matter says MobinNet obtained a Huawei DPI system before it began operating in 2010. The person does not know how MobinNet acquired it or if it is being used.

Asked to comment, Vic Guyang, a Huawei spokesman, said in a statement, "We think it's not for us to confirm or deny what systems other companies have." He later said, "It is our understanding that MobinNet does not have such equipment." An official with MobinNet declined to answer any questions, saying only, "So you know the answers. Why do you need confirmation?"

The relative ease with which Iran has been able to obtain technology that enables surveillance illustrates the cat-and-mouse nature of the American-European campaign to contain Iran's nuclear ambitions through crippling economic sanctions. It wasn't until this year that Europe and Washington -- which primarily have focused on Iran's banks and oil industry -- targeted the sale of monitoring gear to Iran. But even now, the ban is not global, and does not extend to Chinese companies.

Reuters reported in March that China's ZTE Corp had recently sold Iran's largest telecom firm, Telecommunication Co. of Iran, a DPI-based surveillance system that was capable of monitoring landline, mobile and internet communications.

ZTE later said it intends to reduce its business in Iran. Huawei made a similar announcement a year ago.

Fixing ‘the problem of youth’
The documents seen by Reuters challenge statements made by Shenzhen-based Huawei that it doesn't sell any Internet monitoring or filtering equipment.  

But the documents' descriptions of the Huawei systems pitched to MobinNet emphasize their filtering capabilities and ability to enable monitoring by security agencies.

For example, a proposal made to MobinNet dated April 2009 offers what it calls a Huawei "lawful interception" solution. The proposal was prepared by China's CMEC International Trading Co., which states in the document that it had selected Huawei as its bid partner.

"As we know, lawful interception is mandatory and sensitive for the operators in Iran," the proposal states.

An accompanying diagram illustrates how the system can duplicate data streams and transmit the copies to multiple "monitoring" centers. It also states that more than 0.5 percent of all subscribers could be targeted and that individuals would not be aware their communications were "being intercepted."

CMEC is a part of an engineering conglomerate that includes a unit that for years has been under U.S. sanctions for allegedly helping Iran and Iraq obtain weapons of mass destruction. CMEC didn't respond to a request for comment. Huawei says it no longer partners with CMEC.

U.S. and other international sanctions are designed to deter Iran from developing nuclear weapons; Iran says its nuclear program is aimed purely at producing domestic energy.

Although Huawei maintains it doesn't sell any filtering technologies, its presentation given to MobinNet, marked confidential, repeatedly says its "DPI Solution" features "URL filtering," which can be used to block specific websites. The presentation also cites a number of customer "success" case studies -- including in Britain, Russia, Colombia, and China -- where it says telecommunication operators were using its system to filter websites.

For example, the presentation states that a Chinese telecoms firm was using the Huawei system "to settle the problem of youth getting secure and healthy access to websites, and the traffic should be controllable." The presentation also states that the system was used during the 2008 Beijing Olympic games to block "illegal" Internet phone services, filter websites and to conduct "user behavior analysis."

In a series of emailed statements, Guyang, the Huawei spokesman, did not address Huawei's claim that it doesn't "provide any services related to monitoring of filtering." But he says website filtering is used by many telecoms, including in the U.S., "as part of efforts to counter cyberterrorism, child pornography, smuggling of narcotics and other crimes, as well as illegal websites and data."

He said Huawei "did not sell products containing this function in Iran." He also said the Huawei system described in the proposal -- the Quidway SIG9800 -- can't access "content" in the telecommunications network.

But a former Huawei employee who has worked in Iran said the SIG9800 can be used to reconstruct email messages provided they are not encrypted. "This product has some special usage which Huawei customers do not like to share ... especially in Iran," said the former employee, who spoke on condition of anonymity.

Storing every text message
The proposal to MobinNet for the Huawei lawful-intercept system states that it includes technology from a German company called Utimaco Safeware AG. Utimaco says Huawei is one of its worldwide resellers but that neither MobinNet directly -- nor Huawei on behalf of MobinNet -- purchased or licensed its products.

The proposal also states that Huawei equipment at another Iranian telecom had "already successfully integrated with" an Utimaco product "and accumulated rich integration experience, which will be shared."

The other Iranian telecom isn't named but Malte Pollmann, Utimaco's chief executive officer, confirmed that in 2006, Nokia's German unit had purchased Utimaco software for MTN Irancell, Iran's second-largest mobile phone operator which has a major contract with Huawei. He said the product hadn't been maintained for several years and that Utimaco believes it no longer is being used.

MTN Irancell is 49 percent owned by South Africa's MTN Group, Africa's largest telecom carrier. It declined to comment about the Utimaco product.

Interviews and internal MTN documents reviewed by Reuters show that prior to MTN Irancell's launch, Iranian intelligence authorities took a keen interest in the capabilities of its lawful-intercept system, and pushed to make it more intrusive.

Like most countries, including the United States, Iran requires telephone operators to provide law enforcement authorities with access to communications. But people who have worked at Iranian telecoms say authorities sometimes abused their access, targeting certain individuals without a warrant or with little or no explanation.

In response, a spokesman for Iran's mission to the United Nations in New York emailed a section of Iran's constitution which states that recording telephone calls, eavesdropping and censorship "are forbidden, except as provided by law." 

The terms of MTN Irancell's license agreement stipulated that Iran's security agency could record and monitor subscribers' communications, including voice, data, fax, text messaging and voicemail, the internal MTN documents show. "At least 1 percent of all subscribers" could be targeted, and authorities wanted access to their location -- "within 10 to 20 meters" -- as well as billing information, according to the documents.

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According to a person familiar with the matter, prior to its launch, Iranian authorities pushed MTN Irancell to provide them with even more surveillance capabilities. The requests included copying and storing all text messages on the network for 30 days and providing 36 different monitoring centers with access to communications. 

The authorities also wanted to be able to intercept every call handled by an individual mobile-phone tower. "They were not talking of a single tower, they were talking of a large number of towers," the person said. "That is not the norm."

MTN, which oversaw the telecom's launch, didn't express to the authorities any concern about potential abuse, according to this person. Rather, the company argued during a series of meetings that the new requirements weren't part of the scope of the licensing agreement. MTN offered to add other surveillance capabilities over time, this person said.

