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Sanctions Busters Smuggled North Korean Coal, Iron to the South via Russia

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08/10/2018 | 12:17pm CEST

By Andrew Jeong

DAEJEON, South Korea--Three South Koreans illegally imported North Korean coal and iron via Russia in violation of sanctions, South Korean customs officials said, exposing a crack in the U.S.-led campaign to cut off trade with the Pyongyang regime.

Using forged customs documents and facilitating payments through a shell company in Hong Kong, the individuals brought in over 35,000 tons of coal and pig iron worth almost $6 million from North Korea between April and October last year, South Korean customs authorities told reporters Friday.

The suspects appeared to have tried to profit by selling the cheaper North Korean products at much higher prices in South Korea, the officials said, without identifying the companies or individuals involved. The customs agency said it would recommend indicting three individuals and their companies--two coal importers and one transportation firm--on charges of smuggling, illicit importation, and forgery.

As North Korea's expanding nuclear program increased tensions last year, the U.S. led a global push to isolate the regime through economic sanctions intended to cut off its trade in raw materials such as coal, oil, iron and lead.

But the sanctions imposed by the United Nations Security Council haven't been watertight. Aerial surveillance and satellite imagery have found North Korean vessels receiving oil via ship-to-ship transfers on the high seas, while ships believed to be aiding North Korea have been seen delivering coal to ports in Russia and Vietnam.

Friday's announcement came after a 10-month investigation by South Korean authorities that began when they received what a senior customs official said was U.S. intelligence information.

The coal and iron were delivered through seven shipments on vessels that now bear the flags of North Korea, Belize, Kiribati, and Hong Kong, according to MarineTraffic, a ship-tracking website.

The coal was loaded at the North Korean ports of Songlim, Wonsan, Chongjin, and Daean, and shipped to the Russian ports of Nakhodka, Vladivostok, and Kholmsk, investigators found. It was then shipped to five different South Korean ports.

Cargo bills uncovered in raids on the companies provided evidence of the shipments from North Korea to Russian ports, the South Korean authorities said, adding that one of the suspects later acknowledged the coal and iron was sent on to South Korea.

Some of the imported coal was consumed by Korea South-East Power Co., a subsidiary of the country's largest utility company, according to customs officials. But authorities said they wouldn't press charges on the company, as it appears the government-run firm, known as KOEN, consumed the North Korean coal unknowingly.

When reached for comment, a spokesman for KOEN referred to customs officials' earlier findings that the company had committed no illegal act.

The episode shows how North Korea has sought to evade sanctions through transshipments of raw materials that could provide a much-needed financial lifeline to the regime of leader Kim Jong Un.

The sanctions are thought to have contributed to the largest contraction in North Korea's gross domestic product in two decades, according to a recent South Korean central bank analysis.

A thaw in relations between North and South in recent months, though, has prompted calls in some quarters for an easing of pressure.

President Moon Jae-in of South Korea has sought to revive economic projects with North Korea, such as reconnecting rail lines and roads, and reopening factories and a tourist attraction north of the border. But officials have said those moves are unlikely to make progress while sanctions remain in place.

Write to Andrew Jeong at andrew.jeong@wsj.com

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