South Korean financial authorities are at a loss as suspicions are growing that North Korean coal was smuggled into South Korea. This is because they haven’t come up with clear measures yet, though the US government is expected to impose sanctions on not only Korea South-East Power Co., which is alleged to have imported North Korean coal, but also domestic banks which opened a letter of credit to facilitate the transactions.
South Korean financial authorities are even having difficulties finding out which banks are involved in the case. Both the Financial Intelligence Unit (FIU) and the Financial Supervisory Service (FSS) are trying to figure out the banks implicated in the issue, but they haven’t received sufficient data from the Korea Customs Service and the Ministry of Foreign Affairs. The two banks that are suspected of having opened a letter of credit also strongly deny the allegations.
In addition, how far the US Department of State set the level of sanctions on domestic banks has become a pressing matter. In 2005, the US Treasury banned American banks from dealing with Banco Delta Asia (BDA) after an investigation concluded that the Macao bank had helped North Korea launder money. The bank ended up declaring bankruptcy. Accordingly, some say that the domestic financial industry can suffer more serious blow than expected depending on the level of sanctions.
In this regard, the financial authorities expect that the US Department of State will take into account "intentionality" in setting the level of sanctions. In fact, the US Department of State is now examining whether the banks were aware of the fact in advance that North Korea was involved in the deal. There are no reasons that domestic banks engaged in the deal even after they knew it was North Korean coal. Therefore, the authorities believe that the bank will not face a high level of sanctions when intentionality is considered.