Justice Department Unveils Elaborate North Korean Sanctions Evasion Scheme

The Department of Justice (DOJ) on Thursday released an indictment charging a number of North Korean and Chinese nationals who worked for a North Korean bank. These charges open opportunities for the United States to impose stricter penalties against China, as the indictment presents ample evidence disproving Beijing’s claims that its citizens and banks do not support Pyongyang’s sanctions evasion schemes.

The DOJ indictment charged 28 North Korean and five Chinese representatives of North Korea’s Foreign Trade Bank (FTB). The Treasury Department sanctioned FTB in March 2013 for serving as a “key financial node in North Korea’s WMD apparatus” by facilitating millions of dollars of transactions for North Korea’s primary arms dealer, Korea Mining and Development Trading Corporation. DOJ alleges that since 2013, these 33 individuals helped operate an illicit financial network involving FTB branches in China, Russia, Libya, Thailand, Kuwait, and Austria to support 250 front companies. Together, these companies completed at least $2.5 billion in illegal payments that went through the U.S. financial system.

According to DOJ, this elaborate network involved U.S.-sanctioned individuals and companies. For instance, FTB’s covert branch in Shenyang, China, operated a front company called Mingzheng International Trading Ltd., which was managed by a Chinese national named Sun Wei. Treasury sanctioned both Mingzheng and Sun in 2017 for providing material support to FTB. Thursday’s indictment revealed Sun’s direct role in opening accounts at four unnamed Chinese banks to facilitate U.S. dollar transactions on behalf of not only Mingzheng but also other Chinese firms already under U.S. penalties, such as Panda International Information and Dandong Kehua Economic and Trade Company. The Department of Commerce added Panda International to its Entity List in 2014, whereas the Department of Treasury designated Dandong Kehua in 2017 for violating North Korea sanctions.

The FTB operation in Shenyang represents just one example of North Korea and China’s long-term cooperation to evade U.S. sanctions and financially support Pyongyang’s nuclear program. The Trump administration should build on this indictment’s momentum by penalizing the Chinese banks referenced in the indictment. Since imposing sanctions on Chinese banks could negatively affect the broader international financial system, Washington instead could impose significant civil penalty fines on these banks for violating sanctions. A major fine would send the first warning signal to all Chinese banks that the United States not only knows of their illicit activities but is also prepared to designate the fined banks if they fail to heed Washington’s warning and continue doing business with North Korea.

In addition, the Trump administration could designate the leadership of the targeted Chinese banks. By limiting sanctions to these individuals, Treasury could then condition the resumption of normal business operations on these banks’ stopping all illicit activity and replacing their sanctioned leaders with non-designated individuals. This would allow Treasury to impose punitive measures while also opening a path toward the banks’ rehabilitation.

Looking ahead, the administration must directly punish these banks if it hopes to pressure China into finally enforcing UN sanctions against North Korea and ceasing support for North Korea’s nuclear weapons program. Letting these banks off the hook would communicate to Beijing that it can continue its nefarious activity with impunity.

Mathew Ha is a research analyst focused on North Korea at the Foundation for Defense of Democracies (FDD), where he also contributes to FDD’s Center on Economic and Financial Power (CEFP). For more analysis from Mathew and CEFP, please subscribe HERE. 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.