A draft report from the United Nations has been leaked, containing allegations that two Singaporean companies breached sanctions from the UN that forbade sending luxury goods for sale in North Korea. The final report is now with the UN Security Council, for publishing in a few days.
The government announced their awareness of the allegations and have said they’ve started looking into them. Singapore, along with the UN, forbids the selling of luxury items to North Korea.
Trade sanctions from many countries have only gotten stronger since 2016, what with North Korea’s consistent missile launches and and nuclear testing. And the UN stands by the sanctions it has set on the country, despite reports that Donald Trump and King Jong-un, the leaders of the US and North Korea, may be sitting down together in a meeting later on in 2018.
If the breaches in the sanctions are proven to be true, it gives rise to further questions concerning how extensive these violations may be throughout Asia, since other Asian companies are named in the report, aside from the ones from Singapore.
The two local businesses named in the report are T Specialist and OCN, which are sister companies. The two firms have the same director and have reportedly sent wines, spirits and other luxury items as recently as July 2017. This, despite the 2006 UN sanction banning the sale of luxury goods, as well as Singaporean laws to the same effect, which have been in place for the past several years.
However, T Specialist and OCN have issued a denial of the allegations.
According to the leaked report, between the years of 2011 and 2014, an amount greater than $2m (£1.4m) were periodically transferred from Daedong Credit Bank in North Korea to the bank accounts of T Specialist and OCN in Singapore. The account in North Korea was set up by the two companies there, and facilitated the transfer of funds that resulted from the sales of the luxury items.
The Ministry of Foreign Affairs has said that banks and other financial institutions are forbidden to assist in processing transactions for trade in North Korea. However, according to T Specialist, the money that was transferred came from a company in Hong Kong, not North Korea, and moreover, reflected sales that were dated previous to 2012.
Additionally, the UN claims that T Specialist and OCN have strong connections, including ownership, with a bank that has been on the US sanctions list since 2017, Ryugyong Bank.
T Specialist and OCN have denied any interests in Ryugyong Bank, and while Edmond Pereira, the companies’ lawyer, confirmed the investigation, he denied that T Specialist and OCN have any ties, financial and otherwise, with North Korean companies.
He did say, however, that previous to the sanctions being set by the UN, T Specialist and OCN had had business transactions in North Korea. Since then, the lawyer claims that they have gradually limited their dealings in the country.
Other lawyers claim that companies sometimes don’t know of the changes in the law, which makes imposing sanctions difficult. A complete ban on trade with North Korea was only put in place in November 2017; and some trade was legal previous to this.
The financial system in Singapore was said to be used in the transactions between T Specialist and OCN and companies in North Korea, according to the UN draft report. Additionally, the report claims that member countries should be responsible to ensure that their banks has strict identification measures in place for people who opened accounts.
In a statement, the Monetary Authority of Singapore (MAS) has said that it “will take stern action against any financial institutions in breach of regulations relating to proliferation financing,” and that it is coordinating with the UN in the investigation. Moreover, MAS has also said that banks should be conscious of “the use of multi-jurisdictional front companies, shell companies, joint ventures, and complex or opaque ownership structures”.
A former member of the UN Panel of Experts say that it’s these ambiguities and grey areas that companies in North Korea try to take advantage of. William Newcomb said that these firms first establish a shell company, then set up another company elsewhere, open an account in a bank in a third location, but transact business in yet another area, causing several jurisdictions to get involved, and complicating matters. This allows them to bypass the sanctions.
Experts on financial crime have said that such practices makes it hard for banks to spot violators. Asia Pacific Leader for Deloitte’s Financial Crime Network, Tim Phillipps, claims that it’s almost impossible to trace the funds as coming from North Korea, and that it’s likely that this kind of problem may be spread throughout the South East Asian region.
Mr. Phillipps also says that companies who are on the UN report, the MAS will ask for a very detailed history of financial transactions. In other SEA countries, however, there may not be enough sophisticated systems in place to prevent such loophole escapes.
The UN draft report also focused on the relative ease that firms in South East Asia with transactions with North Korea would find loopholes to cover their tracks, even in a country like Singapore, with its mature financial systems.