[Federal Register Volume 81, Number 106 (Thursday, June 2, 2016)]
[Notices]
[Pages 35441-35446]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-13038]
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DEPARTMENT OF THE TREASURY
Financial Crimes Enforcement Network
Finding That the Democratic People's Republic of Korea Is a
Jurisdiction of Primary Money Laundering Concern
AGENCY: The Financial Crimes Enforcement Network (``FinCEN''),
Treasury.
ACTION: Notice of finding.
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SUMMARY: This document provides notice that, pursuant to the authority
contained in the USA PATRIOT Act, the Director of FinCEN found on May
27, 2016 that reasonable grounds exist for concluding that the
Democratic People's Republic of Korea (``DPRK'' or ``North Korea'') is
a jurisdiction of primary money laundering concern.
FOR FURTHER INFORMATION CONTACT: FinCEN, (800) 949-2732.
SUPPLEMENTARY INFORMATION:
I. Background
A. Statutory Provisions
On October 26, 2001, the President signed into law the Uniting and
Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001 (the ``USA PATRIOT Act''),
Public Law 107-56. Title III of the USA PATRIOT Act amends the anti-
money laundering provisions of the Bank Secrecy Act (``BSA''), codified
at 12 U.S.C. 1829b, 12 U.S.C 1951-1959, and 31 U.S.C. 5311-5314 and
5316-5332, to promote prevention, detection, and prosecution of
international money laundering and the financing of terrorism.
Regulations implementing the BSA appear at 31 CFR Chapter X.
Section 311 of the USA PATRIOT Act (``Section 311'') added 31
U.S.C. 5318A to the BSA, granting the Secretary of the Treasury (the
``Secretary'') the authority, upon finding that reasonable grounds
exist for concluding that a foreign jurisdiction, institution, class of
transactions, or type of account is of ``primary money laundering
concern,'' to require domestic financial institutions and financial
agencies to take certain ``special measures'' against the primary money
laundering concern. Section 311 identifies factors for the Secretary to
consider and requires Federal agencies to consult before the Secretary
may conclude that a jurisdiction, institution, class of transaction, or
type of account is of primary money laundering concern. The statute
also provides similar procedures, i.e., factors and consultation
requirements, for selecting the specific special measures to be imposed
against the primary money laundering concern. For purposes of the
finding contained in this notice, the Secretary has delegated his
authority under Section 311 to the Director of FinCEN.\1\
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\1\ Therefore, references to the authority and findings of the
Secretary in this document apply equally to the Director of FinCEN.
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Taken as a whole, Section 311 provides the Secretary with a range
of options that can be adapted to target specific money laundering and
terrorist financing concerns most effectively. Through the imposition
of various special measures, the Secretary can gain more information
about the jurisdictions, institutions, transactions, or accounts of
concern; can more effectively monitor the respective jurisdictions,
institutions, transactions, or accounts; or can prohibit U.S. financial
institutions from involvement with jurisdictions, institutions,
transactions, or accounts that pose a money laundering concern.
Before making a finding that reasonable grounds exist for
concluding that a jurisdiction is of primary money laundering concern,
the Secretary is required to consult with both the Secretary of State
and the Attorney General. The Secretary is also required by Section
311, as amended,\2\ to consider ``such information as the Secretary
determines to be relevant, including the following potentially relevant
factors,'' which extend the Secretary's consideration beyond
traditional money laundering concerns to issues involving, inter alia,
terrorist financing and the proliferation of weapons of mass
destruction (``WMD'') or missiles:
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\2\ 31 U.S.C. 5318A was amended by section 501 of the Iran
Freedom Support Act of 2006, Public Law 109-293.
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Evidence that organized criminal groups, international
terrorists, or entities involved in the proliferation of WMD or
missiles, have transacted business in that jurisdiction;
The extent to which that jurisdiction or financial
institutions operating in that jurisdiction offer bank secrecy or
special regulatory advantages to nonresidents or nondomiciliaries of
that jurisdiction;
The substance and quality of administration of the bank
supervisory and counter- money laundering laws of that jurisdiction;
The relationship between the volume of financial
transactions occurring in that jurisdiction and the size of the economy
of the jurisdiction;
The extent to which that jurisdiction is characterized as
an offshore banking or secrecy haven by
[[Page 35442]]
credible international organizations or multilateral expert groups;
Whether the United States has a mutual legal assistance
treaty with that jurisdiction, and the experience of U.S. law
enforcement officials and regulatory officials in obtaining information
about transactions originating in or routed through or to such
jurisdiction; and
The extent to which that jurisdiction is characterized by
high levels of official or institutional corruption.
