Wisconsin Project on Nuclear Arms Control

DPRK Advisory: Seller Beware!

October 1, 2020September 22, 2021 By Treston Chandler

WorldECR
October 2020

On 1 September 2020, the US departments of Commerce, State, and the Treasury published an advisory on North Korea’s illicit ballistic missile procurement activities, aimed at helping industry prevent such procurement.[1] The advisory includes a list of items sought by North Korea for use in ballistic missiles that fall below export control thresholds – one of the first such lists publicly released by the US government in relation to North Korean procurement. This information will help countries improve the implementation of catch-all controls, as required by UN Security Council resolution 2270, and support enhanced due diligence by private sector actors that manufacture and trade these items, including the electronics, chemical, metals, and materials industries.

The advisory also provides information about North Korea’s procurement and sanctions evasion techniques, lists key entities involved in acquiring items for the country’s ballistic missile programme, and offers guidance on how the private sector can avoid being exploited by North Korea through the development of compliance programmes.

Procurement techniques

Despite North Korea’s increasingly robust indigenous missile development, the country continues to rely on foreign-sourced components that it is not able to produce domestically. To acquire these components, North Korea uses various illicit techniques to evade sanctions and deceive suppliers. The advisory highlights a number of these tactics.

First, North Korea employs extensive overseas networks of procurement agents. These agents often operate under the guise of North Korean diplomatic missions and trade offices to avoid detection. Kim Su Il, an official of North Korea’s Munitions Industry Department (‘MID’), which oversees the country’s ballistic missile programme, was sanctioned by the United States in 2019 for conducting business on behalf of MID in Vietnam. He is also reportedly connected to a North Korean trading company that has attempted to transfer ballistic missile technology to Libya. In an earlier example, two diplomats based out of North Korea’s trade office in Belarus were arrested in Ukraine in 2011 for attempting to gain access to ballistic missile design information.

Other key entities linked to North Korea’s ballistic missile programme that deploy overseas representatives include Korea Ryonbong General Corporation, which has maintained representatives in China and Russia, and Korea Mining Development Trading Corporation (‘KOMID’), North Korea’s primary arms dealer and exporter of ballistic missile-related equipment. According to a March report by a UN Panel of Experts, KOMID currently has two representatives based in Iran, Ha Won Mo and Kim Hak Chol.[2]

Second, North Korea collaborates with foreign-incorporated companies and third-country nationals to acquire commercial components used in ballistic missiles. These foreign companies purchase items directly from manufacturers and distributors and repackage them for shipment to North Korea, obfuscating the ultimate end-user. These entities also mislabel sensitive goods in export documentation, falsely declaring specialised goods as general-purpose items.

The advisory cites the example of debris recovered from an Unha-3 rocket launch in 2012, which showed that North Korea had acquired foreign-produced components that were used in the rocket, including pressure transmitters manufactured in the United Kingdom. North Korea acquired these pressure transmitters in 2006 and 2010 from a Taiwan-based company, Royal Team Corporation (‘RTC’), which purchased them from the United Kingdom-based manufacturer. RTC continued to acquire pressure transmitters from the manufacturer even after two of its employees were convicted in Taiwan in 2008 of exporting strategic articles to North Korea via Macau and Beijing. RTC employed a complex payment system in the transactions to avoid direct transfers to North Korea.[3]

Third, North Korea uses state-controlled, foreign-incorporated front companies to facilitate logistics and transactions for procurements. Mingzheng International Trading Limited, a front company for North Korea’s Foreign Trade Bank, is named in the advisory and has been involved in transactions related to illicit commodity procurement and proliferation finance.

Entities involved in illicit procurement

In addition to MID, Korea Ryonbong General Corporation, and KOMID, the advisory highlights other key entities involved in North Korea’s missile programme and related procurements, including the Second Academy of Natural Sciences (‘SANS’), Second Economic Committee (‘SEC’), and Korea Tangun Trading Corporation. SANS and SEC oversee the research, development, and production of North Korea’s weapons systems and ballistic missiles. Korea Tangun Trading Corporation is subordinate to SANS and has been involved in procurement for North Korea’s defence programmes.

The advisory also mentions a number of entities sanctioned by the United States that support North Korea’s weapons procurement. While some of these entities have been involved in missile-related procurement, others have been involved in military-related transfers and proliferation finance. North Korea employs similar tactics across its missile, military, and commodity procurement and proliferation finance networks. Therefore, it is vital for industry to establish compliance programmes tailored to disrupting all North Korean networks. Any of these networks could ultimately be used to facilitate the procurement of missile-related items.

Items used in North Korea’s ballistic missile programme

Perhaps the most notable part of the advisory is the annex listing specific items sought by North Korea for its ballistic missile programme, many of which fall under export control thresholds. The annex serves as an additional resource to support the implementation of ‘catch-all’ controls by listing ‘uncontrolled, and seemingly innocuous, items that may be used in North Korea’s ballistic missile programmes.’ The highlighted items include:

Multiple-axle heavy vehicles, which may be used as transporter erector launchers (‘TELs’) for ballistic missiles;
Heat-resistant steels and aluminums alloys, including specialty metals containing titanium;
Filament winders and other winding equipment;
Fibrous materials, including carbon fibre, and related production equipment;
Precursor chemicals for propellant;
Bearings of certain technical specifications for use in missiles;
Other equipment, including electronics and guidance, navigation, and control-related technology.

North Korean imports of these items in the past have been used in ballistic missile development. For example, in 2011 North Korea imported six lumber transporter vehicles from China-based Wuhan Sanjiang Import and Export Co. Ltd. that it converted to TELs.[4] According to press reports, last year North Korea also increased the production of TELs, including those converted from heavy vehicles imported from China, aiming to acquire parts for 70 TELs through trading companies subordinate to MID.[5]

Because many of these goods fall below export control thresholds, the advisory calls on countries to implement ‘catch-all’ controls that require a national authorisation for the export of unlisted items if there is any risk of weapons of mass destruction-related end-use, as required in resolution 2270. Companies should also apply enhanced due diligence measures when supplying these goods to buyers that may forward them to North Korea.

The annex provides detailed technical specifications for the items listed, including common names for particular steel and aluminum alloys, along with their formulations, closest GOST, Chinese, and European standards, the US designation, and alternate metal options.

Recommendations for the private sector

The advisory reiterates well-known compliance recommendations for industry aimed at countering North Korean illicit procurement and reminds companies of their exposure to US sanctions and the civil and criminal penalties that could result from a violation. While the advisory focuses on North Korea’s ballistic missile-related procurement, the compliance programme recommendations it makes are applicable to combatting North Korean illicit procurement in general.

According to the advisory, exposed sectors include the electronics, chemical, metals, and materials industries, along with the financial, transportation, and logistics sectors. Companies operating in these sectors should establish a risk-based approach to sanctions compliance, including the development of a tailored sanctions compliance programme. The advisory highlights a number of additional US government resources related to establishing compliance programmes, including resources provided by the Commerce and Treasury Departments, as well as a May 2020 maritime advisory that discusses best practices for industry to adopt to mitigate exposure to sanctions risk.

Conclusion

The advisory offers industry a useful overview of North Korean procurement techniques and key entities involved in the country’s ballistic missile programme, as well as a helpful compilation of resources companies can use when establishing compliance programmes. However, the most valuable aspect of the advisory is the annex listing a number of items with missile-related applications that are below control thresholds. While the focus of the list is North Korea, the list may also be useful in implementing ‘catch-all’ controls on other countries developing ballistic missile technology in contravention of UN resolutions, such as Iran. The availability of such a list will allow companies in industries that supply and manufacture these items to better screen their buyers and evaluate the potential of diversion to North Korea and other countries.

Treston Chandler is a research associate at the Wisconsin Project on Nuclear Arms Control and assistant editor of The Risk Report database.

Links and Notes:

[1] North Korea Ballistic Missile Procurement Advisory, US Departments of Commerce, State, and the Treasury, 1 September 2020, https://home.treasury.gov/system/files/126/20200901_nk_ballistic_missile_advisory.pdf.

[2] ‘Report of the Panel of Experts established pursuant to resolution 1874 (2009),’ United Nations, 2 March 2020, pp. 48, 151, https://undocs.org/S/2020/151.

[3] ‘Report of the Panel of Experts established pursuant to resolution 1874 (2009),’ United Nations, 6 March 2014, pp. 22-24, https://undocs.org/S/2014/147; ‘Report of the Panel of Experts established pursuant to resolution 1874 (2009),’ United Nations, 23 February 2015, p. 27, https://undocs.org/S/2015/131; ‘Report of the Panel of Experts established pursuant to resolution 1874 (2009),’ United Nations, 24 February 2016, pp. 62-64, https://undocs.org/S/2016/157.

[4] ‘Report of the Panel of Experts established pursuant to resolution 1874 (2009),’ United Nations, 11 June 2013, pp. 26-27, 80, 84, https://undocs.org/S/2013/337; ‘Treasury Designates the IRGC under Terrorism Authority and Targets IRGC and Military Supporters under Counter-Proliferation Authority,’ Press Release, US Department of the Treasury, 13 October 2017, www.treasury.gov/press-center/press-releases/Pages/sm0177.aspx.

[5] Tomotaro Inoue, ‘North Korea mass producing ballistic missile transporters: sources,’ Kyodo News, 23 December 2019, https://english.kyodonews.net/news/2019/12/9966769374c0-n-korea-mass-producing-ballistic-missile-transporters-sources.html.

Major Turkish Bank Prosecuted in Unprecedented Iran Sanctions Evasion Case

March 31, 2020March 21, 2025 By John P. Caves III and Meghan Peri Crimmins

Executive Summary

The indictment of Turkish state-owned Halkbank, unsealed late last year, is the first against a major bank for sanctions violations brought by the United States. The case sheds light on how, from 2012 to 2016, in the midst of negotiations on its nuclear program, Iran relied on this bank to launder money in order to relieve the economic pressure of international sanctions. The four-year legal saga began in 2016 with the arrest and prosecution of Reza Zarrab, an Iranian-Turkish businessman. Zarrab masterminded a scheme to launder billions of dollars of Iranian oil proceeds through Halkbank under the guise of gold and food trade. Evidence presented during the 2018 trial and conviction of Zarrab’s co-conspirator Mehmet Hakan Atilla, a Turkish national and former deputy general manager of Halkbank, implicated Turkish President Recep Erdogan. The ongoing case against the bank has been a point of contention in already-fraught U.S.-Turkey relations. Due to a series of appeals and postponements, the case remains in legal limbo. However, in as the United States ramps up its pressure campaign against Iran, and Iran ramps up its nuclear program, the case provides lessons learned for how to prevent Iran from exploiting the international financial system to evade sanctions in support of proliferation.

Introduction

On October 15, 2019, U.S. prosecutors unsealed an unprecedented six-count indictment against Halkbank, a major Turkish state-owned financial institution, charging the bank with fraud, money laundering, and conspiracy to violate the International Emergency Economic Powers Act (IEEPA). The U.S. Department of Justice decision to prosecute Halkbank is an unusual step. U.S. prosecutors usually seek to settle out of court with banks accused of sanctions violations, through deferred prosecution agreements.

The indictment came at a tense time in U.S.-Turkey relations. A week earlier, Turkish troops had entered northeastern Syria to attack the Kurdish-led Syrian Democratic Forces, a key U.S. ally in the campaign against the Islamic State. The incursion prompted a political backlash in the U.S. Congress. The House of Representatives overwhelmingly passed the Protect Against Conflict by Turkey Act (H.R. 4695), which called for sanctions against entities affiliated with the Turkish government, including Halkbank specifically.[1] Similar bipartisan bills were introduced in the Senate, but were set aside when the administration negotiated a ceasefire agreement.[2]

The case has been dogged by allegations of political interference. Turkey reportedly lobbied the Trump administration to withdraw the charges against Halkbank and Reza Zarrab, an Iranian Turkish businessman who was the architect of the scheme.[3] Testimony from Zarrab during the trial of co-defendant Mehmet Atilla, the former deputy general manager of Halkbank, directly implicated Turkish President Recep Tayyip Erdogan and several other senior Turkish government officials.[4] Nonetheless, the facts of the case illustrate how Iran successfully evaded U.S. and international sanctions that were meant to constrain its proliferation of weapons of mass destruction.

The operation’s purpose was to allow the Iranian government a means of accessing its oil and gas revenue held overseas. As part of the scheme, Zarrab funneled money from Halkbank accounts held by Iranian entities to accounts of his front companies in Turkey and the United Arab Emirates (UAE). Then, after laundering the money through illicit gold exports and later falsified food trade, Zarrab ultimately used those funds to make international payments on behalf of Iranian entities that support Iran’s proliferation programs. According to the Department of Justice, the scheme “fueled a dark pool of Iranian government-controlled funds that could be clandestinely sent anywhere in the world.”[5]

The Setup

The money operation was masterminded by Zarrab, who owned a network of exchange houses and front companies in Turkey and the UAE.[6] See the appendix for a list of the entities in Zarrab’s network, including a description of their role in the scheme. In 2011, prior to engaging Halkbank, Zarrab initiated a series of wire transfers on behalf of the MAPNA Group, a construction and power company with ties to Iran’s nuclear and missile proliferation programs,[7] as well as on behalf of a money services subsidiary of Bank Mellat,[8] which has provided banking services in support of Iran’s proliferation programs.[9] Despite some initial success, several attempted financial transfers to companies in China and Hong Kong via intermediary U.S. financial institutions were blocked in the spring of 2011, pursuant to sanctions issued by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) targeting Iran’s financial sector.[10]

Looking for a larger – and more lucrative – role, Zarrab signed a letter to Iranian President Mahmoud Ahmadinejad in December 2011 expressing his family’s “readiness for any collaboration in moving currency as well as adjusting the rate of exchange under the direct supervision of the honorable economic agents of the [Iranian] government.”[11] He soon found a vehicle for the grand sanctions evasion scheme he envisioned: Halkbank.

The Gold Scheme

In early 2012, a representative from Sarmayeh Exchange, a money services subsidiary of Bank Sarmayeh, a private bank in Iran, informed Zarrab that the Central Bank of Iran (CBI) and the National Iranian Oil Company (NIOC) held billions of dollars in accounts at Halkbank. The funds consisted of the proceeds from Iranian oil and gas sales to Turkey.[12] Pursuant to sanctions imposed by the U.S. National Defense Authorization Act (NDAA) of 2012, money from these oil escrow accounts could not be transferred back to Iran or used for international financial transfers on behalf of the government of Iran or Iranian banks.[13] In July 2012, Executive Order 13622 further restricted petroleum-related transactions with CBI and NIOC specifically.[14] At the time, however, funds from the accounts could legitimately be used to pay for Turkish exports to private Iranian companies – an exception known as the bilateral trade rule.[15]

In March 2012, Zarrab approached Halkbank general manager Suleyman Aslan with a scheme to channel funds to the Iranian government by exploiting the bilateral trade rule. Finding Aslan at first reluctant to participate, Zarrab secured the support of Turkish Minister of Economic Affairs Mehmet Zafer Çağlayan with over $70 million in bribes.[16] Zarrab later bribed Aslan with $8.5 million.[17] Several other Halkbank officials were also involved in the scheme, including Atilla who headed the department responsible for processing international banking transactions, and his deputy Levent Balkan.[18] Zarrab, Aslan, and Atilla held numerous meetings with officials from high-profile Iranian institutions – primarily CBI, NIOC, and Naftiran Intertrade Company (NICO) – to coordinate the conspiracy.

The initial operation involved the laundering of Iranian oil and gas revenue through a gold export network. First, CBI and NIOC would transfer the oil revenue held in their Halkbank accounts (denominated in Turkish lira, so as to avoid the international financial system) to the Halkbank accounts of private Iranian banks, such as Bank Sarmayeh.[19] Those Iranian intermediaries then transferred the money to Halkbank accounts controlled by Zarrab’s network of front companies, thereby concealing the Iranian connection from outside financial institutions.[20]

Zarrab’s front companies used the funds to buy gold on the Turkish market. To further cover his tracks, Zarrab then falsified records to indicate that the gold was subsequently exported to private companies in Iran, as permitted by the bilateral trade rule.[21] In this way, even if the internal Halkbank transfers could be traced back to the Iranian oil accounts, the transaction would still appear to be in compliance with U.S. sanctions (this falsified documentation later underwent several changes as U.S. sanctions evolved).[22]

In reality, Zarrab’s companies exported the gold to Dubai, where they then sold it on the market for cash. This step was critical to Zarrab’s scheme and served two purposes. First, it allowed him to acquire currencies used for international payments, such as the U.S. dollar and the euro. Second, it disguised the money’s Iranian origin. Unlike bank transfers, cash transactions cannot easily be traced.

