2nd UPDATE: Chinese Co, Manager Indicted On 118 Counts - DA

Manhattan District Attorney Robert M. Morgenthau said Tuesday that a Chinese company and its manager have been indicted on criminal charges for allegedly engaging in illegal financial transactions and helping Iran import a variety of banned materials, including metal alloys that could be used for nuclear weapons and ballistic missiles.

At a press conference Tuesday, Morgenthau announced a 118-count criminal indictment against Li Fang Wei, a Chinese citizen, and his company, Limmt Economic and Trade Co., and its various affiliates. The charges include falsifying business records and conspiracy. The falsifying business records counts carry a sentence of up to four years in prison.

The U.S. Treasury Department, which worked closely with Morgenthau's office, said Tuesday it is freezing Li's U.S. assets and the assets of Limmt companies, which sell metal alloys and minerals, including high-strength metals and sophisticated military materials. The Treasury Department spells his surname as Fangwei.

"This is a case about selling banned materials and contraband by a Chinese company to Iran by using the U.S. financial system," Morgenthau said.

The district attorney said he intends to ask the Chinese government's assistance in having Li, 36 years old, of Liaoning province, extradited to the U.S. to face the charges.

Li, who is also known as Karl Lee, doesn't have an attorney in the U.S. He couldn't immediately be located for comment Tuesday.

Morgenthau said the company had been banned since 2006 by the Treasury Department from engaging in financial transactions in the U.S. for its role in assisting Iran's nuclear proliferation program.

Limmt used aliases and front companies in order to send and receive dozens of illegal payments through the U.S. between November 2006 and September 2008, Morgenthau said.

The firm was assisted by two Chinese banks in the transactions, and his office is looking into their role in the transactions, the district attorney said. The probe is continuing, he said.

The Treasury Department said Limmt used at least eight aliases or front companies to circumvent U.S. sanctions.

"Our banks have high standards and sophisticated systems to stop these transactions, but this conduct was specifically designed to defeat their systems," Morgenthau said.

During the period, Limmt used its aliases to provide banned missile, nuclear and so-called "dual-use" materials to subsidiaries of Iran's Defense Industries Organization, a unit of the Iranian military, Morgenthau said.

The materials included 15,000 kilograms of specialized aluminum alloy used for long-range missiles, more than 30,000 kilograms of tungsten-copper plates, and 24,500 kilograms of maraging steel rods, Morgenthau said.

Limmt and Iran's Defense Industries Organization also engaged in negotiations for gyroscopes and accelerometers used in long-range missiles, he said.

Morgenthau said Limmt conducted its nonmilitary commercial business primarily with U.S. dollar payments, and the payments were cleared by U.S. banks, which was illegal after it was barred from engaging in such transactions by the Treasury Department.

The district attorney said Limmt's Iranian military shipments were paid for primarily in euros. The company used aliases in both cases to complete the transactions, he said.

Adam Kaufmann, assistant district attorney and bureau chief of the district attorney's Investigation Division Central, said Morgenthau's office has uncovered information that some of the transactions by Iran's military were in U.S. dollars, but has been unable, so far, to trace those transactions.

The district attorney's office has been able to trace specific U.S. bank transfers involving illegal nonmilitary transactions, he said.

Morgenthau said he doesn't believe any of the New York banks were aware of the true nature of the illegal transactions. He thanked units of Bank of New York Mellon Corp. (BK), Citigroup Inc. (C), Wells Fargo Corp. (WFC), Bank of America Corp. (BAC) and Standard Chartered (STAN.LN) for their assistance.

"We think they were completely deceived by the use of multiple aliases," Morgenthau said.

On Tuesday, Treasury also froze the assets of a group of Iranian firms for allegedly acting on behalf of Iran's Defense Industries Organization and the Iranian Ministry of Defense and Armed Forces Logistics. Both Iranian offices had already been designated by the U.S. State Department for engaging in activities that contributed to the development of Iran's nuclear and missile programs.

Earlier this year, Morgenthau said he was probing whether nine European banks helped Iran or Iranian clients evade U.S. sanctions.

In particular, Morgenthau, who didn't name the banks at the time, said he was looking into whether the banks helped Iran engage in prohibited transactions, including purchasing materials that could be used in its nuclear proliferation program.

Morgenthau's office has been looking into the practice of "stripping," where the identities of bank clients are removed from wire-transfer information. The practice helps clients avoid filters used by U.S. banks to detect transactions from countries under U.S. sanctions.

On Tuesday, Morgenthau said his office has been able to shut down at least eight improper transactions as a result of grand jury subpoenas issued to banks as part of the probe.

In January, Lloyds TSB Group PLC's (LYG) banking unit reached a deferred prosecution agreement with Morgenthau's office and the U.S. Department of Justice, and agreed to pay $350 million in fines and forfeiture over stripping.

Between the mid-1990s and 2007, Lloyds TSB's banking unit deliberately altered wire-transfer information that allowed $350 million in transactions by clients in Iran, Sudan and other countries to avoid detection, prosecutors said.

Lloyds TSB is cooperating with Morgenthau's probe.

The Lloyds probe grew out of an investigation into the suspicious movement of money by alleged Iranian front companies and charities - namely the relationship between Iran's government and the Alavi Foundation and Assa Corp. in New York, Morgenthau has said.

In December, the U.S. government filed an action to seize a 40% stake of 650 Fifth Ave. - known as the Piaget Building - from Assa, saying the company is a front for Iran's state-owned Bank Melli. The bank is subject to U.S. sanctions for allegedly funneling money to Iran's nuclear weapons program.

The building in midtown Manhattan was built in the 1970s by Alavi, which was set up by Iran's former shah. The foundation owns a 60% stake in the building.

-By Chad Bray and Maya Jackson Randall, Dow Jones Newswires; 212-227-2017; [e-mail]