In February and March, respectively, the U.S. Congress and the U.N. Security Council responded to North Korea’s fourth nuclear test with sanctions that were, in theory, an order of magnitude stronger than any sanctions imposed on North Korea until then. Sanctions, of course, are only as good as their enforcement, and in enforcing sanctions against North Korea, the most important rule has always been “follow the money.” Money — along with the contradictions of its political system — has always been one of Pyongyang’s main vulnerabilities. Much of that money sits in banks in China, Europe, and Russia. A sudden cutoff of those funds could shake the increasingly fragile cohesion and discipline of the security forces. It could also shake the wavering confidence of North Korean elites in Kim Jong-un’s capacity to preserve their status, position, and survival. After an inevitable period of backlash, tension, and provocations, an insolvent dictatorship in Pyongyang would confront an existential choice to reform and disarm or perish.
Of course, confronting Kim Jong-un with that choice depends on getting Kim Jong-un’s bankers in China, Russia, and European states to comply with the new U.N. sanctions. Because China and Russia have voted for and subsequently violated U.N. sanctions resolutions for years, Congress concluded that a credible threat of secondary sanctions was necessary to make them enforce the resolutions. Section 104 of the North Korea Sanctions and Policy Enhancement Act requires the administration to block the slush funds that facilitate Kim Jong-un’s proliferation, arms trafficking, luxury goods imports, and human rights abuses, wherever those funds are found. The purpose of the law is to force the administration to cut off the funds that maintain Kim Jong-un’s regime, and to send a clear message to Chinese and Russian banks that the days of business as usual are over. Either they can do business with Pyongyang or New York, but not both.
Congress made those sanctions mandatory — barring the invocation of a presidential waiver in section 208(c), which must be reported to Congress — because had it lost patience with China, and because it had lost confidence in the Obama administration’s will to enforce U.S. law or U.N. sanctions against North Korea. The Obama administration has too a long history of letting Kim Jong-un off the hook for his most egregious conduct to be trusted. It did functionally nothing to sanction Pyongyang after its second and third nuclear tests, multiple missile tests, and two attacks against South Korea. It failed to list North Korea as a state sponsor of terrorism despite multiple attempts to assassinate dissidents and human rights activists, multiple arms shipments to Iranian-backed terrorists, and the Sony cyber terrorist attack against the U.S. homeland. It did nothing to the Chinese and China-based entities that hosted and enabled the North Korean hackers. Yet for years, despite the extensive evidence of China’s bad faith, the White House effectively outsourced its North Korea policy to China.
More recently, the Obama administration has taken a back seat to South Korea, whose diplomats have conducted a skillful and effective campaign to terminate North Korea’s lucrative arms dealing and labor exports, and to shore up international support for sanctions enforcement. Meanwhile, the Obama administration failed to undertake a serious campaign of financial diplomacy against Pyongyang.
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The administration has denied knowing where North Korea’s slush funds are, but those denials become harder to believe as the open-source evidence accumulates. For years, open sources have reported that U.S. and South Korean authorities had pursued and identified large amounts of those funds. A recent spate of high-level defections — yet another was revealed just today — has likely added to the U.S. government’s knowledge of those funding streams. Good journalism has done much to expose North Korea’s China-based money laundering. In the coming days, an extraordinary and little-known organization, the Center for Advanced Defense Studies, will release a meticulously researched report, based entirely on open-source information, that will provide a ground-breaking expose of the North Korean overseas procurement networks. Any guesses which country they operate from?
But perhaps “ground-breaking” is too optimistic. Six months after the latest report from the U.N. Panel of Experts, the administration still hasn’t sanctioned any of the dozens of third-country enablers of North Korean proliferation, smuggling, or money laundering named in that report. The Panel’s report added dozens of names to the long list of Chinese and China-based trading companies, middlemen, and assorted death-merchants to the list of those who’ve spent the last two decades helping Pyongyang buy, sell, and trade the instruments of proliferation and extortion. You won’t find any of them listed among this year’s designations by the Treasury Department.
The administration still hasn’t blocked Chinpo Shipping, which was convicted by a court in Singapore of facilitating North Korean weapons smuggling. It has taken no action against the Bank of China, whose local staff knowingly deceived their U.S. correspondents — and may have broken U.S. money laundering laws — by directing Chinpo to conceal any North Korean links to the shipment. It has not sanctioned Chinese ex-spy Sam Pa or his 88 Queensway Group for their dealings with Bureau 39 (sanctioned by both Treasury and the U.N.) although it did sanction Pa for violating Zimbabwe sanctions. The same goes for the North Korean mining companies and their foreign investors I found among the Panama Papers. Under Executive Order 13722, those companies and their enablers should be subject to sectoral sanctions. No action has been taken against any of them, either.
If the administration — despite the vast personnel, legal, and intelligence resources at its disposal — doesn’t have all of this information, that could only be because it isn’t trying to gather it. What seems much more likely is that the administration has decided not to act on it — on any of it. The fact that the Obama administration won’t act on the information it has makes it harder to believe its denials that it knows where Kim Jong-un’s money is. I have no way of knowing what Treasury knows on the classified or law enforcement sensitive level, of course, but Congress does. We’ll get to that at the end of this post.
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Is the administration simply afraid of the diplomatic consequences of secondary sanctions against Chinese and Russian interests? Clearly not. Just two weeks ago, the Treasury Department designated and blocked a network of traders and trading companies that were helping the Syrian government’s arms procurement and proliferation. One of those traders was a Chinese national and two were Russian; one of the companies is located in Shenyang and one in Moscow. And of course, the Obama administration has directly sanctioned some of Putin’s top officials and financiers over Russia’s invasion of the Ukraine.
