The Panama papers, Pyongyang, and Nigel Cowie
Here at OFK, we keep a running list of gullible foreigners who’ve tried to get rich in North Korea, justified their support for its regime as ways to reform and open it to global commerce, and instead met the same fate as Hyundai Asan, Volvo, Yang Bin, David Chang and Robert Torricelli, Chung Mong-Hun, Roh Jeong-ho, and Orascom’s Naguib Sawaris, who I predicted back in 2008 would “eventually meet the same fate.” Regulators should require securities issuers to disclose their investments in North Korea as a material risk. This isn’t just because of the risks associated with sanctions; it’s because North Korea is flypaper for con artists — the Trump University of foreign investment — a place where hucksters’ claims are as hard to verify as disarmament agreements.
Already, the Panama Papers scandal, following a massive leak of documents from the Panamanian law firm Mossack Fonseca, is offering fresh evidence of this. In a fascinating report for 38 North, J.R. Mailey tells the story of British businessman Kevin Leech, whom he accuses of “deals with Pyongyang” that “raise serious questions about potential violations of economic sanctions on a global scale,” and of a failed North Korean mining investment promotion that turned out to have no operational mines behind it at all. (Last month, the Treasury Department imposed sectoral sanctions on the North Korean mining industry.)
This week, the neocon hegemons at The Guardian also accused British banker Nigel Cowie of “set[ting] up a secret offshore finance company allegedly used by the Pyongyang regime to help sell arms and expand its nuclear weapons programme.” (See also this report from The Independent.) Cowie, the subject of previous OFK posts here, here, here, and here, is a former HSBC banker who moved to North Korea in 1995 and set up its first foreign bank. The bank was known as Peregrine Daesong Development Bank until 2000, when it was renamed Daedong Credit Bank. Later, Cowie registered an offshoot finance company, DCB Finance Limited, in the British Virgin Islands, where the laws allow a high degree of anonymity.
Initially operating out of a ramshackle Pyongyang hotel with a staff of three, Cowie led a consortium that in 2006 bought a 70% stake in the bank. [….]
Giving his address as Pyongyang’s International House of Culture, he registered DCB Finance Limited, an offshoot of the bank, in the BVI in summer 2006, with a senior North Korean official, Kim Chol-sam. The Panamanian law firm Mossack Fonseca incorporated the company, despite North Korea being an obvious high-risk destination. [The Guardian]
Cowie first achieved global infamy in 2005, after Treasury hit Banco Delta Asia with a 311 designation, resulting in the blocking of around $10 million worth of Cowie’s funds. Cowie portrayed himself as the victim of heavy-handed feds for what he repeatedly referred to as “legitimate” business. In media interviews, he called himself an agent of (wait for it) North Korea’s opening and reform, and argued that allowing Daedong Credit Bank to continue its operations was therefore in the U.S. interest.
From Pyongyang he gave several interviews to visiting foreign journalists, extolling North Korea as an under-appreciated investment opportunity. He told the Wall Street Journal he was part of an “effort to try to get the country going again”. Asked if he might prefer to work out of New York or Hong Kong rather than under an oppressive Stalinist dictatorship, he told the paper: “This is a lot more fun.” [The Guardian]
As a critic of the Treasury Department and a defender and enabler of Kim Jong-il, Cowie became an unlikely cause celebre among members of the pro-Pyongyang crowd who suspended their usual disbelief in capitalism for the greater cause of defending Kim Jong-il. For example, long-standing North Korea apologist Gregory Elich sympathetically quoted Cowie (and conspiracy nut Klaus Bender) in a 2006 piece for the extreme-left rag Counterpunch, questioning Treasury’s allegations of North Korean counterfeiting. Pro-Beijing shill Peter Lee called Cowie the victim of “serial harassment of a legitimate enterprise — moreover one that was in the vanguard of North Korean economic reform and opening to the outside.” (Jang Song-thaek could not be reached for comment on the current state of North Korea’s reforms.)
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Then, in 2007, Cowie sold his stake in Daedong Credit Bank to one Colin McAskill, who just four years before had been sentenced to six months in jail by an Australian court over a series of failed investment schemes. McAskill, former U.S. foreign service officer Lynn Turk, and others were officers in The Chosun Fund, which helped North Korea sell gold to survive the cash drought that followed the BDA designation. McAskill and his new partners in Daedong Credit Bank planned to persuade Treasury to lift its designation of BDA.
(By then, it was publicly known that at least some of North Korea’s gold was mined in political prison camps. This year, the U.N. Security Council finally restricted North Korea’s gold sales out of concern that they could “contribute to the DPRK’s nuclear or ballistic missile programs.”)
McAskill had also partnered with Geoffrey Taylor, a fixer of shell companies, in an Australian solar energy concern whose public listing was canceled by regulators in New Zealand after it went insolvent. In 2009, Taylor’s son incorporated SP Trading, the company that leased the Il-76 that was intercepted at Bangkok in 2009, while carrying 30 tons of weapons, including man-portable surface-to-air missiles, from Pyongyang to Iran, allegedly for the use of Tehran’s terrorist clients. According to the Sydney Morning Herald, the incorporation of SP Trading “appeared to have no other purpose” than to lease the aircraft. After the seizure, there were rumors of indictments, but none came.
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Although Cowie ostensibly cut his ties to Daedong Credit Bank in 2007, his involvement with DCB Finance continued for several more years. And despite all of the publicity he had so recently attracted, it took the Panamanian law firm Mossack Fonseca until 2010 to figure that Cowie and DCB Finance were linked to North Korea.
