Treasury Targets Iran Defense Trade Finance

Treasury’s Office of Foreign Assets Control (OFAC) Tuesday sanctioned nearly 50 entities and individuals that constitute multiple branches of a sprawling “shadow banking” network used by Iran’s Ministry of Defense and Armed Forces Logistics (MODAFL) and Islamic Revolutionary Guard Corps (IRGC).

The entities, including cover companies based in Hong Kong, the United Arab Emirates (UAE), and the Marshall Islands have been used to gain illicit access to the international financial system and process the equivalent of billions of dollars since 2020.

MODAFL and the IRGC engage in several commercial revenue-generating activities, most notably the sale of Iranian oil and petrochemicals. 

Networks of Iranian exchange houses and dozens of foreign cover companies under their control enable MODAFL and the IRGC to disguise the revenue they generate abroad that is then available to use for a range of MODAFL and IRGC activities, including the procurement and development of advanced weapons systems such as unmanned aerial vehicles. 

MODAFL is responsible for development, production, funding, and logistics for all of Iran’s defense industries. Iran’s budget allots billions of dollars’ worth of Iranian oil to the Iranian armed forces to sell abroad in order to supplement their budgets. MODAFL subsidiaries manufacture advanced conventional weapons, including ballistic missiles and unmanned aerial vehicles, which are used by Iran’s military, including the IRGC, or exported to other countries such as Russia, or partner groups such as the Houthis.

Previously, in March 2023, OFAC took action against several dozen entities that operated as part of an Iranian shadow banking network that moved billions of dollars’ worth of petrochemical sales proceeds for the Iranian regime, and the Financial Crime Enforcement Network (FinCEN) issued an advisory in May 2024 outlining the IRGC’s methods for raising and moving funds to support its terrorist partners and proxies, including Hamas, Hizballah, and the Houthis.

IRANIAN SHADOW BANKING

Shadow banking networks are multi-jurisdictional illicit finance systems which grant sanctioned Iranian entities access to the international financial system and obfuscate their trade with foreign customers. As depicted in the chart above, the MODAFL Supply Division uses exchange houses in Iran that manage numerous cover companies registered in permissive jurisdictions such as Hong Kong or the United Arab Emirates (UAE) to launder the revenue generated through foreign commercial activity, including oil sales conducted by U.S.-designated MODAFL affiliate Sahara Thunder, into clean foreign currency. The same cover companies, when directed by MODAFL and the exchange house managers, use the laundered foreign currency to procure weapons components and other materiel on the international market.

Treasury Press Release

  Click here for more information on the individuals and entities designated today.