Combating Illicit Financing by Anonymous Shell Companies (Excerpts)

May 21, 2019


Sanctions Evasion. Another example of note is the Karl Lee investigation. Li Fangwei, a/k/a Karl Lee, and several of his Chinese shell and front companies were designated by the Department of the Treasury’s Office of Foreign Assets Control (OFAC) as the principal supplier to the Government of Iran’s ballistic missile program. He owned a graphite and metallurgical production factory in Dalian, China and was supplying Iran with various military and metallurgical items. Lee used his Chinese shell and front companies to surreptitiously exploit the U.S. financial system to supply weapons of mass destruction to Iran. Lee was indicted on seven counts of International Emergency Economic Powers Act (IEEPA) violations, money laundering, and related schemes. Approximately $7 million was seized from U.S. based correspondent bank accounts associated with Lee’s foreign based accounts. Some of Lee’s attempted sales involved U.S. businesses, who were unaware of the Lee’s role as beneficial owner of the concealed Chinese shells.

During the Karl Lee investigation the FBI faced numerous hurdles due to the litany of overseas shell corporations. Attempting to unravel Lee’s shell network that had penetrated the U.S. financial system delayed the investigation many months and nearly proved insurmountable. One major challenge was that most of the U.S. based correspondent banks did not collect basic know your customer information for the shell corporation accounts and permitted transactions to be blindly conducted. Thankfully, one bank did collect this information, which enabled the FBI to start to unravel Lee’s illegal proliferation and use of the U.S. financial system. This fundamental information proved crucial to the investigation but only existed by chance, not by legal requirement.