How do you make the words “never again” mean something in a place like North Korea? Certainly the very publication of the U.N. Commission of Inquiry’s report has done the regime great reputational harm, obstructed the regime’s apologists’ efforts to normalize it, and cost it much investment from which its elites might have profited. I increasingly see and hear talk of kicking North Korea out of the U.N. — which wouldn’t prevent diplomacy or humanitarian aid any more than it does in Gaza, but which Russia and China would certainly veto.
One even sees legal scholars raising the idea of a Cambodia-like tribunal under South Korean law, an idea that was so radical and out of alignment with Park Geun-hye’s policies that I hesitated to suggest it back in 2014. But sadly, that, too, remains a near-impossibility in a political climate in which “mainstream” left-of-center politicians ask Pyongyang for instructions before taking U.N. votes, and continue to stall the implementation of South Korea’s new human rights law. They will have to answer to their children.
But so will we have to answer to ours, and as Kim Jong-un’s enablers obstruct accountability, it falls on the United States to show its allies the way to impose accountability now. Writing in The Washington Quarterly, Jung-Hoon Lee, the South Korean Ambassador for Human Rights and founding Director of the Center for Human Liberty at Yonsei University, and Joe Phillips, an Associate Professor of Global Studies and another founding Director of the Human Rights Center at Pusan National University, review the options and the COI’s recommendations, and find that targeted sanctions are likely one of “our most effective options” now.
Another commission recommendation is targeted sanctions, which focus on leaders, other decision-makers, their principal supporters, and discrete economic sectors. Against North Korea, they can serve multiple goals: they may coerce officials to cooperate on human rights, deny the government resources needed to engage in human rights violations, and stigmatize behavior. [link]
I especially liked this part. Not only was it an accurate statement of the law, it was impeccably sourced.
There are naysayers when it comes to North Korean sanctions. They argue that an array of heavy penalties has failed to produce positive results. That is far from the truth. Until the Security Council’s March 2 resolution, international sanctions were weak compared to those against other countries like Iran.31 Even with the new, tougher Council resolution, enforcement has a long way to go.
Lee and Phillips go on to point out that this must be a multilateral project, and that many U.N. member states have yet to show much understanding of the resolutions, much less submit their implementation reports. That will require stronger diplomatic efforts, which South Korea has exerted and the Obama administration has not.
Besides the WMD-related targets, priority should remain on the sources of North Korea’s foreign currency such as sales of illegal drugs, counterfeiting, arms trafficking, and exporting labor. Embargoing luxury goods is also an effective tactic. North Korean leadership expert Ken Gause has chronicled the critical role that gift-giving plays in the stability of Kim Jong Un’s regime. He argues that sanctions have the effect of constricting the regime’s ability to continue this largess and consolidate power.33
China and other countries exporting these non-essential goods are vulnerable to a global ‘naming and shaming’ campaign as well as secondary sanctions. Seoul, meanwhile, is in a much better position to push other states to enforce firmer sanctions now that it has shut down the Kaesong Industrial Park, a North–South collaborative economic project within the DPRK where the North provided workers to South Korean manufacturers. Turning a blind eye to Kaesong’s ‘forced labor’ conditions, not to mention the transfer of about US$9 million annually to the Pyongyang regime, has for years compromised South Korea’s principles. At a minimum, sanctions are a normative declaration that we are not oblivious to the North’s atrocities and that countries and firms which do business with Pyongyang are trafficking with an international pariah.
The article then discusses some of the same loopholes in the existing sanctions that should be closed. While we’re on that topic, I’ve posted a new page on policy options that covers much of this territory, and more.
Other models for bilateral action include the 2016 Gardner-Menendez North Korea Sanctions and Policy Enhancement Act, which requires the U.S. president to investigate any person who knowingly engages in serious human rights abuses, issue a report identifying severe human rights abusers, and sanction them, such as through forfeiture of property. President Obama’s Executive Order 13687, issued in 2015, links U.S. security to ending the North’s human rights violations and allows the Office of Foreign Assets Control to designate for sanctions North Korean cover companies and individuals, exposing them and subjecting their global businesses to penalties.
Hat tip to Steph Haggard. Lee and Phillips don’t mention the individual designation of Kim Jong-un for human rights abuses in July, perhaps because their article was a long time in the writing and publication. Knowing that might have helped them sharpen the debate about how to use sanctions. Those designations ought to have been more than bad publicity. They ought to have marked the start of a global campaign to find and freeze the offshore bank accounts without which Kim Jong-un’s throne would crumble beneath his weight. Until we do this, Pyongyang will never have to make the existential choice to change or perish.
In yesterday’s post, I wrote about only the second group defection of North Korean overseas workers of which I’m aware — of a group of North Korean construction workers in St. Petersburg, Russia. I also took note of the defection of a young translator from the North Korean embassy in Beijing, who had been detailed to the State Security Department, translating for the minders who do inspections of the North Korean workers elsewhere in China.
It’s one thing when workers defect; that’s why Pyongyang sends out minders. It’s more concerning when the minders start defecting. And when the Obergruppenführers who mind the Pyongyang elites and all the other, lesser minders start to defect, that’s a new stage of the metastasis.
Last week, the South Korean government disclosed that a “director-level” SSD official, who “was in charge of identifying trends in public sentiment among the residents of Pyongyang,” defected last year. (That would be in addition to the colonel who defected from the Reconnaissance General Bureau, also last year.)
According to (yes, you guessed it) unnamed South Korean government sources, this defector brought with him “confidential information on the Kim regime, and the leadership’s surveillance methods critical to maintaining control of the population.” The SSD official also reports that Pyongyang is rife with “negativity about the Kim Jong Un regime.”
The defector reportedly told South Korean government interviewers members of his bureau were uncomfortable with Kim’s rule, and after watching “others bounce,” state agents are “bouncing,” or exiting the regime. Increasing lack of faith in the North Korean leader among the Pyongyang security officials is surprising, given that the state security agency’s chief, Kim Won Hong, is believed to be the unofficial No. 2 in political power in North Korea, according to Yonhap. [UPI]
More on that here. South Korean media are also reporting that two other high-ranking North Koreas defected in Beijing last month, along with their families. One of them is said to be the Health Ministry official “in charge of procurement and acquisition of drugs and medical equipment” for His Porcine Majesty.
Although the Joongang Ilbo initially reported that the two men defected to (gasp!) Japan — I wonder why they’d consider that — “an intelligence source” now says that “the men are known to have come to the South and are in the process of being investigated.” The defections apparently happened several days before Park Geun-hye called on North Koreans to defect to the South. (Subsequent reports that Foreign Ministry official Kung Sok-un was purged as punishment for the defections appear to have been false.)
While others will undoubtedly disagree, I incline to the view that the recent tendency for diplomats, spies, fund managers, and vetted workers to defect is not “normal” for North Korea. Other reports also suggest that morale in Pyongyang is at a new low. The Daily NK even claims that some officials are consulting fortune tellers to choose the best time to flee. The saddest stories are of the North Korean parents who are sending their children overseas, ostensibly to study, knowing full well they’ll never return, and hatching improbable schemes to escape the repercussions they themselves could face for that.
“In North Korea, I came from a fairly affluent household, but I had a dream of learning IT [information technology] in the South,” said the defector, who asked to remain anonymous for the safety of his family, in a phone call with a JoongAng Ilbo reporter Wednesday. “My parents told me to study what I wanted to in the South and sent me here.”
His parents reported to the North Korean government that their child met with an accidental death in China.
Another source in China who conducts business with North Korea recently met with a ranking official of Pyongyang’s ruling Workers’ Party in Beijing.
“The Workers’ Party official made a request to me: ‘North Korea is like a sinking boat. I will send my child, so please take care of that kid,’” the businessman said. “I get such requests from North Korean elites from time to time.” [Joongang Ilbo]
It’s heartbreaking to think about the choices these desperate parents are confronting. A mother who sends one child away to safety and a better future consequently risks condemning her other children, and herself, to die in the gulag.
Of course, when we speak of a place where viewpoints are so absolutely stifled and the idea of scientific opinion polling is laughable, anecdotes may be the best evidence we have, which makes us all blind men feeling different parts of the same elephant. A hipster running a tour business in Pyongyang might come to believe that he really, honestly knows his guides’ and minders’ innermost thoughts, and that they’re broadly representative of elite opinion in Pyongyang. I incline to the view that the reports of abysmal morale in Pyongyang and elsewhere in the country are too numerous and consistent for them all to be wrong. A few of the recent reports of this-or-that purge or defection may turn out to be false, but there is too much evidence of a shift in North Korean elite opinion to dismiss.
The harder question is predicting the implications of this shift. Mass protests are exceedingly unlikely to break out in Pyongyang anytime soon. Viewpoints there probably vary widely between social and professional groups. None of those reports suggest that people in Pyongyang are ready to make the leap that overseas workers have begun to make — to conspire to commit acts of resistance against the state at the risk of their lives, and those of their families. This means that dissent, disillusionment, and discontent may be both widely distributed and completely isolated.
The lack of a coherent program of information operations directed at the North Korean elites probably means that the disgruntled elites lack a political consciousness or focus. But if an information operations campaign were to polarize that discontent, and if some event — most plausibly, a coup — suddenly presented North Koreans with a choice between combining in risky acts of resistance or accepting a lifetime of subjugation, I suspect that the spontaneity of many North Koreans would surprise the experts. What’s more likely for now is that in a thousand small ways, the elites will engage in petty acts of erosive corruption and passive sabotage of the system they’re supposed to sustain.
For the second time this year, a group of North Korean overseas workers has defected to South Korea — this time, from Russia. KBS, citing anonymous South Korean government sources, first reported that “nearly ten” North Korean construction workers in St. Petersburg fled their dormitory in late August, contacted the local South Korean consulate, and expressed their intention to defect. The workers are now in the care of a human rights NGO pending their departure for the Land of Honey Butter Chips, where I can only hope they’ll punch the first person they hear saying “Hell Chosun” in the face. According to the Daily NK, their team leader may “have played a central role in the defection.”
“From what I have learned, the team leader took out 6-10 workers in his group to the worksite and then made a call to the South Korean Consulate right away,” the source said. “The defection happened in an instant under his leadership.” [Daily NK]
KBS says that “[t]he construction workers were reportedly unhappy with the poor working conditions and intense pressure to send back their earnings to provide the North with much-needed foreign currency.” They also felt “anxiety about their own safety,” which is understandable in light of a recent report that 40 North Korean workers around the world — including 13 in Russia — have died of disease, suicide, or accidents this year so far. Their sanitary conditions don’t sound so pleasant, either.
“Our comrades built a toilet in a small house and installed a dining room right there. So, someone is defecating at one side of the dining room.” [KBS]
[Workers of all countries, unite. You have nothing to lose but your teeth.]
Wage theft, however, appears the most-cited reason for the workers’ discontent. Pyongyang, which increasingly relies on overseas workers to sustain it financially, is putting “relentless pressure” on them to “cough up more hard currency.” That pressure spiked again after the Hamgyeong floods.
Another source in China said since the severe flooding of the Duman River last month, the regime has been forcing workers overseas to donate US$100 to 150 each to a flood relief fund. “This kind of extortion is causing more North Korean workers overseas to defect,” the source added. [Chosun Ilbo]
According to KBS, even under “normal” conditions, the workers earn $980 a month, of which $665 is confiscated. Then, on returning to North Korea, the workers have to pay another quota that few of them can afford. The additional taxes would have left the workers with nothing, or even with outstanding debts to some of the officials who shake them down. Some of the workers might well have concluded that they had little to lose by defecting. Still, with all the increased security due to the rash of defections this year, escape couldn’t have been easy. The Daily NKinterviewed another recent defector from the same construction company, Mokran, which employs “more than 150 workers:”
On October 12, Daily NK succeeded in establishing contact with this worker who stated, “It is hardly possible for the workers to communicate with each other, no matter how close they are, due to the strict surveillance and control system. The recent group defection is, therefore, a remarkable achievement.”
“As I recall, almost 40 percent of the company workers secretly owned smartphones. So it is possible that the information they learned through their devices may have influenced their decision,” he continued. [Daily NK]
Think of all the risks these workers took. They had to obtain cell phones, conceal them, share their dissent and discontent with one another, conspire to defect, and make a run for it — all without being overheard, seen, or ratted out in a cramped and controlled environment, and in spite of the dire consequences for their families. (Which is to say nothing of the welcome they can expect from the quislings at Minbyun when they get to South Korea.)
The Chosun Ilbo and KBS suggest that the workers may have learned about the defections of Thae Yong-ho and the Ningpo 13. Pyongyang must be worried that news of these defections could spread and trigger a cascade. This incident may lend support to that concern. After all, one defection is an act of resistance; a group defection is an organized conspiracy to resist. I emphasize — as far as I know, there were no other group defections or mutinies of North Korean overseas workers until this year. As for the catalyzing effect of the cell phones, just imagine the subversive possibilities if they became available throughout North Korea itself.
It can be presumed that the recent chain of successful defections by overseas workers and officials is having an effect on the remaining workers who are being exploited under harsh working conditions. It is also likely that those with smartphones have access to reports on North Korea’s human rights violations published by the international media.
Accordingly, some are predicting further defections by North Korean workers at overseas working sites. A source from an intelligence agency has supported this assumption, adding, “There have been an increasing number of requests from overseas North Korean workers to defect through South Korean consulates. With the increased demand, people are having to be processed in a designated order.” [Daily NK]
The Chosun Ilbo‘s reporter also expects more defections in Russia, and reports that “[a]ltogether some 40 North Koreans including loggers in Siberia have defected and are staying in a shelter” there. The usual caveats about anonymous sources apply. Mind you, these defections preceded Park Geun-hye’s recent call for North Koreans to defect, but came after the North sent out more minders to prevent any further defections.
“The North is sending more officials to China and Russia to keep watch on workers there, but it seems difficult for the regime to prevent expat workers from defecting,” a government official here said. [Chosun Ilbo]
The Mokran president and State Security Department minder have since been summoned to North Korea, where the Daily NK‘s source says “it is highly likely that [they] will be held to account for the incident and possibly executed.”
Pyongyang might also need more minders to mind its minders. According to the Donga Ilbo, a 27-year-old Kim Il-Sung University graduate and staffer at the North Korean embassy in Beijing, who was serving as an interpreter for an SSD inspection team sent to mind North Korean workers in China after the defection of the Ningpo 13 … has also defected. According to the Donga‘s sources, her job would have afforded her “a great deal of knowledge in high-level communication between the North and China.” The same report claims that another interpreter, a man in his 20s assigned to the customs office in Hyesan, defected in August and is now in South Korea. Both incidents are attributed to anonymous sources, probably within South Korea’s National Intelligence Service, so make of them what you will.
Last week and at the time of the Ningpo 13 defections, I wrote of a potential “death spiral” in which the regime would pass its financial pressures down to the workers and squeeze them for more money; minders would drive workers to the breaking point; workers would rebel, defect, or be sent home; the pressure on the remaining workers to make up for the lost earnings would increase further; and the state would increase controls over the workers and drives them even harder, pushing more of them to the breaking point. I could make an argument that this is an example of that death spiral.
