Singapore: Persian Gulf Money, Energy, and Non-Energy Export Risks

In September 2013, the GCC-Singapore Free Trade Agreement came into force, and it has some wondering whether this will mean an influx of oil and gas trade from the Persian Gulf. The agreement is well-timed, as U.S. Secretary of State John Kerry announced earlier this year that Singapore, along with other countries, would once again be exempt from NDAA sanctions for “significantly” reducing its purchases of Iranian oil. How does this affect the risk analysis associated with sanctions?

When this exemption was received last year, Singapore’s Ministry of Foreign Affairs noted that “Singapore companies and [financial institutions] know these unilateral sanctions still exist, and should continue to consider the impact of all such sanctions on their commercial decisions.” The Ministry’s statement suggests that this carve-out is limited in scope—perhaps reaching only energy-related transactions—but that limitation does not appear to be well-defined. Energy aside, recent experience with Singapore-related export violations suggests that such violations will continue to be enforced regardless of the exemption. Five cases of serious export violations exemplify the risks associated with non-energy trade:

  1. Diversion of Military Antennas. In November 2012, Amin Ravan and his Iranian company were indicted with conspiracy to defraud the United States. Ravan allegedly sought to procure U.S.-made, export-controlled antennas for shipment to Iran by having the antennas altered and first sent to a Singaporean company, Corezing International. Two of Corezing’s principals, both from Singapore, were extradited to the United States and sentenced in September 2013 to serve more than 30 months in prison each, for the unlawful export of 55 of these military antennas.
  2. Fighter Jet Parts to Singapore. In 2011, a U.S. company was sentenced to one year probation for attempting to illegally export J 85 blades for F-5 fighter jets. The fighter jet parts were destined for Singapore, but the U.S. company failed to secure the necessary State Department export licenses and undervalued the parts at $2,000, when in fact they were worth more than $105,000.
  3. Weapons to Sri Lankan Terrorists. In 2010, Balraj Naidu was convicted of conspiracy to provide material support to a foreign terrorist organization, the Tamil Tigers. Naidu, a Singaporean citizen, unwittingly negotiated with an undercover business that posed as a military arms dealer. The weapons deal involved the sale of approximately 28 tons of weapons and ammunition.
  4. Aircraft Components to Iran. In 2009, a U.S. citizen was convicted to 46 months in prison for illegally exporting export-controlled U.S. aircraft parts to a Singapore-based company that then re-exported the parts to Iran without obtaining U.S. export licenses.
  5. Rocket & Spacecraft Material to China. In 2009, a Singaporean citizen, along with two co-conspirators, sought to illegally export carbon-fiber material to China. The material had applications in aircraft, rocket, spacecraft, and uranium enrichment, and required U.S. government licenses for their export. The Singaporean citizen was affiliated with various Singaporean import/export businesses.

So though it is not immediately apparent how this renewed exemption affects the day-to-day operations of one of Asia’s largest trade hubs, the take-away seems clear. Singaporean companies would do well to heed the Foreign Ministry’s advice to “enhance their due diligence and monitor more closely Iran-related business transactions.” Increased trade in the energy sector should prompt close attention to know-your-customer processes, OFAC vetting (though the OFAC hotline is currently offline because of the U.S. government shutdown), and other due diligence. Furthermore, companies outside the energy trade should also be mindful that any perceived leniency does not dispel the sanctions risk posed by dealing in defense and other export-controlled articles.