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Documents reveal China-Russia-DPRK smuggling network used to supply oil to North Korea

By Takayuki Nakagawa in Shenyang, Seima Oki in Washington

 

Contracts and related documents obtained by Yomiuri Shimbun show that Chinese companies are helping Russian companies smuggle refined petroleum products to North Korea by transferring these products from one ship to another in international waters. This Chinese-Russian-DPRK smuggling network represents a major loophole for evading UN Security Council (UNSC) sanctions restricting oil supply to North Korea. The Japanese, U.S., and ROK authorities are also aware of this smuggling network. They are reinforcing their surveillance.

 

The Chinese companies provide the tankers used to pass on Russian oil products to North Korea at sea, serve as intermediary for account settlement, and liaise between Russia and North Korea.

 

According to documents obtained by Yomiuri and testimonies by a North Korean source, smuggling involving Chinese and Russian companies started around June 2017, before a UNSC resolution in September 2017 restricted exports of oil products to North Korea for the first time.

 

According to the North Korean source, North Korea planned the smuggling operations after the Chinese government began to impose strict controls on exports of oil products in April 2017. At first, the DPRK sounded out Russian companies on direct transactions, but the offer was turned down by the Russians due to the difficulty of remitting funds between Russia and the DPRK as a result of financial sanctions. A trading firm in Dandong, Liaoning Province, eventually agreed to serve as the intermediary in exchange for a commission.

 

The documents show that transactions are to take place through the following process: 1) a trading firm in Heilongjiang Province in northeast China will purchase up to 100,000 tons of diesel oil annually from Russian oil companies; 2) the Dandong trading firm will purchase the diesel oil from the Heilongjiang company; and 3) trading firms under the North Korean navy will purchase the oil from the Dandong firm. Payment will be made by the DPRK after the cargo from Russia is confirmed to have arrived at a North Korean port.

 

According to the above source, in reality, diesel oil shipped from Vladivostok, Nakhodka, and other locations in the Russian Far East is transferred to tankers provided by Chinese companies in international waters and brought to North Korea. It appears that thousands of tons of gasoline have also been shipped to North Korea using the same method.

 

With regard to settlement of accounts, “since dollar remittances would be detected by the U.S.,” according to the North Korean source, a large amount of cash dollars are transported by train from North Korea to Dandong, and Chinese companies make remittances to Russian companies in yuan.

 

In connection with this, the Cheil Credit Bank based in Pyongyang has been confirmed to have drafted documents guaranteeing payment to Chinese companies in October 2017. The U.S. Treasury Department designated this bank as a target of sanctions in September 2017.

 

A diplomatic source in Washington said, “We are aware of the Chinese and Russian companies involved in smuggling and the Japanese, U.S., and ROK governments are working together to track them down.” The smuggling vessels turn off their AIS (Autonomic Identification System) when they operate, so apparently, it is difficult to find out the full details.

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