And yet the state is desperate enough for money that it even risks sending former Kaesong workers to China and Russia. That might explain why negotiations a new U.N. sanctions resolution are taking so long. The U.S. side, under strong pressure from Congress, is most likely pushing to ban Pyongyang’s labor exports. Beijing must know what a financial catastrophe this would mean for Kim Jong-un.
For those who’ve wanted a compilation of the key U.N. documents, U.S. statutes, regulations, executive orders, general licenses, and third-country sanctions laws, along with a brief explanation of how those authorities work, start here and click your way around. It’s still a work in progress, but the most important authorities are there. I also added section-by-section links to the key provisions of the NKSPEA and an FAQ. Enjoy!
Two weeks ago, the Treasury Department froze, and the Justice Department moved to forfeit, the assets of Chinese conglomerate Dandong Hongxiang Industrial Development and its corporate officers. DHID and its officers were also indicted for conspiracy and money laundering on behalf of Korea Kwangsong Banking Corporation, a sanctioned North Korean bank. These were the first secondary sanctions imposed on a Chinese entity since the Treasury Department sanctioned Banco Delta Asia in 2005. The indictment of DHID was a “secondary” sanction because DHID wasn’t sanctioned for directly engaging in proliferation or arms smuggling. The sole basis for the freeze, forfeiture, and indictment was that DHID helped a blocked party, KKBC, access the financial system and launder funds through the United States. The point of secondary sanctions is to completely ostracize and isolate bad actors. Anything less turns sanctions enforcement into a game of what Marcus Noland calls “whack-a-mole.”
As we saw with Banco Delta Asiain 2005 and Iran in 2013, secondary sanctions can devastate a target. Contrary to conventional wisdom, North Korea has vulnerabilities that Iran does not. One of these is North Korea’s small, dysfunctional economy, which depends on a relatively smaller number of exports, exporters, and bankers. Another vulnerability we often overlook is North Korea’s own zero-defect political system, which imposes strict quotas for its operatives to kick up to their underbosses and ultimately, to His Porcine Majesty.
Evidently, Pyongyang doesn’t accept asset freezes and indictments as excuses from trading company officials who fail to meet their quotas. The Daily NK reports that the DHID indictments also disrupted the operations of plenty of North Korean trading companies in China, and those companies’ officials are now terrified of being punished if they can’t meet their quotas.
A number of North Korean trading companies operating in China have been identified as collaborators with the Hongxiang Group of companies – which is presently under investigation for allegations of smuggling sanctioned materials to support the North’s nuclear weapons program. Daily NK’s sources have reported that these same North Korean companies are now under increasing pressure from Pyongyang to provide further supplies to the regime before the Party’s Foundation Day holiday on October 10. These goods are to be presented as gifts to elite cadres in order to shore up Kim Jong Un’s power base.
“The companies that have been suspected of colluding with Hongxiang to smuggle banned nuclear materials are facing pressure on dual fronts now. Their business activities have been almost cut in half due to the ongoing investigations by the Chinese authorities. And now they’re required to contribute goods to Pyongyang before Party Foundation Day,” a source close to North Korean affairs in China reported. [Daily NK]
Think of the death spiral this dynamic could catalyze. A North Korean trading company official doesn’t meet his quota and doesn’t dare to go home again, for fear of plunging through a trap door into a pool of piranhas, volcano lava, or sharks with laser beams attached to their heads. You can see why these people — who may already have been shaken since the purge of Jang Song-thaek — may be tempted to rethink their loyalties, and why that fear could create the makings of more intelligence windfalls, resulting in yet more asset freezes and indictments, and so on.
When asked how the trading companies are coping with the combined pressure, the source replied, “The heads of these trading companies are being investigated by the Chinese authorities on a daily basis. So these companies have resorted to hiring Chinese companies to procure gift items like alcohol, fruit, and food products for them. After the North Korean managers are released from the interviews, they load up the purchased items on trucks and send them over the border into North Korea.”
Those who are unable to keep up with the pressure face dire consequences. The Party Foundation Day holiday is understood to be a loyalty competition among the foreign currency-earning operations. All enterprises are required to provide ‘basic planning funds,’ loyalty funds, and gifts. Falling short of these obligations is dangerous because those deemed responsible are regarded as politically problematic. In North Korea, earning such a label can result in extreme punishments, including execution.
Such conditions have only intensified during the Kim Jong Un era, where even slight infractions have led to purging and punishment. The increasingly severe consequences are well recognized by all overseas foreign currency earning operations, explaining why they prioritize the submission of loyalty funds over the safety of themselves and their employees. [Daily NK]
Lather, rinse, repeat.
Having said this, the DHID action was just an appetizer. Dandong Hongxiang claimed to control the lion’s share of trade with North Korea, but that was probably an exaggeration. Like Jende Huang, I suspect that there are still bigger fish in this pond. Now, Obama administration officials are openly threatening to sanction more Chinese entities, and Congress is pushing it hard to do what would be particularly devastating — to sanction the Chinese banks that launder North Korea’s money.
Although none of the parties to the charged transactions between DHID and KKBC were physically in the U.S. or trading goods with Americans, the North Korean and Chinese parties to the transaction had to go through banks in New Jersey indirectly to do dollar wire transactions, to buy the things His Corpulency wants. If you don’t understand why that is, read this article, or this post about how the system worked in this case, or the Justice Department’s forfeiture complaint.
Which brings me to two predictions. First, because Kim Jong-un’s advisors are probably too scared to tell him how these sanctions work, and because elections are coming in the U.S. and South Korea, a sixth nuclear test is a near certainty within the next year. If that happens, it will trigger a second near certainty, no matterwho wins the presidential election in the United States — a wave of secondary sanctions against North Korea’s Chinese bankers.
The other night, I was chatting with a reader who was surprised to hear me praise NK News. Although I consider Chad O’Carroll a friend, it’s no secret that Chad and I have philosophical differences about North Korea policy. Some of the things I read at NK News make me roll my eyes; others drive me to paroxysms of rage. But what I can never say about NK News is that it pulls punches. Its decision to publish Nate Thayer’s stunning expose of AP Pyongyang was as brave as the report itself was devastating. Its report on the Masikryong Ski Resort exposed serious sanctions violations and wound up being cited in the U.N. Panel of Experts reports. It did better reporting on the Pyongyang apartment collapse story from Seoul than the AP did from a few blocks away (Update: See? This is what I’m talking about.). You can love it, hate it, or alternate between both of those reactions, but NK News has become a public utility for North Korea watchers.
Yet NK News’s single greatest asset must be Leo Byrne, whose investigative tenacity and meticulousness puts him into contention to be the single best journalist covering North Korea for any publication, anywhere. Byrne does what too few journalists bother to do — he digs up hard-to-find facts; reads the legal authorities that give those facts meaning, consequence, and context; and reports them. Byrne’s recent reporting on shipping sanctions has been a good example of this. For some days now, I’d meant to find the time to write about his discovery that, following the adoption of U.N. Security Council in 2270 in March, 50 North Korean ships re-registered under the Tanzanian flag:
According to data from Marine Traffic, the Equasis maritime database, and inspection records from Port State Control (PSC) authorities, around 15 percent of ships on the NK Pro vessel tracker now sail with under (sic) a Tanzanian flag, with the large majority of changes happening over a three-month period.
The numbers and time frames indicate an unprecedented campaign to reflag vessels with links to the DPRK, dwarfing previous flurries of changes that occurred after the UN and U.S. designated a North Korean shipping company in 2014. [NK News, Leo Byrne]
“19.Decides that Member States shall prohibit their nationals and those in their territories from leasing or chartering their flagged vessels or aircraft or providing crew services to the DPRK, and decides that this prohibition shall also apply with respect to any designated individuals or entities, any other DPRK entities, any other individuals or entities whom the State determines to have assisted in the evasion of sanctions or in violating the provisions of resolutions 1718 (2006), 1874 (2009), 2087 (2013), 2094 (2013) or this resolution, any individuals or entities acting on behalf or at the direction of any of the aforementioned, and any entities owned or controlled by any of the aforementioned, calls upon Member States to de?register any vessel that is owned, operated or crewed by the DPRK, further calls upon Member States not to register any such vessel that is de-registered by another Member State pursuant to this paragraph, and decides that this provision shall not apply with respect to such leasing, chartering or provision of crew services notified to the Committee in advance on a case-by-case basis accompanied by: a) information demonstrating that such activities are exclusively for livelihood purposes which will not be used by DPRK individuals or entities to generate revenue, and b) information on measures taken to prevent such activities from contributing to violations of the aforementioned resolutions;
North Korea’s merchant fleet is subject to international sanctions because of North Korea’s history of using it for smuggling weapons, in violation of U.N. Security Council resolutions.
To give credit where it’s due, Claudia Rosett first discovered that the Dawnlight, a North Korean ship designated by the U.N. for arms smuggling, hoisted the Tanzanian flag as the Firstgleam, just days after 2270 was adopted. Byrne’s report shows that this was much more than a one-off; it as part of a pattern and practice of violation that was either grossly negligent, corrupt, or willful. In addition to the ex-Dawnlight, Byrne reports that the ships re-registered under the Tanzanian flag include a vessel designated by the U.S. Treasury Department, and others that have been “mentioned” in U.N. Panel of Experts reports.
The news site All Africa adds that Tanzania has a checkered history of reflagging ships for Iran, which drew a visit from the local U.S. embassy. The Tanzanian Foreign Ministry blamed “a ‘notorious’ Dubai-based agent” and said it would contact the local North Korean embassy to investigate. Well!
“Diplomatically, we can’t rush to act on unverified issues. But, in general, our international shipping registration agents have been categorically warned against permitting countries sanctioned by the UN to fly our flag because by so doing, the country would be deemed to have violated membership sections of the UN,” Dr Mahiga said. [Louis Kolumbia, AllAfrica]
Let’s hope that that investigation proceeds swiftly to a plausible conclusion, because Tanzania’s shipping registration authority is also in great peril under U.S. law, to the extent the transactions are denominated in dollars (which almost always turns out to be the case).
First, NKSPEA section104(b) gives the President the authority to designate any person who “knowingly engages in, contributes to, assists, sponsors, or provides financial, material or technological support for, or goods and services in support of, any person designated pursuant to an applicable United Nations Security Council resolution.” Then, Executive Order 13722, which (partially) implements the NKSPEA, imposes sectoral sanctions on North Korea’s transportation industry, potentially widening the risk to any transactions involving North Korean shipping. The potential consequence is that Tanzania’s registry could have its assets frozen. Fortunately, that may not be necessary, because Byrne’s report has captured the undivided attention of the Tanzanian government, which says it has already de-registered 13 of the North Korean ships, and has begun the process of de-registering the rest of them.
ZMA director general Abdallah Hussein said in an interview on Tuesday that the process to deregister Democratic People’s Republic of Korean (DPRK) vessels started in June and was ongoing to ensure no vessel with links to North Korea fly the Tanzania flag in compliance with the UN Security Council sanctions. The minister for Foreign Affairs minister (sic), Dr Augustine Mahiga, had told The Citizen on Sunday that the ministry would initiate a diplomatic process to ensure that all vessels linked to North Korea are deregistered. [….]
If the deregistration started in June as Mr Hussein claimed, then, that hasn’t been reflected yet in the Tanzania foreign ships registry, for the investigation carried out by Leo Byrne, a Data and Analytic Director at NK News based in Seoul shows the majority of the vessels that were deregistered by other countries following tightening of North Korean sanctions “transferred their details to the Tanzanian registry, which accepted nearly all the ships between June and August this year.”
Mr Hussein expressed surprise over the same thing. “I wonder why Mr Byrne’s analysis hasn’t reflected ships that we have deregistered,” he said. [AllAfrica]
As a blogger, the pinnacle of my career was the day I saw my work denounced by KCNA — on May Day, no less. Byrne now shares the rare privilege of being called out by an entire foreign government (in his case, by name). As to the defense that Byrne did not credit Tanzania for de-registering 13 ships, well, that’s fair in the same sense that no one thanked Kim Jong-un for not nuking off last weekend, and no one thanked Donald Trump for not grabbing anyone’s hoo-ha all day yesterday.
As far as I know, anyway.
Ideally, U.S. and South Korean diplomats in Dar as Salaam should pay courtesy calls to the Tanzanian Foreign Ministry and politely ask, “Hey, what gives?” Maybe they already have. That approach seems to have worked well enough for enforcing Iran sanctions. But if the State Department doesn’t act, I’d expect that eventually, Congress will ask the same question of the State Department. With Tanzania already acting to de-register North Korean ships, it may be that less subtle approaches should be reserved for more recalcitant targets (are you listening, Namibia?).
Overall, the news looks increasingly bleak for North Korea’s merchant fleet. Panama and Mongolia have de-registered North Korean ships, and Cambodia, the single largest reflagger, appears to be moving in that direction. The government of Jordan identified two cases in which its shippers used a North Korean flag of convenience and has since acted to put an end to that practice. As the range of countries reflagging North Korean ships narrows, more media and diplomatic attention will inevitably focus on those that remain, like Tuvalu and Sierra Leone. A sanctions regime is only as strong as its weakest link, but slowly, link by link, the chain is tightening.
It has now been more than a month since North Korea carried out its fifth nuclear test, and the U.N. Security Council has yet to respond by approving a new resolution to strengthen its sanctions. After North Korea’s previous nuclear tests, it took between four and six weeks to overcome Chinese and Russian objections, and the world is growing impatient.
As noted yesterday, the U.S. is correctly focused on cutting off North Korea’s sources of hard currency. Judging by the statements of U.S. officials, one key U.S. demand going into the negotiations is likely the curtailment of, or a ban on, North Korean labor exports, of which China and Russia are major consumers. Another measure under discussion is a ban on tourist travel, which would be useful to making any travel ban more than an inconvenience for Pyongyang, because most of North Korea’s tourists are Chinese, and presumably spend Renminbi during their travels.
A third measure frequently mentioned in the press over the last several weeks is closing the “livelihood” loophole in paragraph 29(b) of UNSCR 2270 — the provision that bans North Korea from selling coal, iron, and iron ore, but carves out an exception for sales exclusively for “livelihood” purposes. In practice, the exception has swallowed the rule. North Korea’s coal sales to China dipped shortly after the Security Council adopted UNSCR 2270, but have since risen to pre-sanctions levels. Typically enough, China is balking at closing this loophole.
“We cannot really affect the well-being and the humanitarian needs of the people and also we need to urge various parties to reduce tensions,” Chinese U.N. Ambassador Liu Jieyi told Reuters on Saturday of discussions with the United States on “a draft resolution with a wider scope of measures.” [….]
U.S. Ambassador to the United Nations, Samantha Power, said on Sunday that some of the exemptions included in the March resolution – out of concern for the welfare of North Koreans – appeared to have been exploited.
