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North Korea, secondary sanctions, tertiary impacts, and the coming death spiral

As I write today, rumors are swirling through the South Korean media of defections and purges involving so many North Korean diplomats, spiesminders, workers, and other officials that I haven’t had the time to either keep up with them or sort out the conflicts in those reports. I’ll try to do that by this time next week, and identify any patterns I see in them. In the meantime, an intriguing story by the Daily NK elucidates how well-targeted sanctions can drive disloyalties and fissures within the North Korean regime, and how we can exploit those divisions.

Two weeks ago, the Treasury Department froze, and the Justice Department moved to forfeit, the assets of Chinese conglomerate Dandong Hongxiang Industrial Development and its corporate officers. DHID and its officers were also indicted for conspiracy and money laundering on behalf of Korea Kwangsong Banking Corporation, a sanctioned North Korean bank. These were the first secondary sanctions imposed on a Chinese entity since the Treasury Department sanctioned Banco Delta Asia in 2005. The indictment of DHID was a “secondary” sanction because DHID wasn’t sanctioned for directly engaging in proliferation or arms smuggling. The sole basis for the freeze, forfeiture, and indictment was that DHID helped a blocked party, KKBC, access the financial system and launder funds through the United States. The point of secondary sanctions is to completely ostracize and isolate bad actors. Anything less turns sanctions enforcement into a game of what Marcus Noland calls “whack-a-mole.”

As we saw with Banco Delta Asia in 2005 and Iran in 2013, secondary sanctions can devastate a target. Contrary to conventional wisdom, North Korea has vulnerabilities that Iran does not. One of these is North Korea’s small, dysfunctional economy, which depends on a relatively smaller number of exports, exporters, and bankers. Another vulnerability we often overlook is North Korea’s own zero-defect political system, which imposes strict quotas for its operatives to kick up to their underbosses and ultimately, to His Porcine Majesty.

Evidently, Pyongyang doesn’t accept asset freezes and indictments as excuses from trading company officials who fail to meet their quotas. The Daily NK reports that the DHID indictments also disrupted the operations of plenty of North Korean trading companies in China, and those companies’ officials are now terrified of being punished if they can’t meet their quotas.

A number of North Korean trading companies operating in China have been identified as collaborators with the Hongxiang Group of companies – which is presently under investigation for allegations of smuggling sanctioned materials to support the North’s nuclear weapons program. Daily NK’s sources have reported that these same North Korean companies are now under increasing pressure from Pyongyang to provide further supplies to the regime before the Party’s Foundation Day holiday on October 10. These goods are to be presented as gifts to elite cadres in order to shore up Kim Jong Un’s power base.

“The companies that have been suspected of colluding with Hongxiang to smuggle banned nuclear materials are facing pressure on dual fronts now. Their business activities have been almost cut in half due to the ongoing investigations by the Chinese authorities. And now they’re required to contribute goods to Pyongyang before Party Foundation Day,” a source close to North Korean affairs in China reported. [Daily NK]

Think of the death spiral this dynamic could catalyze. A North Korean trading company official doesn’t meet his quota and doesn’t dare to go home again, for fear of plunging through a trap door into a pool of piranhas, volcano lava, or sharks with laser beams attached to their heads. You can see why these people — who may already have been shaken since the purge of Jang Song-thaek — may be tempted to rethink their loyalties, and why that fear could create the makings of more intelligence windfalls, resulting in yet more asset freezes and indictments, and so on.

When asked how the trading companies are coping with the combined pressure, the source replied, “The heads of these trading companies are being investigated by the Chinese authorities on a daily basis. So these companies have resorted to hiring Chinese companies to procure gift items like alcohol, fruit, and food products for them. After the North Korean managers are released from the interviews, they load up the purchased items on trucks and send them over the border into North Korea.”

Those who are unable to keep up with the pressure face dire consequences. The Party Foundation Day holiday is understood to be a loyalty competition among the foreign currency-earning operations. All enterprises are required to provide ‘basic planning funds,’ loyalty funds, and gifts. Falling short of these obligations is dangerous because those deemed responsible are regarded as politically problematic. In North Korea, earning such a label can result in extreme punishments, including execution.   

Such conditions have only intensified during the Kim Jong Un era, where even slight infractions have led to purging and punishment. The increasingly severe consequences are well recognized by all overseas foreign currency earning operations, explaining why they prioritize the submission of loyalty funds over the safety of themselves and their employees. [Daily NK]

Lather, rinse, repeat.

Having said this, the DHID action was just an appetizer. Dandong Hongxiang claimed to control the lion’s share of trade with North Korea, but that was probably an exaggeration. Like Jende Huang, I suspect that there are still bigger fish in this pond. Now, Obama administration officials are openly threatening to sanction more Chinese entities, and Congress is pushing it hard to do what would be particularly devastating — to sanction the Chinese banks that launder North Korea’s money.

Although none of the parties to the charged transactions between DHID and KKBC were physically in the U.S. or trading goods with Americans, the North Korean and Chinese parties to the transaction had to go through banks in New Jersey indirectly to do dollar wire transactions, to buy the things His Corpulency wants. If you don’t understand why that is, read this article, or this post about how the system worked in this case, or the Justice Department’s forfeiture complaint.

Which brings me to two predictions. First, because Kim Jong-un’s advisors are probably too scared to tell him how these sanctions work, and because elections are coming in the U.S. and South Korea, a sixth nuclear test is a near certainty within the next year. If that happens, it will trigger a second near certainty, no matter who wins the presidential election in the United States — a wave of secondary sanctions against North Korea’s Chinese bankers.

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Chinese banks are cracking down on N. Korean money laundering again. Will it last this time?

Several news sources are reporting that Chinese banks, particularly in China’s northeast, have started to freeze or close accounts held by North Korean individuals and businesses. The Daily NK, citing unnamed local sources, was the first to report this potentially important development. It says both large state-owned banks (such as the China Construction Bank) and regional banks (such as Pudong Bank) recently banned all North Koreans from opening new accounts and ordered the closure of existing accounts. It also quotes a March 2017 report by Radio Free Asia that “[p]rivate Chinese banks are beginning to close bank accounts held by North Korean nationals” and that “North Korean laborers earning foreign currency in China have been issued an emergency alert.”

Kyodo News, citing “sources familiar with the situation,” says that the new measures have made it “nearly impossible to do business between the two countries.” It reports that the Bank of China, the China Construction Bank, and the Agricultural Bank of China branches in Yanji, have all banned North Koreans from opening accounts. The banks have not yet frozen the accounts, meaning that the North Koreans can still withdraw cash, but they can’t make deposits or remittances. According to an unnamed employee of one of the banks, “This is being influenced by international sanctions against North Korea.”

Kyodo speculates that either “China may have become more serious about curbing its nuclear ambitions,” or that the measures were “intended to help major Chinese banks avoid being hit by sanctions imposed by the United States and other countries,” like the Bank of Dandong was. Interestingly, it also attributes a 75 percent decline in North Korea’s imports of refined petroleum products over three months, and a corresponding rise in fuel prices inside North Korea, to the fact that “North Koreans were having difficulty paying for petroleum product imports because of the banking restrictions.”

Reuters, citing a bank teller in Liaoning, reports that the China Construction Bank “completely prohibited business with North Korea” starting on August 28th. A customer service representative for the Industrial and Commercial Bank of China also told Reuters that the bank “had stopped opening accounts for North Koreans” and (for good measure) Iranians on July 16th, but didn’t explain further. Those dates closely follow a series of forfeiture complaints, seizures, and designations by the Justice and Treasury Departments, most of them targeting financial flows through Chinese banks, involving North Korean front companies, which turn out to be less well hidden than many “experts” had assumed.

The Bank of China, which became a bête noire for Congress much earlier than other Chinese banks over revelations that its Singapore branch willfully helped Chinpo Shipping facilitate money laundering (and indirectly, arms smuggling) for His Porcine Majesty, stopped allowing North Koreans to open accounts at the end of last year. Or so says an unnamed teller at the BoC’s Dandong branch, who adds that the BoC also froze existing North Korean accounts. A teller at the Agricultural Bank of China branch in Dandong also said that BoC was refusing to open new accounts for North Koreans.

The Financial Times also reports that “multiple bank branches,” including those of China’s big five banks, “had imposed a freeze on new accounts” for North Korean individuals and companies, and that some of the banks were also “cleaning out” existing North Korean accounts and banning North Koreans from making new deposits. Officials at all of the banks refused to comment.

Both the FT and the Daily NK note that the banks’ new measures exceed what new U.N. sanctions require, but all of the reports fail to note that these actions would be completely consistent with stricter U.S. financial regulation on North Korean money laundering, along with the aforementioned recent actions by the Treasury and Justice departments, showing that the feds can trace North Korean transactions through specific Chinese banks — including those named in these reports — and are willing to take legal action against them. Some sources told the FT that corporate told them to freeze North Korean accounts in August; others said they were told in January.

Unfortunately, the Daily NK reports that North Koreans affected include not only “consular officials” and state trading companies, but also “laborers,” who may be either illegal (and increasingly scarce) migrant workers or state-contracted slave laborers (the report didn’t specify). Either way, that’s an unfortunate and unavoidable consequence of what would be an extremely important development — if it lasts. The FT quotes a Chinese professor of North Korea studies, who puts a brave face on the actions, saying that the actions benefit China, and that “China takes sanctions very seriously.” Stop laughing, dammit — this is a serious, adult conversation about banking regulation.

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The FT calls this “unprecedented,” but it really isn’t (of the five news sources I cite here, only the Daily NK gets this). There is, of course, the example of Banco Delta Asia and what we too easily forget — the Bush administration’s global campaign of financial diplomacy that persuaded banks around the world to close North Korean accounts. We now know that that strategy put Kim Jong-Il’s regime under severe financial strain, until Bush lost his nerve, lifted the pressure, and exchanged invaluable sanctions relief for a handful of worthless North Korean promises.

Then, in 2013, after Pyongyang’s third nuclear test, after Treasury sanctioned the DPRK Foreign Trade Bank, and after Ed Royce first introduced the bill that would later become the NKSPEA, which mandates secondary sanctions, big Chinese banks began to freeze and close North Korean accounts. It didn’t last, because the banks soon saw that Xi Jinping wanted those accounts open more than Barack Obama wanted them closed. The same pattern repeated itself in early 2016, and again (as Justice Department filings later showed) it was right back to business as usual a few month later, again because the Obama administration wasn’t willing to back its sanctions with enforcement actions.