At this point, the money was ready to be moved in the international financial system. Zarrab deposited the cash proceeds from the gold sales into accounts held by his companies at banks in Dubai. Iranian banks, such as Bank Sarmayeh and Bank Mellat, then gave Zarrab’s companies instructions to transfer the money to various entities in Iran’s sanctions evasion network, composed of front companies and foreign suppliers in several countries including Canada, China, and Turkmenistan.[23] U.S. banks then unwittingly processed several of these dollar transactions through correspondent accounts.[24] As a result, from December 2012 to October 2013 alone, more than $900 million of Iranian oil and gas money transited through U.S. financial institutions to make payments on behalf of Iran.[25]

The gold scheme’s success made it a focal point of Iran’s sanctions evasion efforts worldwide, as Zarrab and Iranian officials attempted to expand and replicate it. In October 2012, for instance, several of the conspirators met to discuss moving Iran’s oil revenue in India to Halkbank so that it could be laundered through the scheme.[26] It is unclear to what extent the India plan succeeded. Zarrab also testified that he operated a version of the gold scheme in China for several months in late 2012, until the operation was shut down by Chinese banks.[27]

The scheme also benefited Turkey by artificially inflating its export statistics, making the Turkish economy appear stronger than it actually was. Recorded gold exports to Iran went up from $55 million in 2011 to $6.5 billion in 2012; gold exports to the United Arab Emirates increased from $280 million to $4.6 billion.[28] Almost all of that increase can be attributed to funds laundered from Halkbank through Zarrab and his companies. Consequently, the scheme, once running, appears to have been encouraged at the highest levels of the Turkish government. In the summer of 2013, Aslan was allegedly instructed in a meeting with then-Prime Minister Recep Tayyip Erdoğan, Çağlayan, and other Turkish government officials to “take care of this job” – namely, to increase Turkey’s gold exports from its previous high of $11 billion in 2012.[29]

Throughout the scheme, Aslan and Atilla made a series of false statements in meetings with U.S. Treasury officials, telling them that Halkbank was not providing Iran with gold or cash revenue from its oil reserve accounts, adding that they had rebuffed an approach from CBI to acquire gold.[30] The U.S. officials nonetheless continued to caution Aslan and Atilla that Halkbank would be a prime target for Iranian sanctions evasion efforts, telling them in February 2013 that they were in a “category unto themselves” due to this heightened exposure.[31]

In July 2013, Halkbank informed Treasury that it had stopped facilitating any gold exports to Iran as of June 10.[32] The scheme nonetheless continued until at least December 2013, with over nine tons of gold shipped after Halkbank’s July statement to OFAC.[33]

The Food Scheme

Restrictions from the Iran Freedom and Counter-Proliferation Act of 2012 (IFCA) went into effect in July 2013, prohibiting the supply of precious metals to any Iranian entities, whether private or governmental.[34] This tightening of sanctions rendered the gold scheme untenable over the long term. Several months earlier, in anticipation of the change, Aslan suggested to Zarrab that he instead disguise his transfers using falsified records of food purchases.[35] Food exports to Iran are exempt from U.S. sanctions on humanitarian grounds, and Halkbank had facilitated food trade in the past, so its involvement would not appear overly suspicious.[36] Zarrab therefore arranged an April 2013 meeting in Turkey with Halkbank executives, Çağlayan, and NIOC officials Mahmoud Nikousokhan and Seifollah Jashnsaz, during which the conspirators hammered out the details of a new plan.[37]

The food scheme was more straightforward than the gold conspiracy, but it shared some similar characteristics. NIOC and CBI again transferred funds within Halkbank to intermediary accounts held by Iranian banks, which then moved the money to accounts held by Zarrab’s companies.[38] Zarrab concocted fake food purchases in Dubai using those funds, allowing him to transfer the money to his front companies in the UAE. To cover his tracks, Zarrab worked with Halkbank to create false shipping records indicating that food was subsequently exported to Iran. In reality, his front companies instead funneled the funds through the international financial system to entities in Iran’s sanctions evasions network, again at the direction of Iranian banks. The scheme was up and running by July 2013.[39]

Unlike the gold scheme where gold changed hands for cash on the open market in Dubai, nothing was ever actually bought or sold as part of the food scheme. The conspiracy therefore relied more heavily than before on false documentation to conceal the money’s true path. Zarrab could not forge bills of lading because they were too easily traceable, so instead he recorded the nonexistent food as being shipped on small wooden vessels that did not require them.^[40] However, a cursory examination of financial documentation related to these shipments would have revealed the forgery. For example, Atilla had to warn Zarrab that it was not realistic to list a cargo weighing 150 thousand tons on a ship with a five-thousand ton capacity. Atilla also urged Zarrab to be careful about the purported origin of the goods. “Wheat doesn’t grow in Dubai,” he cautioned.^[41]

Such missteps almost brought down the entire operation. In December 2013, Turkish law enforcement arrested Zarrab, Aslan, Çağlayan, and others on charges of bribery, corruption, money laundering, and gold smuggling after receiving a tip-off from a whistleblower.^[42] Investigators found millions of dollars in bribes stashed in shoeboxes at Aslan’s residence and discovered documents detailing the scheme. Çağlayan, Aslan, and several other Halkbank and Turkish government officials were dismissed from their positions.^[43] The case made international headlines, largely because it implicated Erdoğan.^[44] The Turkish justice system did not see the case through to a conclusion, however. Zarrab bribed his way out of prison in February 2014 and the case against him was dismissed that October.^[45]

Soon after his release, Zarrab began pressuring Halkbank’s new general manager Ali Fuat Taşkesenlioğlu to restart the food operation. Taşkesenlioğlu initially resisted, but was convinced when Erdoğan and his son-in-law, then-Minister of Energy Berat Albayrak, intervened on Zarrab’s behalf. ^[46] The food scheme continued until at least March 2016, when Zarrab was arrested in the United States.^[47]

Links to Iran’s Nuclear and Missile Proliferation

According to the U.S. Department of the Treasury, the tactics used by Halkbank and the other indicted and convicted co-conspirators in the case are hallmarks of proliferation finance: the transfer of funds to front company accounts, falsified invoices and bank records masking the transfers as legitimate sales, and the use of these funds to make international transactions on behalf of a proliferating state. De facto, this allowed Iran to access the international banking system, from which Iranian banks were barred due to sanctions.^[48]

The schemes aided Iran’s proliferation activities in two ways. First, it benefitted Iranian entities with ties to those activities. In both the gold and food scheme, the laundered funds’ ultimate destination was to foreign companies participating in Iran’s sanctions evasion and illicit procurement networks. These companies supplied Iranian entities with goods and services, but needed to be paid in order to continue their operations; the Iranian oil money laundered through Halkbank was their payment. In one illustrative example, Zarrab’s companies made several international transfers – at the direction of Iranian banks and apparently on behalf of NIOC – to a Turkmenistan-based energy company that was supplying gas to Iran.^[49]

Iranian entities that purchased goods and services in this manner included NIOC, NICO, Hong Kong Intertrade Company (HKICO), Bank Sarmayeh, Bank Mellat, and Mahan Air.^[50] These entities have links to the full spectrum of Iran’s proliferation activities. For instance, NIOC was designated by the U.S. Treasury in November 2012 for providing “important technological and commercial support” to the Islamic Revolutionary Guards Corps (IRGC), ^[51] a principle agent of Iran’s missile program.^[52] The IRGC was designated by the Department of State in October 2007 for its own role in financing proliferation, and some 15 individuals and organizations associated with the IRGC are currently subject to U.N. sanction.^[53] Bank Mellat was also designated in October 2007, for providing banking services to the Atomic Energy Organization of Iran (AEOI), the main actor in Iran’s nuclear program.^[54] For its part, Mahan Air was designated by the United States in October 2011 for providing support to the IRGC,^[55] and again in December 2019 for its support of proliferation, including the transport of export-controlled missile and nuclear materials to Iran.^[56] Between 2011 and 2019, numerous Mahan Air affiliates and aircraft were sanctioned by the United States for similar activity.

Second, the scheme relieved financial pressure on Iran between 2012 and 2016, amidst multilateral negotiations to limit Iran’s nuclear program that resulted in the 2015 Joint Comprehensive Plan of Action (JCPOA). The pressure from sanctions provided critical leverage to the U.S. and its partners during negotiating with Iran. The financial back-channel provided by Zarrab and Halkbank may have lessened this leverage.^[57]

U.S. Investigation and Prosecution

Zarrab’s arrest triggered the opening of the U.S. criminal case, which has unfolded in four stages. In the first stage, which lasted from March 2016 to March 2017, Zarrab was the main defendant, along with his employee Camelia Jamshidy and Bank Mellat official Hossein Najafzadeh (Jamshidy and Najafzadeh remain at large). They were indicted in the Southern District of New York on four charges: conspiracy to defraud the United States, conspiracy to violate the International Emergency Economic Powers Act (IEEPA), conspiracy to commit bank fraud, and conspiracy to commit money laundering.[58] Zarrab tried and failed to have the indictment dismissed on the grounds that, as a non-U.S. national, “he [was] free to engage in transactions with Iranian businesses without running afoul of U.S. laws that criminalize U.S. sanctions against Iran.”[59] In November 2016, Zarrab’s brother and co-conspirator, Mohammad Zarrab (who remains at large), was added as a defendant.[60]

The second stage began with the arrest of Atilla in March 2017 and lasted until his sentencing in May 2018. A superseding indictment in September 2017 added four defendants – Aslan, Balkan, Caglayan, and Abdullah Happani, another of Zarrab’s employees – as well as substantive charges of bank fraud and money laundering against each defendant.[61] All except Atilla and Zarrab remain at large. Sometime during this period, Zarrab began to cooperate with U.S. investigators. He entered a guilty plea in October 2017 and testified at Atilla’s trial in November that year.[62] Atilla fought the charges against him unsuccessfully and was convicted in January 2018 on five of six counts and sentenced to 32 months in prison.[63]

The third stage, from May 2018 until October 2019, reflected a lull in the case. Zarrab had pleaded guilty, Atilla had been convicted and sentenced, and the other defendants remained at large. With jail time served during the trial included in his sentence, Atilla was released and deported back to Turkey in July 2019. Shortly thereafter, the Turkish government appointed him to lead Borsa Istanbul, Turkey’s main stock exchange.[64] Turkey, led by President Erdogan, meanwhile reportedly lobbied the Trump administration to drop the case. This effort led President Trump to refer the matter to the Attorney General and the Secretary of the Treasury but does not appear to have impacted the trajectory of the case.[65]

The fourth stage, from October 2019 to the present, began when Halkbank’s criminal indictment was unsealed by the Justice Department. The prosecution of a bank for sanctions violations is highly unusual. In their sentencing memorandum for Atilla, U.S. prosecutors cited nine sanctions violations cases against banks that had resulted in deferred prosecution agreements. Under such agreements, these banks avoided going to court by paying a fine and taking remedial action. Only one case cited, U.S.A. v. BNP Paribas, went further, and it ended in a plea bargain with a similar fine and remedial actions taken by the bank.[66] If Halkbank goes to trial, it will be the first bank to do so.

In their argument against Atilla, U.S. prosecutors asserted that Halkbank’s conduct was different from that of other banks accused of sanctions violations, which often self-report the violation, cooperate with authorities, and undertake significant internal reforms, whereas Atilla and other Halkbank employees systematically covered up evidence and continued to violate sanctions.[67] Nonetheless, U.S. Attorney General William Barr reportedly urged Halkbank to accept a deferred prosecution agreement, which Halkbank reportedly refused on the grounds that doing so would amount to an admission of guilt.[68] Halkbank lawyers are seeking to dismiss the case and bank representatives have declined to appear in court.[69] Zarrab, who also helped corroborate the case against Halkbank, reportedly continues to cooperate with the U.S. Department of Justice on this case.[70]

Conclusion

The Halkbank case is unprecedented, both in terms of the magnitude of the scheme – Halkbank and Zarrab laundered approximately $20 billion worth of Iranian funds[71] – and in terms of aggressive U.S. sanctions enforcement policy – as the first major bank to be indicted for sanctions evasion.

Iran is once again in the grip of severe U.S. sanctions and may soon face additional multilateral sanctions. Iran has abandoned the JCPOA’s limit on uranium enrichment, which could result in the re-imposition – or “snapback” – of all previous U.N. sanctions. In this context, Iran may once again turn to sanctions-busting arrangements abroad to continue its proliferation activities and keep its economy afloat.

If the U.S. justice system hands down a stiff penalty to Halkbank, a major sanctions violator that carried on its activities with the backing of the Turkish state, it may deter other foreign individuals and financial institutions from laundering money for Iran. If Halkbank instead gets off lightly, it may have the opposite effect. Bankers, businessmen, and officials in Iran, Turkey, and across the world will be eyeing the outcome.

Appendix

Reza Zarrab's Network
Entity Name	Description and Role
Companies
Al Nafees Exchange	Dubai-based money services company; transferred money to Iran-linked entities.
Asi Kiymetli Madenler Turizm Otom	Turkey-based money services company; transferred money to Iran-linked entities.
Atlantis Capital General Trading	Dubai-based front company; fake food seller, transferred money to Iran-linked entities.
Centrica	Dubai-based front company; fake food seller, transferred money to Iran-linked entities.
Durak Doviz/Duru Doviz	Turkey-based money services company; transferred money to other Zarrab companies.
ECB Kuyumculuk Ic Vedis Sanayi Ticaret Limited Sirketi	Turkey-based money services company; transferred money to Iran-linked entities.
Flash Doviz	Turkey-based money services company; transferred money to Iran-linked entities.
Gunes General Trading LLC	Dubai-based money services company; transferred money to Iran-linked entities.
Hanedan General Trading LLC	Dubai-based front company; transferred money to Iran-linked entities.
Royal Denizcilik	Turkey-based gold trading company; purchased and sold gold.
Royal Emerald Investment	Turkey-based money services company; transferred money to Iran-linked entities.
Royal Holding A.S.	Turkey-based holding company for Safir Altin Ticaret, Royal Denizcilik, and Royal Emerald Investment.
Safir Altin Ticaret	Turkey-based gold trading company; purchased and sold gold.
Sam Exchange	Dubai-based money services company.
Volgam	Turkey-based front company; fake food trader, transferred money to other Zarrab companies.
Individuals
Abdullah Happani	Employee of Durak Doviz; resident of Turkey; conducted transfers on behalf of Reza Zarrab
Camelia Jamshidy	Employee of Royal Holding A.S.; resident of Turkey; conducted transfers on behalf of Reza Zarrab.
Mohammad Zarrab	Brother of Reza Zarrab; resident of Turkey; controlled Flash Doviz, Sam Exchange, and Hanedan General Trading LLC
Reza Zarrab	Mastermind of scheme; resident of Turkey; arrested in United States in 2016.

Turkish Entities
Entity Name	Description and Role
Companies
Halkbank	Facilitated the scheme throughout.
Arap Turk Bank	Allegedly conspired to participate in moving Iranian oil money from India to Halkbank.
Vakif Bank	Allegedly conspired to join the scheme with Prime Minister Erdogan's approval.
Ziraat Bank	Allegedly conspired to join the scheme with Prime Minister Erdogan's approval.
Individuals
Ali Fuat Taskesenlioglu	General manager of Halkbank after Aslan's dismissal until the collapse of the scheme; facilitated the scheme.
Berat Albayrak	Turkish Energy Minister from 2015 until the end of the scheme; Erdogan's son in law; pressed Turkish entities to cooperate.
Levent Balkan	Assistant deputy manager of Halkbank for international banking; assisted Atilla in supervising the scheme.
Mehmet Hakan Atilla	Deputy general manager of Halkbank for international banking; directly supervised the scheme; arrested in the United States in 2017; convicted in U.S. court in 2018; released to Turkey in 2019.
Mehmet Zafer Caglayan	Turkish Economy Minister until December 2013; accepted bribes from Zarrab pressed Turkish entities to cooperate with scheme.
Recep Tayyip Erdogan	Turkish Prime Minister during the scheme; urged Caglayan to continue the scheme; pressed other Turkish entities to cooperate.
Suleyman Aslan	General manager of Halkbank from the start of the scheme until December 2013; accepted bribes from Zarrab; facilitated the scheme.

Iranian Entities
Entity Name	Description and Role
Companies
Bank Mellat	Directed international money transfers on behalf of the Iranian government.
Bank Melli	Directed international money transfers on behalf of the Iranian government.
Bank Saderat	Directed international money transfers on behalf of the Iranian government.
Bank Sarmayeh	Held accounts at Halkbank that were used as intermediaries for Iranian government funds; directed international money transfers on behalf of the Iranian government.
Bank Shahr	Held accounts at Halkbank that were used as intermediaries for Iranian government funds.
Central Bank of Iran (CBI)	Held accounts at Halkbank that were the source of funds used in the scheme.
Mellat Exchange	Money service subsidiary of Bank Mellat; directed international money transfers on behalf of the Iranian government.
Naftiran Intertrade Company (NICO)	Held accounts at Halkbank that were the source of funds used in the scheme.
National Iranian Oil Company (NIOC)	Held accounts at Halkbank that were the source of funds used in the scheme.
Parsian Bank	Held accounts at Halkbank that were used as intermediaries for Iranian government funds.
Sarmayeh Exchange	Money service subsidiary of Bank Sarmayeh; held accounts at Halkbank that were used as intermediaries for Iranian government funds; directed international money transfers on behalf of the Iranian government; proposed the scheme to Zarrab.
Individuals
Ahmad Ghalebani	Managing director of NIOC; held meetings with Zarrab and Halkbank officials.
Hossein Najafzadeh	Senior official at Mellat Exchange, directed international money transfers on behalf of the Iranian government.
Mahmoud Nikousokhan	Finance director of NIOC; held meetings with Zarrab and Halkbank officials.
Seifollah Jashnsaz	Chairman of NICO; held meetings with Zarrab and Halkbank officials.

John Caves is a research associate at the Wisconsin Project. He is responsible for a project on Iran sanctions, which includes analysis of Iran’s proliferation and sanctions evasion networks. Meghan Peri Crimmins is Deputy Director of the Wisconsin Project and oversees the organization’s work on sanctions and counterproliferation finance. Simon Mairson, a former Research Assistant, contributed research to this report and worked on its early drafts.

Attachment:

Major Turkish Bank Prosecuted in Unprecedented Iran Sanctions Evasion Case

Footnotes:

[1] H.R.4695 – Protect Against Conflict by Turkey Act, 116th U.S. Congress, available at https://www.congress.gov/bill/116th-congress/house-bill/4695, accessed on November 20, 2019.

[2] S.2644 – Countering Turkish Aggression Act, 116^th U.S. Congress, available at https://www.congress.gov/bill/116th-congress/senate-bill/2644, accessed on February 20, 2020; S.2641 – Promoting American National Security and Preventing the Resurgence of ISIS Act, 116^th U.S. Congress, available at https://www.congress.gov/bill/116th-congress/senate-bill/2641, accessed on February 20, 2020; William Roberts, “Senators to temporarily halt push for sanctions on Turkey: Graham,” Al Jazeera, October 22, 2019, available at https://www.aljazeera.com/news/2019/10/senators-temporarily-halt-push-sanctions-turkey-graham-191023000844816.html, accessed on March 30, 2020.

[3] “Trump-Erdogan Call Led to Lengthy Quest to Avoid Halkbank Trial,” Bloomberg, October 16, 2019, available at https://www.bloomberg.com/news/articles/2019-10-16/trump-erdogan-call-led-to-lengthy-push-to-avoid-halkbank-trial, accessed February 19, 2020.

[4] Transcript of Proceedings as to Mehmet Hakan Atilla re: Trial held on 11/30/17 before Judge Richard M. Berman, United States of America v. Mehmet Hakan Atilla, Case No. 1:15-cr-00867-RMB, Southern District Court of New York, Document No. 406, January 12, 2018, pp. 414-415, 421-422, available via PACER, accessed on March 3, 2020.

[5] Brief, United States of America v. Mehmet Hakan Atilla et al., Case No: 18-1910, Court of Appeals for the Second Circuit, December 6, 2018, p. 3, available via PACER, accessed on October 24, 2019.

[6] Superseding Indictment, United States of America v. Reza Zarrab et al., Case No: 1:15-cr-008670-RMB, Southern District of New York, September 6, 2017, pp. 12-13, available via PACER, accessed on October 24, 2019.

[7] Superseding Indictment, U.S.A. v. Reza Zarrab et al., pp. 31-32; “Iran List (last amended 16 February 2011),” Export Control Organisation, United Kingdom’s Department for Business Innovation & Skills, p. 8, accessed via web.archive.org at https://web.archive.org/web/20101213122611/http://www.bis.gov.uk/assets/biscore/eco/docs/iran-list.pdf on November 11, 2019.

[8] Superseding Indictment, U.S.A. v. Zarrab et al., pp. 12-13, 32.

[9] Superseding Indictment, U.S.A. v. Zarrab et al., p. 10; Council Regulation (EU) No 267/2012 of 23 March 2012 concerning restrictive measures against Iran and repealing Regulation (EU) No 961/2010, p. 108, available at http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:02012R0267-20150408&qid=1436811335282&from=EN, accessed on November 20, 2019.

[10] Superseding Indictment, U.S.A. v. Zarrab et al., p. 33.

[11] Superseding Indictment, U.S.A. v. Zarrab et al., pp. 13-14.

[12] Superseding Indictment, United States of America v. Halkbank, Case No: 1:15-cr-00867-RMB, Southern District of New York, October 15, 2019, p. 15, available via PACER, accessed on October 24, 2019.

[13] Superseding Indictment, U.S.A. v. Zarrab et al., p. 6.

[14] Superseding Indictment, U.S.A. v. Zarrab et al., p. 6-7.

[15] Superseding Indictment, U.S.A. v. Halkbank, pp. 3, 10, 14.

[16] Superseding Indictment, U.S.A. v. Halkbank, p. 16.

[17] Superseding Indictment, U.S.A. v. Halkbank, pp. 19-20.

[18] Superseding Indictment, U.S.A. v. Halkbank, pp. 4-5.

[19] Superseding Indictment, U.S.A. v. Halkbank, pp. 15-16.