“In the negotiation that we are currently in the midst on in the new resolution, we are hoping to address some of the shortcomings that we have seen,” Power told reporters during a visit to Seoul. [Reuters]
China claims that it is resisting tougher sanctions because it’s worried about hurting the North Korean people, an uncharacteristically humanitarian argument coming from the same government that regularly sends North Korean refugees back to Kim Jong-un’s gulag by the dozen, that ignored the U.N. Commission of Inquiry report, and that has consistently opposed U.N. action on Kim Jong-un’s crimes against humanity.
But if the U.S. wants to close the livelihood loophole and China wants to avoid starving the people, the obvious compromise is to force Chinese buyers to pay for North Korean coal in food, medicine, and other strictly humanitarian supplies. Sanctions need humanitarian safety valves to allow U.N. member states to mitigate possible negative effects on the North Korean people. If that’s what China really wants, that’s how China can use “livelihood” coal as that humanitarian safety valve. To prevent cheating, the in-kind “payments” could be monitored by U.N. humanitarian agencies at Chinese ports and customs posts. Surely if North Korea imports enough food, much of this will flood into North Korea’s markets and drive down prices. To further amplify this effect, China should agree to ban North Korea from exporting food — mostly to China — for cash.
The more plausible explanation is that China is more interested in protecting Kim Jong-un and profiting from its access to his resources than it is in enforcing sanctions. China’s violations of the sanctions have been too blatant to be anything but willful. Although the conventional wisdom is that China is simply afraid of a potential regime collapse in Pyongyang, that view doesn’t explain China’s long history of selling proliferation-sensitive materials to North Korea, including a Chinese state-owned company’s sale of missile carriers to North Korea. This evidence suggests a more malicious explanation. It’s almost as if China wants North Korea to be a greater threat to the U.S. and South Korea.
Of course, all of the aforementioned measures are effectively trade sanctions — the kind of sanctions that legions of peace studies grad students and other unschooled critics are really talking about when they hector us about how long sanctions take to work. We may simply be out of time for such gradualist strategies now. The South Koreans, the Council on Foreign Relations, and even some Chinese speak openly of preemptive military strikes today. South Koreans are justifiably worried about falling under the shadow of nuclear blackmail. The sense of urgency in Seoul, Tokyo, and Washington has never been greater. That sense of urgency has not yet arrived in Beijing.
Without question, trade between China and North Korea has risen recently, diluting the effect of U.N. sanctions, and that is a problem. But those who are legitimately concerned about this rising trade — including coal and iron ore trade — between China and North Korea would do well to remember that all of the money North Korea earns from its sales of everything from coal to seafood to missile parts goes into bank accounts, mostly in China, and we probably know where many of those accounts are. If the U.S. and its allies want to adopt a strategy that will work quickly enough to create a sense of urgency in both Beijing and Pyongyang, the Obama administration should do what Congress has demanded and what the law requires — freeze North Korea’s slush funds and penalize the Chinese banks that keep them on deposit.
Yes, it would be lovely if China suddenly became convinced that all of this represents a threat to its interests and its very security. Certainly, some ordinary Chinese citizens can see that (see, for example, this Chinese-language Google search result for “third fatty,” forwarded by a journalist reader). I’m skeptical that the Chinese government will ever really crack down on North Korea for more than a few months, especially as America is about to descend into the periodic chaos of a political transition.
~ ~ ~
Until reporters and op-ed writers stop misleading their readers with the myth that our sanctions against North Korea have been strong, I’m going to keep linking to my legal arguments that in fact, our North Korea sanctions were comparatively weak until February and March of this year, and that even these authorities have yet to be fully implemented. On paper, however, we finally have enough authorities to threaten the survival of the regime in Pyongyang and force it to choose between its nukes and its survival, if we apply our diplomatic and legal power to forcing other U.N. member states to comply.
Perhaps, then, we’ve reached the point where we’d be better off walking away from deadlocked negotiations with China and Russia and channeling our diplomatic power toward progressive diplomacy. Rather than continue to pound our heads against the Great Wall, perhaps the U.S. and South Korea should start building an ad hoc coalition aimed at the strict enforcement of existing resolutions. Existing U.S. law and U.N. resolutions may provide enough of a legal foundation that we’re better off aggressively enforcing the sanctions we already have than bargain away enforcement to get new ones. After all, the EU didn’t need the U.N.’s approval to designate the Korea National Insurance Corporation, and the U.S. didn’t need the U.N.’s approval to designate the Foreign Trade Bank. By coordinating their designations and secondary trade boycotts in concert with a collection of like-minded states with strong buying power and convertible currencies, a new coalition could put strong pressure on North Korea and its Chinese enablers. Potential partners for that coalition include (of course) South Korean and Japan, the EU, the U.K., Switzerland, Canada, Australia, and Singapore.
If, on the other hand, we just want to close the “livelihood loophole,” why not designate the abusers of that provision under section 104(a) of the NKSPEA? Recently, anonymously sourced news stories have identified the Wanxiang Group as the “largest importer of a wide variety of North Korean minerals,” including “coal, iron ore, gold and rare earths.” Interestingly, a Wanxiang Group affiliate holds “more than 60 properties” in the United States. If further investigation confirms these reports, the Wanxiang Group’s assets in the United States, and its heavy investment in a North Korean industry subject to Treasury Department sectoral sanctions, could make it the perfect target.
Of course, our relations with China would suffer in the short term, but it’s not as if our sotto voce China policy has contained China’s hegemony, protected the security of our allies, or paid obvious dividends in bilateral relations. Our relations with China will probably have to get worse before they can get better. For our relations to get better, China will need a hard shove for its policies to reflect a fair acknowledgment of U.S., South Korean, Japanese, and global security interests.
None of which means we can’t go back to the U.N. Security Council at some point to get a stronger resolution; it just means that we shouldn’t let China prevent us from designating targets that are violating the existing resolutions. If the Chinese government isn’t responsive to our pleas, we already know that the Chinese banking industry is responsiveto ourthreats. If North Korea lost its access to the banking system, its insurance, banking, and shipping industries, and its national airline, it would be reduced to operating a country of 23 million people by trying to smuggle briefcases full of bulk cash around the world on other peoples’ airlines and ships. It’s hard for me to believe North Korea could last long that way. That’s why, as nice as it would be to have Beijing’s cooperation, it would be far better to focus our diplomatic energies elsewhere. In the meantime, the Obama administration should enforce the law the President signed.
Last week, Samantha Power was in Seoul, reassuring our increasingly panicky South Korean allies that the U.S. will use “all the tools in our tool kit” to deny His Porcine Majesty hard currency and WMD materiel, and pressure him to disarm. Meanwhile, a must-read article in Foreign Policy reveals that late in the eleventh hour of his presidency, Barack Obama still hasn’t decided to use “all” the tools after all, particularly the one Congress wants him to use — secondary sanctions against Chinese banks.
Instead, FP reports, senior administration officials are “heatedly debating whether to trigger harsh sanctions against North Korea that would target Chinese companies doing business with the hermit regime, in a crackdown like the one that crippled Iran’s economy.”
Officials told FP that the approach would be similar to the sweeping secondary sanctions that were slapped on global banks handling transactions with Iran. Those sanctions are widely credited with bringing Iran’s economy to its knees in 2013 and forcing Tehran to the negotiating table over its nuclear program. [Foreign Policy, Dan De Luce]
The prime targets of the new strategy under discussion? Exactly the right ones — Chinese trading companies and banks. Open sources alone provide for no shortage of targets. We already know about the recently indicted Dandong Hongxiang. There’s also the Bureau 39-linked 88 Queensway Group; gold dealer Unaforte, which may be exporting to the U.S. in violation of Executive Order 13570; the Wanxiang Group, which may be China’s largest importer of North Korean minerals; banks like the Bank of China, which willfully helped North Korea launder money through the U.S. financial system; and other Chinese banks that turn a blind eye to their know-your-customer obligations on behalf of North Korean customers, as well as Chinese customers that help them circumvent U.N. sanctions and U.S. law.
But a decision to go after Chinese banks and trading companies that deal with Pyongyang could rupture Washington’s relations with Beijing, which bristles at any unilateral sanctions imposed on its companies or drastic action that could cause instability in neighboring North Korea. [FP]
The U.S. has told the Japanese and South Korean governments that it is focused on cutting off North Korea’s sources of hard currency, including labor exports. But with even people in Beijing speaking openly of limited military strikes and South Koreans worried about falling under the shadow of nuclear blackmail, the sense of urgency in Seoul, Tokyo, and Washington has never been greater. Trade sanctions alone will probably take much longer to work than financial sanctions, and are more likely to hurt the wrong people, thus undermining political support for stricter enforcement. Now, having let matters drift for eight years and lost the confidence of the entire Congress, the administration belatedly recognizes that things have deteriorated quickly, and that it needs a quicker strategy.
“In the past two or so years, there’s a general appreciation that the situation has become worse and that we, the United States and the responsible nations of the world, need to up our game,” said a senior government official, who spoke on condition of anonymity. As a result, the administration is “looking at a more active and more aggressive use of the authorities” for sanctions, the official told FP. [….]
The political calendar in the United States also is shaping the internal discussions, with some officials arguing that President Barack Obama would be better placed to order the move in his final months in office, rather than leaving it to a new administration to enter into a heated dispute with China. [FP]
Since North Korea’s fifth nuclear test, Congress has put the administration under intense pressure to implement the NKSPEA more aggressively. South Korea and Japan are also pushing for the more aggressive strategy.
U.N. resolutions and new legislation adopted by Congress in February give the administration far-reaching legal authorities to block assets, file criminal charges, and cancel visas for individuals or organizations violating sanctions rules on North Korea. But so far, the administration has yet to wield those authorities in a decisive manner, taking action in a relatively small number of cases while it seeks to persuade China to take a more assertive role. [FP]
Which you already know, because you read this blog. FP also picks up on the Senate Asia Subcommittee’s aggressive questioning of the administration in its most recent oversight hearing.
Since approving new sanctions legislation in February, U.S. lawmakers from both parties have complained that relatively few companies or individuals have been blacklisted and charged.
“You have sanctioned no Chinese banks at the end of the day, and they are probably the major financial institutions for North Korea,” Sen. Bob Menendez (D-N.J.) said at a hearing last week with top State Department officials.
Republican Sen. Marco Rubio, speaking at the same hearing of the Senate Foreign Relations Subcommittee on East Asian and Pacific Affairs, accused the administration of timidity when it comes to sanctions that could antagonize the Chinese government.
“We know who these companies are. We haven’t moved fast enough on it. There’s no reason not to have moved faster. There’s plenty of targets of opportunity and plenty of information out there about them,” Rubio said. [FP]
See this link for similar bipartisan pressure coming from the House side of the Mall. So what has prevented the administration from responding to this pressure from our allies and Congress? Deference to China.
“It could become the defining issue in the U.S.-China relationship. It could push Beijing and Washington into a very unhappy place,” said Evan Medeiros, who served as Obama’s top advisor on Asia affairs at the White House National Security Council until last year.
Pursuing Iran-like sanctions against North Korea would mean “hardcore secondary sanctions in ways that the Chinese aren’t going to like,” he said.
“But the U.S. is simply going to have to be willing to countenance friction in the U.S.-Chinese relationship that the U.S. hasn’t been willing to accept to date, because the North Korean threat is becoming too serious,” said Medeiros, now at the Eurasia Group since leaving the White House. [FP]
That is to say, so far, the White House has given more weight to the views of China — which has willfullyviolated U.N. sanctions for years — than to staunch U.S. allies abroad, or a united Congress.
Obama has tended to avoid confrontation with China on most issues, including over the South China Sea and economic disputes. The administration, however, did take a forceful stance against Beijing-backed cyberhacking in the United States.
“They have placed a premium on trying to manage the relationship with China in a constructive way and to contain areas of friction or competition,” said a congressional staffer. [FP]
Right. Because it would be terrible if relations broke down so badly that China started, say, unilaterally seizing huge tracts of strategic waters, rounding up and jailing dissidents, or amping up its anti-American propaganda.
De Luce reports that the administration still hasn’t made its mind up, and “may in the end opt to take a more incremental approach, avoiding a major clash with China.” Which would be typical. In fact, I wouldn’t be astonished if the administration had planted this story to pressure China to be more flexible in its negotiations over a new U.N. Security Council resolution, agreement on which is taking even longer than usual. Having said that, what a rare joy it is to read journalism like De Luce’s, which shows that the reporter took the trouble to research and understand the subject matter before writing about it.
Just over two years ago, I wrote about the conflict between Americans’ apparent impulse for a more passive foreign policy and their strong disapproval of what that policy looks like in practice. In other words, Americans’ views on foreign policy are seldom as simplistic as they seem to be. Strong majorities favored going into Iraq and Afghanistan, strong majorities wanted out of both by 2008, and by 2016, strong majorities disfavor the policies of those who would allow them to dissolve into chaos or terrorist domination. What Americans support in the abstract isn’t necessarily what they support once its concrete consequences become clear. Furthermore, polls that ask broad, loaded questions about America “minding its own business” don’t test Americans’ specific views about Iran sanctions, arming the Ukrainians, helping Japan and Taiwan build up their forces, or applying a contain-constrict-collapse policy toward North Korea.
Is there some way to satisfy these two seemingly contradictory views that the voters hold? After all, sending ground forces overseas isn’t the only way to influence events there. Of course, there are times when foreign enemies pose a direct threat to the United States, and other alternatives aren’t sufficient to suppress those threats. We all agree that this was true of Afghanistan in 2001. I’m not sure why that’s less true today, but that issue can be debated in other places. My point here is that there are a number of underused strategies that can deter aggression effectively without the direct use of force. Some of them may even sound like the “smart power” that Barack Obama promised us as a candidate.
I. Hub-Blocking Strategies
One set of tools with great promise are what I call hub-blocking strategies, which leverage America’s position as a hub of global commerce. A tool I’ve spent a great deal of time talking about here is financial sanctions, because it’s a tool that has worked against North Korea. Another is international trade. The size of our economy and our favorable geography mean that foreign companies, countries, shippers, and ports need access to our ports. Actors that routinely fail to inspect cargo for illicit shipments, or to enforce inspection requirements imposed by U.N. Security Council resolutions, should face enhanced inspection requirements when their cargo, or cargo originating from those places, lands here. The threat of having their merchandise tied up in customs is enough to put shippers out of business, and to drive traffic away from blacklisted ports. The worst actors may be denied access to our ports and markets entirely, or face the seizure and forfeiture of their goods, ships, and aircraft.
Recently, South Korea has shown us how good alliances can magnify this economic power, by proposing a secondary trade boycott against companies doing business with North Korea. If the United States, Japan, and other allies joined this secondary boycott as an ad hoc alliance, that strategy could be a powerful disincentive to trade with North Korea.