Is this time any different? The answer depends on why the banks are doing this. As noted, what the banks are doing here doesn’t exactly align with what the U.N. resolutions require, but it aligns perfectly with what I’d expect inexperienced Chinese compliance officers to do to protect their banks from rising legal risks under U.S. banking and sanctions laws. In this post, I explained the importance of distinguishing the interests and actions of the Chinese government from those of individual Chinese banks, which are actually global corporations with global exposure. In other words, “Chinese” banks may be bending to Treasury’s will for the same basic reason that U.S. tech companies have collaborated with Chinese censors. My belief that the Chinese security establishment is fundamentally hostile to U.S. interests and thus willfully weaponizing North Korea remains unmoved. On balance, it seems more likely that the banks are doing this to protect their own reputations, credit ratings, and share prices — just as the Chinese Finance Ministry wants them to, and just as the Defense and Foreign ministries don’t.

Also, when is the last time an American Secretary of the Treasury said anything like this?

“If China doesn’t follow these sanctions, we will put additional sanctions on them and prevent them from accessing the U.S. and international dollar system — and that’s quite meaningful,” Mnuchin said during an event at CNBC’s Delivering Alpha conference in New York on Tuesday. [….]

“North Korea economic warfare works,” Mnuchin said. “We sent a message that anybody that wanted to trade with North Korea — we would consider them not trading with us.” [Bloomberg]

Next, read this excerpt from the written testimony of Assistant Secretary of the Treasury Marshall Billingslea before the House Foreign Affairs Committee yesterday. Billingslea first explains that Treasury works closely with U.S. allies, the intelligence community, and the State Department to “conduct detailed forensic investigation and analysis” to “deny North Korea its current, principal source of funds.” He goes on to say that while we prefer to have Beijing’s voluntary cooperation, we’re also perfectly willing to hit Chinese targets we don’t get it.

For instance, on August 22, we struck at the heart of North Korea’s illegal coal trade with China.  Treasury designated 16 individuals and entities, including three Chinese companies that are among the largest importers of North Korean coal.  We estimate that collectively these companies were responsible for importing nearly half a billion dollars’ worth of North Korean coal between 2013 and 2016.  These funds are used to support the Government of North Korea and the Workers’ Party of Korea, including its nuclear and ballistic missile programs.  On top of that, we know that some of these companies were also buying luxury items and sending an array of products back to the North Korean regime.  On August 22 we sent two clear messages.  The first was to North Korea: we intend to deny the regime its last remaining sources of revenue, unless and until it reverses course and denuclearizes.  The second message was to China.  We are capable of tracking North Korea’s trade in banned goods, such as coal, despite elaborate evasion schemes, and we will act even if the Chinese government will not. [….]

China is even more central to a successful resolution of the crisis caused by Kim Jong-Un.  China accounts for at least 90 percent of North Korea’s exports.  North Korea is overwhelmingly dependent upon China for both trade and access to the international financial system.  China’s full and effective enforcement of UN sanctions is therefore essential.  Unfortunately, I cannot assure the Committee today that we have seen sufficient evidence of China’s willingness to truly shut down North Korean revenue flows, expunge the North Korean illicit actors from its banking system, and expel the North Korean middlemen and brokers who are establishing webs of front companies.  We will continue to work with the Chinese to maximize economic pressure on North Korea, but we will not hesitate to act unilaterally.  If China wishes to avoid future measures, such as those imposed on Bank of Dandong or the various companies sanctioned for illegal trade practices, then it urgently needs to take demonstrable public steps to eliminate North Korea’s trade and financial access. [Treasury Dep’t]

Then, watch his testimony on video.

Mr. Billingslea shows great promise. Let’s hope we have the next Stuart Levey or Juan Zarate on our hands, because we’ve never needed one more than we do now.

Of course, it’s The Boss, House Foreign Affairs Committee Chairman Ed Royce, who has been pushing for this strategy for years. Two laws, one presidential election, and three nuclear tests later, Royce looks to have finally gotten his way. Speaking at a hearing of his Committee yesterday, Royce called on the feds to “target major Chinese banks, including Agricultural Bank of China Ltd. and China Merchants Bank Co., for aiding Kim’s regime.” Royce was referring to a letter he sent to Mnuchin listing some of the banks that keep showing up in Justice Department indictments, forfeiture complaints, and seizure warrants as having effectively provided sanctioned North Korean banks with indirect correspondent account services in violation of this Treasury Department regulation, and asked the Treasury Department to sanction them.

Personally, I don’t expect Treasury to do anything as blunt or binary as a total asset freeze or a 311 action to most of those banks (on that point, Billingslea told the Committee that the 311 action on the Bank of Dandong had “a very clear effect” on its operations, but didn’t elaborate). Instead, I expect Treasury to start auditing the big banks and their correspondents for compliance with its new North Korea-specific regulation, with an eye toward civil penalties and fines like those imposed against European banks that skimped or cheated on anti-money laundering compliance on behalf of Iran and other sanctioned countries. Those fines often amounted to hundreds of millions of dollars (or, in the case of BNP Paribas, $9 billion). There may be such a thing as “too big to fail,” but there is no such thing as “too big to fine.”

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The Daily NK reports that small traders are already adapting to the new measures by going to a cash-based business model. Reporters are fond of saying that Pyongyang can easily evade financial sanctions by carrying around briefcases full of cash, but that’s mistaken on several levels. First, a typical briefcase only holds just over $2 million, which is enough to fuel the sort of cross-border trade in food and consumers goods that we shouldn’t want to stop, but hardly an efficient way for a Syrian arms client or Burmese middleman to pay a KOMID dealer for a shipment of machine tools or vacuum dryers. Needless to say, it’s not nearly enough to feed a million-man army or sustain an entire government. After all, China may not really care about policing bulk cash smuggling — notwithstanding its occasional, short-lived pretenses to the contrary — but countries like Bangladesh and Sri Lanka do.

That is to say, one potential outcome of these restrictions could be to break up larger, regime-controlled trading blocs in favor of smaller traders whose wares are more likely to end up in the homes and bellies of the poor. That would be a largely positive development. Our goal should not be a complete embargo of North Korea, which is why I was actually relieved that the U.N. didn’t impose a total fuel ban in its latest sanctions resolution. Our goals ought to be to expose and destroy Pyongyang’s state-controlled overseas trading networks, to freeze its cash reserves (which sit in Chinese banks, and which Pyongyang may be depleting rapidly), to de-fund its military and security forces to give the North Korean people a little breathing space and freedom from fear, and to create the “death spiral” that will cause money launderers who can’t make their kick-up payments to defect and bring us yet more valuable financial intelligence, which will help us find and freeze yet more assets.

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Commence Primary Ignition: Treasury zaps the Bank of Dandong for laundering Kim Jong-Un’s money

And so, the “maximum pressure” we’ve been waiting for begins in earnest. Yesterday afternoon, the Treasury Department announced a series of legal actions against Chinese enablers of North Korea’s proliferation, smuggling, and money laundering. First, Treasury’s Office of Foreign Assets Control froze the assets of two businessmen and a shipping company. One of those businessmen, Sun Wei, was the sole shareholder of Mingzheng International Trading, the Chinese company targeted in this recent civil forfeiture action. The shipping company was sanctioned for smuggling luxury goods to North Korea, in violation of UN sanctions.

The more potentially significant action, however, was  Treasury/FINCEN’s action against a Chinese bank. The target was the Bank of Dandong, and the weapon was 31 U.S.C. 5318A(b)(5), otherwise known as the Fifth Special Measure of Section 311 of the Patriot Act — the same provision used against Banco Delta Asia in 2005. The action effectively makes the BoD a global pariah and cuts it off from the financial system.

[Alderaan shot first.]

Interestingly enough, if you had asked me to pick just one Chinese Bank to make an example of, I would have named the Bank of Dandong. Yes, the Bank of China was the most flagrant violator, but a large bank calls for a different strategy (which I’ll discuss below). Based on the open-source evidence, it was the BoD that had the most integration into Pyongyang’s palace economy. This 2013 report documented its ties to US- and UN-sanctioned Korea Kwangson Bank (KKBC). This report from early 2016 indicates that Chinese merchants trading with North Korea (temporarily) shifted away from the Bank of Dandong after the U.N. Security Council passed Resolution 2270. A few months later, the Justice Department indicted a Chinese company, Dandong Hongxiang Industrial Development, for laundering money for KKBC through 12 Chinese banks, including the BoD. Just a few days before, the Center for Advanced Defense Studies had revealed that DHID had an equity stake in the BoD.

To this body of evidence, the Treasury Department now adds a Notice of Proposed Rulemaking to support the 311 action. Treasury accuses the BoD of facilitating money laundering by trading companies that are fronts for North Korean banks and agencies designated for proliferation. Sorry for the long money quote, but it’s all worth reading:

Bank of Dandong serves as a gateway for North Korea to access the U.S. and international financial systems despite U.S. and UN sanctions….  For example, as of mid-February 2016, North Korea was using bank accounts under false names and conducting financial transactions through banks located in China, Hong Kong, and various southeast Asian countries. The primary bank in China was Bank of Dandong.

In early 2016, accounts at Bank of Dandong were used to facilitate millions of dollars of transactions on behalf of companies involved in the procurement of ballistic missile technology. Bank of Dandong also facilitates financial activity for North Korean entities designated by the United States and listed by the United Nations for WMD proliferation, as well as for front companies acting on their behalf.

In particular, Bank of Dandong has facilitated financial activity for Korea Kwangson Banking Corporation (KKBC), a North Korean bank designated by the United States and listed by the United Nations for providing financial services in support of North Korean WMD proliferators. As of May 2012, KKBC had a representative embedded at Bank of Dandong. Moreover, Bank of Dandong maintained a direct correspondent banking relationship with KKBC since approximately 2013, when another Chinese bank ended a similar correspondent relationship. As of early 2016, KKBC maintained multiple bank accounts with Bank of Dandong. 

Bank of Dandong has also facilitated financial activity for the Korea Mining Development Trading Corporation (KOMID), a U.S.- and UN-designated entity. As of early 2016, a front company for KOMID maintained multiple bank accounts with Bank of Dandong. The President subjected KOMID to an asset blocking by listing it in the Annex of Executive Order 13382 in 2005, and the United States designated KOMID pursuant to Executive Order 13687 in January 2015 for being North Korea’s primary arms dealer and its main exporter of goods and equipment related to ballistic missiles and conventional weapons.

