By Heng Xie and Megha Rajagopalan
BEIJING May 7 Bank of China Ltd
has shut the account of North Korea's main foreign
exchange bank, which was hit with U.S. sanctions in March after
Washington accused it of helping finance Pyongyang's nuclear
The state-run Foreign Trade Bank was told its transactions
had been halted and its account closed, Bank of China, the
country's biggest foreign exchange bank, said in a brief
statement on Tuesday. It gave no reason for the closure and the
bank declined to comment further.
The closure is the first significant, publicly announced
step taken by a Chinese entity to curb dealings with North Korea
in the wake of international pressure to punish Pyongyang over
its banned nuclear and ballistic missile programmes.
"I think it is indeed a very noteworthy action," said Zhang
Liangui, a North Korea expert at China's Central Party School,
adding that Bank of China was probably concerned about its
reputation and thus closed the account.
"In taking this action I think there are political
considerations as well as considerations about its own
The U.S. sanctions prohibit any transactions between U.S.
entities or individuals and the Foreign Trade Bank.
Japan has followed suit while Australia is expected to do
the same soon. Washington has also urged the European Union to
impose sanctions on the Foreign Trade Bank and has raised the
issue with China, although Beijing has not commented publicly on
"We welcome reports that banks throughout the world,
including Bank of China, have announced that they have closed
the accounts of North Korea's Foreign Trade Bank," a senior U.S.
Treasury official said on Tuesday, adding that the Foreign Trade
Bank has facilitated millions of dollars in transactions that
have benefited North Korea's arms dealer.
The official added that U.S. Treasury Secretary Jack Lew
talked with Chinese officials about the matter during his visit
to Beijing in March.
Experts have said Washington's move was designed to make
foreign banks that do business in the United States think twice
about dealing with the Foreign Trade Bank, in much the same way
that banks have become wary about having ties with financial
institutions in sanctions-hit Iran.
China is North Korea's traditional ally and its biggest
trading partner. It is unclear how much of the $6 billion in
annual bilateral trade goes through the Foreign Trade Bank.
Among China's other large banks, a spokesman at China
Construction Bank said the bank did not do any
business with the Foreign Trade Bank.
Industrial and Commercial Bank of China and
Agricultural Bank of China were not immediately
available for comment.
China has become increasingly frustrated with North Korea in
recent months. It agreed to new U.N. sanctions after Pyongyang
conducted its third nuclear test in February.
Those sanctions, announced on March 7, target the North's
attempts to ship and receive cargo related to its nuclear and
missile programmes and tighten financial curbs, including the
illicit transfer of bulk cash.
The U.N. measures did not address the Foreign Trade Bank.
Washington imposed its own sanctions several days later.
NORTH KOREAN BANK WIDELY USED
Not much is known about the Foreign Trade Bank, whose assets
and investments are a state secret. But foreign embassies,
non-governmental organisations and U.N. agencies in Pyongyang
all use it.
Germany and France have expressed concern about the possible
impact on aid groups as well as European embassies should the EU
place sanctions on the bank, sources with knowledge of the
matter have previously said.
Washington has targeted North Korea's limited financial
links to the global community before. In 2005, some $25 million
in North Korean money was frozen in a U.S. Treasury-inspired
raid on Macau-based Banco Delta Asia, which Washington alleged
handled illicit funds for Pyongyang.
Reuters reported in April that Chinese banks had to rate
their clients' risk of criminal conduct on a scale of 1-5 as
part of the central bank's moves to curb money laundering and
fraudulent transactions estimated at hundreds of billions of
dollars a year.
The new rules come as some experts cite China as the world's
biggest source of "dirty" funds and as it faces growing foreign
pressure to scrutinise its financial links with North Korea and
block cash transfers tied to Pyongyang's nuclear ambitions.
South Korea's Yonhap news agency in March said Beijing had
warned North Korean banks to stay within the remit of their
permitted operations in China or risk penalties. Chinese
regulators have not commented on that report.
China has said it wants the U.N. measures enforced, but few
analysts believe Beijing will take steps that significantly hurt
North Korea as it is committed to a policy of engagement with
China has stepped up checks on shipments to and from North
Korea, but the flow of goods in and out of the reclusive state
appears largely unaffected, according to more than a dozen
trading firms Reuters spoke to recently.