Often, the greatest limitation on sanctioning North Korea’s trading partners is understanding who those partners are. In some cases, multinational corporations may not even know that they’re sourcing materials from North Korea. Laws like Dodd-Frank have been a step forward in tracing these supply chains, but good research by activists can do more to expose North Korean-sourced materials to public criticism and shareholder protests.
Had the United States not damaged its brand so badly with its overbroad electronic surveillance, information technology could have (and still might) become another such hub. Who, after all, supposes that Russia, China, and other countries don’t monitor electronic communications secretly, and beyond the limits of their permissive laws? Necessary reforms to surveillance here could do much to restore our status as a hub of free communication. At the same time, Europe is coming to the conclusion that it cannot continue to take an absolutist view of internet privacy when its cities are under attack by terrorists. In the end, the United States has much to gain by becoming a trusted hub of global communications. To win that trust, its laws must impose transparency and restraint on the surveillance state.
Obviously, any of these options can be pushed to the point that it does our interests more harm than good. Just as military excesses cost us allies abroad and domestic unity at home, the Snowden case also illustrates the dangers of overextending our power over electronic communications. Over-inclusive surveillance could drive Google to put its servers (literally) off-shore. If financial sanctions are overused, they could drive commerce out of the dollar system. Excessive use of trade sanctions will sap our own economic power. This brings us to the unsatisfying answer that we must balance the interests of security and freedom of commerce, which sometimes compete with each other.
II. Progressive Diplomacy
Good diplomacy and ad hoc coalitions are essential to hub-blocking strategies. If nations that share common interests in a peaceful international order put similar restrictions on bad actors, coalitions gain the power to block more hubs and deprive those hubs of any other places to go. Ad hoc coalitions like the Proliferation Security Initiative can be extremely useful in arresting the movement of dangerous people and cargo. The Global Financial Action Task Force has been just as useful at denying bad actors the use of the financial system for money laundering and proliferation. Similar coalitions could emerge to deny money, arms, and visas to persons and regimes that engage in aggression against their neighbors or their own people. I can foresee a day, not far in the future, when the practical value of these ad hoc coalitions (along with old and new military coalitions) eclipse the U.N., which will never be a force for peace as long as China and Russia hold the veto in the Security Council.
But by going to North Korea first, we not only dealt from a weaker position, we forgot a fundamental rule of diplomacy — it only works when all the parties have a basic willingness to make the same deal. In the case of North Korea, we deceived ourselves into believing in North Korea’s willingness to disarm because North Korea occasionally vocalized one. North Korea wanted nukes all along, of course. Now, there are calls for a round of diplomacy that would give North Korea valuable security guarantees and regime-sustaining aid despite this belated recognition.
This is not to say that there is no place for diplomacy with North Korea, only that engaging in it now would be hopelessly premature and naive. Diplomacy will only work after North Korea decides that it’s more dangerous to keep its nukes than to give them up, and that will require us to pressure it to the edge of extinction. We don’t have the leverage for that today. Gaining it will require a combination of crippling financial isolation and domestic subversion. The threat of those things will cause alarm in Beijing, but if we show a willingness to use them anyway, China will also pressure North Korea to disarm rather than see another Syria erupt on its border.
III. Liberation is best left to the liberated
As a nation, we seem to have forgotten that when only force can deter or reverse aggression, it is not always wisest for America to intervene directly. We have become too restrained in supporting political resistance movements against regimes opposed to both our interests and that of their own people. Such support should be offered only to movements that agree to abide by the laws of armed conflict, share a common core of our values, would support some important U.S. interests, and could (with a reasonable amount of material assistance) restore a better and more liberal order than the existing one. Once given, such support should only be withdrawn when we can be certain that a cease-fire and a diplomatic resolution can be verified, and will protect those who have sided with us from the state’s retribution.
The most obvious examples of failure here are our passivity in Syria, and during the Green Revolution in Iran. Had we imposed and enforced the kind of tough sanctions then that forced Iran back to the bargaining table later, and had we been more vocal in supporting the opposition, Iran might not have been found the resources to crush it. Had we been more aggressive about financing and advising the opposition, and about supporting its communications strategy with broadcasting and other information operations, it could have withstood the crackdown long enough for sanctions to work.
Today, it is difficult to recall that the Syrian opposition was initially non-violent, and that when it finally took up arms, it was predominantly secular. At the right moment, a shipment of antitank rockets and light antiaircraft guns might have allowed a better government to seize control in Syria. The price of our non-interventionist policy there speaks for itself today. I suspect we’ll be paying that price for decades.
Of course, these aren’t strategies that can be switched on at a moment’s notice. They rest on a foundation of outreach toward and diplomacy with opposition leaders, long-term support for their organizations, and long-term cultivation of the relations that will be necessary to help them govern in a post-revolutionary environment. (That is, the very things we should be doing to cultivate a broad-based North Korean opposition today.) Any opposition movement derives the popular support it needs to survive from its perceived capacity to govern, and to provide for the population’s needs.
To be clear, I do not necessarily refer here to support for armed resistance — something that is both completely hypothetical and increasingly plausible today, and which tends to break out suddenly and unexpectedly in highly repressive states. For now, the U.S. and South Korea should agree to cooperate on a non-violent strategy of information operations, and quietly build a political infrastructure that could either become the foundation for a civil society in a reunified Korea, or a resistance movement that would drain the state’s resources and contest its control over North Korea’s vast, mountainous, and nearly roadless interior.
The initial objectives of our engagement strategy should be to inform the North Korean people about different systems of government, their own prospects and aspirations in the event of reunification, and how to respond to different contingencies. It should facilitate the economic empowerment of low-songbun citizens through private agriculture and light industry, occupational training, commerce, and finance, all of which will break their dependence on the state and allow them to bribe their way out of their subjugation. It should cause defense planners in Beijing to hesitate to intervene in North Korea if the potential exists for an organized resistance movement to drain their government’s domestic political support. Creating this infrastructure requires us to give North Koreans the means to communicate freely with each other, and to organize the informal people-to-people networks that will eventually evolve into a political opposition movement. Fortunately, the day when technology breaks the last barriers to freedom of information seems increasingly inevitable.
IV. Deterrence & Buying Time
Unfortunately, it’s no longer clear whether there is enough time for this strategy to work. While the Obama administration’s North Korea policy drifted for eight years, North Korea made rapid progress toward an effective nuclear arsenal. Even if pursued with equal determination, a strategy of hub-blocking, progressive diplomacy, and political subversion could take anywhere from one to five years to threaten the survival of the regime in Pyongyang, and make effective diplomacy possible.
The risky — and until now, unsustainably risky — option of limited strikes against North Korea’s WMD facilities may now be necessary to buy enough time for non-violent (or less violent) strategies to work. At a minimum, it should now be the declared policy of the United States, Japan, and South Korea that they reserve the right to intercept all North Korean missile launches. As dangerously risky as that sounds, I maintain that putting North Korea on a path to the domination of South Korea, unrestricted global nuclear proliferation and cyberwarfare, and a direct North Korean nuclear threat to the United States are all much more dangerous.
A favorite long-time reader and volunteer copy-editor forwards this fascinating story, via the UPI’s Elizabeth Shim.
An anti-Kim Jong Un rally was held in a Chinese city but photographs of the protest were promptly deleted by Chinese government censors, according to the Chinese-language press.
Protesters in the eastern Chinese city of Yangzhou gathered to express their opposition to North Korea’s nuclear tests and to condemn the North Korean leader.
The photos then went viral on Chinese social media, Hong Kong’s Apple Daily and New York-based Duowei News reported.
Yangzhou is the hometown of Jiang Zemin, who served as president from 1993 to 2003.
In images that were captured prior to their removal from the Internet, protesters were seen holding red banners that read, “Let’s overthrow the Kim dynasty, and hang Kim Jong Un by the neck in an execution.” [UPI]
What’s both frustrating and somewhat understandable is that the report tells us nothing about the sentiments behind the protest. Is His Corpulency perceived as endangering China’s security or the health of its people? As bringing the risk of war to China’s doorstep? As hurting China’s reputation? Or is it that Kim is simply perceived as an ungrateful vassal?
When images of the signs (see UPI’s report) “circulated rapidly across” Weibo and Weixin, Jing-Jing and Cha-Cha sprang into action to delete them.
But while the images were still available online, “Chinese mainland netizens showed strong interest in the anti-North Korea rallies that were taking place in Jiang Zemin’s hometown of Yangzhou,” according to Apple Daily.
U.S.-based Chinese-language newspaper Duowei News stated that the removal of the pictures indicates there is a “large gap in perspective on the demonstrations between the Chinese government and the people.”
There may be an angle for us to exploit here, if we knew more about the protestors’ sentiments. At some point, intense public antipathy might be enough to effect modest shifts in China’s policies, although I emphasize “modest.”
Chinese commenters have previously disparaged the North Korean ruler, calling him a derogatory word that translates into “the third fat member of the Kim family,” while condemning North Korea provocations.
That’s consistent with reports I’ve heard more than once from a well-respected Korea analyst, who would probably prefer not to be named. I’ve found nothing else online to confirm or further explain this report. Any Chinese-speakers who can help with that will earn my gratitude.
Via Yonhap, we learned last week that Rep. Matt Salmon (R, Ariz.), the Chairman of the House Asia-Pacific Subcommittee, has introduced a bill to cut North Korea off from the “specialized financial messaging services” that banks use to send wire transfer orders around the world. The industry leader for financial messaging is SWIFT, whose headquarters is in Brussels, but which also has operations in Geneva and Manassas, Virginia. If you don’t know what SWIFT does and why it matters, I’ll refer you to this post.
“What we can do is deny them access to services designed to quickly and easily transfer money worldwide. Without access to these services, we can force the North Koreans to purchase supplies and receive support in the way typically favored by state sponsors of terrorism: shipments of anonymous, small denomination bills.” [Yonhap]
You may be able to run a mid-size drug cartel that way, but not a country with a population of 23 million and a large, mechanized army. Although a SWIFT cutoff would be based on a different legal authority from the authority Treasury used against Banco Delta Asia in 2005, Yonhap compares the proposed legislation to BDA.
Should the legislation be enacted, it would have powerful impacts on the North, possibly similar or even greater than the 2005 U.S. blacklisting of a Macau bank for doing business with Pyongyang.
By designating the bank in the Chinese territory, Banco Delta Asia (BDA), the U.S. not only froze $24 million in North Korean money held in the bank, but also scared away other financial institutions from dealing with Pyongyang for fear they would also be blacklisted.
The measure hit Pyongyang hard, and reports at the time said North Korean officials had to carry around bags of cash for financial transactions because they were not able to use banks. The sanctions were later lifted in exchange for a denuclearization agreement that later fell apart.[Yonhap]
A better analogy would be the effect SWIFT sanctions had on Iran’s economy more recently.
Without SWIFT, global trade and investment would be slower, costlier and less reliable. [….]
The earlier SWIFT ban is widely seen as having helped persuade Iran’s government to negotiate over its nuclear programme. The ban was one of the first sanctions Tehran asked to be lifted, points out Mark Dubowitz of the Foundation for Defence of Democracies, a Washington-based think-tank. Though some of the banks blocked from SWIFT managed to keep moving money by leasing telephone and fax lines from peers in Dubai, Turkey and China, or (according to a Turkish prosecutor’s report) by using non-expelled Iranian banks as conduits, such workarounds are a slow and expensive pain. And the sanctions prompted Western banks to stop conducting other business with the targeted banks. [The Economist]
Keep reading that article to understand some of the good reasons to exercise great restraint in using SWIFT as a sanctions tool. I agree with those reasons; I just happen to believe that there are two cases compelling enough to be deserving exceptions — Iran and North Korea. (In the case of Russia, I’m not yet convinced that this is the right tool; I’d rather see us arm and train the Ukrainians.)
As of posting time, the text of H.R. 6281 was not yet available at Congress.gov, but I’d expect it will bear some resemblance to section 202 of the original introduced version of H.R. 1771, the North Korea Sanctions Enforcement Act, a later version of which the President signed into law in February as H.R. 757, the North Korea Sanctions and Policy Enhancement Act (Public Law 114-122, codified at 22 U.S.C. Chapter 99). The bill already has nine original co-sponsors, including three Democrats.
“The SWIFT system which is what I think you are referring to is not a U.S. system, and therefore not under our direct control. I believe it’s an EU system up housed [sic] in Brussels,” Daniel Russel, the Assistant Secretary of State for East Asian and Pacific Affairs at the U.S Department of State said, when asked by how the U.S. administration planned to further penalize North Korea. [NK News, Dagyum Ji]
I’m all for doing things diplomatically if that achieves our objective. No doubt, our diplomats’ work has been made easier by the conduct of the North Koreans themselves, who are suspected of hacking SWIFT to rob its client banks of $80 million and laundering the loot through casinos in the Philippines (Rodrigo Duterte, call your office). Russel’s written testimony is here.
The necessity of far-reaching financial sanctions rose to the surface after the North was suspected to be connected to Bangladesh Bank heist back in May.
“We are in discussions with our partners, including the EU, about tightening the application of sanctions and pressure, including and particularly to deny North Korea access to the international banking infrastructure that it has abused and manipulated in furtherance of its illicit programs,” Russel said.
“I think that our hope is that we will in fact ultimately be able to reach an agreement that would further restrict North Korea’s access.” [NK News, Dagyum Ji]
If this bill doesn’t pass in this Congress and diplomacy can’t achieve the same result, I’m sure it’ll be back in the next Congress. In fact, for reasons I’ll explain below, it might be back even if the EU enacts a SWIFT ban. With the arrival of a new U.S. administration and an election year in South Korea, there will be no shortage of provocations to help pass it. North Korea loves to act up during election years. It makes certain kinds of people write op-eds calling for talks and concessions.
More recently, however, Kim Jong-un’s election-year antics have made him one of Washington’s most effective lobbyists — for new sanctions laws.
This post by Stephan Haggard has sparked some debate as to whether SWIFT is still servicing North Korean banks. According to Haggard’s post, SWIFT’s processing for North Korean banks fell from 50,000 a year in 2011 to a mere 5,000 a year by 2012. Haggard is always very careful with his sourcing and relied on published SWIFT data, but for reasons I shouldn’t share here, I don’t believe the statistics are accurate. I can’t rule out the possibility that SWIFT cut the North Koreans off in mid-2013 or later, however. By then, UNSCR 2094, paragraph 11, prohibited SWIFT from servicing (at the very least) U.N.-designated North Korean banks.
But in the end, whether North Korea is still using SWIFT or not, H.R. 6281 is still useful. If SWIFT is still providing services to North Korean banks, H.R. 6281 can give the Treasury Department and our diplomats more leverage to persuade the EU and SWIFT to cut the North Koreans off now. If SWIFT isn’t providing services to North Korean banks, someone else is. It would make sense that North Korea’s hacking of SWIFT software to steal from foreign banks was both a way to make money and retribution for a SWIFT cutoff.
