Rogue Banks

To Disarm North Korea, Cripple A Large China Bank
By Gordon G. Chang 

Tuesday, the U.S. Treasury Department imposed sanctions on 10 entities and six individuals. 

The sanctioned parties are Singaporean, Russian, and Chinese and had, according to Treasury, aided North Korea’s ballistic missile and nuclear weapons efforts.
In addition, the Justice Department sought to forfeit $11 million from three entities—at least one connected to China—for laundering money for Pyongyang.
Beijing howled. 

The foreign ministry called the actions “wrong behavior,” and the Global Times, the tabloid controlled by People’s Daily, went further, stating in an editorial that the U.S. would “pay for unjust ban on Chinese firms” and that “Washington had better restrain itself.”
In reality, the U.S. had already restrained itself. 

Too much, in my view. 

Washington needs, at this time, to move beyond actions against minor bad actors and impose severe penalties on large institutions. 

First among the targets should be one of China’s so-called Big Four banks, perhaps the Bank of China.

While the Democratic People’s Republic of Korea perfects missiles and nukes at an accelerated pace, American administrations have been slow to impose costs on Pyongyang’s primary backer, Beijing, for, among other crimes, money laundering.
Experts, like former State Department sanctions coordinator Dan Fried, believe Washington should warn Beijing before moving against Chinese banks.
Washington, however, has already warned the Chinese—repeatedly. 

The Obama administration began to signal American impatience. 

On September 26 of last year, the Justice Department announced the forfeiture of funds from 25 Chinese bank accounts. 

The actions were announced at the same time Treasury moved against Dandong Hongxiang Industrial Development, its owner, and employees, in large part for handling North Korean cash.
Beijing, however, did not take the hint. 

Therefore, on June 29 President Trump’s Treasury Department, pursuant to Section 311 of the Patriot Act, designated Bank of Dandong a “primary money laundering concern.” 

The designation effectively cut off the institution from the global banking system.
Beijing still did not get the message, hence Tuesday’s forfeiture actions.
Actions against individuals and small-fry institutions are necessary, but they have been ineffective in getting Beijing out of money laundering and other illicit activities on behalf of the North Korean regime.
Therefore, it looks like time for Washington to move against Chinese institutions that matter, like Bank of China. 

Bank of China was, according to the Foreign Policy site, named in a 2016 U.N. report for devising and operating a money-laundering scheme for Pyongyang in Singapore. 

There are also hints the bank has been involved in dirty business in Dandong, the Chinese city on the Yalu River across from North Korea.
Bank of China, as large as it is, may not be the biggest Chinese money launderer. 

Anthony Ruggiero of the Foundation for Defense of Democracies thinks the U.S. could go after the Industrial and Commercial Bank of China, the world’s largest financial institution in S&P Global Market Intelligence’s annual asset rankings.

Bank of China, by the way, comes in at No. 4 on this list.

The U.S., of course, can fine these institutions, but that would be just another signal for Beijing to disregard. 

North Korea is too close to being able to nuke the American homeland for Trump to send signals Beijing may ignore.
What could not be ignored, however, is Washington shutting down the U.S. operations of the largest Chinese banks and, more importantly, denying their access to dollar accounts. 

Without the ability to handle greenback transactions, they would be put out of business everywhere outside China, and they would even lose some business inside that country as well.
Would the U.S. suffer by unplugging one or more Chinese banks? 

Yes, no doubt. 

In comments to Reuters, Joseph DeThomas, another State Department sanctions official, warns of “unpredictable” consequences. 

And as Gary Samore of Harvard’s BelferCenter told Bloomberg, “If we were to impose penalties on really big Chinese financial institutions, it would have major economic consequences on the U.S.”
Yet the willingness to endure “major economic consequences” is not an argument for refraining from crippling a large Chinese bank. 

On the contrary, it is the reason why imposing death sentences on China’s institutions would be so effective.
Chinese leaders need to see that Washington is determined to stop North Korea, and they are not going to take America seriously unless America is willing to accept costs to do so.
In any event, whatever the Trump administration thinks its China or North Korea policy should be, it has an obligation to enforce U.S. law. 

No one gets to use the American financial system to launder cash for Kim Jong Un, at least more than once.
At the moment, Trump officials are turning up the pressure slowly, in the hope that Beijing will come around. 

That sounds responsible, but unfortunately the approach has been completely ineffective. 

Once a Chinese individual, company, or bank has been sanctioned for money laundering, the activity simply moves to another. 

Going after Bank of Dandong, therefore, was a mistake.
Beijing, the master of ignoring signals, has to know what is going on. 

China’s banks are tightly controlled by both the Chinese central government and the Communist Party. 

The government and Party must know about the banks’ sensitive relationships, like those with North Korea. If they do not in fact know about them, it is only because they do not want to.

Beijing cannot run a police state and then disclaim responsibility for what happens inside that state, especially when the largest state institutions are involved.
Therefore, it’s time to go after the biggest Chinese banks in order to cut the head off this particular beast.
In all probability, the Trump administration will have to unplug only one big institution to make a lasting impression. 

Beijing will then, for the first time since 1994, realize that American officials place the safety and security of the American people above all else.
“China is not a small country that you can just squeeze and it will do whatever,”Yuan Zheng of Chinese Academy of Social Sciences told Bloomberg. 

“China won’t accept it and will take measures in response. The whole atmosphere of U.S.-China relations will get worse.”
Who cares? 

I, for one, care far more for the safety of Americans than friendly ties with those determined to launder money for North Koreans.