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DOJ sues to forfeit $3M linked to N. Korean money laundering, proliferation financing & slave labor

This afternoon, the U.S. Attorney’s Office for the District of Columbia filed suit to forfeit just over $3 million that three defendants allegedly laundered for an interconnected network of North Korean banks and front companies, in violation of the North Korea Sanctions and Policy Enhancement Act and the International Emergency Economic Powers Act:

  • $599,930.00 in funds “associated with” Cooperating Company 1 of Singapore, which agreed not to contest the forfeiture (and hopefully more), and which used “a bank account in China” to launder the funds.
  • $845,130.00 in funds “associated with” with Apex Choice Limited of Hong Kong.1
  • $1,722,723.00 in funds “associated with” Yuanye Wood Company, Limited of Wenzhou, China, which uses a business address in the Seychelles and laundered money for a North Korean company that used slave labor for logging in Equatorial Guinea.

The complaint also seeks civil money laundering penalties “in an amount to be determined at trial” against Cooperating Company 1, Apex Choice, and Yuanye Wood, under 18 U.S.C. 1956(b).

Apex Choice complaint

The complaint alleges that the defendants illegally laundered money for banks and companies that were previously designated under North Korea sanctions executive orders for proliferation financing, smuggling, and money laundering.

  • The Foreign Trade Bank of North Korea, designated in 2013 for proliferation financing.
  • Koryo Credit Development Bank, which is linked to North Korea’s state money laundering agency, Bureau 39.
  • Dandong Chengtai, a/k/a Dandong Zhicheng Metallic Materials, or DZMM, a Chinese company first outed by C4ADS in June 2017, then designated by OFAC in August for buying coal and metals from North Korea in violation of U.S. sanctions. A prosecutor’s “damming warrant” to seize DZMM’s funds as they passed through U.S. correspondent banks was the first big test the NKSPEA passed in the courts. DOJ then sued to forfeit $4 million in funds seized from DZMM, which C4ADS called the largest single buyer of North Korean coal. DOJ later amended its complaint to tack on another $500,000. In September of this year, the District Court entered a default judgment against DZMM. DOJ’s actions against DZMM may have played a significant role in the grim predicament of North Korea’s mining industry, with some of North Korea’s largest mines now idled by the loss of their export markets. Today’s complaint alleges that some of the coal money DZMM laundered was used to buy “nuclear and missile components.”
  • Velmur, an alleged North Korean front company based in Singapore that was designated in June of 2017 for smuggling oil to North Korea (previous DOJ forfeiture suit against $7 million in associated funds here).
  • JSC Independent Petroleum, a/k/a IPC, a Russian oil company designated by OFAC in June 2017 for illegally selling oil to North Korea.
  • Wee Tiong, a Singaporean national indicted less than a month ago for laundering money for North Korea, and who is still at large.
  • Chilbo Wood Company, an undesignated North Korean company that used slave labor to harvest timber in Equatorial Guinea, and whose workers the EG authorities told the UN they’ve since expelled pursuant to UNSCR 2375, paragraph 17.

As a matter of policy, DOJ does not name unindicted parties in complaints alleging criminal conduct. Remember, these are only allegations until a court enters final judgment. As I’ve explained previously:

Civil forfeiture is an in rem action against the property itself–including proceeds of a specified unlawful activity, or property “involved in” the specified unlawful activity and having a substantial connection to it. That’s why forfeiture cases can have names as odd as “United States v. 11 1/4 Dozen Packages of Articles Labeled in Part Mrs. Moffat’s Shoo-Fly Powders for Drunkenness,” or my personal favorite, “United States v. One Package of Japanese Pessaries” because … Japan.

The feds don’t have to arrest and convict anyone to prevail in a civil forfeiture case; they just have to seize the property and prove to a court by a preponderance of the evidence that it’s either the proceeds of a specified unlawful activity or was “involved in” one. Violations of section 104(a) of the NKSPEA are defined as specified unlawful activities, and the courts have upheld the new law’s use to seize funds that are now pending forfeiture.

[….]

Claimants may then file claims against the defendant property and argue that the feds haven’t proven that the property is proceeds or “involved in” the offense, and thus subject to forfeiture. They can also claim to be innocent owners of property that some third person misused, or that the forfeiture of the entire property would be disproportionate or excessive on Eighth Amendment grounds.

Although the enablers of North Korea’s proliferation, crimes against humanity, and money laundering are often beyond the jurisdictional reach of U.S. authorities, their money usually isn’t. If we can’t arrest them, we can still bankrupt them. We can also raise the risk premium that Pyongyang must pay those who help it violate sanctions. This is not to deny that we still have a lot of work to do.

