Differing Laws Bring U.S., England Into Conflict : London Center of Iran Arms Smuggling

LONDON —  The business conducted at 4 Victoria--a modern, heavily guarded office building near Parliament and Westminster Abbey--is done in private, like most business in this center of international commerce. Recently, however, details of many once-secret transactions originating here have shown up in American court records.

In the last 12 months, federal authorities in the United States have indicted 44 persons for export violations stemming from alleged illegal trade with Iran’s military--most of it brokered through London.

The mysterious office at 4 Victoria is the command center of Iran’s multibillion-dollar campaign to acquire American-made weapons and military supplies--a campaign that continues today, largely beyond the reach of U.S. agents trying to enforce a 5-year-old embargo on military trade with the Ayatollah Ruhollah Khomeini’s regime.

Several London businessmen are among those indicted for weapons shipments to Iran. They are listed as fugitives in the United States, but in Britain--where they are virtually immune from extradition--some continue doing business with Iran. It is business permitted under British law, business that makes London the hub of Iran’s global military procurement network, and business that puts some strain on relations between the United States and Britain.

A Times investigation has also found that, from these offices at 4 Victoria, Iran’s anti-American government has:

--Secretly financed the creation of weapons-exporting companies in Los Angeles and London.

--Exploited financially troubled American businessmen now accused of helping Iran circumvent the U.S. trade embargo.

--Become the leading black market buyer of American weapons and military spare parts, effectively aided by traditional businessmen and brokers in the centuries-old British trading network.

--Transported military supplies from London to Tehran concealed under diplomatic seal.

--Intimidated and pressured Iranian expatriates living here and in the United States to recruit agents for Iran’s sometimes desperate search for the U.S. military supplies that are vital to keeping its American-made military machinery operating in the war against Iraq.

“That pressure includes anything from attempts to exploit loyalty to their homeland to threats to their families still living in Iran,” William Fahey, assistant U.S. attorney in Los Angeles, said. Fahey, citing investigative and intelligence reports, said federal authorities have found Iranian agents putting pressure “particularly on those (U.S. Iranians) with connections to the aerospace industry.”

Other U.S. prosecutors, frustrated by British reluctance to extradite British citizens indicted in the United States, complain that Iran’s arms procurement operation here “is protected” by British authorities.

No Extradition

“We get nowhere (with extradition requests),” said one American prosecutor who asked not to be identified. “And we’ve got to jump through hoops just to get them (British authorities) to give us background on people we’re trying to indict. Sometimes, we don’t get much of that, either.”

Part of the conflict grows out of differences between British and American laws and customs regulations. For example, Britain does not have a broad conspiracy law, which is a common element of most U.S. indictments aimed at suspected weapons-smuggling rings. Also, Britain has no statutes prohibiting shipments of spare parts to Iran.

“If a British resident violates a law in a foreign country that we do not recognize as a crime here, then we can’t extradite,” a spokesman for the British government explained.

It is not happenstance, therefore, that Iran located its military procurement center--the Logistics Supply Center (Europe)--in England. England, historically a nation of traders, is positioned midway between the United States and Iran, provides easy access to persons doing business with American firms and enforces few restrictions on trade. Furthermore, like banking interests in Switzerland, London traders conduct business discreetly.

“One knows never to ask anyone who his client is,” one London broker said. “That’s the kind of question that makes my hair stand on end,” said another broker.

Grossly Inflated Prices

However, it is clear from government sources and from interviews with London brokers that Iran is eager to be the client--secret or otherwise--of any trader able to deliver the badly needed military equipment. And it is willing to pay grossly inflated prices--sometimes exceeding 500% to 1,000% of U.S. market value--to make the deals.

“The Iranians are all over town trying to make deals. Everyone knows it,” said Gerald H. McDevitt, a longtime British trader who was among the 44 persons indicted in the United States during the last year on Iran-related export violation charges. He told The Times that he had been a middleman in a transaction involving parts for F-4 Phantom and F-5 jet fighters but that he had not been aware that the ultimate customer for the parts was Iran.

“I don’t want to deal with them,” he said. “It’s not worth it. But I know people here who are shipping to Iran by the lorry load.”

Iran, according to another London trader, is “screaming for . . . defensive equipment,” including radar components, TOW anti-tank missiles and anti-aircraft missiles. There is also great demand reported through the London marketplace for U.S.-made Cobra helicopter parts and parts for jet fighters--including the sophisticated F-14.

“Every trader in town knows what they want,” said the businessman, one of several who agreed to talk with a Times reporter on the condition that they would not be identified.

Audacious Arms Deals

In fact, some arms deals involving Iran stand out as particularly audacious in this otherwise conservative London business community. Brokers tell of seeing billion-dollar “wish lists” for parts and weapons; of attempts by a man claiming to be a former CIA agent to enlist broker help in selling Iran a number of helicopter gunships supposedly smuggled out of Argentina; and of bidding wars between Iran and Iraq over Soviet-built tanks that brokers have been told are available today in China.

“There are arms deals going on here every day,” a Western intelligence source in London said. “The arms dealers are here, the brokers are here, the money is here. Nationality makes no difference. You can have Libyans, Israelis, Iranians, Iraqis--all in the same room--making a deal. They’re not soldiers--they’re businessmen.”