MTN declined to comment. In April, its chief executive, Sifiso Dabengwa, said that any allegations that MTN was complicit in human rights abuses in Iran "are both false and offensive."

The Iranian intelligence authorities eventually agreed to hold off on their surveillance wish list - and allowed the telecom's launch. But they made clear they expected MTN Irancell would eventually install more capabilities, according to the person familiar with the situation.

The extent to which MTN Irancell later added new surveillance capabilities to its network remains unclear. The network did add enhanced location-based services in 2011.

A British company, Creativity Software, announced in August 2009 that it had won a contract to supply the technology, which it said would allow MTN Irancell to offer its customers special rates at home.

An official with Creativity Software did not respond to requests for comment. In a statement last year, the company said its sale was legal and "any connection implied between the provision of commercial location-based services deployed by MTN Irancell in Iran and any possible human rights abuses is ... erroneous."

Hamid, the human rights activist who says Iranian security agents told him in 2008 they had listened to his telephone conversations, says he had been using a cellphone he had purchased through MTN Irancell.

Then a student at a Syrian university, he said that he had returned to Iran to visit his family in Ahwaz, Khuzestan. The region is home to many Iranian Arabs who allege they have been subject to discrimination and economic deprivation by the Iranian government.

Now 30, Hamid said he eventually was released on bail and fled the country. But he said he was arrested in Iraq, jailed for three years and finally received refugee status in Sweden.

He said he was surprised that Iranian authorities had intercepted his phone calls. "I was completely taken aback," he said. "When I bought the Irancell mobile, I didn't even buy it in my name."

MTN declined to comment. The spokesman for Iran's U.N. mission said Hamid's allegations "are unfounded" and that Iran's constitution protects the rights of Iranian Arabs and other ethnic groups.

"Iran's constitution also bans any kind of torture and espionage," the spokesman added.

Additional reporting by Yeganeh Torbati in Dubai.

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Editor’s note: This story contains a graphic image that some readers may find disturbing.

Perched high above midtown Manhattan, behind security-locked doors in an unmarked office, a half-dozen 20-somethings sit at computers, looking for ways to inflict hardship on the Iranian government and the people it rules. The “war room,” as its occupants call it, is a mere 20 blocks from Iran’s Mission to the United Nations and even closer to the hotel where Iranian President Mahmoud Ahmadinejad stays during his visits to New York.

But this is not a U.S. government intelligence facility brimming with incoming feeds of classified data. The offices belong to the private nonprofit group United Against Nuclear Iran, and the computers contain a wealth of (mostly) open source economic data culled from Iranian and other sources. 

UANI, as it calls itself, has one mission: to wage “economic warfare against the Islamic Republic of Iran ...The regime must be forced to choose between having a nuclear weapon or a functioning economy."

---

That’s not to say the group doesn’t have roots in government. It is headed by Mark Wallace, a former U.S. ambassador to the United Nations, and former heads of the CIA, the counterterrorism office of the National Security Council and the Mossad, Israel’s national intelligence agency, sit on its advisory board.

Part of what UANI does is psychological warfare, though it’s the smallest part. The group pays for a billboard high above Times Square that takes shots at Ahmadinejad and placed a blow-up Ahmadinejad punching-bag doll outside the Hotel Warwick when he stayed there recently while in town to address the United Nations. It also lobbies effectively, working with friendly congressmen to get sanctions strengthened.

Using 'name and shame' tactics
Mostly, it uses “reputational risk” to achieve its aims, trying to shame U.S. and international companies to end business dealings with the Islamic Republic or Iranian businesses, particularly those with Revolutionary Guard ties, even if those dealings aren't clearly in violation of economic sanctions against Iran. If those efforts don’t succeed, Wallace isn’t averse to using a bigger hammer: If you work with Iran, he is fond of saying, you shouldn’t get contracts from the U.S. government.

While the group’s impact is difficult to quantify vs. the overall impact of economic sanctions against Iran by the U.S., European Union and the United Nations, Wallace’s private network has contributed to some significant successes. Those include persuading an international money exchange to ban Iran and forcing Ahmadinejad out of his preferred New York hotels in September when he visited to deliver his final speech at the U.N. General Assembly as Iran’s president. 

U.S. officials welcome the private group’s efforts, telling NBC News that UANI’s “name and shame” campaigns complement the government’s efforts to enforce the sanctions, which are limited to pursuing civil or criminal cases when companies are found to be in violation.

The public shaming is a familiar strategy -- with a twist. Activists demonstrated and demanded U.S. pension funds and university endowments divest stock in South African companies during the dying days of apartheid in the 1980s and ‘90s. The AFL-CIO and Harry Wu, a Chinese labor activist, exposed U.S. companies that used Chinese prison labor in the 1990s. And Chinese companies doing business in Sudan were accused in the early 2000s of aiding genocide in Darfur.

But UANI’s mission is more comprehensive and it’s led by a high-profile political figure, not a celebrity or anonymous activist. In addition to serving as U.S. ambassador, Wallace worked in the presidential campaign of Republican Sen. John McCain in 2008, working as vice presidential nominee Sarah Palin’s debate coach.  

It’s also riskier and could backfire. Iran is not without the capability of striking back.

But Wallace feels comfortable that he’s on the side of right and believes he has a unique opportunity to affect history by forcing Iran to abandon its nuclear ambitions, which Tehran insists are intended to meet its energy needs, not build nuclear weapons. In his view, that begins with “crashing the currency.”

“You have all the elements that are there with the currency,” he said. “We measure everything we do. I challenge you to find a better mechanism of judging the impact of economic hardship that we're placing on the elites.”

UANI has a modest budget -- less than $700,000 in 2010, according to federal records – that it says it raises only from U.S. donors.  It declines to identify them, citing security concerns.

But it claims some big results.

'Stealth sanctions' have big impact
The biggest was its lobbying of SWIFT, a Belgian-based international financial clearinghouse, to expel Iran, then pressuring the U.S. Congress to demand that SWIFT ban Iranian financial transactions from its worldwide network. Without SWIFT codes, international financial transactions become difficult, if not impossible, to complete.  Since SWIFT expelled Iran on March 15, the value of the Iranian currency, the rial, has dropped precipitously. 

