Three Chinese Banks Named in North Korean Money Laundering Probe

The Washington Post has reported that, three Chinese banks may have refused to comply with a U.S. subpoena regarding laundering money to the North Korean state-run Foreign Trade Bank. The Chinese banks believed to be implicated include the Bank of Communications, China Merchants Bank and Shanghai Pudong Development Bank. These corporations supposedly cooperated with a Hong Kong front company to launder money to North Korea.

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One bank, the Shanghai Pudong Development Bank is said to be at risk of losing access to U.S. dollars, which are crucial for the operation of international finance. Shanghai Pudong Development Bank is valued at roughly $900 billion dollars, putting it on par with some of the largest financial institutions in the world.

The investigation aims to determine whether these Chinese banks knowingly assisted with financing the North Korean nuclear-proliferation network. The U.S.-based attorney for the three banks declined to provide any comment, as the subpoena battle will commence in federal court on July 12.

However, today China Merchant Bank released a statement responding to Washington Post article, claiming that, “We have strictly complied with the relevant Chinese law, the relevant United Nations resolutions and other applicable rules of the system and have not received any relevant investigation as a result of any suspected violation of the law of the system.” Here the Chinese firm is denying any wrongdoing in the matter.

However, the investigation against these Chinese banks shows a dramatic shift in the bilateral relationship. Julian Ku, a Hofstra University law professor who has studied China’s relationship with international law commented, “The U.S. government is no longer afraid or reluctant to bring its most aggressive legal authorities against Chinese banks and companies. I doubt this kind of action would have been brought even two years ago, but it is a sign of the new U.S.-China relationship that this kind of law-enforcement action may become the norm in the future.”

The potential penalty for the actions of the Chinese, should the investigation find them guilty, would be severe. Invoking the penalty would raise national security stakes because prosecutors informally refer to the financial repercussion pursuant to this case as a “death sentence” because of its potential to kill a bank’s business. During a period of such turbulent U.S.-China relations, such action would potentially escalate the already significant instability in the negotiations between President Trump and President Xi.

Featured Image Source: South China Morning Post