FinCEN is concerned that Bank of Dandong uses the U.S. financial system to facilitate financial activity for KKBC and KOMID, as well as other entities connected to North Korea’s WMD and ballistic missile programs. Based on FinCEN’s analysis of financial transactional data provided to FinCEN by U.S. financial institutions pursuant to the BSA as well as other information available to the agency, FinCEN assesses that at least 17 percent of Bank of Dandong customer transactions conducted through the bank’s U.S. correspondent accounts from May 2012 to May 2015 were conducted by companies that have transacted with, or on behalf of, U.S.- and UN-sanctioned North Korean entities, including designated North Korean financial institutions and WMD proliferators.

In addition, U.S. banks have identified a substantial amount of suspicious activity processed by Bank of Dandong, including: (i) transactions that have no apparent economic, lawful, or business purpose and may be tied to sanctions evasion; (ii) transactions that have a possible North Korean nexus and include activity between unidentified companies and individuals and behavior indicative of shell company activity; and (iii) transactions that include transfers from offshore accounts with apparent shell companies that are domiciled in financial secrecy jurisdictions and banking in another country. [FINCEN NPRM]

For a brief discussion of the BoD’s rights to challenge this action before it officially becomes final in 60 days, see this post. The Bank of Dandong can’t say it wasn’t warned; in its notice, Treasury cites its November 2016 regulation at 31 C.F.R. 1010.659, calling on banks to exercise enhanced due diligence with regard to North Korean customers, and to deny North Korean banks direct or indirect access to the financial system. That regulation was promulgated to implement Treasury’s designation of North Korea as a jurisdiction of Primary Money Laundering Concern in November, which in turn was in response to section 201 of the North Korea Sanctions and Policy Enhancement Act, which effectively forced Treasury to make that designation.

Naturally, the principal congressional leaders behind passing the law that led to this result welcomed Treasury’s decision. Rep. Ed Royce (R-CA), chairman of the House Foreign Affairs Committee called the action “a big step,” adding, “The administration is right to target any around the world who act as financial lifelines to Kim Jong-un, and to give them a clear choice: You can do business with North Korea or with the U.S., but not both.” Royce also called on the Senate to pass his KIMS Act. Senator Cory Gardner (R-CO) issued a statement applauding the action and calling it long overdue.

It’s hard to believe that it was a complete coincidence that Treasury took this action while Moon Jae-In was in town. The message thus sent is that the U.S. and South Korea must be aligned on sanctions enforcement. We cannot have a repeat of 2005, when South Korea undermined the sanctions the U.S. imposed (Roh Moo-Hyun opened Kaesong, which became a $100-million-a-year subsidy for Kim Jong-Il, just as the Banco Delta Asia sanctions were achieving their effects). Someone in the White House clearly understands that we cannot make a coherent policy of sanctioning and subsidizing the same target at the same time. Treasury Secretary Steven Mnuchin emphasized that yesterday’s action was directed at North Korea, not China, and expressed the hope that China would “continue to work with us” to pressure North Korea.

So noted.

What should we watch for next? First, for North Korean money men to step up their bulk cash smuggling game, or shift to non-dollar currencies or trade-based money laundering as sanctions dodges. The excellent Noon in Korea Twitter feed, for example, points to a Korean-language report that authorities in Vladivostok have seized bulk cash from North Korean money launderers who are apparently having trouble sending wire transfers (an increasingly rare case of Russia enforcing sanctions). Interestingly, Treasury says that BoD also maintains “euro, Japanese yen, Hong Kong dollar, pound sterling, and Australian dollar correspondent accounts that would not be affected by this action.” That’s why it will be important for State and Treasury to engage in some good financial diplomacy to get those third-country regulators to blacklist the BoD under their own authorities.

Also, look for the “death spiral” — North Korean money launderers who defect because they can’t pay their kick-up quotas because of sanctions, who then provide us more intelligence, leading to yet more sanctions. Rinse and repeat. (We might as well put out the word now that they’ll get better living arrangements if they bring their ledgers and laptops.) For a fascinating interview of one of those money launderers who defected after the Jang Song-Thaek purge, read this. North Korean money launderers’ fear of coming home to Pyongyang short-handed may be one of our intelligence agencies’ best tools to be a major player in the sanctions game. For reasons I explained here, that death spiral could pose a serious threat to the survival of the regime.

We should also watch for local regulators stepping in to take over the Bank of Dandong to prevent a run and shield other local banks from secondary effects. We should look for more reports that other Chinese banks are closing North Korean accounts. We should also look for correspondent banks in the United States to raise their scrutiny of Chinese banks that try to clear dollar transactions on behalf of suspicious or poorly documented customers. If FINCEN plays its cards right, Chinese banks that don’t step up their compliance game may find it difficult to clear their transactions. For more on how EU and New York state regulators have applied similar strategies, see this post.

Finally, we should look for China to send more mysterious convoys to North Korea and engage in conspicuous sanctions violations to deter any more actions by Treasury. We must be prepared to escalate in kind. Chinese retaliation may be Trump’s excuse to do what some in his administration have wanted to do all along — hit China with, say, steel tariffs. Fortunately, Trump has backed off from a threat to withdraw from NAFTA. And needless to say, the worst possible time to drop or renegotiate the Free Trade Agreement with South Korea is when China is bullying it with unilateral trade sanctions. After all, you can’t wage a trade war with everyone at once. If you trade less with China and you aren’t willing to eat a recession, you have to trade more with someone else. Given that most of the economies that compete with China as providers of low-wage labor or high-technology manufacturing (or both) are in East Asia, Trump should consider making some face-saving changes to the Trans-Pacific Partnership and reviving it as part of a long-term plan to encourage an emigration of manufacturers from China to friendlier venues in Southeast Asia and Japan. While I’m not a fan of protectionism, Xi Jinping’s behavior in the South China Sea, North Korea, and Hong Kong has also convinced me that “peaceful rise” is a self-serving delusion, and that our economic interest in robust trade with China is outweighed by the threat that we’re selling Xi the rope to hang us with.

We also need a strategy for banks like the Bank of China that may think they’re too big to sanction. The Bank of Dandong is expendable, but the Bank of China is not. Unlike the Bank of Dandong, however, the Bank of China has deep links to the U.S. financial system, is under pressure from the Chinese Finance Ministry to improve its anti-money laundering compliance, and has a branch in New York (which regularly checks in on this humble blog for … for posts like this one, I suppose). The better approach for Treasury, then, would be to use FINCEN to treat the BoC’s North Korea ties as an anti-money laundering compliance problem and, in the event the feds smell something fishy, issue subpoenas with a mind toward doing to the BoC what it did to BNP Paribas — impose heavy fines and a deferred prosecution agreement for data stripping and flunking Know-Your-Customer obligations. That is to say, there is no such thing as “too big to sanction,” merely different strategies for different targets. Another advantage of a deferred prosecution agreement, of course, is that it can force a bank to cooperate by providing financial intelligence — intelligence the feds can use to take action against other targets.

Some of these effects should be evident within the next week or two. The effects that matter most, however, are on the stability of the North Korean system. To have any chance at all for a negotiated denuclearization of North Korea, we will have to force the regime to choose between its nukes and its survival. My guess is we’ll see effects of that kind within a year or two if — and only if — we continue to press the financial, law enforcement, and diplomatic campaign needed to starve the regime of funds.

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Leaked U.N. report reveals record seizure of North Korean arms last August (updated)

The 2017 report of the U.N. Panel of Experts isn’t due to be published for another month, but a Kyodo News reporter has already obtained and published leaked excerpts. The focus of Kyodo’s story is the now-familiar (and unquestionably accurate) castigation of member state governments for not putting enough will or resources into the enforcement of North Korea sanctions, but I’d like to start with this revelation:

“An interdiction of the vessel Jie Shun was the largest seizure of ammunition in DPRK sanctions history,” according to the document. A source informed Kyodo News the Egyptian port was not the general cargo ship’s final destination, despite its strategic location near a number of regional conflict hot spots. However, the report said that seizures like it demonstrate “the country’s use of concealment techniques as well as an emerging nexus between DPRK entities trading in arms and minerals.” [Kyodo News, Seana K. Magee]

The M/V Jie Shun, IMO 851780, is a 2,825-tonne general cargo vessel that flies a Cambodian flag. Built in Japan in 1986, it previously sailed under the names Velox, Armon, and Northern Queen.

[As seen here in better days]

As recently as 2014, it was up for sale. Its current owner is Liaoning Foreign Trade Foodstuffs Co., Ltd. of 72 Luxun Lu, Zhongshan Qu, Dalian, China. That’s right next to the address listed in the Panel’s 2014 report for Dalian Sea Glory Shipping Company, which managed the suspected smuggling ship M/V Light. This is not a reputable neighborhood.

Shipping trackers last spotted the Jie Shun at “Skohna” (probably Sokhna), an Egyptian port on the Red Sea near the southern terminus of the Suez Canal.

Despite what the trackers say, the Panel’s report says the ship wasn’t headed for any port in Egypt. Egypt has been a buyer of North Korean missiles and missile parts, but not of large quantities of North Korean munitions, at least to my knowledge. Nope, this time, my top three guesses are Syria, Syria, and Syria:

[What do I win?]

Liaoning Foreign Trade also operates one other ship, the Chinese-flagged M/V Fu Yun 228, IMO 8888654. The small bit of good news is that if trackers still show the Jie Shun as stuck in Egypt, Egyptian authorities must have seized the ship as the resolutions require it to. Inshallah, Red Sea divers will soon have a nice new artificial reef, or the Somali Coast Guard will soon have a new Q-Ship for stalking pirates.

It’s unquestionably true that up to this point, Pyongyang has invested more effort in hiding its dollars and ships behind front companies and shell companies than we have in finding them. That’s why Anthony Ruggiero, who spent years at the Treasury and State Departments administering sanctions, asked Congress this week to give the feds more resources for these investigations.

Mandate additional resources to address North Korea’s activities. The North Korea Sanctions and Policy Enhancement Act of 2016 is a comprehensive law that provides a myriad of tools for the Trump administration to address the North Korean threat. It is important that Congress continue to address additional areas through legislation in the same overwhelmingly bipartisan nature, signaling to North Korea and China that focus on this issue will continue. Throughout my testimony, I have detailed the challenge we face with an adversary that seems to be one step ahead of us. Our entire approach to the North Korea issue needs to change. One area Congress can address immediately is providing additional resources to the Treasury Department, Justice Department, Intelligence Community, and other government agencies to investigate violations of the NKSPEA. [Anthony Ruggiero, Testimony before the House Foreign Affairs Committee, Feb. 7, 2017]

There are other, more immediate steps we can take, beyond those I recommended here. First, we should add the Jie Shun, Liaoning Foreign Trade Foodstuffs Co., Ltd., and (for good measure) the Fu Yun 228 to the U.N. designation list and the Treasury Department’s list of Specially Designated Nationals. Second, we should also demand that China expel any North Koreans involved in this transaction, freeze any accounts associated with the transactions or the parties to it, and prosecute any Chinese nationals involved.