Dan Yergin, the energy historian and author of  “The Quest: Energy, Security, and the Remaking of the Modern World,” calls the SWIFT expulsion the “stealth sanctions.”

“Much of the international focus on sanctions has been on the oil side,” Yergin told NBC News. “But the SWIFT and other related banking restrictions have been the ‘stealth sanctions’ that are impacting on Iran’s ability to do business in the international economy.

“Less attention may have originally been paid to them, but they rank with the oil sanctions in terms of their effects on Iran. Overall, the … sanctions are imposing a much bigger cost on the Iranian economy than Tehran would have anticipated last winter and thus are creating a much bigger problem for the leadership.” 

Now, UANI and Wallace want to strike harder. Iran’s currency, the rial, is near collapse, by some estimates having lost 80 percent of its value in the last year and 15 percent in the last week as measured against the dollar and euro. One dollar now equals 36,000 rials at the unofficial rate.

Iran, which for months resisted the suggestion that the sanctions were effective, now acknowledges that inflation, much of it caused by sanctions and the SWIFT ban, is hurting the economy. 

In recent weeks, Wallace’s group publicly pressed European companies that it believed were supplying Iran with the special paper, inks and presses used to print Iranian currency to stop doing business with Tehran.  In a letter early this month to the German company Koenig & Bauer AG, which had provided the Central Bank of Iran with presses in the past, Wallace demanded to know if the company was still supplying Iran, then raised the possibility that continuing work with Iran could threaten its business with the U.S. government. 

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“UANI finds KBA’s apparent business in Iran particularly galling in light of its extensive contracts with the U.S. Department of Treasury and its role in U.S. banknote production,” Wallace wrote. “KBA has been the recipient of over $131 million in contracts from the U.S. Treasury’s Bureau of Engraving and Printing, in addition to $2.39 million awarded to KBA subsidiary KBA North America by the U.S. Department of Defense.

“UANI strongly believes that the only responsible action for KBA in light of the fact that the CBI is a sanction-designated entity under U.S. and EU law is for KBA to immediately and publicly reject CBI solicitations for KBA services.”

On Wednesday, KBA told NBC News that it had stopped supplying printing presses to Iran nine years ago.

But in a written response to Wallace dated Oct. 10, KBA acknowledged it had provided “spares and auxiliary equipment” to its “Iranian client” since then. KBA also said that early this year, it submitted a “conditional offer” to the Central Bank of Iran when it sought bids on a contract to for new banknote machines.

Ultimately, KBA decided to discontinue sales to Iran, not long before it received Wallace’s letter, it said.

The lack of such equipment could have the added benefit of making Iranian currency more susceptible to counterfeiting, perhaps by an enemy of Iran, Wallace said. That uncertainty about the rial would make it even less valuable on whatever open markets on which it was still exchanged.

KBA’s rapid response to Wallace is indicative of UANI’s growing clout in the international business community.

As a result of actions like these, “regime change” in Iran is now being discussed seriously in Washington policy circles. Wallace won’t say whether that is his specific goal, but acknowledges that virtually any alternative would be preferable to the current “theocratic regime.”

Beyond SWIFT, Wallace said UANI’s efforts have led to dozens of agreements from U.S.-based and other international companies agreeing to stop doing business with Iran. 

In some cases, trading partners have credited UANI in announcing their decisions to stop doing business with Iran. In others, they have not.

Targeting Iran's auto industry
Iran has the world’s 13^th largest auto manufacturing industry and the largest in the Middle East and Central Asia. The industry is a major employer and a prestige piece for the Iranians. Not every country’s president can boast that his limousine is built in a local factory. Ahmadinejad can.

Numerous European and Asian auto companies had supplied parts and “build kits” to Iran. But UANI lobbied the companies early this year and again “called them out,” as Wallace put it. He again cited the EU and U.N. sanctions and suggested that a publicity campaign would hurt U.S. sales of their cars.

Of the companies targeted in the campaign -- Hyundai, Fiat, Peugeot, Porsche and Renault – Wallace says only the latter continues to supply Iran.

A Renault spokeswoman, Raluca Barb, told NBC News on Thursday that the company's Iranian venture, Renault Pars, in which it owns a 51 percent interest, does not violate the sanctions.

“Renault respects the regulations,” she said. “The automotive business is not included in sanctions against Iran.”

The Hyundai Motor Co. said it decided to discontinue operations in Iran after being contacted by UANI. The other auto companies that are no longer doing business with Iran didn’t cite UANI’s campaign, but numerous Iranian press accounts have connected the pullout to the threatened publicity blitz.

The auto company withdrawals contributed to a 42 percent nosedive in Iranian auto production over the past six months, Agence France Press reported last week, citing industry ministry figures.

UANI also says it forced Caterpillar, the huge U.S.-based construction company, to stop supplying equipment to Iran. After a letter-writing campaign failed, UANI bought a billboard opposite the company’s headquarters in Peoria, Ill., showing a piece of earth-moving equipment alongside a photo of Ahmadinejad and the words, “Today’s work, tomorrow’s nuclear Iran.” As soon as the company halted the sales in February 2010, the billboard came down.

At the time, Caterpillar said it did not have extensive business dealings with Iran, and that it couldn’t control sales in the secondary market. But it did bar non-U.S. subsidiaries from accepting orders that it knew were destined from Iran.

The company did respond to requests from NBC News this week for comment.

The most vivid of UANI’s efforts was its “cranes campaign.” After grisly images emerged showing of Iranians being hung by construction cranes, UANI tracked down all the crane manufacturers who had done business with Iran and asked them to divest.  For the most part, they did.

There are other less obvious successes,  like pressuring all 13 of the world’s major shipping registries, including those in Russia, South Korea, and Japan, to deny Iran access to their services. That, in turn, has prevented the regime and from insuring their tankers. UANI also quietly obtained pledges from Moldova, Mongolia and other nations to stop reflagging Iranian vessels.

Not all of its initiatives have worked, however. 

Its biggest campaign has been against MTN, the South African cell phone company that owns 49 per cent of Irancell, which controls the mobile market in Iran and has been accused of tracking Iranian dissidents. But MTN has refused to get out. 

