V O L U M E X I I I : N O . 1 — S U M M E R 2 0 1 7

Volume XIII No. 3 Summer 2017

Inside This Issue

Proliferation Laws ......................1

Shield America ...........................2

Shell Companies..........................3

Offset Payments/ Red Flag 

Indicators ....................................4

Case Studies ................................5

Cornerstone is U.S. 

Immigration and Customs 

Enforcement’s (ICE) 

comprehensive investigative 

initiative for fighting financial 

crime.

The Cornerstone Report is a 

quarterly bulletin 

highlighting key issues related 

to ICE Homeland Security 

Investigations (HSI) financial, 

narcotics and special 

operations investigations.

Toll Free Tip Line:

1-866-DHS-2-ICE

www.ice.gov/cornerstone

Counter-Proliferation Investigations: 

Laws That Govern

T 

he export control laws enforced 

by U.S. Immigration and 

Customs Enforcement (ICE) 

Homeland Security Investigations 

(HSI) primarily include, the Arms 

Export Control Act (AECA), the 

International Emergency Economic 

Powers Act (IEEPA) and the 

respective implementing regulations 

of both Acts. 

The AECA is 

implemented 

through the 

International Traffic 

in Arms Regulations 

(ITAR). Contained 

within the ITAR is 

the United States 

Munitions List 

(USML), which is a 

list of items that 

have been categorized as defense 

article, a defense service, or defense 

activity. The export of items or 

services designated on the USML is 

regulated by the U.S. Department of 

State, Directorate of Defense Trade 

Controls (DDTC).

The IEEPA is implemented through 

the Export Administration 

Regulations (EAR). Contained within 

the EAR is the Commerce Control List 

(CCL). The CCL is a list of items that 

are considered to be dual-use in 

nature. Items or services 

are considered dual-use if, 

although used in 

predominantly 

commercial applications, 

they may also be used in 

military applications. 

Examples of dual-use 

items including machine 

tools, electronic 

equipment, computers, 

telecommunications 

equipment, sensors and radar, 

navigation equipment, and space and 

propulsion equipment.

If you are aware of any possible violations of laws related 

to prohibited or restricted munitions and arms exports, 

please call HSI at: 1-202-312-9746 

Please feel free to send your questions and comments 

to the editors of the Cornerstone Report at: cornerstone@ice.dhs.gov
Shield America—Building a Partnership

. S

hield America is an outreach 

initiative developed by ICEHSI that seeks the partnership, 

cooperation, and assistance of private 

industry and the academic community to 

prevent the illegal procurement of export 

controlled U.S. munitions and strategic 

technology by terrorists, criminal 

organizations and foreign adversaries.

Working in partnership with U.S. Customs 

and Border Protection (CBP), U.S. 

companies, and academic institutions, Shield 

America is the first line of defense against 

those who seek to compromise U.S. national 

security by violating our export laws, 

sanctions, or embargoes.

Shield America’s mission is 

to:

• Increase public awareness 

of U.S. export laws, sanctions 

and embargoes;

• Assist private industry and 

the academic community to 

improve their export compliance best practices 

while avoiding issues that might affect 

legitimate business or scholarship;

• Provide aids in the recognition, detection, and 

resolution of illegal acquisition attempts; and

• Seek the cooperation of private industry, to 

include financial institutions and the academic 

community to prevent the illegal acquisition of 

export controlled items and data.

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Volume XIII No 3

S

hield America is a four-pronged program that 

involves the following outreach and 

enforcement measures:

Industry Outreach - ICE-HSI 

agents conduct outreach visits 

with industry officials to educate 

them about U.S. export laws and 

to solicit their assistance in 

preventing illegal foreign 

acquisition of their products.

Inspection and Interdiction -

Specially trained CBP officers inspect outbound 

shipments for violations of U.S. export laws and 

report violations to ICE-HSI for investigation.

Investigations - ICE-HSI special agents 

investigate export violations, seize illegal 

shipments of controlled technology and 

munitions, and pursue the arrest, 

prosecution, and conviction of 

violators. ICE-HSI special agents 

also seek to identify methods of 

payment for prohibited items and 

seek to seize those criminal assets. 

International Cooperation—ICEHSI attachés in foreign countries 

enlist the support of their host 

governments to initiate investigative leads and to 

develop information in support of ongoing 

domestic investigations.

ICE-HSI Putting Shield America To Work

https://www.ice.gov/project-shield-america
A

ttempts to facilitate the 

procurement of prohibited 

export items can take many forms and 

oftentimes involves more than just a direct 

transaction between a buyer of such items and 

the seller. It can involve many different 

parties in what’s known as a procurement 

network. A typical procurement network 

might include a manufacturer of the 

prohibited items, a supplier or seller, a 

broker, a buyer, and finally the end user of the 

items.

Because they are eventually so far removed 

from one another, the use of such a multilayered procurement network helps insulate 

an end user of a prohibited item in a high-risk 

foreign country, such as Iran or North Korea, 

from a manufacturer or supplier in the United 

States. In addition to the movement of the 

actual prohibited item, financing these 

transactions can take an equally circuitous 

route, creating a limited, if not invisible, 

connection between the source of the 

payment (the end user) and those receiving 

payment for goods provided (manufacturer or 

seller).

The use of shell companies is one of the more 

commonplace techniques in the facilitation of 

payment for services related to procurement 

of prohibited items. The parties to a 

proliferation procurement transaction can be 

established importers/exporters and may have 

a long history of moving legitimate goods 

internationally. As a result, proliferation 

procurement networks generally operate 

through legitimate avenues of international 

trade and therefore utilize the formal banking 

system. Either a buyer or a seller of 

prohibited items may create shell companies 

to facilitate the export of the prohibited items 

or the payment for such items. Having these 

transactions move through shell companies, 

often with innocuously general names, like 

“Global Tech, Inc.” and “Worldwide 

Industries,” is a diversionary tactic allowing 

the connection between payment and 

prohibited item to be obscured. 

