By Dinah Deckstein and Matthias Schepp

Source:

August 9, 2010

Engineering giant Siemens has officially stopped doing business with Iran. But German customs officials say they recently intercepted a shipment of Siemens parts whose final destination was allegedly the Iranian nuclear reactor in Bushehr.

July 1, 2010 will likely go down in the history of German engineering giant Siemens as the day the company ended a 140-year-old business relationship, one that was steeped in tradition. On that date, the Munich-based company stopped accepting new orders from

The decision, which management had made last fall, makes Siemens one of the few major German companies that has responded to pressure from the German government and from the United States to completely withdraw from the country, with its internationally ostracized president, Mahmoud Ahmadinejad.

Löscher and his advisers normally like to boast about how they are role models when it comes to global business ethics. Nevertheless, they allowed July 1, the day the company stopped accepting orders from Iran, to pass without further comment. It was probably a good idea, in light of what allegedly happened a few days later at Frankfurt Airport, in a scene that hardly seems to fit to Siemens’ image as a trailblazer in the art of ethical deals.

According to customs officials at the airport, they intercepted a shipment of Siemens parts, including switches, switching components and computer modules, destined for a Russian customer. German authorities say that the Russian customer was supposed to forward the Frankfurt shipment through Moscow to its final destination, Iran’s controversial nuclear reactor in Bushehr.

Public Relations Crisis

More than 30 years ago, Heinrich von Pierer, who would later become Siemens’ CEO, secured the contract, worth billions, for the scandal-plagued Today Atomstroyexport, a subsidiary of the Russian nuclear company Rosatom, is completing construction of the reactor.

Atomstroyexport has triggered a public relations crisis for Siemens, which is in the process of forming a joint venture for the peaceful use of nuclear energy with the Russians.

According to the shipping documents, the sensitive high-tech components were initially destined for a subsidiary of Atomstroyexport which describes itself as a “research and design institute,” a name that sounds more American than Russian. Nevertheless, it is the Russian firm and its parent company, Atomstroyexport, that are jointly handling the Bushehr contract.

Both companies are under enormous time pressure, after having promised to finally complete the former Siemens reactor by September — about 10 years later than the original completion date.

Strict Embargo

According to German border officials, the Siemens parts were to be shipped from Moscow to Bushehr. A company spokesman insists that no one in the company was aware of what was happening in Moscow.

The authorities say that if the Siemens components had been forwarded to Bushehr, it would have constituted a violation of the European Union’s strict embargo against Iran, which was tightened even further at the end of July. This information prompted the customs officials at Frankfurt Airport to refuse to allow the Siemens shipment to leave the country.

“We are aware of the incident,” says Atomstroyexport spokeswoman Olga Zylova, “but we have no comment.” After being contacted, a Siemens spokesman said that he could not rule out the possibility that the material may have come from a reseller and that it possibly was completely harmless.

Strategically Important

The ominous incident will likely reignite a fundamental dispute that has been simmering among the EU, Russia and Iran for some time. The German government and other European countries suspect that Iranian President Ahmadinejad is under the guise of a civilian nuclear program, which Ahmadinejad vehemently denies. The Europeans fear that the Bushehr plant could be misused to build bombs.

It was because of these concerns that, under the EU’s former Iran embargo rules, strategically important products like computers and control devices could not be shipped to Iran from or through Germany, even if they were intended for allegedly civilian nuclear programs like Bushehr. The rule applies to any such products, no matter where they come from.

The only exceptions are relatively harmless products like light bulbs and electrical outlets. An export permit must be requested for so-called “dual-use” products that could potentially be used for military or civilian purposes. In the Siemens case, this export permit had apparently not been applied for — and would probably not have been issued even if it had.

Part 2: Russians Criticize German Position

Russia and Iran, for their part, are criticizing the German position as extreme. To support their argument, they cite parallel United Nations sanctions rules, which are not as strict as the EU rules. Under the UN rules, products can be shipped to Iran if they are intended exclusively for the civilian nuclear energy program.

Despite the existence of the UN sanctions, the EU countries apply their own, substantially more restrictive rules. And it is precisely those rules that prohibit shipments like the one recently discovered at Frankfurt Airport — with only few exceptions. In Germany, a number of agencies are charged with enforcing the embargo, including the Federal Office of Economics and Export Control and the extremely active customs authorities.