Last week, Wallace excoriated MTN’s leadership in typical, no-holds-barred language. “It is widely known that MTN has carried out orders from the Iranian regime to shut off text messaging and Skype during times of political protest in Iran, and reportedly has a floor in its Tehran headquarters where Iranian military officials compile and access data to track, apprehend, torture, and murder regime opponents,” he wrote in a letter to the company that also went out as a press release.

“MTN has blood on its hands … We call for a global boycott of MTN's products and services and divestment from its stock, until it ends its reckless partnership,” he concluded.

'A liberating force for Iranians'
MTN did not immediately respond to Wallace’s most-recent broadside, but in a press release in February in reply to an earlier letter, it said its investment in Iran was “in compliance with applicable sanctions regulations and law” and that it viewed its non-controlling stake in Irancell as being in keeping with its core mission: “to speed up the progress of the emerging world by enriching the lives of the people within it.”

“Our success in widening access to mobile technology has been, and continues to be, a liberating force for Iranians, whatever their political allegiances,” it said. “Mobile technology has brought communities together, empowered individuals and helped raise living standards for millions in the developing world.  MTN is proud of this legacy.”

Swatch, the Swiss watch manufacturer, has also resisted UANI’s appeals, saying in a letter to Wallace that it “sells to consumers, not regimes.” Why would UANI, which is concerned with nuclear proliferation, care about watches?  Because, Wallace said, the high-end watches Swatch sells and other luxury items go to the “elites,” particularly officials of the Revolutionary Guards, and he wants them to feel the pain of sanctions, even if only on their wrists.

UANI’s allies in Congress give it high praise. 

“What I like,” said Rep. Ileana Ros-Lehtinen, the Florida Republican who chairs the House Foreign Affairs Committee, “is they are in the weeds. You name a sector in the Iranian economy and they have been inside it, putting a lot of pressure on them. We’ve worked with them, especially on embargo and sanctions legislation. So many of the bills had their genesis with them.”

The campaign also finds favor on the other side of the aisle.  

“Part of their approach involves putting pressure on corporations to end existing business relationships with Iran,” said Rep. Steve Israel, D-N.Y. “Along with their success on that front, UANI has used that experience to communicate effectively with members of Congress on how best to strengthen existing sanctions and ensure companies are complying with our laws.”

One major concern about the success of the sanctions is that the Iranians might lash out, having tired of seeing their nuclear scientists assassinated, their nuclear research sabotaged, their currency ravaged.

That may already be happening. U.S. officials ascribe continuing attacks on U.S. banks’ computer networks that began last month to Iran, perhaps in response to U.S. and EU sanctions on its banks. Israel claims Iran was behind the drone mission Hezbollah carried out over northern Israel this week, and Hezbollah acknowledged that the unmanned aircraft that was shot down was manufactured in Iran. And Tehran still has many other options for retaliation, experts say.  

“The main concern for the market is that the Iranian regime acts out in desperation, as the financial noose tightens,” said John Kilduff of Again Capital and a CNBC oil analyst. “If Iran attempts to make good on its threats to close the Strait of Hormuz or attempts some other attack, prices will spike higher, at least temporarily. If, however, there is regime change in Iran, resulting in a Western-friendly government, we could see the mother of all price breaks at the gasoline pump.”

'Punishing the innocent'

There are those who also characterize what Wallace and UANI are doing as harming the Iranian people rather than the government.

“It is profoundly immoral. It is punishing the innocent,” said Haroon Moghul, a fellow at both the New American Foundation and the Fordham Law School Center for Security, speaking of UANI’s campaign. 

“I'm no fan of Iranian government,” he continued. “I wish it would go away. But what do the people have to do with the government?  It is weakening the people of Iran. We are making harder for them to change their government. Sanctions empower criminal elements, make it harder to civil society to operate, make it harder for Iran to become a real democracy.”

Reacting to that kind of criticism, Wallace acknowledges that his and his colleagues are involved in “a proxy war,” but adds, “I'm comfortable fighting that war.”

The Iranian Foreign Ministry said it is aware of the efforts of UANI and Wallace, but says the group’s campaign is misguided.

“I think that the nature of this organization is known to all of us,” said the spokesman, Alireza Miryusefi. “They take actions based on the false presumption that my country is pursuing a nuclear weapon program. As we have emphasized on several occasions, Iran's program is fully peaceful and their presumption is totally wrong.”

Wallace, however, has no doubts that Iran is bent on becoming a nuclear military power, and remains convinced that the pressure that UANI is bringing to bear will ultimately succeed.  

“Our message is clear: You have to choose between doing business with our checkbook or their checkbook -- with the reality being we're the biggest checkbook in the world,” he said. “Notwithstanding the purported demise of the United States, we're still the biggest checkbook in the world.”

Richard Engel is chief foreign correspondent of NBC News; Robert Windrem is a senior investigative producer.

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LABUAN, Malaysia -- Iran is using a little-known port off the East Malaysia coast to hide millions of barrels of oil from Western sanctions, according to shipping data, industry sources and officials.

A Reuters examination of shipping movements and interviews shows how Iranian crude is shipped to the area and loaded on to empty vessels at night to await potential Asian buyers. Storing the oil on hired tankers operating under the Panamanian flag in the calm waters off the tax-haven port of Labuan -- an offshore financial center about the size of Manhattan -- means Iran can keep its fleet active and ensure the flow of oil money into its struggling economy.

At least two large oil tankers have been unloaded this way in recent weeks and several more Iranian vessels were steaming toward Asia, according to Reuters Freight Fundamentals, which tracks the movement of the global tanker fleet. One was destined for a Chinese port, while three others, carrying as much as 6 million barrels of crude or fuel oil, were sailing to unknown destinations.

---

Iran would like to shift more oil to what is effectively a mobile storage depot off Malaysia's coast over the next few months, said an industry source familiar with Iran's planning who didn't want to be identified due to the sensitivity of the matter. But it is struggling to find shipowners willing to offer vessels for storage.

While not illegal, the dead-of-night transfer of oil in the South China Sea illustrates the lengths to which Iran will go to keep exporting its oil to skirt Western sanctions aimed at pressuring Tehran's suspected pursuit of nuclear weapons. A European Union oil embargo has virtually halted access around the world to insurance for Iranian crude and oil products.

