For the first time, the Obama Administration has sanctioned a Chinese firm for ties to North Korea’s nuclear-weapons program. The case of Dandong Hongxiang Industrial Development Co. is a window into the Chinese lifelines that sustain Kim Jong Un’s regime in Pyongyang—and a guide for where U.S. sanctions enforcers can aim next.
U.S. officials say Hongxiang Industrial laundered money for blacklisted North Korean entities via shell companies that “surreptitiously” moved funds through U.S. banks. The U.S. announced this week that it has frozen the firm’s assets, indicted four of its executives and moved to seize millions of dollars held in 25 of its Chinese bank accounts.
An invaluable report published last week by South Korea’s Asan Institute and the U.S.-based Center for Advanced Defense Studies found that Hongxiang Industrial and its parent company conducted some $532 million in North Korea business from 2011 to 2015. To put that into perspective, South Korean officials have estimated that the North’s main nuclear facility at Yongbyon cost less than $700 million to construct.
Hongxiang Industrial allegedly sold the North aluminum oxide and other dual-use items tied to uranium enrichment and missile development. It also helped Pyongyang dodge shipping sanctions and arm its cyber hackers, such as those who assaulted Sony in 2014.
In addition to neutralizing Hongxiang, these sanctions are aimed at persuading other Chinese companies to cut off Pyongyang lest they suffer the same fate, as when the U.S. sanctioned Macau-based Banco Delta Asia for about a year starting in 2005. This is the best hope for squeezing Kim hard enough that he might halt his nuclear drive. But China opposes such measures because it fears that squeezing too hard might cause the collapse of its client state.
Chinese trading firms and especially banks are likelier to cut off Pyongyang if the U.S. follows up promptly with further sanctions. One good sign is that the State Department’s Daniel Fried suggested Wednesday to Congress that more penalties are coming for Chinese firms. Less promising is that in unsealing its indictment Monday the Justice Department said “there are no allegations of wrongdoing” against the banks involved in Hongxiang’s sanctions-busting. So despite imposing billions of dollars in penalties on a range of European banks for violating sanctions on Iran and others in recent years, the Obama Administration is signaling that Chinese banks aiding North Korea are untouchable.
In an open letter this month to President Obama, 19 Senators led by Colorado’s Cory Gardner quoted our Aug. 19 editorial (“North Korea’s Sanctions Luck”) on the evidence, compiled by United Nations experts, that the Bank of China “allegedly helped a North Korea-linked client get $40 million in deceptive wire transfers through U.S. banks.” That’s one of many examples.North Korea’s recent tests make clear it is sprinting toward a nuclear-missile capability that threatens its neighbors and the U.S. homeland. If the U.S. won’t enforce sanctions now against all violators, North Korean and Chinese, then it isn’t serious about stopping that threat.