China’s largest bank freezes North Korean accounts

Not even a week after President Obama signed the North Korea Sanctions and Policy Enhancement Act into law (full disclosure), a South Korean newspaper is reporting that a number of Chinese banks, including China’s largest bank (and the world’s largest, in terms of assets) have frozen the accounts of their North Korean customers.

It has been confirmed that some Chinese banks in northeastern China, including the Dandong, Liaoning Province branch of Industrial and Commercial Bank of China (ICBC), the country’s largest bank, have suspended cash deposit and transfer services for accounts owned by North Koreans since December last year. The effectuation of new and tougher U.S. sanctions on North Korea on Thursday will likely affect Chinese businesses and financial institutions ever more. [Donga Ilbo]

Although the Treasury Department’s direct regulatory authority is limited to dollar-denominated transactions, the breadth of the secondary sanctions language in section 104(b) of the new law is sweeping enough to have shut down transactions in other currencies, including the Renminbi.

In telephone conversations with the Dong-A Ilbo on Thursday and Friday last week, an employee of ICBC’s Dandong branch said that the measures started in late December, adding that the bank had suspended all deposits and transfers of foreign currencies, including the Chinese yuan, in and out of those accounts. Dandong is located in a border area with North Korea. More than 70 percent of North Korea-China trade takes place in the city.

The banks’ actions have already begun to cause pain for the North Korean government.

A source quoted a Chinese entrepreneur in Shenyang, Liaoning Province as saying that a Chinese bank he was doing business with recently informed him that it would not take deposits in or make cash transfers from North Korean accounts. The businessman, who invested in several mines in North Korea, had paid for minerals from the mines imported to China through the bank. His North Korean partner is urging him to send money quickly, according to the source. [….]

Chinese companies operating plants in the border area and employing North Korean workers are restless, as the U.S. and South Korea have cut off Pyongyang’s financial sources for the nuclear and missile development by the U.S. sanctions law and the shutdown of the Kaesong Industrial Complex.

“If we trade minerals with North Korea and make transactions of the United Nations-designated contraband goods, our business will be hit hard by the U.S. sanctions law,” another Chinese businessman said. “Many entrepreneurs are worried because their major importers such as the U.S., Europe and South Korea will likely block imports of Chinese products manufactured by North Korean employees.”

The claim that the banks began freezing accounts in December introduces some doubt that the new U.S. sanctions law is the cause of the banks’ actions. In December, the bill was crawling through the Congress at a snail’s pace. True, Senator Gardner had introduced his bill in the Senate in October and had pushed it hard, but it wasn’t until the January 6th nuclear test that it hit the fast track. One Chinese source, apparently speculating, suggested that the account freezes may have been related to the Moranbang Band fiasco.

“After the Chinese government started some measures to put pressure on Pyongyang, it could have further expanded and strengthened the sanctions following a series of provocations such as the nuclear test and the missile launch (February 7),” the expert said. It is possible that Beijing, which participated in some of the international sanctions on the North following the third nuclear test in February 2013, has broadened the scope its sanctions on the North.

It’s also possible that the banks really didn’t start “the measure” in December at all. There were no reports of account freezes in either December or January, and plenty of reporters — and bloggers — keep a close eye on these things. This could be disinformation by Beijing to save face. China has also taken a beating in the U.S. and South Korean press for its failure to put pressure on Kim Jong-un. Back-dating the actions to December could be China’s way of taking credit for pressure it had no real hand in exerting. It’s unlikely that these banks acted in December and that we’re only hearing these reports two months later, and it’s too coincidental that we’re only hearing them after President Obama signed the new law.

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[ICBC Branch in Dandong]

So does this mean the law is already working? Not yet, but if the law is working as intended, this is the kind of report I’d expect to see in these first weeks. It means that the bigger Chinese banks, which have more exposure to the financial system, have gotten the message. The big Chinese banks also shunned North Korean business in 2013, under pressure from Treasury, but that pressure wasn’t sustained, and so it wasn’t decisive.

To make the law work as intended, Treasury will first have to publish new regulations in Title 31 of the Code of Federal Regulations, so that banks everywhere — but especially in Europe — must apply for licenses for dollar transactions with North Korea. It must also demonstrate its seriousness about enforcement by going after smaller banks like the Bank of Dandong and Orabank, non-bank institutions like 88 Queensway, and to the extent we can identify them, North Korean money launderers in Guangdong and Macau.

One wonders how many companies like Orascom Telecom will now face plunging share values because of their exposure to North Korea. It’s further evidence that sanctions risks associated with North Korean investments are “material,” and that the Securities and Exchange Commission should require those investments to be disclosed in public filings.


South Korea said Monday that North Korea is believed to be relying on cash delivery or borrowed-name bank accounts in a bid to avert China’s possible financial sanctions.

A local media company reported that Chinese banks in areas bordering North Korea have begun to freeze accounts held by North Koreans apparently in response to the North’s latest nuclear and missile test.

The Unification Ministry said that it is checking the validity of the report.

“But the North is thought to directly deliver cash or use borrowed-name bank accounts when it comes to its external trade (with China),” said Jeong Joon-hee, a ministry spokesman at the regular press briefing. [Yonhap]

Inevitably, there will be small leaks like this, but you can’t run a country of 23 million on gym bags filled with cash. So while the new law may already be having an impact — and in light of the closure of Kaesong, that impact may be a substantial one — I’m also worried that Treasury still hasn’t issued any implementing guidance about exempting food and medicine transactions. They need to publish that immediately.


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