As I’ve long argued in these pages, China has a long history of evading and violating the North Korea sanctions it votes for at the U.N. Without the threat of secondary sanctions, it will revert to non-enforcement. When the next U.N. Panel of Experts report is published in the coming days, it will reveal yet more extensive evidence of sanctions violations by Chinese banks, ports, and businesses, often with the knowledge of the government agencies that regulated them.
Since early February, however, evidence has begun to emerge that some Chinese banks, business, and ports are cutting off their North Korean clients. The question is how comprehensive the enforcement is, and how sustained it will be.
In February, we saw the first reports that Chinese banks were freezing North Korean accounts. Last Wednesday, according to the Chosun Ilbo, “banks in the Chinese border town of Dandong suspended all money transfers to North Korea at the instruction of Chinese financial authorities,” in both dollars and Renminbi. According to the report, “[t]he move makes it impossible for North Korean trade officials and hard-currency earners in China to send money home through official channels.”
Russia Today also relays a report from the Tokyo Shimbun that “[t]he four largest Chinese banks” — the Bank of China, Construction Bank, Industrial and Commercial Bank and Agricultural Bank — “have stopped yuan and dollar cash transfers to North Korea.”
These developments are encouraging, but not conclusive. In 2013, three months after the Security Council approved UNSCR 2094, two months after the U.S. Treasury Department blocked North Korea’s Foreign Trade Bank, and ten days after the first version of the North Korea Sanctions Enforcement Act was introduced in Congress, the same four big Chinese banks also halted money transfers to North Korea or froze North Korean accounts. Then, unlike now, however, it was still business as usual in the border city of Dandong, where the Bank of Dandong continued to transfer funds for Pyongyang, and in the Chinese ports of Dandong and Dalian. And within a few months, it was business as usual everywhere else.
What we still don’t know is whether smaller Chinese banks and non-bank institutions are being as careful. So while the preliminary signs are good, the lesson of 2013 is that those effects won’t be sustained unless the U.S. and its allies show a determination to keep enforcing these sanctions, even after North Korea fades from the headlines.
Over the coming months, North Korean operatives will try to move payments through non-bank institutions and cash smugglers, or in the form of gold, bitcoins, and stored value cards. It seems unlikely that a government of a country of 23 million people can operate this way for long, but whether China cracks down on cash and gold smuggling will be a key test of its willingness to pressure North Korea into disarming. Failing that, it will be a test of our willingness to pressure China.
Last week, the Philippines seized and began to search a North Korean-crewed, Sierra Leone-flagged ship, the M/V Jin Teng, IMO 9163166. The Jin Teng is designated in Annex III of UNSCR 2270 as a vessel owned or controlled by U.N.-designated Ocean Maritime Management (OMM). According to the AP, the ship is “owned by a company based in the British Virgin Islands and managed by a firm in China’s Shandong province.” Although no contraband has been found about the ship yet, a U.N. inspection team is on the way. The Filipino government says it will deport the crew without their ship.
Other countries in the region are cracking down on North Korean shipping. South Korea will impose new bilateral sanctions this week, including “banning the entry of ships to South Korean ports from third-party countries that have been to North Korea.” Reuters reports that China’s Ministry of Transport has told its port directors to “blacklist” the 31 North Korean ships — make that 30 — owned or controlled by OMM, and to notify the ministry if those ships enter Chinese ports or waters. UNSCR 2270 requires member states to seize those ships, and China’s action may mean that it would seize OMM ships, effectively denying them access to its ports.
For reasons that aren’t clear, Chinese ports may also be turning other North Korean ships away. According to a Yonhap report from last week, “A Chinese businessman … in Dandong said his recent request for a North Korean ship to enter the seaport in the Chinese city has been rejected by port authorities,” as part of a broader ban on North Korean ships.
As I noted earlier this week, and assuming the report is true, this would exceed the requirements of UNSCR 2270. Either North Korean captains are refusing to let Chinese Customs inspect their cargo, the Chinese authorities don’t have enough customs officers to do the inspections (an explanation Bill Newcomb discounts, at around 5:30 into this podcast), or the ports directors are turning North Korean ships away on their own, perhaps because they fear blacklisting by U.S. Customs, under NKSPEA section 205.
