Actions mark most serious effort so far to pursue Chinese companies thought to be helping Kim Jong Un’s regime
By CHUN HAN WONG in Dandong, China and JAY SOLOMON in Washington
The Wall Street Journal
Sept. 19, 2016 12:00 p.m. ET
The U.S. and China are targeting the finances of a sprawling Chinese conglomerate headed by a Communist Party member who the Obama administration believes has played a role in aiding North Korea’s nuclear program.
The actions against the company, Hongxiang Industrial Development Co., mark the most serious effort to date to pursue Chinese firms and business executives for their suspected role in supporting North Korean leader Kim Jong Un’s rapidly expanding nuclear-weapons program. Earlier this month, Pyongyang conducted its fifth atomic test in a decade.
The U.S. Congress passed legislation this year requiring the White House to sanction Chinese firms conducting business with the North Korean regime. Doing so, many lawmakers, officials and experts believe, will close a crucial gap in global efforts to restrain Pyongyang.
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On Thursday, police in Liaoning, China’s northeastern border province, said they recently started investigating Hongxiang Industrial for alleged long-term involvement in “serious economic crimes” over the course of its trading activities. The police didn’t elaborate on the allegations.
Chinese authorities in recent weeks have frozen certain assets held by the company, its founder and top executive Ma Xiaohong, and some of her relatives and associates, according to government and corporate filings.
Prosecutors from the U.S. Department of Justice made two trips to Beijing last month to alert Chinese officials about alleged criminal activities being committed by Ms. Ma and Hongxiang Industrial, according to U.S. officials. They specifically cited alleged evidence that the Chinese businesswoman and her companies had aided North Korea’s nuclear program and Pyongyang’s efforts to evade United Nations and Western sanctions.
The Justice Department is preparing as early as this week to announce legal action against Chinese firms suspected of providing financial support to Pyongyang, according to these officials. They wouldn’t comment on the specifics of the charges.
Ms. Ma couldn’t be reached to comment. A Hongxiang Industrial official declined to comment on the Chinese investigation and didn’t respond to queries on the separate U.S. probe. Other company executives declined to comment and declined to relay queries to Ms. Ma.
U.S. officials said over the weekend that they welcomed the reports of Chinese action against Ms. Ma and her companies. At the same time, they voiced concern that Chinese authorities haven’t responded to U.S. requests for documents related to the asset freeze and criminal investigation. These officials said it was too early to tell if the Chinese were serious about cracking down on individuals suspected of being complicit in North Korea’s nuclear program.
In a series of military provocations, North Korea has been testing a variety of missiles over the last few years, some of which appear capable of reaching several thousand miles. Here’s a look at the country’s short- and long-range ballistic weapons. Illustration: Heather Seidel for The Wall Street Journal (Originally published March 23, 2016)
President Barack Obama repeatedly has said that China must do more to pressure Mr. Kim, the North Korean leader, financially and diplomatically, although Beijing historically has resisted taking steps that could destabilize North Korea.
U.S. lawmakers have increased pressure on the Obama administration to sanction Chinese firms following Pyongyang’s Sept. 9 nuclear test. “You must begin to designate entities that are assisting the North Korean regime, especially those based in China—the country with which North Korea currently conducts an estimated 90% of its trade,” Sen. Cory Gardner (R., Colo.) wrote Mr. Obama on Friday.
Ms. Ma, 45 years old, was a shopping-mall worker and manager at an import-export firm based in Dandong, on the China-North Korea border, before founding Hongxiang Industrial in 2000. She grew her business into a conglomerate, Liaoning Hongxiang Industrial Group, with some 680 employees covering interests in cross-border trade, hotels and tourism.
Liaoning Hongxiang Industrial Group, of which Hongxiang Industrial remains the flagship firm, is based in a bankside office tower that enjoys a panoramic view of the Yalu River and stretches of North Korean territory. It trades in coal, chemicals, metals, textiles and machine equipment, among other goods, according to a government-run corporate registry.
A report to be released Tuesday by researchers from nonprofit groups in the U.S. and South Korea maintains that Hongxiang Industrial’s trade with North Korea includes goods that have both civilian and military purposes, including applications in nuclear-weapons development.
Researchers from the Washington-based C4ADS and the Asan Institute for Policy Studies in Seoul said they uncovered information suggesting that Hongxiang Industrial has sent aluminum oxide to North Korea, citing customs data collated by a third-party provider. Such material can be used in developing the centrifuges needed to enrich uranium, a crucial step in producing nuclear weapons.
The customs data indicate that the company sold $253,219 worth of aluminum oxide to North Korea as recently as September 2015, the report says.
According to online ads placed by Hongxiang Industrial in 2008 and reviewed by The Wall Street Journal, the company in the past has sought to buy aluminum oxide, while selling North Korean-sourced aluminum ingots. It wasn’t clear if the company continued to trade in those goods.
The report by C4ADS and Asan, called “In China’s Shadow,” also outlines other aspects of Ms. Ma’s businesses that raise suspicions. They include cargo-shipping services linking Chinese and North Korean ports, and Hongxiang Industrial’s commercial relationships with North Korean state-run companies that Western authorities say may be involved in financing Pyongyang’s nuclear program.
