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North Korea Sanctions Violations Alleged by U.S. -- WSJ

09/12/2020 | 02:48am EDT
By Aruna Viswanatha and Kate O'Keeffe 

Federal prosecutors stepped up a campaign against North Korea on Friday, unsealing two cases involving alleged sanctions violations as officials warn Pyongyang remains a significant threat to national security and the global financial system.

Prosecutors in the U.S. attorney's office in Washington asked a federal judge to order the forfeiture of funds associated with a former North Korea employee and related front company of Chinese telecommunications giant ZTE Corp.

Separately, they charged with sanctions violations a Pyongyang operative who allegedly played a role in the 2017 killing of the half-brother of North Korean leader Kim Jong Un, according to court documents unsealed Friday.

The cases come as President Trump has touted his personal relationship with Mr. Kim, including in interviews with journalist Bob Woodward released this week in Mr. Woodward's book "Rage." Meanwhile, nuclear talks between the U.S. and North Korea remain gridlocked with little prospect of progress before the November presidential election. On Thursday, Mr. Trump tweeted: "Kim Jong Un is in good health. Never underestimate him!"

Other senior U.S. officials, including the head of U.S. Cyber Command Gen. Paul Nakasone, have warned in recent weeks that North Korea is hacking international financial networks and using other illicit means to generate revenue to fund its weapons development.

"Violations of U.S. sanctions on North Korea enrich the regime and allow it to continue to fund the destabilizing activities that the sanctions are meant to prevent," John Demers, the Justice Department's assistant attorney general for national security, said in announcing one of the cases.

The former ZTE employee, along with his wife, used two front companies in China to import ZTE phones and other equipment into North Korea and secretly wired at least $15 million through the U.S. financial system between 2010 and 2016, a complaint seeking forfeiture of some of the funds said. Neither ZTE nor the couple could immediately be reached for comment.

Separately, prosecutors criminally charged North Korean operative Ri Jong Chol, who was deported from Malaysia in 2017, for allegedly working from Malaysia to source and purchase commodities for customers in North Korea; his daughter and a Malaysian businessman were also charged. Mr. Ri was implicated by Malaysian investigators in the airport killing of Kim Jong Nam, the estranged half-brother of North Korea's leader. He has denied wrongdoing in that matter, and the defendants, who aren't in U.S. custody, couldn't be reached for comment on the new charges.

The complaint involving ZTE sheds new light on the company's illegal activities in North Korea, which it disclosed to U.S. officials as part of a 2017 deal to pay $892 million in fines and plead guilty to violating U.S. sanctions on Iran.

Prosecutors said ZTE's North Korea contracts, most of which serviced state-owned Korea Posts and Telecommunications Company, totaled $328 million between 2010 and 2016, and entailed sending some 478 million U.S.-origin parts to North Korea.

ZTE disclosed it had set up two China-based front companies -- Ryer International Trading Co. and Rensy International Trading Co. -- to negotiate contracts with and fulfill orders from North Korean customers. ZTE terminated its relationship with Ryer and Rensy as part of the settlement, it added.

ZTE's North Korea sales manager until 2009, Li Xichun, worked for the front companies along with his wife, Tang Xin; they wired millions of dollars from those companies to ZTE between 2010 and 2015, it said.

As part of the scheme, Ryer allegedly helped North Korea evade sanctions by transforming coal proceeds into cellphone purchases. It received around $12 million in payments from North Korean financial facilitators, including from a company that sold North Korean anthracite coal to customers world-wide and was later sanctioned by the Treasury Department. Ryer would then wire the funds to ZTE, whose cellphones would then arrive in North Korea, the complaint said.

The government asked the court to sign off on the seizure of around $1 million in funds associated with Ryer and the couple, including Ryer proceeds Ms. Tang had sent to a U.S. business as part of an application for an EB-5 investment visa for herself and her husband, according to the complaint.

