Even as Presidents Donald Trump and Xi Jinping pledge to stop North Korea’s fast-advancing nuclear weapons and ballistic missile programs, there’s one uncomfortable secret that neither leader has publicly acknowledged: Chinese banks and businesses are playing key roles in providing Pyongyang with access to the global markets they need to acquire critical parts and technologies.
For at least a decade, North Korea has sidestepped U.S. and United Nations sanctions against its own trading and financial institutions by establishing a global network of front companies, shell companies and third-country agents to seek parts, technology and financing for its weapons programs, according to interviews with current and former counterproliferation officials and congressional documents.
These front companies rely on assistance provided by Chinese banks to gain access to U.S. and global financial systems, often by conducting transactions in U.S. dollars, and on Chinese businesses to obtain weapons parts, according to those sources.
In a little-noticed letter sent to Treasury Secretary Steven Mnuchin in February, six senators called on the administration to target Chinese banks and other entities as a way of effectively cutting off North Korea’s access to hard currency it uses to finance its illicit weapons-of-mass-destruction programs.
“With the risks of proliferation and war now at a critical stage,” they wrote, “we have no more time to waste on inaction.”
One of the financial institutions the senators cited as facilitating North Korea’s weapons programs is one of China’s biggest — the Bank of China — raising concerns among U.S. officials that at least some of the assistance being giving to Pyongyang is state-sponsored.
The assistance provided by Chinese entities to North Korea goes as far back as the 1960s, and includes some state-run operations, according to current and former national security officials here and overseas, other experts and a POLITICO review of counterproliferation documents.
During that time, Chinese businessmen and financiers also helped spread technology to virtually all of the world’s other illicit WMD programs too, including some assistance on chemical and biological agents, these sources say.
As U.S. intelligence, military and law enforcement agencies watched, Chinese individuals and companies provided significant amounts of specialty components and technology to Iran, Pakistan, Syria and other nations. That assistance, and the participation of Chinese banks and financial institutions, has been instrumental in the research and development of nuclear, chemical and biological weapons by these regimes, according to the sources.
Career counterproliferation experts in the U.S. government have been quietly ringing alarm bells about China’s role in the global black market in WMD parts and technology for years, and with increasing urgency as North Korea and Iran made rapid advances in their programs, three senior U.S. national security officials who recently retired told POLITICO.
But instead of taking strong and public action against Beijing, they say, three successive U.S. administrations — under Presidents Bill Clinton, George W. Bush and Barack Obama — opted to quietly nudge it behind the scenes and accept its repeated promises to put an end to the proliferation activity emanating from within its borders.
Some officials say that despite comments by both Trump and Xi about working together to thwart North Korea, they are wary that his administration is on the same path, despite mounting tensions over North Korean missile tests. The latest apparent provocation came early Sunday, when North Korea tried to test a missile, which exploded almost immediately upon being launched.
Although Trump himself has avoided publicly calling out China for its role in North Korea’s WMD programs, he praised Xi last week, saying he is confident that the Chinese president will do what it takes to pressure Beijing’s neighbor into dropping its nuclear threats, and standing down its illicit research and development programs.
"I have great confidence that China will properly deal with North Korea," Trump tweeted on Thursday. "If they are unable to do so, the U.S., with its allies, will. U.S.A.!"
In recent weeks, White House officials have begun anonymously floating the idea of sanctioning some Chinese institutions, in part as a way of avoiding military action against Pyongyang. And Secretary of State Rex Tillerson reportedly raised the issue in his recent visit to Beijing.
Some veteran counterproliferation officials said that while they welcome such efforts, previous administrations also considered them but ultimately backed down when China opposed them, in some cases by insisting the sanctions would destabilize its neighbor and hurt the North Korean people.
“Over time, every time we get close to putting in secondary sanctions, the Chinese agree to do a little more” to apply pressure to North Korea, said Dennis Wilder, who served from 2015 to 2016 as the CIA’s deputy assistant director for East Asia and the Pacific. “They’ve been very good at playing the game of ratcheting up the pressure on North Korea at times when it helps them avoid us imposing sanctions.”
That’s especially the case when the U.S. has threatened to directly sanction Chinese entities, its financial institutions in particular, for their role in assisting North Korea, according to Wilder and others.
“You can imagine that if Treasury designates the Bank of China, the Chinese would have to worry about how once the bank is tainted, all sorts of people would move their money out, and other banks would end or slow their activity with the bank as well," Wilder said. "Now you would have a stigma attached to these institutions.”
An official in the Bank of China’s New York branch said he was unable to respond to charges that the bank facilitated North Korean arms programs. “We’re not able to make any immediate comment," he said. "Personally, I don’t have the information, and it is difficult for us to coordinate a response. We will have to find out.”
The bank has in the past also referred calls to Brett Philbin, a Washington-based vice president at the Edelman communications firm. He did not respond to a request for comment Friday afternoon.
If the United States were to seek sanctions against Chinese entities, it already has identified dozens of individuals, companies and banks around the world that have been facilitating and financing North Korea’s weapons activities, former officials said.
“Treasury has done their homework on this for many years, and there are files available at Treasury for Trump to review,” said Wilder, who was also special assistant to the president and senior director for East Asian Affairs at the National Security Council from 2005 to 2009. “There are sanctions packages that are either ready to go, or could be ready in a minute” against the Chinese entities.
