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Front companies, embassies mask North Korean weapons trade: U.N.

North Korean leader Kim Jong Un (C) visits the Kim Il Sung University of Politics to take part in the election of a deputy to the Supreme Pe
North Korean leader Kim Jong Un (C) visits the Kim Il Sung University of Politics to take part in the election of a deputy to the Supreme Pe

By James Pearson

SEOUL (Reuters) - North Korea has developed sophisticated ways to circumvent United Nations sanctions, including the suspected use of its embassies to facilitate an illegal trade in weapons, a United Nations report issued on Tuesday said.

It said North Korea was also making use of more complicated financial countermeasures and techniques "pioneered by drug-trafficking organizations" that made tracking the isolated state's purchase of prohibited goods more difficult.

The report, compiled by a panel of eight U.N. experts, is part of an annual accounting of North Korea's compliance with layers of U.N. sanctions imposed in response to Pyongyang's banned nuclear weapons and missile programs. The panel reports to the U.N. Security Council.

"From the incidents analyzed in the period under review, the panel has found that (North Korea) makes increasing use of multiple and tiered circumvention techniques," a summary of the 127-page report said.

China, North Korea's main trading partner and diplomatic ally, appeared to have complied with most of the panel's requests for information.

Some independent experts and Western countries question how far Beijing has gone in implementing sanctions, although the report did not specifically address that issue.

Beijing has said it wants sanctions enforced.

Much of the report focused on North Korea's overseas trade networks, rather than its relationship with China.

The panel said it found a relatively complex "corporate ecosystem" of foreign-based firms and individuals that helped North Korea evade scrutiny of its assets as well as its financial and trade dealings.

Several U.N. Security Council diplomats said the North Korean sanctions committee was still weighing the report.

They also described it as a detailed but unsurprising report that offered confirmation of Pyongyang's well-known methods of skirting sanctions.

However, two diplomats said the council was unlikely to take any action in the immediate future based on the report's findings.

EMBASSIES UNDER SCRUTINY

North Korea's embassies abroad play a key role in aiding and abetting these shadowy companies, the report said, confirming long-held suspicions of the international community.

In some of the most comprehensive evidence presented publicly against Pyongyang's embassies, the report said the missions in Cuba and Singapore were suspected of organizing an illegal shipment of Cuban fighter jets and missile parts that were seized on a North Korean container ship in Panama last July.

It included secret North Korean documents addressed to the ship's captain which offered detailed instructions on how to load and conceal the illegal weapons shipment, and make a false declaration to customs officers in Panama.

"Load the containers first and load the 10,000 tons of sugar (at the next port) over them so that the containers cannot be seen," said the document, translated from Korean.

Panama seized the ship, named the Chong Chon Gang, for smuggling Soviet-era arms, including two MiG-21 jet fighters, under thousands of tonnes of sugar. After the discovery, Cuba said it was sending "obsolete" Soviet-era weapons to be repaired in North Korea and returned to Cuba.

Chinpo Shipping, a firm that the report said was "co-located" with the North Korean Embassy in Singapore, acted as the agent for a Pyongyang-based company that operated the vessel, and North Korean diplomatic personnel in Cuba arranged the shipping of the concealed cargo.

Singapore's Foreign Ministry said its policy is to fully implement United Nations sanctions, adding that it has been cooperating with the U.N. experts ever since learning in January that a Singapore-registered company was implicated in the case.

"The government of Singapore immediately launched an investigation of this case," a ministry spokesman said. "We are unable to share any further information at this juncture as our investigations are ongoing."

A North Korean Embassy official, reached by telephone, denied the Singapore Mission had engaged in any wrongdoing. The embassy had recently moved from the address listed in the report, added the official, who declined to give his name.

A Reuters reporter who visited the address could not find the embassy, just Chinpo Shipping. A receptionist said the head of the firm was not available to comment.

It was after work hours in Cuba when the report was released.

North Korea has gone to great lengths to mask the origin of its merchant shipping fleet by reflagging and renaming ships, the report said, particularly after the introduction of tightened U.N. sanctions in early 2013 that followed the country's third nuclear test.

Most of the registered owners of the ships are small companies that rarely own more than five vessels, meaning Pyongyang is able to keep its fleet running if a ship or shipping company is seized or has its assets frozen.

Under the myriad U.N. sanctions, North Korea is banned from shipping and receiving cargo related to its nuclear and missile programs. The importation of some luxury goods is also banned, along with the illicit transfer of bulk cash.

FINANCIAL COUNTERMEASURES

North Korea has fostered a complicated corporate network outside the international financial system that it uses to buy both banned and permitted goods, the report added.

The panel cited an example of an "unusually complex" transaction involving a contract by Air Koryo, the North's national carrier, to purchase new aircraft in 2012.

It said 109 payments were structured through eight Hong Kong-registered companies which asserted they were trading partners of Air Koryo and were wiring funds they owed it.

The purchase of civilian aircraft is not prohibited under U.N. sanctions, but some of the companies appeared to have been recently formed shell entities, the report said, and suggested such activity could be used as a test-run for illegal transactions.

North Korea is also still dependent on foreign suppliers for its missile programs, the report said, referring to a long-range rocket salvaged by South Korea that contained parts originating from China, the United States, the former Soviet Union, South Korea, the United Kingdom and Switzerland. The rocket was fired out to sea in December 2012.

A shipment of missile components sent from China and seized by South Korea in 2012 was destined for Syria, an investigation by the panel also showed.

The panel said it had also investigated reports that Myanmar, Eritrea, Tanzania, Ethiopia, Somalia and Iran might have bought North Korean weapons.

(Additional reporting by Rujun Shen in Singapore and Louis Charbonneau in New York; editing by Dean Yates and G Crosse)

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