fbpx

February 21, 2019 By: Jan Verloop*

On February 18, 2019, Euroturbine B.V. (Euroturbine), a Dutch supplier of specialist parts for gas and steam turbines, was fined for the illicit export of so-called ‘dual-use’ items with full knowledge that the items would eventually reach Iran.‘Dual-use’ items are those goods, products or technologies, normally used for civilian purposes but which may have military or Weapons of Mass Destruction related applications. As turbine engines and parts are made of high alloy materials, and can be used to power a number of military vehicles, they are considered ‘dual-use’ for export purposes, and cannot be exported without permission from the Dutch government.

A court in the southern province of Limburg in the Netherlands convicted Euroturbine of violatingDutch export license requirements on February 18. Euroturbine was fined 500,000 euros ($565,383) and their Bahrain-based subsidiary was fined 350,000 euros ($395,800). The company’s director and two employees were sentenced to perform unpaid community service for their roles in the export.

The Euroturbine case is a rather unique one for the Dutch Authorities. Though the Netherlands has its own trade control legislation and participates fully in related E.U. legislation and initiatives, Dutch enforcement of trade controls has generally been mild and (some would claim) rather flexible. The few traceable enforcement activities in the public domain usually cover cases related to transit shipments of military goods.

While the outcome of the Euroturbine case may have been more lenient than some had anticipated, there are several compliance lessons that can be gleaned from the recent Euroturbine saga.

The Case in Brief

Following increasing concerns by several governments and the IAEA the UN issued additional sanctions against Iran during 2007. These translated into EU initiatives during 2007/8 and eventually found their way in Dutch legislation during 2008.

In February 2009, Dutch Government issued a “catch-all” provision to a range of potential exporters of sensitive materials. Euroturbine was one of the recipients and one of the suspects (at the time a director for Euroturbine) in fact received the relevant papers in person.

In early April 2010, Dutch police and tax service raided the offices of Euroturbine in Venlo, the Netherlands. The authorities acted on information from Dutch Intelligence Services, which claimed that Iran continued to buy (and receive) materials and technology for the production of weapons of mass destruction, including gas turbine parts, from the Netherlands.

During 2009/2010 Euroturbine requested licenses for the export of turbine parts, which were denied by the Dutch government. By means of disguised routing and creative paperwork, the parts nevertheless reached Iran. The Iranian buyers of the parts are all companies associated with the Iran government.

The Dutch Public Prosecutor originally indicted Euroturbine in October 2018. Dutch newspaper FinanciëelDagbladreported that the Dutch Prosecutor charged the company, including its owner and 2 of its employees, for the alleged violation of trade controls due to the export of items to another European country with knowledge that those items would end up in Iran.

According to the Dutch prosecutor’s press release, the suspects must have worked together to deceive the authorities. “In view of this concealing method of export, the suspects apparently deliberately and deliberately obstructed and ignored Dutch export control regulations”, said prosecutors. “It was a sophisticated fraud.”

The alleged illegal exports took place during the period 2008-2010.

Analysis

The Dutch Prosecutor claimed that 70% of Euroturbine income was based on Iranian trade and the total amount of illegal proceeds was estimated at 13 to 22 million Euros.

The various criminal charges, such as failure to pay income/property tax and money laundering, covered a wider period starting around 2002. Whether these financial charges were a more or less stand-alone issue or were related to earlier exports to Iran initially were not clear from publications reviewed. It might be that these tax issues started much earlier, however, due to the Dutch 7-year statute of limitations, Dutch Tax authorities decided only to go back to 2003.

The case first came to court October 1, 2018 and took the best part of that month. Defense was given 3 days during November to state their point of view. Judgment was initially expected for December but eventually came February 18, 2019.

Original Charges Against Euroturbine
Export to Iran while such was prohibited
Export of dual use materials without an export permit
Failure to inform Dutch Authorities about an export to a friendly third country (not requiring an export license) while it was known that the intended final destination is Iran
Concealment of income
Failure to declare taxable income
Money laundering

In court, the Dutch Public Prosecutor was amongst others challenged about the 8-year lapse between the raid and the court case. The Prosecutor claimed that the multitude and complexity of the transactions as well as slow cooperation by foreign authorities had been the reason for the delay in bringing the case to court.

The Suspects

Euroturbine is located in Venlo, in the south of the Netherlands. The company also operates a so-called ‘Single Person Company’, Euroturbine SPC, in Bahrain (Euroturbine Bahrain). In addition, the company has an address in Tehran and associate companies in Germany, UK, France and Dubai.

The owner of Euroturbine and Euroturbine Bahrain is Parviz Tavakolly, who resides in Venlo. Tavakolly was born in Iran but moved to the Netherlands at an early age and is believed to be an appreciated member of the local Venlo community. Many Iranian citizens left their country from 1979 onwards in order to escape the regime of Ayatollah Khomeini and the emerging Revolutionary Guards. Apart from Euroturbine andEuroturbine Bahrain, Tavakolly had published links to several other enterprises including: Bucephalus Holding BV, who formally own Euroturbine, and EuroThermTech BV, which was owned by Tavakolly as well as a Polish national and trades in medical items.

The other 2 named employees – Johannes Jacobus Josephus Maria Hermans and Nadia Chafik van den Beucken-Habachi – both live in the Netherlands as well. Also a former employee/director, and one of the initial suspects, Elizabeth Klompers-Mout, seemingly aided the prosecution, and consequently, appears to have been largely let‘off the hook’.