If the Secretary determines that reasonable grounds exist for
concluding that a jurisdiction is of primary money laundering concern,
the Secretary is authorized to impose one or more of the special
measures in Section 311 to address the specific money laundering risks.
Section 311 provides a range of special measures that can be imposed
individually, jointly, and in any sequence.\3\ Before imposing special
measures, the statute requires the Secretary to consult with
appropriate federal agencies and other interested parties \4\ and to
consider the following specific factors:
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\3\ Available special measures include requiring: (1)
Recordkeeping and reporting of certain financial transactions; (2)
collection of information relating to beneficial ownership; (3)
collection of information relating to certain payable-through
accounts; (4) collection of information relating to certain
correspondent accounts; and (5) prohibition or conditions on the
opening or maintaining of correspondent or payable-through accounts.
31 U.S.C. 5318A(b)(1)-(5).
\4\ Section 5318A(a)(4)(A) requires the Secretary to consult
with the Chairman of the Board of Governors of the Federal Reserve
System, any other appropriate Federal banking agency, the Secretary
of State, the Securities and Exchange Commission (``SEC''), the
Commodity Futures Trading Commission (``CFTC''), the National Credit
Union Administration (``NCUA''), and, in the sole discretion of the
Secretary, ``such other agencies and interested parties as the
Secretary may find to be appropriate.'' The consultation process
must also include the Attorney General if the Secretary is
considering prohibiting or imposing conditions on domestic financial
institutions opening or maintaining correspondent account
relationships with the targeted entity.
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Whether similar action has been or is being taken by other
nations or multilateral groups;
Whether the imposition of any particular special measures
would create significant competitive disadvantage, including any undue
cost or burden associated with compliance, for financial institutions
organized or licensed in the United States;
The extent to which the action or the timing of the action
would have a significant adverse systemic impact on the international
payment, clearance, and settlement system, or on legitimate business
activities involving the particular jurisdiction; and
The effect of the action on U.S. national security and
foreign policy.
B. Democratic People's Republic of Korea
As set out in detail below, North Korea continues to advance its
nuclear and ballistic missile programs in violation of international
treaties, international censure and sanctions measures, and U.S. law.
North Korea does this using an extensive overseas network of front
companies, shell companies, joint ventures, and opaque business
relationships. North Korea conducts almost no banking in true name in
the formal financial system given that many of its outward facing
agencies and financial institutions have been sanctioned by the United
States, the United Nations, or both.
While none of North Korea's financial institutions maintain
correspondent accounts with U.S. financial institutions,\5\ North Korea
does have access to the U.S. financial system through a system of front
companies, business arrangements, and representatives that obfuscate
the true originator, beneficiary, and purpose of transactions. We
assess that these deceptive practices have allowed millions of U.S.
dollars of DPRK illicit activity to flow through U.S. correspondent
accounts.
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\5\ Bankers Almanac, accessed February 12, 2016.
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Moreover, although U.S. and international sanctions have served to
significantly isolate North Korean banks from the international
financial system, the North Korean government continues to access the
international financial system to support its WMD and conventional
weapons programs. This is made possible through its use of aliases,
agents, foreign individuals in multiple jurisdictions, and a long-
standing network of front companies and North Korean embassy personnel
which support illicit activities through banking, bulk cash, and trade.
Front company transactions originating in foreign-based banks have been
processed through correspondent bank accounts in the United States and
Europe. Further, the enhanced due diligence required by United Nations
Security Council Resolutions (UNSCRs) related to North Korea is
undermined by North Korean-linked front companies, which are often
registered by non-North Korean citizens, and which conceal their
activity through the use of indirect payment methods and circuitous
transactions disassociated from the movement of goods or services.\6\
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\6\ See ``Report of the Panel of Experts established pursuant to
resolution 1874 (2009),'' February, 2016.
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The Treaty on the Non-Proliferation of Nuclear Weapons and the
International Atomic Energy Agency Safeguards Agreement work together
to prevent the development of nuclear weapons and promote the peaceful
use of nuclear energy. Although North Korea acceded to the Treaty on
the Non-Proliferation of Nuclear Weapons (``NPT'') in 1985, it withdrew
from the Treaty in 2003. Subsequently, North Korea demonstrated its
nuclear weapons capacity with nuclear tests in 2006, 2009, 2013, and
2016.\7\
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\7\ See ``IAEA and DPRK: Chronology of Key Events,'' (https://www.iaea.org/newscenter/focus/dprk/chronology-of-key-events).