Either way, North Korean banks need financial messaging services. One of the strongest arguments against the overuse of SWIFT sanctions is that they might give a less responsible service a competitive advantage. If some less responsible competitor has emerged to take on North Korea’s financial messaging business, then H.R. 6281 would enable the Treasury Department to either “reason with” that upstart service or sanction it to extinction. In which case, the potential rise of a SWIFT alternative turns one of the strongest arguments against H.R. 6281 on its head.
Insanity is doing the same thing over and over and expecting a different result.
To anyone who knows anything about the long history of our negotiations with North Korea, that’s a poor argument, but a terrific punchline, because what Person and Harmon spend the rest of their op-ed advocating is the very exemplar of that definition. I’ll spare you the suspense — it’s another freeze and maybe some day, another agreed framework. We’ll need to show “additional flexibility” — in addition to all the concessions we already gave away in the last umpteen deals. We must make “use of carrots as well as sticks,” except Person and Harmon don’t say how many carrots, and they spend most of their ink arguing why the sticks don’t work. They seem to operate on the assumption that if we’d only throw away our best leverage — sanctions — the North Koreans would negotiate with us for sure.
But “let’s talk to North Korea” is to diplomacy what “let’s stare at the sun” is to astronomy. Talk about what? North Korea has said again, and again, and again that it isn’t giving up its nukes. “Let’s talk to North Korea” is Underpants Gnomes diplomacy, because none of the gnomes can tell us what Phase 2 is.
I wonder where Harman and Person have been for the last 25 years. Surely they’ve heard that we signed disarmament agreements with Pyongyang in 1994 and 2007. Before that, in 1992, there was the inter-Korean denuclearization agreement. Pyongyang signed a trilateral safeguards agreement with the International Atomic Energy Agency in 1977, the Nuclear Nonproliferation Treaty in 1985, and another IAEA safeguards agreement in 1992. There was also the 2005 Joint Statement, in which North Korea again agreed to disarm. Why are we supposed to believe that this time is really different, now that His Porcine Majesty is almost fully nuked up?
The current vogue is to argue that all of these agreements may have been too ambitious, so Phase 1 1/4 should be a more limited freeze deal. Except President Obama did that, too, in 2012. The North Koreans reneged within six weeks. In between all these deals, there were countless meetings of the New York Channel or Track 2, side meetings in ASEAN summits, and hostage-retrieval missions by ex-presidents and spymasters. Did no one talk during those meetings? Were our mouths full of ssoondae every single time?
Next, Person and Harmon try to pass themselves off experts on sanctions they clearly don’t understand.
For years we have applied industrial-strength unilateral and multilateral sanctions in an attempt to force North Korea to denuclearize.
This term, “industrial strength,” is not a legal term of art, but if it’s supposed to mean that the sanctions were strong, I’ve debunked thisagain and again. Or, you can take itfrom Kurt Campbell. Because Harman and Person are only fake sanctions experts, they don’t know that until February, the U.S. actually had stronger sanctions against Zimbabwe and Belarus than against North Korea. (I don’t call myself an expert on sanctions, but at least I’ve read them.) Since March, the international community has begun implementing stronger new U.N. sanctions, but even tough sanctions take time to work — three years in the case of Iran.
On what basis should we believe the authors know anything about sanctions? Jane Harman was respected as a centrist on the House Intelligence Committee, which isn’t a sanctions-writing committee, though I still wonder why she signed on for this. James Person’s bio says he’s a Korea studies expert who specializes in poring through old Soviet archives. He’s also been on an anti-sanctions jihad, so I’ll suppose he wrote most of this. I don’t know him, but I’ll buy him a beer as soon as he emails me to say that he’s actually read the sanctions — the Security Council resolutions, the new sanctions law, the executive orders, the regulations, the general licenses, and the SDN designations should be a good start. (Do the Washington Post’s editors routinely ask contributors questions like these? In the times I’ve been published there, they’ve always asked me to show my sources on a few points.)
We have also urged China — North Korea’s neighbor and largest trading partner — to use its unique leverage to halt Kim Jong Un’s provocations, which also threaten China. But neither strategy is working.
We’ll come back to this point later, when Person and Harmon contradict themselves on it.
Six months after the implementation of harsh new sanctions under U.N. Security Council Resolution 2270, North Korea remains defiant.
U.N. sanctions have only been partially implemented. Here are the implementation reports. Plenty of them are missing, others are incomplete, and other countries (China) are still cheating. Even the U.S. still hasn’t published its final rule cutting off correspondent relationships with North Korean banks.
While few expected the sanctions to work overnight, the timeline for any results will be even longer than most anticipate. Sanctions are uniquely ineffective against North Korea.
Wrong. North Korea may deny its people access to international markets — yes, so much for engagement — but the regime itself has proven to be uniquelyvulnerabletofinancial sanctions, provided we can summon the political will to enforce them.
Our timelines are simply out of sync. It will take far too long for sanctions to persuade North Korea’s leaders to complete verifiable and irreversible dismantlement as a prerequisite for talks, and we also can’t expect China to use all of the cards in its deck.
Sanctions take too long — this from the same school that was recently promising us Gorbasms of glasnost from Swiss-educated reformer Kim Jong-un. That wasted decades and billions (including South Korean aid) on “engagement” that never moved North Korea one step in a more peaceful or humane direction, and whose proceeds may well have ended up in Kim Jong-il’s nuke fund. That feigns shock that sanctions haven’t brought North Korea to heel eight months after the U.S. passed its first comprehensive sanctions law. That turned Ri Sol-ju’s hemlines into its own doomsday clock, in the hope that if we threw enough money at Pyongyang, they might open an Arby’s by 2030, or 2035, tops. (Recently, I’ve often wondered why journalists and editors who wouldn’t think to print the views of Donald Rumsfeld or Paul Wolfowitz about Iraq still print the views of those who advocated for “engagement” with North Korea years after the costly failure of that policy should have been obvious.)
The effectiveness of sanctions is also limited because of China’s protection. Chinese leaders recognize that their economic leverage over North Korea is a double-edged sword, because sustained pressure could lead to state and societal collapse, precipitating a flood of refugees into northeast China. The collapse of North Korea could also lead to a unified, U.S.-allied Korea on China’s border — which China perceives as a worse outcome than a nuclear North Korea serving as a buffer state.
This isn’t quite an outright call to lift sanctions, but it certainly isn’t calling for us to do what we’ll have to do for sanctions to work — enforce them. Any “negotiation” that begins with throwing away this essential leverage is the very definition of appeasement. It would ensure the failure of diplomacy, seal North Korea’s status as a nuclear state, and increase the danger of nuclear war.
Besides, U.S. analysts of North Korea have long exaggerated the submissiveness of Pyongyang to Beijing.
I’ll leave to others the mostly speculative and probably disinformed parlor game about relations between China and North Korea. Myself, I believe almost none of what I read about that except the trade statistics, and I’m not even sure I still believe those. What’s clear is that until last week, Chinese businesses felt free to violate U.N. sanctions against North Korea, and Chinese banks still feel free to hold the deposits of those companies, and of North Korea’s own Bureau 39 managers. It’s equally true that fake sanctions experts have long exaggerated the submissiveness of the Chinese banking industry to the government in Beijing. Case in point: in 2007, as part of the second agreed framework, the U.S. agreed to give North Korea back $25 million in blocked laundered money from Banco Delta Asia. The Chinese government asked the Bank of China to do the transfer. The BoC wouldn’t touch the money. The New York Fed ended up moving it instead. If sanctions opponents have ever grasped the influence of the U.S. Treasury Department over the Chinese banking industry, they’ve pretended not to.
Suggesting that academics should take the time to study and understand a subject as specialized as sanctions law before opining on it eventually takes on all the futility of playing Shostakovich sonatas in honky-tonks. Fortunately, members of the House and Senate of both parties get it. They want the President to hold the Chinese banking industry accountable for laundering Kim Jong-un’s money through our financial system because (1) he has an obligation to enforce our laws and U.N. Security Council resolutions, (2) it’s the strategy that brought Iran back to the table, and (3) it’s the strategy that brought North Korea back to the bargaining table in 2007.
Expecting China to influence North Korean policies means asking China to do precisely what North Korea most resents. Chinese officials recognized that complying with the West’s wishes would only antagonize North Korea further.
There’s no limit to how far you can extend this argument. Enforce U.N. sanctions? Antagonizing! Annual military exercises to defend our treaty allies? Antagonizing! Talking about human rights and political prison camps? Very, very antagonizing! Allow Americans to exercise their First Amendment right to make stupid movies parodying North Korea’s ridiculous, morbidly obese dictator? Extremely antagonizing! Respond when North Korea shells South Korean territory or sinks its warships? Dangerous and provocative! Denying North Korea its sovereign right to nuke up, or build submarines capable of nuking our cities? You can see where this logic ends. Or rather, never does.
Stalk the North Koreans and beg for a deal all you want, but from where I sit, they’re no more into you than Jodie Foster was into John Hinckley. We’ve been on this paper chase for a quarter of a century now. What sounds like the definition of insanity to me is watching North Korea violate an armistice, the NPT, two IAEA safeguards agreements, an inter-Korean denuclearization agreement, two agreed frameworks, a joint statement, the Leap Day Deal, and six U.N. Security Council resolutions — and then believing that yet another piece of paper is our ticket to salvation. North Korea’s recent attacks on South Korea and the U.S. show that it will not quietly coexist with us when it has nuclear weapons. Much time has been wasted, and the problem is much harder to solve now than it would have been when President Obama took office eight years ago. If it isn’t too late, our first and best step toward stopping Kim Jong-un would be to tune out the insanity that got us into the mess we’re in now.
It took a few weeks for the Senate Foreign Relations Committee’s Asia Subcommittee to put a hearing together after North Korea’s fifth nuclear test, but when that hearing finally happened on Wednesday, I actually found myself feeling sorry for the State Department witnesses, Danny Russel, the Assistant Secretary Of State at the Bureau Of East Asian And Pacific Affairs, and Daniel Fried, the State Department’s Coordinator for Sanctions Policy. A few years ago, they might have gotten away with showing up unprepared, with index cards filled with stock phrases. For example, after Chris Hill’s confirmation hearing, I wrote, “The degree to which the ‘august’ senators on the Committee have paid no attention to the conduct of policies they are charged with overseeing is depressing and stupefying, and yet it all somehow still makes for dreadfully dull viewing.” Thankfully, this Senate — or rather, this part of it — is a very different and much better body.
Under the leadership of Cory Gardner, at least one part of the Senate is doing policy oversight right. You can watch the whole thing here, and although it’s two hours long, it will hold the interest of anyone interested enough in North Korea policy to read this site. Do what I did and watch it in increments as time permits.
The main headline from the hearing is that the State Department officials said thatthey areinvestigating more Chinese companies for sanctions violations, but it’s clear from the questions that the senators will not be placated by the sacrifice of mere goats anymore. Their mood is of equal parts alarm and fury — both in front of and behind the scenes, and among both Republicans and Democrats — that Chinese banks are breaking our laws, and that this administration is letting them get away with it. As they did before the hearing, they want the administration to sanction the Chinese banks that launder Kim Jong-un’s money.
By now, everyone should have expected Republicans like Gardner and Rubio to question State about that. State should have known by now that both men would be well-prepared and unsparing in their criticism. The intellects of both men, and good behind-the-scenes work by the staff — including arms control experts and one with extensive sanctions administration experience at the Treasury Department — ensured that they would quickly sift away talking points and cut directly to the issues. Gardner mentioned at one point that the senators were given a common set of briefing materials. It showed in both the insightfulness and focus of the questions, and in the bipartisan unity of their questions’ thrust. I’ve never worked in the Senate, so I wouldn’t know if that’s standard procedure there, but past hearings I’ve watched didn’t run this well. Gardner himself was in complete command of both the material and the room, and gave every appearance of being a man with limitless potential. Indeed, all of the senators were well-prepared. All, regardless of their party or tribal affiliations, asked good or excellent questions.
In the end, however, no one can hurt you more than the people who love you. At 58:17, Senator Menendez began questioning Fried by arguing for secondary sanctions against Chinese banks. He then embarked on a well-prepared, determined, and lawyerly cross-examination of Fried about this. Pressured by Menendez’s questioning and clearly unsure of his material, Fried told Menendez that Dandong Hongxiang was a bank (not true). I don’t think Fried was lying, but he didn’t have command of the facts, and when he got out of his depth, he swam into a rip current. Menendez pinned Fried down on his answer. Then, when his time expired, he went back and pulled Treasury’s announcement, probably talked to his staff, and confirmed that this wasn’t true. At 1:35:30, Menendez returned, rearmed. This, ladies and gentlemen, is what it’s like to have a bad day in the United States Senate.
SEN. MENENDEZ: Mr. Fried, I pride myself on my preparation for these hearings, so I went back to your office after your answer, and I looked at OFAC’s statement of Monday. You said in response to my question we’d sanctioned a bank on Monday. Well, I read from OFAC’s statement that they imposed sanctions on Dan-ong Yonhwang (sic) Industrial Development Company and four individuals. Now, is thatcompany a bank?
A/S FRIED: Sir, it is a financial — it is not a bank — it is the financial company that worked with a sanctioned North Korean bank.
SEN. MENENDEZ: All right, that’s different than saying you’d sanctioned a bank.
A/S FRIED: Yes, sir.
SEN. MENENDEZ: You did not sanction a bank on Monday.
A/S FRIED: Uh, we sanctioned a fi — a Chinese, uh, financial corporation.
SEN. MENENDEZ: All right, well, that’s different than a bank. Let me ask you this. How many banks — banks — has the administration sanctioned as it relates to North Korea?
A/S FRIED: Uh, a nu — do you mean banks in general or Chinese banks?
SEN. MENENDEZ: Chinese — let’s talk about Chinese banks.
A/S FRIED: A number — no Chinese banks.
SEN. MENENDEZ: No Chinese banks.
A/S FRIED: Not in China. We have umm —
SEN. MENENDEZ: That’s my point. That’s the point I was trying to drive at earlier. You have sanctioned no Chinese banks at the end of the day, and they are probably the major financial institutions for North Korea. What this company, as I understand, did was make purchases of sugar and fertilizer on behalf of a designated Korean bank. It’s a trading company, not a financial company. So, when I take testimony as a member of this Committee, I need to make sure that testimony is accurate, because I make decisions based upon it. And I must say that the information you gave me is not accurate. It was not a bank. This was a trading company. And finally, I got the answer that I wanted to hear, which is what I knew, that you’ve sanctioned no Chinese banks that relates (sic) to North Korea. And it is our hesitancy to do so that that takes away one of the major instruments possible to change Chinese thinking. I’m all for persuasion if you can achieve it. But when you can’t, and North Korea continues to advance its nuclear program in a way that becomes more menacing — and its miniaturization and its missile technology — I don’t know at what point we are going to continue to think we can stop them when in fact they’re pretty well on their way. And we allow them to continue to do so. And we don’t use some of the most significant tools that we have. So I’m disappointed that you didn’t give me the right information.
