A Chinese oil broker whose activities were exposed by an investigation by the Financial Times has been arrested in South Korea on suspicion of organizing illegal shipments of diesel to North Korea.
The broker is suspected of arranging more than 35 transfers worth 18,000 tons of diesel in deals valued at 18 billion Won ($14.6 million) by the South Korean Coast Guard.
South Korean coast guard investigators said the agent arranged for a Russian oil tanker operated by a South Korean oil company to transfer fuel from ship to ship with a Chinese vessel in the South China Sea. The Chinese ship then conducted ship-to-ship transfers with North Korean vessels in violation of UN sanctions.
Last month a joint FT investigation and the Royal United Services Institute think tank tracked the delivery of marine oil from South Korea’s southeast coast to North Korea’s exclusive economic zone last year.
The investigation revealed that an unnamed Chinese shipping agent had brokered an agreement between a South Korean company called Eastern Pec and a Shanghai-based company called Met Ocean Co to carry out fuel shipments in the South China Sea.
The offshore oil was transported from South Korea to the meeting point in East Pec using a Russian oil tanker called the Mercury, which it leased from a company based in Vladivostok. The cargo was then transferred to a Chinese ship called Shundlli operated by Met Ocean.
In a “guarantee letter” seen by the FT, Met Ocean promised Eastern Pec it would not deliver the shipment North Korea. However, satellite images and tracking data show the Shundlli making an apparent move with a second ship in North Korea’s EEZ.
The Coast Guard confirmed that the agent arrested late Monday, who is a naturalized citizen of South Korea, was the same person who brokered the deal between Eastern Pec and Met Ocean. Authorities took action amid fears the agent could become a flight risk after his activities were exposed.
The broker was detained on charges related to shipments made between October 2021 and January 2022, which authorities say do not involve Merkur, Shundlli or Eastern Pec. An investigation into the operation revealed by the FT is ongoing, they added.
“The FT report helped us expand our investigation and allowed us to ask the broker about other trades he was involved in,” the Korean Coast Guard official said. “We are also investigating his other activities regarding Mercury and the Eastern Furnace.
Eastern Pec said the operation uncovered by the FT was the first time it had worked with the broker.
The UN Security Council imposed a limit on permitted oil transfers to North Korea in 2017 following Pyongyang’s sixth and final nuclear test. The ceiling of 500,000 barrels per year is well below the energy needs of the North Korean economy.
All such oil transfers must be reported to the UN Sanctions Committee, but in practice this is only a fraction. An unreported transfer constitutes a violation of sanctions.
Go Myong-hyun, a sanctions expert at the Asan Institute for Policy Studies in Seoul, said the moves helped shore up North Korea’s battered economy as well as Pyongyang’s ability to train and build its armed forces and sustain its weapons development programs.
“No matter how big or small, this shows that the South Korean authorities must identify these operations and crack down hard on them,” he said.