Four Chinese nationals, company charged with conspiracy to defraud US, evade sanctions

NEWARK –  A federal grand jury has charged four Chinese nationals and a Chinese company with violating the International Emergency Economic Powers Act (IEEPA), conspiracy to violate IEEPA and to defraud the United States; conspiracy to violate, evade and avoid restrictions of the Weapons of Mass Destruction Proliferators Regulations (WMDPR); and conspiracy to launder monetary instruments, U.S. Attorney Craig Carpenito for the District of New Jersey, Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, and Assistant Attorney General John C. Demers of the Justice Department’s National Security Division said in a release on Tuesday.

The indictment returned Monday by a federal grand jury in Newark charges Ma Xiaohong; her company, Dandong Hongxiang Industrial Development Co. Ltd. (DHID); and three of DHID’s top executives – general manager Zhou Jianshu, deputy general manager Hong Jinhua and financial manager Luo Chuanxu (Luo) – with violating IEEPA, conspiracy to violate IEEPA and to defraud the United States; and conspiracy to launder monetary instruments.

According to the indictment, DHID is primarily owned by Ma and is located near the North Korean border. DHID allegedly openly worked with North Korea-based Korea Kwangson Banking Corporation (KKBC) prior to Aug. 11, 2009, when the Office of Foreign Assets Control (OFAC) designated KKBC as a Specially Designated National (SDN) for providing U.S. dollar financial services for two other North Korean entities, Tanchon Commercial Bank (Tanchon) and Korea Hyoksin Trading Corporation (Hyoksin). President George W. Bush identified Tanchon as a weapons of mass destruction proliferator in June 2005, and OFAC designated Hyoksin as an SDN under the WMDPSR in July 2009. Tanchon and Hyoksin were so identified and designated because of their ties to Korea Mining Development Trading Company (KOMID), which OFAC has described as North Korea’s premier arms dealer and main exporter of goods and equipment related to ballistic missiles and conventional weapons.

Beginning after the designation of KKBC as an SDN in August 2009, Ma allegedly conspired with Zhou, Hong and Luo to create or acquire numerous front companies to conduct U.S. dollar transactions designed to evade U.S. sanctions.

The indictment alleges that from December 2009 to September 2015, DHID used these front companies, established in offshore jurisdictions such as the British Virgin Islands, the Seychelles, Hong Kong, Wales, England, and Anguilla, and opened Chinese bank accounts to conduct U.S. dollar financial transactions through the U.S. banking system when completing sales to North Korea. These sales transactions were allegedly financed or guaranteed by KKBC. These front companies facilitated the financial transactions to hide KKBC’s presence from correspondent banks in the United States, including a bank processing center in Newark, New Jersey, according to the allegations in the indictment. As a result of the defendants’ alleged scheme, KKBC was able to cause financial transactions in U.S. dollars to transit through the U.S. correspondent banks without being detected by the banks and, thus, were not blocked under the WMDPSR program, the release said. 

“Ma, her company, and her employees tried to defraud the United States by evading sanctions restrictions and doing business with proliferators of weapons of mass destruction,” Carpenito said. “We will continue to work closely with our partners in the National Security and Criminal Divisions in order to identify and prosecute defendants like these, in order to preserve a safer and more fair environment for all.”

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“Through the use of more than 20 front companies, the defendants are alleged to have sought to obscure illicit financial dealings on behalf of sanctioned North Korean entities that were involved in the proliferation of weapons of mass destruction,” Demers said. “But through the tireless efforts of federal law enforcement, we were able to shine a light on their lawless conduct and take the first step in bringing them to justice.”

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“Any Chinese company conspiring to do business with sanctioned WMD proliferators through the U.S. banking system should think twice,” Benczkowski said. “This indictment shows the Department’s resolve to use every tool of criminal prosecution to detect illicit financial transactions and enforce U.S. sanctions.”

Ma, Zhou, Hong and Luo face a maximum of 20 years imprisonment and a $1 million fine on the charge of violating IEEPA, a maximum of 5 years imprisonment and a $250,000 fine on conspiracy to violate IEEPA and to defraud the United States, and a maximum of 20 years imprisonment and a $500,000 fine on the charge of conspiracy to launder monetary instruments, the release said.

Susan Loyer covers Middlesex County and more for the USA TODAY NETWORK New Jersey. Contact her at 732-565-7243 or sloyer@gannettnj.com.