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US is said to target North Korea violators, with ZTE’s help

LiveMint logoLiveMint 08-09-2017 Tom Schoenberg

Washington: The US government is planning to seize more assets from Chinese companies that it says laundered money for North Korea, using information uncovered in its investigation of the Chinese mobile-phone maker ZTE Corp., according to people familiar with the matter.

That would be the third round of asset seizures by the Trump administration as tensions mount between the US and China over missile and nuclear tests conducted by North Korea, a China ally. The US also may add companies to its list of Chinese entities under sanction, the people said.

The actions are expected in the coming weeks, the people said. They didn’t identify the companies under scrutiny.

The new actions would coincide with an intensifying effort to punish and isolate North Korea. After Pyongyang detonated its most powerful nuclear bomb yet on Sunday, President Donald Trump threatened to halt all trade with any country that does business with Kim Jong Un’s regime. The US is also circulating a draft United Nations resolution that would impose new trade restrictions. The South Korean government has said that North Korea may launch its next missile on Saturday, the anniversary of its founding.

ZTE, once the scourge of US authorities for its violations of Iran sanctions, has become a key source of evidence about North Korea’s use of the American financial system to launder money, said the people, who gave details about the confidential investigations on the condition of anonymity. Federal investigators have been poring through data supplied by ZTE to find links to companies that North Korea has used to tap into the US banking system, the people said.

Indeed, the other two instances in which the US attorney’s office in Washington has sought to seize millions of dollars held by Chinese firms in US bank accounts were based in part on information collected from ZTE, the people said. The seizure request planned in the coming weeks against at least two more unidentified Chinese companies would be another offshoot of ZTE’s cooperation, they said.

Bill Miller, a spokesman for US Attorney Channing Phillips in Washington, declined to comment. Seth Unger, a Treasury Department spokesman, also declined to comment. ZTE didn’t immediately respond to a request for comment.

Weapons tests

The US investigations are advancing as the Trump administration increases economic pressure on the Kim regime, which has conducted a string of weapons tests in defiance of UN resolutions and has developed missiles that may be capable of hitting the continental US. The administration has sought to pressure China to use its status as North Korea’s top trading partner to apply additional leverage, though Kim’s regime often makes decisions contrary to Beijing’s wishes.

The unlikely alliance between ZTE and US authorities was forged after the company came under scrutiny by the US Commerce Department and Justice Department for secretly doing business with Iran. The Commerce Department blocked US exports to ZTE in March 2016 over allegations that the company was reselling goods to Iran, only to suspend that ban several times after both sides opened negotiations.

As part of the US inquiry into ZTE’s business practices, the phone maker allowed an independent auditor to examine its contract management system and business records, according to prosecutors. The review identified at least four Chinese companies that were used as intermediaries for ZTE’s business with the Korea Posts and Telecommunications Company, a state-owned company in North Korea, prosecutors said in court filings.

Guilty plea

In March, ZTE pleaded guilty to conspiracy, obstruction of justice and making false statements to federal investigators over violations of US laws restricting the sale of American technology to Iran. It agreed to pay as much as $1.2 billion, including a record criminal fine for an export-control or sanctions case. It was also penalized for 283 shipments of technology containing US components to North Korea.

Terms of the settlement agreement over the Iran dealings required ZTE to cooperate fully with US authorities on other cases. Information from ZTE’s business records helped investigators identify and prioritize the companies to target in the US’s latest crackdown on companies doing business with North Korea, the people familiar with the matter said.

Using evidence from ZTE, prosecutors on 14 June filed a case seeking $1.9 million held in six US bank accounts in the name of China’s Mingzheng International Trading Limited. Prosecutors allege that Mingzheng is a front company for a covert Chinese branch of North Korea’s state-run Foreign Trade Bank. Between October and November 2015, Mingzheng was a counterparty to 20 illicit wire transfers in violation of the International Emergency Economic Powers Act, according to prosecutors.

On 22 August, prosecutors in Washington filed a lawsuit seeking more than $4 million in funds tied to China’s Dandong Chengtai Trading Limited and a network of companies owned by Chi Yupeng, a Chinese national with close ties to North Korea’s military. That same day, the Treasury Department added Dandong Chengtai Trading and several of its business affiliates, as well as Mingzheng, to the sanctions list.

Coal exports

The $4 million sought by prosecutors are the proceeds of the sale of North Korean coal to Dandong, according to court records. The funds were wired to a related front company, Maison Trading Limited, through US correspondent banking accounts, according to the filings.

The coal trade has generated more than $1 billion in revenue annually for North Korea, with China the primary buyer. Dandong Chengtai was among three companies that collectively purchased more than a half-billion dollars in North Korean coal between 2013 and 2016.

Dandong Chengtai “allegedly used the foreign exchange received from the end users of North Korean coal to purchase other items for North Korea, including nuclear and missile components,” prosecutors said in court papers.

Among the government’s evidence of money laundering in the forfeiture case are financial records indicating that the network of companies controlled by Chi Yupeng wired almost $16 million to four ZTE front companies. Bloomberg

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