Four Chinese Nationals and China-Based Company Charged with Using Front Companies to Evade U.S. Sanctions Targeting North Korea’s Nuclear Weapons and Ballistic Missile Programs

Company Allegedly Violated Sanctions by Facilitating U.S. Dollar Transactions on Behalf of a North Korean Bank with Ties to Weapons of Mass Destruction Proliferators

Four Chinese nationals and a trading company based in Dandong, China, were charged by criminal complaint unsealed today with conspiring to evade U.S. economic sanctions and violating the Weapons of Mass Destruction Proliferators Sanctions Regulations (WMDPSR) through front companies by facilitating prohibited U.S. dollar transactions through the United States on behalf of a sanctioned entity in the Democratic People’s Republic of Korea (North Korea) and to launder the proceeds of that criminal conduct through U.S. financial institutions.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Assistant Attorney General for National Security John P. Carlin, U.S. Attorney Paul J. Fishman of the District of New Jersey and Assistant Director E.W. Priestap of the FBI’s Counterintelligence Division made the announcement.

On Aug. 3, 2016, a U.S. Magistrate Judge Joseph A. Dickson of the District of New Jersey signed a criminal complaint charging Ma Xiaohong (Ma) and her company, Dandong Hongxiang Industrial Development Co. Ltd. (DHID), and three of DHID’s top executives, general manager Zhou Jianshu (Zhou), deputy general manager Hong Jinhua (Hong) and financial manager Luo Chuanxu (Luo), with conspiracy to violate the International Emergency Economic Powers Act (IEEPA) and to defraud the United States; violating IEEPA; and conspiracy to launder monetary instruments.

Today, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) also imposed sanctions on DHID, Ma, Zhou, Hong and Luo for their ties to the government of North Korea’s weapons of mass destruction proliferation efforts.

In addition, the department filed a civil forfeiture action for all funds contained in 25 Chinese bank accounts that allegedly belong to DHID and its front companies.  The department has also requested tha the federal court in the District of New Jersey issue a restraining order for all of the funds named in the civil forfeiture action, based upon the allegation that the funds represent property involved in money laundering, which makes them forfeitable to the United States.  There are no allegations of wrongdoing by the U.S. correspondent banks or foreign banks that maintain these accounts.

“The charges and forfeiture action announced today allege that defendants in China established and used shell companies around the world, surreptitiously moved money through the United States and violated the sanctions imposed on North Korea in response to, among other things, its nuclear weapons program,” said Assistant Attorney General Caldwell.  “The actions reflect our efforts to protect the integrity of the U.S. banking system and hold accountable those who seek to evade U.S. sanctions laws.”

“The charges unsealed today reflect our nation’s commitment to using all tools to deter and disrupt weapons of mass destruction proliferators,” said Assistant Attorney General Carlin.  “One of the strengths of our sanctions programs is that they prevent sanctioned wrongdoers from engaging in U.S. dollar transactions.  Denying the use of the U.S. financial system can greatly curtail illegal activities and disrupt efforts to provide weapons of mass destruction to terrorists and rogue nations.  Those who seek to evade our financial sanctions will be fully prosecuted, and we will be unflagging in our efforts to bring them to justice.”

“The FBI takes violations of these laws extremely seriously and will not hesitate to use our full investigative resources to stop this type of illegal activity,” said Assistant Director Priestap.  “In this case agents, analysts and forensic accountants from field offices in Phoenix and Newark, as well as FBI Headquarters, all contributed to a successful investigation.”

According to criminal and civil complaints, DHID is primarily owned by Ma and is located near the North Korean border.  DHID allegedly openly worked with North Korea-based Korea Kwangson Banking Corporation (KKBC) prior to Aug. 11, 2009, when the OFAC designated KKBC as a Specially Designated National (SDN) for providing U.S. dollar financial services for two other North Korean entities, Tanchon Commercial Bank (Tanchon) and Korea Hyoksin Trading Corporation (Hyoksin).  President Bush identified Tanchon as a weapons of mass destruction proliferator in June 2005, and OFAC designated Hyoksin as an SDN under the WMDPSR in July 2009.  Tanchon and Hyoksin were so identified and designated because of their ties to Korea Mining Development Trading Company (KOMID), which OFAC has described as North Korea’s premier arms dealer and main exporter of goods and equipment related to ballistic missiles and conventional weapons.  The United Nations (UN) placed KOMID, Tanchon and Hyoksin on the UN Sanctions List in 2006.  In March 2016, KKBC was added to the UN Sanctions List.

