Robert Einhorn to Lead North Korea Sanctions Implementation Effort

einhorn.jpgThe Joongang Ilbo is reporting that Clinton Administration alumnus and counter-proliferation expert Robert Einhorn is going to be put in charge of “streamlining the process by which it implements” international sanctions against North Korea, sanctions that are likely to be enhanced after an international investigation found that North Korea torpedoed and sank the South Korean warship Cheonan.

“The U.S. administration was seeking more efficient management of implementation of sanctions, which had been divided between the State and the Treasury departments,” the source said. “Philip Goldberg, the assistant state secretary at the Bureau of Intelligence and Research, had been doubling as the implementation coordinator, but Einhorn is poised to take over.

“The U.S. government also tried to strengthen its sanctions system after the second North Korean nuclear test last year, when Goldberg was named the coordinator,” the source said. Goldberg was appointed to his Bureau of Intelligence and Research post in February.

Another source said Einhorn’s nomination is also part of the U.S. government’s efforts to follow up on President Barack Obama’s order to review “existing authorities and policies” on North Korea. Soon after South Korean President Lee Myung-bak unveiled Seoul’s countermeasures against Pyongyang Monday, the White House expressed its support and said in a statement, “This review is aimed at ensuring that we have adequate measures in place and to identify areas where adjustments would be appropriate.

You can read more information about Philip Goldberg here and here. Previous reports suggested that he would quit as North Korea sanctions coordinator, but he continues to occupy a senior post within the State Department.

My research and inquiries about Einhorn suggest that we could do worse. He was deeply involved in negotiating Agreed Framework I, but since then, Einhorn has caught on faster than most of those in the foreign policy industry. His statement in 2007 that North Korea was “backtracking” on its promises to disarm suggests that he could see how Agreed Framework II would end a year before most reporters would see through Chris Hill’s glib deceptions.

“Aside from his knowledge of North Korean nuclear issues, Einhorn is tight with Gary Seymour, the weapons of mass destruction coordinator at the White House, and other nonproliferation officials in the Obama administration,” another source in Seoul said. “Einhorn should be able to provide leadership in his new role.

This is another good sign. The report probably means to refer to Gary Samore, an Obama Administration official whose validation of longstanding suspicions that North Korea was secretly enriching uranium departed from Democratic orthodoxy that the Bush Administration’s 2002 uranium enrichment accusations blew up a perfectly good disarmament deal with North Korea over sketchy evidence. Today, the evidence of North Korea’s cheating is so overwhelming that the Obama Administration is also insisting that North Korea disclose its uranium enrichment activities.

Is it bad news that someone from State, rather than Treasury, is going to lead the implementation effort? Yes, State ought to be handling our dealings with foreign governments, but Treasury — and I single out Undersecretary for Terrorism and Financial Intelligence Stuart Levey in particular — has generally been much more determined and effective than State in making sanctions work. The last time State and Treasury confronted one another over sanctions, Chris Hill rolled Treasury and got sanctions lifted against North Korea, in spite of Treasury’s persistent belief that North Korea continues to counterfeit U.S. currency. My suspicions are fueled by this recent history, and also by the fact that the same people are running State’s East Asia Bureau and Treasury’s Bureau for Terrorism and Financial Intelligence now as during President Bush’s second term. All of the key players in both departments are holdovers or career civil servants. During the Bush Administration, the absence of strong leadership at State, the White House, and the NSC meant that more junior officials like Christopher Hill could effectively set policy. Today, the White House and the NSC seem to be setting policy for the more junior officials to implement.

What the policy will be comes down to the question of political will, but the more reliable information I’ve heard, both before and after the Cheonan report, indicates that the Obama Administration is determined to pressure Kim Jong Il rather than caving in and signing Agreed Framework III. Einhorn isn’t one who appears to favor talks for the sake of talks, at any price. There’s reason, then, for cautious optimism. The question, of course, is where the pressure is taking us. Is the objective to force Kim Jong Il back to talks? There isn’t much point in that if, as almost everyone agrees, he’ll never disarm anyway. That’s especially so when China continues to signal that it will block and undermine sanctions against North Korea, and fails to enforce the sanctions in effect now. At some point, one can only hope that the administration decides to make North Korea China’s problem by trying to destabilize the regime.

Another diplomatic source said the Obama administration needed to tighten its sanctions regime. The source said when North Korean overseas accounts were closed off by U.S. sanctions, they simply changed the name of the individual or the company which had opened the account and resumed transactions. The sanctions were aimed at banning transactions by companies or individuals suspected of involvement in the North’s weapons of mass destruction programs.

“U.S. officials have taken note of such [name-changing] practices and they’re preparing measures to eliminate them,” the source said.

At the same time, the Chosun Ilbo reports that the Obama Administration intends to devote more attention to finding and freezing Kim Jong Il’s substantial personal accounts stashed in overseas banks. This is something I’ve been calling for for years.

Sanctions against North Korea by the U.S. government are expected to focus on Kim Jong-il’s personal slush funds. The aim is to tighten the noose around Kim and the rest of the North Korean leadership rather than to increase pressure on the North Korean people, in a parallel with the 2005 freezing of what was apparently money for Kim’s private use in the Banco Delta Asia in Macau.

