[Federal Register Volume 81, Number 106 (Thursday, June 2, 2016)]
[Notices]
[Pages 35441-35446]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-13038]


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DEPARTMENT OF THE TREASURY

Financial Crimes Enforcement Network


Finding That the Democratic People's Republic of Korea Is a 
Jurisdiction of Primary Money Laundering Concern

AGENCY: The Financial Crimes Enforcement Network (``FinCEN''), 
Treasury.

ACTION: Notice of finding.

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SUMMARY: This document provides notice that, pursuant to the authority 
contained in the USA PATRIOT Act, the Director of FinCEN found on May 
27, 2016 that reasonable grounds exist for concluding that the 
Democratic People's Republic of Korea (``DPRK'' or ``North Korea'') is 
a jurisdiction of primary money laundering concern.

FOR FURTHER INFORMATION CONTACT: FinCEN, (800) 949-2732.

SUPPLEMENTARY INFORMATION:

I. Background

A. Statutory Provisions

    On October 26, 2001, the President signed into law the Uniting and 
Strengthening America by Providing Appropriate Tools Required to 
Intercept and Obstruct Terrorism Act of 2001 (the ``USA PATRIOT Act''), 
Public Law 107-56. Title III of the USA PATRIOT Act amends the anti-
money laundering provisions of the Bank Secrecy Act (``BSA''), codified 
at 12 U.S.C. 1829b, 12 U.S.C 1951-1959, and 31 U.S.C. 5311-5314 and 
5316-5332, to promote prevention, detection, and prosecution of 
international money laundering and the financing of terrorism. 
Regulations implementing the BSA appear at 31 CFR Chapter X.
    Section 311 of the USA PATRIOT Act (``Section 311'') added 31 
U.S.C. 5318A to the BSA, granting the Secretary of the Treasury (the 
``Secretary'') the authority, upon finding that reasonable grounds 
exist for concluding that a foreign jurisdiction, institution, class of 
transactions, or type of account is of ``primary money laundering 
concern,'' to require domestic financial institutions and financial 
agencies to take certain ``special measures'' against the primary money 
laundering concern. Section 311 identifies factors for the Secretary to 
consider and requires Federal agencies to consult before the Secretary 
may conclude that a jurisdiction, institution, class of transaction, or 
type of account is of primary money laundering concern. The statute 
also provides similar procedures, i.e., factors and consultation 
requirements, for selecting the specific special measures to be imposed 
against the primary money laundering concern. For purposes of the 
finding contained in this notice, the Secretary has delegated his 
authority under Section 311 to the Director of FinCEN.\1\
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    \1\ Therefore, references to the authority and findings of the 
Secretary in this document apply equally to the Director of FinCEN.
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    Taken as a whole, Section 311 provides the Secretary with a range 
of options that can be adapted to target specific money laundering and 
terrorist financing concerns most effectively. Through the imposition 
of various special measures, the Secretary can gain more information 
about the jurisdictions, institutions, transactions, or accounts of 
concern; can more effectively monitor the respective jurisdictions, 
institutions, transactions, or accounts; or can prohibit U.S. financial 
institutions from involvement with jurisdictions, institutions, 
transactions, or accounts that pose a money laundering concern.
    Before making a finding that reasonable grounds exist for 
concluding that a jurisdiction is of primary money laundering concern, 
the Secretary is required to consult with both the Secretary of State 
and the Attorney General. The Secretary is also required by Section 
311, as amended,\2\ to consider ``such information as the Secretary 
determines to be relevant, including the following potentially relevant 
factors,'' which extend the Secretary's consideration beyond 
traditional money laundering concerns to issues involving, inter alia, 
terrorist financing and the proliferation of weapons of mass 
destruction (``WMD'') or missiles:
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    \2\ 31 U.S.C. 5318A was amended by section 501 of the Iran 
Freedom Support Act of 2006, Public Law 109-293.
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     Evidence that organized criminal groups, international 
terrorists, or entities involved in the proliferation of WMD or 
missiles, have transacted business in that jurisdiction;
     The extent to which that jurisdiction or financial 
institutions operating in that jurisdiction offer bank secrecy or 
special regulatory advantages to nonresidents or nondomiciliaries of 
that jurisdiction;
     The substance and quality of administration of the bank 
supervisory and counter- money laundering laws of that jurisdiction;
     The relationship between the volume of financial 
transactions occurring in that jurisdiction and the size of the economy 
of the jurisdiction;
     The extent to which that jurisdiction is characterized as 
an offshore banking or secrecy haven by

