OFAC expands Operation Economic Outcast with actions targeting Iranian procurement, industry and sanctions evasion

Overview

The US Department of the Treasury recently announced a series of actions under Operation Economic Outcast targeting Iranian military procurement networks, key sectors of Iran’s industrial base and financial infrastructure that Treasury states has been used to facilitate Iranian sanctions evasion. The measures include sanctions against procurement networks supporting Iran’s Ministry of Defense and Armed Forces Logistics (MODAFL), a new sectoral determination and related designations targeting Iran’s automotive and rail sectors, and coordinated actions by the Office of Foreign Assets Control (OFAC) and Financial Crimes Enforcement Network (FinCEN) concerning the A7 Network, a Russia-linked shadow banking network that Treasury states has been used by Iran and other actors to evade sanctions.

On September 29, OFAC designated 10 individuals and entities across several jurisdictions for their involvement in procuring weapons, weapons systems, components and dual-use items for MODAFL and related entities. According to OFAC, MODAFL is responsible for weapons research, production and acquisition for Iran’s armed forces and oversees organizations involved in Iran’s ballistic missile and unmanned aerial vehicle (UAV) programs. OFAC imposed the designations pursuant to Executive Order (EO) 13382, which targets proliferators of weapons of mass destruction and their means of delivery.

On October 1, OFAC also issued a determination under EO 13902 identifying the automotive and rail sectors of the Iranian economy as sectors subject to the sanctions authority in section 1(a)(i) of EO 13902. OFAC simultaneously designated Iranian automotive and rail companies, foreign automotive suppliers, manufacturing and metals-sector companies, and participants in what Treasury described as a steel and oil export network. The designations were imposed under EO 13902 and EO 13871, depending on the relevant conduct and sector.

Also on October 1, Treasury took coordinated action against the A7 Network. OFAC designated the A7 Network as a significant transnational criminal organization, while FinCEN proposed a rule that, if finalized, would prohibit transmittals of funds regarding transactions involving the A7 Network’s “Sub-Agents.” FinCEN separately issued an Alert intended to assist financial institutions in detecting and reporting suspicious activity associated with the network.

Key features of the recent actions

1. Military procurement networks. 

OFAC’s September 29 action targeted 10 individuals and entities that Treasury identified as involved in procuring weapons, finished weapons systems, electronic components and dual-use items for MODAFL or its subordinate organizations. The targets included persons and entities located in Iran, China, Hong Kong, Pakistan, Saudi Arabia and Türkiye.

OFAC designated Seyyed Asghar Alizadeh Tabatabai, whom Treasury identified as a MODAFL representative in Beijing responsible for coordinating the procurement of finished weapons systems and dual-use components in China. Tabatabai was designated pursuant to EO 13382 for acting or purporting to act for or on behalf of MODAFL.

OFAC also targeted a procurement network centered on Iran-based Kavoshcom Asia R and D Group (Kavoshcom). According to Treasury, Kavoshcom procured electronic components for Iran Aircraft Manufacturing Industrial Company, a MODAFL subordinate involved in UAVs and military aircraft, and supplied electronics to Shahid Bakeri Industrial Group, which Treasury identifies as responsible for Iran’s solid-fueled ballistic missile program. As a result, OFAC designated Kavoshcom pursuant to EO 13382 for providing or attempting to provide support, goods or services to MODAFL.

OFAC additionally designated Kavoshcom director Ali Fotowat Ahmady, as well as Li Fen, Parisa Lali and Hong Kong-based EC Mojo Technology Co Limited in connection with Kavoshcom’s procurement activity. OFAC also designated Pakistan-based Waseem Pasha Tajammal, whom Treasury described as a third-party intermediary for MODAFL, as well as three companies associated with Tajammal in Pakistan, Saudi Arabia and Türkiye.

2. Expanded sanctions targeting Iran’s automotive and rail sectors. 

On October 1, OFAC issued a determination under section 1(a)(i) of EO 13902 identifying the automotive and rail sectors of the Iranian economy. The determination, effective October 1, provides that any person determined to operate in either sector shall be subject to sanctions pursuant to section 1(a)(i). OFAC also amended FAQ 831 concerning sectors of the Iranian economy covered by EO 13902.

OFAC simultaneously designated several major Iranian automotive companies and subsidiaries pursuant to EO 13902 for operating in Iran’s automotive sector, including Iran Khodro Company, SAIPA Iranian Automobile Manufacturing Company, Iran Khodro Diesel Company, Pars Khodro Company and Zamyad Company, as well as Niroo Motor Shiraz Industrial and Manufacturing Company and Niroo Motor Damavand Company.

