Sanctions Hit Iran but Leave Chinese Facilitators Untouched

President Donald Trump is slamming shut the back doors allowing prohibited Iranian financial trade to continue in the shadows. On August 7, the U.S. Treasury Department sanctioned members of two networks supporting illicit financial transfers with Iran as well as an IT firm complicit in Iran’s domestic repression.

The first network created a financial communications system, the Cross-Border InterBank Messaging System, to bypass the dominant U.S.-led financial system. The second designated network, centered on the Cyrus Offshore Bank, supported a seemingly non-Iranian bank as a front for Iran’s banking sector.

Cracking down on hidden financial webs is fundamental to imposing “maximum pressure” successfully on Iran. Treasury Secretary Scott Bessent emphasized that the United States will continue to attack Iranian funding to “block [Iran’s] access to revenue” and to “starve [Iran’s] weapons programs of capital.” Sanctions require constant maintenance and refining to pack a punch. According to Bessent, “the Iranian regime is running out of places to hide” from U.S. financial weapons. Still, more can be done to cut off the regime from its critical revenue sources.

Opaque Institutions Enable Prohibited Transactions

A lack of transparency and oversight provides cracks in the global financial system. Iran-linked firms exploit these cracks — hiding their ties to Tehran to facilitate international flows of money to the regime. Both networks designated on August 7 provided paper-thin fronts to mask Iran’s hand in international purchases and oil sales, though exactly how they operate remains unknown to the public. Layers of indirect ownership, an offshore address, and distinct names create the illusion of distance from the Iranian regime.

Tehran runs elaborate puppet infrastructure — such as shadow banks — to sidestep the sanctions that block trade and finance. Just one shipping network designated for sanctions in July provided Iran with tens of billions of dollars in returns over seven years. Those who aid or fail to report sanctions evasion face legal liability and the possibility of designation themselves. Trump declared in May that secondary sanctions are fair game for “any country or person” purchasing Iranian petrochemicals.

Sanctions Evasion Is a Two-Way Street That Leads to China

Iran relies on its primary oil customer, China, to keep the money coming in. Sprawling companies, such as Wanda Holdings Group, support China in purchasing about 90 percent of Iran’s oil exports and materially facilitate Iranian oil smuggling. This system, in turn, appears to implicate major Chinese state-owned entities. Chinese payments for Iranian energy support Iranian ballistic missiles, drones, and nuclear proliferation efforts.

Iran’s illicit financial networks, including the shadow bank sanctioned on August 7, serve as bridges to China. Iran often launders oil money through front companies hosted abroad and managed by Iranian exchange houses. For example, Hong Kong-based Hero Companion Limited — designated in June — provided an intermediary to blur the flow of petroleum from Iran to China.

To Make Sanctions Bite, Increase Enforcement and Cut Demand

Despite the wave of new designations, Iranian oil exports have not declined significantly under the Trump administration. By letting enabler countries and entities off the hook, Washington fails to cut global demand and address the root of the problem.

To stem the flow, the United States must impose consequences on China to hit Iran. At the company level, the United States should name and designate the Chinese firms engaging with Iran’s illicit finance infrastructure. In the recent designations, Chinese actors are referenced as a problem but neither identified nor punished — supporting a narrative of Chinese impunity and encouraging future sanctions violations. The United States should publicize all information possible that details Iran’s shadow networks and their connections to the broader financial ecosystem. The United States should also use ongoing trade negotiations with China as an opportunity to link sanctions evasion as a security priority to economic concerns. Only by forcing China to reevaluate Iranian oil purchases can the United States deal a permanent blow to the global demand for Iranian oil.

Angela Howard is a research analyst for the Center on Economic and Financial Power (CEFP) at the Foundation for Defense of Democracies (FDD). For more analysis from Angela and CEFP, please subscribe HERE. Follow Angela on X @angela__howard. Follow FDD on X @FDD and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.