Doing business with Iran's oil industry carries reputational and financial risk and the threat of losing insurance coverage.

No-man’s land
Less than 6.2 miles from the coast of Borneo, Labuan is sheltered from typhoons and is typically used to park unwanted ships rather than store expensive oil. People in the industry say this makes it an ideal place to blend or rebrand oil as non-Iranian and resell it under the radar of sanctions enforcers in Washington or Brussels.

"Labuan is like a no-man's land. There's no reason to be paying attention to Labuan," said a Singapore-based source familiar with floating storage operations in Southeast Asia.

Related story

Iran sanctions exceed expectations, but still don't change Tehran's behavior

The insurer of one of the storage ships that took oil from an Iranian tanker said it had been informed of the transfer by the British government on Aug. 16, and was looking into the matter.

With fewer customers, Iran has cut its oil output and almost halved exports from around 2 million barrels per day last year. The Labuan scheme means Iran can use its own tankers to move, rather than store, its oil. In April, shipping sources said more than half of Iran's tanker fleet was anchored in the Gulf just holding some 33 million barrels of oil - worth around $3 billion at today's prices.

Malaysian and Iranian officials did not respond to requests for comment for this article.

China, India, Japan and South Korea, which together buy over half of OPEC member Iran's crude exports, have all imported less this year, winning waivers from U.S. sanctions. Those waivers are up for renewal later this year, so buyers are careful not to be seen to be increasing imports from Iran again.

‘In the dark of night’
Last month, the Lantana, a tanker operated by the National Iranian Tanker Co. (NITC), transferred its cargo of around 1 million barrels of crude oil to the Titan Ruchira, a floating storage vessel, off the tiny tropical island of Pulau Kuraman near Labuan, port and shipping industry officials said. Around Aug. 10, another Iranian tanker, the Motion, discharged as much as 2 million barrels of fuel oil onto the Titan Tulshyan in the same area, said the officials.

The two ships are among 58 Iranian-owned vessels blacklisted by Washington in July for assisting in Iran's oil trade. Those measures bar U.S. companies and Americans from doing business with the ships.

"Our vessels are there and, as we understand it, there are no issues," a source familiar with NITC tanker chartering told Reuters.

A third NITC tanker, the Justice, had been heading for Labuan, but shipping data shows it changed course and should arrive at the Chinese port of Dalian on Sept. 17. Another tanker, the Pioneer, had been expected in Labuan early this month, but has anchored off the southwest Malaysian coast.

"That (Lantana) operation took place literally in the dark of night. They didn't even use a proper operator with experience to carry out the STS (ship-to-ship transfer)," said an East Malaysian-based shipping source. "The authorities were aware only after the fact."

Iran declined to sell the stored crude to a Chinese trader who offered $54 a barrel - only around half the price of Iran's cheapest heavy crudes - said a source familiar with those discussions.

Complex web
The two Titan vessels are owned by offshore companies linked to Singapore-based Tulshyan Group, which hired them out in 2010 to Hong Kong-based Titan Petrochemicals under a five-year bare boat charter -- an arrangement where Tulshyan has no staff managing or operating the vessel. Tulshyan, which shares a Singapore office with Titan, said it was not aware that the cargo on its ships was Iranian.

Titan, battling a shipping industry downturn caused by a glut of tankers, high bunker fuel prices and a shaky global economy, has struggled to meet charter payments to Tulshyan, according to a person familiar with the matter. Heavy with debt and with five straight years of losses, Titan is being sold to Chinese oil trader Guangdong Zhenrong Energy Co Ltd., whose parent, Zhuhai Zhenrong, is blacklisted by the United States as the biggest supplier of refined petroleum products to Iran.

Titan hired out the two tankers to Glammarine, a little-known shipping company that only recently registered in Labuan. Glammarine took the two ships under a six-month charter, with Titan's crews running the vessels' day-to-day operations and Glammarine taking responsibility for finding the cargo and paying for use of the ships.

"This was the first business we've done with Glammarine ... (and) there were no red flags raised (about them)," Titan director Augustine Cheong told Reuters in Singapore. "The due diligence we took was to check if they are legally incorporated. And it's on a time charter, so we have our own crew on board and can see if they're doing something wrong." Cheong said Titan would drop the charter to Glammarine if the oil was found to be Iranian.

Glammarine officials declined to comment. A visit to a listed Labuan address for Glammarine given in business registry documents found a rundown building in a neighborhood once used to house workers at a now defunct milk factory. The premises were closed.

Paper trail
Glammarine agreed to let a company called Account International Safe Oil use the Titan Ruchira and Titan Tulshyan to store 4 million barrels of Iranian oil, shipping sources said. Account International is not registered in Malaysia or Hong Kong, and Reuters was unable to find an address for the company or contact staff for comment. Buyers of Iranian oil in China, India and Japan said they had not heard of the company.

A Middle East industry source familiar with the company said Account International was an affiliate of the National Iranian Oil Co. A second source based in East Malaysia said the firm had business links to HK Intertrade, a Hong Kong-based firm sanctioned by the United States in July for operating as a front company for Iran.

"HK Intertrade purchases oil from NIOC and resells it to companies like Account," another southeast Asia-based shipping industry source said.

The ships' managers from Titan were not aware that the crude and fuel oil transferred from the Lantana and Motion were from Iran, Cheong said. "We requested BL (bill of lading) documents. We were told the cargo was from India ... and we believed they were ex-NITC tankers," he added. "We only operate the ships as the ship manager. We don't own the cargo."

A source familiar with the operations of the Titan Ruchira said the cargo was declared as Iranian to port officials in nearby Sabah. Customs officials in Sabah did not respond to Reuters emails. But in signed shipping documents seen by Reuters, Account International listed the 1 million barrels of crude oil unloaded by the Lantana as Indian.

India, though, doesn't allow the export of domestically produced crude. Nor did the Lantana call in at India on its journey to Malaysia that began at Iran's crude export hub at Kharg Island, according to Reuters Freight Fundamentals and industry sources in both India and the Middle East.

Account International also indicated on shipping documents seen by Reuters that the fuel oil on the Motion was from Fujairah, a major transhipment and storage hub in the United Arab Emirates. Shipping data shows the Motion did stop in Fujairah, but began its trip in Iran.

