Front companies keep North Korea afloat
Foreign registered firms with innocuous-sounding names help Pyongyang to dodge sanctions and generate badly needed foreign currency earnings
While punitive sanctions may inhibit North Korea’s ability to trade and access international banking and financial services, Pyongyang has found a convenient way around such obstacles: a string of front companies in East Asia and beyond.
Though staunchly socialist at home, the North Korean government has been quite successful in running capitalist enterprises abroad, ensuring a steady flow of foreign currency into its coffers.
For years, North Korea has run trading companies in China, Hong Kong, Macau, Thailand, Cambodia and Singapore. It is also known to have established arrangements with local entities in the same countries.
Those companies are usually registered under innocuous-sounding names like Great Best Trading, Star Bravo and Golden Star. The majority of the enterprises’ shares are owned by local citizens, while the names of their North Korean partners only appear in difficult to obtain company registration documents.
As legitimately incorporated companies, they can open accounts in local banks, from where funds can be sent around the globe eventually ending up in Pyongyang. Trade can also be done in roundabout ways to circumvent sanctions, Asia Times research shows.
Russia and China in particular are mentioned by international agencies as conduits for North Korea’s front company-facilitated informal trade. Such companies are occasionally identified and publicly recognized by international agencies charged with enforcing the sanctions.
In March 2016, for instance, the South Korean government listed 30 North Korean and foreign organizations as well as 40 individuals that were banned from doing business with any South Korean entity. Among those were Lyou Jen-Yi, the head of Taiwan’s Royal Team Corporation, Soe Min Htike Co of Myanmar and Mariner’s Shipping & Trading of Thailand.
According to a United Nations panel, the Royal Team Corporation is believed to have sold parts that were used in North Korea’s rocket program. Thailand’s Mariner’s Shipping & Trading was already known to have operated vessels associated with Ocean Maritime Management Co, a Pyongyang-headquartered company that was listed by the UN in 2014 for contributing to “activities prohibited by resolutions” that imposed an arms embargo on North Korea.
In February this year, regional security analysts tracked the frequent arrival of North Korean ships loaded with coal at the north Vietnamese port city of Cam Pha, from where coal is normally exported rather than imported. The same analysts suspected that North Korean coal was being shipped to Vietnam and then re-exported as Vietnamese coal to eschew sanctions against Pyongyang fuel exports.
According to a series of UN Security Council resolutions aimed at preventing North Korea from funding its weapons of mass destruction (WMD) programs, exports of coal, iron, lead, textiles and seafood are all banned. The sanctions also include a cap on North Korea’s imports of crude oil and refined petroleum products.
Pyongyang may have expected that sanctions would be lifted or eased after the summit meeting between their leader Kim Jong-un and US President Donald Trump in June in Singapore. But the Trump administration seems determined to maintain the pressure on Pyongyang until it proves it is sincere about giving up its WMD programs.
On August 15, the US government announced new sanctions against three companies and an individual accused of facilitating illegal shipments to North Korea. The US Treasury Department named the China-based Dalian Sun Moon Star International Logistics Trading Co, and its affiliate in Singapore, SINSMS Pte. Ltd. Both were found to have falsified documents to export products to North Korea.
The third entity, Profinet of Russia, and its director Vasili Kolchanov, stand accused of providing fuel services to North Korean shipping vessels to avoid oil-related sanctions.
Of the nine companies that the US Treasury Department sanctioned in February this year for working on Pyongyang’s behalf, two were based in China, one in Singapore, another in Panama and five in Hong Kong.
With this tangled web of front companies, local affiliates and individuals, it is proving almost impossible to prevent North Korea from dealing with the outside world. As soon as one entity is identified and sanctioned, or its actual identity is revealed, the same owners can quickly change the name of their company or set up a new one.
Star Bravo, a Thai company with North Korean shareholders, for instance, used to be known as Kotha Supply Trading. North Korean trading companies in Singapore and Hong Kong change names regularly as well, Asia Times research shows.
North Korea embarked in earnest on its overseas capitalist ventures when the country was hit by a severe crisis in the late 1980’s caused by the disruption in trading ties with former communist allies. Most devastatingly, both the Soviet Union in 1990 and China in 1993 began to demand that North Korea pay standard international prices for goods and in hard currency rather than barter.
North Korea’s first overseas commercial enterprises actually predate both of those events. As early as 1974, North Korea established a company called Zokwang Trading in the then Portuguese enclave of Macau.
Following several scandals, including the involvement in distributing counterfeit US dollar bills and illegal technology transfers, Zokwang moved across the border to Zhuhai in China’s Guangdong province in 2006.
By the early 2000s, Thailand had overtaken Macau as a center for North Korea’s commercial activities and bilateral trade between the two countries boomed. But it now appears that Hong Kong is the new hub as Thailand has rolled back ties under US and Japanese pressure.
Pyongyang-linked companies in the former British colony, now like Macau a Special Administrative Region of China, play important roles in keeping the North Korean economy afloat despite the new raft of US and UN sanctions.
There are more than a dozen such companies in Hong Kong which follow the usual pattern of registration and dissolution, only to later reappear under a different name.
The fact that North Korea’s regime is not only surviving under the sanctions, but that the capital Pyongyang is now in the midst of a building boom, would appear to prove the futility of using punitive trade measures to bring North Korea to heel on its WMD program.
Indeed, North Korea’s capitalist entrepreneurs and their regional partners are proving as adept as ever at evading and outsmarting UN and US sanctions through the well-worn practice of using front companies to hide their tracks and trade.