[[Page 35442]]

credible international organizations or multilateral expert groups;
     Whether the United States has a mutual legal assistance 
treaty with that jurisdiction, and the experience of U.S. law 
enforcement officials and regulatory officials in obtaining information 
about transactions originating in or routed through or to such 
jurisdiction; and
     The extent to which that jurisdiction is characterized by 
high levels of official or institutional corruption.
    If the Secretary determines that reasonable grounds exist for 
concluding that a jurisdiction is of primary money laundering concern, 
the Secretary is authorized to impose one or more of the special 
measures in Section 311 to address the specific money laundering risks. 
Section 311 provides a range of special measures that can be imposed 
individually, jointly, and in any sequence.\3\ Before imposing special 
measures, the statute requires the Secretary to consult with 
appropriate federal agencies and other interested parties \4\ and to 
consider the following specific factors:
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    \3\ Available special measures include requiring: (1) 
Recordkeeping and reporting of certain financial transactions; (2) 
collection of information relating to beneficial ownership; (3) 
collection of information relating to certain payable-through 
accounts; (4) collection of information relating to certain 
correspondent accounts; and (5) prohibition or conditions on the 
opening or maintaining of correspondent or payable-through accounts. 
31 U.S.C. 5318A(b)(1)-(5).
    \4\ Section 5318A(a)(4)(A) requires the Secretary to consult 
with the Chairman of the Board of Governors of the Federal Reserve 
System, any other appropriate Federal banking agency, the Secretary 
of State, the Securities and Exchange Commission (``SEC''), the 
Commodity Futures Trading Commission (``CFTC''), the National Credit 
Union Administration (``NCUA''), and, in the sole discretion of the 
Secretary, ``such other agencies and interested parties as the 
Secretary may find to be appropriate.'' The consultation process 
must also include the Attorney General if the Secretary is 
considering prohibiting or imposing conditions on domestic financial 
institutions opening or maintaining correspondent account 
relationships with the targeted entity.
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     Whether similar action has been or is being taken by other 
nations or multilateral groups;
     Whether the imposition of any particular special measures 
would create significant competitive disadvantage, including any undue 
cost or burden associated with compliance, for financial institutions 
organized or licensed in the United States;
     The extent to which the action or the timing of the action 
would have a significant adverse systemic impact on the international 
payment, clearance, and settlement system, or on legitimate business 
activities involving the particular jurisdiction; and
     The effect of the action on U.S. national security and 
foreign policy.

B. Democratic People's Republic of Korea

    As set out in detail below, North Korea continues to advance its 
nuclear and ballistic missile programs in violation of international 
treaties, international censure and sanctions measures, and U.S. law. 
North Korea does this using an extensive overseas network of front 
companies, shell companies, joint ventures, and opaque business 
relationships. North Korea conducts almost no banking in true name in 
the formal financial system given that many of its outward facing 
agencies and financial institutions have been sanctioned by the United 
States, the United Nations, or both.
    While none of North Korea's financial institutions maintain 
correspondent accounts with U.S. financial institutions,\5\ North Korea 
does have access to the U.S. financial system through a system of front 
companies, business arrangements, and representatives that obfuscate 
the true originator, beneficiary, and purpose of transactions. We 
assess that these deceptive practices have allowed millions of U.S. 
dollars of DPRK illicit activity to flow through U.S. correspondent 
accounts.
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    \5\ Bankers Almanac, accessed February 12, 2016.
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    Moreover, although U.S. and international sanctions have served to 
significantly isolate North Korean banks from the international 
financial system, the North Korean government continues to access the 
international financial system to support its WMD and conventional 
weapons programs. This is made possible through its use of aliases, 
agents, foreign individuals in multiple jurisdictions, and a long-
standing network of front companies and North Korean embassy personnel 
which support illicit activities through banking, bulk cash, and trade. 
Front company transactions originating in foreign-based banks have been 
processed through correspondent bank accounts in the United States and 
Europe. Further, the enhanced due diligence required by United Nations 
Security Council Resolutions (UNSCRs) related to North Korea is 
undermined by North Korean-linked front companies, which are often 
registered by non-North Korean citizens, and which conceal their 
activity through the use of indirect payment methods and circuitous 
transactions disassociated from the movement of goods or services.\6\
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    \6\ See ``Report of the Panel of Experts established pursuant to 
resolution 1874 (2009),'' February, 2016.
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    The Treaty on the Non-Proliferation of Nuclear Weapons and the 
International Atomic Energy Agency Safeguards Agreement work together 
to prevent the development of nuclear weapons and promote the peaceful 
use of nuclear energy. Although North Korea acceded to the Treaty on 
the Non-Proliferation of Nuclear Weapons (``NPT'') in 1985, it withdrew 
from the Treaty in 2003. Subsequently, North Korea demonstrated its 
nuclear weapons capacity with nuclear tests in 2006, 2009, 2013, and 
2016.\7\
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    \7\ See ``IAEA and DPRK: Chronology of Key Events,'' (https://www.iaea.org/newscenter/focus/dprk/chronology-of-key-events).
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    Since 2005, North Korea has been sanctioned repeatedly for its 
proliferation of WMD and the development of nuclear and ballistic 
missile programs. Between June 2006 and 2016, the United Nations (UN) 
Security Council issued five UNSCRs--1718, 1874, 2087, 2094, and 2270--
restricting North Korea's financial and operational activities related 
to its nuclear and missile programs and conventional arms sales.\8\ In 
addition, the President of the United States has issued Executive 
Orders (``E.O.s'') 13466, 13551, 13570, 13687, and 13722 to impose 
sanctions on North Korea pursuant to the International Emergency 
Economic Powers Act, and the Department of the Treasury has designated 
North Korea targets for asset freezes pursuant to other E.O.s, such as 
E.O. 13382, which targets WMD proliferators worldwide. A designation 
under any one of the targeting E.O.s generally blocks the property and 
interests in property in the United States or in the possession or 
control of a U.S. person of a designated person, and prohibits U.S. 
persons from engaging in transactions with, or dealing in property 
interests of, a designated person.
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    \8\ See UNSCR 1718 (http://www.un.org/en/ga/search/view_doc.asp?symbol=S/RES/1718(2006)); UNSCR 1874 (http://www.un.org/en/ga/search/view_doc.asp?symbol=S/RES/1874(2009)); UNSCR 
2087 (http://www.un.org/en/ga/search/view_doc.asp?symbol=S/RES/2087(2013)); UNSCR 2094 (http://www.un.org/en/ga/search/view_doc.asp?symbol=S/RES/2094(2013)); UNSCR 2270 (http://www.un.org/en/ga/search/view_doc.asp?symbol=S/RES/2270(2016)).
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    On June 28, 2005, the President issued E.O. 13382, ``Blocking 
Property of Weapons of Mass Destruction Proliferators and Their 
Supporters,'' which orders certain measures to be taken to address the 
threat posed to the United States by the proliferation of

