US should fine Chinese banks that support Pyongyang, former US official says
Fines instead of sanctions would spare the US-China investment and trade relationship from harm, former US Treasury official Anthony Ruggiero said
The US could impose billions of dollars in regulatory fines against large Chinese banks that fail to limit alleged financial ties with North Korea and its nuclear and missile programmes, a former US Treasury official said on Thursday.
The US would use the fines as a bargaining chip to press Beijing to do more on its own to halt Pyongyang’s nuclear ambitions, instead of enacting economic sanctions to freeze the banks’ assets or cut them off from the American market – moves that would certainly harm US-China investment and trade relations.
Anthony Ruggiero, a former director at the US Treasury’s Office of Terrorist Financing and Financial Crimes, told a think tank event in Washington on Thursday that the US government could declare Chinese banks’ compliance procedures are “not appropriate”, causing them to be hit by “significant” billions of dollars in fines.
“The [US’s] next logical step would be going after Chinese banks if they are not cooperating now,” said Ruggiero, now a senior fellow at the Foundation for Defence of Democracies, a non-profit, non-partisan organisation focusing on US foreign policy and national security. Ordering the banks to forfeit large amounts of money in regulatory “can work ... and get people’s attention,” he said.
Ruggiero’s comment came after the US Treasury on Tuesday sanctioned 16 Chinese and Russian companies and nationals for their alleged support of North Korea’s nuclear and ballistic missile programmes, energy trade, labour exports and sanctions evasion.
“Treasury will continue to increase pressure on North Korea by targeting those who support the advancement of nuclear and ballistic missile programmes, and isolating them from the American financial system,” said US Treasury Secretary Steven Mnuchin in a statement.
No Chinese banks were designated in Tuesday’s sanction list. “These are sanctions closely linked to UN Security Council resolutions that China supported,” said Adam Mount, a nuclear security expert at the Washington-based Centre for American Progress, in an exchange with the South China Morning Post. “Not broad secondary sanctions against Chinese banks. Beijing would resist the latter,” Mount added.
“They [the US government] are not jumping to the most extreme measures [to sanction large Chinese banks]. They are stepping along the way, moving up the ladder,” Ruggiero told the Post at the think tank event.
So far, the US has sanctioned only one Chinese bank – Bank of Dandong – for its alleged money laundering for Pyongyang in late June, one week after the first Diplomatic and Security Dialogue between China and the US in Washington. Ruggiero called Bank of Dandong, which has been in the process of being cut off from the US, “a small” one. “There is more [banks] to come, probably,” he said.
There is precedent for using regulatory fines in place of sanctions. In May 2015, the US Justice Department imposed a record penalty of US$8.9 billion against BNP Paribas, a global French bank, after it violated US economic sanctions against Iran, Cuba and Sudan.
Using such an approach against banks is “the most efficient,” Ruggiero argued. He said it would state clearly that the banks are not doing enough to stop North Korean transactions, without harming the bilateral relationship through freezing assets or cutting the banks off from the US financial system.
Some large Chinese banks have been identified by the US government as conducting transactions with North Korea. Knowing the banks’ identities and that they fear losing their market share in the US could give the US leverage in its effort to put pressure on Beijing.
In late September 2016, the US Department of Justice filed a criminal complaint accusing a Chinese national, Ma Xiaohong, and her company, Dandong Hongxiang Industrial Development Co, and three executives of conspiring to violate US sanctions law and carry out money laundering, according to various US media reports.
In a separate civil suit, the US Justice Department also sought to seize funds in 25 Chinese bank accounts that it said were used by Dandong Hongxiang and its “front” companies. Those bank accounts were at several big Chinese banks, including China Merchants Bank, Shanghai Pudong Development Bank and the Industrial and Commercial Bank of China, Financial Times reported.
However, Jonathan Pollack, the chair in Korea studies at the Brookings Institute, questioned the validity of Ruggiero’s claims. There are “a lot of controversies” associated with the effort to sanction or fine Chinese banks with alleged ties to North Korea’s nuclear weapon programme, Pollack said in an interview at the event following Ruggiero’s remarks.
Although “there is an implication that China should be able to control all of these activities”, the question is “how much this has been going on without even the central authority in Beijing being fully mindful of” it, Pollack said. “We tend to think Beijing is all-knowing.”
Pollack said he would “argue that North Korea has much incentive to diversify [their business to other countries]. They do already – rather than focus so much of their interest on just dealing with China,” he said.
China has strongly and consistently opposed the US’s unilateral actions against Chinese companies and nationals, criticising Washington for operating outside the UN Security Council framework.
In a response to the US Treasury’s sanctions on Tuesday, China’s embassy in Washington said: “We strongly urge the US to immediately correct its mistake, so as not to affect bilateral cooperation on relevant issues.
“China faithfully implements UN Security Council resolutions on the DPRK in their entirety, and fully observes its international obligations.” If any Chinese companies or individuals are suspected of violating Security Council resolutions, the embassy said, “they will be investigated and treated in accordance with China’s domestic laws and regulations”.