The Justice Department has unsealed indictment charges against 28 North Korean and five Chinese citizens who were allegedly agents of North Korea’s Foreign Trade Bank and facilitated over $2.5 billion in illegal payments for the reclusive nation’s nuclear weapons program. The agents allegedly established more than 250 front companies to trick banks into processing payments through the US financial system.
According to the indictment, the North Korean and Chinese nationals were allegedly part of a “multi-year scheme to covertly access the US financial system in spite of sanctions which are intended to deal with unusual and extraordinary threats to the national security, foreign policy, and economy of the United States.”
The indictment said the alleged co-conspirators opened and operated covert branches of the Foreign Trade Bank in Thailand, Libya, Austria, Russia, Kuwait, and China, which the defendants used to engage in otherwise prohibited US dollar transactions. It also alleged they took up residence in foreign countries to operate the covert branches, from which they opened and operated front companies and worked with established third-party financial facilitators to procure commodities and facilitate payments in US dollars on behalf of parties in North Korea.
“The defendants and other co-conspirators caused correspondent banks to process at least $2.5 billion in illegal payments via over 250 front companies,” the indictment said.
Since 2013, North Korea’s Foreign Trade Bank has been on the Treasury Department’s Specially Designated Nationals and Blocked Persons (SDN) list as part of US efforts to stop North Korea’s ballistic missile and weapons of mass destruction programs. In its designation, the Treasury Department’s Office of Foreign Assets Control noted that North Korea used the Foreign Trade Bank to facilitate transactions on behalf of actors linked to North Korea’s proliferation network.
Foreign financial institutions regularly maintain accounts at banks in the US, known as correspondent banks, which process US dollar transactions. Correspondent banks support international wire transfers for foreign customers in a currency that the foreign customer’s overseas financial institution normally does not hold on reserve, such as US dollars. It is through these accounts that the funds used in US dollar transactions clear, and SDNs are prohibited from accessing correspondent banks in the US through foreign financial institutions, either directly or indirectly.
In November 2016, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) implemented a special measure barring US financial institutions from maintaining a correspondent account for any North Korean financial institution or any party acting on its behalf. The measure also required covered financial institutions to take reasonable steps to not process a transaction for the correspondent account of a foreign bank in the US if it involved a North Korean financial institution.
Because the entire North Korea financial sector was a primary money laundering concern, FinCEN cut off all North Korean financial institutions—and entities acting on their behalf—from any trade in US dollar transactions via correspondent banking.
The charges against the defendants include, among others, conspiring to commit offenses against the US by the export of financial services from the US to an SDN in North Korea and defrauding a financial institution by concealing that they were engaged in financial transactions with a North Korean financial institution.