[[Page 35443]]

WMD and their means of delivery.\9\ The following two North Korean 
entities were sanctioned in the Annex to E.O. 13382: Korea Mining 
Development Trading Corporation (KOMID), North Korea's primary arms 
exporter; and Tanchon Commercial Bank (TCB), the financial arm of 
KOMID. As noted further below, additional North Korean financial 
institutions, including Korea Kwangson Banking Corporation (KKBC), 
Foreign Trade Bank (FTB), and Daedong Credit Bank (DCB), were 
subsequently designated pursuant to E.O. 13382.
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    \9\ See E.O. 13382 ``Blocking Property of Weapons of Mass 
Destruction Proliferators and Their Supporters,'' (2005) (https://www.federalregister.gov/articles/2005/07/01/05-13214/blocking-property-of-weapons-of-mass-destruction-proliferators-and-their-supporters).
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    On June 26, 2008, the President issued E.O. 13466, ``Continuing 
Certain Restrictions With Respect to North Korea and North Korean 
Nationals,'' declaring a national emergency to deal with the unusual 
and extraordinary threat to the national security and foreign policy of 
the United States constituted by the existence and risk of the 
proliferation of weapons-usable fissile material on the Korean 
peninsula.\10\
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    \10\ See E.O. 13466 ``Continuing Certain Restrictions With 
Respect to North Korea and North Korean Nationals,'' (2008) (https://www.federalregister.gov/articles/2008/06/27/08-1399/continuing-certain-restrictions-with-respect-to-north-korea-and-north-korean-nationals).
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    On August 30, 2010, the President issued E.O. 13551, ``Blocking 
Property of Certain Persons with Respect to North Korea,'' which 
authorized asset blockings against those determined, among other 
things, to have engaged in the importation or exportation of North 
Korean arms or the exportation to North Korea of luxury goods.\11\
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    \11\ See E.O. 13551 ``Blocking Property of Certain Persons with 
Respect to North Korea,'' (2010) (https://www.gpo.gov/fdsys/pkg/FR-2010-09-01/pdf/X10-10901.pdf).
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    On April 18, 2011, the President issued E.O. 13570, ``Prohibiting 
Certain Transactions with Respect to North Korea,'' which takes 
additional steps to address the national emergency declared in E.O. 
13466 and expanded in E.O. 13551.\12\ This E.O. was designed in part to 
ensure implementation of the import restrictions contained in UNSCRs 
1718 and 1874.
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    \12\ See E.O. 13570 ``Prohibiting Certain Transactions with 
Respect to North Korea,'' (2011) (https://www.federalregister.gov/articles/2011/04/20/2011-9739/prohibiting-certain-transactions-with-respect-to-north-korea).
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    On January 2, 2015, the President issued E.O. 13687, ``Imposing 
Additional Sanctions with Respect to North Korea,'' which blocks the 
property of persons who are determined to be officials, agencies, 
instrumentalities, or controlled entities of the Government of North 
Korea or the Workers' Party of Korea.\13\
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    \13\ See E.O. 13687 ``Imposing Additional Sanctions with Respect 
to North Korea,'' (2015) (https://www.federalregister.gov/articles/2015/01/06/2015-00058/imposing-additional-sanctions-with-respect-to-north-korea).
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    On March 15, 2016, the President issued E.O. 13722, ``Blocking 
Property of the Government of North Korea and the Workers' Party of 
Korea, and Prohibiting Certain Transactions with Respect to North 
Korea,'' which, among other things, blocks the property and interests 
in property of the Government of North Korea and the Workers' Party of 
Korea and authorizes further asset blockings on persons determined to 
be operating in industries of the North Korean economy determined by 
the Secretary of the Treasury, in consultation with the Secretary of 
State, to be subject to the measure. To date those industries include 
the transportation, mining, energy and financial services 
industries.\14\ Additionally, FinCEN issued advisories in 2005, 2009, 
and 2013 regarding the threat posed by the North Korean government to 
U.S. and international financial institutions. Specifically, these 
advisories have urged caution when dealing with North Korean financial 
institutions due to their use of front companies and other deceptive 
financial practices.\15\
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    \14\ See E.O. 13722 ``Blocking Property of the Government of 
North Korea and the Workers' Party of Korea, and Prohibiting Certain 
Transactions with Respect to North Korea,'' (2016) (https://www.gpo.gov/fdsys/pkg/FR-2016-03-18/pdf/FR-2016-03-18.pdf).
    \15\ See ``Guidance to Financial Institutions on the Provision 
of Banking Services to North Korean Government Agencies and 
Associated Front Companies Engaged in Illicit Activities,'' FinCEN 
(2005) (https://www.fincen.gov/statutes_regs/guidance/pdf/advisory.pdf); ``North Korea Government Agencies' and Front 
Companies' Involvement in Illicit Financial Activities,'' FinCEN 
(2009) (https://www.fincen.gov/statutes_regs/guidance/pdf/fin-2009-a002.pdf); ``Update on the Continuing Illicit Finance Threat 
Emanating from North Korea,'' FinCEN (2013) (https://www.fincen.gov/statutes_regs/guidance/pdf/FIN-2013-A005.pdf).
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    Numerous North Korean individuals, financial institutions, and 
other entities facilitating financial transactions in support of North 
Korea's proliferation of WMD or ballistic missiles have been listed in 
or designated pursuant to these UNSCRs or E.O.s. In many cases, these 
sanctions have targeted front companies or the individual 
representatives of sanctioned entities who operate outside of North 
Korea.