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Since 2005, North Korea has been sanctioned repeatedly for its
proliferation of WMD and the development of nuclear and ballistic
missile programs. Between June 2006 and 2016, the United Nations (UN)
Security Council issued five UNSCRs--1718, 1874, 2087, 2094, and 2270--
restricting North Korea's financial and operational activities related
to its nuclear and missile programs and conventional arms sales.\8\ In
addition, the President of the United States has issued Executive
Orders (``E.O.s'') 13466, 13551, 13570, 13687, and 13722 to impose
sanctions on North Korea pursuant to the International Emergency
Economic Powers Act, and the Department of the Treasury has designated
North Korea targets for asset freezes pursuant to other E.O.s, such as
E.O. 13382, which targets WMD proliferators worldwide. A designation
under any one of the targeting E.O.s generally blocks the property and
interests in property in the United States or in the possession or
control of a U.S. person of a designated person, and prohibits U.S.
persons from engaging in transactions with, or dealing in property
interests of, a designated person.
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\8\ See UNSCR 1718 (http://www.un.org/en/ga/search/view_doc.asp?symbol=S/RES/1718(2006)); UNSCR 1874 (http://www.un.org/en/ga/search/view_doc.asp?symbol=S/RES/1874(2009)); UNSCR
2087 (http://www.un.org/en/ga/search/view_doc.asp?symbol=S/RES/2087(2013)); UNSCR 2094 (http://www.un.org/en/ga/search/view_doc.asp?symbol=S/RES/2094(2013)); UNSCR 2270 (http://www.un.org/en/ga/search/view_doc.asp?symbol=S/RES/2270(2016)).
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On June 28, 2005, the President issued E.O. 13382, ``Blocking
Property of Weapons of Mass Destruction Proliferators and Their
Supporters,'' which orders certain measures to be taken to address the
threat posed to the United States by the proliferation of
[[Page 35443]]
WMD and their means of delivery.\9\ The following two North Korean
entities were sanctioned in the Annex to E.O. 13382: Korea Mining
Development Trading Corporation (KOMID), North Korea's primary arms
exporter; and Tanchon Commercial Bank (TCB), the financial arm of
KOMID. As noted further below, additional North Korean financial
institutions, including Korea Kwangson Banking Corporation (KKBC),
Foreign Trade Bank (FTB), and Daedong Credit Bank (DCB), were
subsequently designated pursuant to E.O. 13382.
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\9\ See E.O. 13382 ``Blocking Property of Weapons of Mass
Destruction Proliferators and Their Supporters,'' (2005) (https://www.federalregister.gov/articles/2005/07/01/05-13214/blocking-property-of-weapons-of-mass-destruction-proliferators-and-their-supporters).
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On June 26, 2008, the President issued E.O. 13466, ``Continuing
Certain Restrictions With Respect to North Korea and North Korean
Nationals,'' declaring a national emergency to deal with the unusual
and extraordinary threat to the national security and foreign policy of
the United States constituted by the existence and risk of the
proliferation of weapons-usable fissile material on the Korean
peninsula.\10\
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\10\ See E.O. 13466 ``Continuing Certain Restrictions With
Respect to North Korea and North Korean Nationals,'' (2008) (https://www.federalregister.gov/articles/2008/06/27/08-1399/continuing-certain-restrictions-with-respect-to-north-korea-and-north-korean-nationals).
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On August 30, 2010, the President issued E.O. 13551, ``Blocking
Property of Certain Persons with Respect to North Korea,'' which
authorized asset blockings against those determined, among other
things, to have engaged in the importation or exportation of North
Korean arms or the exportation to North Korea of luxury goods.\11\
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\11\ See E.O. 13551 ``Blocking Property of Certain Persons with
Respect to North Korea,'' (2010) (https://www.gpo.gov/fdsys/pkg/FR-2010-09-01/pdf/X10-10901.pdf).
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On April 18, 2011, the President issued E.O. 13570, ``Prohibiting
Certain Transactions with Respect to North Korea,'' which takes
additional steps to address the national emergency declared in E.O.
13466 and expanded in E.O. 13551.\12\ This E.O. was designed in part to
ensure implementation of the import restrictions contained in UNSCRs
1718 and 1874.
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\12\ See E.O. 13570 ``Prohibiting Certain Transactions with
Respect to North Korea,'' (2011) (https://www.federalregister.gov/articles/2011/04/20/2011-9739/prohibiting-certain-transactions-with-respect-to-north-korea).
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On January 2, 2015, the President issued E.O. 13687, ``Imposing
Additional Sanctions with Respect to North Korea,'' which blocks the
property of persons who are determined to be officials, agencies,
instrumentalities, or controlled entities of the Government of North
Korea or the Workers' Party of Korea.\13\
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\13\ See E.O. 13687 ``Imposing Additional Sanctions with Respect
to North Korea,'' (2015) (https://www.federalregister.gov/articles/2015/01/06/2015-00058/imposing-additional-sanctions-with-respect-to-north-korea).
