U.S. Sanctions China-Based Front Companies Procuring Drone Components for Iran

Beijing finds itself in the crosshairs as Washington tightens the vise on Tehran. The U.S. Treasury Department sanctioned six entities on February 26 for procuring components for unmanned aerial vehicles (UAV) on behalf of Iran. Operating as front companies in Hong Kong and China, these entities provided components to the Iranian firm Pishtazan Kavosh Gostar Boshra (PKGB) and its subsidiary Narin Sepehr Mobin Isatis (NSMI), with four of the six fronts supplying Western-origin parts. The six fronts and the two Iranian firms all facilitated the manufacturing of ballistic missiles and drones under the direction of the Islamic Revolutionary Guard Corps (IRGC).

The Hong Kong-based front companies Dingtai, Yonghongan, and Tianle sourced UAV-related electronic components for PKGB, and they continued procurement efforts despite the imposition of U.S. sanctions against PKGB’s previous front companies in February 2024. PKGB front companies also used Yonghongan to purchase millions of dollars in Western-origin drone parts, falsely listing it as the purchaser of the components. Similarly, NMSI received shipments of UAV equipment from the China-based Shenzhen Zhiyu, the Hong Kong-based DDC Develop, and the Hong Kong-based JP Oriental.

Beijing’s Strategic Gains From Iranian UAV Advances

Tehran’s growing influence in east Asia in recent years has granted it access to crucial supply chains that are integral to its drone industry, with Iranian and Chinese front companies enabling the transfer of drone technology. In response, the United States imposed sanctions in October 2023 and July and October 2024 against firms in mainland China and Hong Kong for aiding UAV development by the IRGC and Iran’s Ministry of Defense and Armed Forces Logistics (MODAFL) — particularly the Shahed series, some of which are used as so-called “suicide drones.”

Having witnessed the impact of Iranian drones in Ukraine, China is reportedly collaborating with Moscow to develop and produce UAVs for Russia, including analogues of Iran’s Shahed-136 suicide drone. These Iranian UAVs, which Russia is now producing in modified forms, have provided Moscow with a low-cost means of attacking critical infrastructure and other targets in Ukraine.

⁠IRGC Exploits Western Resources for Drone Research

The latest U.S. sanctions underscore a broader pattern of Tehran exploiting Western resources to advance its military capabilities. Many of the parts in drones that Iran supplies to Russia are U.S.-made. This technology is found in Iranian suicide drones such as the Shahed-131 and Shahed-136 as well as in the Mohajer-6, a reconnaissance and attack drone.

The Islamic Republic has leveraged international academic collaborations to advance its drone program, with university researchers from the United States, United Kingdom, and Australia working with Iran’s Sharif University of Technology, which Canada, the European Union and the United Kingdom sanctioned for its role in the regime’s nuclear proliferation. This has facilitated the development of key drone technologies, including gyro navigation devices that have enhanced the range and accuracy of Iranian-made UAVs.

Iran Has Evolved From Arms Dealer to Formidable Arms Proliferator

The expiration of the United Nations arms embargo in 2020 that had restricted Iran’s ability to export conventional arms has further allowed the country to emerge as an arms proliferator. Beyond the war in Ukraine, Iranian drones have appeared in Venezuela, where Tehran has aided local production, and in Ethiopia and Sudan. The Houthis in Yemen, Lebanese Hezbollah, and Iraqi militias have also launched long-range UAVs against Israeli and regional targets. Iran has showcased its military equipment at international defense expos in countries such as Malaysia, Qatar, Iraq, Russia, and Serbia and even sent a delegation to Saudi Arabia’s defense show, indicating its growing reach in the global arms trade.

Sanctions Must Extend Beyond Front Companies

This is not the first designation targeting Iran’s foothold in Asia, nor will it be the last. Entities in China and Hong Kong have been pivotal in advancing Tehran’s UAV and ballistic missile programs, making Treasury’s focus on the region a necessary step — but not enough. Sanctions must go beyond front companies to target the broader Chinese networks, including major firms with global reach, financial institutions enabling illicit trade, and their top executives, ensuring meaningful pressure on those sustaining Iran’s military expansion.

Janatan Sayeh is a research analyst at the Foundation for Defense of Democracies (FDD), where he focuses on Iranian domestic affairs and the Islamic Republic’s malign regional influence. For more analysis from Janatan and FDD, please subscribe HERE. Follow Janatan on X @JanatanSayeh. Follow FDD on X @FDD and @FDD_Iran. FDD is a Washington, DC-based, non-partisan research institute focused on national security and foreign policy.