(Yicai Global) June 25 -- Three of China's biggest commercial banks have each denied involvement in any investigations by the US related to potential violations of sanctions against North Korea.

Disavowals from China Merchants Bank, Bank of Communications and Shanghai Pudong Development Bank came after The Washington Post reported yesterday that a Stateside judge ruled three unidentified Chinese banks in contempt of court for refusing to comply with these probes.

The shares of all three lenders plunged today, but their denials this afternoon cushioned the declines. China Merchants Bank slipped the most, falling 4.8 percent at the close.

The US Department of Justice claimed the banks worked hand-in-glove with a Hong Kong-based front firm that the agency alleged laundered more than USD100 million on behalf of North Korea's sanctioned Foreign Trade Bank, per The Washington Post report.

This development comes just as the US and China are ratcheting up trade tensions over tariffs, technology, intellectual property, subsidies, cyber-security, and other issues. President Xi Jinping is set to meet his US opposite number Donald Trump this week at the G-20 summit in Japan in an attempt to pour oil on their troubled trade waters.

The US judge found the banks in contempt for refusing to comply with grand-jury subpoenas in the sanctions investigation. The order may trigger for the first time a provision that could isolate the banks from the US financial system, the report said.

The ruling by Chief Judge Beryl A. Howell of the US District Court for the District of Columbia means Treasury Secretary Steven Mnuchin or Attorney General William Barr may close the banks' US accounts and stop them conducting transactions in US dollars in a potentially far-reaching penalty.

Bank Statements

China Merchants Bank is aware of the report, the Shenzhen-based lender said in its response. The bank is in full compliance with applicable UN resolutions and Chinese laws and is not involved in any investigations relating to possible violations of sanctions, it added.

Shanghai-based Bank of Communications' response was substantially the same as that of China Merchants Bank.

Shanghai Pudong Development Bank is aware of the report, it said, adding the matter stems from the US court's order to it to provide customer information. No organization, individual or other entity may provide such data without permission under Chinese law, it said.

SPDB is not involved in any investigations related to possible violations of sanctions, it stated, adding that as a listed company registered in China, the bank hews to the business management philosophy of compliance with and strict obedience to applicable laws and regulations.

The US court's bid to obtain customer information from these Chinese commercial banks falls into the category of judicial assistance for cross-border investigation and evidence collection. The China-US Criminal Judicial Assistance Agreement mandates that judicial assistance must be rendered in accordance with its terms.

Banking Stocks

Chinese bank stocks all moved lower today. CMB [SHA:600036; HKG:3868] led the declines, diving as much as 9 percent in Hong Kong. It quickly rallied after its denial and ended trading at CNY36.13 (USD5.26) in Shanghai, after earlier slumping about 7 percent. The bank closed 4.2 percent lower in Hong Kong at HKD2.28 (USD0.29) in the wake of a 7 percent tumble.

BoCom [SHA:601328; HK:3328] fell as much as 3 percent in Shanghai and its decline in Hong Kong hit 4.4 percent at one point. It closed down 3 percent at CNY6.10 in Shanghai and 3.7 percent lower in Hong Kong at HKD5.95.

SPDB's shares [SHA:600000] fell 3.1 percent to end at CNY11.66, recovering a little from an intra-day slump of as much as 4 percent.

The US has blacklisted several Chinese companies, most notably telecom equipment-maker Huawei Technologies and earlier fellow telecom gear maker ZTE -- also over alleged flouting of sanctions -- even as China drafts its own list of suspect foreign companies, organizations and persons.

Editors: Xu Wei, Ben Armour