Blacklisted China bank cited as North Korea's conduit to global finance

Shengjing Bank Co

30/06/2017 12:40

By Tony Munroe and Shu Zhang 
    BEIJING, June 30 (Reuters) - Washington's move to shut off 
Bank of Dandong from the U.S. financial system punishes a small 
regional Chinese lender with what U.S. authorities say has been 
an outsized exposure to North Korea and its banned nuclear and 
missile programmes. 
    The U.S. Treasury on Thursday accused the bank of 
facilitating millions of dollars in transactions for companies 
tied to North Korea's weapons development, as Washington 
ratchets up pressure on Beijing to rein-in its isolated 
neighbour and ally. 
    "Bank of Dandong will in effect be shunned by the U.S. banks 
that may in the past have been used to clear its transactions," 
said William Newcomb, a former member of the United Nations 
Panel of Experts on North Korea. "Most international banks will 
also cease dealing with Bank of Dandong because of reputational 
risk."  
    "Similarly, other Chinese banks could damage their own 
ability to clear transactions should they try to act on Bank of 
Dandong's behalf and be found out," he said, calling the move 
"an overdue step." 
    Based in the northeastern border city of Dandong, through 
which the bulk of North Korea's trade with China flows, Bank of 
Dandong is small, with five branches, 1,570 staff, and assets of 
72.3 billion yuan ($10.66 billion). 
    But according to the U.S. Treasury, Pyongyang has used it as 
a key conduit to the U.S. financial system. 
    "As of mid-February 2016, North Korea was using bank 
accounts under false names and conducting financial transactions 
through banks located in China, Hong Kong, and various southeast 
Asian countries," it said. "The primary bank in China was Bank 
of Dandong."  
    North Korea is subject to U.N. Security Council sanctions 
over its nuclear and ballistic missile programmes. 
    The U.S. Treasury on Thursday also sanctioned China's Dalian 
Global Unity Shipping Co Ltd, as well as two Chinese citizens. 
    Bank of Dandong and the China Banking Regulatory Commission 
did not respond to faxes seeking comment. China's foreign 
ministry said it opposes sanctions outside the U.N. framework. 
     
    MISSILE TECHNOLOGY 
    In early 2016, accounts at Bank of Dandong were used to 
facilitate millions of dollars of transactions on behalf of 
companies involved in the procurement of ballistic missile 
technology, the Treasury department's Financial Crimes 
Enforcement Network (FinCEN) said in a filing on Thursday. 
    In particular, Korea Kwangson Banking Corp (KKBC) and a 
front company for Korea Mining Development Trading Corp (KOMID) 
maintained multiple bank accounts with Bank of Dandong, the 
filing said. The U.N. describes KOMID, which it has sanctioned, 
as North Korea's principal arms dealer.  
    "I think major state-owned banks and shipping companies have 
strictly implemented the sanctions, but the smaller ones still 
seek opportunities to make money wherever they can," said Zhao 
Tong, a fellow at the nuclear policy programme at the 
Carnegie-Tsinghua Centre for Global Policy in Beijing. 
    Bank of Dandong processed more than $2.5 billion in U.S. 
dollar transactions between May 2012 and May 2015 through its 
U.S. correspondent accounts, including at least $786 million in 
customer transactions for businesses and individuals, FinCEN 
said. 
    "The exposure of U.S. financial institutions to North 
Korea's illicit financial activity via Bank of Dandong outweighs 
concerns for any legitimate business activity at the bank," 
FinCEN said in the filing. 
    Last September, a minority shareholder in the bank, Dandong 
Hongxiang Industrial Development Co, and four of that firm's 
executives, were sanctioned by the United States under U.S. 
regulations targeting proliferators of weapons of mass 
destruction.  urn:newsml:reuters.com:*:nL2N1C20XE 
    At the time, U.S. authorities sought to seize Hongxiang 
funds in accounts at a handful of state-owned Chinese lenders, 
including Bank of Dandong as well as Industrial and Commercial 
Bank of China, China Construction Bank, and Agricultural Bank of 
China, which are among the world's largest banks. 
    Based on FinCEN's analysis, Bank of Dandong processed 
approximately $56 million through U.S. banks for Hongxiang 
between October 2012 and December 2014, according to Thursday's 
filing. Hongxiang is no longer a shareholder in the bank. 
    ($1 = 6.7797 Chinese yuan renminbi) 
 
 (Additional reporting by Matthew Miller and Josephine Mason; 
Editingby Bill Tarrant) 
 ((shu.zhang@thomsonreuters.com; +86 10 6627 1271; Reuters 
Messaging: shu.zhang.thomsonreuters.com@reuters.net)) 
 
Keywords: USA NORTHKOREA CHINA/SANCTIONS DANDONG