UPDATE 3-In split from SocGen, TCW's fortunes seen set to rise
By Greg Roumeliotis and Jessica Toonkel and Jennifer Ablan
UNITED NATIONS, March 1 Commodities giant Glencore supplied thousands of tons of alumina to an Iranian firm that has provided aluminum to Iran's nuclear program, intelligence and diplomatic sources told Reuters.
The previously undisclosed barter arrangement between Glencore, the world's biggest commodities trader, and the Iranian Aluminum Company (Iralco) illustrates how difficult it is for Western powers to curb Iran's ability to trade with the rest of the world. Even as the West imposes stringent restrictions on banks that do business with Iran, United Nations diplomats say that Tehran keeps finding new ways to do business with willing partners.
Reuters first learned about Glencore's barter deal with Iralco, and an aluminum supply contract that Iralco had with Iran Centrifuge Technology Co (TESA), from a Western diplomatic source in early November. That was about six weeks before the European Union's December 2012 decision to levy sanctions on Iralco for supplying aluminum metal to TESA, which is a subsidiary of the Atomic Energy Organization of Iran (AEOI).
The source showed Reuters a Western intelligence report concerning Glencore's arrangement with Iralco. It described how Baar, Switzerland-based Glencore provided Iralco with thousands of tons of alumina last year in exchange for a lesser amount of aluminum metal. The report's authenticity was confirmed by U.N. diplomats.
It is not known whether any of the aluminum produced by Iralco from Glencore's alumina raw material actually ended up with TESA. As part of AEOI, TESA has been subject to U.N. sanctions in place since 2006.
In a statement to Reuters, Glencore said it first learned about the TESA-Iralco relationship in December and immediately "ceased transactions" with Iralco. It said its last actual trade as part of the barter arrangement was in October 2012, two months before the EU move.
Glencore acknowledged that it did sign the barter deal with Iralco in August 2011, saying it was perfectly legal and denied any wrongdoing by the firm or attempts to help Iran bypass sanctions. It declined to provide details about the barter deal, the value of which is unclear.
Iralco did not respond to an emailed request for a comment. Iran's U.N. mission said it was not in a position to comment.
Iran denies allegations by Western powers and their allies that it is seeking atomic weapons and has refused to stop enriching uranium. As a result, in addition to four rounds of U.N. sanctions, Iran has faced much tougher U.S. and EU measures, specifically targeting its financial and energy sectors.
Aluminum can be used to make aluminum tubes for uranium enrichment gas centrifuges, though most newer gas centrifuges are made of a carbon composite material. Aluminum is also used in everything from cars to aircraft, buildings and cans.
Glencore had supplied Iralco with about five tons of alumina for every ton of aluminum that Glencore received in return, according to the intelligence report. Given that on average it takes only about two tons of alumina to produce one ton of aluminum, the barter deal may have left Iralco with more aluminum after processing the alumina than it supplied to Glencore.
Iralco covered costs inside Iran, while all activity involving foreign currency payments was covered by Glencore, including shipping costs and insurance, according to the intelligence report.
In its statement, Glencore said: "Glencore complies with applicable laws and regulations, including applicable sanctions. We closely monitor all new legal developments to ensure that we continue to be in compliance with applicable laws and regulations, including applicable sanctions."
The company said that alumina and aluminum metal were not prohibited commodities under the sanctions, and that bartering is one of the oldest and most transparent forms of transaction and an accepted method in the metals business.
Swiss authorities said they saw no evidence of U.N. or Swiss sanctions violations by Glencore. Iralco is not under U.S. or U.N. sanctions.
The intelligence report described the Glencore deal as a good way for Tehran to get around global financial restrictions, though it did not say that Glencore violated sanctions.
OFF THE GRID
A U.N. expert panel has repeatedly reported to the U.N. Security Council that Iran has learned to dodge sanctions with the aid of shell companies and intermediaries and a small group of friendly countries. But it has become extremely difficult for any Iranian firm to make or receive payments abroad due to sanctions on Iranian banks - including the central bank - and the barring of Iran from the international banking clearinghouse SWIFT.
The appeal of barter deals is that because payments are made in goods rather than money, transactions are kept off the international financial grid and are less likely to be identified by governments trying to curb Iran's nuclear program.
"From Iran's point of view, the business offered through the exchange agreement (with Glencore) offers a model that can be replicated for trade in a range of commodities that it requires, by reaching similar deals with other foreign companies that have commercial interests but are reluctant to deal with Iran in the current circumstances," the intelligence report said. "Each side benefits from the trade agreement, while risks of exposure through inevitable contact with third parties are dramatically reduced."
The EU said it imposed sanctions on Iralco in December because the company was allegedly "assisting designated entities to violate the provisions of U.N. and EU sanctions on Iran and is directly supporting Iran's proliferation sensitive nuclear activities." The EU said that Iralco had a contract to supply aluminum to Iran's centrifuge firm TESA from the middle of 2012, according to the official EU bulletin on the sanctions.
A source close to Glencore said that Iralco received its last alumina shipment from Glencore in September while Glencore received its last delivery of aluminum from Iralco in October.
The source declined to comment when asked if the firm continued to do other business with Iran. Glencore announced an end to its fuel sales to Iran in January 2010 to avoid breaching U.S. sanctions.
The U.S. Treasury Department declined to comment specifically on Glencore's dealings with Iralco, though a Treasury official told Reuters anyone providing alumina to Iran can face U.S. sanctions under new rules taking effect on July 1.
Swiss companies have been bound by U.N. sanctions ever since Switzerland joined the United Nations in 2002. While Switzerland implemented sanctions on Libya and Syria, it has reasserted its traditional neutrality over Iran and opted not to adopt some of the more stringent measures passed by the EU and the United States.
Glencore has been involved in controversies before. It was founded as 'Marc Rich & Co' in 1974 by Marc Rich, who was charged by the U.S. authorities in the early 1980s with evading taxes and selling oil to Iran during the 1979-81 hostage crisis. He fled to Switzerland where he lived as a fugitive for 17 years before being pardoned by then U.S. President Bill Clinton just before he left office in 2001. After a bet on the zinc market failed, the firm struggled badly and Rich eventually sold it through a management buyout in 1994. (Additional reporting by Emma Farge in Geneva; Editing by Martin Howell and Jean Yoon)
By Greg Roumeliotis and Jessica Toonkel and Jennifer Ablan
* Defendant's federal conviction was overturned in February
* Alternatives to Libor to be found for some contracts