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The volume of oil shipped to North Korea in violation of international sanctions on the country fell dramatically in 2021, but the UN says Pyongyang is still using a network of enablers in China, Taiwan and elsewhere in Asia to circumvent the embargo.

The UN has imposed a series of sanctions on North Korea in an attempt to stymie its development of weapons of mass destruction, including an oil embargo that caps imports of refined petroleum products at 500,000 barrels per year.

The latest annual report by the UN Panel of Experts monitoring global compliance with the sanctions suggests that illicit deliveries of oil are dramatically lower than previous years, mainly because of North Korea’s efforts to curb the Covid-19 pandemic.

Ten UN member states submitted a report to the panel in December last year with satellite images purporting to show 18 deliveries of refined petroleum to North Korean ports, which if 90% laden would have delivered 323,000 barrels. Further vessels waiting to unload and captured on satellite imagery would push the figure to 526,000 barrels.

While the numbers are low compared to previous years – between January and September 2020 almost 4.5 million barrels were estimated to have been delivered – the panel noted a “sharp” increase in the latter part of 2021, suggesting the illicit trade is bouncing back.

Meanwhile, member states themselves only recorded delivering 38,300 barrels North Korea under the allowed regime, just 7.67% of the volume available to the country under the 500,000 barrels cap.

 

Ship-to-ship transfers continuing

The panel’s previous reporting found that in addition to North Korea’s own fleet, vessels from other jurisdictions also visited the country’s ports. However, the panel said those visits stopped completely during 2021, which it described as a “marked change of methodology”.

Nevertheless, several tankers operated by parties outside North Korea offloaded oil cargoes to North Korean vessels via ship-to-ship transfers, according to evidence laid out in the report.

“Much of the petroleum products delivered to the Democratic People’s Republic of Korea (DPRK) are sourced from oil terminals across East Asia and delivered via ship-to-ship transfers,” the panel wrote.

Examples provided by the panel include the Sky Venus and Sunward vessels, which the report says took on oil from Taichung port in Taiwan before allegedly delivering cargo to North Korean vessels through a chain of ship-to-ship transfers in order to “deceptively appear one or several steps removed from the oil transfers to suspect vessels” and hoodwink those attempting to track the cargo.

The Sky Venus and Sunward are owned by Taiwanese shipping company Cheng Chiun Shipping Agency Co. Ltd via two companies – registered in Samoa and the Seychelles – which were described by the panel as shell companies designed to make and receive payments related to the cargoes.

An unidentified country told the panel that the company “was aware of the sanctions evasion activity and attempted to cover up their activities”. Cheng Chiun could not be reached for comment but a legal representative of the company told the panel that the company denied having “transported refined petroleum product(s) to DPRK-related vessels through… oil tankers” and said that the cargoes were sold to an unnamed Hong Kong company and transferred to inland ships and fishing boats.

The panel also confirmed the use of increasingly sophisticated tactics, known as vessel identity laundering, in an attempt to deceive authorities, traders and banks over the true identity of a vessel. It said that a “clean” identity, with International Maritime Organization registration, was being used by multiple ships suspected of engaging in illegal oil exports to North Korea.

It said at least three vessels had assumed the identity of the ship F. Lonline, purportedly registered in Belize, while carrying out illicit ship-to-ship transfers.

While the panel’s reports detail suspicious activities by numerous vessels each year and maintains a list of designated vessels subject to global sanctions, the UN has not added a vessel to that list since 2018 due to resistance from China, meaning financial institutions and traders have to rely on wider intelligence to assess the risks posed by individual ships.

The panel recommended that “financial institutions include AIS [automatic identification system] screening and vessel due diligence risk assessment clauses in letters of credit, loans and other financial instruments issued to commodity traders involved in the oil and petroleum products industry in the affected areas”. AIS allows vessels to be tracked.

It also asks that “trading companies, tanker fleets and segments of the affected free-on-board markets review the AIS history and any known use of fraudulent identities of all vessels to or from which they intend to supply or receive products/commodities banned under the resolutions”.

 

Singapore’s Winson claims vindication

The report includes further details on allegations contained in the panel’s interim report last year, and a separate independent investigative report concerning Singapore oil trader and bunkering conglomerate Winson.

The interim report said that a Taiwanese company called Sino Global purchased several cargoes of oil which it then delivered, via a ship time-chartered from Winson, to a vessel which transported the oil to North Korea.

Winson said it conducted all business with Sino Global on an arms-length basis but the interim report said that Sino Global’s sole shareholder and director, Chien Chi-wei, is “closely related” to an unidentified senior Winson employee.

The latest report includes a sample of bank records collected by the panel which show that Sino Global was paid US$45mn by four Hong Kong companies for oil that was delivered to North Korea between September 2019 and August 2020.

The panel requested beneficial ownership information on the companies from Chinese authorities, who replied: “China finds no involvement in DPRK-related activities or trade of refined petroleum products by the four Hong Kong companies mentioned in the Panel’s letter.” The authorities also questioned the credibility of the panel’s sources.

A spokesperson for Winson says in a statement to GTR that China’s response, and the fact that the unnamed banks which remitted the funds said they did not find evidence of North Korean involvement, “vindicates Winson’s position that it has been the victim of a targeted campaign, which has served no purpose other than to smear Winson’s reputation”.

“The subsequent independent investigations, which were carried out at the behest of the UN Panel itself, have laid bare this thinly-veiled campaign against Winson, and have completely undermined the credibility of both the UN Panel, as well as its sources.” The spokesperson says there was no evidence that cargo sold to Sino Global was transferred to North Korea, or that Winson was involved.

Publicly available mortgage documents from Panama’s maritime registry, where several Winson-owned vessels have been registered, show that the company has benefited from large trade finance facilities and that South Korea’s development finance institution, the Korea Development Bank (KDB), has been a key banker for the trader.

The registry documents show that KDB and its Hong Kong subsidiary acted as mandated lead arrangers, facility agents and security agents for a revolving credit facility for Winson dated September 2020. KDB was also the largest lender in the facility, providing US$40mn, the remainder extended by banks in China, Hong Kong and Macau.

Representatives of KDB did not respond to requests for comment from GTR.

One mortgage document lists several large international banks as previously providing trade finance facilities to Winson. ING and Credit Suisse are listed as extending the two largest facilities, of US$550mn and US$500mn respectively, as of September 2020. UBS and Crédit Agricole are also listed as providing facilities of US$350mn and US$300mn apiece. Other lenders include Singapore’s United Overseas Bank (UOB) and Taiwan’s Mega International Commercial Bank.

Asked if they are still providing credit facilities to Winson, ING, Credit Suisse and UOB declined to comment. UBS and Credit Agricole did not respond to questions, while Mega International could not be reached for comment.