A recently unsealed indictment provides detail on Iran’s use of deceptive practices to procure export controlled items with military applications from the United States and elsewhere. The indictment details an elaborate, multi-year conspiracy directed by an Iranian-born Canadian to procure such items for an Iranian firm, with help from co-conspirators in China, Portugal, and Turkey.
Using a network of agents and front companies, the conspirators were able to falsify shipping documents and mislead U.S. manufacturers by claiming that the procured items were intended for end users in Portugal and Turkey. Furthermore, this network enabled the Iranian end users to pay for the items and finance the scheme using Chinese front companies. By transshipping goods through China and Turkey, and exploiting the ability of Portuguese firms to more easily acquire licensed U.S. technology, the conspirators were able to procure and in some cases successfully send to Iran a variety of items controlled for export by the United States.
This case highlights the extent to which Iran relies on a global network of front companies and procurement agents to acquire U.S.-origin goods, the procurement methods used to mask Iran as the intended destination, and the need for heightened vigilance by U.S. companies and by governments vulnerable to being exploited by these illicit networks.
The Players
The conspiracy, which took place from about December 2011 through March 2017, was orchestrated by three key individuals: Iranian-born Canadian-national Ghobad Ghasempour, Chinese national Yi Xiong, and Iranian national Reza Rejali. The scheme’s origins can be traced as far back as December 2011, when Ghasempour established a company in China (NHD) and proposed that it be used to handle trade between Iran and China. Ghasempour reasoned that NHD could use money owed to Iran for oil purchases as a means of payment.
In the following years, Ghasempour and Xiong established several front companies, including International Business Center (IBC Trade), Modo International (Modo), and Todi Enterprises (Todi). These China-based companies were primarily used to procure goods for the benefit of Rejali and his employer, Isfahan-based Kiyan Saynpaniz International (KSP). KSP is alleged to be a government-controlled engineering company that purchases items for Iranian government agencies.
The front companies enabled Ghasempour to purchase and transship sensitive items to KSP while disguising the true end user, as well as to move money from Iran to China in order to finance the scheme. Xiong managed the day-to-day operations of the Chinese front companies, including establishing bank accounts to handle Iranian funds and handling the transshipment of goods from the United States, Europe, and China to Iran. Rejali used Ghasempour, Xiong, and their front companies to procure goods for Iranian end users and to launder money for KSP. Rejali often used Xiong’s name in e-mails to hide from KSP that he was profiting off of the transactions.
Also involved in the conspiracy were Goktan Gokdag and his Turkey-based company Gokdag Foreign Trade and Consultancy; Portuguese-national Paulo Vincente and his company Firstfield Engineering; and Portuguese engineer Joao Manuel Pereira Da Fonseca. The Portuguese node in this supply network played an integral role by purchasing high-end controlled equipment from U.S. and German manufacturers on behalf of Rejali and KSP; obscuring the ultimate end user; and facilitating Fonseca’s travels to the U.S., where he received training to assist Iran in the installation and operation of some of the procured items.
The Schemes
High-End Machines and Training
Sometime in 2014, Firstfield, at the behest of Rejali, agreed to procure multiple high-end machines from the United States and Germany, some of which required on-site training from the manufacturer. These included two German-origin Optotech machines, one German-origin Taylor Hobson Luphoscan machine, and one U.S.-origin Nanotech 250 UPL (ultra-precision lathe) machine. The functions of these machines are complementary: Optotech machines are used for grinding and polishing lenses manufactured by the lathe, with the Luphoscan machine used for testing the lenses.
Firstfield planned to disassemble and transfer the machines to Iran after installation by the manufacturer in Portugal. KSP rented a warehouse for Firstfield in Portugal in order to demonstrate a legitimate end-use location for the machines. The plan was for Firstfield to breakdown the machines and to ship them through Turkey or China to KSP in Iran, where Fonseca would install and calibrate the machines, and then train Iranian end users.
In the first half of 2014, Rejali, Vincente, and Gokdag procured and shipped to KSP two Optotech machines. In June 2014, Gokdag helped facilitate Fonseca’s travel to Iran to install these machines and provide training in their use. Fonseca flew to Turkey to meet Gokdag, who accompanied the Portuguese engineer to meet Rejali in Isfahan.
Also as part of the scheme, Fonseca arranged to receive training from Taylor Hobson engineers on a German-origin Luphoscan machine procured by Firstfield for KSP sometime in 2014. The company’s engineers traveled from Germany to the KSP-funded warehouse in Portugal to train Fonseca. The training was secretly recorded and in February 2015 Fonseca uploaded the videos and photographs to the cloud for the benefit of Iranian engineers.