I hold no ill will toward Mr. Fried, but I literally cheered as Menendez calmly bored right to the truth of the matter. Yet on another level, watching this was deeply depressing. Menendez, for all his troubles — and I hope he’ll soon put those behind him — clearly showed us how valuable he is to his state and his country. If the Democrats retake the Senate, I hope he’ll be Committee Chairman again. Markey — watch for him to emerge as a liberal advocate for human rights in North Korea — wisely counseled restraint on South Korea’s military threats. Rubio, who had personally read and commented intelligently on an earlier version of the NKSPEA, had also read and understood C4ADS’s report and its implications. Any one of these senators would have been a better choice as President than the choices before us now. What I can’t help asking myself today is how we elect such good senators, yet such awful presidents.
In the years after the passage of the North Korean Human Rights Act, those who had worked hard to pass that law watched the State Department slow-walk it to a full stop, with Congress seemingly powerless to make it follow the law. That may have been to State’s short-term advantage, but its long-term cost was to plant in many of us a deep distrust of the State Department. We learned that passing a law is only the first step — that laws need robust enforcement mechanisms and a permanent, bipartisan constituency to make sure the executive enforces them. Hence, section 103 briefings, the first installment of which came due just as Kim Jong-un tested his fifth nuke. This Subcommittee is taking full advantage of those oversight provisions. Pray that continues to be the case in the next congress.
I’ll give The Wall Street Journal the final word, if only to make the point that this issue isn’t going away, and that the next POTUS will come under withering pressure to do what this one has not done — enforce our laws.
An invaluable report published last week by South Korea’s Asan Institute and the U.S.-based Center for Advanced Defense Studies found that Hongxiang Industrial and its parent company conducted some $532 million in North Korea business from 2011 to 2015. To put that into perspective, South Korean officials have estimated that the North’s main nuclear facility at Yongbyon cost less than $700 million to construct. [….]
In addition to neutralizing Hongxiang, these sanctions are aimed at persuading other Chinese companies to cut off Pyongyang lest they suffer the same fate, as when the U.S. sanctioned Macau-based Banco Delta Asia for about a year starting in 2005. This is the best hope for squeezing Kim hard enough that he might halt his nuclear drive. But China opposes such measures because it fears that squeezing too hard might cause the collapse of its client state.
Chinese trading firms and especially banks are likelier to cut off Pyongyang if the U.S. follows up promptly with further sanctions. One good sign is that the State Department’s Daniel Fried suggested Wednesday to Congress that more penalties are coming for Chinese firms.
Less promising is that in unsealing its indictment Monday the Justice Department said “there are no allegations of wrongdoing” against the banks involved in Hongxiang’s sanctions-busting. So despite imposing billions of dollars in penalties on a range of European banks for violating sanctions on Iran and others in recent years, the Obama Administration is signaling that Chinese banks aiding North Korea are untouchable.
In an open letter this month to President Obama, 19 Senators led by Colorado’s Cory Gardner quoted our Aug. 19 editorial (“North Korea’s Sanctions Luck”) on the evidence, compiled by United Nations experts, that the Bank of China “allegedly helped a North Korea-linked client get $40 million in deceptive wire transfers through U.S. banks.” That’s one of many examples. [WSJ]
If the House and Senate staff believe the administration has held back on specific targets, such as the Bank of China or any of the 12 banks named in the DHID forfeiture complaint, their next step should be to send the President a section 102(a) letter, which triggers a mandatory investigation, and possible designation.
Just as theywere in 2005, banks are the key pressure points. It’s the banks, not shadowy Chinese trading companies, that are most easily influenced to run away from the legal risks associated with North Korea, and that hold the bulk of Kim Jong-un’s assets.
Yet increasingly, the smartest experts on North Korea’s economy are speculating that China and its banks are being even more unhelpful than most North Korea watchers had imagined. Both Steph Haggard and Nick Eberstadt have raised suspicions that someone — most likely, someone in China — is subsidizing Pyongyang and actively undermining financial sanctions, as shown by the surprising resilience of its currency, even after the closure of Kaesong, and in spite of the fact that North Korea is nominally running a substantial trade deficit. The subsequent exposure of DHID’s role does much to validate suspicions that that support is coming through Chinese financial institutions, in dollars.
But this hidden source of resiliency is also a vulnerability. To Bill Brown, dollarization of the palace economy has helped Pyongyang stabilize that economy in the short term, but also contains longer-term dangers (I’ll let you read about them at his post rather than try to explain them here). The key point is that Pyongyang may be more dependent on the dollar than at any point in its history. Can Pyongyang adapt by further limiting its exposure to the dollar system? If that was a real option for Pyongyang, it would have exercised it either after the Banco Delta Asia episode or since then. As the Justice Department said, Pyongyang needs dollars because sellers take them.
Which is to say, China’s banks are helping Kim Jong-un win his race to nuclear breakout, and by doing so, they’re making a nuclear war on China’s doorstep more likely.
~ ~ ~
Now that I have your attention, I must bore you with some banking law. If you just can’t stand it, skip ahead to the next section. I’m about to set the table for why the 12 Chinese banks named in yesterday’s civil forfeiture complaint — and the Bank of China, which was implicated in a criminal case in Singapore last year — skated, and shouldn’t have.
Under U.S. anti-money laundering (AML) law, banks are expected to know the law, the sanctions regulations, and enough about their customers to know who’s legit and who’s using them to launder money or break sanctions. They’re supposed to have compliance programs in place, including trained compliance officers to identify and report suspicious activity, and special software to identify blocked persons who appear on Treasury’s list of Specially Designated Nationals (“the SDN List”). A key part of this compliance program is called “Know Your Customer,” which is self-explanatory in principle but can be complicated in its application.
If you’re interested — and let’s face it, you probably aren’t — the Treasury Department’s Office of Foreign Assets Control, or OFAC, has published enforcement guidelines in 31 CFR Part 501, Appendix A, laying out a schedule of fines based on the number and amount of transactions that broke the sanctions regulations, and the willfulness and egregiousness of the violations. What’s slightly more interesting is that OFAC publishes its settlements against banks that violate sanctions laws. A comparison to how similarly situated European banks have been treated puts the Chinese banks (and Treasury) in a very unfavorable light.
OFAC has often imposed steep fines against banks that didn’t even violate the sanctions regulations intentionally. For example, in March 2015, Paypal settled a penalty case with OFAC for $7.6M after violating multiple sanctions regulations through “reckless disregard” in its sanctions compliance before self-reporting its violations. In August 2015, UBS AG paid OFAC a $1.7M settlement for 222 payments to persons blocked for terrorist connections. UBS AG self-reported, but only after learning that OFAC was investigating the payments. UBS had a sufficient compliance program in place; it just interpreted the law incorrectly, concluding that certain investment-related transactions on behalf of a designated client weren’t blocked (wrong). In February, Barclays Bank paid OFAC a $2.5M settlement for processing 159 transactions, totaling just over $3M, for a person blocked under the Zimbabwe Sanctions Regulations, masked behind entities that did not appear on the SDN list. The violation was the inadvertent result of faulty compliance verification software. The bank did not self-disclose. Either way, OFAC expects banks to have effective compliance programs. As excuses, bad software and bad lawyers won’t cut it. Self-disclosure mitigates the penalty, but it’s not a defense.
Willful violations, on the other hand, can be extremely costly. In March 2015, Commerzbank paid OFAC a $258M settlement for processing 1600 transactions in violation of the Iran, Sudan, Burma, Cuba sanctions regulations. The bank stripped transaction data out of the wire transfers to conceal their nexus to sanctioned persons from their correspondents. In October 2015, Crédit Agricole Corporate and Investment Bank paid OFAC a $330M settlement for processing over 4,000 transactions in violation of Sudan, Burma, Cuba, and Iran sanctions regulations. Once again, OFAC found that Crédit Agricole and its predecessor banks stripped data out of the wire transfers.
In the case of the 12 Chinese banks named in yesterday’s forfeiture complaint, their AML compliance procedures were, at best, inexcusably sloppy. They serviced international transactions for shell companies that were registered in the British Virgin Islands or the Seychelles, and that listed fictitious addresses in Hong Kong office towers. Yeah, but who among us hasn’t done that as a youthful indiscretion? For those of you in the banking industry, the obvious answer is any banks whose Know-Your-Customercompliance programs do their due diligence and have kept up with strict new beneficial ownership rules in the EU and the U.S., especially since that whole Panama Papers thing, and especially for jurisdictions subject to U.N. sanctions and section 311.
And it’s not like much due diligence should have been necessary, given that Ma boasted openly that her customers were from “the DPRK elite group” and was an outspoken proponent of the trade that propped Pyongyang up.
To add further to the banks’ culpability here, some of the shell companies used the same Tortola, B.V.I. address as DCB Finance Limited, which was exposed for its role in sanctions violations when the Panama Papers went public (surely compliance software should have caught this!). According to the forfeiture complaint, “[a]s recently as June, July and August of 2016, nearly $8 million has transited through U.S. correspondent bank accounts related to three DHID front companies,” so some of this conduct is very recent. If nothing else, it adds more fuel to what Bill Newcomb and I have said about invoking additional beneficial ownership disclosure and record-keeping rules for North Korea.
In the case of the Bank of China, however, it got away with the AML equivalent of murder. Like Commerzbank and BNP Paribas, its employees stripped data out of wire transfers and willfully deceived their U.S. correspondents. There’s simply no defending Treasury’s failure to take enforcement action, given that BoC’s conduct was willful and egregious, unlike the other banks that simply got sloppy.
For OFAC’s penalties to be consistent, all 13 of these banks’ compliance officers ought to be collecting documents and reviewing affidavits with their lawyers right now. Instead, by saying that “[t]here are no allegations of wrongdoing by the U.S. correspondent banks or foreign banks that maintain these accounts,” the Justice Department sent a very different message to the Chinese banking industry.
That’s why tomorrow’s hearing in the Senate Foreign Relations Committee should not let up on what Senator Gardner and Senator Corker have demanded. They should not accept China’s reported arrest and investigation of Ma Xiaohong, its reported (and belated) investigation of KKBC executives, or its actions to stop North Korean trade representatives from leaving the country as signs that China is serious about enforcement at last. The DHID ships that have been impounded will be released in due course. A reported bribery investigation into the Dandong customs office that passed Ma’s wares into North Korea is self-serving from China’s perspective; China would rather package this as an anti-corruption investigation than admit that it bowed to U.S. pressure. China is not sharing information with DOJ and Treasury about its investigation, and U.S. officials don’t believe China’s actions are coordinated with theirs. More recently, China has lashed out at the U.S. for enforcing its laws:
China’s Foreign Ministry on Tuesday voiced its disapproval of U.S. actions against the businesswoman, Ma Xiaohong, and her Hongxiang Industrial Development Co. a day after Washington announced criminal charges and sanctions against her and the trading company for allegedly acting as financial fronts for North Korean companies on U.S. blacklists. “We oppose efforts by any country to use their domestic laws to impose ‘long-arm jurisdiction’ over Chinese entities or individuals,” ministry spokesman Geng Shuang told a news briefing, in response to a query on the U.S. actions against Hongxiang Industrial. [WSJ]
That’s some chutzpah, coming from a government that just unilaterally claimed the whole South China Sea and lost an international arbitration testing the merits of its claims, or that bullies Seoul with unilateral sanctions when the latter tries to defend itself from Beijing’s rabid dog. The real unilateralism is yielding to global consensus, voting for U.N. resolutions, and failing to enforce them. Unilateralism is claiming a sovereign right to misuse a distant nation’s financial system to break its laws and threaten its security. Maybe next time, U.S. authorities shouldn’t fly to Beijing to share their investigative findings, and all the sources and methods that approach may have compromised. Maybe they should just file indictments, freeze assets, and let Xi Jinping read about them in The Global Times. U.S.-China relations may have to get worse before they can get better. They may have to get worse to prevent them from becoming catastrophic. Predators need limits.
Instead, we should take China’s actions as signs that Beijing will do as little as it can get away with doing, but will acquiesce to its enforcement obligations if we attach a high enough cost to its tolerance of North Korea’s violations. We should seek to divide the self-interest of the banks in avoiding penalties and maintaining their dollar access from the interests of the Chinese government, which is to make mischief, drive the Americans out of Asia, and end up dominating both Koreas by default. We should take note of reports that North Korean trading company executives fear repercussions for getting caught. The administration should exploit those fears and divisions, turn as many of those executives as it can, and find out what they know. Above all, it should heed the conclusion of C4ADS, the plucky little NGO that showed it how good investigation works:
With the right resources and political will, it can be possible to significantly disrupt the DPRK’s illicit overseas earnings, and in the process raise the cost of its brazen proliferation activity. As the DPRK grows increasingly dependent on its overseas networks, it creates an opportunity for the international community to leverage their financial intelligence tools to squeeze the regime’s illicit activity. While actors inside North Korea can operate with impunity, abroad they are subject to international norms. A single shipment can require significant documentation and effort, including maintaining corporate entities, processing cross-border payments, or acquiring insurance or bank letters of credit, all of which necessarily leave paper trails that can be followed. By exposing these risk points and peeling away the infrastructure of DPRK illicit overseas networks, the cost and difficulty of operating abroad could rise dramatically.
Following the money is likely to be the most effective means for the international community to coerce the Kim regime toward concessions and a cessation of their nuclear program. Getting there, however, will require significantly expanded efforts to continually investigate, monitor, and act against DPRK entities as they further evolve to evade sanctions. This report aims to build a foundation for this effort. [C4ADS]
A surprising finding? North Korea’s network isn’t really all that big.
A key finding from the UN Panel of Experts was the observation that “While [DPRK] networks appear complex, their key nodes consist of a limited number of individuals and intermediaries…. Although shell companies can be swiftly changed, the individuals responsible for establishing and managing them have remained, often for years.” [C4ADS]
I’ll give Stephan Haggard the penultimate word.
What these reports show clearly is that the “sanctions don’t work” litany is deeply misleading. This trope assumes a hardy North Korean regime ready to resist any pressure no matter how intense. That is simply not the story; rather, the story is that North Korea has not been forced to make any adjustments because it has been able to conduct business largely if not wholly as usual. How does that show that sanctions don’t work? [WTT]
Yes, some Chinese trading companies may indeed run away from North Korea because of the DHID indictments. Those that don’t will probably jack up their commissions from 20 percent to 30 percent, which is itself a sanctions cost for Kim Jong-un. But any casual reader of U.N. Panel of Experts knows that North Korea’s network of enablers in China, though it is finite, is also much more extensive than this. If this indictment is just a beginning, it’s a good one. I have no objection to starting with smaller targets to scare bigger ones. But if this is all we do, North Korea’s network will recover quickly. One way or another, if we mean to prevent war, we must send a clear message to the Chinese banking industry that there will be no more business as usual with Kim Jong-un.
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(Edited after publication to include China’s reaction to the indictments.)
