DoJ, Treasury accuses 3 men of laundering crypto for North Korea

April 26, 2023 TH Author

The US government is aggressively pursuing three men accused of wide-ranging and complex conspiracies of laundering stolen and illicit cryptocurrency that the North Korean regime used to finance 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 Hong Kong British national, for their roles in two money laundering conspiracies, both aimed at channeling funds into North Korea’s coffers.

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

Wu was also indicted for operating as an unlicensed over-the-counter (OTC) trader on a US-based crypto exchange, where he conducted more than 1,500 trades for US customers of more than $800,000.

At the same time, the Treasury Department this week, through its Office of Foreign Assets Control (OFAC), placed sanctions on all three men, blocking properties in the US that they own or have a direct or indirect interest in and threatening sanctions against individuals or foreign financial institutions that conduct business with any of them.

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

Rewards of $500,000 each were set for Sim’s alleged 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-sponsored groups – that is then laundered and sent to the regime to fund its programs around weapons of mass destruction (WMD) and ballistic missiles, which the US and other countries deem national security threats.

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

“The charges… highlight the ways in which North Korean operatives have innovated their approach to evading sanctions by exploiting the technological features of virtual assets to facilitate payments and profits, and targeting virtual currency companies for theft,” Assistant Attorney General Kenneth A Polite Jr of 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 numerous attacks around the world for more than a decade, targeting a variety of industries from financing 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 game Axie Infinity, developed by Sky Mavis. The FBI also linked Lazarus – which the Treasury said is run by North Korea’s intelligence agency Reconnaissance General Bureau – to the theft of $100 million in crypto assets from blockchain startup Harmony and its Horizon Bridge service.

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 enable the transactions to run out of sight of financial institutions and government authorities, according to the Treasury. Wu, a China-based OTC trader, is accused of working with 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 nationals to avoid financial institutions and access the US financial system.

For his part, Sim, who lives in China, 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 of having IT workers in the country fraudulently get jobs in the tech and crypto fields with US-based companies by using fake identities.

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

That apparently is where the other set of charges against Sim, Han, and Qin for the alleged tobacco operation comes in. The three are accused of using multiple front companies to buy tobacco products and other goods for North Korean consumers and laundered the US dollars for the shipments. The tobacco that was imported was used to make counterfeit cigarettes, with the money from the sales going to the North Korean government, according to the State Department.

The DoJ’s criminal investigation was run by the FBI’s Chicago office. The money laundering conspiracy charge carries a maximum sentence of 20 years in prison, while a conviction of operating an unlicensed money transmitting business – which was filed against Wu – comes with a maximum of five years in prison. ®