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.”

Han Duplicity: U.N. Report Details North Korea’s Front Companies in China

A maze of shadowy businesses allows Kim Jong-un to evade sanctions and experts say there's no way Beijing doesn't know.
BY COLUM LYNCH

When China announced last week plans to cut off imports of coal from North Korea, a vital source of revenue for the cash-starved Hermit Kingdom, it fueled optimism that Beijing may be getting serious about reining in its erratic neighbor.
But an unpublished U.N. report obtained by Foreign Policy that documents sophisticated North Korean efforts to evade sanctions shows that China has proved a fickle partner at best in Washington’s effort to stymie Pyongyang’s nuclear ambitions.
That poses a fresh challenge for U.S. President Donald Trump, whose prospects of containing North Korea’s nuclear weapons program — which has made great strides lately — rest largely with Beijing. But instead of low-key diplomatic spadework, Trump has sought to browbeat China into helping, blaming the Asian powerhouse with failing to use its influence to clip Pyongyang’s atomic aspirations.
North Korea “is flouting sanctions through trade in prohibited goods, with evasion techniques that are increasing in scale, scope and sophistication,” according to the report compiled by an eight-member panel, which is chaired by a British national and includes experts from China, Russia, and the United States. 

The North Korean schemes are “combining to significantly negate the impact” of international sanctions.
China, despite its apparent cooperation of late with international efforts to sanction North Korea, has instead served as Pyongyang’s economic lifeline, purchasing the vast majority of its coal, gold, and iron ore and serving as the primary hub for illicit trade that undermines a raft of U.N. sanctions that China nominally supports, the report’s findings suggest.
As early as December 2016, China had blown past a U.N.-imposed ceiling of 1 million metric tons on coal imports, purchasing twice that amount. 

China then shrugged off a requirement to report its North Korean coal imports to the U.N. Security Council sanctions committee. 

When U.S. and Japanese diplomats pressed their Chinese counterpart for an explanation in a closed-door meeting this month, the Chinese diplomat said nothing, according to a U.N.-based official.
North Korean banks and firms, meanwhile, have maintained access to international financial markets through a vast network of Chinese-based front companies, enabling Pyongyang to evade sanctions. 

That includes trades in cash and gold bullion and concealing financial transactions behind a network of foreign countries and individuals, allowing North Korea to gain ready access to the international financial system, as well as to banks in China and New York. 

North Korea’s business “networks are adapting by using greater ingenuity in accessing formal banking channels as well as bulk cash and gold transfers,” the report found.
William Newcomb, a former member of the U.N. sanctions panel on North Korea, said it is hard to believe China is unaware of the illicit trade.
“You have designated entities that have continued to operate in China,” he told FP. 

“It’s not an accident. China’s security services are good enough to know who is doing what” inside their country.
China has a pattern of showing goodwill in the U.N. Security Council by supporting a succession of sanctions resolutions aimed at curtailing Pyongyang’s nuclear trade, according to Newcomb. 

But it has shown no commitment to enforcing those measures.
And it has used its power in an obscure Security Council sanctions subcommittee — which makes its decisions by consensus and in secret — to “slow-roll” efforts to ensure that sanctions are respected, Newcomb said.
The Chinese mission to the United Nations did not respond to a request for comment. 

An official at the North Korean mission who declined to identify himself said: “I don’t think there is anyone available for this issue.”
The evasions raise fresh questions about China’s commitment and pose a major challenge to Trump, who has vowed to prevent North Korea from achieving its goal of developing an intercontinental ballistic missile (ICBM) capable of delivering a nuclear explosive to American cities.
Pyongyang has already conducted five nuclear tests since 2006, and it has made huge strides in missile technology, conducting a record 26 ballistic missile tests in 2016, including the firing in April of a submarine-launched ballistic missile using solid fuel. 

North Korean leader Kim Jong Un appears poised to test an ICBM with much greater reach.
“The unprecedented frequency and intensity of the nuclear and ballistic missile tests conducted during the reporting period helped the country to achieve technological milestones in weapons of mass destruction capability, and all indications are that this pace will continue,” according to the report’s findings.
The report — which is expected to be made public next week — “shows once again that the North Korean regime continues its methodical effort to develop a nuclear military program and the means to deliver the corresponding weapons,” said François Delattre, France’s U.N. ambassador. 