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On March 15, 2016, the President issued E.O. 13722, ``Blocking
Property of the Government of North Korea and the Workers' Party of
Korea, and Prohibiting Certain Transactions with Respect to North
Korea,'' which, among other things, blocks the property and interests
in property of the Government of North Korea and the Workers' Party of
Korea and authorizes further asset blockings on persons determined to
be operating in industries of the North Korean economy determined by
the Secretary of the Treasury, in consultation with the Secretary of
State, to be subject to the measure. To date those industries include
the transportation, mining, energy and financial services
industries.\14\ Additionally, FinCEN issued advisories in 2005, 2009,
and 2013 regarding the threat posed by the North Korean government to
U.S. and international financial institutions. Specifically, these
advisories have urged caution when dealing with North Korean financial
institutions due to their use of front companies and other deceptive
financial practices.\15\
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\14\ See E.O. 13722 ``Blocking Property of the Government of
North Korea and the Workers' Party of Korea, and Prohibiting Certain
Transactions with Respect to North Korea,'' (2016) (https://www.gpo.gov/fdsys/pkg/FR-2016-03-18/pdf/FR-2016-03-18.pdf).
\15\ See ``Guidance to Financial Institutions on the Provision
of Banking Services to North Korean Government Agencies and
Associated Front Companies Engaged in Illicit Activities,'' FinCEN
(2005) (https://www.fincen.gov/statutes_regs/guidance/pdf/advisory.pdf); ``North Korea Government Agencies' and Front
Companies' Involvement in Illicit Financial Activities,'' FinCEN
(2009) (https://www.fincen.gov/statutes_regs/guidance/pdf/fin-2009-a002.pdf); ``Update on the Continuing Illicit Finance Threat
Emanating from North Korea,'' FinCEN (2013) (https://www.fincen.gov/statutes_regs/guidance/pdf/FIN-2013-A005.pdf).
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Numerous North Korean individuals, financial institutions, and
other entities facilitating financial transactions in support of North
Korea's proliferation of WMD or ballistic missiles have been listed in
or designated pursuant to these UNSCRs or E.O.s. In many cases, these
sanctions have targeted front companies or the individual
representatives of sanctioned entities who operate outside of North
Korea.
II. Analysis of Factors
Based upon a review of information available to FinCEN,
consultations with relevant federal agencies and departments, and in
consideration of the factors enumerated in Section 311 of the USA
PATRIOT Act, the Director of FinCEN has determined that reasonable
grounds exist for concluding that North Korea is a jurisdiction of
primary money laundering concern. While FinCEN has considered all
potentially relevant factors set forth in Section 5318A, a discussion
of those most pertinent to this finding follows. FinCEN has determined
that North Korea (A) uses state-controlled financial institutions and
front companies to conduct international financial transactions that
support the proliferation of WMD and the development of ballistic
missiles in violation of international and U.S. sanctions; (B) is
subject to little or no bank supervision or anti-money laundering or
combating the financing of terrorism (``AML/CFT'') controls; (C) has no
mutual legal assistance treaty with the United States; and (D) relies
on the illicit and corrupt activity of high-level officials to support
its government.
A. Evidence That Organized Criminal Groups, International Terrorists,
or Entities Involved in the Proliferation of Weapons of Mass
Destruction or Missiles, Have Transacted Business in That Jurisdiction
North Korea uses state-owned entities and banks to conduct
transactions in support of North Korea's proliferation of WMD or
ballistic missiles. The United States and United Nations have
identified Korea Mining Development Trading Corporation (KOMID),
Tanchon Commercial Bank (TCB), Korea Kwangson Banking Corporation
(KKBC), and Daedong Credit Bank (DCB) as entities that conduct
financial transactions in support of North Korea's proliferation of WMD
or ballistic missiles; the United States has also sanctioned Foreign
Trade Bank (FTB) for this activity. Directing business from North
Korea, these state-owned entities and banks use front companies or
covert representatives to obfuscate the true originator, beneficiary,
and purpose of transactions. Doing so has allowed millions of U.S.
dollars of DPRK illicit activity to flow through U.S. correspondent
accounts. Entities in North Korea involved in the proliferation of WMD
or ballistic missiles conduct business in, from, or through North
Korea, or at the direction of the North Korean government, have evaded
the prohibitions set forth in relevant UNSCRs and E.O.s.
