Li Fangwei Charged In Manhattan Federal Court With Using A Web Of Front Companies To Evade U.S. Sanctions

Preet Bharara, the United States Attorney for the Southern District of New York, John P. Carlin, Assistant Attorney General for National Security, and George C. Venizelos, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced that LI FANGWEI, who is more commonly known by his alias “Karl Lee,” is charged with violating the International Emergency Economic Powers Act (“IEEPA”) by using United States-based financial institutions to engage in millions of dollars of U.S. dollar transactions in violation of economic sanctions that prohibited such financial transactions. In addition, LI FANGWEI is also charged with conspiring to commit wire fraud and bank fraud, a money laundering conspiracy, two separate violations of IEEPA, and two separate substantive counts of wire fraud, in connection with such illicit transactions. LI FANGWEI, a national of the People’s Republic of China, is a fugitive.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Li Fangwei has used subterfuge and deceit to continue to evade U.S. sanctions that had been imposed because of his illicit trade in prohibited materials with Iran. Previously having been exposed as a violator of those sanctions, Li spun a web of front companies to carry out prohibited transactions essentially in disguise. He now stands charged with serious crimes, and millions of his dollars have been seized. It is the hope of this Office not only that Li’s banned commerce cease once and for all, but that he be apprehended and brought before the bar of American justice.”

Assistant Attorney General for National Security John P. Carlin said: “These charges are an important part of the all tools approach our government is taking against Li Fangwei to shut down and deny him the profit from his proliferation activities. This case is an outstanding example of multiple agencies working together to focus various enforcement efforts on the significant threat to our national security posed by such proliferation networks.”

FBI Assistant Director in Charge George C. Venizelos said: “Whether motivated by greed or otherwise, Li Fangwei allegedly ignored sanctions imposed by the United States Government and hid behind front companies he developed to engage in a series of illegal transactions, including attempts to acquire ‘dual use’ items on behalf of Iran-based entities. IEEPA makes it a crime to willfully violate U.S. sanctions on designated countries such as Iran. Individuals and companies who evade U.S. sanctions and misuse our banking system to further their illegal activity not only undermine the integrity of our financial markets but also threaten U.S. National Security interests. The FBI is committed to ensuring that strategically important goods and technology, particularly those that could be used in the production or delivery of weapons of mass destruction, do not end up in the wrong hands.”

According to the Superseding Indictment previously filed in Manhattan federal court and other court documents:

LI FANGWEI controls a large network of industrial companies based in eastern China, one of which is LIMMT Economic and Trade Company, Ltd. (“LIMMT”). Over the years, LI FANGWEI’s companies have done millions of dollars of business with Iran. This business has included selling to Iranian entities various metallurgical goods and related components that are banned for transfer to Iran by, among others, the United Nations, because the items are controlled by the Nuclear Supplier’s Group (a multinational group that maintains “control lists,” which identify nuclear-related dual-use equipment, material, and technology). LI FANGWEI has been, among other things, a long-time supplier to Iran’s Defense Industries Organization and Iran’s Aerospace Industries Organization. In addition, LI FANGWEI has been a principal contributor to Iran’s ballistic missile program through China-based entities that have been sanctioned by the United States.

In light of his supply of restricted items to Iran, the United States has imposed targeted sanctions on both LI FANGWEI and LIMMT. Specifically, the United States Department of the Treasury’s Office of Foreign Asset Controls (“OFAC”) publicly added LIMMT (in 2006) and LI FANGWEI (in 2009) to its List of Specially Designated Nationals and Blocked Persons (the “SDN List”). By virtue of their inclusion on the SDN List, LI FANGWEI and LIMMT were effectively precluded from conducting any business within the United States without first obtaining a license or authorization from OFAC. Neither LI FANGWEI nor LIMMT has sought such a license or authorization.

The above-referenced restrictions have forced LI FANGWEI to operate much of his business covertly. In response to United States sanctions, LI FANGWEI has built an outsized network of China-based front companies – to conceal his continuing participation, and LIMMT’s continuing participation, in sanctioned activities. The front companies are listed in Exhibit A to the Superseding Indictment. As shown in Exhibit A, many of those front companies have used the same address as LIMMT, or a close variant thereof.