However, to get the restricted arms and military parts out of the United States, the businessmen usually have to associate with, or function as, smugglers--typically disguising either the contents of their shipments or falsely claiming an ultimate destination other than Iran to get the equipment past U.S. Customs inspectors.

The orders for such deals originate in Iranian government procurement offices on the top floor of the National Iranian Oil Co. building, a seven-story glass and concrete structure surrounded by the institutions of British government--Parliament, No. 10 Downing St., Westminster Abbey and Scotland Yard are visible through the thick, darkly tinted office windows.

Building a Stronghold

“It is one of the most secure buildings in London,” said a British government official familiar with both the structure and the activity that goes on inside. “It is quite a stronghold, solidly built with discreet security.”

That security shrouds Iran’s massive campaign to defeat the U.S. military embargo. Since the fall of 1980, during the early days of its war with Baghdad, Tehran has earmarked billions of dollars from its oil-enriched treasury to finance the effort. Those billions have served as a magnet for financially troubled American businesses and businessmen. For example:

--Justice Department documents allege that Chicago insurance executive William R. Fowler Jr. was recruited in London as a purchasing agent for Iran when he came here to confer with business associates over a $650,000 underwriting loss. Fowler, who was indicted for conspiring to violate U.S. export laws and is awaiting trial, was introduced to British brokers dealing with Iran, according to court records. Fowler refused to be interviewed.

--A search warrant affidavit on file in U.S. District Court in Salt Lake City alleges that principals in a Utah aircraft salvage company, under investigation by a federal grand jury, were having serious financial problems when they allegedly shipped jet fighter parts illegally through London to Iran. Court documents show that the company was in default on payments owed to the Department of Defense and that Utah had suspended its official corporate status for failure to pay state taxes in 1983. That was the same year that the company began shipping embargoed parts to Iran through a British firm that also is under investigation by U.S. and British customs agents, according to court records in Utah.

--Frank Agustin was facing foreclosure on his San Diego home until he was lent $40,000 by a London-based Iranian businessman. Court documents allege that Agustin, who is awaiting trial on export violation charges, subsequently participated in a smuggling ring that shipped stolen F-14 parts and Phoenix missiles to Tehran through the London trading companies of Saeid Asefi Inanlou, the businessman whose loan saved Agustin’s home. Inanlou has been charged with related violations under the laws of Britain.

Secret Partner

Iran has also set up trading companies directly.

Amir Masoud Motamedi, a 27-year-old Brentwood resident whose parents live in Iran, became a secret partner of Iran’s London procurement office when, in September, 1983, he received a cash contribution of $119,000 from 4 Victoria. With it, he established the Boustan Corp., an export trading firm with a mail box address, operated out of his home.

The Boustan Corp. used the capital infusion to finance purchases and shipments, to Iran through London, of parts for F-4s, F-5s and C-130 military cargo planes. Payments and commissions for those sales were deposited by the Logistics Supply Center into Motamedi’s account at Bank Melli Iran, the Iranian government-owned bank in London.

Even before obtaining the $119,000, however, Motamedi was shipping military equipment to Iran, court records show. By posing both as a legitimate arms buyer and as “Fred Coffey,” a fictitious purchasing agent for the Canadian government, Motamedi was able to order a wide range of parts and military equipment from government subcontractors and surplus houses. He was arrested for shipping those goods to Iran via London--usually marked up to prices about 500% of U.S. market value.

Motamedi, who this year pleaded guilty to two counts of illegally exporting military jet parts to Iran, earned “hundreds of thousands of dollars” during the two years he operated, according to government documents. Investigators estimated that about $10 million in military supplies was illegally smuggled to Iran before Motamedi was arrested.

He was sentenced to three months in prison and fined $50,000 for violating U.S. export laws.

Military Oversees Trading

Agents of Iran moved aggressively into London’s trading arena soon after hostilities broke out with Iraq late in 1980. High-ranking air force and navy officers were sent to run the Logistics Supply Center and to oversee acquisition of U.S. weapons and spare parts.

To augment that effort, the Khomeini government set up ostensibly private trading companies in London and Geneva to facilitate the export to Iran of “commodities ranging from wheat to motor vehicles,” the Iranian chairman of one of those companies--London-based Metro UK Ltd.--told British investigators. High on the company’s list of desired commodities were TOW anti-tank missiles.

The story of Metro UK Ltd. illustrates not only the early organization and substantial financial backing of Iran’s London-based procurement effort but also the attraction it continues to have for the international swindlers who have exploited Iran’s desperation for U.S.-made weapons and military equipment.

According to British investigative documents, Metro UK opened for business in the summer of 1981 in an old stone building a short distance from Buckingham Palace. It was managed by Mahmoud Sabahat--a retired Iranian air force general. Sabahat, under instructions from Iran’s deputy minister of defense in Tehran, negotiated a $52-million missile deal with a Greek arms dealer. The missile shipment was to originate in the United States and be transferred to an Iranian ship in Belgium.