[[Page 35444]]
The Korea Mining Development Trading Corporation
The President subjected the Korea Mining Development Trading
Corporation (KOMID) to an asset blocking by listing it in the Annex of
E.O. 13382 in June 2005,\16\ and the Department of the Treasury
designated KOMID pursuant to E.O. 13687 in January 2015 \17\ for being
North Korea's primary arms dealer and its main exporter of goods and
equipment related to ballistic missiles and conventional weapons.\18\
The UN Security Council also listed KOMID under UNSCR 1718 in April
2009, subjecting it to a worldwide asset blocking.\19\ Further, between
2013 and 2016, the Department of the Treasury designated a number of
individuals under E.O. 13382 or E.O. 13687 for their roles acting on
behalf of KOMID in, or as KOMID representatives to, Burma, China,
Egypt, Iran, Namibia, Russia, Sudan, and Syria.\20\
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\16\ See E.O. 13382.
\17\ See ``Issuance of new North Korea-related Executive Order;
North Korea Designations,'' January 2, 2015 (https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20150102.aspx).
\18\ See ``Treasury Imposes Sanctions Against the Government of
the Democratic People's Republic of Korea,'' January 2, 2015
(https://www.treasury.gov/press-center/press-releases/Pages/jl9733.aspx).
\19\ See ``Letter dated 24 April 2009 from the Chairman of the
Security Council Committee established pursuant to resolution 1718
(2006) addressed to the President of the Security Council,'' April
24, 2009 (http://www.securitycouncilreport.org/atf/cf/%7B65BFCF9B-6D27-4E9C-8CD3-CF6E4FF96FF9%7D/NKorea%20S2009%20222.pdf).
\20\ See ``United States Sanctions Individuals Linked to North
Korea Weapons of Mass Destruction Programs,'' March 7, 2013 (https://www.treasury.gov/press-center/press-releases/Pages/jl1872.aspx);
``Treasury Imposes Sanctions Against the Government of the
Democratic People's Republic of Korea,'' January 2, 2015 (https://www.treasury.gov/press-center/press-releases/Pages/jl9733.aspx);
``Treasury Sanctions Supporters of North Korea's Weapons of Mass
Destruction and Illicit Finance Networks,'' November 13, 2015
(https://www.treasury.gov/press-center/press-releases/Pages/jl0269.aspx); ``Treasury Sanctions Those Involved in Ballistic
Missile Procurement for Iran,'' January 17, 2016 (https://www.treasury.gov/press-center/press-releases/Pages/jl0322.aspx);
``The United States Sanctions North Korean Government Officials and
Organizations Tied to its Missile and Nuclear Programs,'' March 2,
2016 (https://www.treasury.gov/press-center/press-releases/Pages/jl0372.aspx).
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Despite the sanctions placed on KOMID and its network, North Korea
continues to sell weapons abroad. Between 2001 and 2007, North Korean
weapons manufacturers marketed or exported North Korean weapons to
Angola, Cuba, Iran, Iraq, Pakistan, Uganda, United Arab Emirates, and
Yemen. As recently as 2015, KOMID marketed or exported North Korean
ballistic missiles or conventional weapons through its representatives
in Burma and its office in Indonesia. In 2015, KOMID also sold dual-use
WMD-related equipment to Egypt, and engaged with Egypt on missile
cooperation and development. Additionally, KOMID occasionally procures
equipment and materials for Second Academy of Natural Sciences (SANS)
research--an entity subject to an asset blocking by the U.S. under E.O.
13382 in August 2010 for using subordinate organizations to obtain
technology, equipment, and information for use in North Korea's weapons
and nuclear programs.\21\
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\21\ See ``United States Designates North Korean Entities and
Individuals for Activities Related to North Korea's Weapons of Mass
Destruction Program,'' August 30, 2010 (https://www.treasury.gov/press-center/press-releases/Pages/tg840.aspx).
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Payments for weapons were often funneled through front companies
operating at the direction of North Korean banks. The Department of the
Treasury designated one of these front companies, Leader (Hong Kong)
International Trading Limited, under E.O. 13382 in January 2013 for
facilitating the shipment of machinery and equipment to customers on
behalf of KOMID and directly to KOMID representatives located outside
of North Korea.\22\ Between January 2009 and November 2012, Leader
(Hong Kong) International cleared at least $13.5 million through
correspondent accounts at U.S. banks.
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\22\ See ``Treasury Sanctions Company And Individuals Linked To
North Korean Weapons Of Mass Destruction Program,'' January 24, 2013
(https://www.treasury.gov/press-center/press-releases/Pages/tg1828.aspx).
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The Tanchon Commercial Bank
As noted above, Tanchon Commercial Bank (TCB) was listed by the
President in the Annex of E.O. 13382 in June 2005, subjecting it to an
asset blocking, and the UN Security Council listed TCB under UNSCR 1718
in April 2009.\23\ TCB is the financial arm of KOMID and the main North
Korean financial institution for the sale of conventional arms,
ballistic missiles, and goods related to the assembly and manufacture
of such weapons.\24\ Between 2009 and 2015 the Department of the
Treasury designated nine individuals under E.O. 13382 for working on
behalf of TCB, including as representatives to China, Syria, and
Vietnam.\25\ Each of these individuals is also listed under UNSCR
1718.\26\
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\23\ See UNSCR 1718.
