U.S. Sanctions Chinese, Russian Firms for Aiding North Korea -- 3rd Update

The U.S. on Tuesday targeted a host of Chinese and Russian firms and related individuals it accuses of aiding Pyongyang, expanding its broader efforts to clamp down on financing critical to North Korea's nuclear-weapons program.

The U.S. Treasury's Office of Foreign Assets Control added 10 firms, including Chinese coal importers and Russian fuel exporters, to its North Korea sanctions list. Federal prosecutors also filed a pair of cases in federal court in Washington seeking tens of millions of dollars in penalties from these companies in addition to seizing $11 million in their funds already frozen at U.S. banks.

The cases target Chinese firms that allegedly had imported $700 million in North Korean coal since 2013 and a Russian-operated firm allegedly helping Pyongyang procure fuel. In all, the U.S. alleges that the coal trade generates more than $1 billion in revenue a year for North Korea, which helps to fuel its weapons programs.

The actions mark a promised escalation of a growing U.S. sanctions regime aimed at North Korea, which in recent months has launched intercontinental ballistic missiles that U.S. officials say put America at risk of a nuclear attack. It also marks an effort by the Trump administration to ensnare North Korea's supporters -- particularly in China -- in an effort to crack down on Kim Jong Un's regime.

"Treasury will continue to increase pressure on North Korea by targeting those who support the advancement of nuclear and ballistic missile programs, and isolating them from the American financial system," Treasury Secretary Steven Mnuchin said in a statement. "We are taking actions consistent with U.N. sanctions to show that there are consequences for defying sanctions and providing support to North Korea, and to deter this activity in the future."

The United Nations earlier this month banned coal exports from North Korea. A U.N. panel has complained that compliance among some of its members has been spotty. The Trump administration has been particularly frustrated with China's cooperation with North Korea. But China officials have agreed to enforce the latest measures amid growing international pressure.

"These complaints show our determination to stop North Korean sanctioned banks and their foreign financial facilitators from aiding North Korea in illegally accessing the United States financial system to obtain goods and services in the global marketplace," said Channing Phillips, the U.S. Attorney in Washington, D.C., whose office brought the cases.

North Korean officials didn't immediately appear to comment on the U.S. sanctions. Earlier Tuesday, Pyongyang attacked President Donald Trump in the state media, branding his approach to the crisis on the Korean Peninsula "unimaginably reckless."

A spokesman for the Chinese embassy in Washington said Beijing opposes unilateral sanctions, saying such "long-arm jurisdiction" could affect the U.S.-China relationship.

"We strongly urge the U.S. to immediately correct its mistake, so as not to impact bilateral cooperation on relevant issues," the spokesman said. Beijing, he added, would investigate any potential violations of U.N. sanctions under its own laws.

Anthony Ruggiero, a former senior U.S. Treasury official now at the Foundation for Defense of Democracies, said the latest sanctions move was a strong step forward in the administration's broader pressure campaign. "It's definitely a message to Beijing and Moscow they can't continue to facilitate Pyongyang."

Analysts say efforts by the U.S. attorney's office, which has been working on cases focusing on North Korea's financial conduits for more than a year, are proving a potent diplomatic weapon in the White House's broader sanctions offensive.

Sanctions not only make it illegal for companies operating in the U.S. to do business with designated entities, but are meant to freeze those firms and individuals out of global markets. Banks, for example, would no longer be able to clear wire transfers through the U.S., the world's most important financial market, for any of those designated companies. And even though the asset seizures might seem relatively small in the context of North Korea's total cross-border trade and finance, the forfeiture actions are a signal to other companies of the risks of doing business for Pyongyang.

The complaint against the Chinese firms, Dandong Zhicheng, also described as Dandong Chengtai, and several related companies, provided new details of how Pyongyang is funding its nuclear program. Much of the funding, according to prosecutors, comes through the mining and sale of coal to front companies -- firms designed to obscure business dealings -- who then pay for the coal through the purchase of other goods bound for North Korea.

Treasury named Dandong Zhicheng and its majority owner, Chi Yupeng, to its North Korea sanctions list, along with two other Chinese coal importers, JinHou International Holding Co., and Dandong Tianfu Trade Co.

Washington-based C4ADS, which studies transnational threats, says Dandong Zhicheng is the biggest importer of North Korean goods into China. In the complaint, prosecutors said North Korea uses the company to not only supply cash but also as a broker that purchases goods for North Korean use including sugar, rubber, petroleum products and soybean oil. The Wall Street Journal attempted to contact the company via an email listed on its now-defunct website and it didn't respond to a request for comment.

The complaint sought to forfeit $4 million to the U.S. government in funds Dandong Chengtai allegedly wired through a foreign bank account routed through a U.S. correspondent bank on June 21. The government seized those funds as they were in transit based on a warrant obtained in May to secretly monitor and freeze the funds.

One person described in the complaint as "Defector 1, who has firsthand knowledge" of North Korea's financial dealings, said the government relies on the exports of coal "as its primary means of obtaining access to foreign currency," and that the North Korean military controls the amount of coal produced and its export, according to the complaint.

The defector told investigators that "over 95%" of North Korea's foreign currency earnings from coal exports go toward advancing North Korea's military and North Korea's nuclear missiles and weapons programs.

Dandong Zhicheng had a page on Alibaba Group Holding Ltd.'s e-commerce website, in which it advertised it was a "professional company of trading the North Korea Briquettes," and advertised the sale of North Korean coal in U.S. dollars, according to the complaint. The page is no longer accessible on Alibaba's website. An Alibaba representative had no immediate comment.

In a separate case, prosecutors also sought to forfeit around $7 million in wire transfers being held at a U.S. bank that had been intended for Velmur Management Pte. Ltd., a Singapore-registered firm that describes itself as a real-estate company but whose business "focuses on facilitating the laundering of funds for North Korean financial facilitators," prosecutors said.

Velmur, an associated firm based in Singapore called trans-Atlantic Partners, and three Russian officials involved with the companies were added to Treasury's sanctions list Tuesday.

According to the complaint, Velmur received a $230,000 wire from Dandong Zhicheng in September 2016, and has received U.S. dollar payments on behalf of North Korean entities.

Between February and April, according to the complaint, Velmur sent seven wire transfers totaling $6.8 million to IPC, a Russian company the Treasury Department sanctioned in June for shipping petroleum products to North Korea.

Other entities sanctioned by Treasury include China-based Mingzheng International Trading Ltd., a firm prosecutors accused in June of operating as a front company helping launder U.S. dollars for North Korea's Foreign Trade Bank.

It also named China-based Dandong Rich Earth Trading Co., and Russia's Gefest-M and its director for procuring metals for a North Korean company involved in the country's weapons program. Those companies couldn't be immediately reached for comment.

No Chinese banks were named among those sanctioned, though some U.S. analysts argued the U.S. will eventually need to expand its targets to Chinese banks to more forcefully crack down on North Korean funding. To date, the U.S. has sanctioned one Chinese bank, Bank of Dandong.

Write to Aruna Viswanatha at Aruna.Viswanatha@wsj.com and Ian Talley at ian.talley@wsj.com

(END) Dow Jones Newswires

August 22, 2017 19:16 ET (23:16 GMT)