[20] Sentencing Memorandum, United States of America v. Mehmet Hakan Atilla, Case No: 1:15-cr-00867-RMB, April 4, 2018, p. 7, available via PACER, accessed on November 20, 2019.

[21] Superseding Indictment, U.S.A. v. Halkbank, pp. 14-15.

[22] Brief, U.S.A. v. Atilla et al., pp. 8-9, 15-16.

[23] Superseding Indictment, U.S.A. v. Zarrab et al., pp. 30-32.

[24] Superseding Indictment, U.S.A. v. Halkbank, pp. 4, 15, 34.

[25] Superseding Indictment, U.S.A. v. Halkbank, p. 26

[26] Brief, United States of America v. Mehmet Hakan Atilla et al., Case No: 18-1910, Court of Appeals for the Second Circuit, December 6, 2018, p. 9, available via PACER, accessed on October 24, 2019; Transcript of Proceedings as to Mehmet Hakan Atilla re: Trial held on 11/30/17, U.S.A. v. Atilla, pp. 384-388.

[27] Transcript of Proceedings as to Mehmet Hakan Atilla re: Trial held on 11/30/17, U.S.A. v. Atilla, pp. 449-451, 453.

[28] Superseding Indictment, U.S.A. v. Halkbank, pp. 16-17.

[29] Superseding Indictment, U.S.A. v. Halkbank, p. 25.

[30] Brief, U.S.A. v. Atilla et al., pp. 14-15.

[31] Superseding Indictment, U.S.A. v. Halkbank, p. 22; Brief, U.S.A. v. Atilla et al., pp. 20-21.

[32] Superseding Indictment, U.S.A. v. Halkbank, p. 24.

[33] Brief, U.S.A. v. Atilla et al., p. 22.

[34] Superseding Indictment, U.S.A. v. Halkbank, pp. 10, 24.

[35] Transcript of Proceedings as to Mehmet Hakan Atilla re: Trial held on 11/30/17, U.S.A. v. Atilla, pp. 493-495.

[36] Brief, U.S.A. v. Atilla et al., p. 10.

[37] Superseding Indictment, U.S.A. v. Halkbank, p. 28.

[38] Brief, U.S.A. v. Atilla et al., pp. 11-12.

[39] Brief, U.S.A. v. Atilla et al., p. 12.

[40] Brief, U.S.A. v. Atilla et al., p. 11.

[41] Brief, U.S.A. v. Atilla et al., pp. 12-13.

[42] Berivan Orucoglu, “Why Turkey’s Mother of All Corruption Scandals Refuses to Go Away,” Foreign Policy, January 6, 2015, available at https://foreignpolicy.com/2015/01/06/why-turkeys-mother-of-all-corruption-scandals-refuses-to-go-away/, accessed on November 1, 2019.

[43] Brief, U.S.A. v. Atilla et al., p. 23.

[44] Orucoglu, “Why Turkey’s Mother of All Corruption Scandals Refuses to Go Away.”.

[45] Superseding Indictment, U.S.A. v. Halkbank, p. 33.

[46] Brief, U.S.A. v. Atilla et al., p. 24; “Turkey’s Erdogan son-in-law made finance minister amid nepotism fears,” BBC, July 10, 2018, available at https://www.bbc.com/news/world-europe-44774316, accessed on February 20, 2020.

[47] “Turkish National Arrested for Conspiring to Evade U.S. Sanctions Against Iran, Money Laundering and Bank Fraud,” U.S. Department of Justice, March 21, 2016, available at https://www.justice.gov/opa/pr/turkish-national-arrested-conspiring-evade-us-sanctions-against-iran-money-laundering-and, accessed on March 5, 2020.

[48] “National Proliferation Financing Risk Assessment,” U.S. Department of the Treasury, 2018, pp. 23-24, available at https://home.treasury.gov/system/files/136/2018npfra_12_18.pdf, accessed on November 20, 2019.

[49] Transcript of Proceedings as to Mehmet Hakan Atilla re: Trial held on 11/30/17, U.S.A. v. Atilla, pp. 431; Superseding Indictment, U.S.A. v. Zarrab et al., p. 30-31.

[50] Superseding Indictment, U.S.A. v. Zarrab et al., p. 29.

[51] “Treasury Sanctions Iranian Government and Affiliates,” Press Release, U.S. Department of the Treasury, November 8, 2012, available at https://www.treasury.gov/press-center/press-releases/Pages/tg1760.aspx, accessed on March 6, 2020.

[52] “Designation of Iranian Entities and Individuals for Proliferation Activities and Support for Terrorism,” U.S. Department of State, October 25, 2007, available at https://2001-2009.state.gov/r/pa/prs/ps/2007/oct/94193.htm, accessed on March 30, 2020.

[53] “Security Council Sanctions List Pursuant to Security Council Resolution 2231,” United Nations, available at https://scsanctions.un.org/r/?keywords=iran, accessed on March 30, 2020.

[54] “Fact Sheet: Designation of Iranian Entities and Individuals for Proliferation Activities and Support for Terrorism,” Press Release, October 25, 2007, U.S. Department of the Treasury, available at https://www.treasury.gov/press-center/press-releases/Pages/hp644.aspx, accessed on March 6, 2020.

[55] “Treasury Designates Iranian Commercial Airline Linked to Iran’s Support for Terrorism,” U.S. Department of the Treasury, October 12, 2011, available at https://www.treasury.gov/press-center/press-releases/Pages/tg1322.aspx, accessed on March 30, 2020.

[56] “Designation of the Islamic Republic of Iran Shipping Lines, E-Sail Shipping Company Ltd, and Mahan Air Fact Sheet,” U.S. Department of State, December 11, 2019, available at https://www.state.gov/designation-of-the-islamic-republic-of-iran-shipping-lines-e-sail-shipping-company-ltd-and-mahan-air/, accessed on March 26, 2020.

[57] “Turkish Banker Mehmet Hakan Atilla Sentenced To 32 Months For Conspiring To Violate U.S. Sanctions Against Iran And Other Offenses,” U.S. Department of Justice, May 16, 2018, available at https://www.justice.gov/usao-sdny/pr/turkish-banker-mehmet-hakan-atilla-sentenced-32-months-conspiring-violate-us-sanctions, accessed on November 20, 2019.

[58] Indictment, United States of America v. Reza Zarrab, Camelia Jamshidy, and Hossein Najafzadeh, Case No: 1:15-cr-00867-RMB, Southern District of New York, Document 2, December 15, 2015, available via PACER, accessed on November 20, 2019.

[59] Decision and Order, United States of America v. Reza Zarrab, Case No: 1:15-cr-00867-RMB, Southern District of New York, Document 90, October 17, 2016, pp. 2-4, available via PACER, accessed on March 6, 2020.

[60] Superseding Indictment, United States of America v. Reza Zarrab, Mohammad Zarrab, Camelia Jamshidy, and Hossein Najafzadeh, Case No: 1:15-cr-008670-RMB, Southern District of New York, Document 106, November 7, 2016, available via PACER, accessed on March 6, 2020.

[61] Superseding Indictment, U.S.A. v. Zarrab et al.

[62] Transcript of Proceedings as to Mehmet Hakan Atilla re: Trial held on 11/30/17, U.S.A. v. Atilla

[63] “Judgment in a Criminal Case,” United States of America v. Mehmet Hakan Atilla, Case No: 1:15-cr-00867-RMB, Southern District of New York, Document 518, May 16, 2018, available via PACER, accessed on March 3, 2020

[64] Ayla Jean Yackley, “Turkey picks former jailed banker to head Istanbul stock exchange,” Financial Times, October 21, 2019, available at https://www.ft.com/content/31e25da8-f442-11e9-a79c-bc9acae3b654, accessed on November 1, 2019.

[65] Letter from Senator Ron Wyden to Treasury Secretary Steven Mnuchin, October 24, 2019, available at https://www.finance.senate.gov/imo/media/doc/102319 Halkbank–Mnuchin.pdf, accessed on February 19, 2020; Treasury Response to Senator Wyden’s Letter, November 20, 2019, available at https://www.finance.senate.gov/imo/media/doc/112019 Treasury Response Letter to Wyden RE Halkbank.pdf, accessed on February 19, 2020.

[66] “Government’s Sentencing Memorandum,” United States of America v. Mehmet Hakan Atilla, Case No. 1:15-cr-00867-RMB, Southern District Court of New York, Document 505, April 4, 2018, pp. 51-53, available via PACER, accessed on November 20, 2019.

[67] “Government’s Sentencing Memorandum,” U.S.A. v. Atilla, pp. 51.

[68] “Trump-Erdogan Call Led to Lengthy Quest to Avoid Halkbank Trial,” Bloomberg, October 16, 2019, available at https://www.bloomberg.com/news/articles/2019-10-16/trump-erdogan-call-led-to-lengthy-push-to-avoid-halkbank-trial, accessed February 19, 2020.

[69] Brendan Pierson, “Halkbank says it will seek dismissal of U.S. indictment, judge’s recusal,” Reuters, November 4, 2019, available at https://www.reuters.com/article/us-usa-turkey-halkbank/halkbank-says-it-will-seek-dismissal-of-u-s-indictment-judges-recusal-idUSKBN1XE2CC, accessed on November 20, 2019.

[70] Heidi Przybyla, Julia Ainsley and Tom Winter, “As prosecutors raise pressure on Turkish bank, Erdogan likely to ask Trump to go easy,” NBC News, November 13, 2019, available at https://www.nbcnews.com/politics/donald-trump/prosecutors-raise-pressure-turkish-bank-erdogan-likely-ask-trump-go-n1080991, accessed on November 20, 2019.

[71] “Turkish Bank Charged in Manhattan Federal Court for Its Participation in a Multibillion-Dollar Iranian Sanctions Evasion Scheme,” U.S. Department of Justice, October 15, 2019, available at https://www.justice.gov/opa/pr/turkish-bank-charged-manhattan-federal-court-its-participation-multibillion-dollar-iranian, accessed on March 6, 2020.

U.S. Targets Procurement Network Supplying Machine Tools to Iran

October 31, 2019April 3, 2025 By Simon Mairson and Valerie Lincy

A recent enforcement action by the United States targeted a scheme to procure export controlled U.S. and Canadian equipment, most with nuclear applications, on behalf of an end user in Iran.[1] The case bears several hallmarks of illicit Iranian procurement, including the involvement of Iranian nationals based overseas, the use of multiple freight forwarders to disguise Iran as the ultimate end user, reliance on Dubai as a transshipment point for the equipment, and the submission of false and forged shipping documents to avoid license requirements. The timing of the conspiracy – from 2015 to 2018 – highlights Iran’s continued efforts to illicitly obtain Western technology despite the implementation of the Joint Comprehensive Plan of Action (JCPOA) in January 2016.

A 21-count indictment charging Mehdi Hashemi and Feroz Khan was unsealed in August following Hashemi’s arrest in Los Angeles International Airport upon his arrival from Turkey. The men are accused of illegally exporting and attempting to export machine tools on numerous occasions, among other charges. Hashemi (a.k.a. Eddie Hashemi) is a dual citizen of the United States and Iran who formerly lived in Los Angeles and ran a company there called Earth Best Products Inc. Kahn (a.k.a. Feros Khan) is based in the United Arab Emirates (UAE) and remains at large. The trial is scheduled to begin on February 11, 2020 in Los Angeles.

Evading Export Controls and Sanctions

Between at least June 2015 and April 2018, Hashemi conspired with Khan and others who are not named in the indictment to evade and avoid U.S. trade controls and sanctions as well as the requirements for nuclear-related trade with Iran set forth in the JCPOA.

Hashemi procured machine tools and related parts from nine suppliers in Canada and the United States. Most of these machine tools, including various computer numerical control (CNC) vertical machining and turning centers, are controlled by the United States for nuclear non-nonproliferation reasons and require a license for export to Iran and the UAE. Their import or transit through the UAE likewise requires a license from the UAE’s Federal Authority for Nuclear Regulation (FANR).

These items are also listed by the multilateral Nuclear Suppliers Group (NSG) as dual-use items and technologies “that can make a major contribution to an unsafeguarded nuclear fuel cycle or nuclear explosive activity.”[2] The transfer to Iran of any item listed by the NSG as dual-use first must be reviewed by the Procurement Working Group created by the JCPOA and ultimately approved by the U.N. Security Council.[3] Some of the machine tools are controlled by the United States for anti-terrorism reasons and require a license for export to Iran but not to the UAE. At no time did Hashemi seek an export license from the United States or approval from the Security Council.

Hashemi sought the machine tools for an unnamed company based in Tehran, Iran, that claims to manufacture textiles, medical and automotive components, and spare parts. The indictment describes Hashemi as an employee of this company. As part of the conspiracy, Hashemi relied on six freight forwarders in the Canada, Iran, the UAE, and the United States, to facilitate the shipments from Canada and the Unites States to the UAE. Khan then facilitated transshipment through the UAE to Iran.

Attempted Exports

The indictment describes five attempted exports, four of which appear to have been successful.

A successful export arranged between June 2015 and April 2016 involved the procurement of a CNC lathe from a supplier in Canada and a CNC turning center from a supplier in Illinois. Hashemi and Khan employed a UAE freight forwarder and falsified the customer, supplier, and total value of the goods. The shipment was successfully exported in February 2016.

Hashemi used similar methods in a second successful export arranged between March and June 2016 that involved four CNC vertical machining centers obtained from a supplier in Ohio. He gave false information to a U.S. freight forwarder – including the customer, salesperson, and total value – causing the freight forwarder to file inaccurate export information forms with the U.S. Department of Commerce. At Khan’s request, Hashemi also lowered the listed value of the goods (from approximately $27,500 to $3,200) in order to avoid UAE import duties. On May 4, the equipment was sent from Norfolk, VA to the UAE’s Jebel Ali Port on Maersk Line shipping. Khan asked that Hashemi avoid using Maersk in the future as “they are not allowing transshipments to Iran.”[4]

Subsequent exports by Hashemi and his co-conspirators appear to have faced increased scrutiny from U.S. enforcement authorities. An attempted export in October 2017 via New York, which involved two CNC vertical machining centers and two CNC turning centers acquired from suppliers in Ohio and Arizona, appears to have failed.

Between August 2017 and February 2018, Hashemi sought a CNC vertical machining center from California, a manual lathe from a supplier in Florida, and other machine tools from various U.S. suppliers. He falsified information about the proposed exports in correspondence with several freight forwarders based in the UAE and the United States, providing false information about the consignee, customer, exporter, supplier, and value. Despite Hashemi’s efforts to evade export controls, the shipment was detained in Long Beach, CA. In November, Hashemi gave U.S. Customs and Border Protection (CBP) an incomplete purchase list indicating a false value and assured a CBP agent that an unnamed co-conspirator in the UAE was the end-user. Hashemi reshipped the equipment in December 2017.

The final attempted export was arranged between October 2017 and April 2018. Hashemi employed freight forwarders in Toronto and Illinois to export CNC machines. He once more gave inaccurate information about the shipment, which was detained in Long Beach, CA. In response to questions from CPB, Hashemi asserted that the CNC machines being shipped were not export controlled, named the UAE as the destination country, and gave false purchaser and consignee information. Hashemi successfully exported the machines in January 2018.

Hashemi also made several false statements to an agent from the Department of Commerce’s Bureau of Industry and Security when questioned in February 2018. Hashemi told the agent that the final destination and buyer of the CNC machines was an affiliate of a UAE-based freight forwarder, that he never intended to export the machines to Iran, and that none of the machines were sent to Iran. He also claimed to be unaware that the machines required a license for export from the United States.

Charges and Next Steps

On August 19, 2019, Hashemi and Khan were charged in the Central District of California with conspiring to violate the International Emergency Economic Powers Act (IEEPA), violating the IEEPA, smuggling, money laundering, unlawful export information activities, and making false statements. Hashemi entered a not guilty plea and is being held without bond. His trial was set to begin on October 15 but has been postponed until February 11, 2020. If found guilty on all 21 counts, Hashemi would face up to 320 years in federal prison.

Footnotes:

[1] Indictment, United States v. Mehdi Hashemi, Case No: 2:19-cr-00254-PSG, Central District of California, April 23, 2019, p. 22, available via PACER, accessed on October 3, 2019; “Man Taken into Custody after Being Charged with Illegally Exporting Prohibited Manufacturing Equipment to Iran,” U.S. Department of Justice, August 20, 2019, available at https://www.iranwatch.org/library/governments/united-states/executive-branch/department-justice/man-taken-custody-after-being-charged-illegally-exporting-prohibited, accessed on October 3, 2019.

[2] “Guidelines,” Nuclear Suppliers Group, available at https://www.nuclearsuppliersgroup.org/en/guidelines, accessed on October 30, 2019.

[3] “Annex IV – Joint Commission” in “Joint Comprehensive Plan of Action,” pp. 3-6, Vienna, July 14, 2015, https://www.iranwatch.org/sites/default/files/iran_joint_comprehensive_plan_of_action.pdf, accessed on October 31, 2019.

[4] Indictment, United States v. Mehdi Hashemi, Case No: 2:19-cr-00254-PSG, Central District of California, April 23, 2019, p. 22, available via PACER, accessed on October 3, 2019.

Commerce Department Warns Suppliers on Exports to Pakistan

September 22, 2019April 29, 2020 By Jonathan McLaughlin and Valerie Lincy

WorldECR
October 2019

On 30 August 2019, the Bureau of Industry and Security (‘BIS’) of the US Commerce Department published due diligence guidance for exports to Pakistan.[1] The guidance reviews supplemental licence requirements for the country under the Export Administration Regulations (‘EAR’), including requirements for parties that appear on Commerce’s Entity List, and recommends a number of best practices for trade with Pakistani end-users. The new guidelines are intended to mitigate recent illicit procurement patterns in Pakistan.

Commerce’s guidance includes a review of the end-use and end-user export restrictions in the EAR that apply to Pakistan’s nuclear and missile activities, which were expanded in 1998 in response to Pakistan’s nuclear tests. These restrictions effectively impose licence requirements on most if not all exports of items subject to the EAR, including EAR99 items, ‘if destined to certain nuclear- or missile-related activities’ in Pakistan. A key part of this export control regime is the Entity List. Entities appearing on this list are subject to heightened licence requirements, often with a presumption of denial, due to involvement in activities of national security concern.

During a 15-year period following 1998, Commerce rarely added entities to the list for known or suspected links to Pakistan’s nuclear and missile programmes. But since 2014, approximately 40 such entities have been added, including companies based outside of Pakistan. These third countries serve as transhipment points for US-origin items illicitly procured on behalf of nuclear end-users in Pakistan, according to the recent guidance. The guidance names just two such entities, Techcare Services FZ LLC in the United Arab Emirates (‘UAE’) and UEC (Pvt.) Ltd. located in Saudi Arabia, the UAE, and Pakistan;[2] but there are many more.

For example, a number of companies connected to a procurement network operated by Pakistan’s Advanced Engineering Research Organisation (‘AERO’) have been added to the Entity List in September 2014, several of which are based outside of Pakistan. UAE-based Euromoto Middle East, which was added to the Entity List in 2017, also has supplied front companies for Pakistan’s nuclear- and missile-related entities, including Khan Research Laboratories (‘KRL’).[3]

In response to these developments, the BIS guidance recommends a number of best practices for exports to Pakistan.

First, when researching new customers, the following ‘fact patterns’ should prompt further due diligence:

The customer is a reseller or distributor;
The customer has little-to-no online presence and is not listed in directories;
The customer has a suspicious address, such as one that is similar to that of an entity listed on the US consolidated screening list;
The customer places an order ex- works and uses a freight-forwarder for all of its shipping arrangements.

