On December 15, 2016, the Department of Justice and United States District Court for the District of Alaska announced the indictment of Kenneth Zong, 77, a U.S. citizen of Korean descent and business owner from Anchorage, Alaska, on charges of illegally funneling approximately $1 billion in Iranian financial transactions through the United States via banks in the Republic of Korea (ROK) and onward to other countries.1 The Iranian government and the Central Bank of Iran were the originators of the transactions. Beginning in at least January 2011 until around April 2014, Zong allegedly worked from South Korea, operating phony front companies and conspiring with four unnamed, unindicted co-conspirators, to funnel Iranian funds to the United States and other countries. A federal affidavit relating to a separate civil property forfeiture case against Zong identifies these individuals. One co-conspirator was a U.S. citizen, presumably his son Mitchell Sub Zong, and three were Iranians, located in Iran or potentially Georgia or other countries. The Iranians, Pourya Nayebi, Houshang Hosseinpour, and Houshang Farsoudeh, and several of their companies and entities, were sanctioned by the United States in 2014 for being part of a major Iranian government-backed, financial sanctions busting network. In this sense, Zong’s efforts were but one branch of this larger network. Yet other Iranians are named in the federal affidavit who worked for the three Iranians.2

Zong allegedly earned a profit of between $10 and $17 million for laundering the Iranian government-linked funds. He is charged with 47 counts of violating the International Emergency Economic Powers Act (IEEPA), unlawful provision of services to Iran, money laundering, and conspiracy to commit money laundering.3 Zong has already served a two-year prison sentence in South Korea, and upon his release, the United States sought to prosecute him for his alleged crimes committed between 2011 and 2014. It appears that the U.S. government pursued the civil property forfeiture case until he could be tried on criminal charges in the United States. An arraignment date for Zong has not yet been set.

Pursuant to IEEPA and executive orders, U.S. law prohibits dollar denominated transactions with Iran and between Iranians and U.S. citizens without a license from the Department of Treasury’s Office of Foreign Assets Control (OFAC). OFAC listed Zong’s three Iranian co-conspirators on its Foreign Sanctions Evaders (FSE) List in 2014. Specifically, the three helped sanctioned Iranian banks affiliated with payments for Iran’s nuclear, missile, and terrorism related procurements and activities to process transactions around the world.4 In 2016, the Iran nuclear deal removed the Iranians from the FSE List, although nothing would prevent the United States from prosecuting them today for past or ongoing financial law breaking.5

South Korean laws authorize payments to and from Iran for the purchase or sale of commodities following a “multi-step review process involving the Korean government, the Bank of Korea, and the participating bank. The review process includes examination of the applicable business documentation, such as contracts, import/export documents, purchase orders and bills of lading.”6 The conspirators in the scheme allegedly broke ROK laws, in particular the Korean Foreign Exchange Transactions Act and their customs law, by falsifying such documentation and bribed officials in order to conceal the efforts.7 It is unclear whether Zong was extradited by South Korea following his release from prison or simply apprehended in the United States.

Read the full report at the Institute for Science and International Security