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US exposes North Korea blockchain plot to evade ship sanctions

Hackers induced investors to fraudulently use cryptocurrency to own shares in North Korean cargo vessels

Kim Il (above) charged in Marine Chain Token indictment. (Image: Shutterstock/U.S. DOJ)

A North Korean computer hacker has been charged in a plot using blockchain to get investors to unknowingly fund North Korean cargo ships with cryptocurrency as a way to evade U.S. sanctions.

The hacker, known as Kim Il, was part of a group of three computer programmers named in a federal indictment unsealed Wednesday in Los Angeles by the U.S. Attorney’s office. The indictment exposes a wide-ranging conspiracy to steal and extort more than $1.3 billion in money and cryptocurrency from financial institutions and companies and to fraudulently market a blockchain platform.

“The scope of the criminal conduct by the North Korean hackers was extensive and long-running, and the range of crimes they have committed is staggering,” said Acting U.S. Attorney Tracy Wilkison. “The conduct detailed in the indictment are the acts of a criminal nation-state that has stopped at nothing to extract revenge and obtain money to prop up its regime.”

As outlined in the indictment, prosecutors alleged that in 2017 and 2018, Kim Il was involved in creating a digital token called Marine Chain Token, supported by a blockchain, which would allow investors to buy fractional ownership in cargo ships, thereby hiding the fact that the vessels were owned and controlled by North Korea.

“Defendant Kim Il and other conspirators would raise funds for the Marine Chain platform through an [initial coin offering], which would, in part, entail communicating with potential investors using false and fraudulent names in order to convince them to invest in the Marine Chain platform,” according to the indictment.

“Defendant Kim Il and other conspirators would not disclose to these individuals that the conspirators were [North Korean] citizens or that they were communicating using false and fraudulent names. They also would not disclose to investors that a purpose of the Marine Chain Token was to evade United States sanctions on North Korea.”

The indictment is a significant revelation of the means by which North Korea has been evading U.S. sanctions put in place in an effort to block the financing of the country’s nuclear program. The U.S., along with the United Nations, has imposed such sanctions on North Korean oil and coal shipping over the past two years.

Previous known tactics used by Pyongyang to evade those sanctions included transferring cargo to and from Chinese and Russian tankers while the ships are at sea to avoid detection. North Korean ships have also resorted to turning off a vessel’s location transponder and falsifying ship flags or reflagging illegally under another country.

Kim Il and his co-conspirators are charged with one count of conspiracy to commit computer fraud and abuse, which carries a statutory maximum sentence of five years in prison, and one count of conspiracy to commit wire fraud and bank fraud, which carries a maximum sentence of 30 years in prison, according to the U.S. Attorney.

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John Gallagher

Based in Washington, D.C., John specializes in regulation and legislation affecting all sectors of freight transportation. He has covered rail, trucking and maritime issues since 1993 for a variety of publications based in the U.S. and the U.K. John began business reporting in 1993 at Broadcasting & Cable Magazine. He graduated from Florida State University majoring in English and business.