In the separate criminal complaint against Mr. Ri and his daughter, prosecutors cited 2015 emails in which the daughter acknowledged working for a company that the Treasury Department has since described as subordinate to the North Korean military and Mr. Ri being aware of U.S. sanctions that limited their ability to do business openly. In one email, a representative of another company told Mr. Ri when he asked for a price to ship to Nampo port in North Korea: "Due to sanction concern, we are not able to quote you price...to Nampo."

In 2018, The Wall Street Journal reported that documents showed how Mr. Ri lived an undercover life as a businessman in Malaysia, helping Pyongyang generate cash and move goods despite U.S. and United Nations sanctions. Mr. Ri helped export hundreds of thousands of dollars worth of palm oil and soap to a military controlled trading company in North Korea and arranged to procure 50,000 bottles of Italian wine, valued at $250,000, despite U.N. curbs on luxury goods bound for North Korea's elite, the Journal reported at the time.

The cases are the latest targeting alleged misbehavior on the part of Pyongyang, which in recent weeks has reshuffled its leadership and made a rare admission of defeat on its five-year economic policy.

In August alone, multiple federal government agencies warned that hackers tied to the North Korean government are trying to rob banks across the globe by draining ATMs and initiating fraudulent money transfers; the Justice Department moved to seize 280 cryptocurrency accounts it said were used by North Korean hackers who allegedly stole more than $250 million from cryptocurrency companies around the world; and a British Virgin Islands-based company, Yang Ban, pleaded guilty in the U.S. to a money-laundering charge and admitted it misled banks into processing $560,000 worth of U.S. dollar transactions on behalf of North Korean customers.

In May, U.S. authorities unsealed an indictment charging more than 30 people, including officials and agents of North Korea's primary foreign exchange bank, with helping North Korea illegally transfer $2.5 billion since 2013, by opening and operating covert branches in Thailand, Austria, Russia, China and elsewhere. None of the defendants are in U.S. custody and they haven't entered pleas.

Write to Aruna Viswanatha at Aruna.Viswanatha@wsj.com and Kate O'Keeffe at kathryn.okeeffe@wsj.com


Stocks mentioned in the article
ChangeLast1st jan.
CRUDE PALM OIL -0.04% 1425.5 End-of-day quote.28.98%
LONDON BRENT OIL 0.44% 114.77 Delayed Quote.41.60%
US DOLLAR / RUSSIAN ROUBLE (USD/RUB) -0.97% 63.875 Delayed Quote.-13.93%
WTI 1.11% 112.457 Delayed Quote.44.13%
ZTE CORPORATION -0.60% 23.12 End-of-day quote.-30.99%
All news about ZTE CORPORATION
05/11ZTE Corporation Axon 40 Ultra Officially Launched in China
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05/09ZTE Launches New Flagship Phone
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05/04U.S. considers imposing sanctions on China's Hikvision -FT
05/02Econet Extends 5g Coverage
04/29UBS Upgrades ZTE to Buy From Neutral, Keeps Price Target at 35 Yuan
04/28Nomura Adjusts ZTE's Price Target to HK$26 From HK$32, Keeps at Buy
04/28ZTE's Court-Appointed Monitorship Comes To A Close
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Analyst Recommendations on ZTE CORPORATION
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Sales 2022 130 B 19 154 M 19 154 M
Net income 2022 8 194 M 1 208 M 1 208 M
Net cash 2022 8 644 M 1 274 M 1 274 M
P/E ratio 2022 13,3x
Yield 2022 1,35%
Capitalization 102 B 15 047 M 15 047 M
EV / Sales 2022 0,72x
EV / Sales 2023 0,63x
Nbr of Employees 72 584
Free-Float 74,3%
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Technical analysis trends ZTE CORPORATION
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Income Statement Evolution
Mean consensus BUY
Number of Analysts 16
Last Close Price 23,12 CNY
Average target price 37,23 CNY
Spread / Average Target 61,0%
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Managers and Directors
Zi Yang Xu President, CEO & Executive Director
Li Ying Chief Financial Officer & Executive Vice President
Da Xiong Xie Chairman-Supervisory Board
Zi Xue Li Chairman
Junshi Xie Chief Operating Officer & Executive Vice President
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