Insurance risk
The Titan Ruchira is insured by the North of England P&I Association, which said it was looking into the matter after being informed of the transfer off Labuan by London last month.

Western insurers underwrite around 90 percent of the world's tanker fleet, and are currently barred from covering ships carrying Iranian oil.

"There is a risk ... a vessel providing storage services for Iranian oil would breach European sanctions laws," said Mike Salthouse, director with North Insurance Management, which acts as manager for the North of England P&I Association. "I say a risk because sanctions as currently drafted appear to target the insurance of the transportation of Iranian oil and not the provision of insurance to facilities storing such products."

The insurer declined further comment on its investigations.

The Titan Tulsyhan is among some 7,000 vessels covered by Gard, the world's second-largest marine insurer.

"Gard takes very seriously any suggestion that it is in breach of any international sanctions and is conducting an investigation," it said in a response to Reuters queries. "Gard can, and will, withdraw any insurance cover if it believes sanctions are being breached."

Rakesh Tulshyan, head of the Tulshyan Group that owns the two Titan vessels, said that if there is "concrete evidence that it's Iranian oil", he will seek to have it removed from his vessels.

 

"Because of my reputation, I would rather not do any business with links to sanctioned countries," he told Reuters.

Reporting by Luke Pachymuthu in Labuan, Malaysia; Randy Fabi and Manash Goswami in Singapore, Nidhi Verma in New DelhiI, and Jonathan Saul in London.

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Are economic sanctions successful if the Iranian economy crashes but the regime continues developing its nuclear program? That is the dichotomy now playing out inside the Islamic state, according to new data on the Iranian economy and its nuclear program.

The latest data on the quantitative success of the sanctions comes from an economics research firm, the Rhodium Group of New York. In a paper published last week, Rhodium said that customs data from around the world show both Iranian oil exports and revenues have dropped precipitously.

“As customs data for the month of July rolls in, we’re getting a clearer picture of Iranian exports the first month after new U.S. and EU sanctions formally took effect,” states the report. “And it’s not a pretty one for Tehran.”

---

Specifically, the report states that the “best guess” on Iranian oil exports in July is no greater than 940,000 barrels per day, down from 1.7 million barrels per day  in June and 2.8 million barrels a day a year ago. Oil revenue dropped even more sharply, from $9.8 billion in July 2011 to $2.9 billion a year later. The disparity between the drop in oil sales and the decline in revenues was partly attributable to tumbling oil prices; even the value China’s oil imports dropped 28 percent from June to July. 

But Trevor Houser, the author of the report and a former senior adviser to the Obama State Department, says the success of the sanctions is surprising even to those who thought them up. “The July decline in Iranian oil exports and revenue is greater than anyone imagined would occur when U.S. sanctions were signed into law at the beginning of the year,” said Houser, a partner at Rhodium Group.  

Iran's currency hits fresh low against dollar as sanctions bite

U.S. and international sanctions -- mainly imposed by the European Union -- constrain a broad range commerce with Iran. They encompass the oil embargo, restrictions on the Iranian banking sector and its ability to carry out international transactions, the importation of industrial and construction equipment, and even luxury goods.

One of the most crippling has been a ban by SWIFT, the international financial clearinghouse, on Iranian funds transfers. Officials say the SWIFT sanctions have been particularly effective in limiting Iranian imports of all sorts of goods, even food supplies. The sanctions are so broad that the U.S. Treasury Department has exhaustive documentation on what is permitted, what is not, as well as licensing requirements.

At the same time, the International Atomic Energy Agency’s quarterly report on Iran’s nuclear program shows while Iranian oil revenue was declining, there was a simultaneous and dramatic increase in the number of centrifuges at Iran’s once-secret Fordow nuclear site. Iran in fact more than doubled the number of installed centrifuges -- from 1,064 to 2,140 -- in May, the IAEA reported.

Iran test-fires missile with new guidance system

The centrifuges, which are not the latest models that Iran possesses, have not been turned on, but U.S. officials call the speedup “troubling” if not a “game changer.” The Iranians also have increased their stockpile of highly enriched uranium, indicating that they have been getting better at the enrichment process.

Finally, at a military nuclear site named Parchin, which the IAEA wants to inspect, crucial buildings had been demolished and earth removed, the IAEA reported. Western diplomats see this as part of a cover-up by Iran of illicit nuclear-linked tests.

'Economic warfare'
So while the shipping data show the sanctions are a quantitative success – causing a rapid deterioration of Iran’s oil-driven economy – the IAEA data suggest no qualitative success. Iran continues to install new centrifuges and enrich more uranium, while refusing to permit IAEA inspections of Parchin.

“The challenge is it (the embargo) doesn’t seem to have much of an impact,” on Iran’s behavior, Houser admits.

CNBC: Iran oil revenue shrinks as sanctions sting

That doesn’t mean sanctions should be abandoned, says Mark Wallace, a former U.S. ambassador to the United Nations who runs an activist group, United Against Nuclear Iran, that’s engaged in shaming Western companies into abandoning business in Iran.

"Sanctions are clearly having an impact, but we can do much more and must,” said Wallace, who advocates “economic warfare” against Iran. “Importantly, the most robust sanctions in history can only prevent Iran from going nuclear if they are part of a larger strategy that includes thoughtful military planning and rigorous diplomatic activity."

Iranians feel the pain of sanctions: 'Everything has doubled in price'

Wallace points to victories big and small. He notes that in the last few days, a Russian firm decided to stop verifying safety and environmental standards for one of Iran's biggest shipping groups, making it more difficult for it to operate internationally.

It’s not surprising that economic sanctions don’t produce an immediate effect, says David Albright, founder and president of the Institute for Science and International Security (ISIS), which monitors nuclear proliferation. They take time.

“It’s a sticky thing with sanctions,” said Albright. “Nothing happens and then suddenly something big happens. It’s hard to predict what's going to happen over next six months as the sanctions tighten.

“The other part of the story (that Iran continues to make progress on its nuclear program) is true, which is why it’s all immensely frustrating to countries. It argues that ways have to be found to delay Iran from making progress on its nuclear program, because in a sense you need more time for sanctions and that means more covert actions,” like the Stuxnet virus and attacks on Iranian scientists. The former is believed to have been a joint U.S.-Israeli sabotage operation, while the latter is said to be an Israeli secret service initiative.

