Glencore 'supplied alumina to Iranian company in barter deal'

Commodities giant Glencore supplied thousands of tons of alumina to an Iranian company that has provided aluminium to Iran’s nuclear programme.

The previously undisclosed barter arrangement between Glencore, the world’s biggest commodities trader, and the Iranian Aluminium 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 Tehran keeps finding new ways to do business with willing partners.

Reuters first learned about Glencore’s barter deal with Iralco, and an aluminium supply contract that Iralco had with Iran Centrifuge Technology Co (TESA), from a Western diplomatic source in early November.

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 aluminium metal. The report’s authenticity was confirmed by UN diplomats.

It is not known whether any of the aluminium produced by Iralco from Glencore’s alumina raw material actually ended up with TESA. As part of AEOI, TESA has been subject to UN 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 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 e-mailed request for a comment. Iran’s UN 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 UN sanctions, Iran has faced much tougher US and EU measures, specifically targeting its financial and energy sectors.

Glencore had supplied Iralco with about five tons of alumina for every ton of aluminium 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 aluminium, the barter deal may have left Iralco with more aluminium 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 alumina and aluminium metal were not prohibited commodities under the sanctions, and bartering was 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 Glencore had violated UN or Swiss sanctions. Iralco is not under US or UN 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 had violated sanctions.

Off the grid

A UN expert panel has repeatedly reported to the UN 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 SWIFT, the international banking clearinghouse.

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 programme.

"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 UN and EU sanctions on Iran and is directly supporting Iran’s proliferation sensitive nuclear activities".

The EU said Iralco had a contract to supply aluminium 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 Iralco had received its last alumina shipment from Glencore in September while Glencore received its last delivery of aluminium from Iralco in October.

The source declined to comment when asked whether the company continued to do other business with Iran.

Glencore announced an end to its fuel sales to Iran in January 2010 to avoid breaching US sanctions.

Controversy

The US Treasury declined to comment specifically on Glencore’s dealings with Iralco, though a Treasury official told Reuters anyone providing alumina to Iran could face US sanctions under new rules taking effect on July 1.

Swiss companies have been bound by UN sanctions ever since Switzerland joined the UN 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 US.

Glencore has been involved in controversies before. It was founded as Marc Rich & Co in 1974 by Marc Rich, who was charged by the US 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 US president Bill Clinton just before he left office in 2001.

After a bet on the zinc market failed, the firm struggled badly and Mr Rich eventually sold it through a management buyout in 1994.