[As Anthony explains, just after the 5-minute mark.]

For now, however, this is just the latest example of how China continues to be a part of the problem rather than a part of the solution. Almost weekly, we see fresh evidence that China’s cost-benefit calculation hasn’t changed. It’s time to use more forceful methods to shift that calculation:

The Treasury and Justice Departments’ actions in late September 2016 showed a troubling pattern of Chinese persons assisting North Korean-designated persons, including through the U.S. financial system. These transactions lasted six years, up to September 2015, making it hard to believe the Chinese government regulators were unaware of this conduct. It is important that Congress and the American people understand the extent of China’s efforts, or lack thereof, to combat money laundering, sanctions violations, and proliferation financing. I recommend that new legislation include specific sections on North Korea’s network within China. It should also address the broader issue of Chinese support for, and harboring of, North Korean nationals involved in prohibited conduct. In particular, the report could also focus on whether the financial institutions involved should have been designated or subjected to secondary sanctions. [Ruggiero testimony]

My next recommendation depends on whether the Cambodian government has retaken control of its shipping registry, as it promised to do last August, and whether it has de-registered the forty-plus North Korean ships it had reflagged, but is required by U.N. Security Council resolutions to de-register. For years, Cambodia’s shipping registry has been notorious for reflagging North Korean ships. What few of us knew until C4ADS informed us last year was that the International Ship Registry of Cambodia was “a joint venture between the Cambodian government and a South Korean company, the Cosmos Group.”

The seizure of the Jie Shun would have been around the same time as Cambodia promised to de-register rogue ships, and two months after South Korea very politely asked Cambodian dictator Hun Sen to enforce U.N. sanctions against Pyongyang. Good diplomacy always starts with a polite request, and also, it’s always backed by the prospect of ghastly and unspeakable consequences. That dual approach worked superbly the last time we tried it, in 2005, when Treasury officials Stuart Levey and Daniel Glaser went on their world Kim Jong-il Unplugged tour. If Cambodia didn’t act, it would make a damn good example for the likes of Tanzania, Sierra Leone, and other states that haven’t gotten the message about reflagging North Korean ships. And in the case of Cambodia, the Cosmos Group’s role gives us a willing South Korean partner with jurisdiction and a shared interest in shutting this dirty business down ppali-ppali.

The U.S. has an obligation to investigate how the financial transactions behind the shipment were denominated and processed — specifically, whether they were processed through the U.S. financial system. (Unfortunately, the seizure came before UNSCR 2321 banned the insurance of North Korean ships.) If the evidence shows that either the North Koreans or their Chinese partners misused our financial system to break the law, we should freeze and forfeit assets, issue indictments, and consider civil penalties or other appropriate enforcement actions against the banks involved.

Lastly, let’s not forget that under UNSCR 2270, China is supposed to be inspecting all of this North Korean cargo. The NKSPEA also provides a new legal tool for cracking down on ports that shirk that responsibility.

SEC. 205. ENHANCED INSPECTION AUTHORITIES.

(a) Report Required.—Not later than 180 days after the date of the enactment of this Act, and annually thereafter, the President shall submit to the appropriate congressional committees a report that identifies foreign ports and airports at which inspections of ships, aircraft, and conveyances originating in North Korea, carrying North Korean property, or operated by the Government of North Korea are not sufficient to effectively prevent the facilitation of any of the activities described in section 104(a).

(b) Enhanced Customs Inspection Requirements.—The Secretary of Homeland Security may require enhanced inspections of any goods entering the United States that have been transported through a port or airport identified by the President under subsection (a).

That means that if Dalian doesn’t comply with its requirements to inspect North Korean cargo, U.S. Customs and Border Protection might require more intrusive inspections of cargo coming from Dalian. Think of it as the shipping equivalent of a 311 action.

~   ~   ~

Update: A reader writes that it’s just as possible that the weapons were headed for Hamas or Hezbollah. Yes, I suppose those are both plausible possibilities. North Korea is suspected of having sold arms to both groups in the past. Now that Hezbollah has a large contingent fighting in Syria, the easiest way to supply it would be by landing the ship at the Syrian ports of Tartous or Latakia. Supplying Hamas is a bit trickier, but would probably work something like this.

~   ~   ~

Update 2: I want to take on the argument, suggested in the Kyodo report, that North Korea’s money laundering and smuggling networks are so well-hidden inside China that we couldn’t possibly uncover them. Yeah, how can we do that? We put resources on the problem, for once. We use the same methods we used to expose the equally sophisticated money launderers who worked for Iran, Al Qaeda, and the Cali Cartel. We do what C4ADS did, when two smart researchers with no classified access whatsoever exposed a sophisticated, well-hidden network of North Korean money launderers and smugglers operating from China. Just like the Justice and Treasury departments did when they added their law enforcement authorities to the mix and came up with an indictment and a civil forfeiture count that reached 5 individuals, dozens of front and shell companies, and 12 different Chinese banks. We do it like the U.N. Panel of Experts has done, year after year after year after year after year after year. If we’d simply investigate and/or designate the dozens of Chinese and other third-country entities exposed by the Panel’s open-source reports and their confidential annexes, we’d tear huge holes in that network. We do it by trying, for once, and by not being afraid to break some china along the way.

Finally, let’s not forget the role of human intelligence, which shows us why we don’t have to expose the entire network at once to damage the integrity of the whole thing. The number of North diplomats and money launderers who defected last year probably exceeded the numbers seen in any previous year. Every time a fund manager brings his laptop or some bank account numbers to U.S. or South Korean intelligence, we gain another invaluable clue about the dimensions of that network and who operates it. Apparently, we’ve done some damage, too.

“As sanctions against North Korea have strengthened, trading companies are turning to products that are not included in the sanctions list. The recent activity comes from a decision by the Ministry of Foreign Trade demanding that trading companies double their contributions,” a source in Pyongyang told Daily NK on February 1.

The North Korean authorities are increasing the amount of loyalty contributions to compensate for dwindling exports of weaponry, which had previously been a significant source of revenue. As a result, the companies have no choice but to explore alternative items for export. [Daily NK]

Every time we freeze or seize money in one part of the network, we make other parts of the network fearful that they’ll miss their kick-up quotas. There are some encouraging signs that sanctions can trigger defections, which in turn raise the burden on remaining parts of the network and provide intelligence to help us freeze even more money. Eventually, it all becomes a death spiral:

The undercurrents of desperation amongst the trading companies is largely due to Kim Jong Un’s use of fearpolitik. Some officials returning from abroad for the end-of-the-year review, he said, were dismissed for not completing their assignments, sparking fierce competition to complete the trade assignments set at the beginning of each new year.

“Some traders are complaining, ‘If you pull a rubber band too much, it will snap. This is why there are growing number of defections among dispatched workers,'” he added.

The executives in charge of North Korea’s international trading companies are expected to come under intense pressure. It remains to be seen whether this will spark an increase in high-level defections to South Korea or other countries this year. [Daily NK]

This also has ripple effects on the banks, who are our most valuable sources of financial intelligence, via the Know-Your-Customer rules, and the Suspicious Activity Reports and Currency Transaction reports they’re supposed to file. If Treasury puts out the word that we’re going to enforce those requirements strictly against North Korea — which is a 311 jurisdiction, after all — banks may step up their compliance out of fear of being exposed by defectors, and of paying the massive fines like those we imposed on banks that violated other sanctions regimes.

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Is this what a North Korean malaise speech looks like?

Readers know that I’ve been critical of those who cherry-pick words out of North Korean dictators’ rambling New Year speeches to find evidence to support their arguments. Having made the sacrifice of actually reading this one (full text below the jump), I would not characterize it as profoundly different from the same old crap North Korean dictators have told their subjects year after year. No, it was not quite a North Korean “malaise speech,” but it was filled with clear (if tacit) acknowledgments that the byungjin policy (nukes plus economic development) hasn’t delivered the “white rice and meat soup” Kim Jong-un promised North Koreans five years ago. 

So, on guard against overstating the significance of what follows, this language shows more contrition and introspection than I’m accustomed to from North Korean tyrants.

My desires were burning all the time, but I spent the past year feeling anxious and remorseful for the lack of my ability. I am hardening my resolve to seek more tasks for the sake of the people this year and make redoubled, devoted efforts to this end.

Previously, all the people used to sing the song We Are the Happiest in the World, feeling optimistic about the future with confidence in the great Comrades Kim Il Sung and Kim Jong Il. I will work with devotion to ensure that the past era does not remain as a moment in history but is re-presented in the present era. On this first morning of the new year I swear to become a true servant loyal to our people who faithfully supports them with a pure conscience.

Alternative translation here, via NK News. Of course, Kim Jong-un and his father have struck notes of contrition in these speeches before. The theme of a self-sacrificing paternal leader deeply concerned for the welfare of his subjects is an old one in North Korean propaganda. Even so, this seems even more contrite than usual. I haven’t the time or the stomach to do a line-by-line linguistic comparison, but I don’t recall His Porcine Majesty having used — or closed with — such strong language before. Clearly, he knows that things should have been better by now. He knows that his people are unhappy with their standard of living, and perhaps more. Whoever wrote the text saw a need for him to acknowledge the misery of his people, lest he seem detached or callous about it.

Contrast Kim’s aspirational claims about prosperity and economic development with his claims of “consolidating the defence capability of Juche Korea” and that North Korea had “achieved the status of a nuclear power, a military giant, in the East which no enemy, however formidable, would dare to provoke.” There’s nothing aspirational about that. Still, it can’t be lost on his people that he’d traded away their prosperity for his nukes, so he tried to project blame:

Even though the enemy grew more blatant in their obstructive schemes and severe difficulties cropped up one after another, all the service personnel and people drew themselves closer together around the Party and waged a vigorous struggle in the revolutionary spirit of self-reliance and fortitude. This was how they achieved the world-startling, miraculous successes under such trying circumstances. 

Last year the imperialist reactionary forces’ moves for political and military pressure and sanctions against our country reached an extreme. But they failed to break the faith of our service personnel and people in victory, and could not check the vigorous revolutionary advance of Juche Korea.

