![Ruling [CJEU] ¦ Supplying Equipment to Intermediaries of a Listed Iranian Entity Can Breach EU Sanctions](/assets/images/posts/pexels-tima-miroshnichenko-5912574_1024.webp)
21 December 2011
Ruling [CJEU] ¦ Supplying Equipment to Intermediaries of a Listed Iranian Entity Can Breach EU Sanctions
Indirect supply, circumvention and intent under the EU Iran sanctions regime
In a preliminary ruling requested by the Higher Regional Court of Düsseldorf, the Court of Justice of the European Union (CJEU) clarified how far the EU ban on making economic resources available to listed Iranian entities reaches. The case concerned a vacuum sintering furnace delivered from Germany to Iran and installed there for a buyer that was allegedly working for the procurement body of Iran’s missile programme.
The judgment answers three questions: whether equipment must be ready for use before its supply counts as prohibited, when supplying an unlisted intermediary amounts to an indirect supply to a listed entity, and what mental state the separate anti-circumvention prohibition requires.
The case behind the reference
The German criminal proceedings concerned three individuals suspected of breaching Council Regulation (EC) No 423/2007 on restrictive measures against Iran. According to the indictments of the Federal Public Prosecutor General, Iran had been developing long-range missiles since at least the late 1990s and needed vacuum sintering furnaces to apply heat-resistant coatings to guidance components and warheads. Responsibility for that programme lay with the Aerospace Industries Organisation (OLI), whose central procurement body was the Shahid Hemmat Industrial Group (SHIG). Both were listed in the annexes to the regulation.
The managing director of a Tehran company allegedly procured a furnace for SHIG and, with the help of an engineer in Germany, contracted a German manufacturer to build and deliver it. The manufacturer’s managing director allegedly applied for an export licence in July 2006 without disclosing the intended use, and the German export control authority issued a notice in January 2007 stating that no licence was required. The regulation entered into force in April 2007, listed the Iranian organisations and named such furnaces among its controlled goods. The furnace was delivered in July 2007, and two technicians installed it in Tehran in March 2008, without the software needed to operate it. After the export authority informed the manufacturer that the Tehran company was suspected of procuring for the Iranian missile programme, the installation was not completed.
These facts are allegations from the indictments. The CJEU did not decide guilt, and the national court remains responsible for establishing what happened and who knew what.
Three questions on the scope of the prohibitions
The referring court, which had to decide whether to open the main criminal proceedings, first asked whether making an economic resource available presupposes that the listed person can immediately use it to obtain funds or services. The alternative was that the prohibition also covers delivering and installing a working but not yet operational machine at a third party that intends to manufacture products for the listed entity later.
Its second question was whether the anti-circumvention clause only catches conduct that adjusts its form to the prohibitions while remaining unlawful in substance, so that it can never overlap with the supply prohibition, or whether it works as a catch-all for any act leading to a prohibited supply. The third concerned the wording “knowingly and intentionally”: whether it requires certainty about the circumvention, a deliberate purpose, or something less.
A machine does not have to be operational to be an economic resource
The Court started from the breadth of the concepts. The regulation defines economic resources as assets of every kind that can be used to obtain funds, goods or services, and a sintering furnace falls within that definition. The prohibition applies to supplies made directly or indirectly, and the phrase “made available” covers any act necessary to enable a person to obtain the power of disposal over the asset. That includes delivery and installation, preparing and supervising them, and brokering contacts between the parties.
Because the sanctions serve a preventive purpose, the decisive criterion is the risk that the asset is used to obtain goods that could contribute to nuclear proliferation, assessed at the time of the acts. A furnace carries that risk in itself, through its potential to produce missile components. The fact that the furnace was not yet ready for use after installation therefore cannot exclude a prohibited supply.
Supplying an unlisted intermediary can be an indirect supply to a listed entity
The Tehran company was not named in the annexes. The Court nevertheless accepted that supplying it could amount to an indirect making available to SHIG. It drew on the circumstances that the United Nations Security Council resolution and the Common Position use to extend restrictive measures beyond named persons: acting on behalf of, under the control of, or on the instructions of a listed person or entity. The same circumstances decide whether a supply to an unlisted recipient is an indirect supply to a listed one.
If the intermediary acted in that way and intended to use the furnace to produce goods for SHIG, the national court may conclude that there was an indirect making available. The Court added that the purpose of the regulation and the need for practical effectiveness require the prohibition to reach everyone who takes part in prohibited acts.
Knowledge remains a safeguard against liability
The regulation protects those who did not know, and had no reasonable cause to suspect, that their conduct breached the prohibition on making resources available. The Court stressed that this limitation applies to criminal liability too. For each accused person, the national court must assess whether, at the time of the acts, they knew or at least had reasonable cause to suspect that the acts violated the prohibition.
Circumvention is a separate prohibition
On the second question, the Court held that the two prohibitions in Article 7 each have their own meaning, and that a breach of either can independently ground sanctions, including criminal ones. Reading the anti-circumvention clause as covering every act that results in a prohibited supply would leave it without any effect of its own.
The clause therefore targets activities that are carried out under the cloak of a form which avoids the elements of a breach of the supply prohibition, but which, on the basis of objective circumstances, directly or indirectly aim or result in undermining that prohibition. That can be true of an activity in itself or because of its connection with other activities. The Court drew by analogy on its case law on abusive practices.
Knowingly and intentionally are two cumulative elements
The mental element is a concept of EU law and is interpreted autonomously and uniformly, not by reference to national criminal law. The conjunction “and” shows that knowledge and intent must both be present. Some language versions use “willingly” or “deliberately” instead of “intentionally”, so the Court relied on the overall scheme and purpose of the regulation.
It concluded that the terms imply a knowledge element and a volitional element. Both are met where the person deliberately pursues the circumvention purpose or effect. They are also met where the person considers it possible that their participation has that purpose or effect and accepts that outcome.
Consequences for sanctions and export-control compliance
For exporters, forwarders, technical service providers and their banks, screening against the annexes is not sufficient where the buyer may act for a listed entity. End-user and control analysis should look at who instructs and finances the customer and who will benefit from the goods, and at whether the customer’s business fits the stated use. Delivery, installation, preparation, supervision and brokering can all fall within the prohibition, so the analysis has to follow the transaction from first contact to installation, especially for dual-use equipment handled through intermediaries.
An asset that cannot yet be operated is still an economic resource. In this case, the earlier notice that no licence was required allegedly ceased to apply once the regulation entered into force and listed the end user, which shows why a past export assessment has to be revisited when the legal position or the known end use changes. The installation stopped after the export authority raised its suspicion, and what each person knew at each stage is what the national court must assess.
The judgment concerns physical goods, but the prohibition also covers funds, and the same indirect-supply reasoning applies to them. Trade finance and payment teams that see transactions for such equipment should therefore ask who the end beneficiary is. The intent standard matters here as well: a risk that a person recognises as possible and accepts is enough.
What the judgment does not settle
The judgment interprets Regulation 423/2007, which was replaced in 2010 by Regulation (EU) No 961/2010, with corresponding prohibitions in its Article 16(3) and (4). The Court’s reading of indirect supply, circumvention and intent may therefore be relevant wherever later EU sanctions instruments use comparable wording, though each instrument has to be read on its own terms. Whether the individuals in this case were criminally liable was for the German court to decide.
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