During the period from 2006 through the present, LI FANGWEI has used front companies to engage in more than 165 separate U.S. dollar transactions, with a total value in excess of approximately $8.5 million. Included in those illicit transactions have been transactions involving sales to U.S. companies, sales of merchandise by LI FANGWEI to Iran-based companies utilizing the U.S. financial system, as well as attempts to acquire on behalf of Iran-based entities so-called “dual use” items from the United States, China, and other countries that could be used in the production of weapons of mass destruction and/or devices used to deliver weapons of mass destruction.

The U.S. Attorney’s Office and the FBI announced the seizure of over $6,895,000 in funds attributable to the LI FANGWEI front companies, and the filing of a civil complaint seeking the forfeiture of those funds to the United States. The seized funds are substitutes for money held by LI FANGWEI’s front companies at banks in China, and were seized from accounts at U.S. banks held in the name of foreign banks used by these front companies to conduct U.S. currency transactions (the “correspondent accounts”). The funds were seized pursuant to seizure warrants issued on December 18, 2013, and April 25, 2014. The $6,895,000 represents funds used by the LI FANGWEI front companies to engage in transactions that violate the U.S. sanctions laws and thus are subject to forfeiture. There are no allegations of wrongdoing by the U.S. or foreign banks that maintain these accounts. Because the funds used in those transactions are held in banks overseas, the United States is unable to seize the funds directly. However, pursuant to U.S. law, the United States can seize funds located in a bank’s correspondent accounts in the United States if there is probable cause to believe that funds subject to forfeiture are on deposit with that bank overseas. Based on this provision and others, the seizure warrants were executed. These funds were transferred to a seized asset account maintained by the United States Marshals Service pending resolution of the forfeiture action.

Based on information developed in the course of the FBI’s investigation into LI FANGWEI that forms the basis of the Superseding Indictment, OFAC today is adding eight additional front companies used by LI FANGWEI to its List of Specially Designated Nationals and Blocked Persons.

Finally, the United States Department of Commerce announced today the addition of nine China-based suppliers of LI FANGWEI to its Entity List.

The Superseding Indictment charges LI FANGWEI with seven separate offenses:

• Count One: Conspiracy to violate the International Emergency Economic Powers Act;
• Counts Two and Three: Substantive violations of the International Emergency Economic Powers Act;
• Count Four: Money laundering conspiracy;
• Count Five: Conspiracy to commit wire fraud and bank fraud; and
• Counts Six and Seven: Wire fraud.

If convicted, LI FANGWEI faces a maximum sentence of 20 years in prison on each of Counts One through Four and Counts Six and Seven, and 30 years in prison on Count Five. The statutory maximum sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant would be determined by the judge.

The U.S. Department of State’s Transnational Organized Crime Rewards Program is offering a reward of up to $5 million for information leading to the arrest and/or conviction of LI FANGWEI.

Mr. Bharara praised the outstanding investigative efforts of the FBI and thanked the New York County District Attorney’s Office, which had charged LI FANGWEI and LIMMT in April 2009 for their use of front companies to commit books and records violations and to evade U.S. sanctions. Evidence developed by the New York County District Attorney’s Office greatly assisted the FBI's investigation of LI FANGWEI's more recent criminal conduct.

In addition, Mr. Bharara thanked the U.S. Department of Justice’s National Security Division Counterespionage Section, the U.S. Department of State, the U.S. Department of Treasury, and the U.S. Department of Commerce for their assistance in this matter.

The case is being handled by the Terrorism and International Narcotics Unit. Assistant United States Attorney Sean S. Buckley is in charge of the prosecution. Assistant United States Attorneys Micah W. J. Smith and Paul M. Monteleoni are in charge of the forfeiture aspects of the case.

The charges contained in the Superseding Indictment are merely accusations and the defendant is presumed innocent unless and until proven guilty.

U.S. v. Li Fangwei in Rem Complaint and S1 Indictment