Mon, Aug 12, 2019 - Page 7 News List

Chinese banks probed over aid to North Korea’s nuclear arms

If the US government discovers that the banks deliberately helped to fund North Korea’s weapons program, they could be hit with billions in fines could result

By Christian Berthelsen and Tom Schoenberg  /  Bloomberg

The US is investigating hundreds of millions of dollars in financial transactions involving three big Chinese banks that allegedly helped finance North Korea’s nuclear weapons program, according to an unsealed appeals court opinion.

The July 30 ruling upheld an earlier order by a Washington district court judge directing the banks to comply with subpoenas for information about the transactions.

The appeals court said prosecutors do not “currently” suspect the Chinese banks of knowingly breaking the law, but that the banks “hold records that the US government thinks may clarify how North Korea finances its nuclear weapons program.”

US prosecutors suspect that a state-owned North Korean bank used a Chinese front company to export “hundreds of millions of dollars” in coal and other minerals, receiving revenue in US dollars it could use to buy materials vital to the dictatorship’s weapons program, according to the 44-page ruling.

The US has sought banking records from 2012 to 2017, suggesting the scheme spanned at least five years.

If the US government finds evidence that the banks willfully aided the operation, it could hit them with billions of dollars in fines “similar to those imposed against large European banks for Cuba, Iran and Sudan sanctions violations,” said Brian O’Toole, a former CIA and US Treasury Department official who is now a senior fellow at the Atlantic Council.

“That kind of action is preferable to sanctioning the Chinese banks,” or freezing them out of the US financial system, O’Toole said. “That would have broader systemic issues for US-China trade, the Chinese economy and, by extension, the global economy.”

The case, a barbed thicket of legal and foreign relations issues between the US, China and North Korea, comes at a precarious time for all three.

The US and China are engaged in a fast-escalating battle over trade, currency and economic supremacy, even as US President Donald Trump and North Korean leader Kim Jong-un seem to be slipping back toward confrontation.

Washington has hesitated to impose severe penalties over China’s banking services to North Korea for fear of disrupting trillions of dollars in trade. With relations so rocky, that could now change.

Meanwhile, a new UN report found that North Korea has perfected its technology for hacking into financial systems to shunt billions of dollars to its nuclear weapons program.

The three banks, which have not been identified in court papers, appear to be China Merchants Bank Co, Bank of Communications Co and Shanghai Pudong Development Bank Co, all among China’s top 10 banks by assets, based on a related asset-seizure case.

China Merchants Bank declined to comment, while Bank of Communications and Pudong Bank did not immediately reply to requests.

Defense lawyers listed on the case declined to comment or did not respond to requests for comment. It was not clear which lawyers were representing which banks.

Lower court judge Beryl Howell imposed a fine of US$50,000 a day against each bank for failing to comply with the subpoenas.

With the appeals court’s decision upholding a contempt citation, the stiff fines should have gone into effect on Friday.

The banks could seek a higher appeal, but that would not automatically keep the fines suspended. The US attorney’s office in Washington said the fines were scheduled to start on Friday and declined to comment further.

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