Dandong Hongxiang

Dandong Hongxiang Industrial Development Co. (DHID) was a Chinese trading company based in Dandong. In September 2016, United States authorities charged DHID, Ma Xiaohong and three executives with sanctions and money-laundering offences, and OFAC designated them for ties to a sanctioned North Korean bank. The criminal allegations must not be presented as convictions. The administrative designation is a separate official action with a different evidentiary and legal standard.

Role

DHID sat astride the Dandong-Sinuiju corridor that carries most of North Korea's trade. Behind routine commodity trading, US investigators alleged, the company operated a lattice of offshore front companies that executed dollar transactions on behalf of Korea Kwangson Banking Corporation, a North Korean bank sanctioned by the United States and later the United Nations for financing weapons proliferation. By routing payments through fronts with no visible North Korean connection, DHID gave a designated bank continued access to the US correspondent system, the precise dependency the sanctions were built to sever. Open-source research by C4ADS and the Asan Institute, published in 2016, mapped hundreds of millions of dollars in DHID trade with North Korea and traced the corporate web that the subsequent US action followed.

Enforcement action

On 26 September 2016 the Department of Justice unsealed a criminal complaint alleging that DHID, Ma Xiaohong and three executives used front companies to facilitate prohibited dollar transactions for Korea Kwangson Banking Corporation. It also announced civil forfeiture actions, while Treasury designated the company and individuals. The Department's notice states that a criminal complaint is an allegation and defendants are presumed innocent unless proved guilty. This entry does not claim a later conviction or a published Chinese disposition because none is established by the sources cited here.

Significance

DHID is an important example of enforcement against the Chinese commercial layer of North Korean evasion: open-source network mapping, criminal process against an alleged intermediary, administrative designation, and forfeiture directed at funds held through US correspondent accounts. Treasury's later addition of secondary-sanctions risk to the entries for DHID-linked individuals shows how that logic developed after the original action. The authorities stopped short of designating the Chinese banks that maintained the relevant correspondent relationships. The case also demonstrated the enforcement value of private open-source financial intelligence.

See also

United Nations sanctions regime against North Korea (2006-present) · Secondary sanctions · North Korea · China (People's Republic) · Sanctions evasion as system design · Office of Foreign Assets Control (United States) · Economic warfare

Sources

• United States Department of Justice, "Four Chinese Nationals and China-Based Company Charged with Using Front Companies to Evade US Sanctions" (26 September 2016), including the presumption-of-innocence notice.
• United States Department of the Treasury, "Treasury Imposes Sanctions on Supporters of North Korea's Weapons of Mass Destruction Proliferation" (26 September 2016).
• United States Department of the Treasury, Office of Foreign Assets Control, "North Korea Designations and Designation Update" (4 October 2018), recording the later addition of secondary-sanctions risk to DHID-linked entries.
• C4ADS and Asan Institute for Policy Studies, In China's Shadow: Exposing North Korean Overseas Networks (2016), open-source network analysis.
• United Nations Security Council, Resolution 2270, S/RES/2270 (2 March 2016), applicable multilateral sanctions context.
• James J. Tennant, "The Economic Kill Chain" (Article 2, PhD corpus).