In May 2009, Hongxiang Industrial and state-run Korea National Insurance Corp. set up a joint venture, Liaoning Hongbao Industrial Development Co., which engaged in the trade of industrial materials, electrical equipment and textiles, among other goods, corporate records show. The Chinese firm owns 51% of the venture while the remaining 49% is held by KNIC, which was sanctioned by the European Commission last year on grounds that the Pyongyang-based firm’s generation of “substantial foreign-exchange revenue” could be benefiting North Korea’s nuclear-weapons program.
Ms. Ma and her siblings control a number of Hong Kong companies that own and manage cargo ships believed to have shuttled between Chinese and North Korean ports, according to the researchers’ report.
“As our research shows, it is important to keep track of those business entities and personnel and have them designated,” said Woo Jung-yeop, a research fellow at the Asan Institute. “That means much swifter action needs to be taken by the international community.”
아산정책연구원 (The Asan Institute for Policy Studies)
A Wall Street Journal review of records on international shipping registry Equasis and Hong Kong’s corporate registry confirmed that Ms. Ma and her two sisters controlled companies that owned or managed cargo vessels listed in the “In China’s Shadow” report. Efforts to reach Ms. Ma’s sisters were unsuccessful.
In September 2015, Hongxiang Industrial launched a new shipping link between the Chinese port of Longkou and the North Korean port of Nampo, according to a company magazine published in February, which said a cargo vessel named Kum Ho 1 operates the route three times a month. A report by China’s official Xinhua News Agency said the new link was meant to facilitate trade, including coal shipments from North Korea.
The Liaoning police announcement on Thursday came two weeks after local authorities ordered the freezing of certain corporate shareholdings held by Ms. Ma, as well as some of her associates and companies. Several calls to provincial police and their municipal counterparts in Dandong weren’t answered, while a public-security official in the nearby city of Benxi, where some of the asset-freeze orders were issued, declined to comment.
Ms. Ma and her mother-in-law Ding Ailian, who respectively own 80% and 20% of Hongxiang Industrial, had their stakes in the company frozen for six months by the Benxi public-security department bureau, corporate records show.
A district court in Dandong, meanwhile, imposed three-year freezes on equity stakes that Hongxiang Industrial holds in at least three companies, including two joint ventures with North Korean partners, according to a government-run corporate registry.
The names of Ms. Ma and her three siblings appear in leaked documents from Panamanian law firm Mossack Fonseca, which indicate they each had set up offshore companies, according to a database run by the International Consortium of Investigative Journalists.
The addresses registered to Ms. Ma and her siblings in the Panama Papers match residential addresses registered to Hong Kong companies owned by members of the Ma family, Hong Kong corporate records show.
According to a 2012 report in Southern Weekly, a Guangzhou-based newspaper, Ms. Ma was already involved in North Korea-related deals while working at the import-export company in the 1990s, having arranged sales of heavy crude oil to North Korea in return for scrap steel, and setting up a mining joint venture in Pyongyang by transferring 80 trucks to North Korea.
In January 2000, Ms. Ma founded Hongxiang Industrial, licensed to sell a broad range of products ranging from textiles and electrical appliances to construction and chemical materials. On its website, the company describes itself as a “golden bridge for connecting North Korea and the world.”
Her business boomed despite fears that North Korean nuclear tests in 2006 and 2009 could derail bilateral trade. In 2010, Hongxiang Industrial was ranked 189th by the Chinese Commerce Ministry in its annual list of top 500 private-sector companies involved in external trade. The company fell to 207th in the 2012 list and has since dropped out of the top 500.
Ms. Ma’s success earned her accolades from industry groups and praise from state-run media, and even helped her enter provincial politics.
For instance, Ms. Ma was voted in 2011 as one of Dandong’s top 10 “outstanding women” for becoming “a bright window in the development of Dandong’s external trade,” according to her company’s website. In 2012, the state-backed China Association of Women Entrepreneurs named Ms. Ma to its annual list of outstanding female entrepreneurs.
A year later, in 2013, Ms. Ma was among more than 600 people elected to Liaoning People’s Congress, the provincial legislature, where she has since made policy proposals on small-and-medium enterprise financing and local land-use regulations.
She was among roughly 450 Liaoning provincial legislators to resign their posts on Saturday amid an election-fraud scandal, state media said.
—Junya Qian in Shanghai contributed to this article.
Write to Chun Han Wong at firstname.lastname@example.org and Jay Solomon at email@example.com
North Korea’s NK-08 ICBM during the parade in Pyongyang’s Kim Il-sung Square on Oct. 10, 2015
Estimated Range: 4,200 miles
Description: The possibility of North Korea’s developing a missile capable of delivering a chemical, biological, or nuclear warhead to the U.S. continent remains a grave concern. Given repeated test failures, most missile experts believe Pyongyang is far from achieving this goal.
Source: South Korea Ministry of National Defense; Center for Arms Control and Non-Proliferation
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