[On Aug. 3, a federal judge in New Jersey signed a sealed indictment against Ms. Ma, her company and three of her colleagues, charges that were made public on Monday. Justice Department officials traveled to Beijing to alert Chinese officials to the activity, and this month the Chinese police opened their own criminal investigation into the company, which is based in Dandong, a Chinese city across the Yalu River from North Korea.]
By Michael Forsythe
From Dandong, in northeast China, one can see the North Korean town of Sinuiju
across the Yalu River. The countries are joined by the China-North Korea
Friendship Bridge. Credit Greg Baker/Agence France-Presse — Getty Images
HONG KONG — The United States Justice Department has filed criminal charges against a Chinese executive, accusing her, the company she owns and several of her colleagues of violating American sanctions meant to choke off funding to North Korean companies that help Pyongyang develop nuclear weapons.
Ma Xiaohong, 44, is the owner of Dandong Hongxiang Industrial Development Company, a trading company that in one year, according to United States officials, handled more than one-fifth of the commerce between North Korea and China. She and her colleagues worked with Kwangson Banking, a North Korean bank that has been the subject of American sanctions for years, to set up shell companies in Hong Kong and offshore tax havens to disguise the activity, the Justice Department said in a statement released Monday.
On Aug. 3, a federal judge in New Jersey signed a sealed indictment against Ms. Ma, her company and three of her colleagues, charges that were made public on Monday. Justice Department officials traveled to Beijing to alert Chinese officials to the activity, and this month the Chinese police opened their own criminal investigation into the company, which is based in Dandong, a Chinese city across the Yalu River from North Korea.
Last week, researchers in South Korea and the United States published a report that said Dandong Hongxiang exported materials to North Korea that included aluminum oxide, which can be used in the production of nuclear weapons. China is North Korea’s largest trading partner.
In addition to the criminal charges against Ms. Ma and her colleagues, the Justice Department, in a separate civil suit, is seeking to seize funds in 25 Chinese bank accounts that it says were used by Dandong Hongxiang and its front companies.
The shell companies set up by Dandong Hongxiang, stretching from Hong Kong to the Seychelles in the Indian Ocean to the British Virgin Islands in the Caribbean, were used to register bank accounts in China, hiding the North Korean origin of the funds and hence engaging in money laundering, the United States charged. In some instances, those banks dealt with American lenders, so-called correspondent banks, to help facilitate dollar-denominated transactions, the Justice Department said.
The United States and Chinese banks involved are not being accused of wrongdoing, the department said in the statement.
“The charges unsealed today reflect our nation’s commitment to using all tools to deter and disrupt weapons of mass destruction proliferators,” John P. Carlin, the assistant attorney general for national security, said in the statement. “One of the strengths of our sanctions programs is they prevent sanctioned wrongdoers from engaging in U.S. dollar transactions.”
But the sanctions against the North Korean bank, announced in 2009, did not stop Dandong Hongxiang from disguising their business for seven years, the United States alleges. Some of the paperwork that Ms. Ma and her colleagues filed to set up shell companies is contained in the Panama Papers, the massive trove of leaked records about offshore companies that was made public this year by the Washington-based International Consortium of Investigative Journalists.
Mossack Fonseca, the Panamanian law firm whose files were leaked, helped set up some of Dandong Hongxiang’s shell companies, and the documents show that at least in one instance, it appeared to do little to comply with rules that even lax offshore jurisdictions set up to help prevent money laundering.
Those documents show that in May 2011, two years after Ms. Ma set up her joint-venture company with the North Korean bank, she registered a shell company in the Seychelles, the Indian Ocean island nation that in recent years has become a haven for money laundering because of its corporate secrecy rules.
The dozens of leaked internal emails about the shell company, Sky Bright Development, do not reveal its purpose, but such shells can be used to hold stakes in other companies or to set up bank accounts that are extremely difficult to trace. The registration was facilitated by Mossack Fonseca, which specializes in setting up offshore companies for clients around the world, and whose biggest market is China.
Mossack Fonseca conducted a search to find out whether Ms. Ma had any criminal background or was a “politically exposed person,” or P.E.P. — usually an individual with a government post, or a relative of such a person. Seychelles requires extra scrutiny when such people set up offshore companies, including efforts to verify the source of the company’s funds, because of the possibility that they are doing so to conceal corruption.
In this case, an online search conducted by Mossack Fonseca determined that Ms. Ma was in fact a P.E.P., showing in its first result that she was a lawmaker in her home province of Liaoning in China, according to the leaked records. Yet Mossack Fonseca’s own internal records subsequently indicated that Ms. Ma had not been designated a politically exposed person.
Representatives at Mossack Fonseca’s Hong Kong and Seychelles offices did not respond to an email seeking comment, and no one at Dandong Hongxiang answered a phone call made during working hours on Tuesday.
Follow Michael Forsythe on Twitter @PekingMike.