Israel tells US time is running out for peaceful end to Iran nuclear dispute

Albright also says that the sanctions have to be accompanied by a threat of military action if Iran continues on what the U.S., Israel and other Western nations believe is a path to nuclear weapons.

“The part of it is that it has to be clear in Iran's mind is that the United States will strike militarily to stop them,” he said.  

Iran: 'We can manage this'
Iran’s response has been that it will never give up its “legitimate” right to develop nuclear energy, while steadfastly denying it is working on a nuclear weapons program.

Privately, Iranian officials dismiss the effect sanctions have on Iran’s nuclear policies. They say the effects of the Iran-Iraq War that ravaged the country for eight years in the 1980s -- a war in which the United States covertly supported Saddam Hussein’s regime – were far worse.

 “If we could manage that, we can manage this,” said one official, speaking with NBC News on condition of anonymity.

Asked to estimate the chances that sanctions will lead to Iran ending its uranium program, the official replied, “Zero.”

Other Iranian officials say the sanctions are part of a “secret war” led by the U.S. and Israel that also includes the assassination of Iranian nuclear scientists, infections of Iranian computer networks, drone overflights and even U.S. Special Forces insertions within Iran’s borders.

Iran: We can destroy US bases 'minutes after an attack'

In the face of such provocations, one suggested, how long can Iran decline to respond?

Reprisals could already be under way. Israel has accused Iran of planning or carrying out recent attacks on its diplomatic personnel in Azerbaijan, India and Thailand, as well as orchestrating a bombing that killed four Israeli students on vacation in Bulgaria.

The Iranians strongly deny any role in those plots.

Robert Windrem is a senior investigative producer for NBC News.

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LONDON -- A South African telecom giant plotted to procure embargoed U.S. technology products for an Iranian subsidiary through outside vendors to circumvent American sanctions on the Islamic Republic, according to internal documents seen by Reuters.

The fresh revelations about MTN Group, buttressed by interviews with people familiar with the procurement, come as the South African multinational faces fights on several fronts over its lucrative but controversial Iranian venture, a fast-growing telecom.

---

MTN is in talks with the U.S. Treasury in an effort to win permission to repatriate millions of dollars of profit now bottled up in Iran by American sanctions on the Iranian financial system. MTN's chief executive disclosed the talks with U.S. officials this month, saying, "U.S. sanctions should not have unintended consequences for non-U.S. companies." An elite South African police unit is investigating how MTN obtained the Iranian telecom's license, following corruption allegations made by a Turkish rival in a U.S. federal lawsuit.

Johannesburg-based MTN Group is Africa's largest telecom carrier, with operations in more than 20 countries. It owns 49 percent of MTN Irancell, a joint venture with a consortium controlled by the Iranian government. The South African company provided the initial funding for the venture and oversaw the telecom's launch in 2006.

Hundreds of pages of internal documents reviewed by Reuters show that MTN employees created presentations for meetings and wrote reports that openly discussed circumventing U.S. sanctions to source American tech equipment for MTN Irancell. The documents also address the potential consequences of getting caught. The sanctions are intended to curb Iran's nuclear program, which Tehran maintains is peaceful.

The equipment included products from Sun Microsystems Inc, Oracle Corp, International Business Machines Corp, EMC Corp, Hewlett Packard Co and Cisco Systems Inc, and was used to provide such services as wiretapping, voice mail and text messaging, the documents show.

In a statement, MTN denied any wrongdoing. The U.S. companies have said they were not aware MTN Irancell had acquired their products, and several are investigating the matter. U.S. Treasury officials declined to comment.

‘It all showed up’
Reuters first reported in June that MTN Irancell had procured U.S. equipment through a network of tech companies in Iran and the Middle East. The article quoted Chris Kilowan, MTN's top executive in Iran from 2004 to 2007, saying that the South African company was directly involved in obtaining U.S. parts for the Iranian telecom.

The new documents provide a much deeper understanding of the extent of MTN's procurement of embargoed U.S. goods, exposing new links in the supply chain of products worth millions of dollars. They also give a rare inside look at the thinking of a multinational doing business in Iran and the difficult choices involved. The documents show that MTN was well aware of the U.S. sanctions, wrestled with how to deal with them and ultimately decided to circumvent them by relying on Middle Eastern firms inside and outside Iran.

MTN was not alone. In recent months, new evidence has emerged that other foreign companies, including Britain's Standard Chartered bank and China's ZTE Corp, have helped Iran undermine increasingly tougher sanctions. The bank, which agreed to pay $340 million to New York's bank regulator to settle allegations it hid transactions with Iran, still faces a separate U.S. probe. ZTE is the subject of investigations by the Federal Bureau of Investigation and the Commerce Department after Reuters reported it had supplied U.S. equipment to Iran's largest telecom.

The new MTN documents appear to detail an intentional effort to evade sanctions. For example, a January 2006 PowerPoint presentation prepared for the project steering committee -- comprised of then top-level MTN executives -- includes a slide titled "Measures adopted to comply with/bypass US embargoes." It discussed how the company had decided to outsource Irancell's data center after receiving legal advice.

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"In the absence of applicable U.S. consents, it is a less risky route to MTN for Irancell to outsource data centre than it is to purchase restricted products," the PowerPoint slide says.

The documents also include a lengthy spreadsheet of "3rd Party" equipment dated June 2006 that lists hundreds of U.S. components -- including servers, routers, storage devices and software -- required for a variety of systems.

A delivery schedule also dated June 2006 lists U.S. equipment needed for "value-added services," including voice mail and a wiretapping system. The schedule states that the equipment would be "Ready to Ship Dubai" that July and August. It estimates it would take two weeks to arrive in the southern Iranian port of Bandar Abbas by "Air or Sea/Road," and then up to 30 days to clear Iranian customs.

According to a person familiar with the matter, the equipment ultimately arrived by boat. "It all showed up," this person said.

‘Outstanding issues’
Reuters reported in June that a Kuwait-based telecom-service provider called Shabakkat was used to procure some U.S. equipment for MTN Irancell. Shabakkat's former country manager in Iran said the products were purchased from a local Iranian company.

