Money Laundering Sanctions

How North Korea evades international financial sanctions

There is no such thing as a perfect plan, and the idea of pressuring North Korea through international financial sanctions is no exception.  Like money launderers everywhere, the North Koreans have adapted to get around anti-money laundering controls.  Reuters has an excellent, must-read report on North Korea’s use of bulk cash transactions to avoid the scrutiny of banks and law enforcement.  The report features an interview with Kim Kwang Jin, who defected and revealed his role in an international re-insurance scam.

North Korea has also responded by splitting its income streams via more banks.  South Korea claims that it’s difficult to associate specific accounts with illicit activity, which is always the case with money laundering.  That’s the whole idea of such classic money laundering methods as “structuring” — dividing large payments into smaller ones to evade reporting requirements — and “co-mingling” — mixing illicit funds with the proceeds of “legitimate” activity.  The usual law enforcement approach to such tactics is to impose special measures on all of the suspected launderer’s income and assets.  That approach shifts the burden to those handling the suspect’s transactions to establish the legitimacy of the origin and use of the funds.  It was also the clear intent of Paragraph 8(d) of UNSCR 1718.

All of which suggests that an appropriate U.N. sanction would be to ban bulk cash transactions with North Korea, its nationals, and its agencies.

I’ve often marveled at the inventiveness of the North Koreans at coming up with new schemes to bring in money. What’s more, I wouldn’t hold any of it against them if they were using it to feed their hungry people.  The example that sticks with me is the recent scam in which North Koreans hacked into popular South Korean online games, created algorithms to autoplay them, collected online credits, sold the credits for cash online, and gave the proceeds back to the regime to use for God-knows-what.  The New York Times thinks God-knows-what means “nuclear weapons programs and to smuggle Rolex watches and other luxury goods, which he doles out to buy the allegiance of the party and the military elite,” but with North Korea, no one ever really knows where the money goes.

One source of illicit North Korean income that has probably dropped off is the drug trade.  This piece, which discusses the cross-border meth trade between North Korea and China, doesn’t say whether the trade is state-sanctioned, but I tend to suspect most of it isn’t, except for the involvement of corrupt officials.  Japan’s crackdown on remittances and trade with North Korea badly damaged the state’s capacity to earn through the meth trade, and a lot of the chemists behind the trade turned pro.