On July 23, the U.S. Department of Justice announced that on July 22, a federal grand jury in the District of New Jersey returned an indictment charging four Chinese nationals and a Chinese company, Dandong Hongxiang Industrial Development Co. Ltd. (DHID), with violating the International Emergency Economic Powers Act (IEEPA), conspiracy to violate IEEPA and defraud the United States, conspiracy to violate, evade, and avoid restrictions imposed under the Weapons of Mass Destruction Proliferators Sanctions Regulations (WMDPSR); and conspiracy to launder monetary instruments.
The four Chinese nationals are Ma Xiaohong (Ma), who formed DHID and was its principal shareholder and senior executive; general manager Zhou Jianshu (Zhou) DHID’s general manager; Hong Jinhua (Hong), DHID’s deputy general manager; and Luo Chuanxu (Luo), DHID’s financial manager.
The indictment alleges that DHID
was a Chinese company whose core business was trade with North Korea. DHID allegedly openly worked with North Korea-based Korea Kwangson Banking Corporation (KKBC) prior to Aug. 11, 2009, when the Office of Foreign Assets Control (OFAC) designated KKBC as a Specially Designated National (SDN) for providing U.S. dollar financial services for two other North Korean entities, Tanchon Commercial Bank (Tanchon) and Korea Hyoksin Trading Corporation (Hyoksin).
In June 2005, President George W. Bush identified Tanchon as a weapons of mass destruction proliferator, and in July 2009, OFAC designated Hyoksin as an SDN under the WMDPSR in July 2009. The Justice stated that Tanchon and Hyoksin “were identified and designated because of their ties to Korea Mining Development Trading Company (KOMID), which OFAC has described as North Korea’s premier arms dealer and main exporter of goods and equipment related to ballistic missiles and conventional weapons.”
Beginning after KKBC was designated as an SDN in August 2009, Ma allegedly conspired with Zhou, Hong, and Luo
to create or acquire numerous front companies to conduct U.S. dollar transactions designed to evade U.S. sanctions. The indictment alleges that from December 2009 to September 2015, the defendants established front companies in offshore jurisdictions such as the British Virgin Islands, the Seychelles, Hong Kong, Wales, England, and Anguilla, and opened Chinese bank accounts held in the names of the front companies at banks in China that maintained correspondent accounts in the United States. The defendants used these accounts to conduct U.S. dollar financial transactions through the U.S. banking system when completing sales to North Korea.
These front companies also facilitated the financial transactions, which KKBC allegedly financed or guaranteed,
to hide KKBC’s presence from correspondent banks in the United States, including a bank processing center in Newark, New Jersey, according to the allegations in the indictment. As a result of the defendants’ alleged scheme, KKBC was able to cause financial transactions in U.S. dollars to transit through the U.S. correspondent banks without being detected by the banks and, thus, were not blocked under the WMDPSR program.
Note: This case is another in the continuing series of enforcement actions that the Justice Department has taken against individuals and companies that seek to assist sanctioned North Korean entities, for activities such as money laundering or direct sanctions violations. It should be noted that in 2016, DHID and the same four defendants were charged in a federal criminal complaint with substantially the same conduct, OFAC imposed sanctions on them for their ties to the North Korean government’s weapons of mass destruction proliferation efforts, and the Justice Department filed a civil forfeiture action for all funds contained in 25 Chinese bank accounts that allegedly belonged to DHID and its front companies.
The Justice Department announcement does not mention that any of the individual defendants are in custody. The United States presumably will ask Interpol to put out a Red Notice – “a request to law enforcement worldwide to locate and provisionally arrest a person pending extradition, surrender, or similar legal action“ — on each of the individuals, though none of them are yet on the public Red Notice list.