We should resolutely thwart the enemy’s sinister and pernicious schemes to check the warm and pure-hearted aspiration of our people who follow the Party single-heartedly and to alienate the Party from them.

Other statements in the speech acknowledged social and political problems that belied the many claims of single-hearted unity.

We should thoroughly apply the people-first doctrine, the crystallization of the Juche-oriented view on the people, philosophy of the people, in Party work and all the spheres of state and social life, and wage an intensive struggle to root out abuses of power, bureaucratism and corruption that spoil the flower garden of single-hearted unity.

They should resolutely break with defeatism, self-preservation, formalism and expediency, and devote their heart and soul to the struggle for carrying out the Party’s plans and intentions.

There may be various reasons why Kim Jong-un’s birthday celebrations were relatively muted this year. He may be sensitive about his age, but I suspect that the idolization of Kim would be more advanced by now if the regime believed that he was deeply and genuinely popular.

Reportedly out of concern for adverse publicity, the regime has banned public executions (it’s killing people privately instead). Kim Jong-un has even reportedly told his security forces to stop searching homes without warrants(!) due to “escalating disgruntlement and official complaints to the district office over the the tyrannical behavior of law enforcement officers.” That is the kind of order that seems unlikely to stick in practice, but if it’s true, it would be evidence of discontent with security crackdowns like those that preceded last year’s party Congress. The Daily NK also points to other, more recent acts of protest. See also this post.

More than 1,400 North Koreans defected from North to South in 2016, a rise of 11 percent. This is the first increase since Kim Jong-un’s succession, but that is not necessarily useful evidence for measuring popular morale. More likely, it indicates that an initially successful crackdown on border control is flagging due to low morale and indiscipline within the border guard force (as with the rest of the military) and due to the destruction of border posts and fences, and the border guards themselves, by last year’s floods.

What does seem significant for morale, however, is that higher-ranking North Koreans and those of higher “songbun” (political loyalty classification) are defecting in higher numbers, for reasons that are more political than material. Some reports attribute this to sanctions, which may be partially true — North Korean elites posted overseas have rigid quotas for sending cash back to Pyongyang. In some cases, those who can’t meet those quotas due to sanctions may be tempted to defect rather than return home. That North Korean workers in Russia report an increase in wage theft may mean that they’re being squeezed to make up for revenue lost elsewhere (which in turn leads to more group defections like this one — the “death spiral” I’ve spoken of before). That many of the elites are afraid of being purged is another likely factor. 

Overall, however, the prospect of a long, bleak future under Kim Jong-un and the fading of any hopes that he would be a reformer may well be the greatest cause of North Korea’s malaise. I’ll give Thae Yong-ho the last word:

“As the Kim Jong-un regime took power, I had a slight hope that he would make a rational, reasonable regime because he must be well aware of how the world runs after he studied overseas for a long time,” Thae said. But Kim turned out even more merciless than his father and late leader Kim Jong-il, he said, citing the shocking public execution of the leader’s once-powerful uncle Jang Song-thaek in 2013 as one of the moments of awakening that eventually solidified his decision to defect. [Yonhap]

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Update: More here.

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Treasury fires a broadside at Kim Jong-un’s slave labor racket

This blog has promoted the outstanding investigative work and legal analysis of the Leiden Asia Center in exposing North Korea’s rental of forced labor to European shipyards and construction companies, under unsafe and exploitative conditions. That work, ably led by Remco Breuker, yielded this Vice documentary and reports filled with actionable information. 

Recently, Breuker wrote a long, sad, and funny opinion piece lamenting that LAC’s research has incurred much harassment from Pyongyang’s wacky bands of online sympathizers while having little apparent effect on the EU’s enforcement of its worker protection laws. That’s why I was so pleased to be the one to tell Mr. Breuker that, thanks in part to LAC’s work, the U.S. Treasury Department just froze the assets of several North Korean slave merchants LAC first identified.

OFAC designated the Mansudae Overseas Project Group of Companies, Korea General Corporation for External Construction, Namgang Construction, and Korea Rungrado General Trading Corporation for having engaged in, facilitated, or been responsible for the exportation of workers from North Korea, including exportation to generate revenue for the Government of North Korea or the Workers’ Party of Korea.  The Mansudae Overseas Project Group of Companies has been reported to conduct business in countries including Algeria, Angola, Botswana, Benin, Cambodia, Chad, the Democratic Republic of the Congo, Egypt, Equatorial Guinea, Ethiopia, Malaysia, Mozambique, Madagascar, Namibia, Senegal, Syria, Togo, and Zimbabwe.  Korea General Corporation for External Construction has worked to supply North Korean laborers in the Middle East for the purpose of earning hard currency for the North Korean regime.  Namgang Construction has worked to supply North Korean laborers in the Middle East and Asia for the same purposes.  The Korea Rungrado General Trading Corporation also works to supply North Korean laborers in Asia and Africa to earn foreign currency for the North Korean regime.  Some of the revenue generated by overseas laborers is used by the Munitions Industry Department, which was designated by the Department of State in August 2010 pursuant to E.O. 13382 for its support to North Korea’s WMD program. [U.S. Treasury Dep’t Press Release]

Leiden Asia Center’s work also had a greater impact on EU states’ policy than he acknowledges, even if that impact may be an indirect one. Poland and Malta have come under media and diplomatic pressure from the U.S. and South Korea over their acceptance of North Korean workers. Both have since stopped issuing visas to more of them. Per capita, Pyongyang’s slave laborers in the EU brought it its highest profits. There’s little question that the Leiden Asia Center’s work was the impetus for much of this change.

There are some notable exceptions. Mansudae Overseas Project Group was exposed by the 2016 report of the U.N. Panel of Experts for helping to build an arms factory in Namibia (a topic that merits its own post). Treasury’s list also omits one of the North Korean entities exposed by LAC and Vice, the DPRK Chamber of Commerce, which lists two Pyongyang addresses: “c/o Ministry of Foreign Trade, Central District, micom@co.chesin.com,” and “Jungsong-dong, Central District, P.O.Box 89.”

Once again, Treasury’s authority for the designations was Executive Order 13722, And once again, the executive order implements section 104(a) of the North Korea Sanctions and Policy Enhancement Act. 

Sec. 2. (a) All property and interests in property that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person of the following persons are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in: any person determined by the Secretary of the Treasury, in consultation with the Secretary of State:

[….]

   (iv) to have engaged in, facilitated, or been responsible for the exportation of workers from North Korea, including exportation to generate revenue for the Government of North Korea or the Workers’ Party of Korea; [EO 13722]

If diplomatic pressure was already starting to constrict Pyongyang’s slave trade before these new sanctions, it’s reasonable to expect that the freezing of the slave merchants’ assets and a new U.N. resolution expressing “concern” about the trade will give those efforts new impetus. Pyongyang still has some stubborn customers in Qatar, Kuwait, and Malaysia who might be persuaded to terminate those relationships.

Will Pyongyang simply shift those workers to China and Russia? Those markets may also be reaching the point of saturation. Employers of North Korean laborers in Russia have recently been embarrassed by a series of on-the-job deaths and injuries, defections, reports of torture and mutilation by local minders, video of a mass brawl with Russian workers, and at least one suicide by self-immolation. Even in China, Reuters recently suggested that the number of expatriate North Korean workers is declining. That, too, may be a function of defections, which have caused Pyongyang great embarrassment and forced it to plow some of its profits back into the deployment of more minders, and minders for the minders. The death spiral swirls.

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In Russia, job holds YOU down (if you’re a North Korean)

For the second time this year, a group of North Korean overseas workers has defected to South Korea — this time, from Russia. KBS, citing anonymous South Korean government sources, first reported that “nearly ten” North Korean construction workers in St. Petersburg fled their dormitory in late August, contacted the local South Korean consulate, and expressed their intention to defect. The workers are now in the care of a human rights NGO pending their departure for the Land of Honey Butter Chips, where I can only hope they’ll punch the first person they hear saying “Hell Chosun” in the face. According to the Daily NK, their team leader may “have played a central role in the defection.”

“From what I have learned, the team leader took out 6-10 workers in his group to the worksite and then made a call to the South Korean Consulate right away,” the source said. “The defection happened in an instant under his leadership.” [Daily NK]

KBS says that “[t]he construction workers were reportedly unhappy with the poor working conditions and intense pressure to send back their earnings to provide the North with much-needed foreign currency.” They also felt “anxiety about their own safety,” which is understandable in light of a recent report that 40 North Korean workers around the world — including 13 in Russia — have died of disease, suicide, or accidents this year so far. Their sanitary conditions don’t sound so pleasant, either.

“Our comrades built a toilet in a small house and installed a dining room right there. So, someone is defecating at one side of the dining room.” [KBS]

Ah, yes, the bucolic lifestyle of North Korea’s “happy slaves” in Russia — like the one in Vladivostok who was so happy he set fire to himself and jumped off a building, or the ones whose minders cut their Achilles tendons to keep them from running away again. Or these contented members of the proletariat, seen here during some spontaneous comradely athletic solidarity exercises with their Russian hosts.

[Workers of all countries, unite. You have nothing to lose but your teeth.]

Wage theft, however, appears the most-cited reason for the workers’ discontent. Pyongyang, which increasingly relies on overseas workers to sustain it financially, is putting “relentless pressure” on them to “cough up more hard currency.” That pressure spiked again after the Hamgyeong floods.

Another source in China said since the severe flooding of the Duman River last month, the regime has been forcing workers overseas to donate US$100 to 150 each to a flood relief fund. “This kind of extortion is causing more North Korean workers overseas to defect,” the source added. [Chosun Ilbo]

princess-95-kju-yacht-675x360

[Pictured: flood relief]

According to KBS, even under “normal” conditions, the workers earn $980 a month, of which $665 is confiscated. Then, on returning to North Korea, the workers have to pay another quota that few of them can afford. The additional taxes would have left the workers with nothing, or even with outstanding debts to some of the officials who shake them down. Some of the workers might well have concluded that they had little to lose by defecting. Still, with all the increased security due to the rash of defections this year, escape couldn’t have been easy. The Daily NK interviewed another recent defector from the same construction company, Mokran, which employs “more than 150 workers:”

On October 12, Daily NK succeeded in establishing contact with this worker who stated, “It is hardly possible for the workers to communicate with each other, no matter how close they are, due to the strict surveillance and control system. The recent group defection is, therefore, a remarkable achievement.”