The Swisslink

Sulzer is a major Swiss based enterprise, with several offices and factories throughout Europe and the Netherlands. The company manufactures and services rotating equipment, most namely: turbines and pumps.

At least 3 of the 4 suspects worked for many years at Sulzer Elbar, located in Venlo, prior to joining Euroturbine, and held a variety of senior positions, up to director level. Elbar, which specializes in aviation turbines, was acquired by Sulzer in 1999 and became Sulzer Elbar. Tavakollyworked for Sulzer for nearly 25 years until approximately the end of 2005, and is alleged to have left them as a result of a conflict. Mout also left her senior position at Sulzer Elbar by the end of 2005. Hermans also worked for Sulzer Elbar for many years and in fact more or less took over from Tavakolly when he left Sulzer Elbar in 2005. Hermans left Sulzer in late 2008. All 4 held positions in Euroturbine and one or more of its parent or subsidiary companies.

Around April 2007, investment company Renova, owned and controlled by Russian billionaire Victor Vekselberg, obtained a large share of Sulzer Elbar. During 2018, the U.S. authorities issued sanctions against a large number of Russians close to President Putin, including Vekselberg. After a fair amount of Swiss pressure, Renova sold a fair proportion of its Sulzer shares back to Sulzer.

The Australian Connection

In February 2018, Australian papers reported that a man and woman from New South Wales who allegedly exported 90 tons of nickel alloys to Iran have become the first people in Australia ever to be charged with breaches of UN sanctions. Based on their names – Mr. KhosrowSajjadi(58) and Mrs. SimaAghiliNategh – both people most likely are of Iranian descent.

The exports, alleged to have taken place between March 2009 and April 2010, are said to have been destined for Euroturbine production in France. Nevertheless, they were subsequently sold to HICO Fze in Dubai. From there, the exports seem to have reached Iranian end-users via the Iranian port of Bandar-Abbas.

The February 18 Verdict

Despite the rather numerous charges, the Euroturbine case resulted in a much milder verdict than anticipated. This outcome can be attributed to, among other reasons:

  • Given the settlement for 120 hours of community service reached between the DutchProsecutorand one of the suspects in 2014, the judge was not receptive to the proposed two to three years jail time for the other suspects.
  • Although admitting some complexity, the judge did not see a need for the nearly 7 years’ time elapsed between the raiding and the start of the court case.
  • The substantial set of financial charges claimed by the prosecution where largely dismissed, and in fact the main suspect was only sentenced for incomplete tax reporting during 2002, unrelated to export of dual use items.

Nevertheless, there still remain a number of important lessons that compliance officers can take away from Euroturbine.

Lesson 1: Pay Attention to Global Developments

Tavakolly, amongst others, claims to have been caught by changing legislation. But could he have predicted the stricter export controls?

From 2006 to 2010, the UN voiced increasing concerns about Iran’s nuclear program as well as its missile technology developments. As a result, legislation in the EU and the Netherlands relating to dual-use items was tightened. Tavakolly may have avoided his fate if he had stayed more vigilant with ongoing trends.

Most changes in policy signal a change in laws or restrictions. In January 2016, the Joint Comprehensive Plan of Action (JCPOA), also known as the Iran nuclear deal, was implemented. As a result, Iran shelved most of its nuclear research and opened its facilities to independent inspections. Similarly, when the US Government withdrew from the JCPOA in 2018, the E.U. responded by revising its “anti-sanction” legislation.

It is essential that you and your team are kept fully up-to-date with current sanctions and export control regulations so that you can assess your related risks and avoid visits from the regulator.

Lesson 2: Watch your tracks.

Even though the suspects made serious efforts to split or disguise their identities and maintain secondary e-mail accounts, their offices and private homes held a wealth of evidence. This included various invoices they made or modified on third party letterhead, detailed instructions for disguises to sellers, buyers and forwarders, as well as various “divide and rule” type itineraries. In at least one case, Euroturbine managed to crate and issue purchase orders and invoices in the name of a third party company that had no involvement whatsoever.

In addition, the Netherlands-based suspects had created a remote IT-system by means of which they could operate on servers in Bahrain, and issue e-mails, invoices and documents for legalization as if they had been issued from Bahrain.

Lesson 3: Always have a Detailed Understanding of your Customers

While Euroturbine obviously was well aware about their customers, Service Providers to companies like Euroturbine, such as banks, insurers, shippers, forwarders, and the like, should be sure to keep an active watch for all possible “red flags” that may appear during their regular duties. Without a detailed understanding of your customers’ business activities, potential customers and logistical processes, you will have no real idea what and whom you are dealing with and whether or not it will pose a problem for your institution. Ignorance will never be an excuse.

Lesson 4: Do Your (Enhanced) Due Diligence

As can be seen from the Swiss and Australian examples, newspaper publications in isolation are a rather limited source of wisdom.

In this globalized world, there are many more connections and intricacies than ever before. Always be sure to do your customer due diligence and go the extra mile. It may save you a lot of headache in the future.

*Jan Verloop worked for over 40 years in the international oil and gas industry, initially on the cross roads of engineering and logistics, during which for over 15 years he lived and worked in countries like Oman, Suriname, Malaysia and UK, and had first hand involvement in international trade, imports, exports and customs. From 2001 onwards he was a Trade Control Officer. His first visit to Iran dates back to 1978. From 2001 onwards he has had detailed involvement with Dual-Use materials and sanctions management, and paid regular and repeated visits to countries in the Middle East and N-Africa.