II. Analysis of Factors

    Based upon a review of information available to FinCEN, 
consultations with relevant federal agencies and departments, and in 
consideration of the factors enumerated in Section 311 of the USA 
PATRIOT Act, the Director of FinCEN has determined that reasonable 
grounds exist for concluding that North Korea is a jurisdiction of 
primary money laundering concern. While FinCEN has considered all 
potentially relevant factors set forth in Section 5318A, a discussion 
of those most pertinent to this finding follows. FinCEN has determined 
that North Korea (A) uses state-controlled financial institutions and 
front companies to conduct international financial transactions that 
support the proliferation of WMD and the development of ballistic 
missiles in violation of international and U.S. sanctions; (B) is 
subject to little or no bank supervision or anti-money laundering or 
combating the financing of terrorism (``AML/CFT'') controls; (C) has no 
mutual legal assistance treaty with the United States; and (D) relies 
on the illicit and corrupt activity of high-level officials to support 
its government.
A. Evidence That Organized Criminal Groups, International Terrorists, 
or Entities Involved in the Proliferation of Weapons of Mass 
Destruction or Missiles, Have Transacted Business in That Jurisdiction
    North Korea uses state-owned entities and banks to conduct 
transactions in support of North Korea's proliferation of WMD or 
ballistic missiles. The United States and United Nations have 
identified Korea Mining Development Trading Corporation (KOMID), 
Tanchon Commercial Bank (TCB), Korea Kwangson Banking Corporation 
(KKBC), and Daedong Credit Bank (DCB) as entities that conduct 
financial transactions in support of North Korea's proliferation of WMD 
or ballistic missiles; the United States has also sanctioned Foreign 
Trade Bank (FTB) for this activity. Directing business from North 
Korea, these state-owned entities and banks use front companies or 
covert representatives to obfuscate the true originator, beneficiary, 
and purpose of transactions. Doing so has allowed millions of U.S. 
dollars of DPRK illicit activity to flow through U.S. correspondent 
accounts. Entities in North Korea involved in the proliferation of WMD 
or ballistic missiles conduct business in, from, or through North 
Korea, or at the direction of the North Korean government, have evaded 
the prohibitions set forth in relevant UNSCRs and E.O.s.

