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Categorized | Banks

US charges Chinese firm over N Korea sanctions

Posted on September 26, 2016

The exterior of the U.S. Department of Justice headquarters building in Washington, July 14, 2009. REUTERS/Jonathan Ernst (UNITED STATES) - RTR25O5F©Reuters

US prosecutors charged four Chinese individuals and a Chinese company with conspiring to evade US economic sanctions on North Korea by establishing a web of shell companies that funnelled hundreds of millions of dollars through the US financial system.

The scheme, which ran for at least six years beginning in 2009, enabled Korea Kwangson Banking Corporation (KKBC) in Pyongyang to evade US sanctions and buy commodities including coal, sugar and fertiliser for North Korea’s battered economy. 

    The Department of Justice on Monday unsealed a criminal complaint charging Ma Xiaohong and her company, Dandong Hongxiang Industrial Development Co (DHID), and three executives, Zhou Jianshu, the general manager; Hong Jinhua, the deputy general manager; and Luo Chuanxu, the company’s financial manager, with conspiracy to violate US sanctions law and conspiracy to launder monetary instruments. 

    No US financial institutions were implicated in the crimes, the DoJ said. 

    The Department of Treasury also imposed sanctions on DHID, Ms Ma, Zhou and Hong for their efforts on Pyongyang’s behalf and moved to freeze funds in 25 Chinese bank accounts that allegedly belong to DHID and its network of front companies. 

    Once a federal judge issues the required restraining order, US officials will ask their counterparts in China to restrain the funds, which are held in accounts at several big Chinese banks, including China Merchants Bank, Shanghai Pudong Development Bank, Agricultural Bank of China, Bank of Communications Co of China, China Construction Bank, Guangdong Development Bank, and the Industrial and Commercial Bank of China. 

    DHID created a network of 22 front companies, located in jurisdictions such as the British Virgin Islands, the Seychelles and Hong Kong, to carry out the prohibited US dollar transactions, according to the DoJ. Shell companies also were established in the UK in Cardiff and Daventry.

    The scheme allowed KKBC, which lost access to the US financial system in 2009 when it was sanctioned for its support of North Korea’s nuclear weapons programme, to make dollar-based purchases on the world market. 

    “There was no legitimate business reason for DHID to go through the work and expense of setting up front companies to transact business in US dollars, except to avoid US sanctions,” the DoJ said in the complaint. 

    There was no legitimate business reason for DHID to go through the work and expense of setting up front companies to transact business in US dollars, except to avoid US sanctions

    – Department of Justice complaint

    In one January 2012 transaction, a North Korean diplomat based in Nakhodka, Russia, used Ms Ma’s personal bank account to wire about $3m in Chinese currency so that DHID could make a US dollar payment on the diplomat’s behalf, according to prosecutors. In emails, the accused sought to mask the source of their business, referring to North Korea as “that country”, said the complaint. 

    As part of their investigation, FBI agents visited the Hong Kong address used by 11 of the front companies and found no evidence of actual business being conducted. Agents also obtained emails via search warrants. 

    “One of the strengths of our sanctions programs is that they prevent sanctioned wrongdoers from engaging in US dollar transactions,” said John Carlin, the assistant attorney-general for national security. “Denying the use of the US financial system can greatly curtail illegal activities and disrupt efforts to provide weapons of mass destruction to terrorists and rogue nations.” 

    Ms Ma is described as a woman in her mid-40s who owns 80 per cent of DHID and serves as chief executive. Her company, located in Dandong in northeastern China, just across the Yalu River from North Korea, claimed to account for “more than 20 per cent of total trading volume” between the neighbouring countries, according to the criminal complaint.