Insiders report that German customs in Frankfurt have intercepted about half a dozen dubious shipments from various sources, including the Siemens parts that were stopped in early July. In most of the cases, the required export permit had not even been applied for.

Suspicious Shipments

Two shipments from Russia, containing computers, monitoring equipment and switch boxes, were intercepted in November and January. Atomstroyexport had engaged shipping companies to forward the products through Frankfurt Airport to Tehran and Bushehr. Lufthansa’s cargo subsidiary was the shipper in at least one of the cases. The order confirmation, which SPIEGEL has obtained, clearly identified Iran’s nuclear energy organization as the recipient.

A Lufthansa Cargo spokesman says that the company regrets the incident and points out that internal guidelines have since been tightened drastically. Nevertheless, the Frankfurt district attorney’s office is investigating as yet unidentified company officials on the suspicion of violation of Germany’s Foreign Trade Act.

The zealous customs officials discovered several other suspicious shipments in the months following the November and January incidents. In one case, the high-tech parts a Russian company had shipped from Moscow to Frankfurt were to be flown to Tehran after leaving Frankfurt Airport. Other problematic shipments were to be sent from Frankfurt to Moscow, then to Dubai and, finally, to Bushehr. Both options are banned under the EU’s Iran embargo. According to internal documents, the identity of the final recipient was sometimes covered up in an effort to fool German customs officials, but the approach didn’t always work.

Part of a Bigger Picture

Meanwhile, prosecutors in Frankfurt and the western state of North Rhine-Westphalia are investigating three German companies, among others, for possible violations of the Foreign Trade Act. Investigators have not yet revealed any names, partly for strategic reasons, but also in observance of the secrecy requirements applicable in such cases. However, Siemens, which may also have been deceived itself, is not yet a target in these investigations.

The dubious shipments German officials have uncovered to date are probably only part of a bigger picture. On its website, Atomstroyexport boasts that 12,000 tons of German parts have already been installed in Bushehr. Investigators must now determine which of those parts were installed long ago, when Siemens was still in charge of the reactor project, and which were procured more recently — and illegally.

Although Atomstroyexport spokeswoman Olga Zylova was not willing to comment on the incidents directly, she insists that her company “absolutely does not” support a possible nuclear armament program in Iran and is involved exclusively in the development of nuclear energy for peaceful purposes.

‘Illegal Actions’

Although officials with the German Customs Investigation Bureau in Cologne and the customs office at Frankfurt Airport are unwilling to confirm the reported incidents, they have unofficially admitted that various shipments were intercepted and that, in one case, customs officials refused to process a shipment altogether.

The customs officials’ persistent actions have even triggered resentment at the highest political levels. In April, a representative of the Russian Embassy in Berlin delivered a strictly confidential letter of protest from the government in Moscow to the German Foreign Ministry. In the letter, the Russian Foreign Ministry sharply criticizes what it calls the “illegal actions of German authorities.”

Soon afterwards, another note, worded even more sharply than the first one, arrived in Berlin. The way in which the Russian shipment was treated in Germany was “completely unacceptable,” the note reads.

In the letter, which is defined as a “non-paper” (an unofficial message, in diplomatic speak), the Russian envoys indirectly accuse the German government of interfering with the free exchange of goods. To support their argument, they cite the more generous UN agreement on sanctions against Iran, which, Moscow argues, permits direct shipments from Russia to Iran via Dubai, for example. For this reason, the Russians write, they cannot understand why German authorities have repeatedly stopped shipments in Frankfurt, even those coming from foreign manufacturers, thereby forcibly imposing their own, stricter EU rules on Russia.

Rogue Nations

A Siemens spokesman insisted that his company strictly abides by all EU sanctions against Iran. He added that the company will make a point of excluding Iran, as well as nuclear powers Pakistan and North Korea, from its planned joint venture with Rosatom. According to the spokesman, Siemens will place other rogue nations on its list of excluded countries if necessary.

It seems that if the Russians want to do business in those countries, they will, as is already the case in Iran today, have to make do without their future partner Siemens.

Translated from the German by Christopher Sultan