“As I recall, almost 40 percent of the company workers secretly owned smartphones. So it is possible that the information they learned through their devices may have influenced their decision,” he continued. [Daily NK]

Think of all the risks these workers took. They had to obtain cell phones, conceal them, share their dissent and discontent with one another, conspire to defect, and make a run for it — all without being overheard, seen, or ratted out in a cramped and controlled environment, and in spite of the dire consequences for their families. (Which is to say nothing of the welcome they can expect from the quislings at Minbyun when they get to South Korea.)

The Chosun Ilbo and KBS suggest that the workers may have learned about the defections of Thae Yong-ho and the Ningpo 13. Pyongyang must be worried that news of these defections could spread and trigger a cascade. This incident may lend support to that concern. After all, one defection is an act of resistance; a group defection is an organized conspiracy to resist. I emphasize — as far as I know, there were no other group defections or mutinies of North Korean overseas workers until this year. As for the catalyzing effect of the cell phones, just imagine the subversive possibilities if they became available throughout North Korea itself.

It can be presumed that the recent chain of successful defections by overseas workers and officials is having an effect on the remaining workers who are being exploited under harsh working conditions. It is also likely that those with smartphones have access to reports on North Korea’s human rights violations published by the international media.

Accordingly, some are predicting further defections by North Korean workers at overseas working sites. A source from an intelligence agency has supported this assumption, adding, “There have been an increasing number of requests from overseas North Korean workers to defect through South Korean consulates. With the increased demand, people are having to be processed in a designated order.” [Daily NK]

The Chosun Ilbo‘s reporter also expects more defections in Russia, and reports that “[a]ltogether some 40 North Koreans including loggers in Siberia have defected and are staying in a shelter” there. The usual caveats about anonymous sources apply. Mind you, these defections preceded Park Geun-hye’s recent call for North Koreans to defect, but came after the North sent out more minders to prevent any further defections.

“The North is sending more officials to China and Russia to keep watch on workers there, but it seems difficult for the regime to prevent expat workers from defecting,” a government official here said. [Chosun Ilbo]

The Mokran president and State Security Department minder have since been summoned to North Korea, where the Daily NK‘s source says “it is highly likely that [they] will be held to account for the incident and possibly executed.” 

Pyongyang might also need more minders to mind its minders. According to the Donga Ilbo, a 27-year-old Kim Il-Sung University graduate and staffer at the North Korean embassy in Beijing, who was serving as an interpreter for an SSD inspection team sent to mind North Korean workers in China after the defection of the Ningpo 13 … has also defected. According to the Donga‘s sources, her job would have afforded her “a great deal of knowledge in high-level communication between the North and China.” The same report claims that another interpreter, a man in his 20s assigned to the customs office in Hyesan, defected in August and is now in South Korea. Both incidents are attributed to anonymous sources, probably within South Korea’s National Intelligence Service, so make of them what you will.

Last week and at the time of the Ningpo 13 defections, I wrote of a potential “death spiral” in which the regime would pass its financial pressures down to the workers and squeeze them for more money; minders would drive workers to the breaking point; workers would rebel, defect, or be sent home; the pressure on the remaining workers to make up for the lost earnings would increase further; and the state would increase controls over the workers and drives them even harder, pushing more of them to the breaking point. I could make an argument that this is an example of that death spiral.

And yet the state is desperate enough for money that it even risks sending former Kaesong workers to China and Russia. That might explain why negotiations a new U.N. sanctions resolution are taking so long. The U.S. side, under strong pressure from Congress, is most likely pushing to ban Pyongyang’s labor exports. Beijing must know what a financial catastrophe this would mean for Kim Jong-un.

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North Korean diplomats behaving badly, Part 2

On balance, I suppose Kim Jong-un probably prefers to see his foreign emissaries expelled than boarding KAL flights to Seoul. Still, since we last took inventory of Pyongyang’s distressed diplomatic corps in March, several more North Korean diplomats have been kicked out and sent home, and His Corpulency is apparently displeased. 

Pakistan

In 2014, I wrote about North Koreans who were bootlegging alcohol in Muslim countries, quite possibly the only illicit North Korean activity that also provides a useful service to humanity. At the time, I didn’t see strong evidence that any of the perpetrators were diplomats, but a series of arrests has delivered that evidence. Several North Korean diplomats have since been arrested for smuggling alcohol, using their status as a cover. 

In April, a North Korean diplomat posted in the Pakistani city of Karachi was apprehended while trying to bring 855 boxes of duty-free liquor, nearly double the amount allowed, into the country. A source in Pakistan Tuesday identified the diplomat as Kang Song Gun, a commercial counselor at North Korea’s consulate in Karachi. [VOA]

You can read more about that arrest here. This Pakistani customs trade journal has a nice, detailed inventory of how North Korean diplomats stock their speakeasies.

In May 2015, another North Korean diplomat, Koh Hak Chol, a third secretary at the consulate, was apprehended by customs officials while carrying liquor that exceeded quotas, the source said. Pakistani officials questioned Koh for several hours but released him without charge. The Pakistani source said both Kang and Koh are still with the diplomatic mission.

Another source in Pakistan said some North Korean diplomats who were arrested for illegal liquor selling continued the illicit activity after their release. Trading alcohol in a black market is an important money-making source for many North Korean diplomats although the sale of alcohol is strictly banned in the Muslim country, according to the source. [….]

In April 2015, a North Korean diplomat and his wife were caught selling liquor inside the upscale Defense Housing Authority (DHA) development in Karachi. In 2013, Pakistan’s Express Tribune newspaper reported Pakistani officials had investigated complaints that North Korean diplomats were selling alcohol at the complex. [VOA]

An unnamed Pakistani source tells VOA that “[t]here have been at least 10 confirmed cases of illegal liquor trade involving North Korean diplomats in Pakistan since 2009.” So there is ample evidence that North Korean diplomats are involved. Unfortunately — or fortunately, if you’re a thirsty Pakistani — the Pakistani government still isn’t expelling them.

Germany

In April, North Korea suddenly recalled its ambassador to Germany, Ri Si-hong, who had been in his post since 2011. The reasons for Ri’s recall weren’t clear, although the Korean press offered several lines of speculation. The Chosun Ilbo reported that Ri’s recall followed Germany’s deportation of two other North Korean diplomats for “illegally raising cash for the regime,” and cited Radio Free Asia’s speculation that Ri was recalled “because he was being blamed” for the arrests. Yonhap (also citing RFA) offered the alternative theory that Ri had failed “to meet expectations,” which may mean he isn’t kicking up enough loyalty payments. The Donga Ilbo claimed that he was being held “accountable for Berlin’s condemnation of the North’s nuclear test in January” and for Germany’s subsequent support for UNSCR 2270. It also reports that North Korean diplomats had previously quarreled with their German hosts after the embassy rented out part of its building, in violation of the Vienna Convention.

Whatever the reason for Ri’s recall, in July, we learned that Germany had refused to credential Ri’s designated successor. Yet again, we could only speculate as to why, and yet again, the Korean press was equal to the challenge. Some said he was a spy in involved in “dubious business activities” (North Korea’s Reconnaissance General Bureau is designated by the U.N. and the U.S. Treasury Department). Yonhap also implied that the nominee had been “involved in unlawful activities in the past.”

At last word, Ri was back to Berlin to resume his duties — presumably, with his family under the watchful eyes of the Ministry of Peoples’ Security back in Pyongyang. If the German authorities ultimately determine that Ri was involved in illicit activities, it may be required to expel him, too.

Vietnam

In July, Vietnam banned a total of 28 U.N.-designated North Koreans and deported at least two of them. According to UPI, one of the men, Choe Sung-il, was a representative of U.N.-designated Tanchon Commercial Bank, who was in charge of North Korea’s arms sales in Asia. He was deported in April. Also deported this year was Kim Jung-jong.

According to NK News, however, Vietnam later denied that either of the men was associated with Tanchon, and even asked the U.N. 1718 Committee to update its designations accordingly. Valiantly attempting to deconflict these reports, Hamish MacDonald writes:

However, despite the requested amendments, it appears that Vietnam is not necessarily refuting that the two individuals were representatives of Tanchon Commercial Bank (TCB), but rather take issue with them being identified as representatives specifically “in Vietnam”, considering that it says that TCB did not have a physical branch within the country.

In the report’s conclusion, the Vietnamese authorities suggested that the listing of the two North Koreans be altered to simply “Tanchon Commercial Bank Representatives”, with no mention of Vietnam itself.

Another likely factor in the request is that the two individuals in question are no longer residing in Vietnam. According to Vietnamese authorities, Kim left the country in January – prior to the adoption of Resolution 2270 – while Choe departed Vietnam in April.

“Vietnam is clearly requesting a change to the designation explanations for Choe Song Il and Kim Jung Jong. It does not wish to be publicly associated with sanctions breaches and has given evidence that the individuals have left the country, which it claims should be sufficient for the ‘Vietnam’ portion of the designation text to be stricken,” Andrea Berger of the Royal United Services Institute (RUSI) told NK News on Thursday.

“Its assertion that the individuals cannot be connected to Tanchon because there is no evidence that Tanchon had representation in the country, may in fact be the product of clever North Korean sanctions evasion,” Berger added. [NK News, Hamish MacDonald]

According to the U.N. Panel of Experts’ 2016 report, Vietnam had previously been one of Pyongyang’s customers, which might explain why Hanoi has a motive to dissemble. Furthermore, Tanchon had been designated long before this year. Vietnam may be concerned that the U.N. designation list implicates it retroactively.

Some of the 26 other North Koreans appear to be senior officials without ostensible links to ’Nam, who may have been added to pad its list. I say let bygones be bygones (this is Vietnam we’re talking about, after all). Now, our interests are converging again. It can’t hurt our efforts to secure Vietnam’s compliance that Vietnamese opinion has turned sharply against China over the South China Sea.

Bangladesh

Earlier this month, Bangladesh expelled a North Korean diplomat for smuggling cigarettes and unspecified electronic goods in a shipping container.  Reuters identified the diplomat as Han Son-ik, the First Secretary of North Korea’s embassy in Dhaka.

Bangladesh foreign secretary Shahidul Haque confirmed the order had been made to the North Koreans, but declined to give a timetable for his departure. Local media said he had been ordered by leave by Monday.

“We have asked North Korea to take him back for violating diplomatic norms,” Haque, Bangladesh’s top foreign bureaucrat, told AFP, declining to give details. A senior customs official told AFP the North Korean used his diplomatic immunity earlier this month to import the goods which were suspected destined for the blackmarket.

