The Treasury Department sanctioned 10 firms and six individuals this week for facilitating North Korea’s proliferation activities, illicit financial transactions, and sanctions evasion. The list included five Chinese firms and one Chinese individual as well as a Russian firm and four Russian nationals. These new sanctions send a strong message to Beijing and Moscow that there will be consequences for their failure to enforce the sanctions they claim to support.
The new U.S. designations complement the UN sanctions adopted two weeks ago with support from China and Russia. In the past, Beijing and Moscow have supported UN actions in order to deter unilateral sanctions by the U.S., only to undercut UN measures as soon as American pressure diminished. The tactic apparently failed this time. Instead, Washington should complement robust U.S. sanctions with a diplomatic effort to build a coalition of likeminded countries (including South Korea, Japan, Australia, the United Kingdom, France, and Germany) to squeeze North Korea’s revenue.
A crucial element of the Trump administration’s “peaceful pressure” strategy is the shift from hoping for Beijing’s cooperation to sanctioning Chinese companies, individuals, and banks that facilitate North Korea’s sanctions evasion. In June, the Treasury Department identified Bank of Dandong as a conduit for illicit transactions with North Korea and a primary money laundering concern—the first time the U.S. charged a mainland Chinese bank with laundering funds for Pyongyang. On the same day, Treasury sanctioned two Chinese individuals and a Chinese company for establishing front companies, conducting financial transactions, and shipping illicit luxury goods.
This newest round of sanctions will not have a meaningful impact unless the White House presses forward, sidelining those who perennially counsel that Beijing and Moscow respond best to carrots not sticks. Ten years of experiences shows that just isn’t true.
On Tuesday, the Treasury Department sanctioned Dandong Zhicheng Metallic Materials, which the innovative data-mining organization C4ADS first identified as the top Chinese importer from North Korea since 2014. C4ADS noted that Zhicheng accounted for 9.19 percent of North Korean exports to China in 2016.
Zhicheng imported more than $234 million worth of North Korean coal in 2016, according to a review of Chinese customs records. The Treasury Department confirmed that Zhicheng used proceeds from these sales to purchase other goods on behalf of North Korea, mirroring the approach used by another sanctioned Chinese company, Dandong Hongxiang Industrial Development. Earlier this month, the UN Security Council finally imposed a complete ban on the export of coal from North Korea.
A recently unsealed late May order from the District Court for the District of Columbia granted the Justice Department’s request for “damming” seizure warrants that enabled the confiscation of funds destined for eight U.S. banks from accounts controlled by Zhicheng’s owner, Chi Yupeng, who was designated along with his firm. The Justice Department said the Chi Yupeng network processed $700 million through the U.S. financial system from 2009 to May 2017. The Justice Department filed a complaint on August 21 requesting the forfeiture of over $4 million that a Zhicheng front company processed through the U.S. financial system on June 21.
Another one of Tuesday’s designations entails the explosive charge that a Chinese national has been operating a North Korean bank on Chinese soil. In that regard, the Treasury Department announced sanctions on Mingzheng International Trading Limited, describing it as a front for Pyongyang’s primary foreign exchange provider, the UN- and U.S.-sanctioned Foreign Trade Bank (FTB). Treasury previously sanctioned Mingzheng’s owner, Sun Wei, on June 29. Earlier that month, the Justice Department filed an asset forfeiture complaint requesting over $1.9 million in proceeds processed through the U.S. financial system on behalf of Mingzheng from October to November 2015. A confidential source told Justice that Mingzheng made illicit financial transactions on behalf of the North Korean government between January 2012 and January 2015. A second confidential source revealed that Mingzheng acts as a front company for a covert branch of FTB operated by a Chinese national.
Another Chinese company, Dandong Rich Earth Trading Co. Ltd., was sanctioned Tuesday for supporting North Korean entities tied to Pyongyang’s nuclear program. According to Treasury, the company purchased vanadium ore from Korea Kumsan Trading Corporation. The UN restricted North Korean exports of vanadium ore in March 2016, so this designation highlights Beijing’s lax enforcement of UN sanctions, while indicating the U.S. will no longer turn a blind eye.
While China is Kim Jong Un’s main patron and facilitator, no effective sanctions regime can ignore the role of Russian actors, which were targeted for the second time since June. Russia’s Gefest-M LLC and its director were designated Tuesday for procuring metals for Korea Tangun Trading Corporation’s Moscow office; Tangun was designated by the U.S. in 2009 for its involvement in North Korea’s WMD and missile programs. In early June, Treasury designated another Russian company and individual for providing supplies to Tangun and noted the individual is a frequent business partner of Tangun officials in Moscow. Russia should shut down the Tangun office in Moscow immediately.
Three Russian individuals and their two Singapore-based companies were also sanctioned Tuesday for providing oil to North Korea. In early June, Treasury sanctioned a Russian company, Independent Petroleum Company (IPC), and its subsidiary for signing a contract to provide oil to North Korea and shipping over $1 million in petroleum products to North Korea. The Justice Department, in an August 21 complaint, alleged that North Korean banks used one of the Singapore-based companies, Transatlantic Partners Pte. Ltd., to make U.S. dollar payments to the other Singapore-based company, Velmur, to pay Russia’s IPC. Justice asked a federal judge to authorize the forfeiture of almost $7 million wired to Velmur in May 2017.
These actions against Singapore-based front companies are a reminder that the U.S. also notices when its allies fail to do their part. Singapore in particular has been host to sanctions evaders, yet partners in Western Europe and the Persian Gulf are also responsible for some glaring oversights.
The one element missing from Tuesday’s action is the designation of Chinese banks that facilitate North Korea’s illicit financial transactions. Chinese banks are integral to the operation of these illicit networks and the Trump administration will need to target them to move its pressure campaign to the next level. The Treasury Department has the power to issue significant fines against Chinese banks that are not doing enough to stop illicit North Korean financial transactions. While Justice’s requests to seize illicit funds are important, it is more effective to target the source.
A robust sanctions campaign against Pyongyang will require many more designations to chip away at North Korea’s nuclear weapons and missile programs. This newest round of sanctions will not have a meaningful impact unless the White House presses forward, sidelining those who perennially counsel that Beijing and Moscow respond best to carrots not sticks. Ten years of experiences shows that just isn’t true. China and Russia must stop North Korea’s sanctions evasion or face severe consequences.