By Tony Munroe and Shu Zhang
BEIJING, June 30 (Reuters) - Washington’s move to shut off Bank of Dandong from the U.S. financial system punishes a small regional Chinese lender with what U.S. authorities say has been an outsized exposure to North Korea and its banned nuclear and missile programmes.
The U.S. Treasury on Thursday accused the bank of facilitating millions of dollars in transactions for companies tied to North Korea’s weapons development, as Washington ratchets up pressure on Beijing to rein-in its isolated neighbour and ally.
“Bank of Dandong will in effect be shunned by the U.S. banks that may in the past have been used to clear its transactions,” said William Newcomb, a former member of the United Nations Panel of Experts on North Korea. “Most international banks will also cease dealing with Bank of Dandong because of reputational risk.”
“Similarly, other Chinese banks could damage their own ability to clear transactions should they try to act on Bank of Dandong’s behalf and be found out,” he said, calling the move “an overdue step.”
Based in the northeastern border city of Dandong, through which the bulk of North Korea’s trade with China flows, Bank of Dandong is small, with five branches, 1,570 staff, and assets of 72.3 billion yuan ($10.66 billion).
But according to the U.S. Treasury, Pyongyang has used it as a key conduit to the U.S. financial system.
“As of mid-February 2016, North Korea was using bank accounts under false names and conducting financial transactions through banks located in China, Hong Kong, and various southeast Asian countries,” it said. “The primary bank in China was Bank of Dandong.”
North Korea is subject to U.N. Security Council sanctions over its nuclear and ballistic missile programmes.
The U.S. Treasury on Thursday also sanctioned China’s Dalian Global Unity Shipping Co Ltd, as well as two Chinese citizens.
Bank of Dandong and the China Banking Regulatory Commission did not respond to faxes seeking comment. China’s foreign ministry said it opposes sanctions outside the U.N. framework.
In early 2016, accounts at Bank of Dandong were used to facilitate millions of dollars of transactions on behalf of companies involved in the procurement of ballistic missile technology, the Treasury department’s Financial Crimes Enforcement Network (FinCEN) said in a filing on Thursday.
In particular, Korea Kwangson Banking Corp (KKBC) and a front company for Korea Mining Development Trading Corp (KOMID) maintained multiple bank accounts with Bank of Dandong, the filing said. The U.N. describes KOMID, which it has sanctioned, as North Korea’s principal arms dealer.
“I think major state-owned banks and shipping companies have strictly implemented the sanctions, but the smaller ones still seek opportunities to make money wherever they can,” said Zhao Tong, a fellow at the nuclear policy programme at the Carnegie-Tsinghua Centre for Global Policy in Beijing.
Bank of Dandong processed more than $2.5 billion in U.S. dollar transactions between May 2012 and May 2015 through its U.S. correspondent accounts, including at least $786 million in customer transactions for businesses and individuals, FinCEN said.
“The exposure of U.S. financial institutions to North Korea’s illicit financial activity via Bank of Dandong outweighs concerns for any legitimate business activity at the bank,” FinCEN said in the filing.
Last September, a minority shareholder in the bank, Dandong Hongxiang Industrial Development Co, and four of that firm’s executives, were sanctioned by the United States under U.S. regulations targeting proliferators of weapons of mass destruction.
At the time, U.S. authorities sought to seize Hongxiang funds in accounts at a handful of state-owned Chinese lenders, including Bank of Dandong as well as Industrial and Commercial Bank of China, China Construction Bank, and Agricultural Bank of China, which are among the world’s largest banks.
Based on FinCEN’s analysis, Bank of Dandong processed approximately $56 million through U.S. banks for Hongxiang between October 2012 and December 2014, according to Thursday’s filing. Hongxiang is no longer a shareholder in the bank.
$1 = 6.7797 Chinese yuan renminbi Additional reporting by Matthew Miller and Josephine Mason; Editingby Bill Tarrant