“The diplomat declared that his cargo contained food and soft drinks. But when we opened the cargo, we found 1.6 million stalks of expensive cigarettes and electronics,” Moinul Khan, head of intelligence at Bangladesh customs, told AFP. “At market prices these products are valued at 35 million taka (US$430,000). We suspect that he brought the products to sell to local smuggling gangs,” he said. [Channel News Asia]

KBS reports that the containers came in from Malaysia, which has close commercial ties to North Korea, and which should now conduct its own investigation into the smuggling operation — first, to determine whether any of the electronics were proliferation-sensitive items or luxury goods headed for Pyongyang; second, to determine whether U.N.-designated persons were involved in the shipments; and third, to determine whether the revenues from the transactions violated any of the financial due diligence provisions of UNSCR 2270 or 2094.

If that seems brazen, KBS also reports that Bangladeshi authorities are “conducting a probe into two other containers held under the North Korean embassy’s name that are suspected of carrying undeclared vehicles including Rolls-Royces and BMWs.” That’s a potential violation of UNSCR 1718’s luxury goods ban, depending on where those vehicles ended up. 

I’ve long hoped that the Panel of Experts would focus more attention on North Korea’s Malaysian connections, in the hope that Malaysia would decide that it would rather do without this kind of attention. Hopefully, we’ll learn more about that investigation in the next POE report. 

The position of First Secretary in Dhaka has experienced significant turnover recently. Last year, Bangladesh expelled Han’s predecessor, Son Young-nam, for smuggling $1.4 million worth of gold. UNSCR 2270 requires member states to “prohibit the procurement of” gold by North Koreans.

~   ~   ~

Expulsions of North Korean diplomats appear to be on the rise. In some cases, that’s because UNSCR 2270 has emphasized member states’ duty to expel diplomats involved in certain prohibited activities. In other cases, diplomats appear to be engaged in the same old garden-variety smuggling North Korean diplomats are infamous for, only they’re making more stupid mistakes than they used to. Based on other reports I’ve read, North Korean diplomats are under pressure to maintain agency operations, pay their own salaries, and make steep loyalty payments to the Mother Ship. They appear to be making those stupid mistakes out of financial desperation.

It won’t improve morale that following Thae Yong-ho’s defection, Pyongyang is sending more security agents abroad to watch its diplomats more closely than ever, and has ordered the execution — with antiaircraft guns! — of those who fail to prevent defections. Or so says a “source, who declined to be identified.” That source also claims that His Corpulency “has ordered the families of North Korean diplomats and overseas workers back to the country following Thae’s defection,” as I’d have expected. I’m no longer alone in describing the death spiral of rising pressure on a shrinking pool of North Korean expatriates to support the regime, which ultimately breaks their morale, spurs more defections, and causes Pyongyang to call yet more expats home.

Lather, rinse, repeat.

But why the financial desperation? I’ve explained my doubts that the U.S. has made full use of its power to freeze North Korean slush funds, and I stand by those doubts. Could it be that South Korea’s cutoff of Kaesong, and its diplomatic push to cut Pyongyang’s sources of hard currency, have been more effective than I’d realized? Or might banks be blocking North Korean accounts already, in anticipation of Treasury’s final rule cutting North Korean banks’ correspondent relationships, or in fear of the enhanced due diligence requirements that will apply to North Korean customers? I suppose time will tell.

Update: Uzbekistan embassy closes

Yonhap reports that North Korea has closed its embassy in Tashkent for “restructuring.” That leaves no North Korean embassies in the ‘stans, and only one former Soviet state with a North Korean embassy — Russia. Really? Evidently so. I guess that foils my plans for getting my first visit from Turkmenistan.

 

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“Citizens of Pyongyang, my name is Thae Yong-ho.”

When the news broke yesterday that North Korea’s Deputy Ambassador to the United Kingdom, Thae Yong-ho, had defected, many reporters who knew him were astonished. Subject to the confirmation of reports that a North Korean general and several diplomats defected in China recently, Thae would be the highest-ranking diplomat to have defected from the North, and the second-highest official, after Hwang Jang-yop‘s defection in 1997.

This is a new low in a bad year for Kim Jong-un. Defections are not only rising in number — up 15 percent from last year, but still well below pre-Kim Jong-un levels — the songbun levels of the defectors themselves are also rising. It isn’t just the lowly, downtrodden, and expendable who are fleeing now. Defections and protests are breaking out among the elite classes, vetted workers, and senior officials. Defections and small-scale mutinies within the military aren’t new, but those also seem to be rising.

Asked if this means “that North Korea is on the verge of collapse,” Christopher Green says, “Absolutely not.” But the only thing we can say “absolutely” is that no one outside Pyongyang can be absolutely certain of anything, and especially not now. The Pyongyang elite is the world’s most insular group of people. No one — with the possible exception of Thae and a few of his former confederates — should pretend to know, and not even they can predict it. All I can say is that trends that can’t continue won’t.

Thae was not just any North Korean diplomat, but an unusually high-profile one in an important post (Pyongyang’s current Foreign Minister is a former Ambassador to the U.K.). One of Thae’s duties was to monitor (and perhaps, to intimidate, or to turn) the growing population of North Korean refugees in Britain, something North Korea sometimes does by threatening their loved ones. Thae, unlike most of them, was fortunate enough to have the option of getting his own wife and two sons out, and the NIS’s help in carrying out a “scrupulous plan” for doing that. As of this morning, NK News reported that the family had arrived in South Korea.

Another of Thae’s duties was to protest against unflattering portrayals of his country and its leader, including (to the amusement of many) a satirical appropriation of His Porcine Majesty’s image by a hair salon. Thae could also have voiced North Korea’s objections to a proposed British television series in 2014. Other duties included serving as the “sole point-person for visa issues at the embassy” and taking Kim Jong-chol to a Clapton concert.

But Thae Yong-ho’s most important duty was to act as his justly despised regime’s (arguably) most oleaginous and effective mouthpiece. He did this job well, judging by the shock of the reporters and Korea-watchers who thought they knew him. They described him as “smooth and debonair,” “so middle-class, so conservative, so dapper,” “[c]harming, smart and with impeccable English,” “[d]ebonair and well-spoken” with a “measured style.” One man who knew him seemed shocked that Thae “had never given any hint of disloyalty to the regime, not a flicker of doubt,” which really shouldn’t be shocking at all. 


Thae seems articulate by North Korean diplomatic standards — yes, that is an oxymoron — although I also perceive some soft bigotry of low expectations in some of these judgments (to be clear, I don’t mean Pearson here). Still, is it any wonder why a guy like that wouldn’t want to go back to North Korea? Of course, certain bookstores in Jeremy Corbin’s England must seem at least a little bit like North Korea at times. Even I sympathize with Thae’s position as Pyongyang’s agent of influence when he must humor this klatsch of insufferable, Chomsky-thumping pseudo-intellectual poseurs.

How could Thae so convincingly project such belief in a system he secretly wanted to flee? The answer is “practice.” Natan Sharanksy’s “The Case for Democracy” is, without much doubt, a book of ideas with more merit for some societies than others, and much first-person wisdom about the psychology of those who live in totalitarian societies. One of the concepts Sharansky explains to his readers is “doublethink” — how a life lived under totalitarianism teaches people to compartmentalize the things they believe from the things they must believe.

It must also be the case that one who lives in a totalitarian society can simultaneously harbor views that seem mutually contradictory to us. North Koreans might feel nationalist pride in nuclear and missile tests while wishing that the state would spend its money on feeding their hungry children instead. They might despise both their government and its enemies. They might loathe America and secretly long to visit or live there. They might take pride in their purity while craving the impure. They might hate Kim Jong-un and revere his grandfather (if reservedly). When your job is to persuade a skeptical world of the things you must believe, self-delusion becomes essential to your livelihood, and to survival itself.

Which is to say that on a certain level, Thae may have believed much of what he said in defense of the regime he served with one part of his mind, while knowing in another, compartmentalized part of it that he was lying to everyone in the room — himself most of all — when he defended North Korea’s record on human rights.

That, or he was just a really good liar.

What caused Thae to flee, and what do his reasons tell us about broader political trends, or vulnerabilities? Our only direct evidence is what the South Korean government said about Thae’s reasons.

“About the motive of defection, it is known that Councillor Thae revealed he got sick and tired of the Kim Jong Un regime and yearned for a liberal and democratic regime, concerned about the future of his children,” MoU spokesperson Jeong added.

The spokesperson added that the defection illustrated the “North’s core layer considers there is no hope for the Kim Jong Un regime anymore… the perception that the North Korean regime already reached breaking point has been spreading and internal unity among the ruling class has been weakened. [NK News]

If you suspect that this is spin, it certainly sounds like it, although that guess makes as much sense as any other. A Yonhap “News Focus” piece goes further, arguing that Thae’s defection comes “amid increasing talk in South Korea about signs of a possible exodus by privileged North Koreans who are feeling the squeeze of international sanctions.” I’d like to believe this, but the piece offers little evidence that sanctions played a role in Thae’s defection.

Yonhap’s report then cites a researcher at the Sejong Institute, who speculates that “[i]n the face of new U.S. sanctions against North Korea’s human rights violations, which specifically targeted leader Kim Jong-un, Thae must have felt ever more inner conflict in his position to promote North Korea.” I’d love to believe that theory, too, but I still don’t see any direct evidence to support it. 

The same Sejong researcher also speculates that Thae “may have been exposed to frequent criticism from Western countries … and that might have spawned psychological conflicts.” Similarly, the Joongang Ilbo’s first anonymously sourced report claims that Thae “had been under growing pressure from Pyongyang to combat the diplomatic heat from the international community over North Korean violations of human rights.”

Or, maybe he got in trouble for recommending visas for the BBC correspondent who was detained and expelled for saying unflattering things about the regime in Pyongyang. Or, maybe he couldn’t stand the thought of facing those insufferable bookstore Chomskyites again. Or, maybe Pyongyang wanted to move him before his kids finished school. 

Here’s another possible explanation.

rats sinking ship

Thae’s defection will be an embarrassment to Pyongyang, but Kim Jong-un can surely survive the embarrassment of Thae Yong-ho’s alienation if he can survive the embarrassment of Dennis Rodman’s friendship. Thae’s laptop, cell phone, and bank records could help identify bank accounts, shell companies, and other illicit revenue schemes the London embassy uses to finance its operations. Given his role in Pyongyang’s influence operations, he may be able to identify spies and unregistered agents of influence in Europe, South Korea, or even the U.S. His very defection will cause the regime to redouble restrictions on, and monitoring of, its overseas personnel, and call home those it deems less than fully trustworthy. These precautions will feed the death spiral that undermines the loyalty of the remaining overseas personnel, who must work even harder to meet their earnings quotas.