U.S. and South Korean intelligence are exchanging information about the bank accounts managed by a department of the North Korean Workers Party’s Central Committee codenamed “Room 39,” which manages Kim’s personal coffers. “We discovered long ago that most of the overseas bank accounts that received money from South Korean businesses involved inter-Korean projects were owned by the North Korean military,” said a South Korean government official.

I’ll just pause here to let you bask in the warm, gentle glow of Sunshine and reflect on how much kinder and gentler it has made North Korea.

Room 39 is expected to be the main target of the latest financial sanctions. It has 17 overseas offices, some 100 trading companies, a gold mine and its own bank. The $200 million to $300 million earned by subsidiary companies have gone straight into Kim’s overseas bank accounts. The director of Room 39, Jon Il-chun, is expected to face financial sanctions as well. Kim appointed Jon after the former head, Kim Tong-un, was put on a blacklist of North Korean officials by the EU in December.

The U.S. government may also freeze overseas bank accounts held by North Korea’s Reconnaissance Bureau, which is believed to have orchestrated the attack on the South Korean Navy corvette Cheonan in March. But some experts say the U.S. may find it more difficult to apply financial pressure on North Korea because the North moved most of its money to accounts in China and Russia.

Are these developments connected? I can’t say for certain, but Einhorn has previously expressed support for tightening sanctions on luxury goods that support Kim Jong Il’s patronage system. The overseas accounts probably consist largely of proceeds of illicit activities, or those banned under U.N. Security Council resolutions. The funds in those accounts are probably paying for the yachts, cars, booze, and other luxuries that Kim Jong Il continues to import in violation of those resolutions.

How can the U.S. government reach those funds? I can think of at least two ways off-hand. One is to designate North Korea, Bureau 39, and/or Kim Jong Il as primary money laundering concerns under Section 311 of the USA PATRIOT Act, which would force any bank holding those accounts to freeze them, or risk losing its access to its correspondent accounts with U.S. banks. As the example of Banco Delta Asia showed, access to correspondent accounts in the United States means access to the global financial system. Depositors who are engaged in international business transactions can’t bank at an institution without that access. With the marginal rate at which banks are capitalized, even the threat of Section 311 sanctions would render most banks insolvent.

Another alternative would be to issue indictments and forfeiture counts against the North Korean accounts themselves, under 18 U.S.C. sec. 1956, our strongest money laundering statute. Because North Korea never contests litigation in U.S. courts, the Justice Department would win convictions on the criminal forfeiture counts, and correspondent accounts of the banks holding those assets would be blocked. The banks, in turn, would have to freeze the accounts to avoid absorbing the loss. Because the money laundering statute has extraterritorial jurisdiction, Justice could pursue the assets almost anywhere in the world. But how would we prove that all of the funds were proceeds of illicit activity? We wouldn’t have to. A long-standing principle of money laundering laws is that if illicit funds are “co-mingled” with legitimately derived funds, the entire amount is considered tainted and can be forfeited.

What charges would we be able to prove? First, Justice would have indicted North Korean entities for the supernote counterfeiting conspiracy years ago, had it not been for the State Department’s intervention. Second, an Australian newspaper recently reported that indictments could be forthcoming for the transactions associated with the 2009 Bangkok weapons seizure.

Finally, does the fact that many of Kim Jong Il’s funds have moved to Russian and Chinese banks put them beyond the reach of Treasury and Justice? No. Like every bank that needs access to the international monetary system, Russian and Chinese banks need their correspondent accounts in U.S. banks to operate. Back in 2005, when the Treasury Department first announced its sanctions against Banco Delta Asia, there were also reports that the Bank of China was also under suspicion. This caused such extreme consternation in the Bank of China that two years later, its officers refused to touch the frozen Banco Delta funds that both the U.S. and Chinese government wanted it to transfer back to North Korea to facilitate Agreed Framework II. For China’s government, the downside of its transition to a market economy is that even it doesn’t have complete control over its capital. And in the face of any hint of a Treasury Department investigation, capital is a coward.

6 Comments

  1. Good read. Given the clout you have, I think it is good for you to keep beating the drum of these finance-related means as a way to punish the Pyongyang regime and (hopefully) effect some change in their behavior. You have me convinced that this is an important strategy and it is encouraging that the Obama administration seems to largely be on board. But you will have to keep beating that drum.

    Meanwhile, it looks like Kaesŏng may be back from the dead.

  2. Yeah – what Kushibo said ;-).

    The Joongang Ilbo article stated

    ” . . . The source said when North Korean overseas accounts were closed off by U.S. sanctions, they simply changed the name of the individual or the company which had opened the account and resumed transactions.”

    Mr. Stanton wrote above

    ” . . . Another alternative would be to issue indictments and forfeiture counts against the North Korean accounts themselves . . .”

    This concept of attacking the accounts themselves looks awesome. I’d like to know, though, out of countless millions of different accounts, of all types (banking, checking, stock, escrow, mutual fund, etc.) in probably hundreds of thousands of financial institutions, of all types, all around the world, exactly how investigators can nail down who owns which account where? For example, IIRC, Swiss financial institutions for decades played games w/bank accounts, insurance policies, or such, owned by Holocaust survivors/heirs.

  3. But polls showed Lees uncompromising stand against the North has helped keep support ratings for him near the 50 percent mark in recent weeks.Lee has vowed to hold North Korea accountable after a team of investigators found Pyongyang was behind the torpedo attack on the corvette Cheonan in March, killing 46 seamen.North Korea has denied responsibility and accused Lee of fabricating the attack for political gain.

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