In 1994, some employees of Norinco came under federal investigation from both the FBI as well as the ATF after a successful sting dubbed "Operation Dragon Fire." In May 1996, in what was called "the largest seizure of fully operational automatic weapons in U.S. history,"[6] 14 individuals and an Atlanta, Georgia company were indicted for the unlicensed importation and sale of 2,000 Type 56's into the United States. U.S. Customs agents posing as arms traffickers convinced a group of Chinese arms dealers, including three Norinco representatives, that they were in the market to buy guns for drug rings and street gangs.[7] "The defendants offered the government undercover agents more sophisticated weapons, including hand-held rocket launchers, mortars, anti-aircraft missiles, silenced machine guns and even tanks," said Wayne Yama****a of the U.S. Customs Service.[8] The Customs Service discovered during the investigation that these weapons were bound for Oakland, California street gangs.[9] According to an affidavit signed by two of the undercover agents involved in the investigation, representatives from Norinco offered to sell urban gangs shoulder-held missile launchers capable of downing a large commercial airliner.
In August 2003, the Bush Administration imposed sanctions on Norinco for allegedly selling missile-related goods to Iran.[9] While not formally joining the multinational effort to restrict the proliferation of missiles, China did commit in 2000, not to assist in any way the development by other countries of MTCR-class missile technology. Neither the Chinese government nor Norinco has denied doing business with Iranian companies, although they did deny that it was for missile related purposes at the Shahid Hemmat Industrial Group, Iran's key manufacturer of ballistic and non ballistic missiles.[10] Norinco has called the sanctions "groundless and unjustified" and "entirely unreasonable."[11]
These sanctions led to a prohibition on imports into the US of the remaining types of firearms and ammunition not covered by the 1993 ban.