With multiple economic sanctions imposed by the United Nations (UN), North Korea has resorted to money laundering to keep its economy going. A recent report revealed that North Korea managed to evade sanctions laundering money through big U.S. banks with the help of Chinese businessmen and shell companies.
As per leaked documents, North Korea-linked organizations laundered over $175 million over several years through prominent banks like JPMorgan Chase and the bank of New York Mellon among others using shell companies with the help of Chinese firms. The documents were part of suspicious activity reports (SARs) that were filed with the Treasury Department's Financial Crimes Enforcement Network (FinCen). Those leaked files were obtained by BuzzFeed News, NBC News and a Consortium of Investigative Journalists.
"Taken as a whole, you have what really, frankly, looks like a concerted attack by the North Koreans to access the U.S. financial system over an extended period of time through multiple different avenues in ways that were fairly sophisticated," Eric Lorber, a former official at the Treasury Department told NBC News. He also worked for the Trump Administration to put sanctions on North Korea.
Between 2008 and 2017, both Obama and Trump Administrations tightened sanctions on North Korea to prevent the country from building its nuclear and ballistic missile arsenals. However, Kim Jong Un's regime evaded the sanctions. According to JPMorgan, it informed the Treasury Department of suspicious transactions in 2015. Between 2011 and 2013, the bank had seen $89.2 million worth transactions that profited 11 individuals and companies.
Among the firms, China's Faith Surplus Trading Development Limited, Dandong Sanjiang Trading Co Ltd and Singapore's SUTL Corp Pte Ltd were involved in the elaborate scheme. As per international shipping records by Panjiva, Dandong Sanjiang sent at least 80 shipments to North Korea. The UN also made a note of the company's involvement with North Korea in a 2014 report.
JPMorgan also noted in its SAR that another Chinese firm Faith Surplus sent $3.76 million to China Oil Singapore through wire transfers. China Oil is a subsidiary of China National United Oil, which had been reported for allegedly violating sanctions on Iran. Faith Surplus went out of business in 2015.
In another case, a Chinese businesswoman, Ma Xiaohong and her company Dandong Hongxiang Industrial Development Corporation facilitated money laundering to Pyongyang through Bank of New York Mellon. Dandong is a Chinese city at the border of China-North Korea. Ma and her company executives were indicted between 2016 and 2019 for routing money through China, Cambodia, Singapore and the U.S. But no one has been extradited so far.
Another Singapore company, Senat Shipping Ltd, was accused of moving weapons from Cuba to North Korea between 2009 and 2015. The company and its owner Leonard Lai were sanctioned in 2015. In June, another Singaporean Tan Wee Beng was charged with money laundering. He falsified documents to conceal transactions with North Korea.
Shortcomings in Enforcing AML
While it is not clear why JPMorgan approved such transactions despite raising red flags, the bank said efforts were being made to tighten anti-money laundering (AML) measures, admitting to its shortcomings. Lorber told NBC News that financial institutions in the U.S. and its authorities do not have enough manpower to closely scrutinize all the transactions.
The problem in the system is correspondent banking that allows the flow of money across international borders. As the world's financial system relies on U.S. dollars, financial institutions in the U.S. provide services like currency exchanges or other transactions to banks in other countries. However, money launderers try to exploit the system with hopes that their transactions would go unnoticed.
As for the U.S. Treasury Department, it condemned the leaks. However, in a 2020 report, it also accepted that correspondent banking was one of the "most significant vulnerabilities" that are still illicit actors like North Korea, adding that U.S. financial institutes "often unwittingly process these transactions."