As of yesterday, and for the first time ever, the U.S. Treasury Department has frozen the assets of Chinese entities for violating North Korea sanctions, and the Justice Department has indicted them for sanctions violations, conspiracy, and money laundering. The company in question is the Liaoning Hongxiang Group of companies, of which Dandong Hongxiang Industrial Development Company Limited, or DHID, is the largest component. The individuals are Hong Jinhua, Luo Chuanxu, Zhou Jianshu, and Ma Xiaohong, the CEO of the Liaoning Hongxiang Group.
All were first implicated by the remarkable investigative work of the Center for Advanced Defense Studies and the Asan Institute, which is wonderful and also troubling, in that it should not have been left to a small nonprofit research group with funding from a South Korean think tank to do the work that the Treasury and Justice Departments should have done — protecting such core U.S. security interests as global nonproliferation, the integrity of the financial system, and freedom of speech in our own towns and neighborhoods. It is wonderful and disturbing that two very young and very bright people with a tiny budget and no security clearances have now done more damage to the financial networks that sustain His Corpulency’s misrule than the Obama administration did on its own in eight years. (Full disclosure: I met with C4ADS a few times since they started work last fall, to help them focus and target their investigation.) Here is how they did it.
To map these growing overseas networks, this report used open source databases, including corporate registries; court filings; Equasis maritime database records; customs and trade data provided by Panjiva, a customs trade data aggregator; and real time data on ship activities provided by Windward, a maritime data and analytics platform. The compiled information was consolidated using Palantir’s Gotham network analysis platform.
In Part I, we focused on building bulk datasets on companies, individuals, and ships. By using corporate and tax registries in East Asian countries, we were able to identify significant points of convergence across seemingly disparate networks and identify 562 ships, companies, and individuals within one degree of separation from known DPRK illicit and regime entities.
In Part II, we identified key nodes from our expanded dataset for a more in depth investigation. We focused, in particular, on one Chinese trading conglomerate that has conducted over $500 million of trade with the DPRK in the past five years. Within this network, we were able to identify its subsidiary and affiliated entities that have transacted an additional $300 million with sanctioned Burmese and North Korean entities, helped maintain the cyber infrastructure of the DPRK, and traded in various goods and services that raise serious non-proliferation concerns. [C4ADS]
The researchers also pulled and read court filings in China, Japan, and Hong Kong to uncover what appear to be significant pieces of North Korea’s overseas financial support and shipping networks. Typically for criminal networks, the North Koreans mix legal and illegal business to conceal their illicit activity and disguise the origin of their profits. The result is that some businesses “are likely to be inadvertently facilitating North Korean illicit activity,” while others, like DHID, do so willingly. I won’t try to do justice to C4ADS’s report here; just read the whole thing. Among its findings —
The report uncovered 248 companies, mostly registered in Hong Kong, that operate North Korea’s shipping fleet, much of it concealed behind shell companies and flags of convenience.
Liaoning Hongxiang Group is directly responsible for operating 10 of those ships, which import North Korean coal and help Pyongyang get around the “livelihood” loophole in UNSCR 2270.
DHID’s parent company, the Liaoning Hongxiang Group, helped to run the Cambodian ship registry, which Cambodia is currently in the process of nationalizing. C4ADS found that Cambodia in the principal registrar of reflagged North Korean ships. UNSCR 2270 prohibits the reflagging of ships owned, controlled, or crewed by North Korea.
DHID’s annual trade volume with North Korea was more than twice that of the Kaesong Industrial Complex, and more than enough to fund North Korea’s nuclear program.
DHID may have facilitated North Korean exports to the United States, which would violate Executive Order 13570.
DHID has an equity stake the Bank of Dandong, which has previously been implicated in handling money transfers to North Korea, in violation of U.N. sanctions.
The Liaoning Hongxiang Group’s Vice Chairman had dealings with a sanctioned Burmese tycoon, Tay Za, who also bought a nuclear reactor from North Korea.
DHID entered into a joint venture with the Korea National Insurance Corporation, which defector Kim Kwang-jin has accused of insurance fraud, and which has been designated by the EU for the freezing of its assets for proliferation-related activities.
DHID’s parent company is a key facilitator of North Korea’s cyber architecture, which North Korea used in cyberattacks against SWIFT; against South Korean banks, nuclear power plants, and news media organizations; and against Sony Pictures. The empty brackets are for Chinese characters that WordPress can’t read:
Companies associated with the Liaoning Hongxiang Group provide services that are critical to the underlying cyber architecture of the DPRK, including the country’s primary email relay service, facilities from which hackers are alleged to operate, and IT firms producing software with possible military and regime applicability as will be discussed in this section. The Chilbosan Hotel [ ] in Shenyang, one of Liaoning Hongxiang’s joint ventures with the DPRK,117 is alleged to be the staging area for Bureau 121, a group of North Korean hackers.118 119 The source of the allegations is a North Korean defector, Kim Heun Kwang, a former computer science professor in Pyongyang, who escaped from North Korea in 2004 and gave detailed testimony on Bureau 121, a group that began large-scale operations in China in 2005.120 The group is reported to be comprised of about 1800 “cyber-warriors” and is considered the “elite of the military.”121 It has been widely reported that Bureau 121 may have been responsible for the 2014 Sony hack.122 The Chilbosan Hotel is majority owned by the North Korean Pyongyang Economic Exchange Society [ ], 123 which controls a 70% share of the company.124 The remaining 30% is owned by Liaoning Hongxiang Group member Dandong Hongxiang Industrial Development Co. Ltd.
The Chilbosan Hotel also shares a physical address with a company called Silibank.127 128 Silibank is an email relay service that charges for sending and receiving email through servers that connect from the DPRK, through China, and then to the outside world. Established in September 2001, Silibank is reportedly the DPRK’s first ISP provider,129 charging for its service in USD for each kilobyte sent.130 The company’s domain, silibank.com, is currently registered to a Chinese company called Liaoning Zhongtian Real Estate Development Co. [ ].
And finally, C4ADS found a link between DHID and North Korea’s WMD-related procurement operations:
Information found on Dandong Hongxiang Industrial Development Group shows that in several online classified ads and databases, Dandong Hongxiang sold products that could qualify as potential military and nuclear dual use products under the U.S. Department of Commerce Bureau of Industry and Security export restrictions.105 These goods included at least four dual use products: 99.7% pure aluminum ingots,106 aluminum oxide (Al2O3), ammonium paratungstate (APT), and tungsten trioxide (WO3).107 Information discovered using Panjiva customs records shows that Dandong Hongxiang Industrial Development Group sent two shipments of aluminum oxide worth a total of $253,219 to the DPRK as recently as September 2015.108 Classified ads posted by Shenyang Hongyang Fine Cermaics Co., which according to the Chinese business registry is owned by a Chinese national named Ma Xiaohong ???, listed “industrial spaceship” as a potential application for aluminum oxide (further investigation is required to confirm if they are the same individual).109 110
We cannot definitively identify the end-user of such goods, but there are clear dual use applications for the products listed. According to a leaked government cable, North Korea has sought to aquire aluminum ingots in the past. The cable further states that “these commodities have dual-use applications for the products listed. According to a leaked government cable, North Korea has sought to aquire aluminum ingots in the past. The cable further states that “these commodities have dual-use applications and could possibly be linked to the North Korean nuclear program.”111 Ammonium paratungstate and tungsten trioxide are byproducts of separating tungsten from its ore.112 A U.S. patent filed in 2010 states that tungsten trioxide is one of several oxidizing agents appropriate for use in a missile design with increased aerodynamic stability.113 According to the U.S. Nuclear Regulatory Commission, aluminum oxide is a component used to resist corrosion in gas centrifuges during uranium enrichment.114 In April 2013, a British company discovered that a firm they had been sending aluminum oxide to had links to the Iranian government’s nuclear program and immediately “ceased transactions. The article stated that “Aluminium oxide is an important material in gas centrifuges used to enrich uranium.”115 [C4ADS]
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Strictly speaking, the Treasury and Justice Departments sanctioned and prosecuted almost none of this conduct. Let’s turn to the Treasury Department designations first. The “NPWMD” means the assets were frozen under Executive Order 13382, which makes any transaction that facilitates North Korea’s WMD procurement not only sanctionable, but punishable with criminal penalties under section 206 of the International Emergency Economic Powers Act, or IEEPA.
“Today’s action exposes a key illicit network supporting North Korea’s weapons proliferation,” said Adam J. Szubin, acting Under Secretary for Terrorism and Financial Intelligence at the U.S. Department of the Treasury. “DHID and its employees sought to evade U.S. and UN sanctions, facilitating access to the U.S. financial system by a designated entity. Treasury will take forceful action to pressure North Korea’s proliferation network and to protect the U.S. financial system from abuse.”
OFAC designated China-based DHID for acting for or on behalf of North Korean-based KKBC. Specifically, DHID used an illicit network of front companies, financial facilitators, and trade representatives to facilitate transactions on behalf of KKBC. Ma Xiaohong, Zhou Jianshu, Hong Jinhua, and Luo Chuanxu were designated for acting for or on behalf of DHID.
KKBC was designated by OFAC under E.O. 13382 and the UN pursuant to UN Security Council Resolution (UNSCR) 2270 for providing financial services in support of the previously designated entities Tanchon Commercial Bank and the Korea Hyoksin Trading Corporation. Both of those entities were designated pursuant to E.O. 13382 and UNSCR 1718 for their roles in North Korea’s WMD and missile programs. [Treasury Department press release]
As a result of Treasury’s designations, all dollar-denominated assets of the five targets are frozen, and U.S. persons are prohibited from doing business with them.
Not to be outdone, the Justice Department has unwrapped an early Christmas present by unsealing an indictment of Hong, Luo, Ma, and Zhou, and DHID for conspiracy, money laundering, and IEEPA violations, for helping a sanctioned North Korean entity circumvent sanctions. That’s about as much as you’ll see about proliferation in these indictments; the only link to proliferation is the money DHID moved for a North Korean bank that had been sanctioned for proliferation. The Justice Department also filed a civil forfeiture action against 25 bank accounts belonging to DHID, deposited in a who’s-who of Chinese banks. Want to know the names of the Chinese banks? You know you do.
China Merchants Bank
Shanghai Pudong Development Bank
Agricultural Bank of China
Bank of Communications Co. of China
Bank of Dandong (as predicted)
China Construction Bank
Guangdong Development Bank
Industrial & Commercial Bank of China
Bank of Dalian
Bank of Jinzhou
Hua Xia Bank
China Minsheng Banking Corporation
Contrary to what some news reports have written, a forfeiture action does not freeze assets; if effectively confiscates them. The ownership interest of the person who thought he owned the assets is legally extinguished if the government proves that assets are “involved in” illicit activity.
The banks themselves have no standing to challenge the forfeiture unless they can prove that they’d already closed the accounts. Typically, the feds will use 18 U.S.C. 981(k) to take an equivalent amount to the asset right out of the foreign bank’s U.S.-based correspondent account. It’s up to the foreign bank to make itself whole by taking an equivalent sum from the account holder, something that account holders usually agree to in the fine print of their account-holder agreements.
The actions are venued in the District of New Jersey because the Chinese banks that serviced DHID and the numerous shell companies it set up used Standard Chartered Bank and Deutsche Bank as their U.S. correspondent banks, and both banks based their dollar-clearing operations in New Jersey. I’ve explained how this works a few times before, but DOJ explained it well in its forfeiture complaint.
32. An interbank, also known as a correspondent bank, is a financial institution that provides services on behalf of another financial institution. It can facilitate wire transfers, conduct business transactions, accept deposits and gather documents on behalf of another financial institution. Correspondent banks are able to support international wire transfers for their customers in a currency that their customers normally do not hold on reserve. Correspondent banks in the U.S. facilitate these wire transfers by allowing foreign banks, located exclusively overseas, to maintain accounts at the correspondent bank in the U.S.
33. To obtain goods and services in the international market place, as North Korea must, it needs access to U.S. dollars as some international vendors require purchases to be made in U.S. dollars. As a result, North Korean entities, including designated entities such as KKBC, need access to the U.S. financial system.
The New Jersey venue is interesting, in that most correspondent banks operate in New York. (I wonder if that means we can expect to see another indictment in the Southern District of New York one day soon.)
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Although news reports have said that the indictment was for aiding North Korea’s WMD programs, that’s only indirectly true. The crux of the government’s case is that after August 2009, when Treasury designated Korea Kwangsong Banking Corporation (KKBC) for WMD proliferation and blocked its access to the dollar system, DHID stepped in to serve as KKBC’s work-around and to launder its money. (Broadly defined, money laundering means moving or spending money that is “involved in” certain specified unlawful activity, whether as proceeds or as an instrumentality.) I’m often asked at this juncture why the North Koreans don’t just use Renminbi. I’ll let the Justice Department answer that.
35. Following the KKBC’s designation as an SDN by the U.S. Department of the Treasury in August 2009, DHID began working to find ways to conduct trade on behalf of KKBC despite the U.S. sanctions. One means of doing so was to use Chinese currency rather than U.S. dollars to conduct commodities transactions, so as to avoid sending money through the U.S. in violation of IEEPA. In July 2010, the City of Dandong, China highlighted press reports of a pilot program between DHID and KKBC to allow Chinese Renminbi (RMB) transactions to facilitate trade between China and North Korea.
36. North Korea’s trading needs, however, cannot be met using only Chinese currency. As a result, KKBC has continued to access the U.S. financial system to facilitate the purchase of goods in violation of U.S. sanctions. KKBC has done so by using DHID and its front companies.
In other words, what I said before — North Korea uses the dollar because that’s what sellers want, and also because (as I’ll explain later) Pyongyang is dollarizing to stabilize its economy.
When KKBC wanted to buy something in dollars — in this case, sugar and urea (used for fertilizing and explosives, and also, ewww) — it would place an order with DHID, which then bought the merchandise at a substantial mark-up — as much as 23 percent, through any one of 22 different front companies or shell companies it set up for just that purpose. That’s the kind of premium that, at least according to our friends in the FBI, people only charge to take the risks associated with breaking the law. Ma and DHID were initially well-positioned to charge these commissions due to Ma’s connections with Jang Song-thaek. Only when the guns of Jang’s firing squad fell silent, Ma’s business kept right on booming.
DHID and KKBC kept a ledger where KKBC would credit or debit DHID’s dollar account in KKBC in Pyongyang. The most suspicious transactions — those that involved a North Korean nexus — were all kept off the wires. Instead, DHID set up a whole series of shell companies, mostly registered in the British Virgin Islands or the Seychelles, and listing fictitious addresses in Hong Kong.
And how did DOJ find all of this out? Much of it obviously began with the C4ADS-Asan investigation, but there is much evidence in the indicment and forfeiture complaint that C4ADS didn’t write about. And why sugar and urea instead of, say, aluminum oxide? I can only speculate that those transactions were the easy ones to prove. Prosecutors prefer to charge the conduct that’s easiest to prove, especially if some of the other transactions with more jury appeal might also require proving up a longer, more complex chain of shell companies and beneficial owners.
