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Financial institutions are struggling to detect transactions tied to potentially illicit shipments of sensitive U.S. technology, sources told ACAMS moneylaundering.com.

The black market trade of American-manufactured goods with both commercial and military uses typically involves shipments from the United States to intermediaries in friendly jurisdictions, such as Hong Kong or Dubai, then re-shipments to end users in Iran, China and other countries to which U.S. officials restrict many exports.

Some U.S. banks treat each entry on the Commerce Department’s “Entity List” of suspicious importers or end users as akin to a designation by the Treasury Department’s Office of Foreign Assets Control and block or reject their payments, Ryan Fayhee, former national export control coordinator for the Justice Department, said.

But unlike OFAC, export restrictions often apply in certain, limited contexts, hindering the effectiveness of screening transactions to identify illegal shipments and re-shipments of high-risk materials.

“You would need rocket scientists on staff to understand the engineering and capabilities” of all dual-use goods, Fayhee, now an attorney with Hughes Hubbard & Reed in Washington, D.C., said. “That obligation is mostly on the seller.”

One re-shipment scheme described by federal prosecutors in a 21-page forfeiture complaint last month saw a Beijing-based exporter, Jack Wang, allegedly use offshore banks and at least five front companies in Hong Kong and mainland China to import sensitive materials from more than 20 U.S. manufacturers before re-shipping those products to Iran over at least a three-year period.

In March 2015, one Hong Kong-based firm controlled by Wang, Sky Rise Technology, imported 15 orders of resistors, coaxial terminators, white metal alloys and other dual-use goods from the United States, then, according to the complaint, forwarded those products to Iran in 24 shipments.

The materials ended up in the possession of an Iranian firm, Fanavari Moj Khavar, which used them for military purposes, prosecutors said at the time.

OFAC blacklisted the firm in October 2017 for allegedly supporting the Islamic Revolutionary Guard Corps, according to the complaint.

Using another front company, 32 Group China Ltd., Wang also directed flat panel displays and an optical measuring system with military applications through Hong Kong to buyers in Iran.

For these and other shipments, Wang paid U.S. exporters via wire transfers from offshore bank accounts, and also wired at least $533,000 to overseas firms. Many of the transfers originated from shell companies, but Wang sent at least $218,000 in his own name.

“This practice of making personal payments for multiple companies’ official expenses reflects a lack of formalized corporate structure, which is consistent with the operation of front companies,” prosecutors wrote in the complaint.

The usual suspects

Illegal re-shipment schemes often exhibit the same financial patterns as money laundering and sanctions evasion conspiracies, and the crimes frequently happen in tandem.

Wang, who does not appear to face any criminal charges himself, allegedly used shell companies, front companies and offshore bank accounts to move funds to and from the United States, prosecutors said.

The Justice Department filed export control charges alongside money laundering charges in at least five cases in 2017 after pursuing four such cases in both of the previous two years.

In May 2017, federal prosecutors charged Cathy Chen, a 32-year-old Chinese national living near Los Angeles, with money laundering and conspiring to export sensitive technology after she allegedly smuggled $100,000 in signal jamming equipment and other restricted goods to China by misstating on shipment forms that the goods were only worth a few hundred dollars.

Payments for the materials allegedly ended up in an account in China held by a relative.

In April 2016, U.K. national Ahmad Feras Diri pleaded guilty to export-related violations stemming from his role in shipping chemical-warfare measuring equipment and other goods to Syria by way of Jordan, the United Arab Emirates and the United Kingdom.

Diri, who was also charged with money laundering, allegedly conspired with his brother and Harold Rinko, a Pennsylvania resident who owned an exporting firm, Global Parts Supply.

Regulatory focus and fear of enforcement have made banks much more likely to push their clients for more details of their export-related activity, including more comprehensive descriptions of the materials and any jurisdictions they may pass through on their way to their end users, Ama Adams, a Washington, D.C.-based partner at Ropes & Gray, said.

But to what extent financial institutions must review any additional information remains unclear.

A New York-based senior compliance officer for one such global bank said that new clients must explain in detail which dual-use goods they export, but staff often end up “running Google searches” to learn about unfamiliar goods and identify any risks they may pose.

“You’re basically just relying on the expertise of your sanctions officer,” the senior compliance officer said. “[The method] relies on clients being forthcoming, and there’s a lot of opportunities for something to fall through the cracks.”

Golden visas

Rather than stash proceeds from his re-shipment scheme somewhere outside the United States, Wang invested $500,000 into a bond for a vacated hotel property slated for redevelopment in Ohio in an apparent bid to bolster his application for U.S. residency under the EB-5 visa program.

Dozens of EB-5 applicants in recent years have supplied fraudulent bank statements, tax returns and other documents purporting to show legitimate income. Others have used the program in schemes to bilk tens of millions of dollars from overseas nationals seeking U.S. residency.

Problems surrounding golden visas have drawn the attention of federal lawmakers.

In a June 7 letter, Sen. Chuck Grassley (R-IA) urged President Donald Trump to publish final regulations to reign in the program, warning that it had “become riddled with fraud and serious vulnerabilities that present real national security concerns.”

But attempting to use an investment under the program to launder funds from a separate criminal enterprise would represent a unique twist, Sanjay Jose Mullick, a Washington, D.C.-based partner at Kirkland & Ellis, said, noting that conspirators charged with export control violations typically would seek to distance their profits from U.S. jurisdiction.

“To run towards the United States is counterintuitive,” Mullick said.

Wang’s corporate network began drawing scrutiny at least by February 2015, when an unidentified Chinese firm with no web presence or history of dealing in U.S. goods attempted to wire $141,000 to Reekay Technology, a China-based firm he controlled.

The payment from the unidentified Chinese firm, which according to U.S. prosecutors also happened to share an address with 15 other companies in China, ended up blocked by an unnamed “U.S. intermediary bank” that suspected violations of U.S. sanctions.

Prosecutors do not specify which red flags spurred the unnamed bank into blocking the funds, but nine months later, in November 2015, the Commerce Department added Wang and five of his firms to the Entity List.