It was only in 2010 that Mossack Fonseca realised it had been dealing with North Korean entities, and resigned as agent. The discovery came after the law firm got a letter from the British Virgin Islands’ Financial Investigation Agency asking for details of Cowie’s company. The next year, Cowie sold his share in the bank to a Chinese consortium.
The Panama Papers include acrimonious emails between Mossack Fonseca’s BVI office and its head office in Panama. In 2013, a member of the firm’s compliance department admitted Cowie’s North Korean address “should have been a red flag”. She wrote: “It is not the ideal situation and it is not gratifying issuing a letter highlighting the inefficiencies of Mossack Fonseca BVI.” [The Guardian]
Cowie says DCB Finance “was used for legitimate business and that he was unaware of any unlawful transactions.” In 2013, the U.S. Treasury Department found otherwise.
Daedong Credit Bank has engaged in the same type of activity that was at issue in the FTB designation, most notably providing financial services to the Korea Mining Development Trading Corporation (KOMID), Pyongyang’s premier arms dealer as well as KOMID’s main financial arm, the Tanchon Commercial Bank (TCB), both of which have been previously designated by the U.S. for the central role they play supporting North Korea’s illicit nuclear and ballistic missiles programs. KOMID and TCB were also designated by the United Nations. UNSCR 2094 requires the imposition of targeted financial sanctions on entities that work for or on behalf of, or at the direction of, UN-designated North Korean entities. Since at least 2007, Daedong Credit Bank (DCB) has facilitated hundreds of financial transactions worth millions of dollars on behalf of KOMID and TCB. In some cases, DCB has knowingly facilitated transactions by using deceptive financial practices.
Since at least 2006, Daedong Credit Bank has used its front company, DCB Finance Limited, to carry out international financial transactions as a means to avoid scrutiny by financial institutions avoiding business with North Korea. DCB Finance Limited is registered in the British Virgin Islands and also operates out of China.
Kim Chol Sam is a representative for Daedong Credit Bank who has also been involved in managing transactions on behalf of DCB Finance Limited. As a Dalian, China-based representative of DCB, it is suspected Kim Chol Sam has facilitated transactions worth hundreds of thousands of dollars and likely managed millions of dollars in North-Korean related accounts. [OFAC Press Release, June 27, 2013]
Treasury’s language suggested that even after 2007, DCB Finance and Daedong Credit Bank continued to work in concert with Tancheon Commercial Bank, which was designated by the U.N. and the Treasury Department in 2009 for arms dealing and links to North Korea’s missile programs.
Cowie responded that he had left banking in 2011 to focus on other business commitments. In a letter, his lawyer said: “My client was a shareholder in DCB Finance Ltd, a company set up to enable DCB to continue to operate after correspondent banks had closed its accounts. The name was specifically chosen in order to reflect the historical connection with DCB. DCB Finance Ltd was used for legitimate business. My client was, and still is to this day, unaware of any transactions being made with any sanctioned organisation or for any sanctioned purpose, during his tenure.” [The Guardian]
Cowie is saying, in other words, that he didn’t really know who his own company was dealing with, which sounds (to steal a line from a friend) like something Alfred E. Neuman used to say. After all, as the American Bar Association reminds us, Know Your Customer and due diligence obligations have been “a basic tenet of [anti-money laundering] risk management for a very long time.” Treasury’s Financial Crimes Enforcement Network has been publishing guidance on those obligations, including in the specific context of North Korea, for at least a decade. For years, the Financial Action Task Force warned bankers and regulators around the world to take “countermeasures” against North Korea’s money laundering risks. Certainly if Cowie continued to deal with Tanchon or Kim Chol-sam after 2009, he was on notice.
Cowie’s definition of “legitimate” couldn’t have comported with how most newspaper readers defined the term. Unfortunately, at the height of Cowie’s fame, few newspaper writers did much digging into his claims. Neither, apparently, did Mossack Fonseca. If Mossack Fonseca was slow on the uptake, so was The Guardian and most of the press. The news for DCB and Cowie is damning for sure, but the real bombshell here is three years old, and it’s Treasury that dropped it. Even this blog was on hiatus at the time (I was busy with other things).
So, assuming that DCB Finance facilitated North Korea’s arms-dealing, was it illegal? Actually, maybe not, depending on the timing. Although the BDA action of 2005 and Treasury’s warnings to other banks had a major effect on North Korean finance, they weren’t technically “sanctions,” but the enforcement of money laundering laws that apply to everyone. During the period between 1995 and 2010, when Cowie says he left the banking business, Treasury’s North Korea-specific sanctions regulations and designations were particularly weak. The Trading With the Enemy Act sanctions in effect against North Korea until 2008 only prohibited arms sales to North Korea. North Korea was listed as a state sponsor of terrorism, which meant that any dollar-denominated transaction with its government required a license from the Office of Foreign Assets Control, but it’s not clear that the transactions DCB Finance allegedly handled were denominated in dollars. Executive Order 13551 first banned transactions incident to North Korean arms dealing in 2010. Presumably, if Treasury was interested in prosecuting DCB Bank, DCB Finance, or Cowie, it would have done so by now.
So, what did we learn from all of this? First, when people doing business with North Korea protest that their business is legitimate, take those claims with a very large grain of salt. Second, engagement never changes Pyongyang, but it often changes the people who engage with it, and very seldom for the better.