Restricted end-users in Pakistan regularly use trading and engineering companies, including those that fit the ‘fact patterns’ listed above, to import controlled items. These companies are often established firms that act as contracted procurement agents, although there are also shell companies that exist mainly to import items for Pakistan’s nuclear and missile programmes.

A cluster of shell companies is located at 76-E Hill View Plaza, an address in Islamabad’s Blue Area. While legitimate businesses are located in the building, shell companies with suspected links to Pakistan’s nuclear and missile programmes have also used this address for imports, according to current and past warning lists published by the Japanese and German governments.[4] At least one of these companies reportedly acted as a front company for KRL or the Pakistan Atomic Energy Commission (‘PAEC’).[5] Additional companies not yet flagged on watch lists also may be using this address. It continues to be listed as an end-user address for shipments of dual-use or weapons-related items, according to Pakistani import manifests.

Second, exporters should thoroughly assess the potential dual-use applications of their products. The BIS guidance identifies a number of items subject to the EAR that have been sought by Pakistani nuclear and missile entities, including EAR99 items either not listed on the Commerce Control List or listed but controlled only for anti-terrorism reasons. These items include connectors, electromechanical relays, gas measurement equipment, certain GPS systems (controlled under ECCN 7A994), power supplies, reflectometers, and vacuum pumps (not described in ECCN 2B231).

Third, BIS recommends determining the ‘full scope of entity listings,’ which may require manual review. The example cited in the guidance is the PAEC, which appears on the Entity List. BIS explains that the PAEC’s Karachi and Chashma power plants are subject to Entity List restrictions even though they aren’t actually named on the list.

Entity List restrictions in fact apply to all PAEC nuclear fuel cycle facilities, even though none appear by name on the list. The entry for the PAEC defines (rather than lists) the subordinate entities that are covered: ‘[n]uclear reactors (including power plants), fuel reprocessing and enrichment facilities, all uranium processing, conversion and enrichment facilities, heavy water production facilities and any collocated ammonia plants.’

Unfortunately, the names and affiliations of these facilities are often obscure, leaving the supplier to determine their true identities. Even scrupulous exporters may have difficulty doing so.

Finally, the guidance warns that exports made under the terms of a letter of credit (‘LoC’) may have different requirements from an Electronic Export Information (‘EEI’) filing, leading to the misrepresentation of the parties to an export transaction. Notably, an EEI filing should not list a financial institution as the ultimate consignee – although it may be listed in the ‘ship to’ or ‘consign to’ fields in transportation documents associated with a LoC – unless the institution indeed is the recipient of the export.

The latest BIS guidance is valuable for any firm exporting items with nuclear and missile applications to Pakistan or to countries that may be used as a transhipment point for trade to Pakistan. As the guidance points out, there is a heightened risk that such trade may be diverted to Pakistan’s nuclear and missile programmes.

BIS has expanded its Entity List in recent years to capture some of the firms supporting such diversion schemes. But as the guidance makes clear, reliance on automated screening measures and a positive list of controlled items is not sufficient. The guidance concludes that any supplier ‘unable to resolve red flags identified in a prospective export, reexport, or transfer […] should either refrain from participating in the transaction, submit a license application, or submit an advisory opinion request to BIS.’

Links and Notes:

[1] ‘Due Diligence Guidance Concerning Exports, Reexports, and Transfers (In-Country) to Pakistan,’ US Department of Commerce, Bureau of Industry and Security, 30 August 2019, https://www.bis.doc.gov/index.php/policyguidance/pakistan-due-diligence-guidance.

[2] ‘Supplement No. 4 to Part 744 – the Entity List,’ U.S. Department of Commerce, Bureau of Industry and Security, https://www.bis.doc.gov/index.php/documents/regulations-docs/2326-supplement-no-4-to-part-744-entity-list-4/file

[3] Federal Register, Vol. 82, No. 101, 26 May 2017, p. 24242.

[4] End User List, 26 April 2019, Japan’s Ministry of Economy, Trade, and Industry (METI), https://www.meti.go.jp/policy/anpo/hp/190426_5.pdf.

[5] Klaus-Peter Ricke, ‘Pakistan’s Rise to Nuclear Power and the Contribution of German Companies,’ Peace Research Institute Frankfurt, PRIF-Report No. 118, 2013, p. 45, https://www.hsfk.de/fileadmin/HSFK/hsfk_downloads/PRIF_118_download.pdf

More Eyes on More Data: Prospects for Restricting Iran’s Missile Program Using Open Sources

February 13, 2019April 3, 2025

Panelists:

Chris Bidwell
Catherine Dill
Charles Duelfer
Mike Elleman
Phil Rosenberg
Richard Speier
Vann Van Diepen
Varun Vira

Moderated by Valerie Lincy, executive director of the Wisconsin Project on Nuclear Arms Control, and John Lauder, former Director of the Intelligence Community’s Nonproliferation Center and now an independent consultant on nonproliferation and arms control.

Introduction

The United States withdrew from the nuclear agreement with Iran – the Joint Comprehensive Plan of Action (JCPOA) – in part because it did not address the threat posed by Iran’s missile program. Following this withdrawal, the United States has expanded trade and financial sanctions aimed at punishing Iran economically to counter a range of threats, including ballistic missiles. The United States is also working with other countries to constrain Iran’s missile program, which is still subject to U.N. sanctions. In public remarks last September, Brian Hook, the head of the State Department’s Iran Action Group, said that the United States is “coordinating with allies to interdict missile-related transfers” to and from Iran and to target “choke point technologies and procurement strategies” used by Iran.[1]

According to Mr. Hook, U.S. policymakers are also assessing the conditions for renewed negotiations with Iran and would seek a formal treaty that addresses “the totality of threats that Iran presents.” He described a treaty as the only “enduring and sustainable” way to address those threats. The recent decision by the United States to withdraw from the Intermediate-Range Nuclear Forces (INF) Treaty with Russia in response to Russian violations likewise has focused attention on the forms of missile limitations the U.S. administration sees as desirable and achievable. The issues associated with INF compliance have also demonstrated both the value of monitoring measures and the difficulty of publicizing violations without revealing sources and methods.

Monitoring and verification are critical both to the implementation of sanctions and to any formal agreement with Iran that restricts its missile program. The process for monitoring and verification is influenced by the increasing public availability of open source tools and data, such as machine learning, remote sensing technologies, and trade and corporate data. These tools and data, collectively referred to as “public technical means,” allow a greater number of actors, including from the non-governmental community, to contribute to monitoring and verification efforts.[2]

In June 2018, the Wisconsin Project on Nuclear Arms Control brought together an expert panel for a private discussion about how open source tools and data can support U.S. and multilateral efforts to constrain Iran’s missile program, both through sanctions and through an eventual agreement. Specifically, the panel assessed the status of Iran’s missile program and considered whether technical “choke points” in the program could be identified and exploited through public technical means in order to complement government efforts to raise the cost and slow the development of this program. The panel also discussed how open source tools and data might support sanctions by identifying instances of illicit procurement and/or sanctions evasion. Finally, the panel considered how these tools might contribute to the monitoring and verification component of a new agreement with Iran, in the context of active negotiations with North Korea and informed by other missile limitation efforts like the INF Treaty.

The panel discussion was held in Washington, D.C. and moderated by Valerie Lincy, Executive Director of the Wisconsin Project, and John Lauder, former Director of the Intelligence Community’s Nonproliferation Center and now an independent consultant on nonproliferation and arms control. The other participants were Chris Bidwell, Senior Fellow for Nonproliferation Law and Policy at the Federation of American Scientists, Catherine Dill, Senior Research Associate, James Martin Center for Nonproliferation Studies, Middlebury Institute of International Studies at Monterey, Charles Duelfer, former Special Advisor to the DCI for Iraqi weapons of mass destruction and now Chairman of Omnis Inc., Mike Elleman, Senior Fellow for Missile Defense at the International Institute for Strategic Studies, Phil Rosenberg, Senior Advisor for Financial Intelligence at the Chertoff Group, Richard Speier, Adjunct Staff at RAND Corporation, Vann Van Diepen, former Principal Deputy Assistant Secretary of State for International Security and Nonproliferation, and Varun Vira, Chief Operating Officer at C4ADS.

The event was co-sponsored by the Nuclear Verification Capabilities Independent Task Force with financial support from the John D. and Catherine T. MacArthur Foundation and another private foundation.

Finding Highlights

The panel found that the expanding availability and decreasing cost of open source tools and commercially available data can support both the implementation of sanctions targeting Iran’s missile program and the monitoring of a potential agreement restricting that program. Such tools and data could help identify and target choke points in Iran’s program, thus raising the cost to Iran of improving its missile capability. In particular, space-based remote sensing technologies can help monitor known locations in Iran involved in missile development and identify possible additional facilities, while publicly available corporate and trade data can support network analysis related to missile procurement. Machine learning can be applied to these disparate data sources to support monitoring and enhance analysis.

Despite these contributions, several panelists cautioned that emerging open source capabilities applied by non-governmental actors do not diminish the primacy of governments. Only governments can satisfactorily validate the results of open source analysis using classified sources and methods and only governments can make verification judgments. Likewise these panelists warned that non-governmental actors may introduce information publicly that complicates government efforts, including disclosing sources and methods and helping Iran improve its concealment and deception techniques. The risk of moral hazard may increase – proliferators benefiting more than the public from a disclosure – as non-governmental actors access increasingly sophisticated imagery and deep data techniques.

The panel further concluded that any lasting agreement with Iran might need to reflect that ballistic missiles are an integral part of Iran’s conventional warfighting capability rather than exclusively a future delivery vehicle for nuclear weapons. The parameters of a future agreement could be informed by precedents like the INF Treaty and any agreement’s monitoring requirements should be tailored to address appropriately what is being restricted. Finally, the parameters and monitoring arrangements of any agreement struck with North Korea that restricts its missiles should be seen as applicable to Iran. Negotiators should be attentive to setting precedents in each of the possible missile discussions that would be helpful in other missile control efforts.

Following are the roundtable’s findings, which are a composite of the panelists’ individual views. No finding should be attributed to any single panelist or be seen as a statement of the policy of any organization with which the panelist is affiliated.

Open source tools and data could enhance the pressure campaign on Iran by identifying and targeting choke points in Iran’s missile program, slowing the program’s development, and raising the cost to Iran of improving its missile capability.

Iran has pursued a two-track approach to missile acquisition since the Iran-Iraq war, prioritizing the procurement and production of liquid-fueled missiles and the production of solid-fueled missiles. While Iran largely has achieved self-sufficiency in the production of SCUD-type liquid-fueled ballistic missiles, it remains reliant on foreign technology and materials to improve the accuracy and range of these missiles and to build solid fueled missiles and related production infrastructure. The panel therefore agreed that it would be possible to target these specific chokepoints and that open source tools and data could help do so.

Specifically, the panel noted Iran’s need for guidance technology, including laser and fiber optic gyros, microelectro mechanical systems (MEMS), as well as lightweight and heat resistant materials that would help Iran with re-entry for longer-range missiles. According to one panelist, Iran does not appear to have acquired or developed isogrid and orthogrid technologies, with which it could fabricate lighter weight liquid-propellant casings with a similar structural capacity. Such technology would allow Iran to extend the range of its missiles without reducing payload. Iran’s need for small turbo fan engines for cruise missiles was also identified as a key choke point, as was aluminum powder and other materials for the production of solid propellant. In addition, the panel noted that production equipment for these items would be valuable for Iran, which has long emphasized indigenous production. The acquisition of production equipment was identified as particularly challenging to target because much of it is dual-use, even if its export is controlled by multilateral regimes. Relatedly, the panel emphasized the importance of trained personnel in accomplishing Iran’s indigenous production goals. The acquisition and use of production equipment is directly tied to individual expertise in operating such equipment.

Thus, sanctions aimed at inhibiting missile technology acquisition should target both persons and trade flows. The panel suggested first compiling a list of the key materials and production equipment needed by Iran. Such a list could be compiled using open sources, such as information published by the now-dissolved U.N. Panel of Experts on Iran. Second, experts could identify and map the global manufacturing base for these items. Once the countries and perhaps specific firms are identified, publicly available statistical trade data could be used to visualize the trade flows and import markets for these items. This process could help reveal the transshipment routes that Iran has or could use for technology acquisition. Similarly, reviewing technical publications and scientific journal articles by Iranian engineers could help identify key individuals contributing to missile development, what they are working on, and the institutional affiliations of these individuals.

The panel agreed that disrupting Iran’s supply chain for critical materials would be useful and that sanctions may already have had an effect on the pace of Iran’s solid-fuel missile program. For example, the successful development of solid-propellant motors is critically dependent on a consistent supply chain for basic ingredients, ensuring that motor tests are conducted using the same materials, from the same producer, using the same production line. Without such a consistent supply, it is difficult to validate the materials and ensure quality control. If motors fail to perform as expected during tests, it becomes difficult to assess the cause by isolating each variable. The U.N. Panel of Experts documented numerous instances of such materials being interdicted en route to Iran, likely complicating Iran’s ability to consistently acquire critical materials from the same suppliers.

While sanctions and interdictions may help slow the program and raise the costs to Iran of pursuing ballistic missiles, the panel agreed that Iran is inherently capable of producing longer-range missiles. This assessment is based on Iran’s space launch program, pursuit of solid-propellant systems, and illicit acquisition of long-range land-attack cruise missiles. Some panelists suggested that Iran’s long-range missile program may be in “hedge” mode, much as Iran essentially placed its nuclear weapon program in “hedge” mode as a result of the JCPOA. One panelist noted several indicators of Iran’s longer range goals: ongoing tests of space launch vehicles; the January 2017 test of the Khorramshahr liquid-fueled missile, which likely is derived from North Korea’s BM-25 and may have a range beyond the 2,000 km declared by Iran;[3] and revelations that Iran is operating a missile test site near the city of Shahrud where it appears to have tested large rocket motors.[4]

Space-based remote sensing technologies, including optical satellite imagery, can help monitor known locations in Iran involved in missile development.

A variety of space-based remote sensing technologies with relevance to nonproliferation are deployed and their products are commercially available. There is an abundance of satellite imagery from multiple commercial providers in multiple countries. Small satellites with lower resolution images (1-3 meters) can image a location frequently. In some cases, a single location can be imaged multiple times in one day. Traditional large satellites with a much less frequent revisit rate offer higher resolution (25-70 centimeters) images. The panel noted that high and low resolution optical satellite imagery can be used effectively in combination to track Iran’s missile development. Frequent images of suspect sites allow analysts to compare images over time and identify changes; high resolution imagery can provide much greater detail about such sites and perhaps help map production facilities and estimate the size of production equipment. Synthetic aperture radar (SAR) imagery provides further enhancements, including the ability to penetrate clouds and to image at night. However, the panel cautioned that SAR remains costly and is difficult to interpret without specialized training.

The missile test site near Shahrud, referenced above, illustrates the way in which satellite imagery can support the identification of locations where Iran is pursuing longer-range missiles. The site was used in 2013 for a single missile test but otherwise appeared dormant. Researchers from the James Martin Center for Nonproliferation Studies (CNS) analyzed the structures and ground markings at the site using optical satellite imagery and concluded that the site likely is dedicated to developing solid-fuel, long-range missile technology. The imagery allowed researchers to date recent engine tests – in 2016 and June 2017 – based on when ground scars appeared. The size of the missile test stands also provided valuable information: researchers concluded that the engine tested in 2017 could have powered between 62 and 93 tons of thrust, possibly enough for an intercontinental-range missile. Finally, the images did not show any fuel storage tanks or fueling stations, suggesting that the site is for solid-propellant engines. According to one panelist, the site may instead be connected to Iran’s space launch program, but this panelist noted that the types of motors needed for space launch could be transformed into missiles and flight tested quite quickly.

The researchers at CNS also used SAR images to confirm that the site remained active. These images revealed foot and vehicle traffic at the site, particularly at locations where engine tests were conducted. Several panelists emphasized that SAR images could be particularly useful in Iran. They allow for imaging at night – when Iran’s outdoor engine tests are likely conducted – and work well in sparsely vegetated areas.

The recent open source analysis about the Shahrud site demonstrates how commercially available remote sensing technologies can provide evidence that a program is more advanced than commonly estimated. Iran had not tested its two-stage, solid-fueled Sejil missile since 2012, which previously created uncertainty as to its status and the status of Iran’s long-range solid-propellant program overall.

The panel cautioned that optical and SAR imagery may not be helpful in predicting missile flight tests, given the short timeframe between the preparation for a test and launch. However, such imagery can provide information about the type of system Iran has flight tested, the range achieved, and the capability of the system that was tested. Such analysis is already being done to monitor Iran’s compliance with the missile limits in U.N. Security Council resolution 2231. However, there is no unified verification judgment from the United Nations; permanent members of the Security Council disagree about whether such tests actually violate the resolution.

Publicly available corporate and trade data can support network analysis related to missile procurement and uncover additional nodes in a procurement network; such data can also be used to identify instances of sanctions violation.

Open data, including trade data, corporate registry information, academic and scientific publishing, maritime and airplane traffic, and information from trade shows can help identify instances of sanctions evasion and illicit procurement. These data also can help identify the entities involved in such illicit activity. The panel agreed that these data are particularly valuable for monitoring when they are brought together and compared.

Shipping data, including manifests and bills of lading, contain some information about the items in a transaction, including an HS code from the harmonized tariff system developed by the World Customs Organization.[5] The panel was moderately confident in the correlation between HS codes and items controlled by the Missile Technology Control Regime (MTCR). As a result, if goods are accurately declared, it should be possible to use trade data to trace commercial activity to Iran, or to a country of concern for transshipment to Iran, for items of interest captured within a broader HS code. Such micro-level transactional data is directly available from some customs authorities and commercially available from third-party providers for some countries. It generally includes information about the buyer, seller, and shipper in a particular transaction. It may be possible to use such data to identify parties involved in shipping missile-relevant technology to Iran. In addition, macro-level statistical trade data is available through the U.N. COMTRADE database, which provides valuable information on the flow of goods of interest.

Corporate data can provide additional information about the parties around the world supporting Iranian missile procurement. Many countries have open corporate registries that provide information about registered companies, including company contact information, directors, shareholders, and associated businesses. This information may be freely available; it may be available for purchase; or it may not be publicly available. Similarly, real estate records may provide information about a company’s ownership structure, as well as party identification information such as tax ID numbers. Individuals or companies that are known to be part of an Iranian missile procurement network may have additional relationships that would be revealed by mining corporate data.

Information about suspicious financial transactions is held by banks and shared with governments; it is not publicly available, thus limiting the ability to use open source information to track the financing of missile proliferation. However, the panel noted that information on correspondent banking relationships, which banks have a business interest in making public, can be helpful. This information is publicly available in resources such as the Bankers Almanac, although they are often costly to acquire. According to one panelist, Iran continues to rely on the same well-known financial actors to support its missile program, including Bank Sepah, Bank Melli, and Bank Mellat, and their overseas subsidiaries. The role of these banks has been described publicly in past U.S. sanctions notices. These banks access foreign currency through correspondent relationships with foreign financial institutions. Mapping these banking relationships would provide insight into how Iran finances overseas procurement for its missile program.

