North Korea Built an Alternative Financial System Using a Shadowy Network of Traders
Regime moves millions of dollars around the world despite sanctions and pressure on international banks
It was a familiar problem for North Korea.
A timber company it controlled in Africa had earned $100,000 by selling wood to a Chinese firm. Pyongyang needed the money to pay its foreign suppliers of oil and other critical products.
But U.S. and international sanctions, intended to force North Korea to give up its nuclear program, limit its access to the global financial system. So it turned, U.S. authorities say, to an illicit workaround.
Instead of collecting the $100,000 itself, North Korea asked the Chinese customer to wire it to a commodities trader in Singapore, who could then use it to buy goods on Pyongyang’s behalf, according to a complaint filed last month by U.S. prosecutors seeking to confiscate related funds. The rest of the world would have no clue North Korea was even in the picture.
The alleged scheme, which American prosecutors say has been used repeatedly in recent years, shows how North Korea has built a shadowy alternative financial system that allows it to continue doing business on the global stage.
U.S. officials, United Nations investigators and experts tracking the money flows say Pyongyang has succeeded in buying and selling products including oil, coal and tobacco despite rules designed to exclude it from dollar-based trade.
The machinations are central to the Kim Jong Un regime’s efforts to evade U.S. and U.N. sanctions and keep the country’s economy afloat. The Wall Street Journal has previously detailed how North Korea orchestrates complex shipping maneuvers to transport goods undetected, relies on webs of front companies to disguise its activities and earns millions of dollars selling military training and computer-programming services.
One of North Korea’s biggest challenges has been to move dollars around the world despite sanctions and pressure on international banks to crack down on money laundering. Its solution has been to keep earnings in the hands of overseas associates whose ties to North Korea are hidden. Those associates then make the transactions that flow through banks in the U.S., which typically must clear wire transfers involving U.S. dollars.
“Only a small amount of money enters North Korea,” says Joshua Stanton, a Washington lawyer who helped draft recent U.S. sanctions laws against the country. “Most of it sits in foreign banks and moves around.”
North Korean officials at the country’s permanent mission to the United Nations Office in Geneva didn’t respond to requests for comment.
A review of recent indictments and complaints by the Justice Department and actions by the Treasury Department and the U.N. panel of North Korea experts suggest the arrangements are integral to the North Korean regime’s survival—and that they keep evolving as Washington ramps up pressure.
According to the forfeiture case filed last month by federal prosecutors in Washington, which seeks to confiscate funds held in a U.S. bank, payments from a Hong Kong-registered buyer of North Korean paraffin wax allegedly went to a Russian company supplying Pyongyang with oil. A similar case brought by U.S. authorities alleges that North Korea used a Chinese coal importer that owed it money to pay for communications gear from China’s ZTE Corp. A Washington federal judge in September granted the government’s request to confiscate funds linked to that case. A ZTE spokesman declined to comment for this article. In other cases, prosecutors say companies in the British Virgin Islands and elsewhere supplied North Korea with sugar and urea fertilizer.
Washington has levied sanctions against some companies and individuals accused of moving money for Pyongyang, and it is considering further actions focusing on Chinese banks, people familiar with the matter said. It has directed U.S. banks, which Treasury said in a report this month “face complications” in identifying the underlying North Korea links, to watch for illicit tactics.
In a 2016 complaint, U.S. prosecutors said Standard Chartered PLC, Deutsche Bank AG and other banks in the U.S. processed transfers that involved a sanctioned North Korean bank. The complaint, seeking the forfeiture of funds from bank accounts in China, didn’t allege wrongdoing by the Western banks.
In a written statement, China’s Foreign Ministry reiterated its longstanding position that the government implements U.N. resolutions related to North Korea. Spokeswomen for Standard Chartered and Deutsche Bank declined to comment.
A 2017 order by a federal judge in Washington said that in the past decade, eight banks in the U.S. processed $700 million linked to just one China-based network acting on Pyongyang’s behalf, with more than $50 million flowing in seven months during 2016 and 2017.
U.S. bank executives say that despite their anti-money-laundering processes, it can be hard to stop North Korea-related transfers because, as clearing banks, they are one step removed from the companies that help Pyongyang. Those transfers originate in banks outside the U.S., in many cases in China.
In the 2000s, Washington barred U.S. institutions from dealing with Banco Delta Asia, a Macau bank that handled North Korean funds, and went after North Korean banks that supported the country’s nuclear program. The U.S. and U.N. later added rules to make dollar-based trade even harder for North Korea. The restrictions hurt Pyongyang because sellers of commodities it needs, including oil, normally demand to be paid in U.S. dollars.
North Korea is increasingly breaking its transfers into smaller quantities to make it more difficult to stop them all, according to U.S. officials tracking North Korean money. It also is getting more skilled at providing fake documents to banks, the officials said. When a company helping it gets sanctioned, Pyongyang finds or creates new ones, they said.
