By Heng Xie and Megha Rajagopalan
BEIJING (Reuters) - Bank of China Ltd has shut the account of North Korea's main foreign exchange bank, which was hit with U.S. sanctions in March after Washington accused it of helping finance Pyongyang's nuclear weapons programme.
The state-run Foreign Trade Bank was told its transactions had been halted and its account closed, Bank of China, the country's biggest foreign exchange bank, said in a brief statement on Tuesday. It gave no reason for the closure and the bank declined to comment further.
The closure is the first significant, publicly announced step taken by a Chinese entity to curb dealings with North Korea in the wake of international pressure to punish Pyongyang over its banned nuclear and ballistic missile programmes.
"I think it is indeed a very noteworthy action," said Zhang Liangui, a North Korea expert at China's Central Party School, adding that Bank of China was probably concerned about its reputation and thus closed the account.
"In taking this action I think there are political considerations as well as considerations about its own interests."
The U.S. sanctions prohibit any transactions between U.S. entities or individuals and the Foreign Trade Bank.
Japan has followed suit while Australia is expected to do the same soon. Washington has also urged the European Union to impose sanctions on the Foreign Trade Bank and has raised the issue with China, although Beijing has not commented publicly on the bank.
"We welcome reports that banks throughout the world, including Bank of China, have announced that they have closed the accounts of North Korea's Foreign Trade Bank," a senior U.S. Treasury official said on Tuesday, adding that the Foreign Trade Bank has facilitated millions of dollars in transactions that have benefited North Korea's arms dealer.
The official added that U.S. Treasury Secretary Jack Lew talked with Chinese officials about the matter during his visit to Beijing in March.
Experts have said Washington's move was designed to make foreign banks that do business in the United States think twice about dealing with the Foreign Trade Bank, in much the same way that banks have become wary about having ties with financial institutions in sanctions-hit Iran.
China is North Korea's traditional ally and its biggest trading partner. It is unclear how much of the $6 billion in annual bilateral trade goes through the Foreign Trade Bank.
Among China's other large banks, a spokesman at China Construction Bank <601939.SS> said the bank did not do any business with the Foreign Trade Bank.
Industrial and Commercial Bank of China <601398.SS> and Agricultural Bank of China <601288.SS> were not immediately available for comment.
China has become increasingly frustrated with North Korea in recent months. It agreed to new U.N. sanctions after Pyongyang conducted its third nuclear test in February.
Those sanctions, announced on March 7, target the North's attempts to ship and receive cargo related to its nuclear and missile programmes and tighten financial curbs, including the illicit transfer of bulk cash.
The U.N. measures did not address the Foreign Trade Bank. Washington imposed its own sanctions several days later.
NORTH KOREAN BANK WIDELY USED
Not much is known about the Foreign Trade Bank, whose assets and investments are a state secret. But foreign embassies, non-governmental organisations and U.N. agencies in Pyongyang all use it.
Germany and France have expressed concern about the possible impact on aid groups as well as European embassies should the EU place sanctions on the bank, sources with knowledge of the matter have previously said.
Washington has targeted North Korea's limited financial links to the global community before. In 2005, some $25 million in North Korean money was frozen in a U.S. Treasury-inspired raid on Macau-based Banco Delta Asia, which Washington alleged handled illicit funds for Pyongyang.
Reuters reported in April that Chinese banks had to rate their clients' risk of criminal conduct on a scale of 1-5 as part of the central bank's moves to curb money laundering and fraudulent transactions estimated at hundreds of billions of dollars a year.
The new rules come as some experts cite China as the world's biggest source of "dirty" funds and as it faces growing foreign pressure to scrutinise its financial links with North Korea and block cash transfers tied to Pyongyang's nuclear ambitions.
South Korea's Yonhap news agency in March said Beijing had warned North Korean banks to stay within the remit of their permitted operations in China or risk penalties. Chinese regulators have not commented on that report.
China has said it wants the U.N. measures enforced, but few analysts believe Beijing will take steps that significantly hurt North Korea as it is committed to a policy of engagement with Pyongyang.
China has stepped up checks on shipments to and from North Korea, but the flow of goods in and out of the reclusive state appears largely unaffected, according to more than a dozen trading firms Reuters spoke to recently.
(Additional reporting by John Ruwitch and Zhang Shengnan, and Anna Yukhananov in Washington, Writing by Dean Yates; Editing by Alex Richardson and Leslie Adler)