N Koreans have cut counterfeit deals in the city, with payments made via Bank of China subsidiary
US authorities are preparing to seize more than US$2.67 million from Hong Kong bank (SEHK: 0005, announcements, news) accounts linked to trade in North Korean counterfeit US 'supernotes' and cigarette smuggling.
The money is frozen in three accounts belonging to an unemployed mainland migrant, Kwok Hiu Ha, at the Lai Chi Kok Road branch of Chiyu Banking, a subsidiary of Bank of China Hong Kong, US court documents obtained by the Sunday Morning Post (SEHK: 0583, announcements, news) show.
The funds are believed to be the first known link between Hong Kong's open banking system and what US authorities fear is a growing underground trade in the high-quality supernotes, minted on North Korean state-run presses.
US diplomatic pressure is intensifying over the trade - one of the reasons cited for recent sanctions against Pyongyang and US Treasury Department action against Macau's Banco Delta Asia last year.
FBI officials last week met Hong Kong police financial investigators and warned them the existence of the counterfeit notes was now considered a matter of urgent national security. They fear the trade poses a significant economic threat to the United States.
'This case shows that Hong Kong cannot think itself immune from North Korea's criminal activities, despite all the money-laundering protections that it shouts about,' one investigation source said. 'Washington is now sending a clear message - this is getting very hot and it is time to get your heads out of the sand.'
Ms Kwok could not be contacted, but US government sources said the Department of Justice would soon be proceeding with legal action to seize the funds. It is understood she has been interviewed but was not arrested. Court documents state Ms Kwok was a registered money remitter in Hong Kong. She later told investigators she was unemployed and had recently arrived in Hong Kong from the mainland.
The department had the money frozen a year ago after lengthy undercover investigations that emerged from private tobacco company action against counterfeit cigarette operations, US court documents show.
The US Secret Service was alerted after a private investigator posing as a member of an Eastern European crime syndicate was offered counterfeit notes and drugs as well as cigarettes in meetings with two Taiwanese men and an Australian-Chinese man based in Xiamen .
Between late 2002 and July 2004, the trio met the private investigator several times in hotels in Hong Kong, Macau and southern mainland provinces. The investigator and secret service agents handed over cash deposits for fake notes and cigarette shipments. Both the deposits and principal amounts were later wired to Ms Kwok's accounts in Hong Kong.
'It was made crystal clear that the notes were coming from North Korea,' one source close to the investigation said. 'That has proved to be a very important key to the wider investigations.'
At one point, the investigators paid US$140,000 for US$200,000 in fake notes. The gang eventually handed over $220,000 in $100 and $50 notes. The trio were eventually arrested in Saipan in July 2004. They pleaded guilty in US courts and were sentenced to between four and five years in jail.
The police and Bank of China Hong Kong officials refused to comment in detail. A BOCHK (SEHK: 2388) spokeswoman said the bank and its subsidiaries had high standards in place to combat suspicious transactions.
'All such cases have been reported and we continue to do so,' the spokeswoman said. 'Under these systems, we are extremely vigilant in our day-to-day operation over possible illegal activities, including money laundering.'
The Monetary Authority refused to acknowledge the existence in Hong Kong of funds linked to North Korea criminal trades. 'Hong Kong is an international financial centre with no control on capital flows,' a spokesman said. 'We have, however, put in place proper systems and controls to guard against the risk of money laundering.'
