This July 2017 photo distributed by North Korea shows what was said to be the launch of a Hwasong-14 intercontinental ballistic missile in North Korea. (Korean Central News Agency/Korea News Service via AP)
Among the flurry of U.S. legal maneuverings on Tuesday involving North Korea, maybe the most revealing involves a federal lawsuit aimed at the businesses of one Chinese entrepreneur.
Chi Yupeng, a 48-year-old Chinese accountant, controls a network of companies that in recent years imported $700 million of North Korean coal, according to the lawsuit.
In return for the North Korean coal, according to U.S. officials cited in the lawsuit, Chi’s companies allegedly sent back to North Korea an array of products: cellphones, sugar, luxury items and, perhaps most importantly, components of nuclear devices and missiles.
The alleged details of Chi’s business network, laid out in a U.S. lawsuit seeking the forfeiture of funds that flowed through U.S. banks, suggest how one Chinese entrepreneur may have been able to evade the trade restrictions against North Korea and, more broadly, how important such trade has been in the development North Korea’s ever more fearsome arsenal.
[China demands U.S. immediately withdraw North Korea sanctions and warns it will hit ties]
Escalating trade sanctions enacted by the United States and the United Nations Security Council since 2006 have been accompanied at times by rhetoric suggesting that the regime of Kim Jong Un had been cut off from the world’s economy. But the Chi case, and its allegations describing how porous the sanctions may have been, underscore how the North Korean weapons program has relied on the country’s coal exports to China — which were booming until earlier this year.
One of Chi’s companies, Dandong Zhicheng Metallic Material, was the largest importer of North Korean coal, bringing in $234 million in 2016, according to Panjiva, a global trade data analytics company. Despite worldwide scrutiny of the North Korean coal trade, transactions involving Chi Yupeng’s companies in China and North Korean coal continued into June of this year, the lawsuit alleges.
“Chi Yupeng’s companies represented almost 10 percent of Chinese imports from North Korea last year. That speaks to the scale of their operation,” said David Thompson, senior analyst at C4ADS, a nonprofit that researches global business networks and has focused on the Chi Yupeng group.
Chi could not be reached for comment.
Based in part on the accounts of three confidential informants and two unnamed defectors, the U.S. lawsuit filed on Tuesday seeks the forfeiture of $4 million from Chi Yupeng’s companies, as well as more than $100 million in other penalties. Chi could not be reached for comment.
One of the defectors that U.S. attorneys are relying on appears to have been very well-placed. According to the complaint, the defector had first hand knowledge of “Office 39,” a group that maintains a reserve of money for Kim Jong Un.
According to the defector cited in the complaint, the North Korean military controls the amount of coal produced and its exportation. Kim puts over 95 percent of the foreign currency earned from coal exports to North Korea’s military and weapons programs, the defector said.
Any major coal importer would have been a point of contact for the North Korean regime.
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This diagram is taken from a U.S. lawsuit against a network of companies controlled by Chi Yupeng, a Chinese businessman. Chi imports North Korean coal through his company Dandong Zhicheng, then has his front companies send goods back to North Korea, U.S. officials said.
The other method of evasion alleged in the lawsuit more directly involves the front companies. These allowed Chi’s network — despite repeated sanctions measures by the U.S. — to use U.S. banks in conducting business with North Korea. While banks can detect and block transactions involving sanctioned businesses, they often miss transactions involving related companies because they do business under a different name.
It was the alleged U.S. transactions involving Chi’s companies that led the Department of Justice to seek on Tuesday the forfeiture of $4 million in funds. The money is being held in U.S. accounts.
“These front companies are supporting sanctioned North Korean entities, including North Korean military and North Korean weapons programs,” U.S. Attorney Channing Phillips said in a statement referring to the legal filings.
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