Defendants and Front Companies Named in DOJ Indictment Operate Additional Active Companies and Trade with North Korea

On May 28, the United States Department of Justice unsealed an indictment against 26 North Korean and Chinese individuals for processing at least $2.5 billion in illegal payments between 2013 and 2020. These individuals, all employees of North Korea’s Foreign Trade Bank (FTB), allegedly used over 250 front companies registered in Hong Kong, China, Russia, and Thailand to launder funds for the North Korean government.

By looking into the companies and individuals mentioned in the indictment, we uncovered a larger network of potential illicit activity.

Although these high-risk companies operate in China and Hong Kong, their involvement in international trade could expose global supply chains to North Korea-related risk.

Ruizhi Resources, a Chinese company named in the indictment, is part of a larger network of China-based entities that are sanctioned by the U.S. government and have exported goods to North Korea and other jurisdictions.

According to the indictment, Ruizhi Resources is a front company for Dandong Zhicheng Metallic Material Co. Ltd. Dandong Zhicheng has been subject to previous U.S. regulatory action for its support of North Korea.

In August 2017, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned Dandong Zhicheng and its majority shareholder, Chi Yupeng, for exporting coal to North Korea. The same month, the Department of Justice also filed an asset forfeiture complaint against Ruizhi Resources, Dandong Zhicheng, and Chi Yupeng for laundering money on behalf of North Korea.

The May 28 indictment states that in 2016, Ruizhi Resources and Dandong Zhicheng sent over $1 million to an offshore branch of a Chinese FTB front company, Liaoning Yuzheng International Trading. According to commercial trade data provided by Panjiva, this company had previously sent hundreds of thousands of dollars of goods to North Korea.

Chi is still a majority shareholder of Dandong Zhicheng, according to Chinese public records. He is also the 85 percent shareholder of two additional active companies in Dandong, neither of which has been sanctioned: Dandong Honesty Trading Co. Ltd. and Dandong Sincerity New Energy Co. Ltd. Both of these companies appear to be legally blocked, according to OFAC’s guidance on majority beneficial ownership by sanctioned entities.

Panjiva’s trade data shows that between 2015 and 2017, Dandong Sincerity exported $5.7 million of goods to North Korea, including goods marked with the H.S. codes for chemical products, plastics, and petroleum – actions that may themselves have been subject to U.S. sanctions per Executive Order 13722 (2016).

After OFAC sanctioned Chi Yupeng in August 2017, Dandong Sincerity continued operations, shipping over $500,000 worth of chemical products and plastics to India, the Netherlands, Georgia, South Korea, Vietnam, and Indonesia. Dandong Sincerity’s global reach presents a risk that trading partners may have unwittingly supported the North Korean money laundering network.

Liaoning Yuzheng and Dandong Sincerity’s record of trade with North Korea demonstrates how the indicted network could have engaged in material support of the North Korean regime. It also indicates the real risk that countries with seemingly low exposure to North Korea may be unwittingly supporting a North Korean front company.

The directors of two additional FTB front companies appear to still operate businesses in Hong Kong and China.

Defendants who worked for the Zhuhai, China branch of FTB allegedly used a front company named “China Unitech” to wire over $300,000 to other FTB front companies in 2015. Looking at Hong Kong public records, we found that a company named China Unitech Industry (HK) Limited has a director and sole shareholder named Nan Xianhao, whose address is located in Zhuhai — the same city where the front company’s corresponding FTB branch is located.

Although this company was deregistered in 2016, corporate records show that Nan Xianhao is still the director and sole shareholder of another active Hong Kong company named Heng Xin Cheng International Co. Ltd. Since Heng Xin Cheng shares a director and sole shareholder with a North Korean front company allegedly used for money laundering, it presents a high risk of engaging in the same behavior.

In addition, a front company for Beijing’s FTB branch, Hong Kong Vast International Trade Co Ltd., allegedly wired approximately $14 million through a Chinese bank in 2015. Although the indictment doesn’t state the recipients of all these payments, it does specify that this included $248,000 to a front company for Korea Kwangson Bank, a sanctioned North Korean bank.

The director and sole shareholder of Hong Kong Vast, which dissolved in 2017, was a Chinese national named Che Haofan with an address in Yanji City, Jilin Province, China. Chinese public records show that an individual also named Che Haofan — a relatively uncommon name in China — is the director and 100 percent shareholder of a Yanji City-based company named Yanbian Daming Trading Co. Ltd.

Given the name and location match between two Che Haofans, we assess that these are likely the same individual. If that’s the case, then the director of a now-closed FTB front company is still operating a company in China, which could be used to provide similar support to North Korea.

Panjiva Data: Copyright 2020, S&P Global Market Intelligence (and its affiliates as applicable). All rights reserved.