The United States Imposes Sanctions on Chinese and Hong Kong Persons for Activities Related to Supporting the Islamic Republic of Iran Shipping Lines

Michael R. Pompeo, Secretary of State

The international community has long recognized that the Iranian regime uses the Islamic Republic of Iran Shipping Lines (IRISL) to transport proliferation-sensitive items intended for Iran’s ballistic missile and military programs.  A provision of UN Security Council Resolution 1929 mandates vigilance when doing business with IRISL and entities owned or controlled by IRISL under certain circumstances.  This provision is now in effect due to the snapback of UN sanctions.

Today, the United States is sanctioning six entities and two individuals for conduct related to IRISL and its subsidiary, Hafez Darya Arya Shipping Company (HDASCO), pursuant to the Iran Freedom and Counter-Proliferation Act Section 1244 (IFCA 1244).

On June 8, 2020, the State Department designated IRISL and IRISL’s Shanghai-based subsidiary, E-Sail Shipping Company Ltd., pursuant to Executive Order 13382 for their proliferation-related conduct.  The State Department warned that any stakeholder who continued doing business with IRISL or E-Sail was at risk of sanctions.

Since the June 2020 designation of IRISL and E-Sail, Reach Holding Group (Shanghai) Co. Ltd. and Reach Shipping Lines arranged for port berths for IRISL vessels at Chinese ports.  Reach Shipping Lines knowingly sold, supplied, or transferred four large container vessels to IRISL’s subsidiary, HDASCO.

Reach Holding Group (Shanghai) Company Ltd.; Reach Shipping Lines; Delight Shipping Co., Ltd.; Gracious Shipping Co. Ltd.; Noble Shipping Co. Ltd.; and Supreme Shipping Co. Ltd. are being designated pursuant to IFCA Section 1244(d)(1)(A) for having knowingly sold, supplied, or transferred to Iran significant goods or services used in connection with the shipping sector of Iran.  Eric Chen (Chen Guoping), Chief Executive Officer of Reach Holding Group (Shanghai) Company Ltd., and Daniel Y. He (He Yi), President of Reach Holding Group (Shanghai) Company Ltd., are also being sanctioned pursuant to Iran Sanctions Act Section 6(a)(11) as a part of this action. Delight Shipping Co., Ltd.; Gracious Shipping Co. Ltd.; Noble Shipping Co. Ltd.; and Supreme Shipping Co. Ltd. each knowingly sold, supplied, or transferred a large container vessel to Iran to be used in connection with the shipping sector of Iran.

In addition to the foregoing activities, since the June 2020 designation of IRISL and E-Sail pursuant to E.O.13382, Reach Holding Group (Shanghai) Company Ltd. and its subsidiary, Reach Shipping Lines, have provided services to IRISL, E-Sail, and HDASCO to help these Iranian shipping entities evade the consequences of U.S. sanctions.  For instance, during this time, Reach Holding Group (Shanghai) Company Ltd. has also taken actions and performed certain services for IRISL and its subsidiaries specifically designed to shield Chinese entities from U.S. sanctions; likewise, Reach Shipping Lines has been involved in activities, services, and the provision of goods to IRISL and its subsidiaries intended to conceal IRISL and it subsidiaries’ activities from Chinese government, industry, and maritime stakeholders.  Additionally, Reach Holding Group (Shanghai) Company Ltd. has also worked on behalf of IRISL and its subsidiaries to conceal these Iranian entities activities in the PRC including by lying to Chinese companies about the roles of IRISL and its subsidiaries in shipments and by falsifying documents and engaging in other deceptive practices so that Chinese government, industry, and maritime stakeholders would not know about IRISL and its subsidiaries activities in the PRC.

Today, we reiterate a warning to stakeholders worldwide:  If you do business with IRISL, you risk U.S. sanctions.