“It is a real challenge to the [nuclear] nonproliferation regime.”
The extent of Chinese companies’ role in enabling North Korea’s evasion of sanctions is detailed deep in the fine print of the still unpublished 105-page report. 

For instance, North Korea’s Daedong Credit Bank (DCB) and Korea Daesong Bank, both subject to U.S. and U.N. sanctions, continue to operate in the Chinese cities of Dalian, Dandong, and Shenyang in violation of U.N. resolutions. 

The panel suspects that one of the banks, Daedong, may in fact be majority-owned by Chinese shareholders, citing July 2011 documents indicating the sale of a controlling stake, 60 percent, to a Chinese firm.
Daedong “effectively accesses the international financial system through a network of offshore accounts and representative offices in China,” the panel report states. 

Its operations, according to the report, provide evidence that North Korean banks “manage to operate abroad through the establishment of front companies that are not registered as financial institutions but function as such.”
The United States sanctioned Daedong; its finance wing, DCB Finance; and their Dalian-based North Korean representative, Kim Chol Sam, in June 2013 for providing financial services to the Korea Mining Development Trading Corp., or KOMID, North Korea’s chief arms dealer.
Kim has established a series of front companies in China, including a Hong Kong firm he opened with a fake ID indicating he was a citizen of South Korea, according to the report. 

He has facilitated millions of dollars in “payments and loans between companies linked to DCB and exchanged large quantities of bulk cash transferred to China from the Democratic Republic of Korea.” 

The report says member states — an obvious reference to China — are obliged to expel Kim and “freeze all property, assets and other economic resources owned or controlled by him.”
The Chinese connection is at the center of an international web that stretches from Angola to Malaysia and the Caribbean and involves a large network of North Korean diplomats, entrepreneurs, smugglers, and foreign facilitators. 

The off-the-books trade includes the export of gold, coal, and rare-earth metals and the sale of rockets, Scud missile parts, government monuments, and high-tech battlefield communications equipment, among other things.
Last year, the panel’s investigations exposed trade in “encrypted military communications, man-portable air-defense systems, and satellite-guided missiles that may involve large teams of the country’s technicians deployed to assemble or service the banned items,” according to the report.
One example of a new niche market: North Korea buys cheap electronics in Hong Kong for a pittance and then turns them into military-grade radios it sells to developing countries for $8,000 a pop.
In July 2016, authorities from an unidentified nation seized an air shipment containing 45 boxes of battlefield radios, and assorted high-tech communications gear, from China to a technology company in Eritrea.
By the standards of North Korea’s multibillion-dollar black-market trade, the Eritrea haul was a drop in the bucket; North Korea earned $1.2 billion in coal sales to China last year. 

But the case provided insights into Pyongyang’s elaborate, and ever evolving, financial scheme to evade U.N. sanctions and stay two steps ahead of the United States and other key powers seeking to thwart North Korea’s illicit trade.
The equipment bore the trademark of Global Communications Co., or Glocom, a Malaysia-based front company for North Korean firm Pan Systems Pyongyang, which operates a network of front companies and agents in Malaysia and China. 

The company also has a branch in Singapore. 

Efforts to reach the company were unsuccessful.
But the head of Pan Systems in Singapore, Louis Low, told Reuters — which first reported on the scheme — that his company set up an office in Pyongyang in 1996 but that it severed relations with North Korea in 2010 and has had no dealings with Glocom. 

He suggested that North Koreans might still be using the company’s name without his agreement.
The mastermind behind the operation is North Korea’s premier intelligence agency, the Reconnaissance General Bureau, which runs Pan Systems and other front companies.
“The global network consisted of individuals, companies and bank accounts in China, Indonesia, Malaysia, Singapore and the Middle East,” the report stated.

Axis of Evil

China is resolutely standing in the way of subduing North Korea
By Amanda Macias 

Xi Jinping has obstinately ignored and thwarted international efforts to confront and defuse North Korea's nuclear ambitions.