In 2015, Firstfield attempted to purchase, but ultimately failed to ship to Iran, a U.S.-origin Nanotech 250 UPL (Ultra Precision Lathe) – an item controlled by the United States for export to Iran on national security, nuclear non-proliferation, and anti-terrorism grounds. Firstfield certified to the U.S. company that the lathe would be installed at warehouse in Portugal and would not be sold, transferred, or exported, except to the United States or to another specific country, not including Iran. Fonseca traveled to the United States in October 2015 for training on the system.
In December 2015, Homeland Security Investigations (HSI), the investigative arm of the U.S. Department of Homeland Security, contacted the U.S. company about the UPL sale. The company informed HSI that Firstfield had paid $411,300 in total for the machine, training, and installation at Firstfield’s warehouse in Portugal. This contrasts with the approximately $788,000 KSP paid for the machine – indicating a hefty mark up by agents in the procurement network and by Rejali himself. The lathe was seized by HSI in February 2016 at New York’s JFK International Airport and never made it to Portugal.
Inertial Guidance System Test Table
In June 2014, Rejali contacted Ghasempour and Xiong to begin the process of procuring an inertial guidance test table from a North Dakota-based manufacturer. This machine is controlled for export by the United States because it can be used for military-grade navigation devices and missiles.
Nearly a year later, Rejali – pretending to be Xiong – used an IBC Trade company e-mail address to contact Firstfield’s Vincente and request a bid on the system, specifically a 2002PG two-axis positioning and rate table system with an AERO 4000 motion controller. Firstfield quoted the price as 315,000 euro; Rejali told KSP that Todi could sell the system for over 550,000 euros, again planning to pocket the difference. In June 2015, Rejali transferred nearly 300,000 euros from Iran to China in order to finance the purchase.
Using Modo, Ghasempour and Xiong transferred to Firstfield the 30 percent down payment required to start manufacturing the test table, with the intention of using the Portuguese company to forward the payment to the U.S. company. Firstfield was in the best position to secure an export license from the U.S. Department of Commerce, which it did in October 2015.
HSI contacted the U.S. manufacturer in January 2016 to investigate this purchase. Two months later, Fonseca traveled to the United States for a week-long training on the system. He was scheduled to leave the United States on April 3, 2016, but was detained by HSI at the airport for violating the Visa Waiver Program and lying to the U.S. government. The test table was never exported from the United States.
Thin Film Measurement System
Between September 2013 and April 2015, the co-conspirators attempted twice – failing the first time and succeeding the second – to procure and export to Iran a thin film measurement system. The system, which can be used to take microscopic measurements of liquid coatings and parts in missiles, is controlled by the United States for export to Iran on anti-terrorism grounds.
In September 2013, Rejali requested that Ghasempour and Xiong submit Modo’s best offer for the purchase of the system from a California-based manufacturer on behalf of KSP. Xiong sent his two co-conspirators an invoice a month later pricing the system at $93,000 and requiring a 50 percent down payment. Rejali transferred over $115,000 from Iran to Modo’s account in China in February 2014 to cover the required down payment. Two months later, Rejali contacted his two co-conspirators and an Iranian freight forwarding company to arrange for the system’s transshipment from the United States to its ultimate destination in Iran.
The system departed the United States in May 2014, but was intercepted by Dutch law enforcement officials during the shipping process the following month. Concerned that Modo’s role in procuring U.S.-origin controlled items had been detected, Ghasempour suggested to Xiong that they establish a new company. Indeed, Homeland Security in San Diego had been notified about the intercepted system and opened an investigation into Modo’s export activities. Xiong established two additional front companies – Todi and IBC Trade – in the ensuing months.
In November 2014, Rejali contacted his co-conspirators suggesting a second attempt to procure a thin film measurement system – this time from Canada. Ghasempour argued that this was too risky, instead suggesting that they use Turkey-based Gokdag Foreign Trade and Consultancy to procure the system. Xiong wired about 25,000 euros to Gokdag in December 2014 to purchase the measurement system for Rejali and KSP. Gokdag successfully exported the system to Iran around April 2015. However, the model delivered to Iran was different than the one KSP and Rejali had requested.
TAU 2 640 Cameras
Between January 2015 and February 2016, Rejali, Ghasempour, and Xiong on three occasions illicitly exported a total of 110 U.S.-origin TAU 2 640 thermal imaging cameras to Iran, via China. TAU 2 640 9Hz cameras are controlled by the United States for export to Iran for anti-terrorism purposes; TAU 2 640 30Hz cameras are controlled for national security, regional stability, and anti-terrorism reasons. Both cameras can be used in commercial security systems and military drones.
On the first occasion, in January 2015, the three co-conspirators used Todi to procure for KSP and transship to Iran ten cameras from an Oregon-based company. Todi’s pro forma invoice quoted a price of 349,320 yuan (about $50,448) for the ten cameras. An air waybill indicated the cameras were successfully shipped to Iran in February 2015.