The administration can’t credibly claim that China deserves a pass because of its good behavior, either. Recently, China has turned sharply toward authoritarianism, anti-Americanism, and imperial hegemony over neighboring states and waters. It just blocked a toothless U.N. censure of North Korea over missile launches that flagrantly violated a decade-long series of Security Council resolutions by inserting poison-pill language objecting to South Korea’s improvement of its missile defenses.
Yet instead of accepting responsibility for selling North Korea missile technology and road-mobile missile carriers, among other items, China’s Global Times blames the U.S. for the North Korean threat. Instead of sanctioning Pyongyang, Beijing is threatening Seoul with trade sanctions for having the temerity to want to defend itself from North Korea missiles. It has made a show of cozying up to North Korea and expressing its “significant differences” with the United States.It has even taken to bullying South Korea’s beloved K-pop artists. Korean conservatives are making an issue of this, as they should. Even the far-left, anti-American Hankyoreh Sinmun calls China’s threats “petty.” Scott Snyder is probably right that in the end, this will hurt China’s own economic interests. That is to say nothing of the nationalist backlash it will inspire among Koreans. But the broader point is that China isn’t taking the gravity of this threat to U.S., South Korean, and Japanese security seriously. That’s all the more reason why China must share in the cost of the threat it has done so much to incubate.
I disagree with John Park and James Walsh on the role of sanctions as often as not, but they are right that for sanctions to slow North Korea’s proliferation, the administration must be willing to pursue and sanction North Korea’s procurement networks in China. They are also correct that weakly enforced sanctions, like half-doses of antibiotics, only serve to strengthen the disease’s resistance to the cure. It should go without saying that in attacking North Korea’s procurement networks, it may be necessary to sanction their Chinese enablers, too. But to go beyond merely delaying Kim Jong-un’s progress toward an effective nuclear arsenal, we must do much more — we must instill the fear of God in Chinese banks that hold (at least) hundreds of millions of dollars in North Korean slush funds, and that allow Kim Jong-un and his cronies to use those funds to maintain his hold over his military and security forces.
In the weeks and months following the imposition of U.S. and U.N. sanctions, I’ve seen and seized on hopeful signs that Chinese banks were freezing North Korean accounts, and that North Korean operatives have been unable to pay their debts. No doubt the administration knows things that I don’t, but these isolated reports still do not suggest that Pyongyang is in the early stages of a liquidity crisis that will confront it with the choice to reform and disarm or perish. Rather, absent more evidence that Treasury is serious about finding and blocking North Korean slush funds, those initial hopeful signs will fade away. It will be business as usual all over again, just as it was not long after Chinese banks briefly froze North Korean funds in 2013.
The fact that Pyongyang continues to sell coal and iron ore to China — in volumes that are increasing, not decreasing — suggests that Pyongyang still has access to bank accounts where it can deposit its coal and iron ore revenues. North Korea’s unsanctioned mineral exports are also rising. Because the mineral trade is under regime control, the fact that it is not directly sanctioned does not absolve China from the duty to ensure that revenue from this trade isn’t used to support Pyongyang’s WMD programs. The rise in this trade reinforces the likelihood that China’s banking industry is open for North Korean business. One South Korean expert opines that it also reflects a rising consensus among Chinese trading companies that China has lost interest in enforcing sanctions against Pyongyang.
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Yes, the administration has taken the long-overdue step of blocking North Korean banks’ access to the financial system. Treasury’s regulation is still not final, and it still remains to be seen what effects U.S. and EU money-laundering blacklisting will have. On one level, the recent surge of defections suggests that the regime is under some financial duress, for some reason. Yes, the administration has designated Kim Jong-un by name for his human rights abuses, while signaling that this action is an entirely symbolic one. Those actions were commendable, so I commended them. But they were meant to be symbolic and much more. The administration must do more than name Kim Jong-un; it must find and freeze the billions of dollars he is not using to provide for his people. Whatever we are doing right, we can do it better.
Fortunately, Congress learned a lesson from the North Korean Human Rights Act: administrations don’t always want to enforce the law, so Congress must make them. When it passed the new sanctions law, Congress included numerous reporting requirements, including a requirement that the administration report to Congress 180 days after the enactment of the legislation on exactly what it has done to enforce the new sanctions. I wonder if the administration forgot about this. Congress hasn’t forgotten it. The time has come for Congress to ask for that briefing. I can think of some very detailed and specific questions the staff should ask about what the administration has done to follow the money. If the administration doesn’t have satisfactory answers, Congress should hold oversight hearings.
We are still in the early phases of implementing these new sanctions authorities. There is still time for sanctions to work, but we are also at the stage where China traditionally stops pretending to enforce sanctions and returns to business as usual. In Washington, the distractions of an election year present a high risk that the administration may prefer a quiet exit to stopping North Korea’s march to nuclear breakout. An administration that wasted eight years while the North Korean threat continued to build has not earned one last “era of procrastination, of half-measures, of soothing and baffling expedients, of delays.” We are entering an era of consequences. The President must enforce the law. Congress must use its oversight authority to ensure that he does.
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Sipping fruit tea in a Dandong café, Wang, the alias of a Pyongyang-born Chinese trader who speaks to TIME on condition of anonymity, describes how his business importing North Korean coal and minerals and exporting building materials has been eviscerated by the sanctions. “North Korean traders don’t have cash anymore,” he says. “I have to limit the amount of goods I sell to them on credit as the risk of default is so high.”
The report also says that refugees in South Korea have had an easier time sending money to their relatives back in North Korea. There’s nothing wrong with that, as long as Chinese banks enforce sanctions against the regime’s agents.