[[Page 35444]]

The Korea Mining Development Trading Corporation
    The President subjected the Korea Mining Development Trading 
Corporation (KOMID) to an asset blocking by listing it in the Annex of 
E.O. 13382 in June 2005,\16\ and the Department of the Treasury 
designated KOMID pursuant to E.O. 13687 in January 2015 \17\ for being 
North Korea's primary arms dealer and its main exporter of goods and 
equipment related to ballistic missiles and conventional weapons.\18\ 
The UN Security Council also listed KOMID under UNSCR 1718 in April 
2009, subjecting it to a worldwide asset blocking.\19\ Further, between 
2013 and 2016, the Department of the Treasury designated a number of 
individuals under E.O. 13382 or E.O. 13687 for their roles acting on 
behalf of KOMID in, or as KOMID representatives to, Burma, China, 
Egypt, Iran, Namibia, Russia, Sudan, and Syria.\20\
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    \16\ See E.O. 13382.
    \17\ See ``Issuance of new North Korea-related Executive Order; 
North Korea Designations,'' January 2, 2015 (https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20150102.aspx).
    \18\ See ``Treasury Imposes Sanctions Against the Government of 
the Democratic People's Republic of Korea,'' January 2, 2015 
(https://www.treasury.gov/press-center/press-releases/Pages/jl9733.aspx).
    \19\ See ``Letter dated 24 April 2009 from the Chairman of the 
Security Council Committee established pursuant to resolution 1718 
(2006) addressed to the President of the Security Council,'' April 
24, 2009 (http://www.securitycouncilreport.org/atf/cf/%7B65BFCF9B-6D27-4E9C-8CD3-CF6E4FF96FF9%7D/NKorea%20S2009%20222.pdf).
    \20\ See ``United States Sanctions Individuals Linked to North 
Korea Weapons of Mass Destruction Programs,'' March 7, 2013 (https://www.treasury.gov/press-center/press-releases/Pages/jl1872.aspx); 
``Treasury Imposes Sanctions Against the Government of the 
Democratic People's Republic of Korea,'' January 2, 2015 (https://www.treasury.gov/press-center/press-releases/Pages/jl9733.aspx); 
``Treasury Sanctions Supporters of North Korea's Weapons of Mass 
Destruction and Illicit Finance Networks,'' November 13, 2015 
(https://www.treasury.gov/press-center/press-releases/Pages/jl0269.aspx); ``Treasury Sanctions Those Involved in Ballistic 
Missile Procurement for Iran,'' January 17, 2016 (https://www.treasury.gov/press-center/press-releases/Pages/jl0322.aspx); 
``The United States Sanctions North Korean Government Officials and 
Organizations Tied to its Missile and Nuclear Programs,'' March 2, 
2016 (https://www.treasury.gov/press-center/press-releases/Pages/jl0372.aspx).
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    Despite the sanctions placed on KOMID and its network, North Korea 
continues to sell weapons abroad. Between 2001 and 2007, North Korean 
weapons manufacturers marketed or exported North Korean weapons to 
Angola, Cuba, Iran, Iraq, Pakistan, Uganda, United Arab Emirates, and 
Yemen. As recently as 2015, KOMID marketed or exported North Korean 
ballistic missiles or conventional weapons through its representatives 
in Burma and its office in Indonesia. In 2015, KOMID also sold dual-use 
WMD-related equipment to Egypt, and engaged with Egypt on missile 
cooperation and development. Additionally, KOMID occasionally procures 
equipment and materials for Second Academy of Natural Sciences (SANS) 
research--an entity subject to an asset blocking by the U.S. under E.O. 
13382 in August 2010 for using subordinate organizations to obtain 
technology, equipment, and information for use in North Korea's weapons 
and nuclear programs.\21\
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    \21\ See ``United States Designates North Korean Entities and 
Individuals for Activities Related to North Korea's Weapons of Mass 
Destruction Program,'' August 30, 2010 (https://www.treasury.gov/press-center/press-releases/Pages/tg840.aspx).
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    Payments for weapons were often funneled through front companies 
operating at the direction of North Korean banks. The Department of the 
Treasury designated one of these front companies, Leader (Hong Kong) 
International Trading Limited, under E.O. 13382 in January 2013 for 
facilitating the shipment of machinery and equipment to customers on 
