OFAC Sanctions International Network Supporting Iranian Arms Proliferation

The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) has sanctioned a network of individuals and entities across Iran, the People’s Republic of China (PRC), and Hong Kong for facilitating the procurement of critical materials in support of Iran’s ballistic missile development program.

The sanctions build on related designations from March 2022 and follow ongoing sanctions from March 2023. The latter designation was against another procurement network in Iran and Turkey that facilitated the sourcing of materials needed to develop missile propellants for organizations also involved in the Iranian ballistic missile development program.

These sanctions illustrate how covert networks can support illicit weapons developments across territorial and regional boundaries. According to Brian E. Nelson, Under Secretary of the Treasury for Terrorism and Financial Intelligence, “the United States will continue to target illicit transnational procurement networks that covertly support Iran’s ballistic missile production and other military programs.”

What the Sanctions Cover 

Six entities and seven individuals have been sanctioned for enabling the procurement of specialized technological equipment and dual-use metals for key Iranian organizations. The sanctions include Iraq’s defense attaché in Bejing, who coordinated procurement activities. 

Centrifuge Procurement

PRC-based firm Zhejiang Qingji, its employees Li Zeming and Shen Weisheng, and front company Lingoe Process Engineering Limited enabled the procurement of centrifuges and related resources worth hundreds of thousands of dollars and intentionally obscured the Iranian end-user, Parchin Chemicals Industries (PCI). PCI is affiliated with Iran’s Ministry of Defense and Armed Forces Logistics (MODAFL) and uses sanctioned intermediary P.B. Sadr in its operations. Iranian transportation firm Blue Calm Marine Services Company, also sanctioned, facilitated the shipments for P.B. Sadr.

Dual-Use Metals Procurement

Hong Kong Ke.Do International Trade Co., Limited, PRC-based Qingdao Zhongrongtong Trade Development Co., Ltd., and PRC-based employees Wei Zunyi, Qin Xutong, and Gong Jiao facilitated the sale of dual-use metals worth tens of millions of dollars to P.B. Sadr. Gong and Wei also facilitated the procurement of other crucial equipment, such as tugboats for MODAFL’s Marine Industries Organization (MIO).

Electronics Procurement

PRC-based Beijing Shiny Nights Technology Development Co., Ltd (Beijing SNTD) is a front company facilitating electronics acquisition for MODAFL. It has cooperated with Wei’s companies to procure modules with radar applications. The firm’s modules are acquired with the help of key shareholder and director Ghasem Haghighat, an Iranian national based in the PRC. The front company has also enabled the procurement of equipment for MODAFL’s Iran Electronics Industries (IEI), which was sanctioned in 2008. It has acquired gyroscopes and accelerometers whose likely end-users are involved in Iranian defense. 

Also sanctioned for coordinating related activities between PRC and Iran is the Iranian Defense Attaché in Beijing, Davoud Damghani.

Export Controls Evasion: Red Flags

Last week, the US government issued industry guidance on Iranian unmanned aerial vehicles (UAVs). A list of red-flag indicators of export control evasion was among the key information provided. These include:

• Use of corporate vehicles (i.e., legal entities, such as shell companies and legal arrangements) to obscure (i) ownership, (ii) source of funds, or (iii) countries/entities involved, particularly sanctioned jurisdictions or restricted entities;
• Reluctance to share information about the end use of a product, including reluctance to complete an end-user form;
• Payment coming from a third-party country or business not listed on the End-User Statement or another applicable end-user form;
• Use of shell companies to conduct international wire transfers, often involving financial institutions in jurisdictions distinct from company registration;
• Changes to standard business documents that obscure the ultimate customer;
• Routing purchases through certain transshipment points commonly used to illegally redirect restricted items to embargoed destinations.

Source: U.S. Department of State

The complete list can be found in the guidance document but should not be considered exhaustive.

Implications

In an ever-evolving sanctions landscape rife with evasion tactics, firms must understand how to detect evasion attempts before they appear on regulatory sanctions list updates. This is because, even if an individual or entity is not yet on a sanctioned list, the individuals, entities, or activities it ultimately supports may still be sanctioned or otherwise illicit. 

Although covert illicit transactions are often well-disguised, they frequently involve trade in dual-use goods whose end users are unclear. Dual-use goods could have civilian or military applications, such as specialized containers whose specifications fit both commercial and chemical weapons uses. For this reason, when their end user is a sanctioned entity, dual-use goods are subject to bans. Compliance teams must therefore ensure they have a firm grasp of the nature and risks of these kinds of goods and what they entail. 

To effectively detect covert transactions enabling illicit trade with sanctioned entities, firms should establish a clear understanding of:

• The parties involved – Who are they? Where are they located? Who are the ultimate beneficial owners (UBOs), if applicable? What are the sources of wealth or of funds?
• The goods in question – What is their purpose and legal standing? Are they dual-use goods? Is this a normal use case for trade in such goods?
• The end users – Who are they, where are they located, and what are any UBOs or significant associates? Are they hiding behind shell companies? Are they sanctioned or involved in any sanctioned activities? Do they make sense as an end user for the products in question?

Although this is not an exhaustive list of questions, a sound grasp of these three categories can help firms establish a clear idea of the nature of transactions being screened and avoid unintentionally facilitating sanctioned activity.