\24\ See E.O. 13382; see also Footnote 28.
\25\ See ``Treasury Designates North Korean Bank and Banking
Official as Proliferators of Weapons of Mass Destruction,'' October
23, 2009 (https://www.treasury.gov/press-center/press-releases/Pages/tg330.aspx); ``Treasury Sanctions Company And Individuals
Linked To North Korean Weapons Of Mass Destruction Program,''
January 24, 2013 (https://www.treasury.gov/press-center/press-releases/Pages/tg1828.aspx); ``Treasury Targets North Korea's Global
Weapons Proliferation Network,'' December 8, 2015 (https://www.treasury.gov/press-center/press-releases/Pages/jl0295.aspx);
``Non-proliferation Designations,'' March 7, 2013 (https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20130307.aspx).
\26\ See ``The List Established and Maintained by the 1718
(2006) Committee,'' (https://www.un.org/sc/suborg/sites/www.un.org.sc.suborg/files/1718.pdf).
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North Korea has a long history of using TCB and front companies to
facilitate proliferation and missile-related transactions. Dating as
far back as 2005, TCB, Korea Namchongang Trading Corporation
(``Namchongang''), and front companies have facilitated deals that
could be associated with proliferation. The U.S. Department of State
designated Namchongang in June 2009 under E.O. 13382 for WMD
proliferation activities; \27\ the UN listed Namchongang under UNSCR
1718 in July 2009,\28\ and also listed its successor organization--
Namhung Trading Corporation--under UNSCR 2270 in March 2016.\29\ TCB
also received millions of U.S. dollars in 2009 from a China-based
representative as partial payment for weapons exported to Burma, Iran,
and other countries. Additionally, in 2015 TCB accounts were used to
purchase technology and equipment in support of U.S.-designated SANS
research and development activities.
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\27\ See ``State Designation of North Korean Nuclear Entity,''
June 30, 2009 (www.state.gov/r/pa/prs/ps/2009/06a/125505.htm).
\28\ See ``Security Council Committee Determines Entities,
Goods, Individuals, Subject to Measures Imposed on Democratic
People's Republic of Korea by Resolution 1718 (2006),'' July 16,
2009 (www.un.org/press/en/2009/sc9708.doc.htm).
\29\ See UNSCR 2270.
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The Korea Kwangson Banking Corporation
As noted, the Department of the Treasury sanctioned Korea Kwangson
Banking Corporation (KKBC) under E.O. 13382 in August 2009 for
facilitating financial transactions for E.O. 13382-sanctioned TCB and
the Korea Hyoksin Trading Corporation (``Hyoksin''); \30\ the UN listed
KKBC under UNSCR 2270 in March 2016.\31\ As noted above, TCB was
sanctioned by the United States in June 2005 and listed by the UN under
UNSCR 1718 in April 2009; further, in July 2009 the Department of the
Treasury designated Hyoksin under E.O.
[[Page 35445]]
13382, and the UN listed Hyoksin under UNSCR 1718 for WMD proliferation
activity.\32\ In spite of its designation, KKBC has continued to evade
sanctions and process financial transactions that support the
proliferation of WMD and ballistic missiles by using front companies to
clear U.S. dollar transactions through U.S. correspondent accounts. In
2013, senior North Korean leadership utilized a KKBC front company to
open accounts at a major Chinese bank under the names of Chinese
citizens, and deposited millions of U.S. dollars into the accounts. The
same KKBC front company processed transactions through U.S.
correspondent accounts as recently as 2013.
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\30\ See ``Treasury Designates Financial Institution Tied to
North Korea's WMD Proliferation,'' August 11, 2009 (https://www.treasury.gov/press-center/press-releases/Pages/tg260.aspx).
\31\ See UNSCR 2270.
\32\ See ``Treasury Designates North Korean Entity Tied to
Weapons of Mass Destruction Development,'' July 30, 2009 (https://www.treasury.gov/press-center/press-releases/Pages/tg247.aspx);
``Security Council Determines Entities, Goods, Individuals Subject
To Measures Imposed on Democratic People's Republic of Korea by
Resolution 1718 (2006),'' July 16, 2009 (http://www.un.org/press/en/2009/sc9708.doc.htm).