In July 2015, Vicente contacted Rejali and said that Firstfield could sell IBC Trade one camera for 8,047 euros. Rejali, in turn, offered the camera to KSP for double that price, and transmitted the communication to KSP on Todi letterhead. On August 19, 2015, Firstfield shipped the camera from Portugal to IBC Trade in China; Xiong shipped the camera to Iran less than a week later.
Having successfully procured and transshipped the cameras twice, the three co-conspirators devised a scheme to export additional cameras in a plan intended to yield them about $20,000 each. Operations for a third round of camera purchases began in October 2015, when Firstfield contacted Xiong and offered to sell 1,000 TAU 2 640 cameras for the price of 3.7 million euros using a Chinese front company. Rejali proposed selling 500 cameras to KSP in five increments of 100 cameras per shipment, totaling about 2.4 million euros. In February 2016, Firstfield exported 99 cameras to a Chinese front company that then transshipped them to Iran.
Case Status
Ghasempour was arrested in Blaine, Washington on March 28, 2017 when crossing into the United States from Canada. He pleaded guilty on May 4, 2018 to one count of conspiracy to unlawfully export U.S. goods and technology to Iran and to defraud the United States, in violation of the International Emergency Economic Powers Act (IEEPA) and Iranian Transactions and Sanctions Regulations (ITSR). On August 20, 2018, he was sentenced to 42 months in prison.
Fonseca was detained on April 3, 2016 upon attempting to leave the United States. He pleaded guilty on July 17, 2017 to one count of conspiracy to unlawfully export U.S. goods and technology to Iran and to defraud the United States. He was sentenced on September 14, 2017 to 20 months in prison and one year of supervised release.
References:
Indictment, United States of America v. Ghobad Ghasempour, Case No. 17-cr-00081, U.S. District Court, District of Columbia, April 26, 2017, available at https://www.iranwatch.org/library/governments/united-states/executive-branch/department-justice/indictment-united-states-america-v-ghobad-ghasempour, accessed October 11, 2018.
Indictment, United States of America v. Joao Manuel Pereira Da Fonseca, Case No. 16-cr-00089, U.S. District Court, District of Columbia, May 25, 2016, available at https://www.iranwatch.org/library/governments/united-states/executive-branch/department-justice/indictment-united-states-america-v-joao-manuel-pereira-da-fonseca , accessed October 11, 2018.
Affidavit in Support of Criminal Complaint, United States of America v. Ghobad Ghasempour, Case No. 17-cr-00081, U.S. District Court, District of Columbia, March 28, 2017, available at https://www.iranwatch.org/library/governments/united-states/executive-branch/department-justice/affidavit-support-criminal-complaint-united-states-america-v-ghobad-ghasempour, accessed October 11, 2018.
Affidavit in Support of Criminal Complaint, United States of America v. Joao Manuel Pereira Da Fonseca, Case No. 16-cr-00089, U.S. District Court, District of Columbia, April 3, 2016, available at https://www.iranwatch.org/library/governments/united-states/executive-branch/department-justice/affidavit-support-criminal-complaint-united-states-america-v-joao-manuel-pereira, accessed October 11, 2018.
Plea Agreement, United States of America v. Ghobad Ghasempour, Case No. 18-cr-00080, U.S. District Court, Western District of Washington, April 19, 2018, available at https://www.iranwatch.org/library/governments/united-states/executive-branch/department-justice/plea-agreement-united-states-america-v-ghobad-ghasempour, accessed October 11, 2018.
Statement of Offense, United States of America v. Joao Pereira da Fonseca, Case No. 16-cr-00089, U.S. District Court, District of Columbia, July 17, 2017, available at https://www.iranwatch.org/library/governments/united-states/executive-branch/department-justice/statement-offense-united-states-america-v-joao-pereira-da-fonseca, accessed October 11, 2018.
Defendant’s Motion for Bill of Particulars, United States of America v. Joao Pereira da Fonseca, Case No. 16-cr-00089, U.S. District Court, District of Columbia, March 24, 2017, available at https://www.iranwatch.org/library/governments/united-states/executive-branch/department-justice/defendants-motion-bill-particulars-united-states-america-v-joao-pereira-da, accessed October 11, 2018.
Government’s Motion and Notice of Intention to Introduce Co-Conspirator Statements at Trial, United States of America v. Joao Manuel Pereira Da Fonseca, Case No. 16-cr-00089, U.S. District Court, District of Columbia, March 24, 2017, p. 2, available at https://www.iranwatch.org/library/governments/united-states/executive-branch/department-justice/governments-motion-notice-intention-introduce-co-conspirator-statements-trial, accessed October 11, 2018.