Four US federal departments issue an advisory to alert persons and businesses globally to Iran’s ballistic missile procurement activities: Key takeaways
On October 18, 2023, the Department of Commerce, the Department of State, the Department of the Treasury, and the Department of Justice issued an advisory “to alert persons and businesses globally to Iran’s ballistic missile procurement activities.” The “Iran Ballistic Missile Procurement Advisory” (the Advisory) emphasizes that the United States will hold accountable those who assist Iran’s missile program and also highlights Iran’s deceptive ballistic missile procurement activities so businesses can establish due diligence policies and internal controls to ensure compliance with United States law. The Advisory’s release coincided with the Department of the Treasury’s announcement that several individuals and entities were being sanctioned for supporting “Iran’s Islamic Revolutionary Guard Corps (IRGC), Ministry of Defense and Armed Forces Logistics (MODAFL), or their subordinates in the production and proliferation of missiles and UAVs.”
Iran’s missile program and deceptive tactics
- Iran has the largest ballistic missile program in the Middle East and is exploring ways to advance its capabilities. To achieve this, Iran needs and is seeking foreign goods and technologies, including US components, due to their high quality and advanced capabilities. The US has imposed restrictions on exports to Iran to prevent acquisition of this equipment, but Iran may try to acquire these items through third countries to avoid scrutiny.
- As explained in Annex 1 of the Advisory, “Iran maintains an extensive overseas network of procurement agents, front companies, intermediaries, and suppliers to obtain sensitive dual-use items. These procurement networks use a variety of methods to evade export controls and sanctions, including obscuring the end user through transaction layering, falsifying end-use documentation and shipment details, routing shipments through several countries, and using deceptive methods to access the US and international financial systems." Using “layers” of companies, brokers, and intermediaries “provide buffering between an unwitting product manufacturer or supplier and the ultimate Iranian missile program end user . . .”Falsification of documents, including shipping invoices and bills of lading, may involve the mislabeling of goods as general-purpose goods. Goods are often routed through multiple countries. Iranian procurement agents also use complex schemes to access international and US financial systems, often involving brokers, agents, banking representatives, shell companies outside of Iran, aliases, and even diplomats in other countries to mask the origin and true purpose of the funds. They often utilize multiple bank accounts in multiple foreign jurisdictions.
- Iran’s missile program is led by its Aerospace Industries Organization (AIO) and the Islamic Revolutionary Guard Corps (IRGC). The United States has sanctioned AIO and IRGC, and numerous entities that AIO and IRGC oversee have been designated pursuant to Executive Order 13382, which authorizes blocking sanctions against foreign persons who have engaged in activities that pose a risk of contributing to the proliferation of weapons of mass destruction, or have attempted to do so. Annex 2 of the Advisory provides a detailed list of Iran’s ballistic missile-related entities under AIO and IRGC. A number of these are also on the Department of Commerce’s Entity List.
- The particular categories of United States-origin and foreign-produced goods Iran seeks include production and testing equipment, various goods and materials, electronics, and guidance, navigation and control equipment. Annex 3 of the Advisory provides examples of specific products Iran has sought directly from the United States in the past such as aluminum tubing, computer numerical control machines, carbon fiber, circuit card assemblies, inertial sensors, and navigational sensors.
Relevant restrictions and enforcement
- Annex 4 of the Advisory identifies the relevant US sanctions authorities. Additional authority for US sanctions is contained in Annex 5.
- Pursuant to the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR), unless expressly authorized or exempt by OFAC, most direct and indirect transactions between US persons (including the overseas subsidiaries of US companies and persons of any nationality in the United States) and Iran (including property in which Iran or Iranian persons have an interest) are prohibited and persons subject to U.S. jurisdiction must block or reject such transactions and report them to OFAC within ten days. OFAC also has authority to sanction non-US persons doing business with Iran under OFAC’s so-called “secondary sanctions” authority, thereby denying such sanctioned persons access to the US market and financial system.
- Pursuant to the Export Administration Regulations (EAR), the Department of Commerce, Bureau of Industry and Security (BIS) maintains certain licensing requirements on exports and reexports of products to Iran. This year, the EAR’s scope related to Iran was expanded to include foreign-produced items that were the direct product of United States software or technology or production equipment that is the direct product of such software or technology. Among other things, the EAR requires a license for export, reexport or transfer of any item if there is knowledge that the item will be used in unmanned aerial systems and other military-related applications where Iran is implicated. Descriptions of end users and uses that may require authorization from BIS are described in the EAR (Parts 734, 744, and Supplement 7 to Part 744). The EAR also provides “know your customer” red flags guidance for industry to assist with screening (Supplement No. 3 to Part 732).
- Enforcement actions for violations of the EAR can be brought by BIS and/or the Department of Justice. Investigators from BIS focus on export control violations; the maximum criminal penalties are 20 years’ imprisonment and/or up to $1 million in fines per violation while the maximum civil penalties are a monetary amount per transaction, per violation, that can exceed the greater of $350,000 or twice the value of the transaction. Administrative actions may also result in denial of export privileges or placement on a proscribed parties list. The Department of Justice may bring an enforcement action for violations of the United States sanctions and export control laws, often in close coordination with OFAC and/or BIS, particularly for cases likely to result in criminal penalties.
- The Advisory and accompanying sanctions announced impact US and non-US companies globally. The sanctions announced that coincided with the release of the Advisory included entities based in Iran, China, and Hong Kong, that were used to source and facilitate the procurement of US-, UK-, Japanese-, Taiwanese-, and Swiss-origin electronic components.
- Companies should be on the lookout for additional sanctions against Iran. Announcements by US officials, combined with actions taken by the UN and European Union, indicate that additional, similar sanctions may be on the horizon.
- Companies should familiarize themselves with the specific categories and types of products that Iran seeks. Those who manufacture and/or trade in electronic components, including but not limited to dual-use circulators, amplifiers, inductors, printed circuit boards, ultrasonic sensors, diodes, oxygen sensors, and integrated circuits, should implement and/or enhance existing risk-based policies and procedures to ensure they do not directly or indirectly supply the specified products to Iran’s missile program or other restricted applications involving Iran.
- Companies should also familiarize themselves with the list of entities that seek such products to ensure that they are not conducting business with them or with entities working on their behalf and closely examine their supply chains for red flags suggesting the deceptive practices outlined above.
- Companies should evaluate, generally, sanctions and export control compliance programs to mitigate risk of noncompliance and a resulting enforcement action.
Find out more about the implications of the Advisory for your business by contacting any of the authors.
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