Combining these disparate, unclassified data sources would allow analysts to see high-level convergence, such as the use by Iran of certain jurisdictions for sanctions evasion or illicit procurement. It would also reveal specific convergences, such as reliance on certain lawyers or corporate formation agencies within these jurisdictions. Combining corporate registry and real estate records from multiple countries might reveal common parties and new connections. Similarly, comparing corporate and trade data with a known list of entities supporting Iran’s missile program, such as parties on national or international blacklists, could expose the alternative names or locations of sanctioned entities, or help identify additional nodes in an illicit procurement network. Using network analysis software to link parties of concern and the flow of sensitive goods would further enhance this exercise.

One panelist noted that the U.S. decision to withdraw from the JCPOA and re-impose previously waived sanctions on Iran broadens the sanctions targeting field to include sectors supporting Iranian missile proliferation economically, such as the banking, shipping, and energy sectors. The evidentiary threshold for these new sanctions targets more easily can be met using open data, such as maritime AIS, an automatic vessel tracking system used on ships, and information about vessel owners and operators. This information might also be usefully combined to identify instances of sanctions evasion: satellite imagery combined with vessel AIS or airplane ADS transmissions can help predict the destination of a ship or airplane even after their trackers are turned off; or satellite imagery combined with vessel movement information could help identify instances of illicit ship-to-ship transfers of Iranian oil.

Machine learning applied to satellite imagery and trade and corporate data can enhance monitoring of missile development sites in Iran, identify new missile sites, and detect instances of sanctions evasion or illicit procurement; however, such techniques are not infallible and primarily should serve as leads for further analysis or collection.

The volume and diversity of data described above, not all of it in English, poses a challenge for traditional analysis methods that machine learning techniques can help mitigate. The panel agreed that several techniques present particular utility for proliferation-related research, including machine learning applied to satellite imagery, training neural networks to analyze satellite imagery or trade data, and data engineering such as natural language processing to parse bulk data.

Large swaths of satellite imagery can be analyzed for change detection and object identification at known Iranian missile sites using machine learning techniques. This can be done using established algorithms or deep neural networks. Neural networks are computing systems that allow multiple algorithms to work together to process complex data inputs. As described above, this would allow analysts to more easily see if there is increased activity at missile sites, which may be an indicator of expanded research and development activity or preparations for a flight test.

Applying machine learning to open source imagery to identify new sites is more complicated. One panelist noted that relative to North Korea, Iran publishes fewer images of its key missile facilities and systems. This makes it difficult to constitute a robust “training” data set used to teach open source machines what to search for. It may be possible, including with the use of synthetic data, to train a neural network to identify what a ballistic missile test facility in Iran looks like, and to then ingest, on a daily basis, all new imagery for the entire country to see if there are other, similar sites. It may be more difficult, though not impossible, to do so for open source analysis of missile production facilities or sites used for missile research and development. The success of this effort would depend in part on whether Iran is consistent in the way it builds and organizes its missile-related sites so that a machine can be taught what to look for based on a limited number of examples. The panel cautioned that Iran may not proceed in the most logical manner in its missile development because of work-arounds necessitated by technical shortcomings or material it is unable to acquire or produce or as a means of concealment and deception.

Neural networks might also be trained to understand and analyze trade data. For instance, cluster analysis of the manufacturing base and trade flow of sensitive items could identify certain areas that are receiving these items or the supply chains that may be delivering the items to Iran.

The panel agreed that the key to analysis in this data-rich environment is fusing disparate sources of data to support the monitoring process and verification judgments. Machine learning is critical to this process. However, the panel cautioned that the results produced by machine learning techniques should be used carefully. These results often are greeted with suspicion, in part because machine learning algorithms generate leads or make choices that are not fully understood, including by data scientists themselves. These algorithms are essentially black boxes, which may raise suspicion that their results have been manipulated. It may be difficult to present the results to a country or company and request a legal action, such as an interdiction or an asset freeze, which might be challenged in court where a higher evidentiary threshold would be required. In addition, algorithms are often proprietary and developers are unwilling to share intellectual property that they are trying to market commercially. The panel concluded that these tools provide leads for additional evidence gathering but emphasized that the results are not finished products.

The increasing use of open source data and machine learning by non-governmental actors in public analysis may complicate national monitoring and verification efforts and should be used with care.

Non-governmental organizations (NGOs) are playing an increasingly prominent role in the proliferation- and sanctions-related monitoring process in Iran, and rely on publicly available data and machine learning techniques to do so. There was some disagreement among the panelists about the risks associated with this contribution.

Some panelists cautioned that NGOs could impede government activity, whether by inadvertently disclosing government sources and methods, or disclosing monitoring indicators that would help Iran improve its camouflage, concealment, and deception techniques. For instance, if an algorithm used to identify a new missile site in Iran is described publicly, it becomes easier for Iran to spoof the algorithm by making small changes or adjustments. Iran may also learn to falsify data, such as AIS tracker information. For every new measure or new tool that identifies missile activity, Iran may develop a countermeasure. As NGOs increasingly leverage sophisticated imagery and deep data techniques, there is a risk that a missile-related disclosure made by an NGO may be of greater value to Iran than to the public.

These panelists also warned that open source analysis by NGOs may introduce inaccurate information that can be disseminated rapidly in a political environment in which suspicion, disinformation, and unfounded accusations flourish. According to these panelists, open source analysis by NGOs should be provided to governments so that it can be assessed, validated, and perhaps merged with other sources of information held exclusively by government. Governments have a far greater capacity – largely through intelligence sources and methods, but often through negotiated inspection, information-sharing, and confidence building measures – to discover and penetrate weapons programs of concern. Thus, the increased NGO contribution, these panelists concluded, does not diminish the primacy of governments in monitoring and, more importantly, in making verification determinations. These latter are policy judgments that can only be performed by the state parties to international agreements.

Other panelists noted that open source information and data analytic techniques are now part of the monitoring landscape. NGOs use these tools, as do an increasing number of governments, including U.S. adversaries like Iran. The curve of adaptation and counter adaptation has exponentially increased alongside the increase in open source information.

Finally, the panel noted that NGOs often are driven by an imperative to publish findings quickly and to demonstrate a measurable public impact. Such imperatives may expose NGOs to error traps, which can have reputational and funding repercussions. These imperatives must be balanced against a certain responsibility to consult government before publicizing a particular revelation.

Iran’s ballistic missiles have been integrated into its conventional warfighting capability; an agreement restricting Iran’s missile program therefore could instead seek to limit the parts of the program that are of greatest concern for nuclear weapon delivery.

Annual U.S. intelligence threat assessments regularly conclude that “Iran’s ballistic missiles are inherently capable of delivering WMD” and that Iran “would choose ballistic missiles as its preferred method of delivering nuclear weapons, if it builds them.”^[6] However, the panel found that Iran’s ballistic missile program should not be seen as exclusively dedicated to that purpose.

Iran has integrated hundreds of short- and medium-range ballistic missiles into its conventional forces as the bedrock of its regional warfighting and deterrence capabilities. Historically, the utility of these missiles has been limited by their poor accuracy; when conventionally armed, they function as a terror weapon to threaten cities, useful for coercion and deterrence in the absence of a modern air force. Since 2010, however, Iran appears to have prioritized improving the accuracy and lethality of its missiles. Iran’s missile doctrine has evolved in tandem, from one of coercion and deterrence to warfighting. Iran wants to make its missiles more useable in conventional warfare.

Several recent events support this assessment. Iran has transferred short-range ballistic missiles to proxies in Yemen and Lebanon. Such transfers include more sophisticated systems, like the Qiam-1 missile, which is a modified version of the Scud C, several of which have been fired at civilian targets in Saudi Arabia by the Houthis in Yemen. This use provides valuable test data for Iranian engineers to improve the missile’s performance. Iran is also using these missiles directly in military operations. It fired about six short-range ballistic missiles from within its territory against Islamic State (ISIS) positions in Syria, in June 2017 and again in October 2018, in retaliation for ISIS attacks inside Iran. In both cases, Iran is reported to have fired both the Qiam-1 and the Zolfaghar, a single-stage, solid-fuel ballistic missile.

Because of the evolution of its missile doctrine, several panelists predicted that Iran would not completely give up its missile arsenal. The panel agreed that it would be easier to restrict systems that have not yet been successfully tested or deployed. Thus, it might be difficult to negotiate an agreement limiting flight tests of all missiles that can send a 500 kilogram payload 300 kilometers, which is the Missile Technology Control Regime (MTCR) threshold definition for nuclear-capable missiles; Iran has a number of operational missiles that meet this threshold. It might be possible to negotiate an agreement limiting ballistic missile types beyond medium range. For example, high-ranking Iranian military commanders have said that the Supreme Leader has restricted the range of ballistic missiles manufactured in the country to 2,000 kilometers.^[7] One panelist noted that such a restriction would become less meaningful if Iran were to develop sea-launched or air-launched missiles. Several panelists emphasized that range restrictions must be combined with payload restrictions to meaningfully restrict Iran’s missile capability.

It would also be important to impose limits on Iran’s program to launch satellites using domestic space launch vehicles (SLVs). Many components and technologies used to make SLVs are interchangeable with those used to make long-range ballistic missiles. SLV launches provide valuable data on stage separation, which is useful for intercontinental ballistic missile (ICBM) development. Ideally, Iran should be convinced to forgo SLVs in exchange for launching its satellites on other countries’ boosters. If an agreement includes a “carve out” for space launch, some panelists suggested several specific restrictions, including a limit on rocket diameter, a prohibition on the use of solid-fuel propellant, and a prohibition on the development of countermeasures such as defensive decoy or spoofing technologies. There was disagreement among the panelists about the value of a compromise that allows Iran to continue developing SLVs.

Some panelists assessed that arms control limitations on Iran’s missile program have few near-term prospects, especially following the withdrawal of the United States from the JCPOA. Other panelists argued that Iran may soon be willing to negotiate with the United States on a broad range of issues of concern, including missiles, as a consequence of the full re-imposition of U.S. sanctions and the dire consequences of this action on the Iranian economy.

The parameters of an agreement restricting Iran’s missiles should be guided by the negotiated monitoring measures; on-site inspection and data declarations would be critical for monitoring certain restrictions but would be difficult to negotiate; the use of open source tools do not need to be negotiated and can support monitoring and help detect cheating.

The open source tools and data described above can support monitoring in several ways: they reduce the need for on-site access and therefore make monitoring terms with satisfactory provisions more negotiable; they increase the opportunity to detect cheating, further restricting Iran’s opportunities to do so openly; and they provide a source of information on cheating more useable in diplomacy with Iran, with other countries, and with the public. One panelist noted that open source tools are valuable because their use would not need to be negotiated with Iran. Information exchanges and on-site inspections, while more valuable, would be more difficult to negotiate.

The panel agreed that the monitoring requirements for an agreement should be driven by what is being controlled. Any solution should ensure the ability to be able to monitor well what the agreement restricts. Flight tests are impossible to hide completely. A ban on all flight tests of missiles defined as nuclear-capable by the MTCR could be monitored by the United States unilaterally from outside of Iran, using remote sensing technologies. Other governments and non-governmental actors could also monitor and assess aspects of some flight tests using commercially available imagery and other data. A ban on flight tests of longer-range missiles might similarly be monitored.

Ensuring that Iran is abiding by range restrictions would be enhanced with on-site inspection, although the terms of such access, particularly to sites run by the military, would be difficult to negotiate. The example of Iraq illustrates the value of robust on-site inspections. Limits on the range of Iraqi missiles in the 1990s were enforced with great vigor by the U.N. Special Commission (UNSCOM). UNSCOM set specific limits on missile diameter and had rules to ensure that it could observe engine testing. UNSCOM also set limits on cruise missile flight-testing that required very intrusive monitoring including putting in place independent missile flight test tracking equipment. Ultimately, the only clear violation of UNSCOM limits was Iraq’s al Samoud missile, which exceeded range limits by about ten percent.

As described above, engine tests are often conducted outdoors and have a substantial signature. Such tests could therefore be observed using remote sensing technologies, assuming the tests are being undertaken at known sites. However, tests could be conducted indoors or at undeclared sites, which would make remote detection much more difficult.

Monitoring the parameters of Iran’s space launch program would involve a similar trade off. Remote images of satellite launch sites would provide useful information but perhaps not enough to distinguish work on SLVs from work on ICBMs. Physical access to space launch sites deemed civilian may be easier to negotiate than missile production and test sites run by the military.

Monitoring missile inventories to ensure compliance with caps on the number of systems would be difficult to monitor without some form of on-site inspection and data declarations by Iran.

The results of data engineering might identify procurement that suggests Iran is violating the terms of an agreement, for instance by seeking to acquire or develop higher-energy propellants or advanced guidance components or materials. This would be possible only to the extent that the items or parties involved can be linked to Iran’s missile program. Pairing remote sensing technologies with maritime AIS or airplane ADS transmissions could help identify possible instances of illicit missile-related transfers to Iran. Data engineering might also make it easier to identify and isolate unusual or significant trade or transit activity that suggests a violation, and provide inputs for governments to correlate with classified data.

Several panelists noted that successfully monitoring an agreement with Iran would involve the use of both public and national technical means in order to create a synergy among different methods of discovery of relevant Iranian activities. Evidence of violation generated through public technical means, and validated by governments, could be presented to Iran without disclosing classified sources and methods. However, it may take time to marshal such public information. For instance, the United States forestalled confronting Russia with evidence of its violation of the INF Treaty for fear of revealing sources and methods that could not easily be replaced. It took several years before lower-grade public sources could be used to make the public verification judgment that Russia had violated the Treaty.

If Iran agreed to negotiated limits on its missile program, elements of an agreement could be informed by other agreements on delivery vehicles, such as the INF Treaty.

There are useful precedents and best practices that could inform a verification regime for Iran’s missiles. The INF Treaty, in particular, provides useful guidance. It eliminated an entire class of ground-based ballistic and cruise missiles with ranges between 500 and 5,000 kilometers held by the Soviet Union and the United States.

The INF Treaty elaborated multiple specific monitoring measures, including detailed data exchanges, five types of on-site inspection (including baseline, close-out, elimination, short-notice, and portal monitoring), the principal of non-interference with national technical means along with cooperative measures intended to enhance the use of such means for monitoring, and a consultative mechanism.

In applying precedents and approaches from the INF Treaty to Iran, the panel described the following requirements: a missile data declaration from Iran to provide a baseline for what is being controlled and the areas where controlled systems or technologies are located; routine inspections and cooperative, persistent monitoring measures of locations where cheating would be easiest; a method of challenge inspection to gather and verify data on compliance concerns; and the use of national technical means augmented by robust exploitation of open data and techniques. For example, optical and SAR imagery might be used to monitor the “back door” of a suspect site subject to an on-site inspection, to observe whether Iran is seeking to hide or remove items. All of these requirements should be driven by the objective of detecting militarily significant non-compliance.

Like the INF Treaty, an agreement with Iran should establish a consultative mechanism that can be used to resolve anomalies or disputes. This consultative mechanism would create a forum in which monitoring experts and Iranian officials could exchange information and findings related to verification of the agreement. Such a mechanism also has the benefit of building greater transparency with Iranian officials and enhancing channels of communication between Iran, the United States, and other parties to the agreement.

Any agreement with Iran must also cover missile technology transfers, in particular missile technology transfer between Iran and North Korea. The INF Treaty may offer useful guidance since it included restrictions on technology transfers to allies as a means of circumventing the Treaty. In addition, several panelists emphasized that like the INF, an agreement with Iran must cover both cruise and ballistic missiles. An exclusive focus on ballistic missiles, as is the case in some of the restrictions of current and past U.N. Security Council resolutions, would allow Iran to advance its cruise missile program.

Finally, the panel noted a key area where an agreement with Iran would differ from the INF Treaty. The INF Treaty was a reciprocal arrangement where both sides agreed to implement the same restrictions. Like the JCPOA, in an agreement on missiles, Iran would be accepting restrictions on its program in exchange for economic gain through sanctions easing. This formula would not be straightforward and would need to be calibrated through negotiation.

Attachment:

More Eyes on More Data: Prospects for Restricting Iran’s Missile Program Using Open Sources

Footnotes:

[1] “Transcript: Iran’s Missile Proliferation: A Conversation with Special Envoy Brian Hook,” Hudston Institute, September 19, 2018, available at https://www.hudson.org/research/14590-transcript-iran-s-missile-proliferation-a-conversation-with-special-envoy-brian-hook.

[2] Christopher Stubbs and Sidney Drell, “Public Domain Treaty Compliance Verification in the Digital Age,” IEEE Technology and Society Magazine, Winter 2013.

[3] Iran reportedly conducted another test of the Khorramshahr missile in December 2018.

[4] Max Fisher, “Deep in the Desert, Iran Quietly Advances Missile Technology,” New York Times, May 23, 2018, available at https://www.nytimes.com/2018/05/23/world/middleeast/iran-missiles.html.

[5] The Harmonized System (HS) is an international nomenclature for the classification of products. It allows participating countries to classify traded goods on a common six-digit code basis for customs purposes.

[6] Statement for the Record, Worldwide Threat Assessment of the U.S. Intelligence Community, Senate Select Committee on Intelligence, May 11, 2017, available at https://www.dni.gov/files/documents/Newsroom/Testimonies/SSCI%20Unclassified%20SFR%20-%20Final.pdf.

[7] “Iran Commanders Say Supreme Leader Limiting Ballistic Missile Range,” Radio Free Europe Radio Liberty, October 31, 2017, available at https://www.rferl.org/a/iran-ballistic-missiles-range-200-km-khamenei/28826950.html.

Proliferation to and from China Over Four Decades

February 5, 2019October 8, 2019 By Matthew Godsey and Valerie Lincy

What does the evolution of strategic transfers from China, and China’s illicit procurement of U.S. technology, tell us about the export control policies of Chinese state-run firms?

In the latest issue of the Strategic Trade Review, the Wisconsin Project argues that although private firms, front companies, and brokers have increasingly taken a more prominent role, state-run firms remain involved. They are the primary beneficiaries of dual-use technology illicitly exported from the United States and the Chinese government has adopted a lax enforcement approach when it comes to punishing WMD-related proliferation from China to Iran and elsewhere.

Below is a summary of the article. The full article may be viewed in the latest issue of the Strategic Trade Review, the leading refereed journal dedicated to strategic trade, export controls, and sanctions.

China’s role in proliferation to other countries has evolved over the past 40 years. During the 1980s-1990s, proliferation from China took the form of large, complete weapon systems transferred by the government itself. For example, during this period China sold nuclear-capable ballistic missile systems to both Saudi Arabia and Pakistan, flouting international norms.

By the 2000s, Beijing had begun to adhere to the guidelines of the Missile Technology Control Regime and other multilateral control regimes, and proliferation from China became less clearly state directed, although it did not stop. With the rise of private enterprise in the 1990s, non-state companies took the lead in exporting components and materials that could be used in weapons of mass destruction programs. While these firms were repeatedly sanctioned by the United States their activity was largely ignored by the Chinese government. This trend has continued into the current decade.

Since 2000, the vast majority of Chinese entities sanctioned by the U.S. government have been private companies or individuals and there are very few instances of export enforcement by the Chinese government. As a result of this shift, the outward proliferation threat from China today is less likely to be a state-owned defense company than a savvy businessperson with international connections and a willingness to risk prosecution for a profit.

