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Chinese conglomerate suspected of illicit dealings with N. Korea: think tank report

A Chinese conglomerate trading heavily with North Korea is suspected of involvement in exports of "dual-use" goods, dealings with sanctioned entities and provision of IT services underpinning cyber infrastructure in the North, a joint South Korea-U.S. research report showed Monday.

Six subsidiaries of China's Liaoning Hongxiang Group "have transacted with sanctioned Burmese and North Korean entities, have been associated with North Korean cyber operators, and have traded in various goods and services that raise proliferation concern," said the report jointly published by South Korea's Asan Institute for Policy Studies and the Center for Advanced Defense Studies (C4ADS) in Washington.

One of the subsidiaries, Dandong Hongxiang Industrial Development Co., engaged in $532 million worth of trade with the North between 2011-2015, importing some $360 million of goods from the North and exporting the rest, according to the report titled, "In China's shadow: Evolution of North Korean Overseas Networks."

"While no judgment is being made on the final use of these funds, trade at this volume is of particular note," the report said. "By one estimate, this amount would have been almost enough to both fund North Korea's uranium enrichment facilities, and design, make and test its nuclear weapons."

Moreover, the subsidiary sent at least two shipments of aluminum oxide to the North as recently as September last year, the report said. Aluminum oxide is considered a "dual-use" item that can be used for both civilian and military purposes.

"According to the U.S. Nuclear Regulatory Commission, aluminum oxide is a component used to resist corrosion in gas centrifuges during uranium enrichment," the report said, adding that in 2013, a British firm discovered that the aluminum oxide it had been sending to an Iranian company was used for the country's nuclear program.

In 2009, Dandong Hongxiang Industrial Development Co. also partnered with the North's Korea National Insurance Corporation to form a joint venture engaged in the wholesale trade of textiles, stationery, electrical equipment and other goods, the report said.

KNIC is one of the sanctioned North Korean entities. In 2015, the European Commission imposed sanctions on KNIC's German branch and six company officials, saying the firm is a government entity generating substantial foreign exchange revenue that was used to support the North Korean regime, according to the report.

Chinese firms associated with the Liaoning Hongxiang Group also provide "services that are critical" to the underlying cyber architecture of the North, including the country's primary email relay service, facilities from which "hackers are alleged to operate," and IT firms producing software with possible military and regime applicability, the report said.

The report also said that the Chilbosan Hotel, a joint venture between the Liaoning Hongxiang Group and the North, is "alleged to be the staging area for Bureau 121, a group of North Korean hackers" accused of involvement in the 2014 hacking attack on Sony Pictures.

"Going after the DPRK's alternative income sources is likely to be the surest means for the international community to coerce the Kim Jong-un regime into abandoning its nuclear weapons program," the report said. "Getting there, however, will require significantly expanded efforts to continually investigate, monitor and act against DPRK entities evading sanctions."

The report also made a series of recommendations aimed at improving the enforcement of sanctions on the North, including shortening the time required from the point of identifying a sanctions-violating entity and its blacklisting, proactively monitoring the North's foreign-flagged ships and reaffirming China's enforcement of sanctions. (Yonhap)

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