Tehran sent an official of the Bank Markazi--the central bank of Iran--to London with $60 million, which he deposited in bank accounts there. And three air force colonels also were dispatched from Iran to inspect the missile shipment in Antwerp before the $52 million would be transferred to the arms dealer.

Iranian Agents Kidnaped

However, instead of TOW missiles, the crates waiting on the Antwerp docks contained tin scraps. And the phony arms dealer and his confederates kidnaped Sabahat, the three air force colonels, the Bank Markazi official and an Iranian businessman in separate actions in Antwerp and London.

However, the $52-million payment was never made; and, seven days later, London police, alerted to the kidnaping, ended the hostage drama by bursting into a flat where three of the men were being held.

But, in other cases, Iran has lost large sums. Within days of the London kidnaping, for example--in an unrelated episode--Iran paid $45.9 million to con men in Zurich who failed to deliver a shipment of U.S.-made M-48 combat tanks. And, earlier in the same year, Iran lost $56 million in Paris when payment was made prematurely on a shipment of bogus arms, based on an erroneous report from Iran’s embassy in Spain that the weapons had been loaded aboard ship.

In economic self-defense, the fundamentalist Khomeini regime was ultimately forced to employ a range of modern business practices--improving advance inspections of goods, withholding payments until shipments arrive in Tehran and insisting that some suppliers obtain performance bonds.

Diplomatic Seal Used

With some items, Iran has taken matters into its own hands, using its embassy here to transship via diplomatic pouch some U.S. equipment that is legally exportable to London--but not to Tehran--according to a London arms trader who still deals with Iran. He told The Times that he sold Iran security supplies, which he asked not to be identified because it would jeopardize his business relations with Iran. The supplies were carried out of England under diplomatic seal by the Iranians, he said.

Like other British businessmen, the London dealer defended his right to trade with whomever he can. “I’m a British businessman, not an American,” he said.

British authorities bristle at attempts by the United States to exert legal jurisdiction over business affairs in England. Britain objects, for example, to subpoenas by U.S. courts compelling disclosures by England-based subsidiaries of American companies involved in antitrust litigation. It objects, on principle, to U.S. taxation of American citizens living in Britain. And it objects to American “foreign policy laws” that affect British business.

For example, a British-manufactured computer that uses even a single regulated high-tech component licensed in the United States may not be exported from Britain without a U.S.-approved re-export license covering that single American-made component.

“It’s an infringement on (British) sovereignty,” a British government spokesman asserted.

Conflict over Iran embargo violations involving Britons accused in the United States of illegal exports to Iran is only the most recent point of contention in the arena of “extraterritorial jurisdiction.”

The simmering controversy is “the most sensitive area or subject in bilateral relations” between the United States and Britain, a Western diplomatic source said.

A British lawyer, whose clients include English businessmen linked to U.S. smuggling cases, put it somewhat less diplomatically, when he accused U.S. authorities of “attempting to prosecute British citizens for acts which are proper and legal in Britain.”

No Curbs on Spare Parts

The British do restrict sales of offensive military equipment to both Iran and Iraq. However, they do not--unlike the United States--prohibit the sale or export of spare parts needed to keep previously purchased military equipment operating.

Some of the parts allegedly shipped to Iran by Fowler, for example, were diesel engine valves, seals and ring clips used on naval vessels. Such equipment originating in England would not fall under export restrictions. However, the U.S. State Department asserts that these parts are “specifically designed” for military diesel engines and therefore are embargoed from sale to Iran.

Many British arms brokers feel victimized by American export policies. In interviews, many expressed concern that they may inadvertently violate U.S. laws or be lured unfairly into an attractive business deal by undercover U.S. Customs agents posing as parts suppliers. (England does not permit its police to conduct undercover investigations.)

One London broker noted that the October, 1984, indictment of Chicagoans Fowler and George Veto, which named three prominent London traders also, sent shock waves through the London business community.

“I tell you there were thousands of businessmen in this city who went to bed that night worried that they might be next,” said David R. Sofaer of Lyon & Brandfield Ltd., one of those named in the Chicago indictment. He denied knowingly violating any U.S. regulations but refused to discuss specific aspects of the case while it is pending.

He added, however: “I don’t want to harm the interests of the United States. I have nothing against the United States. But it appears Americans feel that whatever happens anywhere in the world is under their jurisdiction.”

Another broker complained that undercover U.S. sting operations “amount to entrapment--they dangle carrots that no businessman would turn down.”

One British broker caught in a San Diego sting was Thomas Hanley, who, unlike most other British businessmen who act as brokers without ever leaving their London offices, visited California to help set up a shipment of radar components to Iran via England. He was arrested by undercover Customs agents and spent a brief period in jail after pleading guilty to export violations.

“I feel awful about it,” Hanley told The Times. “I looked at it as a straightforward commercial deal. It was a terrible mistake.”

At the Iranian Embassy in London, political officer H. Maranaki asserted that the U.S. embargo has failed, and he discounted Western intelligence reports that few Iranian jet fighters are fit to fly.

“We don’t count our aircraft. We don’t count our tanks. We have the power of Islam, which is more powerful than aircraft,” Maranaki said.