behalf of KOMID and directly to KOMID representatives located outside 
of North Korea.\22\ Between January 2009 and November 2012, Leader 
(Hong Kong) International cleared at least $13.5 million through 
correspondent accounts at U.S. banks.
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    \22\ See ``Treasury Sanctions Company And Individuals Linked To 
North Korean Weapons Of Mass Destruction Program,'' January 24, 2013 
(https://www.treasury.gov/press-center/press-releases/Pages/tg1828.aspx).
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The Tanchon Commercial Bank
    As noted above, Tanchon Commercial Bank (TCB) was listed by the 
President in the Annex of E.O. 13382 in June 2005, subjecting it to an 
asset blocking, and the UN Security Council listed TCB under UNSCR 1718 
in April 2009.\23\ TCB is the financial arm of KOMID and the main North 
Korean financial institution for the sale of conventional arms, 
ballistic missiles, and goods related to the assembly and manufacture 
of such weapons.\24\ Between 2009 and 2015 the Department of the 
Treasury designated nine individuals under E.O. 13382 for working on 
behalf of TCB, including as representatives to China, Syria, and 
Vietnam.\25\ Each of these individuals is also listed under UNSCR 
1718.\26\
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    \23\ See UNSCR 1718.
    \24\ See E.O. 13382; see also Footnote 28.
    \25\ See ``Treasury Designates North Korean Bank and Banking 
Official as Proliferators of Weapons of Mass Destruction,'' October 
23, 2009 (https://www.treasury.gov/press-center/press-releases/Pages/tg330.aspx); ``Treasury Sanctions Company And Individuals 
Linked To North Korean Weapons Of Mass Destruction Program,'' 
January 24, 2013 (https://www.treasury.gov/press-center/press-releases/Pages/tg1828.aspx); ``Treasury Targets North Korea's Global 
Weapons Proliferation Network,'' December 8, 2015 (https://www.treasury.gov/press-center/press-releases/Pages/jl0295.aspx); 
``Non-proliferation Designations,'' March 7, 2013 (https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20130307.aspx).
    \26\ See ``The List Established and Maintained by the 1718 
(2006) Committee,'' (https://www.un.org/sc/suborg/sites/www.un.org.sc.suborg/files/1718.pdf).
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    North Korea has a long history of using TCB and front companies to 
facilitate proliferation and missile-related transactions. Dating as 
far back as 2005, TCB, Korea Namchongang Trading Corporation 
(``Namchongang''), and front companies have facilitated deals that 
could be associated with proliferation. The U.S. Department of State 
designated Namchongang in June 2009 under E.O. 13382 for WMD 
proliferation activities; \27\ the UN listed Namchongang under UNSCR 
1718 in July 2009,\28\ and also listed its successor organization--
Namhung Trading Corporation--under UNSCR 2270 in March 2016.\29\ TCB 
also received millions of U.S. dollars in 2009 from a China-based 
representative as partial payment for weapons exported to Burma, Iran, 
and other countries. Additionally, in 2015 TCB accounts were used to 
purchase technology and equipment in support of U.S.-designated SANS 
research and development activities.
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    \27\ See ``State Designation of North Korean Nuclear Entity,'' 
June 30, 2009 (www.state.gov/r/pa/prs/ps/2009/06a/125505.htm).
    \28\ See ``Security Council Committee Determines Entities, 
Goods, Individuals, Subject to Measures Imposed on Democratic 
People's Republic of Korea by Resolution 1718 (2006),'' July 16, 
2009 (www.un.org/press/en/2009/sc9708.doc.htm).
    \29\ See UNSCR 2270.
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The Korea Kwangson Banking Corporation
    As noted, the Department of the Treasury sanctioned Korea Kwangson 
Banking Corporation (KKBC) under E.O. 13382 in August 2009 for 
facilitating financial transactions for E.O. 13382-sanctioned TCB and 
the Korea Hyoksin Trading Corporation (``Hyoksin''); \30\ the UN listed 
KKBC under UNSCR 2270 in March 2016.\31\ As noted above, TCB was 
sanctioned by the United States in June 2005 and listed by the UN under 
UNSCR 1718 in April 2009; further, in July 2009 the Department of the 
Treasury designated Hyoksin under E.O.