Similarly, there has been a shift in the prominence of Chinese state-run companies in violations of U.S. export controls. During the 1980s and early 1990s, these firms violated U.S. export control laws in the context of joint projects with major American firms, leading to unauthorized transfers of U.S. technology or equipment. In the 2000s, these violations were more characterized by the use of small companies in the United States – often run by Chinese nationals – that made illegal exports of U.S.-origin components directly to state-owned Chinese research institutes and companies. In the current decade, U.S. items illegally exported to China are often part of a more complex arrangement, sometimes involving multiple private actors in several countries, the use of front companies, and other evasive techniques to mask the true destination of the goods. Participation by state-owned firms in these transactions is not as obvious as it was in decades past; however, it is clear that they continue to be the ultimate beneficiaries of many of these illicit transfers.

China’s new Draft Export Control Law would replace a patchwork of lists and regulations with a comprehensive export control system. While it contains some positive elements, will the new law change decades of lax export enforcement by the Chinese government or the persistent violations of U.S. export control rules by state-run firms for technological and commercial gain? Our review of the past four decades of Chinese state trade policy leaves reason to doubt.

Crackdown on Iranian Network Underscores Pattern in Illicit Procurement

December 5, 2018February 13, 2019 By Mana Mostatabi

A federal indictment unsealed last month provides the latest illustration of the methods used by Iranian procurement agents to illicitly procure U.S.-origin goods for export to Iran. This case details how Iranian citizen Arash Sepehri conspired with individuals and companies operating in Hong Kong, the United Arab Emirates, and Iran to send hundreds of thousands of dollars worth of U.S. technology, most with military applications, to Iran between 2010 and 2011. While the U.S. case concerns military-related procurement and embargo violations, the network has also supported Iran’s nuclear program: Three of the companies involved in the conspiracy have conducted illicit nuclear procurement, according to the European Union.

Sepehri and his conspirators relied on well-known techniques to evade export controls and sanctions including the use of aliases, front companies, and circuitous shipping and payment methods. These techniques allowed Sepehri to conceal both the true end-users and intended use of the procured goods.

Sepehri pleaded guilty to the charges outlined in the indictment and will be sentenced in mid-January 2019. This move follows federal action six years ago against one of Sepehri’s co-conspirators, Omidreza Khademi, and suggests that the United States is continuing to target a network that may still be operating in Iran and the UAE.

The Network

THE STARTING POINT: IRAN
The conspiracy was facilitated by Arash Sepehri, a thirty-eight year old Iranian citizen. Sepehri is an employee and on the board of directors of Tehran-based Tajhiz Sanat Shayan (TSS). Between 2008 and 2014, while living in Iran, Sepehri was directed by an Iranian individual, identified in the indictment only as Conspirator B, to illicitly procure U.S.-origin goods, some with military applications, for his Iranian customers. Conspirator B is the principal owner of TSS, as well as of another Iranian trading company, identified only as Company B. Based on an analysis of court documents and government sanctions, Company B may be Aran Modern Devices.

TSS and Company B were designated by the European Union on May 23, 2011 for their involvement in procurement for Iran’s nuclear program. Neither company appears to have been removed from the EU sanctions list as part of the 2016 nuclear agreement with Iran, and both may subject to EU sanctions. These sanctions include a freeze of all funds and economic resources owned, held or controlled by both entities, and a prohibition on funds or economic resources being made available to them. In addition, TSS remains subject to sanctions imposed by the governments of Australia, Canada, and Japan.

Sepehri, who was named Chairman of the Board of TSS in June 2016, used the company to purchase dual-use U.S.-origin goods and technology for Iranian customers. He arranged for the items to be transshipped through Hong Kong and used false names, including “William Anderson,” in his communications with foreign companies. Correspondence by Sepehri suggests that he procured electronic parts and industrial computers from Europe, China, Taiwan, and sometimes the United States.

THE PAYMENT HUB: THE UNITED ARAB EMIRATES
Key to the conspiracy’s success was Iranian national and UAE-resident Omidreza Khademi. Khademi was arrested by the United States in 2012 and pleaded guilty to charges related to his part in this scheme in May 2013. Khademi used his UAE-based company, Omid General Trading LLC, to transfer payments to U.S. companies for goods procured by Sepehri on behalf of Iranian end users. Omid General Trading LLC, which was established in 2003, allegedly supplies equipment to firms in the power plant, petroleum, gas, and petrochemical industries. It also reportedly conducts business dealings not only with businesses in Iran, but also with companies in Canada, Europe, Kazakhstan, and the United States.

A final, as yet unidentified, part of the network is also located in the UAE: Conspirator C, an Iranian citizen living in the UAE who owns and operates Company C. Based on an analysis of court documents and government sanctions, Company C may be Modern Technologies FZC, which also is still subject to EU sanctions for its role in procuring components for Iran’s nuclear program.

THE TRANSSHIPMENT HUB: HONG KONG
At the conspiracy’s outset, Khademi provided Sepehri with the address of an unnamed Hong Kong company that Sepehri used to facilitate the transshipment of illicitly procured U.S.-origin goods. Additionally, Khademi and Sepehri used this company to negotiate prices with U.S. suppliers and to solve logistical problems related to the goods’ shipment.

The Sceme: A Common Pattern

The indictment describes five successful shipments of U.S.-origin goods facilitated by Sepehri; all roughly follow the same pattern. Conspirator B in Iran would request specific items from Sepehri who would in turn place orders with relevant U.S. companies, while hiding the end user and ultimate destination of the goods. Sepehri would have the goods shipped from the United States to Hong Kong. Payments to the U.S. companies would be made from the UAE, after which Khademi would instruct the Hong Kong company to ship the goods to Iran.

Shipments included:

SR0847-A01 Lens (2011): Procured from a New Hampshire-based manufacturer for an Iranian customer. This particular lens can be used for a missile tracking device and is a designated item on the U.S. Munitions List (Category XII(e)), which requires a license to be exported. There is a presumption of denial for any license applications of Munitions Lists items for Iran.
Side Scan Sonar System (2011): Procured from a Massachusetts-based company and shipped to Sepehri in Tehran at an address for Company B. These small, portable systems have military applications and can capture high-resolution images from small watercraft. They are controlled by the United States for shipment to Iran for anti-terrorism reasons (ECCN 6A991).
Underwater Acoustic Transducer (2011): Procured from an Ohio-based company and shipped to TSS in Iran with Company B identified as the consignee. According to court documents, the transducer “was designed for general purpose military and scientific applications in an underwater environment,” including the detection and classification of underwater improvised explosive devices (IEDs). The Ohio company questioned Sepehri about the intended use of the transducer because it is a “military type unit with no commercial sales.” Sepehri successfully assuaged the company by falsely stating that the system was for a civilian fishing project.
PCI Analog Input Board (2010): Procured from an Alabama-based company and intended for use at the University of Tehran’s computer lab. According to U.S. court documents, typical applications for this item include “high density analog inputs, industrial robotics, acoustic sensor arrays, biometric signal analysis and dynamic test systems.”
Rugged Laptop Computers (2010): Procured from a California-based company and shipped to TSS in Iran for an unidentified end user. According to U.S. court documents, these laptops have “extensive military applications,” and are able to withstand extreme conditions.

Case Status

Both Sepehri and Khademi were arrested and charged by U.S. authorities for their roles in the conspiracy. The dates and circumstances of their arrests have not been made public.

On May 28, 2013, Khademi pleaded guilty to his role in the conspiracy to export U.S.-origin goods to Iran in violation of the International Emergency Economic Powers Act and the Iranian Transaction Regulations. About four months later, on September 13, 2013, Khademi was sentenced in the District of Columbia to 29 months in a federal prison, $100 special assessment, and ordered to forfeit $4,400.

On November 8, 2018, the U.S. Department of Justice announced that Sepehri had pleaded guilty to conspiracy to unlawfully export controlled goods and technologies to Iran in violation of military controls and sanctions on Iran. Sepehri could face up to five years in prison and financial penalties in addition to the forfeiture judgement of $125,661 included in his plea agreement. He is due to be sentenced on January 16, 2019.

It is unclear whether U.S. authorities will prosecute the remaining unidentified co-conspirators and companies involved in this procurement network. However, three companies in this network may still be listed by the EU for their role in illicitly supplying the Iranian nuclear program. Conspirator B, operating from Iran, directed the conspiracy, and Company C and Conspirator C could still be operating in the UAE.

References:

Council Implementing Regulation (EU) No 503/2011 of 23 May 2011 implementing Regulation (EU) No 961/2010 on restrictive measures against Iran, Official Journal of the European Union, L 136/31, May 24, 2011, available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2011:136:0026:0044:EN:PDF, accessed on December 1, 2018.

Indictment, United States of America v. Arash Sepehri and Tajhiz Sanat Shayan, Case No. 1:16-cr-00081-RMC, U.S. District Court, District of Columbia, May 11, 2016, p. 2, available at https://www.iranwatch.org/library/governments/united-states/executive-branch/department-justice/indictment-united-states-america-v-arash-sepehri-tajhiz-sanat-shyan, December 1, 2018.

“Iranian National Pleads Guilty to Conspiring to Illegally Export Products From the United States to Iran,” U.S. Department of Justice, Press Release, November 8, 2018, https://www.justice.gov/opa/pr/iranian-national-pleads-guilty-conspiring-illegally-export-products-united-states-iran, accessed on December 1, 2018.

Statement of Major U.S. Export Enforcement, Economic Espionage, Trade Secret, and Embargo-Related Criminal Cases (January 2009-Present), U.S. Department of Justice, February 23, 2015, https://www.justice.gov/file/347376/download, accessed on December 1, 2018.

Statement of the Offense, United States of America v. Arash Sepehri, Case No. 1:16-cr-00081-RMC, U.S. District Court, District of Columbia, November 7, 2018, available at https://www.iranwatch.org/library/governments/united-states/executive-branch/department-justice/statement-offense-united-states-america-v-arash-sepehri, December 1, 2018.

Statement of the Offense, United States of America v. Omidreza Khademi, Case No. 1:12-cr-00278-RMC, U.S. District Court, District of Columbia, May 28, 2013, available at https://www.iranwatch.org/library/governments/united-states/executive-branch/department-justice/statement-offense-united-states-america-v-omidreza-khademi-omid-general-trading, December 1, 2018.

India Nuclear Milestones: 1945-2018

October 31, 2018April 3, 2025 By Jonathan McLaughlin

1945: The Tata Institute of Fundamental Research Mumbai is inaugurated.

1948: The Atomic Energy Commission (AEC) is established under the direction of Dr. Homi J. Bhabha.

1950: Indian Rare Earths Limited (IREL) is established as a joint venture between the Government of India and Government of Travancore, Cochine. It is brought under the control of the Department of Atomic Energy in 1963.

1951: The first uranium deposit in India is discovered at Jaduguda.

1954: The Department of Atomic Energy (DAE) is created.

1956: India’s one MWt Apsara research reactor attains criticality.

1957: India establishes the Atomic Energy Establishment, Trombay, which will be renamed the Bhabha Atomic Research Center (BARC) in 1967.

1959: The Uranium Metal Plant at Trombay begins production.

1960: The heavy water forty MWt CIRUS reactor, supplied by Canada and run with U.S.-supplied heavy water, attains criticality and begins making weapons-grade plutonium.

1961: India’s 0.1 kW Zerlina research reactor attains criticality only to be decommissioned in 1983.

1962: Heavy water production begins at German-built Nangal plant.

1963: The United States and India sign an accord stipulating that the United States will supply enriched fuel to India’s Tarapur nuclear power plant.

1964: Extraction of plutonium from CIRUS spent fuel begins at Trombay.

1967: Uranium mining operations begin at Jaduguda. A uranium mill is also established there.

1968: India refuses to join the Nuclear Nonproliferation Treaty.

1968: Nuclear Fuel Complex is established at Hyderabad under the DAE.

1969: Two 160 MWe boiling water reactors begin operations at Tarapur Atomic Power Station (TAPS).

1969: Heavy Water Projects is established under the DAE. It is later renamed the Heavy Water Board.

1971: India establishes the Reactor Research Centre under the DAE. It is later renamed Indira Gandhi Centre for Atomic Research (IGCAR).

1973: The Canadian-built 100 MWe heavy water reactor Rajasthan-1 begins operations at Rajasthan Atomic Power Station (RAPS), serving as the model for later unsafeguarded reactors. Five additional heavy water reactors will be built and begin operations at RAPS: one in 1981, two in 2000, and two in 2010

May 1974: India conducts an underground nuclear explosion at Pokhran, Rajasthan. India describes the test, codenamed “Smiling Buddha,” as a “peaceful nuclear explosion.” Estimates of the yield range from 8 to 12 kilotons.

1975: Surda Uranium Recovery Plant is established.

July 1978: The Tuticorin Heavy Water Plant is commissioned.

1982: France agrees to take over supply of approximately 50,000 SWU per year of low-enriched uranium (LEU) to India’s General Electric-built Tarapur reactors, following the cessation of U.S. fuel supplies.

November 1982: BARC’s Power Reactor Fuel Reprocessing Plant at Tarapur is commissioned.

1982-87: India smuggles, via a German broker, heavy water from the USSR, China, and Norway, and uses the heavy water in reactors to make plutonium for a nuclear arsenal.

February 1983: Rakha Uranium Recovery Plant is commissioned.

May 1983: In response to a story in the Hindustan Times alleging that India has received a nuclear consignment from the Soviet Union, an Indian foreign ministry spokesperson admits that the Soviet Union has supplied 131 tons of heavy water to the Rajasthan Atomic Power Station (RAPS) out of the total of 256 tons promised under a September 1976 agreement.

1983-1984: The Norwegian firm Norsk Data reportedly sells six computers of the ND 100 and ND 500 type to BARC, according to the Foreign Ministry of Norway.

1984: West German firm Degussa re-exports to India 95 kg of U.S.-origin beryllium, usable as a neutron reflector in fission bombs, and is later fined $800,000 by the United States.

January 1984: The first 220 MWe heavy water reactor at Madras Atomic Power Station (MAPS) begins operations. A second unit is built and begins operations at MAPS in March 1986.

March 1984: Plutonium-Uranium mixed carbide fuel is fabricated at Trombay for the Fast Breeder Test Reactor (FBTR).

April 1985: The Kota Heavy Water Plant is commissioned.

August 1985: The heavy water 100 MWt Dhruva reactor attains criticality and starts producing weapons-grade plutonium.

October 1985: India’s forty MWt Fast Breeder Test Reactor (FBTR) attains criticality.

March 1986: Romania reportedly illegally re-exports 12.5 metric tons (MT)* of Norsk Hydro AS-produced heavy water to India, according to investigations conducted by Norwegian police in Bucharest.

April 1986: The Swedish periodical Dagens Nyheter reports that India was among several countries that purchased flash x-ray aggregates from Sweden between 1977 and 1984. This equipment has applications in high-speed photography of nuclear explosions.

July 1986: Nuclear Power Board chairman, Malur Srinivasan, reports that India is currently reprocessing spent fuel at Tarapur from MAPS. In addition to providing India with a source of unsafeguarded plutonium, Srinivasan adds that the output will be used to fuel the FBTR at Kalpakkam.

October 1986: Bhatin Uranium Mine is commissioned and the ore is sent to Jaduguda mill for processing.

January 1987: India’s AEC chairman, Dr. Raja Ramanna, says that India can enrich uranium to any desired level and that BARC has already been enriching uranium on a pilot scale. BARC Director, Dr. P. K. Iyengar notes that India is also developing laser enrichment technologies.

February 1987: The Thal Heavy Water Plant is commissioned.

September 1987: the Nuclear Power Corporation of India Limited (NPCIL) is established.

1988: Pakistan and India agree to exchange lists of nuclear installations as part of an agreement not to attack each others’ nuclear facilities. The first exchange occurs in January 1992.

1988: Russia agrees to build two 1,000 MW (VVER-1000) reactors at Kudankulam, India. Construction reportedly begins in March 2002.

February 1988: The INS Chakra nuclear submarine, which is leased for three years from Russia, arrives at Visakhapatnam in India.

March 1989: Director of U.S. Central Intelligence, William H. Webster, says that there are “indicators” that India is building a thermonuclear weapon. Among the signs are activities at India’s BARC involving purification and the separation of lithium-6 isotopes, used to produce tritium.

October 1990: According to India’s AEC Chairman, the design throughput of India’s reprocessing facility under construction at Kalpakkam has nearly doubled to 200 MTper year. The 100 (MT) per year Prefre reprocessing plant at Tarapur has undergone a fifty MTincrease in reprocessing capability.

December 1990: U.S. President George Bush eases export restrictions on supercomputer exports to Brazil, India and China.

1991: The Indian Navy reportedly begins work on a nuclear-powered submarine project, shortly after returning a Charlie I-type SSGN leased from the Soviet Union.

January 1991: The 220 MWe heavy water reactor at Narora Atomic Power Station (NAPS) begins commercial operations. An additional heavy water reactor with the same capacity will be built and commence operations at NAPS in July 1992.

January 1991: The Hazira Heavy Water Plant is commissioned.

November 1991: India withdraws an offer to sell a ten MW nuclear research reactor to Iran, following pressure from the United States.

March 1992: AEC Chairman P.K. Iyengar reportedly claims that a second gas centrifuge uranium enrichment facility is operational near a site for rare earths material production. Official sources suggest that the facility has several hundred operating centrifuges made of domestically-produced maraging steel.

December 1992: India’s AEC confirms the existence of approximately 10,000 tons of uranium ore in the West Khasi Hills of Meghalaya, possibly the largest reserve in India after Jaduguda.

May 1993: The 220 MWe reactor at Kakrapar Atomic Power Station (KAPS) begins commercial operations. An additional heavy water reactor with the same capacity will be built and commence operations at KAPS in September 1995.

June 1994: India has reportedly won its first commercial heavy water export deal, with the DAE supplying 100 tons of heavy water, under IAEA safeguards, for the Wolsung CANDU plants in South Korea.

January 1995: India receives its first consignment of LEU for the Tarapur nuclear plant from China. Indian officials say that the uranium will be converted into fuel assemblies along with a MOX fuel developed by DAE. France stopped supplying Tarapur in 1994, stipulating that India must first submit to IAEA full-scope safeguards before shipments resume.

January 1995: India inaugurates the Narwapahar uranium mine in Jharkhand.

1996: India cancels plans to test a nuclear weapon.

March 1996: India cold commissions the Kalpakkam Reprocessing Plant.

October 1996: The Chairman of the DAE announces that India and South Korea have signed a contract for the export to South Korea of 100 MTof heavy water to be conducted in 1998.

October 1996: India’s thirty kW, U-233 fueled Kamini research reactor attains criticality. The reactor is reportedly located beneath a hot cell of the radio metallurgy laboratory where neutron radiography of irradiated fuel of the FBTR at Kalpakkam will be conducted.

1997: Prime Minister I. K. Gujral says India will not sign the Fissile Material Cut-off Treaty (FMCT) or any other “discriminatory” nuclear agreement that would hamper India’s nuclear program.

December 1997: the Jaduguda Mill is expanded to treat 2090 tons of uranium ore per day.

January 1998: Scientists at BARC claim they have developed a low cost method of extracting tritium from heavy water used in nuclear power reactors.

May 1998: India conducts two rounds of nuclear weapon tests. After the first, Prime Minister Atal Behari Vajpayee announces that “a fission device, a low-yield device and a thermonuclear device” had been successfully tested in the Pokhran desert. Two days later the government explodes two more sub-kiloton nuclear tests at the same testing range. The five underground tests range in yield from less than one kiloton to an estimated 45 kilotons.