Shell companies used in international 

procurement schemes are often domiciled in 

large international financial and trade centers 

in geographically centered locations like 

London, Singapore, Hong Kong and South 

Africa. Shell companies created by end users 

or buyers in these buffer zones create a layer 

of concealment while having reasonably easy 

geographic access to the companies.

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Volume XIII No 3

Proliferation Procurement Networks -

A Shell Game

 
 Transaction involves financial institutions with 

known deficiencies in their AML/CFT controls.

 The declared value of the shipment obviously 

under valued vis-a-vis the shipping cost.

 Inconsistencies in information contained in trade 

documents and financial flows, such as names, 

companies, addresses, final destination.

 Customer activity does not match business profile, 

or end user information does not match end users 

business profile.

 Customer provides vague/incomplete information 

and is resistant to providing additional information 

when queried.

 Transaction involves individuals or entities in 

foreign country of proliferation concerns.

 Trade finance transaction involves shipment route 

through country with weak export 

control laws or weak enforcement of 

export control laws.

 Transaction involves shipment of 

goods inconsistent with normal geographic trade 

patterns.

 Transaction involves shipment of goods 

incompatible with the technical level of the 

country to which it is being shipped.

 The customer or counter party or its address is 

similar to one of the parties found on publically 

available lists of “denied persons” or has a history 

of export control violations.

 Circuitous route of shipment or circuitous route of 

financial transactions. 

 Transaction involves possible shell companies.

I

n the past, proliferation 

procurement networks have 

financed the purchase and sale of 

prohibited items using a variety of traditional 

methods such as simple cash transactions or the use 

of traditional “hawalas.” In the arena of modern 

international trade, these networks tend to adopt 

traditional methods over the formal use of the 

banking system. 

A hawala is defined most simply as “money transfer 

without money movement.” It allows the transfer of 

funds from one location to another without physically 

moving cash or creating a paper trail of wire transfers. 

In lieu of using a traditional hawala, parties to 

procurement networks may use “offsetting” payments. 

These payments allow an end user company or 

individual to satisfy the debt for procuring prohibited 

items by allowing the owed party to satisfy an 

unrelated debt owed to the end-user.

For example, a procurement network may involve a 

manufacturer, supplier, broker, buyer, and an enduser of prohibited items. All parties in the network 

may have otherwise legitimate businesses that have 

frequent legitimate dealings in the world of 

international trade. A buyer and an end-user may 

have dealings with each other through their 

businesses having nothing to do with the prohibited 

items. The end-user may owe the buyer specifically 

for the procurement of prohibited item but arranges 

for the satisfaction of that debt or providing a credit 

with the end-user for future unrelated business 

dealings. 

The use of such “offsetting” payments obscures the 

flow of purchase and payment for prohibited items by 

network participants. It allows for a break in the 

chain of financing making it difficult to map the 

movement of funds throughout the whole network 

from manufacturer to end-user. 

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Volume XIII No 3

Offsetting Payments To Finance Proliferation:

Obscuring Chain Of Payment

Proliferation Financing Red Flag Indicators
HSI – A Diverse, Global Force

HSI is a critical investigative arm of the 

Department of Homeland Security and is a vital 

U.S. asset in combating criminal organizations 

illegally exploiting America's travel, trade, 

financial and immigration systems.

DHS/ ICE

Homeland Security Investigations

500 12th Street, SW

Washington, DC 20536

E-mail: cornerstone@ice.dhs.gov

Web: www.ice.gov

Proliferation Case Studies

Case #1: Shell Companies Help Finance Bomb Components

April 2016— In Washington, D.C., six individuals were indicted for their roles in a proliferation 

procurement network that moved 6,000 prohibited radio frequency components from the manufacturer in 

Minnesota through companies based in Singapore and Hong Kong to their end user in Iran. Some of these 

components were later found in sixteen Improvised Explosive Devices (IEDs) that were recovered by Coalition 

Forces on fields of combat in Iraq.

The scheme utilized shell companies based in Hong Kong to create distance between financial transactions 

and the illusion that the final beneficiary was not an Iranian entity. Furthermore, fifteen individuals as well as 

four companies that were involved in this procurement network were placed on the Commerce Department 

Entity List which prohibits them from doing business with entities of the United States.

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Volume XIII No 3

Case #2: High-Precision Machinery 

North Korea Using Shell Companies 

October 2015 – In Chicago, IL, two individuals were 

indicted for their roles in a conspiracy to export 

machinery capable of creating high-precision 

components to entities of North Korea for use by 

their military. They were charged with conspiracy 

to violate the sanctions restricting business with 

North Korea under IEEPA and money laundering.

The defendants created a number of shell 

corporations held in various countries utilizing 

different names including multiple family members 

to facilitate and obscure both the payments for the 

prohibited items and the movement of the items 

themselves.

Case #3: North Korean Company Uses 

Offset Payment To Purchase Rocket 

Components

2012 – Taiwan - A Taiwanese company exported 

rocket components, known as pressure transmitters, 

to North Korea that were later discovered in the 

debris of an exploded North Korean military rocket.

The North Korean company paid the supplying 

Taiwanese company for the transmitters by 

arranging to pay a fee for attendance at a North 

Korean trade fair for an associated Taiwanese 

company. The fee was comparable in cost to what 

was owed for the transmitters. The associated 

Taiwanese company later paid the supplier 

Taiwanese company the amount owed for the 

transmitters.