Liaoning Hongxiang singled out

At a time when Washington is cracking down on Pyongyang’s overseas earnings to hinder its development of weapons of mass destruction, a recent report identified there were 562 ships, companies or individuals “within one degree of separation” of known North Korean illicit and regime entities.

The report, released on Monday by the Seoul-based Asan Institute for Policy Studies and the Washington-based Center for Advanced Defense Studies (C4ADS), also uncovered that one such Chinese trading conglomerate, Liaoning Hongxiang Group, has conducted over $500 million in trade with North Korea in the past five years.

This includes shipping to North Korea so-called “dual-use” goods, such as aluminum oxide, which can have both civilian and nuclear-weapons development uses. It added that Liaoning Hongxiang Group’s subsidiary and affiliated entities transacted an additional $300 million with sanctioned Burmese and North Korean entities.

The report, titled “In China’s Shadow: Exposing North Korean Overseas Networks,” is the result of a six-month study by Asan and C4ADS that traced North Korea’s overseas networks through corporate registries, court filings, Equasis maritime database records, customs and trade data provided by customs trade data aggregator Panjiva and real time data on ship activities tracked by maritime data and the analytics platform Windward.

The study began with an initial database of 39 North Korea-linked ships. Through identifying the corporate registry filings of companies for the ships, leading to the identification of the directors and shareholders of the companies, the list expanded to a final dataset of 562 entities, including 147 ships, 167 individuals and 248 companies.

Of the 248 companies, 160 were found to be registered in Hong Kong, and many appeared to be shell companies, it added.

The report further described companies associated with Liaoning Hongxiang Group as providing services that are critical to North Korea’s underlying cyber architecture “with possible military and regime applicability.”

Ma Xiaohong is the Chinese national chairwoman of the Liaoning Hongxiang Group, which has six affiliated companies that are involved in areas including industrial trade, hotel management and consultant services.

Its Chilbosan Hotel and the Pyongyang, or Liujing, Restaurant are both Sino-North Korean joint venture projects. The Chilbosan Hotel in Shenyang is alleged to be the staging area for the notorious secret network of elite North Korean hackers known as Bureau 121. Industrial machinery and equipment wholesaler Dandong Hongxiang Industrial Development Group, the largest of the six subsidiaries, according to the report, “sold products that could qualify as potential military and nuclear dual use products under the U.S. Department of Commerce Bureau of Industry and Security export restrictions.”

Dandong Hongxiang engaged in $532 million worth of trade with North Korea from 2011 to 2015, importing some $360 million of goods from the North and exporting the rest, according to this report.

“Trade at this volume is of particular note,” it pointed out. “By one estimate, this amount would have been almost enough to both fund North Korea’s uranium enrichment facilities and design, make and test its nuclear weapons.”

The report described Pyongyang’s overseas networks as “a lifeline” for North Korean leader Kim Jong-un’s regime, but that “they also represent a key point of vulnerability.”

Unlike entities located inside North Korea, its overseas networks, according to the report “are relatively unprotected, and are vulnerable to international financial and regulatory pressure.”

The UN Security Council Resolution 2270, adopted in March to impose the strongest-ever sanctions on North Korea, “attempts to capitalize on this vulnerability,” it added.

As North Korea “grows increasingly dependent on its overseas networks, it creates an opportunity for the international community to leverage their financial intelligence tools to squeeze the regime’s illicit activity,” it continued. The report urged for greater and better enforced sanctions on North Korea and called for Beijing to apply its commercial law against suspicious Chinese entities involved with North Korea’s violations of Resolution 2270.

The Wall Street Journal reported on Monday that China and the United States are targeting the finances of Hongxiang Industrial, which the Obama administration thinks has a role in assisting North Korea’s nuclear program.

Chinese police allegedly began investigating the company in Liaoning, northeastern China, on Thursday for “serious economic crimes,” and authorities froze some assets of its top executive, Ma Xiaohong. Citing U.S. officials, it also said prosecutors from the U.S. Department of Justice visited Beijing twice last month to alert Chinese officials about alleged criminal activities by the company and Ma.

BY SARAH KIM [kim.sarah@joongang.co.kr]