May 1998: President Clinton imposes economic sanctions on India after it refuses American demands to disavow future testing or deployment of nuclear weapons.

May 1998: Russia refuses to join other countries in punishing India for its nuclear tests.

May 1998: In response to India’s nuclear tests, the World Bank postpones the approval of $865 million in loans to India.

June 1998: “Well-placed Indian official sources,” reportedly claim that since the mid 1970s India’s DAE and BARC prepared about 25 spherical plutonium metal bomb cores from the spent fuel of two reactors.

November 1998: Analysts at Lawrence Livermore Laboratory have reportedly concluded that one of India’s May nuclear explosions, described by India as a successful thermonuclear test, failed to ignite its secondary stage as planned. As a result, one unnamed U.S. official states that India’s DAE “is under intense pressure to test again.”

November 1998: India introduces a resolution at the United Nations on nuclear de-alerting to reduce the potential for an accidental launch.

November 1998: The U.S. Department of Commerce’s Bureau of Export Administration sanctions Indian governmental, parastatal, and private entities thought to be involved in nuclear or missile activities.

December 1998: Indian Prime Minister Atal Behari Vajpayee tells parliament that India’s nuclear doctrine will be centered on two elements: a small but credible deterrent, and a no-first-use policy.

February 1999: The United States ends its opposition to extending World Bank loans to India, allowing the approval of a $210 million energy project.

April 1999: Dr. A.J.P. Abdul Kalam, head of India’s Defence Research & Development Organisation (DRDO) says that “the Agni II [intermediate-range ballistic missile] is designed to carry a nuclear warhead if required,” and claims that an Agni-class payload was tested during the underground nuclear tests in May 1998.

June 1999: Officials at DAE admit they are planning to build a new research-size reactor inside the BARC campus to increase its annual production of weapon-grade plutonium. Officials say the new reactor will be based on the existing CIRUS and Dhruva reactors and predict that it will be operational by 2010.

August 1999: The chairman of the AEC claims that India can manufacture nuclear weapons of “any type of size” based on information obtained during last year’s nuclear tests.

December 1999: The Assistant Secretary for Export Administration at the U.S. Department of Commerce announces the removal of 51 organizations from the list of 200 Indian entities sanctioned in November 1998.

March 2000: The 220 MWe unit 2 heavy water reactor at Kaiga Generating Station (KGS) begins commercial operations. Unit 1 begins operations in November 2000. Two additional heavy water reactors with the same capacity are later built and begin operations at KGS, the first in May 2007 and the second in January 2011.

June 2000: One of India’s leading nuclear scientists, retired DAE head P. K. Iyengar, tells an Indian newspaper that India’s May 1998 thermonuclear bomb test wasted most of its fuel by burning “only partially, perhaps less than 10 percent” and that India needs to redesign and test the weapon again.

August 2000: Russia agrees to supply India’s Tarapur nuclear power plant with 58 MT of LEU.

March 2001: The Canadian government announces that it is lifting economic sanctions that were imposed on India in the wake of its May 1998 nuclear tests.

May 2001: Russian fuel fabricator MSZ Elektrostal has reportedly completed work on fuel assemblies and has shipped nuclear fuel to India’s Tarapur facility, despite objections by the United States and European members of the Nuclear Suppliers Group (NSG).

September 2001: U.S. President George W. Bush waives U.S. economic sanctions against India and Pakistan originally imposed as a penalty for their nuclear weapon tests conducted in 1998. The New York Times suggests that the United States undertook this measure to reward those nations assisting in the “war on terrorism.”

October 2001: Japan lifts the economic sanctions that it imposed on India and Pakistan in the wake of their May 1998 nuclear weapon tests. A Japanese government spokesperson explains that sanctions are being lifted because Japan “values India and Pakistan’s efforts to contribute to strengthening the international coalition against terrorism.”

November 2001: India’s BARC has developed a nuclear power plant for its ATV cruise missile submarine. Russian engineers and Indian scientists have begun installation and testing of the plant at IGCAR.

December 2001: Defense and Foreign Affairs Strategic Policy announces that in the past twelve months Russia’s Rosoboronexport transferred a Russian Shchuka-B class nuclear power submarine to India’s navy, under a three-year lease.

December 2001: India and the United States resume military-to-military cooperation and revive the Defense Policy Group (DPG), which was suspended after India’s May 1998 nuclear tests.

November 2002: India and the United States establish the U.S.-India High Technology Cooperation Group to facilitate and promote bilateral high-technology trade, including trade in dual-use goods and technologies.

November 2002: The Turamdih uranium mine is inaugurated at Jharkhand.

December 2002: The Chairman of the AEC in India, Dr. Anil Kakodkar, unveils a Rs100-crore program that focuses on the use of thorium as an alternative to uranium in nuclear energy generation.

January 2003: India establishes its Strategic Forces Command (SFC) and approves appointment of a Commander-in-Chief to manage its nuclear and strategic forces.

January 2003: India outlines its eight-point nuclear doctrine. The doctrine includes: 1) a no-first-use posture; 2) authorization of retaliatory attacks only through civilian political leadership under the Nuclear Command Authority; 3) building and maintaining of a credible minimum deterrent; 4) non-use of nuclear weapons against non-nuclear weapon states; 5) the option to use nuclear weapons in retaliation to chemical and biological attacks; 6) continuance of strict export controls; 7) participation in negotiations of the FMCT; and 8) continued observance of its moratorium on nuclear testing.

March 2003: The creation of the Demonstration Fuel Reprocessing Plant (DFRP) at IGCAR is approved. The DFRP will reprocess fuel from India’s fast breeder reactors. It enters its commissioning phase in January 2017.

April 2003: U.S. officials reportedly confirm that in late 2002, India’s DAE, BARC, and DRDO requested permission from Prime Minister Atal Bihari Vajpayee to test three nuclear devices.

May 2003: The Compact Reprocessing Facility for Advanced Fuels in Lead cells (CORAL) is commissioned at IGCAR. It will reprocess spent fuel for fast breeder reactors.

September 2004: As part of the India-United States Next Steps in Strategic Partnership (NSSP) initiative, which began in January 2004, the U.S. Commerce Department announces removal of Indian Space Research Organisation (ISRO) headquarters from the U.S. Entity List and the introduction of a “presumption of approval” for all dual-use items not controlled by the NSG, if going to the “balance of plant” portion of an Indian nuclear facility subject to international inspection.

October 2004: Prime Minister Manmohan Singh launches the commercial phase of India’s fast breeder reactor program with the initiation of construction on the 500 MW Prototype Fast Breeder Reactor (PFBR). The facility remains under construction as of July 2018.

December 2004: Alexander Yuryevich Rumyantsev, director of the Russian Federal Atomic Energy Agency, states that Russia, because of its adherence to the NSG, will not continue to supply fuel for the Tarapur nuclear power plant, in spite of its provision of 50 MT of enriched uranium to the same plant in 2001. Rumyantsev comments that fuel provided in 2001 was for safety reasons, since “India at that time had no fuel.”

January 2005: Russia completes delivery of a 320 MT nuclear reactor, manufactured by the OAO Izhora Factories in St. Petersburg, Russia, for the first unit of the Kudankulam Nuclear Power Station (KKNPS) in Tamil Nadu.

March 2005: The United States agrees to sell F-16 aircraft, which can be used as delivery vehicles for nuclear weapons, to India and Pakistan.

April 2005: India participates for the first time at the Convention on Nuclear Safety (CNS) review meeting and ratifies the CNS.

May 2005: India passes the Weapons of Mass Destruction and Their Delivery Systems Bill, in response to U.N. Security Council Resolution 1540.

June 2005: India’s Defense Minister Pranab Mukherjee and U.S. Defense Secretary Donald Rumsfeld sign a defense agreement entitled “New Framework for the U.S.-India Defense Relationship.” Areas of cooperation will include combating the spread of weapons of mass destruction, collaboration on missile defense, as well as defense strategy and intelligence exchanges.

August 2005: India and Pakistan agree to set up a telephone hotline by September 2005 to reduce the risk of a nuclear accident. The head of the Indian delegation, Meera Shankar, also offers Pakistan a draft agreement “for undertaking measures to reduce the risks of accidental or unauthorized use of nuclear weapons under their respective control.” In a separate agreement the two parties agree to notify each other prior to tests of ballistic missiles, many of which are nuclear capable.

August 2005: Britain’s Foreign and Commonwealth Office issues amended measures to its policy restrictions on India. The measures state that the United Kingdom will consider on a “case-by-case” basis license applications for items on the NSG Dual-Use List, departing from its March 2002 policy to deny all such exports.

August 2005: As part of the reciprocal steps to complete the U.S. and Indian NSSP, the U.S. Department of Commerce removes six Indian entities from the Entity List. Removed DAE facilities include Tarapur (TAPS 1 and 2), Rajasthan (RAPS 1 and 2), and Kudankulam (1 and 2), two of which are under IAEA safeguards and one of which is to be placed under safeguards after completion. The other three entities are ISRO subordinates and include ISRO Telemetry, Tracking and Command Network, ISRO Inertial Systems Unit, Thiruvananthapuram, and Space Applications Center, Ahmadabad. The order also eliminates export and re-export license requirements on items controlled unilaterally by the United States for nuclear nonproliferation reasons.

September 2005: A 540 MWe heavy water reactor begins operations at TAPS. A second 540 MWe heavy water reactor built at the plant and beings operations in August 2006.

September 2005: India and France issue a joint statement under which France acknowledges “the need for full international civilian nuclear cooperation with India,” pledging to “work towards this objective by working with other countries and the NSG and by deepening bilateral cooperation.”

September 2005: Canada’s Foreign Affairs Minister Pierre Pettigrew meets with Indian External Affairs Minister K. Natwar Singh and the two agree on measures including Canada’s permission for the supply of nuclear-related dual-use items to Indian civilian nuclear facilities under International Atomic Energy Agency safeguards, in accordance with NSG guidelines, and the development of peaceful uses of nuclear energy through bilateral and international forums.

February 2006: DAE Secretary Anil Kokodkar recommends that, in addition to the Dhruva and CIRUS units, a portion of India’s nuclear reactors, including the breeders and the naval reactor, not be put under IAEA safeguards in order to meet the country’s “strategic need.”

September 2006: The International Panel on Fissile Materials estimates that India has a net stockpile of approximately 0.52 MT of weapons grade plutonium, enough for 85-130 nuclear warheads, and 0.2 MT of highly enriched uranium. Assuming this uranium is enriched to weapons grade (90% or higher), this is enough for 10-20 nuclear warheads.**

December 2006: U.S. President George W. Bush signs the United States-India Peaceful Atomic Energy Cooperation Act, a key step in enabling the United States to share civilian nuclear technology with India.

February 2007: India and Pakistan sign an agreement on “Reducing the Risk from Accidents Relating to Nuclear Weapons” that requires both countries to immediately notify each other of any nuclear weapon-related accident that could create cross-border radioactive fallout risk or an outbreak of nuclear war. The agreement is renewed for five years in 2012 and 2017.

2008: The Bagjata uranium mine is commissioned.

April 2008: India’s facility for Advanced Heavy Water Reactor (AHWR) research and development becomes critical. The facility, overseen by BARC, is used to develop thorium-fueled AHWR technology.

August 2008: The IAEA Board of Governors approves the Agreement for the Application of Safeguards to Civilian Nuclear Facilities between India and the IAEA.

September 2008: The NSG adopts a policy to transfer trigger list and nuclear-related dual-use items and related technology to IAEA safeguarded Indian civilian nuclear facilities.

October 2008: U.S. President George W. Bush signs into law the United States-India Nuclear Cooperation Approval and Nonproliferation Enhancement Act. This brings the U.S.-India 123 Agreement into force, which grants India advance consent to reprocessing in a designated safeguarded facility and provides fuel assurances.

October 2008: The New Hot Cells Facility for the examination of irradiated nuclear fuels is inaugurated at BARC.

October 2008: BARC director Dr. S. Banerjee indicates that fourth generation “advanced gas centrifuges” are being developed at BARC and will soon be installed at the Rare Materials Plant (RMP), which houses India’s military gas centrifuge enrichment facility. He adds that third generation centrifuges are currently being inducted at RMP.

October 2008: The International Panel on Fissile Materials estimates that India has a net stockpile of 0.68 MT of weapons grade plutonium, enough for 115-170 nuclear warheads, and 0.6 MT of highly enriched uranium. According to the Panel, a portion of the highly enriched uranium stockpile is used for naval fuel as it is enriched below weapons grade (90%).

November 2008: The United Kingdom revises its Indian nuclear-related export policy and will evaluate license applications for items on the NSG trigger and dual-use lists destined for IAEA-safeguarded civil nuclear facilities in India on a case-by-case basis.

November 2008: The Bulletin of the Atomic Scientists estimates that India has produced approximately 70 nuclear warheads, of which 50 are fully operational.

December 2008: India and Russia agree to cooperate in the construction of four nuclear power units at Kudankulam. A Russian diplomatic source reportedly claims the four new reactors may be VVER-1200s, capable of generating 1,170 MW each. The official also claims that Russia has agreed to supply India with six additional reactors.

December 2008: France’s AREVA signs an agreement with India’s DAE to supply 300 tons of uranium to NPCIL. The contract is concluded in 2009.

January 2009: India and Kazakhstan sign a Memorandum of Understanding (MoU) under which Kazakhstan will reportedly receive Indian-made nuclear reactors and supply India with 2000 tons of uranium. The contract is concluded in 2014.

January 2009: India inaugurates its first opencast uranium mine at Banduhurang.

February 2009: India’s NPCIL signs an MoU with France’s AREVA to set up two to six EPR reactors (advanced pressurized water reactors) at Jaitapur.

February 2009: Russia’s TVEL and India’s DAE sign a long-term contract for TVEL to supply India with 2000 MT of uranium pellets. The contract is concluded in December 2016.

May 2009: The Agreement for the Application of Safeguards to Civilian Nuclear Facilities between India and the IAEA enters into force.

May 2009: India signs a version of the IAEA’s Additional Protocol. This version is much less restrictive than the Model Additional Protocol.

June 2009: The Apsara research reactor is shut down for upgrades.

July 2009: India launches the INS Arihant, its first nuclear-powered submarine, which will reportedly be capable of launching nuclear-capable ballistic weapons.

August 2009: India and Namibia sign an Agreement on Cooperation in Peaceful Uses of Nuclear Energy that reportedly includes the sale of uranium to India.

October 2009: The IAEA receives written notification of fourteen nuclear-related facilities that India will put under safeguards: the Uranium Oxide Plant, Ceramic Fuel Fabrication Plant, Enriched Uranium Oxide Plant, Enriched Fuel Fabrication Plant and Gadolinia Facility at the Nuclear Fuel Complex in Hyderabad; TAPS 1 & 2 at Tarapur; RAPS 1, 2, 5 and 6 at Rajasthan; and KKNPP 1 & 2 at Kudankulam.

October 2009: India designates the following sites for setting up light water power reactors: Jaitapur, in cooperation with France; Kudankulum and Haripur, in cooperation with Russia; and Chhayamithi Virdi and Kovvada, in cooperation with the United States.

October 2009: The International Panel on Fissile Materials estimates that India has a net stockpile of approximately 0.7 MT of weapons grade plutonium, enough for 115-175 nuclear warheads, and 0.6 MT of highly enriched uranium. According to the Panel, this highly enriched uranium is used primarily in India’s naval propulsion program.

November 2009: Canada and India conclude negotiations on a nuclear cooperation agreement that would allow Canadian firms to trade in nuclear-related items with India.

March 2010: Satellite imagery of RMP indicates the excavation and construction of buildings suspected to be for a new gas centrifuge hall. Images taken in early 2014 indicate that the construction is nearly complete.

March 2010: India puts the remaining two heavy water reactors at Rajasthan (RAPS 3 and 4) under IAEA safeguards.

March 2010: Russia and India agree to jointly construct two more reactors at Kudankulam, which would bring the number of units at the site to six. They also agree to construct two reactors at Haripur in West Bengal.

July 2010: India and the United States sign the Agreement on the Arrangements and Procedures for the reprocessing of U.S. obligated material by India. The arrangements and procedures are pursuant to the 123 Agreement, which requires that U.S.-origin nuclear material only be reprocessed in Indian facilities that are under IAEA safeguards.

September 2010: The Bulletin of the Atomic Scientists estimates that India has produced 60-80 nuclear warheads, 50 of which are fully operational.

December 2010: India puts the two heavy water reactors at Kakrapar Atomic Power Station (KAPS 1 and 2) under IAEA safeguards.

December 2010: The International Panel on Fissile Materials estimates that India has a net stockpile of 0.5 MT of weapons grade plutonium, enough for 85-125 nuclear warheads, and 1.3 MT of highly enriched uranium. This uranium is assumed to be enriched to 30 % and used primarily in the nuclear submarine program.

December 2010: The CIRUS reactor is permanently shut down.

January 2011: The reactor fuel reprocessing plant PREFRE-2, which will reprocess spent fuel from India’s heavy water reactors, is established at BARC.

January 2012: The Hindu reports that India is building a second Arihant-class nuclear submarine named the INS Aridaman.

April 2012: The Mohuldih underground uranium mine is commissioned. A uranium ore mine and processing plant is also commissioned at Tummalapalle.

April 2012: The Indian Navy inducts a second INS Chakra nuclear submarine leased from Russia into service.

July 2012: The Bulletin of the Atomic Scientists estimates that India has produced 80-100 nuclear warheads.

December 2012: India puts the Away from Reactor (AFR) fuel storage facility at Tarapur under IAEA safeguards.

July 2013: The Indian government approves the establishment of the Fast Reactor Fuel Cycle Facility (FRFCF), which will be used to reprocess spent fuel at IGCAR.

August 2013: The reactor for the INS Arihant nuclear submarine attains criticality.

September 2013: India signs a preliminary contract with Westinghouse for the construction of six AP1000 reactors in the Bhavnagar district of Gujarat.

September 2013: The Canada-India Nuclear Cooperation Agreement enters into force. The agreement allows Canadian companies to export controlled nuclear materials, equipment, and technologies to Indian nuclear facilities that are under IAEA safeguards.

October 2013: The International Panel on Fissile Materials estimates that India has a net stockpile of 0.54 MT of weapons grade plutonium, enough for warheads 90-135 warheads, and 2.4 MT of highly enriched uranium. This uranium is assumed to be enriched to 30 % and used primarily in the nuclear submarine program.

March 2014: India puts the nuclear material store at Tarapur under IAEA safeguards.

July 2014: An Additional Protocol negotiated between India and the IAEA enters into force. India’s Protocol requires Delhi to notify the IAEA of nuclear-related exports but, it does not require India to report fuel-cycle related research and development, nuclear-related imports, and uranium mining. A number of India’s nuclear facilities also remain outside the scope of IAEA safeguards.

September 2014: Australia and India sign an agreement under which Australia will supply uranium to India. The agreement enters into force in November 2015.

November 2014: The Dhruva reactor begins operating at its full 100 MW capacity.

December 2014: The INS Arihant nuclear submarine reportedly begins sea trials.

December 2014: India puts the two heavy water reactors at NAPS (NAPS 1 and 2) under IAEA safeguards.

December 2014: India and Russia sign an agreement to pursue the joint construction of at least 12 additional nuclear power plants in India, and to cooperate on the production of nuclear fuel.

February 2015: India reportedly approves the construction of six nuclear-power attack submarines.

April 2015: Canada’s Cameco and India’s DAE sign an MOU under which Canada will supply India with approximately 3000 MT of uranium from 2015-2020.