[[Page 35445]]

13382, and the UN listed Hyoksin under UNSCR 1718 for WMD proliferation 
activity.\32\ In spite of its designation, KKBC has continued to evade 
sanctions and process financial transactions that support the 
proliferation of WMD and ballistic missiles by using front companies to 
clear U.S. dollar transactions through U.S. correspondent accounts. In 
2013, senior North Korean leadership utilized a KKBC front company to 
open accounts at a major Chinese bank under the names of Chinese 
citizens, and deposited millions of U.S. dollars into the accounts. The 
same KKBC front company processed transactions through U.S. 
correspondent accounts as recently as 2013.
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    \30\ See ``Treasury Designates Financial Institution Tied to 
North Korea's WMD Proliferation,'' August 11, 2009 (https://www.treasury.gov/press-center/press-releases/Pages/tg260.aspx).
    \31\ See UNSCR 2270.
    \32\ See ``Treasury Designates North Korean Entity Tied to 
Weapons of Mass Destruction Development,'' July 30, 2009 (https://www.treasury.gov/press-center/press-releases/Pages/tg247.aspx); 
``Security Council Determines Entities, Goods, Individuals Subject 
To Measures Imposed on Democratic People's Republic of Korea by 
Resolution 1718 (2006),'' July 16, 2009 (http://www.un.org/press/en/2009/sc9708.doc.htm).
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The Foreign Trade Bank
    The Department of the Treasury designated Foreign Trade Bank (FTB) 
under E.O. 13382 in March 2013 for facilitating transactions on behalf 
of actors linked to North Korea's nuclear proliferation networks.\33\ 
Headquartered in Pyongyang, FTB acts as North Korea's primary foreign 
exchange bank and has provided financial support to KOMID and KKBC. As 
noted above, KOMID was sanctioned by the United States in July 2005 
under E.O. 13382, and listed by the UN in April 2009 under UNSCR 1718; 
the Department of the Treasury designated KKBC under E.O. 13382 in 
August 2009, and the UN listed KKBC under UNSCR 2270 in March 2016.
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    \33\ See ``Treasury Sanctions Bank and Official Linked to North 
Korean Weapons of Mass Destruction Programs,'' March 11, 2013 
(https://www.treasury.gov/press-center/press-releases/Pages/jl1876.aspx).
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    The following examples are representative of the activities of FTB 
and its front companies. Between 2008 and 2012, FTB used front 
companies in multiple countries to make and receive payments equivalent 
to tens of millions of U.S. dollars. In 2011, an FTB front company was 
involved with U.S.-designated KKBC and Korea 5 Trading Corporation, a 
subordinate of U.S. and UN-designated Korea Ryonbong General 
Corporation, in financial dealings totaling several millions of U.S. 
dollars. The same FTB front company processed transactions through U.S. 
correspondent accounts as recently as April 2014.
The Daedong Credit Bank
    The Department of the Treasury designated Daedong Credit Bank (DCB) 
under E.O. 13382 in June 2013 for managing millions of dollars of 
transactions in support of the North Korean regime's nuclear 
proliferation and missile-related activities.\34\ The UN listed DCB 
under UNSCR 2270 in March 2016. DCB has demonstrated through its 
activity that it is willing to facilitate transactions at the direction 
of, and in coordination with, the government of North Korea. Since at 
least 2007, DCB has facilitated hundreds of financial transactions 
worth millions of dollars on behalf of designated actors, KOMID and 
TCB. Some of these transactions involved deceptive practices that 
include the use of front companies located outside of North Korea to 
process cross-border payments. DCB also directed a front company, DCB 
Finance Limited, to carry out international financial transactions as a 
means to avoid scrutiny by financial institutions. DCB Finance Limited 
has conducted transactions through correspondent accounts at U.S. 
banks.
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    \34\ See ``Treasury Sanctions Bank, Front Company, and Official 
Linked to North Korean Weapons of Mass Destruction Programs,'' June 
27, 2013 (https://www.treasury.gov/press-center/press-releases/Pages/jl1994.aspx).
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    Based upon the information above, the North Korean government, 
through entities and financial institutions based in North Korea, 
facilitates financial transactions in support of the proliferation of 
WMD and ballistic missiles in violation of UNSCR 1718. Additionally, by 
creating and using front companies with the intent to obfuscate the 
true originator, beneficiary, or purpose of transactions, these state-
owned entities and financial institutions have engaged in a pattern of 
deceptive financial activity to evade international sanctions, 
circumvent U.S. sanctions and AML controls, and penetrate the U.S. 
financial system when such activity would otherwise be prohibited. This 
activity represents a direct threat to the integrity of the U.S. 
financial system.
B. The Substance and Quality of Administration of the Bank Supervisory 
and Counter-Money Laundering Laws of That Jurisdiction
    The Financial Action Task Force (FATF) is an inter-governmental 
body that sets international standards and promotes the implementation 
of legal, regulatory, and operational measures for combatting money 
laundering, terrorist financing, WMD proliferation financing, and other 
related threats to the integrity of the international financial 
system.\35\ The FATF monitors the progress of its members in 
implementing necessary measures, reviews money laundering and terrorist 
financing techniques and countermeasures, and promotes the adoption and 
implementation of appropriate measures globally. In collaboration with 
other international stakeholders, the FATF works to identify national-
level vulnerabilities with the aim of protecting the international 
financial system from misuse. Due to North Korea's ongoing failure to 
address its AML/CFT deficiencies, the FATF has publicly identified 
substantial money laundering and terrorist financing risks emanating 
from the jurisdiction and has identified North Korea as one of only two 
jurisdictions in the world subject to FATF counter-measures since 2011.
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    \35\ See Financial Action Task Force Web site (http://www.fatf-gafi.org/).
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    In FATF's Public Statement dated February 19, 2016, the FATF 
reiterated its concern about North Korea's failure to address the 
significant deficiencies in its AML/CFT regime, and the serious threat 
such deficiencies pose to the integrity of the international financial 
system. The FATF called on its members and urged all jurisdictions to 
advise their financial institutions to give special attention to 
business relationships and transactions with North Korea, including 
North Korean companies and financial institutions. The FATF also warned 
that jurisdictions should protect against correspondent relationships 
being used to bypass or evade countermeasures and risk mitigation 
practices, and take into account AML/CFT risks when considering 
requests by North Korean financial institutions to open branches and 
subsidiaries in their jurisdiction.\36\ While steps may have been taken 
by North Korea to engage with the FATF, including becoming an observer 
to the Asia Pacific Group, a FATF-style regional body, North Korea 
lacks basic AML/CFT controls and has failed to address the deficiencies 
in its AML/CFT regime identified by FATF.\37\
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    \36\ See ``FATF Public Statement--19 February 2016,'' (2016) 
(http://www.fatf-gafi.org/publications/high-riskandnon-cooperativejurisdictions/documents/public-statement-february-2016.html).
    \37\ See ``North Korea Adopts Anti-Money Laundering Law,'' NK 
News, May 18, 2016 (https://www.nknews.org/2016/05/north-korea-adopts-anti-money-laundering-law/).