[Neat stacks of crisp bills usually mean that a banker somewhere just handed them over to a North Korean minder, possibly MSS, no questions asked.]

The first 18 pages of today’s complaint do a fine job of explaining how the NKSPEA and Title III of the CAATSA restrict North Korea’s access to the financial system; how they work with the Bank Secrecy Act, the forfeiture laws, and UN financial sanctions; and how they’re being used to attack North Korea’s particular modus operandi. In addition to the previously mentioned enforcement actions, the Justice Department has filed other cases against illicit North Korean activity recently.

  • In United States v. All Funds in the Accounts of Blue Sea Business Co., Ltd., No. 16-cv-1954 (D.N.J. filed Sept. 26, 2016) (Verified Complaint for Forfeiture In Rem), the Attorney General alleged that the Dandong Hongxiang network laundered funds through the United States, using accounts in a dozen Chinese banks, for Treasury-designated Korea Kwangson Banking Corporation. DOJ sued to forfeit all the funds in those accounts. This was C4ADS’s first big North Korean trophy.
  • In United States v. $1,071,251.44 of Funds Associated with Mingzheng Int’l Trading Ltd., No. 17-cv-1166 (D.D.C. filed June 14, 2017), DOJ sued to forfeit funds that a China-based front company for the Foreign Trade Bank illegally laundered through the United States using accounts in three Chinese banks.
  • In United States v. Approximately One Million Two Hundred Fifty Eight Thousand Six Hundred Eighty Eight Dollars, No. 18-cv-05216 (E.D.N.Y. filed Sept. 17, 2018), the U.S. Attorney’s Office for the Eastern District of New York alleges that Taiwanese national Yung Yuan Tsang attempted to launder money through the U.S., in violation of the NKSPEA, for a Chinese company called Haihua Trade Group. The funds were destined for IPC, the Russian oil company.
  • In United States v. Park Jin Hyok, No. 18-mj-1479 (C.D. Cal. filed June 8, 2018), DOJ charged an alleged North Korean hacker with conspiracy and wire fraud for spear-phishing into SWIFT’s financial messaging software to steal $81 million from the Bangladesh Bank. The criminal complaint also charged the defendants for cyberattacks against banks in Africa, the Philippines, Vietnam, and elsewhere in Southeast Asia; and against businesses in the United States, including Sony Pictures and AMC Theaters. Although the complaint and FBI affidavit were technically detailed in their attribution, they did not seek to forfeit any funds. The defendant looks to have been a mid- to low-level operative. Although the complaint alleges that a North Korean intelligence service ran the hacking operation, it didn’t name the Reconnaissance General Bureau, whose head at that time has since had meetings with our Secretary of State, Mike Pompeo.

Although I’ve complained that Treasury has not gone after the Chinese banks that hold Pyongyang’s hard currency reserves, it has also done some good work. FinCEN wrote a good regulation to exclude North Korea from the financial system and raise the banks’ due diligence burdens. OFAC also wrote a good regulation to codify the NKSPEA, Title III of the CAATSA, and a series of executive orders signed by the last three presidents. FinCEN has now blocked two small banks out of the financial system for laundering North Korea’s money — the Bank of Dandong and the small Latvian bank ABLV. OFAC froze the assets of a third small Russian bank, Agrosoyuz Commercial Bank. The Office of the Comptroller of the Currency has also been fining banks for failing to implement sufficient anti-money laundering safeguards, although none of its recent orders have referenced North Korea sanctions.

Now, let’s hope FinCEN or OFAC will give us a nice Hannukah present in the form of a penalty notice or settlement against the unnamed banks that processed all the wires described in the complaint. It’s hard to imagine how in doing so, they complied with the “enhanced due diligence” required by 31 C.F.R. 1010.659. Those lapses potentially expose those banks to both civil and criminal penalties.

Some of Capitol Hill’s brightest and most dedicated congressmen, senators, and staffers of both parties worked hard to write and pass the NKSPEA and its sequel, Title III of the CAATSA. Now, some of the Justice Department’s brightest and most dedicated prosecutors are making good use of those laws — particularly the designation authority in section 104, the civil forfeiture provisions in section 105, and the special measures that Congress had urged the President to adopt “in the strongest possible terms” in section 201 and codified in section 201A. There are signs that this strategy is doing serious damage to the North Korean military-industrial complex. Remember, it’s not the measly $60 or $70 million that’s frozen or forfeited that matters; it’s the much larger sums that can’t flow through that grid now. After all, DOJ only forfeited $4.5 million from Dandong Chengtai, but it alleges that this company laundered $700 million for North Korea in just four years.

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1. For more on the problem of North Korea using Hong Kong front companies, see this, or start at paragraph 47 of the most recent UN Panel of Experts report.