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    The Department of Defense (DOD) relies on contractors to provide a wide array of services, including support for management, information technology, and weapon systems. DOD obligated about $190 billion on service acquisitions in fiscal year 2019 (see figure). Department of Defense Obligations for Service Acquisitions by Military Department and Defense Agencies and Field Activities, Fiscal Year 2019 Since 2001, GAO has highlighted service acquisitions as an issue for oversight within the DOD Contract Management area in its High-Risk List. Among other things, the High-Risk List and GAO's prior work have identified that: DOD's service requirements reviews were narrowly focused on individual contracts rather than entire capability portfolios, DOD's efforts to use its inventory of contracted services to inform management decisions were hindered by data collection issues, and DOD's budget exhibits did not clearly identify service acquisitions. In October 2020, DOD issued a report to Congress describing its current mechanisms and plans for managing and overseeing service contracts. GAO found that this report addresses some of the key issues identified in GAO's High-Risk List, but does not address others. Requirement reviews. The DOD report summarizes guidance the department issued in January 2020 that links requirements reviews to budget trade-offs, and clarifies the relationship between service acquisition management and category management activities. Category management is an Office of Management and Budget-led, government-wide initiative to reorganize government spending around fewer, larger contracts and use the government's purchasing power to buy like a single enterprise. These efforts have the potential to improve how requirements reviews support budget trade-off decisions within and across capability portfolios. Inventory of contracted services. The DOD report discusses the department's recent transition to the government-wide system other federal agencies use to collect data for their inventories of contracted services, and explains that this transition is intended to reduce the burden of data collection for defense contractors and improve compliance. However, the report does not discuss how DOD plans to use this data to inform decision-making and workforce planning, the key issues GAO has identified in past work. Future-year spending plans. The DOD report does not discuss our finding in a prior report that DOD could improve its ability to strategically manage service acquisitions by improving visibility on future budgetary requirements. Instead, DOD's report states that DOD plans to address capability gaps in budget planning for service contracts in a separate effort in response to a provision in the National Defense Authorization Act for Fiscal Year 2020 that might address GAO's recommendations. DOD officials told GAO they are working to better understand that provision before initiating their effort. The Senate report on the National Defense Authorization Act for Fiscal Year 2020 included a provision for the Secretary of Defense to submit a report to the congressional defense committees on current mechanisms for overseeing defense service contracts, and for GAO to assess this report. DOD issued its report to Congress in the second week of October 2020. This GAO report assesses the extent to which that DOD report addresses service acquisition issues identified in GAO's High-Risk List and other products. GAO reviewed DOD's report to Congress on defense service acquisitions and GAO's past reports on defense service acquisitions, including GAO's 2019 High-Risk List and 11 other products issued between 2011 and 2018. GAO collected and assessed additional documentation from DOD offices and military departments, and interviewed officials from these offices and departments to collect additional information about DOD plans to improve service acquisitions. For more information, contact Timothy DiNapoli at (202) 512-4841 or DiNapoliT@gao.gov.
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  • Private Health Insurance: Markets Remained Concentrated through 2018, with Increases in the Individual and Small Group Markets
    In U.S GAO News
    Enrollment in private health insurance plans in the individual (coverage sold directly to individuals), small group (coverage offered by small employers), and large group (coverage offered by large employers) markets has historically been highly concentrated among a small number of issuers. GAO found that this pattern continued in 2017 and 2018. For example: For each market in 2018, at least 43 states (including the District of Columbia) were highly concentrated. Overall individual and small group markets have become more concentrated in recent years. The national median market share of the top three issuers increased by approximately 8 and 5 percentage points, respectively, from 2015 through 2018. With these increases, the median concentration was at least 94 percent in both markets in 2018. Number of States and District of Columbia Where the Three Largest Issuers Had at Least 80 Percent of Enrollment, by Market, 2011-2018 GAO found similar patterns of high concentration across the 39 states in 2018 that used federal infrastructure to operate individual market exchanges— marketplaces where consumers can compare and select among insurance plans sold by participating issuers—established in 2014 by the Patient Protection and Affordable Care Act (PPACA) and known as federally facilitated exchanges. From 2015 through 2018, states that were already highly concentrated became even more concentrated, often because the number of issuers decreased or the existing issuers accrued the entirety of the market share within a state. In 2017 and 2018 all 39 states were highly concentrated. GAO received technical comments on a draft of this report from the Department of Health and Human Services and incorporated them as appropriate. GAO previously reported that, from 2011 through 2016, enrollment in the individual, small group, and large group health insurance markets was concentrated among a few issuers in most states (GAO-19-306). GAO considered states' markets or exchanges to be highly concentrated if three or fewer issuers held at least 80 percent of the market share. GAO also found similar concentration on the health insurance exchanges established in 2014 by PPACA. A highly concentrated health insurance market may indicate less issuer competition and could affect consumers' choice of issuers and the premiums they pay for coverage. PPACA included a provision for GAO to periodically study market concentration. This report describes changes in the concentration of enrollment among issuers in the overall individual, small group, and large group markets; and individual market federally facilitated exchanges. GAO determined market share in the overall markets using enrollment data from 2017 and 2018 that issuers are required to report annually to the Centers for Medicare & Medicaid Services (CMS). GAO determined market share in the individual market federally facilitated exchanges in 2018 using enrollment data from CMS. For all analyses, GAO used the latest data available. For more information, contact John Dicken at (202) 512-7114 or dickenj@gao.gov.
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  • Climate Change: A Climate Migration Pilot Program Could Enhance the Nation’s Resilience and Reduce Federal Fiscal Exposure
    In U.S GAO News
