Money Laundering Sanctions

Plan B Watch

Via the Chosun Ilbo, and according to “a diplomatic source:”

The U.S. government is considering labeling North Korea as a money-laundering state to pave the way for sanctions after Pyongyang’s latest nuclear test.  [….]

Article 311 of the Patriot Act was created following the Sept. 11, 2001 attacks and authorizes the U.S. Commerce Department to identify an individual, financial institution or state as a “primary money-laundering concern.” This would ban the target from transacting business with any system that handles U.S. dollars.

This measure is much tougher than the freezing by the Bush administration in 2005 of around US$25 million held in some 50 North Korean bank accounts at Banco Delta Asia in Macao.

Theoretically, yes.  But it won’t be tougher in practice if North Korea is designated and the Chinese and South Korean entities that continue to fund the regime aren’t.  The key to effective economic pressure against North Korea is to cut its financial lifelines to its foreign enablers.  Yes, the North Koreans will always be able to use old money laundering tricks to evade sanctions, like shifting its transactions to bulk cash and stored value cards, and by “structuring” transactions (splitting big transactions into small ones) to avoid reporting requirements.

A drug cartel or a small terrorist organization can operate like that for years, but no one has ever tried to finance a police state, govern 23 million people, or feed and maintain a million-man mechanized army that way.  Sanctions don’t need to be 100% airtight to work; even sanctions that are 30% effective would create a massive shock to the palace economy, disrupt its system of gifting and patronage, impede WMD development, and force the regime to excommunicate large segments of its Inner Party.  That’s potentially destabilizing for a regime that’s recently purged a number of senior officials to consolidate its power base.