Axis of Evil

Businesswoman’s Fate a Test of China’s Resolve on North Korea
By STEVEN LEE MYERS

Friendship Bridge, linking Dandong, China, to North Korea. From the border city, the Chinese businesswoman Ma Xiaohong conducted trade that violated international sanctions. 

DANDONG, China — Not long ago, Ma Xiaohong was the public face of China’s trade with North Korea.
By age 44, she had built a commercial empire accounting for a fifth of trade between the Communist neighbors. 

She was appointed to the provincial People’s Congress, granted special privileges to export petroleum products to the North and feted by officials as a “woman of distinction.”
Now, Ma’s fate has become a test of China’s willingness to support President Trump’s efforts to throttle North Korea’s nuclear ambitions.
Last year, American prosecutors indicted Ma on charges of using her companies to help North Korea evade international sanctions. 

After a briefing by American diplomats in Beijing, the Chinese announced their own investigation into Ma’s main company.
Fifteen months later, however, it is unclear what has become of Ma. 

The government says it has not found evidence to support the American charges that she or her partners aided North Korea’s weapons program. 

Though she remains under investigation for “economic crimes,” it is not clear whether she was ever arrested or where she is now.

Ma in a company photo. Since China announced an investigation in 2016, her whereabouts has been shrouded in mystery.

A review of Ma’s case — involving interviews with officials, diplomats and others, as well as searches in corporate registries — underscored China’s deep ambivalence as it has come under increasing pressure to enforce sanctions against North Korea. 

While China is on the record opposing the North’s pursuit of nuclear weapons, it is wary of being seen imposing punishments at the bidding of the United States, especially against its own citizens.
North Korea’s agreement on Tuesday to send athletes to the Winter Olympics in South Korea next month, and to hold talks and other exchanges with the South, may have been symbolic and perhaps a cynical effort to bide time. 

Yet it suggested that the rising diplomatic and economic pressure, meant to deny it the financial and material resources needed to develop nuclear weapons and ballistic missiles, may have had some effect on the North’s leader Kim Jong-un.
Kim has given no signal that he would give up his nuclear ambitions, but after the North’s initial overtures, Mr. Trump wrote on Twitter that the talks were evidence that “sanctions and ‘other’ pressures are beginning to have a big impact on North Korea.”
China has shown a willingness to support tougher sanctions at the United Nations Security Council over the last year, but it has done so grudgingly. 

The reasons for that are historical and strategic. 

North Korea has long counted on China as its only real ally, for example, but some analysts argue that economic factors also play a part.
“The Chinese don’t want to have to be doing this,” said Ken E. Gause, an expert on North Korea with CNA, a research organization in Arlington, Va. 

“There’s a lot of money to be made on that border, and there are a lot of connections between the operators on the border and their patrons back in Beijing.”
Ma’s fate remains shrouded in mystery. 

There have been rumors of political intrigues and of sweeping arrests of customs officials, but few hard facts.

Companies linked to Ms. Ma’s main company, Dandong Hongxiang, continue to operate from a building in Dandong. 

China has taken steps to shut down at least some of Ma’s trading empire, freezing her shares of her main company, Dandong Hongxiang Industrial Development Co. Ltd., for example, according to a government registry. 

The shares of three colleagues who were also charged by the United States were frozen for a time but later released, suggesting they no longer face criminal charges.
In the government’s first statement on the case in a year, the State Council Information Office responded to questions from The New York Times by saying that Ma and others face investigation for “economic crimes.”
However, the statement went on to say, referring to Ma’s main company, investigators “have not yet found evidence that the Dandong Hongxiang company and Ma Xiaohong et al are directly involved in North Korea’s nuclear missile development activities.”
The company’s headquarters here in Dandong, on the border with North Korea, has been shuttered since last spring, when the decorations for the Year of the Rooster that are still hanging on the entrance were put up for good luck.
Other subsidiaries linked to Ma continued to operate until very recently, providing revenue directly to the North Korean government. 

One is a joint venture with the North Korean government to operate a hotel, the Chilbosan, in Shenyang, the provincial capital 150 miles north of Dandong.
Ma is still listed as the deputy chair of the consortium between Dandong Hongxiang and the North Korea Liujing Economic Exchange Group. 

After reporters from The New York Times visited and made inquiries about Ma’s businesses, however, the hotel restaurant closed. 

That appeared to be in keeping with the latest round of sanctions, adopted by the Security Council in December.

Ma’s businesses include a restaurant that employs waitresses from North Korea.

China joined the council’s other 14 members in imposing the new sanctions, which would also severely limit shipments of refined petroleum. 

Chinese officials point to such steps as a demonstration of its "commitment" to halting North Korea’s weapons program.
China has already slashed imports of coal, silver and other commodities from North Korea, according to customs records. 