All of which is our cue for a round of “Panama Papers Bingo,” which will allow you to read fun stuff about theshellcompaniesnamedin theindictment and theircorporate officers. By all means, leave a comment if you find something interesting in there, although I may hold your comment unpublished for a while for legal reasons.
Although the forfeiture action doesn’t say how much money was in the 25 accounts, it describes multiple transactions in the millions of dollars, including one that was for around $11 million. It wouldn’t surprise me if we learned that the total was well over $25 million, the amount that was blocked (but not forfeited) in the case of the Banco Delta Asia action.
Anyway, now you know why we wrote a section on “forfeiture of property” into the NKSPEA. Originally, we tried to create a special fund to pay for North Korea sanctions enforcement, broadcasting, and humanitarian purposes. Because that funding provision ended up on the cutting-room floor, the Justice and Treasury Departments will put the forfeited money into their respective forfeiture funds and use the money to pay for law enforcement operations. Where, as here, DOJ and Treasury worked the case together, they’ll typically work a deal for splitting that money up between them.
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So what will the impact of all of this be? Financially speaking, DHID and Ma aren’t likely to survive the experience. Because 80% of DHID’s business was North Korea-related, His Porcine Majesty will probably feel a significant impact. DOJ’s indictment quotes a DHID powerpoint presentation that claims that as of 2012, DHID handled 20% of the volume of Sino-North Korean trade, and claims that DHID’s business was growing at 30 percent each year. I have no way of knowing if that’s true or not, but my guess is that these figures are exaggerated for shareholder consumption. After all, DHID was willing to file a false certification with a certain Panama-based law firm — any guesses, kids? — denying that it had any links to North Korea (exhibit 3).
The greater effect may be the in terrorem impact this action will have on companies like the 88 Queensway Group that had dealings with sanctioned North Korean entities and felt untouchable, possibly because they thought their Chinese political connections would protect them from Uncle Sam. Ma herself was a made member of the Chinese Communist Party, and Sam Pa was a former Chinese spy. Equally well-connected figures may feel less invincible today.
The bad news? Not only the fact that no Chinese banks are facing indictments for facilitating Hongxiang’s willful, long-standing money-laundering scheme, but also, the fact that in its press release, the Justice Department said that “[t]here are no allegations of wrongdoing by the U.S. correspondent banks or foreign banks that maintain these accounts.” I’ll discuss that in more detail in tomorrow’s post.
While the world is rightly focused on China’s (non-)compliance with a series of U.N. sanctions resolutions it voted for, the world must not forget that China is also inflagrantviolationof the Refugee Convention when it sends people fleeing persecution back to North Korea, without affording them any opportunity to claim asylum or meet with representatives of the U.N. High Commission for Refugees. And after all these years, China certainly knows damn well what happens to the men, women, and children it sends back.
Approximately 30 North Koreans previously caught escaping the country and repatriated from China have been detained for months by Sinuiju state security agents. These individuals have been subject to continual beatings by security agents during interrogation, Daily NK has learned.
“At the state security jail in Sinuiju, some 30 people who were caught in China are being held and interrogated,” a source from North Pyongan Province reported to Daily NK. “Although they were handed over by Chinese police back in April, for months the authorities have been conducting background checks and ordering them to write out their testimonies.”
This news was corroborated by additional sources in North Pyongan Province.
The prisoners are being detained in cells with leaky ceilings and are surviving on cornmeal mixed with grass and sand, and most are lacking enough energy to even sit upright in their cells. During hours of forced labor, if a prisoner collapses and is unable to get up, the other detainees are ordered to beat up that individual, reported the source.
“Although one of the women was beaten up so harshly during interrogation that she can no longer walk, she has been completely neglected and received no medical attention,” the source said, adding that no one is held accountable in the event that a repatriated defector is starved or beaten to death. [Daily NK]
The Daily NK then describes the outcome of the interrogation. First, the Ministry of State Security will repeatedly question each prisoner on why he or she left North Korea. Those who left to earn money for their families might get sent to a re-education camp like Camp 12, where torture, disease, brutal working conditions, and starvation rations all contribute to a high death rate. Some of these prisoners may yet survive long enough to be released into another prison with a lower level of security, also known as “North Korea.”
The worst fate is reserved for prisoners that the authorities conclude fled North Korea to escape to South Korea, to escape political persecution or punishment, or who met with Christians or South Koreans while in China. They will be sent to one of the camps of no return — vast political prison camps like Camp 14, Camp 15, Camp 16, or Camp 25. Naturally, large bribes from a prisoner’s family members can influence the security service’s decision.
Among the individuals apprehended was a woman in her 30s, who was caught living with a Han Chinese man in Shandong Province and forcefully repatriated by the Chinese authorities. She was charged with committing a minor offense but was detained for months. Only after her relatives in the South sent 5,000 USD as a bribe was she sent back to her home in Hyesan, reported the source.
The pervasiveness of security agents openly demanding bribes has infuriated many residents. “The fact that security agents are exploiting the leadership’s extreme hostility towards defectors is contributing to people’s underlying loathing for the regime,” the source noted. [Daily NK]
China insists that all North Koreans it repatriates are “economic migrants,” not refugees. But because North Koreans fleeing hunger and poverty are often kept hungry and poor because the state has secretly classified them as politically “wavering” or “hostile,” it isn’t always clear — even to the North Koreans themselves — that the root cause of the intolerable conditions that drove them to flee is really political.
Furthermore, even when a refugee crosses the border for an initially non-political reason, the fact that she’s certain to be tortured (or sexually assaulted) back in North Korea by itself entitles her to claim refugee status — the technical term is “refugees sur place.” North Koreans facing repatriation to North Korea are also entitled to protection under the Convention Against Torture.
So if China is willfully violating all of these standards of international law, are Chinese authorities also potentially culpable? Yes, as I’ll let the U.N. Commission of Inquiry’s 2014 report explain, in a long quote below the fold (click “continue reading,” bottom right of the post).
The general rule with China is that it will violate any rule or standard to the extent it can get away with violating it. It’s long past time to raise not only diplomatic and moral pressure on China for these brutal and unlawful repatriations, it’s also time to target both the North Korean and Chinese security forces for mandatory sanctions under section 104(a)(5) of the NKSPEA. If the Chinese security forces choose to facilitate North Korea’s crimes against humanity, then they should at least do it without the use of America’s banking system. Only a credible threat of accountability will change China’s behavior.
For a few years now, I’ve heard that hedge fund investor, TV provocateur, and crackpot Jim Rogers has been urging his audiences to invest in North Korea. A few years ago, that advice might not have done much worse than condemn your soul to eternal damnation and bankrupt you, the way it bankrupted (or nearly bankrupted) Orascom Telecom and any number of otherinvestorswhopreceded it.
Since at least March, however, Rogers’s advice has been malpractice on a whole new level. Following the passage of a new U.S. sanctions law, the Treasury Department explicitly banned new investment in North Korea. It has also done much to jeopardize existing ones by imposing sectoral sanctions on North Korea’s banking, transportation, and mining industries. Perhaps, then, it’s time for Mr. Rogers to find a new way to attract attention. After all, the bans on investment are punishable as violations of the International Emergency Economic Powers Act, with 20 years in prison term and a $1 million fine.
“If we all bought North Korean currency, we’d all be rich someday,” Rogers said. [Business Insider]
No, Jim, you won’t be rich. You might get three square meals a day, courtesy of the taxpayers. Also, you might be warm. After North Korea redenominated its currency in 2009, North Koreans burned piles of the stuff. Even the North Korean government prefers the dollar to its own currency. North Korean market traders prefer dollars and Renminbi.
In short, Rogers is seeing the controversial country open up, which he says makes it a good bet.
Here’s the relevant excerpt from the Q&A explaining why:
“Well, North Korea today is where China was in 1981. Deng Xiaoping started opening up in ’78. Most of us, including me, either weren’t aware of it or if we were aware of it. We ignored it, didn’t pay any attention. North Korea is doing that now.
“There are 15 free trade zones there now. You can take bicycle tours of North Korea, if you want. You can take movie tours. I’m sure if [Kim Jong Un’s] father were alive, he’d hang him. If his grandfather were alive, he’d torture him and then hang him, you know, for some of the things he’s doing. I mean, you go to North Korea now, you see these astonishing restaurants with white tablecloths, cutlery, candles. I mean, this is North Korea we’re talking about. Chefs. It’s happening.”
He added that his lawyer told him he couldn’t invest.
So we eventually come to the fact that Rogers’s own lawyer told him of the investment ban. I’ve previously described North Korea as the Trump University of foreign investment, and you’d think that on so many levels — financial, moral, and legal — no responsible advisor would point an investor there. Maybe Rogers’s next question for his lawyer should be about the penalty for solicitation of a felony.
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Update: The only solicitation offense I see in title 18 is for soliciting a crime of violence. So I guess it’s Rogers’s viewers who bear all of the risk by taking his advice.
With all the news out of North Korea recently, I’ve been saving up links to news reports about the floods in the northeastern provinces until I had a moment to put some thoughts together. According to a U.N. aid coordinator’s assessment, the floods killed 138 people, damaged 30,000 houses, and made 69,000 people homeless.
North Korea claims that these are the worst floods since World War II, and some news reports have obligingly reprinted that claim. But OFK has a long memory, and in its vast archives, I found that after floods in 2007, the government claimed that hundreds of people were dead or missing and that 300,000 were homeless. Going by North Korean government statistics alone — something no responsible journalist should ever do without careful fact-checking and prominent disclaimers — these are not even the worst floods in North Korea this decade.
There are, of course, other reasons to be skeptical of Pyongyang’s claims. In 2007, the Korean Central News Agency gave the Associated Press a photograph of knee-deep flood waters in Pyongyang. AP later withdrew the photo when it was revealed to have been a rather obvious photoshop job, altered to make the waters look deeper than they really were. This incident, Pyongyang’s long history of manipulating aid assessments, and its infiltration of U.N. organizations with intelligence agents show that Pyongyang has a motive and a willingness to deceive the world, to get sympathy, money, rations for hungry border guards, or even insurance payouts.
These incidents and many others demonstrate the importance of doing thorough assessments of humanitarian needs, and of rigorous monitoring of the distribution of aid to prevent Pyongyang from diverting and misusing it. Unfortunately, I’m not optimistic that U.N. needs assessments this time will do any better than U.N. nutrition surveys have. After all, the areas affected by the floods include at least one prison camp, Camp 12, at Cheongo-ri. The Committee for Human Rights in North Korea has already published satellite imagery of flood damage to the prison.
The U.N.’s map of the affected areas also includes Camp 25 in Chongjin, the former Camp 22 in Hoeryong, and Camp 16 in Hwasong. Not only would Pyongyang never allow foreign aid workers near those places to do assessments, I doubt U.N. agencies would even have the courage to ask to go there. But why are the humanitarian needs of prisoners, including political prisoners, less deserving than those of anyone else? Ordinarily, humanitarian agencies insist on the non-discriminatory distribution of aid and adhere to the principle of “no access, no aid.” But in another case of North Korean exceptionalism, the has U.N. allowed North Korea to make itself an exception to those principles.
Worse, the state’s botched response is exacerbating the problem. It is prioritizing security over recovery by jamming cell phones and making it difficult to communicate, an essential function during a disaster response. It has deployed large numbers of untrained soldiers and citizens to perform recovery work, but the workers have burdened already scarce supplies of food and shelter. Food prices in the affected area have doubled, and some soldiers have looted private homes.
Then, more than a week after the floods, Kim Jong-un made the decision to carry out a nuclear test, which is the clearest possible statement of the priority he assigns to helping the survivors. In theory, a dictator’s decisions should not be held against his subjects, but Kim Jong-un certainly knew that in practice, the test would contribute to already severe donor fatigue just when his people would be in desperate need of international aid.
Kim Jong-un has made several public appearances to celebrate the nuclear test, but has not gone to the flood-affected areas to command response efforts or console survivors. There are reports of widespread anger by North Koreans, who can certainly see this, too.
Kudos to Kim Jong Un for putting his time & resources into the major flooding problem in North Korea’s northeast. https://t.co/tcPPB3aaJ8
In this light, Seoul’s hesitation to throw money at Pyongyang is somewhat understandable. As I tend to repeat because it can’t be repeated enough, the North Korean people are poor, buttheirgovernmentisn’t. Kim Jong-un has more than enough cash on hand to buy food, tents, medicine, blue tarps, and building materials from just over the border in China, or to import them into the nearby ports of Chongjin and Rason. I see zero evidence that Pyongyang is doing that, but if you do, by all means, post a link in the comments. Yet some people have let themselves be conditioned into the belief that the needs of North Korea’s people are everyone’s responsibility but that of His Supreme Corpulency himself.
“We have to ask ourselves if now is the appropriate time – considering Pyongyang’s two-faced attitude – to make such movement (for aid).”
The Seoul government, the ruling Saenuri Party, and right-leaning media have largely avoided responding to voices urging Seoul’s involvement in alleviating the worst effects of North Korea’s flood, NK News previously reported.
This position has been heavily criticized by scholars and former policymakers, particularly from the Sunshine era, including Dr. Kim Yeon-chul, who was one of the observers of the Six-Party Talks in 2005.
“A hungry child knows no politics,” wrote Kim on his website, quoting the former U.S. President Reagan’s speech from 1984. “Will we ever learn…to sympathize about the other human beings? ” he added. [NK News]
In addition to its casualty toll, the U.N., probably citing North Korean government figures, claims that nearly 400 North Koreans are missing. Some of them are probably dead. Others may be alive but lost amid the chaos. Still others may have slipped across the border into China, taking advantage of the fact that the floods washed away border fences and border posts, drowned some border guards, and generally broke down command and control in the region. This appeal from Liberty in North Korea certainly suggests so.
Friends, North Korea is recovering from severe flooding caused by Typhoon Lionrock. Buildings and homes have been destroyed and thousands of people have been displaced. This has caused an increase in people fleeing across the border into China.
In the last few days, there have been an unprecedented number of requests for rescues from North Koreans who have just crossed the border, but we can’t keep up with this increased demand. This situation needs our immediate response. Our partners are on the ground and ready to go. You can help us, right now, provide critical assistance to individuals who have escaped in the midst of this disaster. [LiNK]
If these new refugees are counted as missing and presumed dead, so much the better for their families, who will be spared collective punishments and shake-downs by the security forces. Eventually, they might even receive remittances from China or South Korea to help get them through the long, cold winter to come.
For the regime, the loss of control of the northeastern border comes amid growing indiscipline among the border guard force, and just as it had begun to reassert control with inspections and restrictions on the soldiers’ movements.
As is so often the case, the North Korean people suffer, and their government does more to exacerbate their suffering than to ameliorate it. In other societies, botched disaster responses have political consequences. But in a place where there is no internet, no telephones, and no other means by which the people can share their grievances or organize to protest them, the regime will probably be able to isolate and suppress their anger.