China Guangfa Bank, the mainland lender part-owned by Citigroup, had a banking relationship with the North Korean government's main arms dealer as recently as 2009, a US diplomatic cable released by Wikileaks alleges.
Washington had 'specific information' suggesting Guangfa was doing business with an entity named Global Trading and Technology, which was a front for Korea Mining Development Trading Corporation (KOMID), said the July 2009 cable.
According to the US Treasury, KOMID is Pyongyang's main exporter of goods related to ballistic missiles and conventional weapons; it has supplied arms to Iran and Syria.
Citigroup and Guangfa, previously called Guangdong Development Bank, did not return e-mails seeking comment.
Guangfa is reportedly planning a US$5 billion Hong Kong and Shanghai IPO this year or next.
Although there is no guarantee the claims made in the US cable are true, the question of whether Guangfa still does business with North Korean entities may be raised by Western investment funds as they consider participating in the Hong Kong stock sale.
The cable, issued by the US Consulate in Hong Kong, was an account of a conversation between Stuart Levey, US Treasury undersecretary for terrorism and financial intelligence, and Guangfa's former president Michael Zink, who now runs Citigroup's operations in Singapore.
Beijing, a key Pyongyang ally, might be encouraging mainland banks to take on North Korean customers in spite of suspected illicit activity, Levey said, according to the cable.
Zink admitted Guangfa's 'wide branch network may have been used by North Korean entities, but promised to take action to prevent his bank's exposure to North Korean accounts', the cable said.
Zink also insisted Guangfa 'would sever any ties with such customers', the cable continued.
Washington has been attempting to squeeze Pyongyang's access to banks outside North Korea for several years.
In 2005, the US government almost closed down Macau's Banco Delta Asia by announcing that the small family-owned bank was a 'willing pawn' in North Korean money-laundering. Local account holders withdrew more than US$130 million in one day, and government receivers in Macau temporarily took control of the institution, which is now back in the hands of its shareholders.
Citigroup led a consortium that spent US$3.6 billion on 85 per cent of Guangfa in December 2006. The other consortium members were International Business Machines (IBM), Citic Group, and China Life Insurance.
A spokesman for the US Consulate in Hong Kong declined to comment.
The annual value, in US dollars, of North Korean exports of missiles and weapons, according to a 2010 report commissioned by the UN