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The Foreign Trade Bank
The Department of the Treasury designated Foreign Trade Bank (FTB)
under E.O. 13382 in March 2013 for facilitating transactions on behalf
of actors linked to North Korea's nuclear proliferation networks.\33\
Headquartered in Pyongyang, FTB acts as North Korea's primary foreign
exchange bank and has provided financial support to KOMID and KKBC. As
noted above, KOMID was sanctioned by the United States in July 2005
under E.O. 13382, and listed by the UN in April 2009 under UNSCR 1718;
the Department of the Treasury designated KKBC under E.O. 13382 in
August 2009, and the UN listed KKBC under UNSCR 2270 in March 2016.
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\33\ See ``Treasury Sanctions Bank and Official Linked to North
Korean Weapons of Mass Destruction Programs,'' March 11, 2013
(https://www.treasury.gov/press-center/press-releases/Pages/jl1876.aspx).
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The following examples are representative of the activities of FTB
and its front companies. Between 2008 and 2012, FTB used front
companies in multiple countries to make and receive payments equivalent
to tens of millions of U.S. dollars. In 2011, an FTB front company was
involved with U.S.-designated KKBC and Korea 5 Trading Corporation, a
subordinate of U.S. and UN-designated Korea Ryonbong General
Corporation, in financial dealings totaling several millions of U.S.
dollars. The same FTB front company processed transactions through U.S.
correspondent accounts as recently as April 2014.
The Daedong Credit Bank
The Department of the Treasury designated Daedong Credit Bank (DCB)
under E.O. 13382 in June 2013 for managing millions of dollars of
transactions in support of the North Korean regime's nuclear
proliferation and missile-related activities.\34\ The UN listed DCB
under UNSCR 2270 in March 2016. DCB has demonstrated through its
activity that it is willing to facilitate transactions at the direction
of, and in coordination with, the government of North Korea. Since at
least 2007, DCB has facilitated hundreds of financial transactions
worth millions of dollars on behalf of designated actors, KOMID and
TCB. Some of these transactions involved deceptive practices that
include the use of front companies located outside of North Korea to
process cross-border payments. DCB also directed a front company, DCB
Finance Limited, to carry out international financial transactions as a
means to avoid scrutiny by financial institutions. DCB Finance Limited
has conducted transactions through correspondent accounts at U.S.
banks.
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\34\ See ``Treasury Sanctions Bank, Front Company, and Official
Linked to North Korean Weapons of Mass Destruction Programs,'' June
27, 2013 (https://www.treasury.gov/press-center/press-releases/Pages/jl1994.aspx).
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Based upon the information above, the North Korean government,
through entities and financial institutions based in North Korea,
facilitates financial transactions in support of the proliferation of
WMD and ballistic missiles in violation of UNSCR 1718. Additionally, by
creating and using front companies with the intent to obfuscate the
true originator, beneficiary, or purpose of transactions, these state-
owned entities and financial institutions have engaged in a pattern of
deceptive financial activity to evade international sanctions,
circumvent U.S. sanctions and AML controls, and penetrate the U.S.
financial system when such activity would otherwise be prohibited. This
activity represents a direct threat to the integrity of the U.S.
financial system.
B. The Substance and Quality of Administration of the Bank Supervisory
and Counter-Money Laundering Laws of That Jurisdiction
The Financial Action Task Force (FATF) is an inter-governmental
body that sets international standards and promotes the implementation
of legal, regulatory, and operational measures for combatting money
laundering, terrorist financing, WMD proliferation financing, and other
related threats to the integrity of the international financial
system.\35\ The FATF monitors the progress of its members in
implementing necessary measures, reviews money laundering and terrorist
financing techniques and countermeasures, and promotes the adoption and
implementation of appropriate measures globally. In collaboration with
other international stakeholders, the FATF works to identify national-
level vulnerabilities with the aim of protecting the international
financial system from misuse. Due to North Korea's ongoing failure to
address its AML/CFT deficiencies, the FATF has publicly identified
substantial money laundering and terrorist financing risks emanating
from the jurisdiction and has identified North Korea as one of only two
jurisdictions in the world subject to FATF counter-measures since 2011.
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\35\ See Financial Action Task Force Web site (http://www.fatf-gafi.org/).
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In FATF's Public Statement dated February 19, 2016, the FATF
reiterated its concern about North Korea's failure to address the
significant deficiencies in its AML/CFT regime, and the serious threat
such deficiencies pose to the integrity of the international financial
system. The FATF called on its members and urged all jurisdictions to
advise their financial institutions to give special attention to
business relationships and transactions with North Korea, including
North Korean companies and financial institutions. The FATF also warned
that jurisdictions should protect against correspondent relationships
being used to bypass or evade countermeasures and risk mitigation
practices, and take into account AML/CFT risks when considering
requests by North Korean financial institutions to open branches and
subsidiaries in their jurisdiction.\36\ While steps may have been taken
by North Korea to engage with the FATF, including becoming an observer
to the Asia Pacific Group, a FATF-style regional body, North Korea
lacks basic AML/CFT controls and has failed to address the deficiencies
in its AML/CFT regime identified by FATF.\37\
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\36\ See ``FATF Public Statement--19 February 2016,'' (2016)
(http://www.fatf-gafi.org/publications/high-riskandnon-cooperativejurisdictions/documents/public-statement-february-2016.html).
