- International Enforcement Actions
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 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.
- 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.
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.
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.