Last September, the Justice and Treasury departments indicted and sanctioned one Chinese trading company, Dandong Hongxiang Industrial Development Ltd., and alleged that it was responsible for more than $500 million in trade with North Korea. The enforcement actions, and related financial freezes, were considered especially sensitive because the massive Chinese conglomerate is headed by a Communist Party member who U.S. officials believe has long aided Pyongyang’s nuclear program, according to former officials.
In its last days, the Obama Treasury Department also quietly took action against Chinese businessman Mingfu Chen as part of a broader sanction package targeting a procurement network for Iran’s ballistic missile program. And several Chinese individuals and companies have been targeted in crackdowns against Iran’s nuclear program over the years as well.
But many other Chinese trading firms, including Chinpo Shipping and 88 Queensway, continue to engage in commerce that facilitates North Korea’s nuclear and missile programs, according to the letter from the six senators.
And even less has been done to go after the Chinese financial institutions that make many, if not most, of North Korea’s procurement efforts possible. In a Senate hearing several months ago, Obama administration Treasury officials acknowledged that they had not sanctioned a single Chinese bank for its involvement in North Korea’s efforts.
“We cannot be serious about North Korea sanctions until we’re ready to confront the China challenge,” said Anthony Ruggiero, a veteran U.S. intelligence and financial counterproliferation official until December. “The big question is whether there is political will.”
“I get that you don’t want to sanction the Chinese entities the day before Xi walks into Mar-a-Lago,” Ruggiero said in reference to the summit between the two leaders earlier this month. “But what about the week after?”
Historically, the U.S. has had great success in squeezing North Korea via sanctions, especially those imposed on complicit third-party financial institutions. A 2005 crackdown on Banco Delta of Macau, for instance, prompted banks around the world to freeze and shutter North Korean accounts, making it much more difficult for Pyongyang to finance its WMD programs through criminal conduct.
And while the Justice Department indictment of Dandong Hongxiang is a step in the right direction, the case also underscored how little the U.S. government is doing to root out Chinese support for North Korea’s WMD programs, said Ruggiero, who was working for Sen. Marco Rubio (R-Fla.) at the time.
U.S. authorities knew about Dandong Hongxiang’s activities for six years before taking action against it, Ruggiero said. China also has been reluctant to provide U.S. authorities with financial documents that the Treasury Department needs in order to investigate the conglomerate and related proliferation network, and freeze assets.
But when it disclosed the indictment, the Justice Department said there were “no allegations of wrongdoing” by the U.S. correspondent banks or foreign banks that did business with the conglomerate.
To Ruggiero and other critics, that suggests that U.S. authorities either didn’t pursue the obvious financial leads, or didn’t act on them.
“It’s pretty shocking that we let them violate U.S. law for so long. We would have never allowed that to occur if it was Iran,” Ruggiero said. “Why did we let the Dandong Hongxiang network sit there for six years? What was that network involved in, and why didn’t we go after Chinese banks?”
Dandong Hongxiang has declined to comment on the case.
In their letter to Mnuchin, the six senators, all Republicans, called on the Trump administration to do more to crack down on China, and to determine its role in aiding and abetting North Korea. The letter was written by Ted Cruz of Texas and Cory Gardner of Colorado, and co-signed by Pat Toomey of Pennsylvania, David Perdue of Georgia, Thom Tillis of North Carolina and Rubio.
“Although the Treasury Department sanctioned Dandong Hongxiang and its corporate officers, freezing the assets of a handful of entities is a far cry from what is necessary: a determined, sustained, and well-resourced campaign to investigate, uncover, and sanction the complex web of similar Chinese, Middle Eastern, and other third-country companies and banks that fund Kim Jong-un’s regime, facilitate proliferation, and break sanctions,” the senators wrote.
“All necessary legal tools are in place to begin conducting such a campaign in earnest, today,” the senators said, especially to go after the many Chinese banks — including the Bank of China — that they accused of facilitating North Korean proliferation by flouting U.S. “Know-Your-Customer” obligations and disregarding their obligations to enforce U.N. sanctions on North Korea.
Citing the lack of any banks targeted along with Dandong Hongxiang, they said, “It is difficult to construe this inaction as anything less than a lack of political will” on the part of the U.S. government.
Over the years, some career counterproliferation officials have pushed for deeper investigations into the procurement networks to determine whether Beijing is actively involved or just aggressively looking the other way.
Vann Van Diepen, a top U.S. counterproliferation official for the past 25 years, said that while China engaged in the state-sponsored spread of WMD technology in earlier decades, it has been much more cagey in recent years, to the point where the U.S. doesn’t know the extent of its official support.
Publicly, China has supported some United Nations crackdowns on WMD proliferation, but it has quietly been allowing that activity to occur within its own borders, not stopping operators that it knows are aggressively helping Pyongyang and at times willfully looking the other way, said Van Diepen.
"Most people believe that this is not a state-sponsored activity; we don’t know that, one way or another, but China hasn’t devoted the priority, effort, or resources to thwart this," Van Diepen said. "And when that continues to be the case over 20 years, even when they have been criticized, over time it becomes a choice, and you have to wonder what’s going on. At a minimum they can certainly find out if they want to."