While North Korea continued to sell $270 million worth of prohibited goods in the six months that ended in August, according to the latest United Nations report on sanctions, trade along the border has witnessed a significant drop, distressing traders and plunging the region into recession.
The once-thriving trade across the border was what fueled Ma’s rise, and the throttling of it now seems to have contributed to her fall.
She was only 24 when North Korea, suffering the effects of famine, began to open its economy, first by allowing the export of scrap metal in 1996. 

What began as a trickle became a flood, she told Southern Weekly, a prominent Chinese newspaper, as her company bought the scrap to resell in China. 

“Then, every day we were getting nearly 10,000 tons,” she said.
Ma’s trade expanded to other products and commodities. 

Soon, she invested in companies inside North Korea, including a clothing plant and a gold mine. 

The cost of the latter, she said, was the delivery of 80 Steyr trucks built by Sinotruk. 

In January 2000, she formed Dandong Hongxiang.
By 2010, Ma had built a global conglomerate of companies that accounted for a fifth of all imports and exports between the two countries.

A hawker sells North Korean souvenirs near the Friendship Bridge. Sanctions have caused cross-border trade to drop drastically this year. 

As her businesses prospered, she boasted of close ties with officials on both sides of the border. 

They included Jang Song-thaek, the uncle of North Korea’s leader, who was an architect of the economic policies that Ms. Ma exploited. 

In 2013, he was executed for treason, accused of plotting a coup as his nephew consolidated power.
On the Chinese side of the border, Dandong recognized her as one of 10 outstanding women in the city; in 2013, she was selected as a delegate to the provincial People’s Congress, a ceremonial post in an undemocratic country, but one that indicated her connections to the political elite.
On the day in 2006 when North Korea carried out its first nuclear test, she said, she happened to be meeting with executives from one of the country’s biggest state companies, who expressed pride in the test. 

She described North Koreans as educated and worldly despite being so isolated, though her travels also showed her the deprivation many ordinary Koreans face.
“North Korea has computers; it has Coca-Cola,” she told Southern Weekly, “but North Korea is still North Korea.”
Each new round of sanctions disrupted business but then opened up other avenues. 

In 2009, under Barack Obama, the United States imposed sanctions on Korea Kwangson Banking Corp., one of North Korea’s most prominent banks, charging it with financing two companies involved in the country’s missile and arms trade.
In the months that followed, according to American prosecutors and independent researchers, Ma’s company opened or acquired new subsidiaries and shell companies in Hong Kong and other offshore havens. 

The purpose was to trade with the bank and other North Korean entities, as well as to launder money and import prohibited materials used in weapons making.

A watchtower in Sinuiju, North Korea, across the border from Dandong. 

Dandong Hongxiang added 28 subsidiaries in the two years after the sanctions on Korea Kwangson, according to a report by C4ADS, a research organization in Washington devoted to security issues, and the Sejong Institute in Seoul.
By the end of 2016 — after the American indictment — Ma’s network had expanded to 43 entities on four continents, C4ADS said in new report last month. 

Some of them were involved in selling to North Korea chemicals used in the manufacturing of nuclear bombs or missiles.
China, too, prohibits such exports, but the authorities did not move against Dandong Hongxiang until American diplomats briefed them on a secret complaint filed in the New Jersey court in August 2016 that named Ma and three executives in the company.
The Public Security Department in Liaoning, where Dandong is, responded by announcing an investigation, but the government said virtually nothing until the State Council Information Office issued its statement last week. 

Articles that had initially appeared in state media were later censored, suggesting an effort to minimize attention to the case.
A clue of Ma’s legal woes came in statements by Liaoning Darong Information Technology Co. Ltd., where she was chairwoman of the board from 2013. 

In November 2016, two months after the Chinese announced their investigation, the company ousted her. 

In a news release, it explained it had “not been able to contact Ma Xiaohong, nor are her relatives aware of the details of the situation.”
During recent visits to Dandong, few people would discuss Ma. 

Some companies linked to Dandong Hongxiang continue to function, including a transportation subsidiary occupying an office with an expansive view of the Friendship Bridge that crosses the Yalu River into North Korea. 

A woman who seemed to be in charge brusquely refused to answer questions.
In late December, another North Korean restaurant continued to operate, as did a gallery nearby selling paintings by North Korean artists. 

The businesses are registered in Ma’s name, though her husband manages them, according to workers there. 

“His wife was arrested, but he is fine,” one said.
Ma herself once seemed to foresee the risks of her business. 

“If there is any change in the political situation,” she told Southern Weekly, “our business can be smashed to pieces.”

Axis of Evil

China Just Helps North Korea Steal $81M From The Fed
By Gordon G. Chang 

Last February, cybercriminals stole $81 million from the account of the central bank of Bangladesh at the New York Federal Reserve Bank, one of the biggest bank heists ever. 

