3 NOV – FINCEN ADVISORY ON NORTH KOREA’S USE OF INTERNATIONAL FINANCIAL SYSTEM

FINCEN ADVISORY ON NORTH KOREA’S USE OF THE INTERNATIONAL FINANCIAL SYSTEM

North Korea uses front and trade companies to disguise, move, and launder funds to finance its nuclear and ballistic missile programmes.  This Advisory provides some “red flags” that might indicate DPRK activity, and what requirements and potential offences affect US financial institutions.

https://www.fincen.gov/sites/default/files/advisory/2017-11-02/DPRK%20Advisory%20FINAL%20508%20C.pdf

Advisory includes a useful diagram outlining the use of front companies by DPRK.

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It refers to the UN Panel of experts Report of 2016 UN Report which notes that North Korean state-owned enterprises typically orchestrate elaborate trade-based payment schemes.  It does this, for example by:

1. The Sale/Export of Natural Resources:  The DPRK sells/exports natural resources (e.g., coal, iron ore, and minerals) to China-based companies, often located near the North Korean border, such as in Liaoning province. (UN SCR 2371 prohibits imports of North Korean coal, iron and iron ore, lead and lead ore, and seafood.  UN SCR 2375 prohibits imports of textiles, among other new measures).   The Chinese companies, in turn, sell such natural resources to the Asian market.
2. Indirect Payment for Natural Resources:  Rather than directly paying the DPRK, China-based companies divide their payments into smaller outflows in a complex layering scheme directed to front companies, shell companies, shipping or trade businesses based in Asia (often registered in Hong Kong), and other companies based in various offshore jurisdictions (e.g., BVI, Marshall Islands, and the Seychelles).  Various financial representatives and corporate service providers may establish the front or shell companies or serve as representatives of the various involved entities.
3. The Import/Smuggling of Goods:  The front or shell companies then use the received payments to purchase and ship commodities to the DPRK.  These commodity shipments in turn may be used to smuggle goods that the North Korean government uses to build its WMD and ballistic missile programmes.

Author: raytodd2017

Chartered Legal Executive and former senior manager with Isle of Man Customs and Excise, where I was (amongst other things) Sanctions Officer (for UN/EU sanctions), Export Licensing Officer and Manager of the Legal-Library & Collectorate Support Section View all posts by raytodd2017