WASHINGTON, D.C. — As the world, led by the US and its Asian allies, has tried to confront and defuse North Korea's nuclear ambitions, the Hermit Kingdom's closest ally and the region's most powerful nation has ignored and thwarted international efforts.
"China is part of the problem rather than part of the solution to the North Korean nuclear problem," Bruce Klingner, senior research fellow of Northeast Asia at the Heritage Foundation, told Business Insider.
"Chinese have acted like North Korea's lawyer at the UN Security Council by obstructing more robust international sanctions, denying evidence of North Korean provocations, watering down stronger UN resolutions, and insisting on loopholes," Klingner added.
"China is the reason sanctions against North Korea haven't had much of an effect," Rebeccah Heinrichs, a fellow at the Hudson Institute specializing in nuclear deterrence and missile defense, told Business Insider.
While Pyongyang has already been slammed with heavy sanctions, Klingner explains that the US can use "secondary sanctions to wean Chinese banks and businesses away from economically engaging with North Korea."
"US legal authorities and the centrality of the US dollar to the international financial system gives Washington tremendous leverage. The vast majority of all international financial transactions, including North Korea's, are denominated in dollars and thus must pass through a US Treasury Department-regulated bank in the United States," Klingner told Business Insider.
Meanwhile, the Hermit Kingdom's brazen missile tests continue.

A South Korean soldier watches a TV broadcasting a news report on Seismic activity produced by a suspected North Korean nuclear test, at a railway station in Seoul, South Korea, September 9, 2016.
So far this year, Pyongyang has conducted seven Musudan missile tests. 

The Musudun is speculated to have a range of approximately 1,500 to 2,400 miles, making it capable of targeting military installations in South Korea, Japan, and Guam, according to estimates from the Missile Defense Project.
All Musudan launches except the sixth one on June 22 were considered to be failures.
However, despite a string of unsuccessful missile tests, experts argue that several of Pyongyang's missile programs are closer than ever for deployment. 

'They will get it right sooner or later, so we'd better be ready'
North Korean leader Kim Jung Un in an undated photo released by KCNA.

On October 14, at approximately 10:33 p.m. CDT, the US military detected a unsuccessful North Korean missile test near the northwestern city of Kusŏng.
While the launch of the presumed Musudun intermediate-range ballistic missile failed immediately, "it signals their continued resolve to get this right," Thomas Karako, director of the Missile Defense Project at the Center for Strategic and International Studies, told Business Insider.
"They will get it right sooner or later, so we'd better be ready," Karako added.
Similarly, Heinrichs told Business Insider that North Korean "technology is steadily improving despite intermittent failed tests."
"The main take-away here is not that they are still having problems, the main take-away is that they are absolutely committed to achieving a credible nuclear missile force," Rebeccah Heinrichs, a fellow at the Hudson Institute specializing in nuclear deterrence and missile defense, told Business Insider.
What's more, China is opposed to the bilateral decision between the US and South Korea to deploy America's most advanced missile defense system to the Korean Peninsula.

Mad about THAAD

In order to counter North Korean threats and further defend the region, the US agreed to equip South Korea with a Terminal High Altitude Area Defense (THAAD) battery, America's most advanced and highly mobile missile defense system.

And while negotiations to deploy THAAD to the region have been ongoing since South Korean President Park Geun-hye's October 2015 visit to the White House, North Korea's fourth nuclear bomb test on January 6 and long-range rocket launch on February 7 proved to be catalysts for the deployment.
China argues that since Washington agreed to equip Seoul with the unique missile-defense system, the North's missile tests have expanded and are poised to increase.
Heritage Foundation/Amanda Macias/Business Insider

"They've [China] aided and abetted North Korea for long enough that they have no one to blame but themselves for the missile defenses and other deployments to come," Karako told Business Insider.
And while THAAD's deployment has China peeved, Heinrichs adds that a layered ballistic missile defense system between the US, South Korea, and Japan will "provide a deterrent verse North Korea and will be help absorb an initial missile attack, should deterrence fail."
"Patriot is already deployed to South Korea and it handles the smaller, short-range missiles. THAAD, once deployed, would complement Patriot by providing an upper tier defense," Heinrichs said.
As of now, a THAAD battery is slated to be operational in South Korea by the end of 2017; however, Daniel Russel, assistant secretary of state for East Asia, said the system would be deployed "as soon as possible," Reuters reports.