\37\ See ``North Korea Adopts Anti-Money Laundering Law,'' NK
News, May 18, 2016 (https://www.nknews.org/2016/05/north-korea-adopts-anti-money-laundering-law/).
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[[Page 35446]]
C. Whether the United States Has a Mutual Legal Assistance Treaty With
That Jurisdiction, and the Experience of U.S. Law Enforcement Officials
and Regulatory Officials in Obtaining Information About Transactions
Originating in or Routed Through or to That Jurisdiction
The United States and North Korea do not have diplomatic relations.
North Korea has no mutual legal assistance treaty with the United
States and does not cooperate with U.S. law enforcement officials and
regulatory officials in obtaining information about transactions
originating in, or routed through or to, North Korea.\38\
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\38\ See ``U.S. Relations with North Korea,'' (www.state.gov/r/pa/ei/bgn/2792.htm).
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D. The Extent To Which That Jurisdiction Is Characterized by High
Levels of Official or Institutional Corruption
The North Korean government has long demonstrated institutional and
official corruption. According to Transparency International's
Corruption Perceptions Index, which ranks countries and territories
based on how corrupt their public sectors are perceived to be, North
Korea ranks 167 out of 168.\39\ As noted above, UNSCRs 1718, 2094, and
2270 require UN member states to prohibit the provision to North Korea
of luxury goods, which are used by North Korean leaders to consolidate
power and appease members of the political elite by increasing their
personal wealth. North Korea has also utilized Office 39 of the Korean
Workers' Party (KWP) to influence and maintain the support of North
Korea's elite citizens.\40\
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\39\ See ``North Korea: Facts & Figures,'' Transparency
International (https://www.transparency.org/country/#PRK).
\40\ See ``Defectors Detail How North Korea's Office 39 Feeds
Leader's Slush Fund: Private Fund Underwrites Comfortable Lifestyles
for Pyongyang's Elite,'' Wall Street Journal, September 15, 2014
(www.wsj.com/articles/defectors-detail-how-north-koreas-office-39-filters-money-to-kims-private-slush-fund-1410823969); see also
``Criminal Sovereignty: Understanding North Korea's Illicit
International Activities,'' Strategic Studies Institute, March 2010.
(www.strategicstudiesinstitute.army.mil/pdffiles/pub975.pdf)
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Office 39 was listed for an asset blocking by the President in the
Annex to E.O. 13551 in August 2010,\41\ and is the branch of the North
Korean Government that provides illicit economic support to North
Korean leadership, including managing slush funds for North Korean
government officials.\42\ The UN listed Office 39 under UNSCRs 1718 and
2270 in March 2016.\43\ Examples of Office 39 activity include
collecting a significant portion of loyalty funds paid by DPRK
officials to the regime annually, and using deceptive financial
practices such as smuggling U.S. dollars into North Korea.
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\41\ See E.O. 13551.
\42\ ``Treasury Designates Key Nodes of the Illicit Financing
Network of North Korea's Office 39,'' November 18, 2010 (https://www.treasury.gov/press-center/press-releases/Pages/tg962.aspx).
\43\ See UNSCR 1718; UNSCR 2270.
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To support its efforts, Office 39 controls Korea Daesong Bank
(KDB), which is used to facilitate financial transactions supporting
the procurement of luxury goods. Treasury designated KDB under E.O.
13551 in November 2010 as an instrumentality of Office 39.\44\ In spite
of its designation, KDB continues to conduct illicit transactions on
behalf of the regime, including by operating front companies on behalf
of organizations such as Office 39 abroad; by using an overseas branch
office to both pay a number of overseas companies that provide labor
and services on behalf of North Korea, and to remit funds to Pyongyang;
and by utilizing KDB representatives abroad to make payments for goods
imported into North Korea.
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\44\ See ``Treasury Designates Key Nodes of the Illicit
Financing Network of North Korea's Office 39,'' November 18, 2010
(https://www.treasury.gov/press-center/press-releases/Pages/tg962.aspx).
Jamal El-Hindi,
Acting Director, Financial Crimes Enforcement Network.
[FR Doc. 2016-13038 Filed 6-1-16; 8:45 am]
BILLING CODE 4810-02-P