Expect North Korea to burrow down into its web of shell companies and foreign enablers to find people willing to register and re-flag its remaining ships. I hope someone is tracking OMM’s fleet on NK News.
The reports conflict with respect to China’s compliance. At least one report shows that China was still importing North Korean coal the day after the U.N. banned member states from doing so, except for “livelihood” purposes.
Other reports claim that North Korean coal and mineral shipments were being stopped or turned back at land border crossings. In late February, NK News and Yonhap reported that China’s Commerce Ministry had ordered a company in Dandong to stop buying North Korean coal on March 1st. The Chosun Ilbo quotes a Japanese newspaper, the Nihon Keizai Shimbun, as saying that China halted imports of North Korean minerals through Dandong on March 1st.
On Monday 130 North Korean trucks crossed the bridge linking Dandong with Sinuiju in North Korea and passed the Dandong customs checkpoint, but on Tuesday their number had fallen to 70, it said.
A Chinese customs official told the Japanese daily that the North appears to have hurried to transport as much coal as possible before the ban was imposed.
Once the UNSC adopts a fresh round of sanctions, other Chinese ports will also ban imports from the North, the paper added. [Chosun Ilbo]
The Daily NK‘s network of intrepid informants also reports that China has enforced the ban. They report that “mineral exports such as coal and ore have not been allowed to pass through Chinese customs into China.” It claims that the loaded trucks are sitting in front of Chinese Customs posts along the border, while their drivers wait for instructions.
The Chosun Ilbo later reported that by Wednesday morning, the day after the sanctions vote at the U.N., no trucks carrying coal or minerals crossed the Yalu River headed north. The same day, the Donga Ilbo reported that the coal trade would be “suspended,” but might be resumed in May.
Sone commentaries on the new sanctions say that their effect will be limited by the resilience of other cross-border trade with China. What these analysts are missing is the complexity of this trade. It includes some commerce that benefits the regime, and a great deal of trade in food and consumer goods that mainly benefits the North Korean people. A cutoff of all cross-border trade would be a bad sign, because it would hurt the wrong people. Fortunately, the signs so far do not indicate that this is the case.
A report by the Joongang Ilbo dated March 2nd observed business as usual along the border, but did not specifically mention the presence or absence of North Korean mineral exports. If this report means that other commerce continues, that should be viewed as a sign of resilience in the markets that support most North Koreans.
Christopher Green reports that food prices have risen only modestly since the sanctions took effect, and that even this may be more due to seasonal reasons, regime-imposed market restrictions, and mass mobilizations than the effect of sanctions.
The Chosun Ilbo claims that some North Koreans have been hoarding food and fear another famine, and that markets in Chongjin have almost stopped working, but also attributes this mostly to mass mobilizations and regime-imposed market restrictions ahead of a scheduled party congress in May. It is too early to draw firm conclusions, but food prices will bear close watching over the coming weeks and months.
The White House thinks it’s too early to judge how well the sanctions will work, and it is. Still, we can expect these effects to amplify over the next six months as more U.N. member states impose their own national sanctions, and key deadlines approach under both U.N. and U.S. sanctions.
First, under Paragraph 33 of UNSCR 2270, U.N. member state banks must close the correspondent accounts of North Korean banks, freeze North Korean funds, close the branches of North Korean banks, and deport North Korean arms dealers and money launderers. Most of those steps must be taken within 90 days.
Second, under NKSPEA section 201, the Treasury Department will have to decide by July whether to designate North Korea as a primary money laundering concern.
Third, when the U.N. Panel of Experts (POE) releases its next report next week, Congress could issue an NKSPEA section 102 letter, requiring the President to open investigations into whether North Korean operatives and third-party enablers implicated in the report should be designated under section 104. That will be an important test of the administration’s willingness to back its diplomacy with steel.