The chain of transactions described in the forfeiture case originated last year in Equatorial Guinea, where Pyongyang controlled a company that used North Korean workers to make plywood and veneer. A 2006 report in North Korean state media described a seminar held on the company’s premises about the writings of then-leader Kim Jong Il. The company’s name, Chilbo, is the name of a North Korean mountain.
Equatorial Guinea said in a report to the U.N. that it shut down Chilbo’s activities this year to comply with U.N. sanctions. Before that, Chilbo had a Chinese customer called Yuanye Wood Ltd., U.S. prosecutors said last month in the forfeiture complaint.
Wiring dollars to Chilbo likely would have set off alarms at U.S. banks, given the timber company’s North Korea links. So Chilbo instructed Yuanye to send payment to an intermediary then untouched by U.S. sanctions, according to the complaint, which seeks to seize $1.7 million in Yuanye Wood’s funds frozen at an unnamed bank in the U.S.
“The complaint alleges Yuanye Wood is being directed by Chilbo,” the U.S. prosecutor, Zia Faruqui, said in an interview. “They say, ‘OK, Chilbo, who do I pay today?’ ”
According to the complaint, the money went to a Singaporean family-run business called Wee Tiong (S) Pte Ltd., a fixture in the local commodities trade. The co-owner, Tan Wee Beng, 41 years old, received an Ernst & Young entrepreneurship award in 2011, and local media has since chronicled his efforts to modernize the business.
Over that same period, Mr. Tan was helping North Korea launder millions of dollars, according to separate criminal charges filed against him by federal prosecutors in Manhattan, which were unsealed in October. Treasury Secretary Steven Mnuchin said at the time that Mr. Tan “made deliberate efforts to launder money through the U.S. financial system on behalf of North Korea.”
The Manhattan prosecutors and the Federal Bureau of Investigation allege he worked with sanctioned North Korean entities and took steps to obscure the source of the funds. He then would supply goods to Pyongyang, at times using his own tankers for delivery, U.S. officials say.
Efforts to reach Mr. Tan in person at his Singapore office and home were unsuccessful. An employee at the office said the owners hadn’t been coming in and were working remotely. Mr. Tan referred emailed questions to his lawyers in Singapore, who responded that “it would not be appropriate at this stage for him to engage publicly with the press.”
His company, Wee Tiong, sued the FBI in July 2017, denying it had acted on behalf of North Korea. It alleged the FBI’s communications with multiple banks about the firm had harmed its business, which relied on institutions in the U.S., including Wells Fargo & Co., JPMorgan Chase & Co. and Deutsche Bank, to process dollar payments.
JPMorgan declined to process several U.S. dollar wire transactions involving Wee Tiong to avoid the risk of processing transfers that could involve North Korea, a person familiar with the transactions said. Deutsche Bank and Wells Fargo declined to comment.
Wee Tiong withdrew the lawsuit after the FBI clarified to the banks that the company hadn’t been blacklisted by the Treasury Department. Fourteen months later, Treasury sanctioned Wee Tiong, cutting it off from the U.S. financial system.
The Singapore police said in an emailed response to the Journal that they are investigating the matter and would take “appropriate action.”
Efforts to locate representatives of Yuanye Wood, the alleged buyer of the wood, at an address in Wenzhou, China, listed on the U.S. complaint were unsuccessful.
Around the time Mr. Tan was facing difficulties with money transfers, North Korean banks made preparations to pay a different supplier, this one in Russia, according to the forfeiture complaint filed last month that alleges dozens of illicit transactions involving Pyongyang. In May of last year, prosecutors allege, North Korean banks directed a Hong Kong-registered company that bought paraffin wax, used for making candles and other products, from North Korea to pay a front company instead of paying Pyongyang.
Ten days later, that company transferred $1.2 million to a third company, Velmur Management Pte. Ltd., according to the complaint. The transaction was labeled “prepayment for gasoil,” the complaint said.
In Singapore’s corporate registry, Velmur is listed as a real-estate company also involved in oil transport. There was no answer at the door during a recent visit to the 66th-floor apartment listed as its Singaporean address. Its sole listed shareholder is a Russian, Ruslan Larin, with an address in the Moscow region. A woman who recently answered the door there said Mr. Larin hasn’t appeared in a long time.
In a previous forfeiture complaint, U.S. authorities alleged Velmur was a conduit set up so that sanctioned North Korean banks could pay a Russian oil company to transport diesel fuel to North Korea. To banks, it would look like a Singaporean company was dealing with a Russian one, with no North Korean footprint.
The buyer of the North Korean paraffin created false invoices for its Chinese bank claiming it had purchased wax from the companies to which it was sending money, even though those companies weren’t in the wax trade, prosecutors said.
“When you find a good blackjack table that is paying out, everyone goes and tries to cash that out,” said Mr. Faruqui, the federal prosecutor, referring to North Korean banks’ search for collaborators. “When you find a front company that you can push U.S. dollars through, and you’re a North Korean bank, you’re going to use it for everything.”