U.S. officials are now pointing the finger to North Korea as the culprit.
North Korea certainly did not act on its own. 

The Wall Street Journal is reporting that Federal prosecutors are investigating Chinese middlemen, who have helped the North orchestrate the theft.
If such middlemen were involved, Chinese financial institutions were certainly complicit. 

If these institutions were complicit, Beijing must be supporting the criminal attacks.
There is one way for the United States to counterattack. 

The U.S. should cut complicit Chinese financial institutions off from their dollar accounts in New York.
The Journal reported that sources familiar with the matter expect American prosecutors in the Bangladesh case to adopt an approach “similar to that used in September against a Chinese businesswoman, Ma Xiaohong.”
Ma was at the center of a number of American enforcement actions last September. 

Then, the Treasury Department’s Office of Foreign Assets Control added her, three co-workers, and her company, Dandong Hongxiang Industrial Development Co. Ltd., to its list of Specially Designated Nationals. 

Treasury, therefore, effectively imposed sanctions on her and the other listed parties. 

The offense? 

Ties to the nuclear weapons program of the Democratic People’s Republic of Korea.
North Korea sanctions expert Joshua Stanton told me that the reason for the designations was their assistance to Korea Kwangson Banking Corp., itself under sanctions, to launder money for the North.
At the same time, the Justice Department announced the unsealing of indictments of the same four individuals and Hongxiang for, among various crimes, “conspiring to evade U.S. economic sanctions and violating the Weapons of Mass Destruction Proliferators Sanctions Regulations through front companies.” 

The indictments allege the laundering of money through the U.S. financial system for the North Korean regime.
The Justice Department also initiated civil forfeiture actions to seize funds in 25 Chinese bank accounts.
The Obama administration deserves credit for imposing on Chinese individuals and entities its first set of secondary sanctions relating to North Korea, but it gave China a pass. 

The Justice Department, when announcing the forfeitures of the Chinese bank accounts, stated “There are no allegations of wrongdoing by the U.S. correspondent banks or foreign banks that maintain these accounts.”
Obama undoubtedly intended to send a signal to China that it was time to cut its financial links to the Kim regime. 

Unfortunately, Beijing obviously heard another message, that its banks, as the Wall Street Journal noted in a September 29 editorial, “are untouchable.”
So American prosecutors in the Bangladesh caper should not, as the Journal reported, be following the Ma Xiaohong model. 

They should instead be going further up the chain of culprits. 

All roads in this large crime lead to Pyongyang—and then to Beijing.
The Journal reported last week that U.S. investigators think North Koreans were the ones behind the theft from Bangladesh because of the similarity of the code used in that cyberattack to the code employed in the 2014 attacks on Sony Pictures Entertainment. 

The Sony attacks have been attributed to, among others, North Korean hackers based in China.
Moreover, as the New York Times reported Saturday, failed attempts last year to steal money from Polish banks, through a cyber intrusion into the network of Poland’s financial regulator, are linked to the successful theft of Bangladesh’s central bank and the attack on Sony Pictures.
The cyberthieves hitting the Polish financial institutions had big ambitions. 

They left clues they were also targeting more than a hundred other organizations from central banks to multilateral institutions to money center banks.
Among the intended targets were the World Bank, the European Central Bank, Bank of America, State Street Bank and Trust, and Bank of New York Mellon.
There was, however, only one Chinese target: Bank of China. 

Given that many of the world’s largest banks are Chinese, including the largest, the Industrial and Commercial Bank of China, the absence of these institutions from the list of intended victims is curious.
If the cyberthieves were successful, their crimes could have been the biggest series of thefts in history. 

Worse, the hacking, if it had accomplished its goals, would have exposed the vulnerabilities of the global financial system, shaking confidence everywhere. 

Therefore, if China’s untouchable banks are involved in Pyongyang’s bank heists, they are threatening the world’s financial architecture.
Chinese enterprises and banks are tightly controlled by the state. 

Beijing must know about their sensitive relationships, like those with North Korea. 

If it does not in fact know about them, it is only because it does not want to. 

Beijing cannot run a police state and then disclaim responsibility for what happens inside that state, especially when state institutions are involved.
For decades, American administrations have not enforced American money laundering and other laws against Chinese entities, apparently for fear of angering China’s Communist Party. 

Beijing has taken advantage of the laxity.
The Trump administration should act accordingly. 

At a minimum, complicit Chinese banks should be cut off from their dollar accounts in New York, immediately.
Richard Ledgett of the National Security Agency said, in connection with the theft from Bangladesh, that there is a possibility that “a nation-state is robbing banks.”
He was making the statement with North Korea in mind, but there is one other nation-state that has to be involved. 

That is China.