This is a sanctions compliance alert focused on geopolitical risk management and AML/CFT controls for financial institutions, which falls tangentially within payments compliance but is primarily a sanctions and correspondent banking matter rather than a core payments product or service.
The alert addresses correspondent banking relationships and third-party risk management in cross-border transactions, but the update is fundamentally about sanctions enforcement rather than payments service provision.
Specialism
The update explicitly addresses sanctions risks and directs financial institutions to implement sanctions compliance controls, transaction screening, and enhanced due diligence to avoid facilitating transactions with designated entities.
The alert requires financial institutions to conduct enhanced due diligence and implement risk-based controls on transactions, which aligns with AML/CTF supervision and monitoring obligations for payment firms handling cross-border transactions.
2026-04-29 14:39:10·pdonofrio@vixio.com
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TITLE: U.S. Department of the Treasury Warns Financial Institutions of Sanctions Risks Linked to China-Based Oil Refineries
BODY:
On April 28, 2026, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) issued an alert to financial institutions regarding sanctions risks associated with independent "teapot" oil refineries in China, particularly in Shandong Province, due to their continued importation and refining of Iranian crude oil.
China purchases approximately 90 percent of Iran's oil exports, with teapot refineries accounting for the majority of these imports. Revenue from this trade benefits the Iranian regime, its weapons programs, and military activities. Some Chinese teapot refineries have utilised the U.S. financial system to conduct dollar-denominated transactions and procure U.S. goods. OFAC identified common evasion tactics employed in this trade, including the use of front companies in Asia and the United Arab Emirates, intermediary brokers, and a "shadow fleet" using deceptive shipping practices such as ship-to-ship transfers, falsified documentation, and vessel identity manipulation.
The alert directs financial institutions to implement risk-based controls to avoid facilitating transactions involving designated teapot refineries or other refineries importing Iranian oil; conduct enhanced due diligence on transactions involving China-based refineries, particularly in Shandong Province; and implement clear communication of sanctions compliance expectations to correspondent banks. Since March 2025, OFAC has designated multiple China-based teapot refineries that have collectively processed billions of dollars' worth of Iranian-origin oil. The Treasury indicated it is prepared to deploy secondary sanctions against foreign financial institutions that continue to support Iran's activities.
Financial institutions should review the full alert and implement appropriate compliance measures immediately.
Treasury Warns of Sanctions Risks Linked to China-Based Independent “Teapot” Oil Refineries | U.S. Department of the Treasury Skip to main content Official websites use .gov A .gov website belongs to an official government organization in the United States. Secure .gov websites use HTTPS A lock ( Lock A locked padlock ) or https:// means you’ve safely connected to the .gov website. Share sensitive information only on official, secure websites. FREEDOM250 Countdown to America's 250th Anniversary July 4, 2026 Learn More April is Financial Literacy Month - Financial Literacy Fuels the American Dream - Learn More at MyMoney.gov Press Releases Treasury Warns of Sanctions Risks Linked to China-Based Independent “Teapot” Oil Refineries April 28, 2026 WASHINGTON —The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) is alerting financial institutions to the sanctions risks associated with independent “teapot” oil refineries in China, primarily in Shandong Province, given their continued role in importing and refining Iranian crude oil. China purchases approximately 90 percent of Iran’s oil exports, with teapot refineries accounting for the majority of these imports. This revenue ultimately benefits the Iranian regime, its weapons programs, and its military. Some Chinese teapot refineries have used the U.S. financial system to conduct dollar-denominated transactions and procure U.S. goods. The alert urges financial institutions to: Implement risk-based controls to avoid facilitating transactions involving designated teapot refineries or for other teapot refineries that may be importing Iranian oil; Conduct enhanced due diligence on transactions involving China-based refineries, particularly in Shandong Province; and Implement clear communication of sanctions compliance expectations to correspondent banks. The alert also highlights common evasion tactics used in this trade, including the use of front companies in Asia and the United Arab Emirates, intermediary brokers, and a “shadow fleet” employing deceptive shipping practices such as ship-to-ship transfers, falsified documentation, and vessel identity manipulation. Since March 2025, OFAC has designated multiple China-based teapot refineries that have collectively processed billions of dollars’ worth of Iranian-origin oil, ultimately benefitting the Iranian regime. Additionally, financial institutions should be on notice that the department is leveraging the full range of available tools and authorities and is prepared to deploy secondary sanctions against foreign financial institutions that continue to support Iran’s activities. Click here to read the alert . Use featured image Off Latest News April 28, 2026 Economic Fury Targets Iran Shadow Banking Facilitators Treasury Warns of Sanctions Risks Linked to China-Based Independent “Teapot” Oil Refineries United States, Croatia Sign Protocol to Income Tax Treaty April 27, 2026 READOUT: Secretary of the Treasury Scott Bessent’s Meeting with European Commissioner for Trade and Economic Security Maroš Šefčovič Treasury Moves to Prevent Abuse of Community Development Financial Institutions Fund Programs