Backdoor Financing Techniques Under Sanctions--North Korean Companies in Dandong, China (2016)

Backdoor Financing Techniques Under Sanctions--North Korean Companies in Dandong, China (2016)

In 2016, the UN Security Council adopted a sanctions resolution (No. 2270) on an unprecedented scale against the North following North Korea's fourth nuclear test and ballistic missile launch. In addition to restrictions on exports of mineral resources such as coal, iron ore, and gold, and an embargo on weapons, severe restrictions were imposed on transactions with financial institutions. However, one of North Korea's "loopholes" to get around these sanctions was the border city of Dandong in China's Liaoning Province.

Dandong is across the Yalu River from Sinuiju, North Korea, and has long served as a hub for economic, logistical, and information exchange with North Korea. The office buildings were occupied by dozens of "paper companies. For example, "Dandong Hongxiang Trading Co., Ltd." and "Dandong City Kuaneng Trading Co.

In one building, the reporter reported on the eeriness of an "economic hub without substance," with only unused desks and chairs and a "Chosun Trading Company" sign left outside the door on an almost abandoned floor. It is highly suspected that this is not just an office, but a transit point for financial transfers and smuggling routes while evading UN sanctions.

In the same year, the U.S. Treasury Department added several Chinese-registered companies to its sanctions list. Dandong-based Dandong Hongxiang Industrial Development Co., Ltd. was blacklisted for "involvement in North Korea's arms trade and nuclear development. At that time, the company's representative immediately went into hiding, and it is believed that there was a state-level patronage and cover-up system in place.

In this way, the North Korean-affiliated companies in Dandong functioned as a "group of trading companies without substance" that penetrated the net of diplomacy and sanctions, and were part of the "national strategic underground economy" that masqueraded as mere economic activity. This is a quiet and profound testimony of how North Korea, cornered by an economic blockade, relentlessly continued to procure information, funds, and supplies.