UN Report Highlights Illicit North Korean Activity Through Global Coal Trade

A recent United Nations report has uncovered a complex network of illegal activities conducted by North Korea, involving the global coal trade and several companies, including Dandong Zhicheng.

The Scheme

According to the report, Company A imports coal from North Korea without prepaying for it and then resells it to customers around the world. The company retains the proceeds of these U.S. dollar sales, including the money owed to North Korea, and subsequently uses the retained funds to purchase items for export to the regime.

Items Purchased by North Korea

The items purchased by North Korea are often unrelated to coal mining or energy production, but rather include:

Luxury goods
Dual-use technology
Other commodities

This illegal activity allows North Korea to generate revenue and circumvent international sanctions.

Lack of Online Presence

Businesses serving as fronts for illicit North Korean activity frequently lack an online presence, despite significant transactions. This makes it challenging for financial institutions to identify and report suspicious activities.

Regulatory Obligations for U.S. Financial Institutions

The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued guidance to U.S. financial institutions regarding their obligations in detecting and preventing North Korean illicit finance.

Covered financial institutions are prohibited from opening or maintaining correspondent accounts for North Korean banking institutions and the Bank of Dandong.
They must apply special due diligence to their foreign correspondent accounts to prevent use by North Korean financial institutions.

Suspicious Activity Reporting

Financial institutions are required to report suspicious activities related to North Korean illicit finance. This includes transactions that appear to have no legitimate business purpose or are not consistent with the customer’s normal activity.

The presence of certain red flags, such as unusual payment patterns or transactions involving high-risk jurisdictions, may indicate potential DPRK-related illicit activity.
Financial institutions are encouraged to evaluate indicators of potential DPRK-related illicit activity in combination with other factors before making determinations of suspiciousness.

Financial institutions are encouraged to share information with one another regarding possible terrorist activity or money laundering, as outlined in Section 314(b) of the USA PATRIOT Act. This voluntary information sharing mechanism allows financial institutions to collaborate in detecting and preventing illegal activities.

The FinCEN Resource Center is available to answer questions and provide further guidance on this topic.
Financial institutions are also encouraged to report suspicious transactions related to North Korean illicit finance.