Chinese banks react to reports of US investigations on 'violations' of DPRK sanctions

Three Chinese banks said on Tuesday that they had followed all regulations and acted in good faith following foreign media reports of an investigation against them by US authorities for the so-called violation of sanctions on the Democratic People's Republic of Korea.

The Washington Post reported that the US Justice Department was looking into allegations that Bank of Communications, one of China’s top six state-owned lenders, China Merchants Bank and Shanghai Pudong Development Bank worked with a Hong Kong company in laundering more than US$100 million into DPRK's state-run Foreign Trade Bank.

The three banks face the prospect of hefty financial penalties as they were reported for contempt for refusing to comply with subpoenas following an investigation into the violation, the Washington Post reported.

Bank of Communications argued that the US court’s requests for banking records stored outside its territory should be made through a Sino-US legal assistance pact. Such cross-border investigations should be conducted in accordance with the provisions of relevant laws.

China Merchants Bank noted that its operations have been compliant with all laws and Shanghai Pudong Development Bank said relevant laws and regulations bar it from providing any customer information to overseas organizations without due permission. 

The three banks said they had not been subject to investigation for alleged violation of any sanction law.

Bo Xiangrui, chief legal adviser of the China Banking Association, said that US' "long-arm jurisdiction" is in essence an infringement of other countries' judicial sovereignty and a violation of the spirit of international law.

As some large Chinese banks have branches in the United States, the US courts usually use these branches as "connection points" to determine minimum connections between these banks and the courts, thus exercising jurisdiction over the head offices of these banks and even their domestic branches, he explained.

Chinese banks are often involved in litigations simply because they are the account opening institutions for their customers, who are involved in US court cases, Bo said.

Without the consent of relevant Chinese authorities, the US courts’ ruling that Chinese banks should directly provide customer information is a typical exercise of long-arm jurisdiction and is a clear violation of a series of Chinese laws, the legal adviser said.