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US appeals court upholds ruling against Chinese banks in North Korea sanctions probe

[WASHINGTON] A US appeals court said on Tuesday it had upheld a ruling by a US judge who held three large Chinese banks in contempt for refusing to comply with subpoenas in a probe into violations of sanctions on North Korea, opening the way for heavy daily fines.

"The District Court's contempt orders against all three Banks appealed from in these causes is hereby affirmed," the US Court of Appeals for the District of Columbia Circuit said in a filing on Tuesday. It did not make public the reasons.

In a ruling in May, Beryl Howell, Washington DC's chief federal district judge, held the banks in contempt for refusing to comply with US investigators' demands that they hand over records connected to the alleged movement of tens of millions of dollars in violation of international sanctions on North Korea.

She did not identify the banks, but details in the ruling aligned with a 2017 civil forfeiture action against China's Bank of Communications, China Merchants Bank and Shanghai Pudong Development Bank. All three are listed on the Shanghai Stock Exchange.

The May ruling ordered daily fines of US$50,000 on each bank for refusing to comply.

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The US Justice Department has accused the banks of working with a Hong Kong-based front company, Mingzheng International Trading Limited, which allegedly laundered more than US$100 million for North Korea's Foreign Trade Bank.

The Washington Post reported in June that the contempt ruling put Shanghai Pudong Development Bank at risk of losing access to US dollar transactions. The bank has no US branch operations but maintains accounts in the country to handle dollar transactions.

The US Patriot Act allows the US attorney-general or Treasury secretary to cut foreign banks off from dealing with US financial institutions if they fail to comply with subpoenas.

According to court filings, the three banks have said the Chinese government ordered them not to provide the records. They have the option to ask the appeals court to reconsider its judgment or to take the case to the US Supreme Court.

The news came after a new round of US-China negotiations aimed at ending a tit-for-tat trade war got underway in Shanghai. On Tuesday, US President Donald Trump warned China against waiting out his first term to finalise any deal, saying that if he wins re-election in the 2020 US presidential contest, the outcome will be worse for China.

China is North Korea's neighbor and main trading partner but has committed to enforcing international sanctions aimed at pressing Pyongyang to give up its nuclear weapons.

After Judge Howell's contempt ruling the Chinese foreign ministry said it asked firms to cooperate with the local judicial and law enforcement bodies but it was against US "so-called long arm jurisdiction on Chinese companies."


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