DoJ, Treasury charge 3 men with laundering crypto for North Korea • The Register

The US government is aggressively pursuing three men accused of extensive and complex conspiracies to launder stolen and illegal cryptocurrencies that the North Korean regime used to fund its massive weapons programs.

The Department of Justice (DoJ) this month indicted North Korean national Sim Hyon Sop, Wu HuiHui of China and Cheng Hung Man, a British citizen in Hong Kong, for their roles in two money laundering conspiracies, both aimed at funneling funds into North Korea’s coffers.

The feds indicted a fourth unknown person who uses the online name “live:jammychen0150” and whom they refer to as “Chen.”

Wu was also charged with operating as an unlicensed over-the-counter (OTC) trader on a US-based crypto exchange, where he executed more than 1,500 trades for US clients worth more than $800,000.

At the same time, the Treasury Department this week, through the Office of Foreign Assets Control (OFAC), placed sanctions on all three men, froze properties in the United States in which they own or have a direct or indirect interest, and threatened sanctions against individuals or foreign financial institutions that do business with some of them.

Additionally, the State Department announced a reward of up to $5 million for information leading to the arrest or conviction of Sim — a representative of Korea Kwangson Banking Corp (KKBC), which has itself been sanctioned by the United States for aiding North Korea — in connection with another conspiracy involving money laundering and tobacco shipments that ultimately funneled money to North Korea.

Rewards of $500,000 each were set for Sim’s alleged co-conspirators, Han Linlin and Qin Gouming. All three were indicted by the FBI for the tobacco scheme.

Crypto for weapons

The Democratic People’s Republic of Korea (DPRK) is known for running complex operations designed to steal or generate crypto—often through state-backed groups—which are then laundered and sent to the regime to fund its weapons of mass destruction (WMD) and ballistic missile programs, which The United States and other countries consider as national security threats.

North Korea has operated such increasingly creative cyber schemes since at least 2017.

“The indictments … highlight the ways in which North Korean operators have renewed their approach to evading sanctions by exploiting the technological capabilities of virtual assets to facilitate payments and profits, and targeting virtual currency companies for theft,” said Assistant Attorney General Kenneth A Polite Jr. The DoJ’s criminal division said in a statement.

In one of the conspiracies, Wu and Cheng are accused of providing support to the notorious Lazarus Group, a group linked to a series of attacks around the world for more than a decade, targeting a range of industries from finance and manufacturing to media, entertainment and Shipping.

A year ago, it stole almost $620 million in Ethereum from a decentralized finance (DeFi) platform linked to online gaming Axie Infinity, developed by Sky Mavis. The FBI also linked Lazarus — which the Treasury Department said was run by North Korea’s Reconnaissance General Bureau — to the theft of $100 million in crypto assets from blockchain startup Harmony and its Horizon Bridge service.

Money laundering through OTC traders

North Korea tends to launder the stolen crypto through OTC virtual currency traders to convert it into traditional money. Often, these OTC traders are based in China to allow the transactions to run out of sight of financial institutions and government authorities, according to the Ministry of Finance. Wu, a China-based OTC trader, is accused of working with the Lazarus Group to convert the crypto in 2021 by processing millions of dollars worth of virtual currency.

Cheng is a Hong Kong-based OTC trader who worked with Wu and other traders, according to the DoJ. He used front companies to enable North Korean citizens to avoid financial institutions and gain access to the US financial system.

Sim, who lives in China, in turn coordinated millions of dollars in financial transfers to North Korea through his position at KKBC, which is owned by North Korea’s Foreign Trade Bank. Tens of millions of those dollars allegedly came through another North Korean-backed scheme to get IT workers in the country to obtain jobs in the tech and crypto fields with US-based companies using false identities.

The workers ask to be paid in crypto and send most of their wages to North Korea through complex money laundering operations. Sim allegedly received some of that money and, working with OTC traders, including Wu and Cheng, routed the payments through front companies that pay for goods such as tobacco and communications devices for the North Korean regime.

This is apparently where the second set of charges against Sim, Han and Qin for the alleged tobacco operation comes in. The three are accused of using several front companies to buy tobacco products and other goods for North Korean consumers and laundering US dollars for the shipments. The imported tobacco was used to make fake cigarettes, and the money from the sales went to the North Korean government, according to the State Department.

The DoJ’s criminal investigation was conducted by the FBI’s Chicago office. The money laundering charge carries a maximum sentence of 20 years in prison, while a conviction for operating an unlicensed money transfer business – which was brought against Wu – carries a maximum of five years in prison. ®