But the person familiar with the matter said Shabakkat also sourced U.S. products from a distributor in Dubai called Exit40. The distributor no longer operates.

A Shabakkat executive in Kuwait did not respond to requests for comment. Two former top executives of Exit40 could not be reached for comment.

The documents suggest procuring the U.S. parts often wasn't easy, and the process was plagued by delays. For example, a "High Level Weekly Report" in November 2006 discusses problems sourcing Sun hardware.

"Urgent decision required to source SUN machines through local supplier," it states. A note in red at the bottom of another PowerPoint slide says: "According to Shabakkat, all SUN HW is at Dubai waiting for Payment." HW stands for hardware.

The following month, a spreadsheet detailing "Outstanding issues" cites delays in deploying a system called USSD that enables interactive services. "The USSD platform is completely built on SUN hardware - hence until the SUN hardware is delivered by Shabakkat USSD implementation will be delayed," the spreadsheet says.

Paul Norman, MTN Group's chief human resources and corporate affairs officer, said in a statement to Reuters: "MTN denies that it has ever conspired with suppliers to evade applicable U.S. sanctions on Iran or had a policy to do so. MTN works with reputable international suppliers. Our equipment is purchased from turnkey vendors and all our vendors are required to comply with U.S. and E.U. sanctions. We have checked vendor compliance procedures and continue to monitor them and we are confident they are robust."

The Hawks, a South African police unit, is investigating MTN over allegations contained in a federal lawsuit filed in Washington in March by Turkcell, an Istanbul-based rival. The suit alleges that MTN stole the Iranian telecom license from Turkcell in November 2005 by paying bribes. MTN denies the allegations and has attacked the credibility of former MTN executive Kilowan, who is Turkcell's key witness in the case. The procurement of banned U.S. products is not a subject of the lawsuit.

‘Civil and criminal consequences’
According to the internal procurement documents, right from the start MTN was well aware of what it termed "embargo issues" and the inherent risks involved.

A December 2005 PowerPoint presentation marked confidential and emblazoned with MTN's logo noted that the "Consequences of non compliance" included "Civil and criminal consequences." The PowerPoint slide added that the U.S. government could blacklist MTN, "which could result in all MTN operations being precluded from sourcing products/services from U.S. based companies in future."

According to a person familiar with the matter, MTN was determined that MTN Irancell procure substantial amounts of U.S. equipment: The U.S. products had performed well in its other networks, and the company's technicians were familiar with them. But MTN soon learned that its major contractors on the project -- particularly Nokia -- wouldn't provide the equipment because of the U.S. embargo.

So MTN executives began to explore ways to procure the parts without violating sanctions, the documents show. The company initially explored an exception to the sanctions known as the "de minimis" rule. Under it, tech products can sometimes be legally exported to Iran from a foreign country if the aggregate value of the U.S. parts or technology inside is less than 10 percent.

According to the person familiar with the matter, MTN believed that if U.S. components comprised less than 10 percent of a large system, its major contractors could legally procure them. But the company learned that the rule applies to each component, not to an overall system.

"Once they figured it out, they realized the vendors wouldn't accept that," this person said. "Now they had a problem."

According to a weekly report from December 2005, MTN also explored another alternative -- obtaining U.S. parts from the so-called "grey market," or unauthorized distribution channels. The report suggests "obtaining go ahead to procure US embargoed products ... from grey market notwithstanding the adverse consequences to MTN."

The person familiar with the situation said MTN was under tremendous pressure to launch the Iranian mobile operator as quickly as possible, because it had told shareholders it projected having 1 million subscribers by the end of 2006. The operator finally launched in October, after months of delays, and is now Iran's second-largest wireless carrier by subscribers.

The procurement problems are referenced in numerous internal MTN and MTN Irancell documents. A June 2006 status report discussed delays in the delivery of essential components for value-added services, or VAS.

"The primary challenge in the establishment of the VAS solution is simply that the hardware platforms required are of US origin and therefore fall foul of the US embargo on exports to Iran," the report says. "This means that innovative mechanisms need to be applied to secure delivery of the hardware platforms." Another progress report makes reference to an "Order placed last week with Turkey and Iran to circumvent embargo issues."

Reuters reported in June that some of the U.S. equipment -- including at least a half-dozen Sun servers --was sourced locally through Iranian companies. But according to the person familiar with the matter, many other U.S. components were acquired via Dubai by Shabakkat, which was paid about $30 million to $40 million to acquire them -- about twice their value.

"You had a buyer who was desperate," the person said, referring to MTN. "They didn't have any other options."

Mahmoud Tadjallimehr became a project manager for Nokia on the MTN Irancell project in November 2006. In an interview, he said it was known within the mobile operator that Shabakkat was sourcing U.S. equipment for the project, and he dealt directly with the firm. But he said that one day in discussing a delivery problem, a Shabakkat manager told him, "The issue was not with Shabakkat but with Exit40." He also said "someone told me that we should never use this name (Exit40) in any kind of emails or conversations."

According to archive.org, which archives websites, Exit40's site in 2006 described the firm as a privately held, "leading independent wholesale distributor of IT products" that was headquartered in Switzerland, with offices in Dubai, Florida, Switzerland and India. The site also included this boast: "Exit40's procurement executives source hard to find or locally constrained products for customers."

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As Western nations ratchet up sanctions against Iran in an effort to slow or stop its nuclear program, Reuters takes a look at how hard it will be for some oil companies — notably BP — to disentangle themselves from Tehran's business interests.

The case study is the Naftiran Intertrade Co., or NICO, an oil-trading firm owned by the Iranian government, which is engaged in major oil development projects with BP, Shell and Norway's Statoil.

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NICO has been under U.S. financial sanctions since 2008, deemed an entity "owned or controlled by the Government of Iran." However, it remains an important source of foreign exchange for the National Iranian Oil Co., Reuters reports:

To get around the sanctions, NICO uses offshore financial havens and a web of asset and industrial holdings in the West. While it was based in Jersey, the firm operated through a "service company" based in Switzerland. But even there, in a country that has not yet signed up to the trade sanctions against Iran, the company's future could be in doubt.

Click here to read the Reuters piece in its entirety.