RISKY BUSINESSA Systems-Level Examination of the North Korean Proliferation Financing System

EXECUTIVE SUMMARY

In this report, we conduct a system-level examination of the North Korean overseas financing and procurement system. We find that this system is centralized, limited, and vulnerable, and that its disruption should greatly increase the pressure on the Kim regime to return to the negotiating table.
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North Korea employs a global array of overseas networks to circumvent international sanctions and continue its pursuit of nuclear weapons. These networks are engaged in schemes as diverse as cybercrime , military equipment sales , currency counterfeiting , narcotics , and even wildlife trafficking . They make up a complex overseas financing and procurement system designed to raise the funds and materials North Korea needs for its regime security and weapons programs. As sanctions have tightened, these networks have grown increasingly important to the regime. Moreover, they illustrate how North Korean officials have gained a deep understanding of international trade, finance, and transportation and how to nest their illicit activities within them.

In this report, we conduct a system-level examination of the North Korean overseas financing and procurement system. Our paper finds that this system is centralized, limited, and vulnerable, and that its disruption should greatly increase the pressure on the Kim regime to return to the negotiating table.

+ Case Study: The Sun Sidong Network

The largest exporter of potential dual-use equipment in our sample, Dandong Dongyuan Industrial Co. Ltd. 丹东东源实业有限公司, sent North Korea a shipment of US$790,000 of radio navigational aid apparatus (8526.91) in June 2016. Experts at the James Martin Center for Nonproliferation Studies state that this type of equipment, “might include navigation systems used in vehicles. It is possible that this category might contain guidance devices for ballistic missiles.” While the shipment itself may warrant deeper investigation and scrutiny from law enforcement, it is again the network around the company in question that is of greatest interest for the purposes of this investigation.

Chinese business records for the company state that Dandong Dongyuan Industrial Co. Ltd. is a general- purpose trading firm whose business scope includes the sale of automobiles, machinery, natural resources, and general household products. Its trade records indicate that it has exported to three countries: North Korea, the Democratic Republic of the Congo, and the United States. From 2013 to 2016, the company sent US$28,543,792 worth of material to North Korea. According to Chinese business registry filings, the majority shareholder, controlling a 97% stake, is a Chinese national named Sun Sidong 孙嗣东.

  Figure 14: Sun Sidong Hong Kong Director Search  Hong Kong business registry director search results for Sun Sidong.

Figure 14: Sun Sidong Hong Kong Director Search
Hong Kong business registry director search results for Sun Sidong.

According to the Hong Kong business registry, Mr. Sun is also the owner of Jieshun Shipping Limited, a company that, according to Equasis shipping records, was the sole owner of the previously mentioned Jie Shun from April 14, 2012 to August 10, 2014.

On August 11, 2016, when the Jie Shun was seized carrying RPGs, the ship was owned by a Hong Kong-based company named Vast Win Trading Limited. Hong Kong business registry documents reveal that Vast Win Trading Limited is owned by a Chinese national named Sun Sihong 孙嗣红, a business partner of Mr. Sun’s. Sun Sihong additionally lists a residential address on her Hong Kong annual return of an apartment in the same complex as Mr. Sun. Further investigation is required to confirm familial ties between Sun Sidong 孙嗣东 and Sun Sihong 孙嗣红.

  Figure 15: Dongyuan Network  Network chart of business holdings of Sun Sidong and associates, including links to the  Jie Shun .

Figure 15: Dongyuan Network
Network chart of business holdings of Sun Sidong and associates, including links to the Jie Shun.

Exploitation of trading networks based out of Northeast China, as previously discussed, is common practice for North Korean overseas networks. What is more illustrative of the success of the North Korean regime’s sanctions countermeasures is their ability to penetrate other less familiar business jurisdictions around the world. In addition to companies in China and Hong Kong, Mr. Sun is also listed as the president of of a company based within the United States. This entity would allow Mr. Sun to transact with businesses around the world without any obvious ties to his China-based North Korea centric businesses. In principle, it would also provide him the ability to register for business services within the United States, including sending or receiving shipments, establishing bank accounts, or applying for employment visa’s.

  Figure 16: Shared Identifiers Dongyuan to Zhicheng  Excerpts from Chinese business registry annual return filings showing shared email address used by Dandong Dongyuan Industrial Co. Ltd. and Dandong Zhicheng Metallic Material Co. Ltd.

Figure 16: Shared Identifiers Dongyuan to Zhicheng
Excerpts from Chinese business registry annual return filings showing shared email address used by Dandong Dongyuan Industrial Co. Ltd. and Dandong Zhicheng Metallic Material Co. Ltd.

Further investigation into the companies associated with Mr. Sun yielded much more than just a network of front and shell companies—it provided linkages via shared identifiers between his network and the largest Chinese importer of North Korean coal over the past three years, Dandong Zhicheng Metallic Material Co. Ltd. Included within the company’s business registry annual return information was an email address, sk5899@163.com. This email address is linked to only four companies within the Chinese business registry, two owned by Mr. Sun and two, including Dandong Zhicheng Metallic Material Co. Ltd., owned by Chinese national Chi Yupeng 迟玉鹏. The fact that Dandong Zhicheng Metallic Material Co. Ltd. and Dandong Dongyuan Industrial Ltd., a company with linkages to the Jie Shun seizure, share common identifiers on their business registry information does not necessarily prove collusion or the existence of illicit activity. However, it demonstrates again what has been consistently apparent; that the limited North Korean trading system is much more inter-connected than it at first appears, and that, because of links to illicit actors, it may be vulnerable to systemic disruption in the face of targeted enforcement action.

  Figure 17: Dongyuan to Zhicheng  Network chart displaying links between Fan Mintian, the  Jie Shun , Sun Sidong and Dandong Zhicheng Metallic Material Co. Ltd.

Figure 17: Dongyuan to Zhicheng
Network chart displaying links between Fan Mintian, the Jie Shun, Sun Sidong and Dandong Zhicheng Metallic Material Co. Ltd.