We note that the automotive-sector action also reached companies outside Iran. OFAC designated suppliers located in Indonesia, the UAE, Türkiye and Hong Kong pursuant to EO 13902 for operating in Iran’s automotive sector. According to Treasury, these companies supplied or facilitated shipments of automotive components to Iranian manufacturers.

Under the new rail-sector authority, OFAC designated Islamic Republic of Iran Railway Company, Raja Passenger Trains Company and Sherkat-E Rah Ahan-E Khamle-O-Naghle, also known as Railway Transportation Company, pursuant to EO 13902 for operating in Iran’s rail sector.

The October 1 action also included designations outside the newly identified automotive and rail sectors. OFAC designated Iran-based Heavy Equipment Production Company (HEPCO) pursuant to EO 13902 for operating in Iran’s manufacturing sector and its China-based subsidiary HEPCO Shanghai Co., Ltd. based on its relationship with HEPCO. OFAC separately used EO 13871, which targets Iran’s iron, steel, aluminum and copper sectors, to designate additional persons and entities in the UAE, Germany, China, Hong Kong and Iran.

OFAC additionally designated five Hong Kong companies pursuant to EO 13902 for operating in the financial sector of the Iranian economy. OFAC stated that these companies had received transactions linked to Iran’s shadow banking system and formed part of a network used in connection with Iranian steel and oil transactions.

3. A7 Network and sanctions evasion. 

Treasury’s second October 1 action targeted the A7 Network, which Treasury describes as a Russia-linked shadow banking network used by Iran and other actors to evade sanctions and move funds through the international financial system. According to Treasury, the network allegedly operates through third-country companies referred to as “Sub-Agents,” which receive and remit payments and are used to disguise sanctioned or illicit transactions as ordinary commercial activity.

Treasury states that FinCEN identified more than $17 billion in transactions processed by A7 Network Sub-Agents between January 2025 and June 2026. Treasury also states that A7 Network Sub-Agents have facilitated Iranian oil sales and weapons procurement efforts, including transactions involving entities associated with Iran’s shadow fleet and other Iranian sanctions-evasion activity.

Following this action, FinCEN issued a notice of proposed rulemaking pursuant to section 9714(a) of the Combating Russian Money Laundering Act that, if finalized, would prohibit transmittals of funds regarding transactions involving A7 Network Sub-Agents. We emphasize that the proposal is not currently a final prohibition and remains subject to public comment. We are following its progress and will provide an update as it develops. FinCEN separately issued an Alert providing information and red flags intended to assist financial institutions in detecting, identifying and reporting suspicious activity involving the A7 Network.

Sanctions implications

As a result of the OFAC designations, property and interests in property of the designated persons that are in the United States or in the possession or control of US persons are blocked and must be reported to OFAC. Pursuant to the 50% Rule, entities owned, directly or indirectly, 50 percent or more, individually or in the aggregate, by one or more blocked persons are also blocked. Unless authorized by OFAC or exempt, OFAC’s regulations generally prohibit transactions by US persons or within, or transiting, the United States that involve property or interests in property of blocked persons.

Key takeaways

From our view, these actions demonstrate the broad scope of Treasury’s current approach under Operation Economic Outcast. The September 29 action focuses on third-country procurement networks supporting MODAFL and Iran’s weapons programs, while the October 1 actions expand sanctions exposure across Iran’s industrial base and target financial channels that Treasury states have been used to facilitate sanctions evasion.

The automotive and rail determination is particularly notable for non-US companies. Persons determined to operate in either sector of the Iranian economy may now be subject to designation under EO 13902, irrespective of whether they were included in the October 1 designation package. The simultaneous designation of automotive suppliers located in several third countries underscores the potential relevance of the new authority to companies outside Iran.

The military procurement and A7 actions also reinforce Treasury’s focus on third-country intermediaries. The September 29 designations reached representatives, company directors, component suppliers and entities associated with alleged MODAFL procurement, while the A7 action focuses on third-country entities allegedly used to move funds and obscure the underlying parties and purposes of transactions.

For financial institutions, the A7 action warrants particular attention because it combines an OFAC designation with FinCEN regulatory and anti-money laundering measures. Financial institutions may wish to assess the indicators identified in FinCEN’s Alert against existing transaction-monitoring controls and monitor the proposed rule through the rulemaking process.

More broadly, companies and financial institutions with relevant Iran-related exposure should consider whether existing screening and due-diligence controls appropriately address counterparties, beneficial ownership, end users, intermediaries and payment flows involving the sectors and networks targeted by these actions. Businesses involved in sensitive or dual-use supply chains may similarly wish to assess potential diversion risks involving MODAFL or its subordinate organizations.

We are happy to discuss any of the topics above in further detail.

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