    GAO identified few communities in the United States that have considered climate migration as a resilience strategy, and two—Newtok, Alaska, and Isle de Jean Charles, Louisiana—that moved forward with relocation. Newtok, for example, faced imminent danger from shoreline erosion due to thawing permafrost and storm surge (see figure). Literature and experts suggest that many more communities will need to consider relocating in coming decades. Shoreline Erosion at Newtok, Alaska, from July 2007 to October 2019. Federal programs provide limited support to climate migration efforts because they are designed to address other priorities, according to literature GAO reviewed and interviews with stakeholders and federal officials. Federal programs generally are not designed to address the scale and complexity of community relocation and generally fund acquisition of properties at high risk of damage from disasters in response to a specific event such as a hurricane. Unclear federal leadership is the key challenge to climate migration as a resilience strategy. Because no federal agency has the authority to lead federal assistance for climate migration, support for climate migration efforts has been provided on an ad hoc basis. For example, it has taken over 30 years to begin relocating Newtok and more than 20 years for Isle de Jean Charles, in part because no federal entity has the authority to coordinate assistance, according to stakeholders in Alaska and Louisiana. These and other communities will rely on post-disaster assistance if no action is taken beforehand—this increases federal fiscal exposure. Risk management best practices and GAO's 2019 Disaster Resilience Framework suggest that federal agencies should manage such risks before a disaster hits. A well-designed climate migration pilot program that is based on project management best practices could improve federal institutional capability. For example, the interagency National Mitigation Investment Strategy—the national strategy to improve resilience to disasters—recommends that federal agencies use pilot programs to demonstrate the value of resilience projects. As GAO reported in October 2019, a strategic and iterative risk-informed approach for identifying and prioritizing climate resilience projects could help target federal resources to the nation's most significant climate risks. A climate migration pilot program could be a key part of this approach, enhancing the nation's climate resilience and reducing federal fiscal exposure. According to the 13-agency United States Global Change Research Program, relocation due to climate change will be unavoidable in some coastal areas in all but the very lowest sea level rise projections. One way to reduce the risks to these communities is to improve their climate resilience by planning and preparing for potential hazards related to climate change such as sea level rise. Climate migration—the preemptive movement of people and property away from areas experiencing severe impacts—is one way to improve climate resilience. GAO was asked to review federal support for climate migration. This report examines (1) the use of climate migration as a resilience strategy; (2) federal support for climate migration; and (3) key challenges to climate migration and how the federal government can address them. GAO conducted a literature review of over 52 sources and interviewed 12 climate resilience experts. In addition, GAO selected and interviewed 46 stakeholders in four communities that have considered relocation: Newtok, Alaska; Santa Rosa, California; Isle de Jean Charles, Louisiana; and Smith Island, Maryland. Congress should consider establishing a pilot program with clear federal leadership to identify and provide assistance to communities that express affirmative interest in relocation as a resilience strategy. The Departments of Homeland Security and Housing and Urban Development provided technical comments that GAO incorporated as appropriate. For more information, contact Alfredo Gómez at (202) 512-3841 or gomezj@gao.gov.
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  • Tax Administration: Better Coordination Could Improve IRS’s Use of Third-Party Information Reporting to Help Reduce the Tax Gap
    In U.S GAO News
    Information returns are forms filed by third parties, such as employers and financial institutions that provide information about taxable transactions. These forms are submitted to the Internal Revenue Service (IRS), the Social Security Administration, and taxpayers. Fifty unique types of information returns provide information on individual taxpayers and have a variety of purposes, such as reporting on wages earned or amounts paid that qualify for a tax credit or deduction. IRS identifies mismatches between information returns and tax returns for potential additional review, including enforcement actions. According to IRS research, taxpayers are more likely to misreport income when little or no third-party information reporting exists than when substantial reporting exists. Overview of Internal Revenue Service's (IRS) Process for Matching Information Returns IRS's ability to process and use information returns is limited by its outdated legacy information technology (IT) systems. In 2017, IRS developed a plan to modernize its information return processing systems; however, IRS paused its efforts due to, according to IRS, resource constraints. IRS has an opportunity to capitalize on prior planning efforts by re-evaluating and updating these efforts and integrating them into its broader IT modernization efforts. IRS does not have a coordinated approach with cross-agency leadership that strategically considers how information reporting could be improved to promote compliance with the tax code. While information returns affect many groups across IRS and support multiple compliance programs, no one office has broad responsibility for coordinating these efforts. A formalized collaborative mechanism, such as a steering committee, could help provide leadership and ensure that IRS acts to address issues among the intake, processing, and compliance groups. For example, IRS has not undertaken a broad review of individual information returns to determine if thresholds, deadlines, or other characteristics of the returns continue to meet the needs of the agency. For tax year 2018, IRS received and processed more than 3.5 billion information returns that it used to facilitate compliance checks on more than 150 million individual income tax returns. By matching information reported by taxpayers against information reported by third parties, IRS identifies potential fraud and noncompliance. GAO was asked to review IRS's use of information returns. This report provides an overview of information returns and assesses the extent to which IRS has a coordinated approach to identifying and responding to risks related to the use of information returns in the tax system, among other objectives. GAO reviewed IRS documents and data on information returns filing, processing, and use, and interviewed cognizant officials. GAO compared IRS's efforts in this area to federal internal control standards, and IRS's strategic plan. GAO is making nine recommendations to IRS, including that IRS revise its modernization plans for its information returns processing systems and incorporate it into broader IT modernization efforts and develop a collaborative mechanism to improve coordination among IRS groups that use information returns. IRS neither agreed, nor disagreed with the recommendations; however, IRS outlined actions it plans to take to address the recommendations. Social Security Administration had no comments. For more information, contact James R. McTigue at (202) 512-9110 or McTigueJj@gao.gov.
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