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US Treasury Department Imposes Restrictions on Chinese Bank

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On June 29, 2017, the US Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) issued for public inspection a notice of proposed rulemaking (the “Proposed Rule”) that would restrict a Chinese commercial bank’s access to the US financial system based on a finding that the bank was involved in money laundering activities involving North Korea. This action coincided with designations by the US Treasury Department’s Office of Foreign Assets Control (“OFAC”) of one entity and two individuals with alleged ties to North Korea.

The Proposed Rule finds that the bank in question, Bank of Dandong, is a financial institution of primary money laundering concern pursuant to Section 311 of the USA PATRIOT Act, 31 U.S.C. 5318A. More specifically, FinCEN alleges that Bank of Dandong served as a conduit through which companies involved in North Korea’s WMD and ballistic missile programs illicitly accessed the US and international financial systems.

If this Proposed Rule were to be adopted, US financial institutions would be prohibited from maintaining correspondent accounts for or on behalf of Bank of Dandong. US banks would also be required to implement special due diligence measures designed to identify instances of other foreign financial institutions’ correspondent accounts used to process transactions involving Bank of Dandong. In practical terms, these measures would essentially restrict Bank of Dandong from accessing the US financial system or engaging in US dollar transactions anywhere in the world.

Although Bank of Dandong is relatively small and located near the North Korean border (the Proposed Rule notes that it is the 148th largest financial institution in China out of 196), this development is significant because it represents an escalation of the Trump Administration’s efforts to pressure China into more directly combating North Korea’s WMD and related proliferation activities. Restricting access to the US financial system in this manner was also a key feature of US sanctions targeting Iran under the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA).  Notably, the proposed restrictions against Bank of Dandong could provide a window into the Trump Administration’s broader efforts to target North Korea through sanctions, a path which ultimately could lead to the introduction of extraterritorial secondary sanctions.

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Ryan Fayhee is a partner in Baker McKenzie´s Washington, DC. Mr. Fayhee previously was with the United States Department of Justice for 11 years, where he was a leading national security prosecutor in the areas of economic espionage, export controls, sanctions enforcement and cybercrime. Through a number of investigations and prosecutions, Mr. Fayhee received special recognition from the Attorney General for devising a model approach to the identification and disruption of foreign military supply and proliferation networks. He also led an investigation and prosecution of a multinational company that resulted in the largest criminal fine to date for sanctions violations. Mr. Fayhee later served a term as the National Export Control Coordinator, the principal Department of Justice attorney overseeing export control and embargo investigations and prosecutions nationally. He was also a Trial Attorney with the Civil Frauds Section and an Assistant United States Attorney in the Northern District of Illinois, assigned most recently to the National Security and Cybercrime Section.

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Joseph Schoorl is an associate in Baker & McKenzie's Washington, DC office. Prior to joining the Firm, he worked as a clerk in the spring of 2012 and as a summer associate in 2011 at Baker & McKenzie. In addition, he interned with the Department of Commerce’s Office of Chief Counsel for Industry and Security. He advises US and non-US companies on licensing, enforcement actions, internal investigations and compliance audits, mergers and acquisitions and other cross-border transactions, and on the design, implementation, and administration of compliance programs.

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