In August 2009, Ma allegedly conspired with Zhou, Hong and Luo to create or acquire numerous front companies to conduct U.S. dollar transactions designed to evade U.S. sanctions.  The complaints allege that from August 2009 to September 2015, DHID used these front companies, established in offshore jurisdictions such as the British Virgin Islands, the Seychelles and Hong Kong, and opened Chinese bank accounts to conduct U.S. dollar financial transactions through the U.S. banking system when completing sales to North Korea.  These sales transactions were allegedly financed or guaranteed by KKBC.  These front companies facilitated the financial transactions to hide KKBC’s presence from correspondent banks in the United States, according to the allegations in the complaints.

As a result of the defendants’ alleged scheme, KKBC was able to cause financial transactions in U.S. dollars to transit through the U.S. correspondent banks without being detected by the banks and, thus, were not blocked under the WMDPSR program.

A complaint is merely an allegation and the defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

The FBI is investigating the case.  Trial Attorneys Jennifer Wallis and Michael Parker of the Criminal Division’s Asset Forfeiture and Money Laundering Section, Trial Attorney Christian Ford of the National Security Division’s Counterintelligence and Export Control Section and Chief Barbara Ward and Assistant U.S. Attorneys Joyce Malliet and Sarah Devlin of the District of New Jersey are prosecuting the case.  The Criminal Division’s Office of International Affairs provided valuable assistance in this matter.

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communications, interoperability exercises prepare military, first responders for emergency

Written by Capt. Joe Trovato, Wisconsin National Guard

Two recent domestic operations exercises have left the Wisconsin National Guard better prepared to fulfill its role as Wisconsin’s first military responder.

The annual Statewide Interoperable Mobile Communications exercise known as SIMCOM, was held May 18-19 in Neillsville in Clark County. More than 150 participants from 20 various agencies participated in the annual communications exercise at the Clark County Fairgrounds.

Over the course of the exercise, participants conducted radio checks and established reliable data, phone and Internet capabilities to ensure interoperability.

The National Guard has a unique dual-mission as the primary combat reserve of the Army and Air Force, but also as the first military responder in an emergency here at home, so Guard units must ensure that their military networks and communications systems are interoperable with civilian communications systems to fulfill that mission.

"Sometimes people ask, 'Why do this?'" said John Ross, Clark County Emergency Management Director. "We do this so that we can work through the planning, work through the preparation, have the conversation, find out where some of our challenges and variables are going to be in a controlled environment where we can stop and fix the problem rather than experiencing it when the world is falling apart around us, and we're trying to do our other tasks in that response.”

"Wisconsin is one of the only states in the U.S. that actually does a cross-agency exercise like this," said Capt. Allen Nielsen, a Wisconsin Air National Guardsman who works in Wisconsin's Joint Operations Center and helped plan the 2016 SIMCOM exercise. "Other states try to emulate this [exercise], but they don't have anything near the size or scope that we do."

Lessons learned at SIMCOM were on display just weeks later as thousands of first responders and National Guard personnel responded to devastation caused by severe weather, hazardous materials releases, domestic terrorism and other scenarios during a major exercise at Volk Field, Fort McCoy, Wisconsin’s Emergency Operations Center, and other sites around the state June 5-9 as part of the Miles Paratus exercise.

Interoperability and establishing reliable communications were once again a focus of the exercise.

If such a scenario had occurred in real-life, seamless communications interoperability between each agency — from National Guard aircraft and response forces, to local sheriff and police departments, EMS, fire departments, Wisconsin Emergency Management, the FBI and others — would have been critical to the overall response.

The hope is that exercises like SIMCOM and Miles Paratus create opportunities for the many different agencies that might be involved in a real-world response to identify their problems and shortcomings in a controlled, simulated environment, rather than when disaster strikes for real.

Todd Nehls, the deputy director of emergency police services with Wisconsin Emergency Management, coordinated WEM’s mobile communications center. Nehls explained that in a hypothetical response to a terrorist incident, the local sheriff's department, police, fire, EMS, along with various state and federal law enforcement agencies, and the National Guard all might be called to the scene.

“The challenge is they’re all on different bands, and they can’t talk to one another,” he said. “I can get the bands on their radios, go in the back [of the mobile communications center], and I can patch radio networks together so they can talk to one another.”

Testing those capabilities and networks in regular exercises like SIMCOM and Miles Paratus are vital to ensure the state’s first responders are ready when needed in a real emergency.

Exercise Notebook: The Wisconsin National Guard awarded Capt. Christopher Robbins with the Meritorious Service Medal for his efforts as the co-project planning officer for the Miles Paratus exercise. Fellow co-project planner and civilian agency lead, Mr. Kevin Wernet, from Wisconsin Emergency Management, was awarded the Wisconsin Department of Military Affairs Meritorious Medal for his contributions to planning the five-day exercise.