June 20, 2019 | Policy Brief

Treasury Designates Russian Company that Helped North Korea Cheat Sanctions

June 20, 2019 | Policy Brief

Treasury Designates Russian Company that Helped North Korea Cheat Sanctions

The Treasury Department on Wednesday sanctioned a Russian bank for helping North Korean front companies and individuals evade sanctions by providing access to the international financial system. The Trump administration’s action suggests that despite the uncertain future of nuclear negotiations, it will continue punishing those who aid and abet Pyongyang’s sanctions evasion.

Treasury imposed sanctions on the Russian Financial Society for opening numerous bank accounts for North Korean individuals and entities already sanctioned by the United States and the United Nations. According to Treasury, the Russian Financial Society opened accounts for the chief executive of Korea Zinc Industrial Group, which Washington sanctioned in June 2017 for selling, supplying, or transferring zinc – a key source of revenue for Pyongyang – from North Korea.

Treasury said that the Russian Financial Society also opened accounts for a North Korean front company, Dandong Zhongsheng Industry and Trade Co. Ltd, which Washington sanctioned in August 2018 for operating on behalf of North Korea’s Foreign Trade Bank (FTB). The U.S. and UN sanctioned FTB in March 2013 and August 2017, respectively, for conducting financial transactions on behalf of North Korean weapons proliferators.

Treasury found that Han Jang Su, FTB’s chief representative in Moscow, was a key player in connecting the Russian Financial Society to Dandong Zhongsheng. Han, whom the U.S. sanctioned in March 2017, has participated in numerous sanctions-evasion schemes throughout Russia, even after he was initially designated.

While Treasury’s latest action deserves praise, the administration should recognize that its economic pressure campaign has been uneven. In a March 2019 report, the UN Panel of Experts assessed that financial sanctions on North Korea “remain some of the most poorly implemented and actively evaded measures.” Furthermore, Han and FTB’s connection to the Russian Financial Society offers a reminder that sanctioned North Korean individuals and entities can still engage in evasion schemes.

Therefore, the next logical step for Washington should be to continue targeting foreign banks and financial service providers that help North Korea. So far, the U.S. has not actively targeted these critical nodes in North Korea’s vast illicit overseas financial networks. In the last two years, Washington punished only two banks: Bank of Dandong and ABLV Bank of Latvia.

To close this gap, Treasury’s sanctions investigators and enforcement officers should refer to the UN Panel of Experts’ exhaustive findings as a guide to shape future actions. The UN Panel specifically found that Pyongyang operates through banks located in at least five countries – China, Russia, Syria, Libya, and the United Arab Emirates – to access the global financial system. North Korea has also exploited banks in Malaysia and Latvia.

The Trump administration should build upon this week’s action to create optimal conditions for the ongoing nuclear negotiations with North Korea. The current state of affairs is not conducive to productive talks, as North Korea does not feel the true weight of sanctions. Only by escalating pressure, particularly financial pressure, will Washington and its allies spur Pyongyang to rethink its nuclear ambitions.

Mathew Ha is a research associate focused on North Korea at the Foundation for the Defense of Democracies (FDD), where he contributes to the FDD Center on Economic and Financial Power (CEFP). Follow Mathew on Twitter @MatJunsuk. Follow FDD on Twitter @FDD and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.


International Organizations Russia Sanctions and Illicit Finance