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[[Page 35446]]

C. Whether the United States Has a Mutual Legal Assistance Treaty With 
That Jurisdiction, and the Experience of U.S. Law Enforcement Officials 
and Regulatory Officials in Obtaining Information About Transactions 
Originating in or Routed Through or to That Jurisdiction
    The United States and North Korea do not have diplomatic relations. 
North Korea has no mutual legal assistance treaty with the United 
States and does not cooperate with U.S. law enforcement officials and 
regulatory officials in obtaining information about transactions 
originating in, or routed through or to, North Korea.\38\
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    \38\ See ``U.S. Relations with North Korea,'' (www.state.gov/r/pa/ei/bgn/2792.htm).
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D. The Extent To Which That Jurisdiction Is Characterized by High 
Levels of Official or Institutional Corruption
    The North Korean government has long demonstrated institutional and 
official corruption. According to Transparency International's 
Corruption Perceptions Index, which ranks countries and territories 
based on how corrupt their public sectors are perceived to be, North 
Korea ranks 167 out of 168.\39\ As noted above, UNSCRs 1718, 2094, and 
2270 require UN member states to prohibit the provision to North Korea 
of luxury goods, which are used by North Korean leaders to consolidate 
power and appease members of the political elite by increasing their 
personal wealth. North Korea has also utilized Office 39 of the Korean 
Workers' Party (KWP) to influence and maintain the support of North 
Korea's elite citizens.\40\
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    \39\ See ``North Korea: Facts & Figures,'' Transparency 
International (https://www.transparency.org/country/#PRK).
    \40\ See ``Defectors Detail How North Korea's Office 39 Feeds 
Leader's Slush Fund: Private Fund Underwrites Comfortable Lifestyles 
for Pyongyang's Elite,'' Wall Street Journal, September 15, 2014 
(www.wsj.com/articles/defectors-detail-how-north-koreas-office-39-filters-money-to-kims-private-slush-fund-1410823969); see also 
``Criminal Sovereignty: Understanding North Korea's Illicit 
International Activities,'' Strategic Studies Institute, March 2010. 
(www.strategicstudiesinstitute.army.mil/pdffiles/pub975.pdf)
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    Office 39 was listed for an asset blocking by the President in the 
Annex to E.O. 13551 in August 2010,\41\ and is the branch of the North 
Korean Government that provides illicit economic support to North 
Korean leadership, including managing slush funds for North Korean 
government officials.\42\ The UN listed Office 39 under UNSCRs 1718 and 
2270 in March 2016.\43\ Examples of Office 39 activity include 
collecting a significant portion of loyalty funds paid by DPRK 
officials to the regime annually, and using deceptive financial 
practices such as smuggling U.S. dollars into North Korea.
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    \41\ See E.O. 13551.
    \42\ ``Treasury Designates Key Nodes of the Illicit Financing 
Network of North Korea's Office 39,'' November 18, 2010 (https://www.treasury.gov/press-center/press-releases/Pages/tg962.aspx).
    \43\ See UNSCR 1718; UNSCR 2270.
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    To support its efforts, Office 39 controls Korea Daesong Bank 
(KDB), which is used to facilitate financial transactions supporting 
the procurement of luxury goods. Treasury designated KDB under E.O. 
13551 in November 2010 as an instrumentality of Office 39.\44\ In spite 
of its designation, KDB continues to conduct illicit transactions on 
behalf of the regime, including by operating front companies on behalf 
of organizations such as Office 39 abroad; by using an overseas branch 
office to both pay a number of overseas companies that provide labor 
and services on behalf of North Korea, and to remit funds to Pyongyang; 
and by utilizing KDB representatives abroad to make payments for goods 
imported into North Korea.
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    \44\ See ``Treasury Designates Key Nodes of the Illicit 
Financing Network of North Korea's Office 39,'' November 18, 2010 
(https://www.treasury.gov/press-center/press-releases/Pages/tg962.aspx).

Jamal El-Hindi,
Acting Director, Financial Crimes Enforcement Network.
[FR Doc. 2016-13038 Filed 6-1-16; 8:45 am]
 BILLING CODE 4810-02-P