Banking and Finance Law Daily Wrap Up, CRIMES AND OFFENSES—OFAC alerts banks to sanctions risks tied to China’s Teapot Refineries, (Apr 29, 2026)

By Colleen M. Svelnis, J.D.

According to OFAC, Some Chinese teapot refineries have used the U.S. financial system to conduct dollar-denominated transactions and procure U.S. goods.

The Treasury Department’s Office of Foreign Assets Control (OFAC) has issued an alert warning financial institutions about heightened sanctions risks associated with China-based independent oil refineries, commonly known as “teapot” refineries. The alert underscores OFAC’s continued focus on Iran’s petroleum sector and the role teapot refineries play in importing and refining Iranian-origin oil.

According to OFAC, China is the largest purchaser of Iranian oil, acquiring roughly 90 percent of Iran’s total exports. Teapot refineries—primarily located in Shandong Province—purchase the majority of that oil and have used the U.S. financial system to conduct U.S. dollar-denominated transactions and to obtain U.S. technology and goods.

According to OFAC, since the resumption of “maximum pressure” on Iran, OFAC has sanctioned multiple teapot refineries for their role in purchasing and refining Iranian crude oil. Since March 2025, these refineries have collectively handled billions of dollars’ worth of Iranian oil. The most recent sanctions include Shandong Jincheng Petrochemical Group Co. Ltd. and Hengli Petrochemical (Dalian) Refinery Co., Ltd., adding to earlier designations of Shandong Shouguang Luqing Petrochemical Co., Ltd., Shandong Shengxing Chemical Co., Ltd., and Hebei Xinhai Chemical Group Co., Ltd.

As a result of these designations, all property and interests in property of the listed refineries that are in the United States or in the possession or control of U.S. persons are blocked. U.S. persons are generally prohibited from engaging in transactions with these entities unless authorized or exempt. Entities owned 50 percent or more, directly or indirectly, by the designated refineries are also blocked.

OFAC cautioned that foreign financial institutions and other non-U.S. entities may also face exposure to U.S. sanctions if they engage in certain transactions involving designated teapot refineries or other actors operating in Iran’s petroleum sector.

OFAC urges U.S. and foreign financial institutions to take steps to ensure they are not facilitating transactions involving designated teapot refineries or other refineries that may be importing Iranian oil. Institutions are advised to carefully scrutinize any dealings with China-based teapot refineries, particularly those in Shandong Province, given the heightened risk that such transactions involve Iranian-origin oil.

Recommended measures include communicating sanctions expectations to correspondent banks in China and gathering additional information on customers and transactions, such as related contracts and supporting documentation.

Sanctions evasion. OFAC detailed common sanctions evasion tactics used in Iranian oil shipments destined for teapot refineries. These include the use of front companies in Asia and the United Arab Emirates to broker shipments and process payments, often through bank accounts held in the names of those front companies. OFAC encourages enhanced due diligence not only for dealings with teapot refineries but also for transactions involving Asia- and Middle East-based entities that may be part of Iran’s oil supply chain to China, including port terminal operators, inspection firms, and logistics service providers.

Companies: Hebei Xinhai Chemical Group Co., Ltd.; Hengli Petrochemical (Dalian) Refinery Co., Ltd.; Shandong Jincheng Petrochemical Group Co. Ltd.; Shandong Shouguang Luqing Petrochemical Co., Ltd.; Shandong Shengxing Chemical Co., Ltd.

RegulatoryActivity: CrimesOffenses GCNNews