May 2015: The Monazite Processing Plant (MoPP) is commissioned under IREL. The 10,000 tons per annum plant is used for recovering uranium in the form of nuclear grade ammonium di-uranate.

July 2015: Kazakhstan’s NAC Kazatomprom and India sign an MOU under which Kazakhstan will supply 3700-7000 MT of uranium to India from 2015-2019. The first shipment is made in 2016.

October 2015: Russia’s JSC TVEL supplies India with 42 MT of enriched uranium oxide pellets pursuant to a single delivery contract.

November 2015: The Bulletin of the Atomic Scientists estimates that India has produced 110-120 nuclear warheads.

December 2015: A report is released by a Washington, DC-based think tank indicating that India is building a large uranium enrichment plant in Challakere, Karnataka, to supply India’s nuclear reactors and nuclear submarines. Experts also believe that the facility will house atomic research labs and weapons testing areas, and will be used to develop thermonuclear weapons.

December 2015: The International Panel on Fissile Materials estimates that India has a net stockpile of .59 MT of weapons grade plutonium, enough for 100-150 nuclear warheads, and 3.2 MT of highly enriched uranium. This uranium is assessed to be enriched to 30% and used primarily in the nuclear submarine program.

December 2015: India receives its first shipment of uranium from Canada.

April 2016: Hannah Robert is sentenced by a judge in New Jersey to 57 months in prison for illegally exporting sensitive military technical data to India, including blueprints for parts used in torpedo systems for nuclear submarines.

May 2017: The Indian government approves the construction of ten 700 MW heavy water reactors in a fleet mode.

July 2017: Australia reportedly makes its first shipment of uranium to India.

July 2017: The Bulletin of the Atomic Scientists estimates that India has produced 120-130 nuclear warheads.

August 2017: Sources tell the Print that the Aridaman (aka Arighat) nuclear submarine has been assembled and is ready to be launched for further outfitting. The Aridaman is believed to be able to carry more SLBMs than the Arihant and to have a more powerful reactor. It is reportedly launched by January 2018.

September 2017: India puts two of its under-construction heavy water reactors at KAPS (KAPS-3 and 4) under IAEA safeguards.

December 2017: Indian Navy Chief Admiral Sunil Lanba reportedly confirms that India has started to build six nuclear-powered attack submarines.

February 2018: The International Panel on Fissile Material estimates that India has a net stockpile of .58 MT of weapons grade plutonium, enough for 100-150 nuclear warheads, and 4.0 MT of highly enriched uranium. This uranium is assessed to be enriched to between 30 % and 45 % and used primarily in the nuclear submarine program.

March 2018: India and the EDF Group of France sign an agreement to jointly construct six EPR reactors at Jaitapur. The total planned capacity at the site is 10 GW.

May 2018: India puts two of its under-development VVERs at Kudankulam (KKNPP 3 and 4) under IAEA safeguards.

September 2018: India recommissions an upgraded version of the Apsara research reactor. The upgraded version, the Apsara-U, is fueled with low enriched uranium fuel plates and will be used to produce radio-isotopes for medical purposes, as well as to conduct research in nuclear physics, radiation shielding, and material science.

* All tonnage referred to in this report are provided in metric tons (MT) unless otherwise specified. In these latter cases, it is not clear from the source whether the unit of measurement used is MT or Imperial Ton.

** All fissile material to warhead conversions in this report assume 4-6 kg of PGU per weapon, and 9-15 kg of WGU per weapon and rounded to the nearest “0” or “5”. These warhead masses were obtained from: “Fissile Material Basics [Fact Sheet],” Union of Concerned Scientists, 2004, available at https://www.ucsusa.org/sites/default/files/legacy/assets/documents/nwgs/nuclear_terrorism-fissile_materials.pdf, accessed on September 26, 2018.

Illicit Procurement Network Used Firms in China, Portugal, and Turkey to Supply Iran

October 31, 2018December 5, 2018 By Mana Mostatabi

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.

Iran Dodges FATF Countermeasures but Looming U.S. Sanctions May Achieve Similar Outcome

October 22, 2018November 8, 2018 By Valerie Lincy and Meghan Peri Crimmins

Iran was once again on the agenda at a plenary meeting of the Financial Action Task Force (FATF) last week in Paris. The body decided not to re-impose the severe restrictions on financial dealings with Iran that were suspended in 2016, despite U.S. efforts to build a case for such action in the weeks leading up to the meeting. These restrictions, or “countermeasures,” expand on the FATF’s existing due diligence requirements on Iran and may include preventing Iranian banks from establishing overseas subsidiary branches, requiring banks to review and terminate correspondent accounts with Iranian banks, and limiting business relationships or imposing enhanced monitoring and reporting requirements on transactions involving Iran.[1] The re-imposition of these restrictions would deal a further blow to Iran’s economy, which has been crippled by the U.S. decision to withdraw from the nuclear agreement and re-impose sanctions.

In Friday’s public statement, the FATF rebuked Iran for its failure to implement most of the Action Plan enacted in July 2016 to redress Iran’s strategic Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) deficiencies. While acknowledging some legislative progress, the FATF listed nine items from the Action Plan that remain outstanding and warned of “further steps” in February 2019 if Iran fails to address these deficiencies through legislation and regulatory reform.[2] These items include a failure to criminalize terrorist financing and money laundering offenses, to identify and freeze terrorist assets, to enforce a customer due diligence regime, and to stand up an independent financial intelligence unit, among other deficiencies. In the interim, the FATF called on its members to continue urging financial institutions to conduct enhanced due diligence when dealing with Iran, including robust monitoring of business relationships and transactions with Iranian entities.

In the lead up to the FATF plenary – and a few weeks before the full snapback of U.S. sanctions – the United States announced a series of measures intended to illustrate how Iran exploits the international financial system to fuel terrorism, proliferation, human rights abuses, and destabilizing actions in Syria, Yemen, and beyond. The measures also reveal how the United States will implement its “maximum pressure” campaign against Iran, including through enforcement actions and the application of anti-money-laundering authorities, primary sanctions, and the threat of secondary sanctions in an effort to induce governments, banks, and industry around the world to stop dealing with Iran.

On October 11, 2018, the U.S. Financial Crimes Enforcement Network (FinCEN) issued an advisory to help financial institutions detect potentially illicit transactions with Iran. Specifically, the advisory provides useful red flags designed to “help foreign financial institutions better understand the obligations of their U.S. correspondents, avoid exposure to U.S. sanctions, and address the AML/CFT risks that Iranian activity poses to the international financial system.”[3]

This advisory was followed by another round of U.S. Treasury Department sanctions on October 16, targeting “a vast network of businesses providing financial support to the Basij Resistance Force, a paramilitary force subordinate to Iran’s Islamic Revolutionary Guard Corps (IRGC).”[4] In addition, the U.S. administration is debating whether or not to sanction the Belgium-based SWIFT financial messaging service if it fails to disconnect all Iranian financial institutions.

The FATF decision to maintain Iran’s status as a high-risk jurisdiction, but not to re-impose economic countermeasures on Iran, provides temporary support for efforts by the remaining parties in the nuclear agreement with Iran, or Joint Comprehensive Plan of Action (JCPOA), to preserve the agreement. The decision also reflects an ongoing struggle between the European Union’s effort to find a financial mechanism to allow European business to continue trading with Iran and U.S. efforts to end almost all such ties. The EU has created a “Special Purpose Vehicle” to support continued trade – essentially a channel to facilitate payments related to Iran’s exports (including oil) and imports, and which also could be open to countries outside the EU.[5] But it is unclear whether any business with ties to the United States would consider using this vehicle, particularly if the FATF re-imposes countermeasures in February.

U.S. Warns Foreign Firms against Iran

The October 11 FinCEN advisory describes typologies used by Iran to illicitly access the financial system, including: the misuse of banks and exchange houses; exploitation of commercial shipping; reliance on shell or front companies within complex procurement networks; reliance on senior officials from the Central Bank of Iran (CBI) to mask illicit transactions; and the use of precious metals and perhaps virtual currencies to evade sanctions.

Red flags for each of these deceptive behaviors are described as well, such as: the routing of transactions to personal accounts by CBI officials where funds may be withdrawn by entities with no affiliation to the Iranian government; the use of multiple exchange houses to conceal the origin of funds, accumulating fees and costs that are atypical of standard commercial practices; and the involvement of companies with opaque ownership structures, obscure names, or located at residential or multi-party addresses.

The advisory includes a description of U.S. sanctions that may be imposed following the U.S. withdrawal from the JCPOA and the subsequent 90- and 180 day wind-down periods. It warns foreign financial institutions that, as of November 5, they will be subject to “correspondent or payable-through account sanctions” for “knowingly conducting significant transactions for or with certain Iran-related persons,” and to “blocking sanctions” for “providing material support to designated persons.”[6]

The advisory serves not only as clarification to foreign financial institutions regarding the obligations of their U.S. counterparts, but also as a warning to non-U.S. banks and companies that may be doing business with Iran about the enforcement measures that U.S. authorities will focus on going forward.

U.S. Sanctions Target Iran’s Financial Networks

Last week saw the first major re-imposition of U.S. sanctions on Iranian state owned enterprises and financial institutions. Some 20 entities supporting the IRGC’s Basij paramilitary force were designated for supporting global terrorism, which allows for the imposition of secondary sanctions. The sanctioned entities included three Iranian financial institutions – Bank Mellat, Sina Bank, and Parsian Bank – that were removed from the U.S. blacklist following the implementation of the JCPOA. The United States has made clear that it intends to re-designate most or all of the entities that were removed as part of the JCPOA. However, the decision to begin doing so several weeks before the end of a 180-day wind-down period suggests that it will use the designation tool aggressively.

The United States also appears prepared to use the designation tool expansively. Last week’s sanctions targeted the Bonyad Taavon Basij network, which according to the Treasury Department “employs shell companies and other measures to mask Basij ownership and control over a variety of multibillion-dollar business interests in Iran’s automotive, mining, metals, and banking industries.”[7] Treasury designated four of the entities – Esfahan’s Mobarakeh Steel Company, Bahman Group, Sina Bank, and Parsian Bank – for their financial support to the network. Treasury’s use of the material support criterion rather than ownership or control to support the action demonstrates an expansive designation policy. A network map published with these sanctions illustrates this expansive targeting: Sina Bank and Parsian Bank, for example, are separated by several degrees from the Basij and the IRGC – the designated terrorist entities.[8]

This move follows narrower sanctions actions against financial networks in May, days after the U.S. withdrawal from the JCPOA. On May 10, in cooperation with the United Arab Emirates, the Treasury Department designated six individuals and three entities in an effort to disrupt a currency exchange network in Iran and UAE that transferred U.S. dollar-denominated bulk cash to the sanctioned IRGC Qods Force (IRGC-QF).[9] And on May 15, Treasury designated Iran’s Central Bank governor and part of Iraq’s banking sector for moving millions of dollars on behalf of IRGC-QF to Hezbollah.[10]

Both of these actions ultimately take aim at Iran’s Central Bank and preceded two key sanctions milestones: the re-imposition, on August 7, of secondary sanctions related to the purchase or acquisition of U.S. dollar banknotes by the Iranian government;[11] and the forthcoming re-imposition of secondary sanctions on persons engaging in certain significant transactions with the CBI on November 5.

The Specter of Secondary Sanctions against SWIFT

There is disagreement within the U.S. administration about how aggressively to target SWIFT, the Belgium-based financial messaging service that facilitates cross-border payments worldwide. SWIFT cooperated with U.S. and EU in the sanctions campaign during the years that preceded the nuclear agreement, by cutting off the CBI and other Iranian banks. However, SWIFT may be reluctant to do so at present, given the EU goal of maintaining the JCPOA and the economic sanctions relief the agreement is meant to deliver to Iran. Some in the United States conclude that SWIFT’s failure to disconnect Iran by a November 5 deadline would undermine the administration’s maximum pressure campaign; they argue that the banks represented on the SWIFT board and SWIFT officials should be targeted with sanctions. Others argue that such sanctions would pose a risk to the global financial system and would damage the U.S. ability to monitor illicit finance through information-sharing from SWIFT.[12]

The unusually public discussion of a potential target of U.S. secondary sanctions, especially against a high-profile entity like SWIFT, underscores the administration’s aggressive posture toward allies and foes alike in implementing its maximum pressure campaign.

Expected Enforcement Actions

The U.S. government may also use substantial financial penalties and the threat of criminal prosecution to deter major banks. One such expected enforcement action looms for Standard Chartered. The British bank disclosed that an ongoing U.S. government investigation into its past sanctions violations could yield considerable fines – reportedly up to 1.5 billion dollars. Since 2012, the bank has been operating with an independent monitor under terms from a deferred prosecution agreement with the Department of Justice and New York County’s District Attorney’s office for facilitating business with Iranian parties. Standard Chartered also entered into settlement agreements in 2012 with Treasury for these sanctions violations. Recently, there have been press reports that two former Standard Chartered employees could face criminal charges for their role in the alleged sanctions violations with Iranian-linked companies.

Conclusion

Despite the FATF decision to maintain the status quo, the United States is seeking to compel foreign financial institutions to avoid dealing with Iran’s financial sector through the threat and application of sanctions. This is one part of a broader U.S. campaign to exert maximum pressure on Iran, with the stated aim of creating conditions for negotiations on a comprehensive agreement that addresses the full range of threats posed by Iran.

The coming weeks and months will be critical in this campaign. Hundreds of entities that are part of or supporting the Iranian government will be returned to the U.S. blacklist. These designations will include the ability for the United States to sanction foreign banks and companies for dealing with such sanctioned parties. In addition, countries that fail to sufficiently reduce their purchases of Iranian oil may find themselves the subject of U.S. sanctions. Despite EU efforts to facilitate ongoing trade and investment with Iran, the overwhelming majority of firms in Europe and beyond are reluctant to jeopardize their much larger trade and investment with the United States. As a result, by the time the FATF meets next February to consider the re-imposition of countermeasures, Iran may already be cut off from the international financial system.

Footnotes:

[1] “High-risk and non-cooperative jurisdictions,” Financial Action Task Force, available at http://www.fatf-gafi.org/publications/high-riskandnon-cooperativejurisdictions/more/more-on-high-risk-and-non-cooperative-jurisdictions.html?hf=10&b=0&s=desc(fatf_releasedate).

[2] “Public Statement – October 2018,” Financial Action Task Force, October 19, 2018, available at https://www.iranwatch.org/library/multilateral-organizations/other-multilateral-organizations/financial-action-task-force/fatf-public-statement-october-2018-excerpts.

[3] “Advisory on the Iranian Regime’s Illicit and Malign Activities and Attempts to Exploit the Financial System,” FinCEN Advisory FIN-2018-A006, Financial Crimes Enforcement Network, U.S. Department of the Treasury, October 11, 2018, available via https://www.iranwatch.org/library/governments/united-states/executive-branch/department-treasury/advisory-iranian-regimes-illicit-malign-activities-attempts-exploit-financial.

[4] “Treasury Sanctions Vast Financial Network Supporting Iranian Paramilitary Force That Recruits and Trains Child Soldiers,” Press Release, U.S. Department of the Treasury, October 16, 2018, available via https://www.iranwatch.org/library/governments/united-states/executive-branch/department-treasury/treasury-sanctions-vast-iranian-financial-network.

[5] Implementation of the Joint Comprehensive Plan of Action: Joint Ministerial Statement, European Union External Action Service, September 24, 2018, available via https://www.iranwatch.org/library/multilateral-organizations/european-union/implementation-joint-comprehensive-plan-action-joint-ministerial-statement.

[6] “Advisory on the Iranian Regime’s Illicit and Malign Activities and Attempts to Exploit the Financial System,” FinCEN Advisory FIN-2018-A006, Financial Crimes Enforcement Network, U.S. Department of the Treasury, October 11, 2018, available via https://www.iranwatch.org/library/governments/united-states/executive-branch/department-treasury/advisory-iranian-regimes-illicit-malign-activities-attempts-exploit-financial.

[7] “Treasury Sanctions Vast Financial Network Supporting Iranian Paramilitary Force That Recruits and Trains Child Soldiers,” Press Release, U.S. Department of the Treasury, October 16, 2018, available via https://www.iranwatch.org/library/governments/united-states/executive-branch/department-treasury/treasury-sanctions-vast-iranian-financial-network.

[8] “Bonyad Support Network: IRGC’s Financial Lifeline,” U.S. Department of the Treasury, October 16, 2018, available via https://www.iranwatch.org/sites/default/files/irgc_chart_10162018.pdf.

[9] “United States and United Arab Emirates Disrupt Large Scale Currency Exchange Network Transferring Millions of Dollars to the IRGC-QF,” U.S. Department of the Treasury, May 10, 2018, available via https://www.iranwatch.org/library/governments/united-states/executive-branch/department-treasury/united-states-united-arab-emirates-disrupt-large-scale-currency-exchange.

[10] “Treasury Targets Iran’s Central Bank Governor and an Iraqi Bank Moving Millions of Dollars for IRGC-Qods Force,” U.S. Department of the Treasury, May 15, 2018, available via https://www.iranwatch.org/library/governments/united-states/executive-branch/department-treasury/treasury-targets-irans-central-bank-governor-iraqi-bank-moving-millions-dollars.

[11] “Frequently Asked Questions Regarding Executive Order of August 6, 2018, Reimposing Certain Sanctions With Respect to Iran,” U.S. Department of the Treasury, August 6, 2018, available via https://www.iranwatch.org/library/governments/united-states/executive-branch/department-treasury/frequently-asked-questions-regarding-executive-order-august-6-2018-reimposing.

[12] Mark Dubowitz, “SWIFT Sanctions: Frequently Asked Questions,” Foundation for Defense of Democracies, October 10, 2018, available via https://www.thefdd.org/analysis/2018/10/10/swift-sanctions-frequently-asked-questions/.

WorldECR October 2020

Executive Summary

Introduction

The Setup

The Gold Scheme

The Food Scheme

Links to Iran’s Nuclear and Missile Proliferation

U.S. Investigation and Prosecution

Conclusion

Appendix

Evading Export Controls and Sanctions

Attempted Exports

Charges and Next Steps

WorldECR October 2019

Panelists:

Introduction

Finding Highlights

Open source tools and data could enhance the pressure campaign on Iran by identifying and targeting choke points in Iran’s missile program, slowing the program’s development, and raising the cost to Iran of improving its missile capability.

Space-based remote sensing technologies, including optical satellite imagery, can help monitor known locations in Iran involved in missile development.

Publicly available corporate and trade data can support network analysis related to missile procurement and uncover additional nodes in a procurement network; such data can also be used to identify instances of sanctions violation.

The increasing use of open source data and machine learning by non-governmental actors in public analysis may complicate national monitoring and verification efforts and should be used with care.

Iran’s ballistic missiles have been integrated into its conventional warfighting capability; an agreement restricting Iran’s missile program therefore could instead seek to limit the parts of the program that are of greatest concern for nuclear weapon delivery.

If Iran agreed to negotiated limits on its missile program, elements of an agreement could be informed by other agreements on delivery vehicles, such as the INF Treaty.

The Network

The Sceme: A Common Pattern

Case Status

The Players

The Schemes

Case Status

U.S. Warns Foreign Firms against Iran

U.S. Sanctions Target Iran’s Financial Networks

The Specter of Secondary Sanctions against SWIFT

Expected Enforcement Actions

Conclusion

WorldECR
October 2020

WorldECR
October 2019