The United States Treasury Department has recently revealed that it has identified certain cryptocurrency traders who have been assisting North Korea’s Lazarus Group in converting stolen cryptocurrency into fiat currency. The sanctioned crypto traders were located in China and Hong Kong and the Treasury’s Office of Foreign Assets Control (OFAC) imposed the restrictions.
The OFAC has sanctioned Wu Huihui for “providing material support to the Lazarus Group”. As per the statement issued by the Treasury Department on April 24, Wu, a China-based individual, was involved in the conversion of millions of US dollars’ worth of cryptocurrency into fiat currency for North Korean cyber operatives in several transactions conducted in 2021.
Although the Chinese government restricts activities related to cryptocurrency, Over-the-Counter (OTC) transactions are still possible. Networks of OTC traders, including those based in the People’s Republic of China (PRC), are often used by DPRK actors to conduct transactions on their behalf in order to avoid being detected by financial institutions or authorities.
In addition to Wu, Cheng Hung Man, a British national based in Hong Kong, has also been sanctioned for aiding Wu in gaining access to the US financial system using businesses as fronts to avoid detection.
Sim Hyon Sop, a North Korean national residing in China, has been identified as a deputy representative of the Korea Kwangson Banking Corp and has been implicated in coordinating financial transfers from traders, including Wu and Cheng. The illicit transactions orchestrated by Sim ended up supporting North Korea’s weapons of mass destruction and ballistic missile programs.
The Justice Department has also announced two indictments against Sim charging him with conspiring with OTC traders to buy goods for North Korea using stolen funds, and North Korean IT workers to generate income through illegal employment in the United States. The federal indictments were issued for Wu, Cheng, and Sim on April 18, 2023, with the Federal Bureau of Investigation and the South Korean government both participating in the investigation.
The Treasury Department also revealed that products such as tobacco and communication devices are commonly acquired by North Korea using fiat derived from cryptocurrency exploits. The Lazarus Group has been involved in several high-profile hacks including the Harmony Bridge hack and the Ronin Bridge hack, among other major exploits.
The recent sanctions imposed by the US Treasury are aimed at curbing North Korea’s financing of its prohibited weapons programs, which have continued despite international efforts to stop it. Sanctions against cryptocurrency traders may deter them from facilitating illegal activities that fund the country’s weapons programs, and tracking North Korea’s activities in cryptocurrency markets could provide the US government with insights into the country’s financing activities.
This is not the first time that North Korea has been accused of illegally acquiring cryptocurrency, as it has previously initiated high-profile cyberattacks and hacks on cryptocurrency exchanges to steal digital currencies. Therefore, monitoring cryptocurrency in the country has become a significant focus of national security efforts in the US and other countries.
The recent developments have highlighted the need for increased regulatory measures to control the use of cryptocurrencies for illicit activities, especially in relation to emerging markets where such measures may not be adequately enforced. The identification of cryptocurrency trading methods used by North Korea has also raised concerns about the potential misuse of digital currencies in other countries that can finance similar illegal activities.
In response to North Korea’s continued involvement in illegal activities, sanctions targeting the regime have been imposed by several countries. However, these measures have not been successful in entirely eliminating the problem. Therefore, there is an urgent need for policymakers and regulators worldwide to enhance their control mechanisms to prevent the financing of such illegal activities through cryptocurrency.
In conclusion, while technology can provide numerous advantages, it can also be misused to fund illegal activities that threaten national security. The recent OFAC sanctions against cryptocurrency traders aiding North Korea’s government and hackers are an essential step towards ensuring that cryptocurrencies are not misused to fund illegal activities. A more stringent global regulatory framework is needed to reduce the vulnerability of the cryptocurrency industry to criminal activities, making it transparent and accountable for individuals and nations using it. The continued cooperation and coordination between different countries and government agencies are required to combat the increasing threat of cybercriminals and state-sponsored hacking groups.