Trump Acts against Chinese Bank for North Korean Money Laundering

The Treasury Department took a significant action yesterday naming a Chinese bank, a Chinese company, and two individuals as conduits for North Korea’s sanctions evasion. It took the additional step of stating for the first time that a mainland Chinese bank is engaged in money laundering for North Korea, a serious accusation that could accelerate North Korea sanctions implementation. Yesterday’s action reverses a decade of successive administrations waiting for China to pressure North Korea and is a warning that Beijing must act or face additional sanctions.

Treasury identified China’s Bank of Dandong as a “primary money laundering concern,” noting that it serves as a gateway for North Korea’s access to the U.S. and international financial systems. From May 2012 to May 2015, the bank processed $786 million in transactions through the American banking system, including transactions with, or on behalf of, companies linked to U.S.- and UN-sanctioned North Korean entities.

In particular, the Bank of Dandong: 1) facilitated millions of dollars of transactions for companies involved in procuring ballistic missile technology; 2) as of early 2016, held multiple bank accounts on behalf of a front company for North Korea’s main arms exporter, designated by the U.S. in 2005 and the UN in 2009; 3) engaged in substantial suspicious activities reported by U.S. banks, including apparent transactions with shell companies; and 4) until December 2016, was partially owned by the U.S.-sanctioned Dandong Hongxiang Industrial Development Co. Ltd. (DHID) – a Chinese company indicted by the Justice Department for alleged violations of U.S. law on behalf of North Korea – and allowed DHID to process $56 million through U.S. banks between October 2012 and December 2014.

Yesterday’s action against Bank of Dandong should force Chinese banking executives to develop and implement a plan to stop North Korea’s money laundering or lose their access to the American banking system. Since November 2016, U.S. banks have had an obligation to verify that Chinese banks are not using their American accounts on behalf of North Korea. Treasury’s action will lead to tough questions about whether other Chinese banks have helped North Korea to evade sanctions. This could have a beneficial effect in those instances, where Chinese financial institutions implement a strong North Korea sanctions compliance program outside direction from Chinese leadership.

In addition to taking action against Bank of Dandong, Treasury also sanctioned two Chinese individuals and one Chinese company, noting they were involved in establishing front companies, conducting financial transactions, and shipping illicit luxury goods. This reinforces the message that Chinese entities and individuals evading sanctions will now be held accountable.

The Treasury action is a wakeup call for China’s leaders, whose role in facilitating North Korea’s sanctions evasion over the last ten years must end. The Trump administration’s timing – coming at the beginning of South Korean President Moon Jae In’s visit to Washington – reinforces the new U.S. policy of “maximum pressure” on Pyongyang. Chinese President Xi Jinping knows yesterday’s action is just the tip of the iceberg and the United States will take further action if he does not act soon.

Anthony Ruggiero, a senior fellow at the Foundation for the Defense of Democracies, was the non-proliferation advisor to the U.S. delegation to the 2005 rounds of the Six-Party Talks and spent more than 17 years in the U.S. government. Follow him on Twitter @_ARuggiero. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.