President Trump’s recent exasperated tweet at China – suggesting China is not doing enough to stop North Korea’s nuclear efforts and rogue behavior – was followed last week by financial sanctions on Chinese supporters of North Korea. On June 29, the Treasury Department’s Office of Foreign Assets Control (“OFAC”) placed on its list of Specially Designated Nationals (“SDNs”) two Chinese nationals and one Chinese-North Korean transport company. In addition, Treasury’s Financial Crimes Enforcement Network (“FinCEN”) named one Chinese bank as an institution of “primary money laundering concern” for serving as a conduit for illicit North Korean financial transactions.
It is unclear whether these actions presage a sustained and large-scale effort to target Chinese supporters of the North Korean regime, as some have urged, or whether this is a more targeted effort involving particularly culpable persons.
Pursuant to Executive Order 13382, which authorizes the imposition of sanctions for WMD proliferation activities, OFAC designated two individuals, Sun Wei and Li Hong Ri, for establishing front companies on behalf of North Korean persons whom OFAC previously had designated. Pursuant to Executive Order 13722, which authorizes the imposition of sanctions against key sectors of the North Korean economy, OFAC also designated Dalian Global Unity Shipping Co., Ltd., which transports significant freight between China and North Korea and has been labeled by the UN as a smuggler used to evade the UN-mandated luxury goods ban on North Korea.
In addition, under Section 311 of the USA PATRIOT Act, FinCEN published a Notice of Proposed Rulemaking (“NPRM”) concerning the Bank of Dandong (“Dandong”). Section 311 authorizes FinCEN to impose requirements on U.S. financial institutions with respect to certain countries and financial institutions. Last year, FinCEN prohibited U.S. financial institutions from maintaining correspondent accounts on behalf of North Korean financial institutions; the prohibition covered the maintenance of a correspondent account on behalf of any foreign financial institution if the foreign financial institution uses the account to service a North Korean financial institution.
The instant NPRM proposes to prohibit US financial institutions from opening or maintaining correspondent accounts for or on behalf of Dandong – not itself a North Korean institution but, according to FinCEN, a Chinese facilitator for North Korean financial institutions. FinCEN alleged that:
Bank of Dandong acts as a conduit for North Korea to access the U.S. and international financial systems, including by facilitating millions of dollars of transactions for companies involved in North Korea’s WMD and ballistic missile programs. Bank of Dandong also facilitates financial activity for North Korean entities designated by the United States and listed by the United Nations for proliferation of WMDs, as well as for front companies acting on their behalf.
As with respect to last year’s 311 action against North Korea, and in keeping with similar efforts against other jurisdictions and financial institutions, this action against Dandong will require U.S. financial institutions to ensure that they are not maintaining correspondent accounts for any foreign financial institution if that foreign financial institution uses the correspondent account on behalf of Dandong.
Although Dandong has a 60-day window to comment on the NPRM, the rulemaking likely will go into effect at the end of that period and sever Bank of Dandong’s access to the US financial system.
Treasury Secretary Steven Mnuchin took the unusual step of announcing these actions – the OFAC designations and the Section 311 action – during the White House daily press briefing, stating that “North Korea’s provocative, destabilizing, and inhumane behavior will not be tolerated” and underscoring the US government’s ongoing commitment to “targeting North Korea’s external enablers.” Secretary Mnuchin also emphasized, however, that the US government is “in no way targeting China with these actions” and looks forward to “continuing to work closely with the Government of China to stop illicit financing involving North Korea.” It remains to be seen whether these actions announced last week portend more to come.