The greatest potential that Thae may bring to Seoul, however, will be his perspective and talent for persuasion. Here is a man who can lie intelligently and convincingly. Just imagine how persuasive he’d be if he really believed himself. You can already see where I’m going with this, right?

The report cited a North Korean woman from South Pyeongan Province currently in China as saying that television signals transmitted from South Korea can be picked up in areas near Pyongyang such as Pyongsong and Sunchon.

She said that people who are watching South Korean television are mostly the elite class and they are strictly keeping it a secret.

Another source on North Korean affairs noted that South Korean TV programs can be viewed in Pyongyang as well as the Hwanghae and Hamgyeong provinces and coastal cities.

The source said that signals are particularly well received on flat lands and along coastlines, adding that images are more clear on cloudy days. [KBS]

Thae has undoubtedly done some terrible things to gain and keep his position. I doubt he had much choice. But if he wants to redeem himself as a transformational figure in Korean history, he has the potential that the wooden, doctrinaire, and charismatically challenged Hwang Jong-yop never had. I imagine that would work something like this.

[Kinda works for the last New Hampshire primaries, too.]

It has long been my view that governments place too much value on secrecy and too little value on public diplomacy and persuasion. Imagine the profound subversive impact on audiences in Pyongyang to see Thae speak the truth about why he defected. I can think of no better messenger to tell Pyongyang’s elites why they must reform and disarm or perish.

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A strike by North Korean workers in Kuwait portends a dark fate for them, and for Kim Jong-un.

I first learned that North Korea had exported laborers to Kuwait when I heard that those workers were providing thirsty locals with a valuable public service by brewing black-market moonshine for them. Then, in April, a report emerged that seemed almost too remarkable to be true — 100 North Korean workers in Kuwait had mutinied against their minders to protest the extra work and unpaid wages coincident to the “70-day battle” leading up to North Korea’s party congress in May. (In nearby Qatar, two more workers also fled from their worksite to a local police station.)

At the time, I speculated that the workers in Kuwait may have been driven to perform extra labor because of the seizure, by Sri Lankan authorities, of $150,000 in “wages” being carried from nearby Oman to China, cash that presumably would have been deposited in a Bureau 39-controlled account there. I also took note of reports that the North Koreans were having difficulties accessing the banking system and smuggling bulk cash across the border from China to North Korea. I hoped that U.S. and South Korean diplomats in Kuwait would intervene to help rescue as many of the workers as possible from repatriation to an uncertain fate. And regardless of whether the workers escaped repatriation, I worried (and still do) about the welfare of the workers’ families back in North Korea.

Obviously, not all defection stories about North Korea hold up under closer scrutiny, and hearing nothing about this one for so long, I’d begun to harbor doubts about it. Now, however, an independent source is corroborating the initial report and adding new facts:

“As people began to disobey orders and desert their workplaces, North Korean authorities belatedly took steps to tackle the issue,” RFA said. “On May 17, they quickly summoned dozens of North Korean workers who had caused problems by resuming Air Koryo flights between Pyongyang and Kuwait, which had been halted on Feb. 23.”

In March, some North Korean laborers demanded they be paid properly when their employer urged them to earn more money to send to the Pyongyang regime ahead of a large congress of the North’s ruling Workers’ Party in May, RFA added.

[….]

Seoul’s Unification Ministry, which handles inter-Korean affairs, said North Korea appears to be checking on the situation of its overseas workers.

“We think the strikes and various actions of North Korean workers abroad could be the result of sanctions on the country,” ministry spokesman Jeong Joon-hee said during a regular press briefing. [Yonhap]

Via KBS, we also learn that Air Koryo flights between Pyongyang and Kuwait were suspended shortly after the President signed H.R. 757 and shortly before the U.N. Security Council approved Resolution 2270, but that North Korea has resumed those flights for the purpose of repatriating its rebellious workers to God-only-knows-what fate.

I’d be most grateful to anyone who can provide me a copy of the original RFA report. The report has three important implications, which I’ll take in ascending order of importance. 

First, this is another sign that the regime’s overseas cash-earning operations may be entering the “death spiral” I first spoke of here. As sanctions and diplomatic pressure cut the flow of hard currency to Pyongyang, enterprises that had once been profitable will terminate or become unprofitable, and Pyongyang will squeeze its remaining overseas workers harder to keep up “loyalty” payments. There is recent evidence that the restaurant business isn’t bringing in as much cash as it did previously. Other examples of this pressure include the termination of profitable labor exports to the Ugandan police and Polish shipyards. You can expect Pyongyang’s overseas income to diminish further in the wake of the Treasury Department’s 311 designation, as even profitable enterprises face increased difficulty repatriating their profits. 

As the profits fall or become harder to repatriate, the benefits to Pyongyang of maintaining those overseas enterprises will fall, and the risks will also rise. As workers are pushed to their emotional breaking points, the risk of defections and mass protests will increase. To preempt that risk, the regime will withdraw workers from high-risk locations, which will further depress its revenues and raise pressure on the earners that remain. Examples include the withdrawal of North Korean students from China and a report that the regime is keeping its fishing boats in port to prevent defections, or perhaps more of those embarrassing “ghost ship” incidents. (Seafood exports had been a key source of revenue for Pyongyang, but evidently, if the state can’t export seafood for cash, the nutritional needs of the North Korean people don’t justify sending the fishing fleet out.)

As Pyongyang withdraws its overseas industries, the trading companies and workers in the remaining cash-earning industries will then come under increased stress. The “200-day battle” Pyongyang just announced to a people who are already exhausted and demoralized by the last “70-day battle” will further exacerbate this. It could instigate more dissent and defections, or cause North Korean operatives to make mistakes that will get them arrested or expelled. The remaining industries then become attractive targets for the South Korean NIS or NGOs offering to help them escape, or for legal attack, such as through the use of Executive Order 13722. And so on.

Second, to an even greater extent than the defection of 13 restaurant workers from Ningpo, China, the Kuwait incident illustrates the very real potential for North Koreans to organize mass political action despite close surveillance by the world’s most totalitarian state. As with the restaurant workers, presumably, these workers would have been hand-picked and vetted by the state for loyalty and obedience, yet desperation not only drove them to dissent, but to share their dissent and organize a mass act of resistance against the state. This report contradicts every expert who says, “It can’t happen.” On the contrary, it has already happened plenty of times, and will continue to happen. The real question is whether the regime can continue to contain, localize, and suppress incidents like these (and as long as North Koreans can’t communicate with each other, it will).

Third, even if Pyongyang can contain each of these mass incidents and survive the coming financial siege in the short term, these workers have shown us the potential for a long-term strategy to subvert the regime’s political control within North Korea itself. In this manifesto, I proposed such a long-term strategy for building clandestine, yet initially apolitical, civil organizations at the town, village, and factory level throughout North Korea as a foundation for (1) a post-reunification civil society and (2) a non-violent resistance movement. That movement would start by building clandestine farms, humanitarian NGOs, churches, newspapers, factories, and unions, taking on an increasingly political character with time. Once new, hard-to-censor methods of communication become available, these could overwhelm the state’s apparatus of censorship, facilitate regional and nationwide organization, and even apply some of the resistance methods the Albert Einstein Institute advocates. The ultimate objective of that strategy would be a nationwide general strike. While those tactics are still unthinkable today, Kuwait has provided a laboratory that has performed a limited, but successful, experiment with this theory.

Or, Pyongyang could bow to the inevitable and negotiate its peaceful, gradual transition to normalcy.

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Report: 100 North Korean workers in Kuwait protest unpaid wages

Because North Korea is so uniquely opaque and repressive, it’s often difficult to gauge the level of dissent against, or popular support for, its regime. That repression follows North Koreans when they’re sent abroad to earn money for the regime, usually through the implied threat to punish the workers’ loved ones back in North Korea if they step out of line. 

The recent and unprecedented mass defection of 13 restaurant workers from Ningpo, China, is an example of this. In a transparent attempt to extort the 13, North Korea offered to arrange a meeting between them and their relatives. You’d have to be obtuse to doubt just what message the Pyongyang intended to send; if you aren’t, it should be chillingly obvious. It’s the same message that Pyongyang sent to refugee Pak Jong-suk, with the Associated Press as a willing accomplice in its extortion, before its agents found her in Pyongyang and told her that her son and his family would be banished to starve in the countryside unless she returned.

Never in my adult life have I been quite convinced of the existence of God, but if you are, pray for the families who are at the mercy of this highly enriched isotope of evil. For now, let’s stipulate that whether God exists or not, there’s ample evidence that evil does.

History also tells us that evil governments eventually die. And if this extraordinary new report from the Chosun Ilbo is true, Kim Jong-un’s EKG just skipped another beat. It claims that 100 North Korean workers in Kuwait recently “rose up against the state security agents who keep constant watch on them” over unpaid back wages, after being told to fork over yet more “loyalty” payments for Kim Il-sung’s birthday.

The workers reportedly shouted out at the foreman and demanded their back pay instead, and some tried to assault him. According to sources, the state security agents at the site were able to stop the workers from lynching the foreman, but North Korea’s Ambassador to Kuwait So Chang-sik was apparently furious at the North Korea construction firm for not being able to contain them.

Kim Young-hwan at the Network for North Korean Democracy and Human Rights said, “It is unprecedented in North Korea to protest in front of state security agents.” [Chosun Ilbo]

Well, not quite. Mass incidents in North Korea are rare, but not unprecedented; I’ve compiled a long history of them here. There was a spate of them in 2009 after Pyongyang redenominated the currency and effectively confiscated the savings of millions of its poorest people. Recently, there have even been scattered reports of mass defections, fraggings, and strikes in the North Korean military.

The protest took place after state security agents visited Kuwait, Qatar and the UAE in February and March to weed out potential defectors among workers there. They investigated the movements and mobile phone records of workers.

“The protest occurred a week after the investigations ended,” a source said. “Pyongyang’s pressure has mounted to the degree where workers sent overseas are losing their tempers.” [Chosun Ilbo]

Four days before this, according to the report, two other North Korean workers ran away from their barracks in Qatar, and sought refuge in a local police station because “they could no longer endure Pyongyang’s extortion after working in the scorching heat for more than two years but earning nothing.”

A construction company in Qatar recently laid off around 20 North Korean laborers, and the two escapees were among them. They are in custody but are at risk of being sent back to North Korea because they are unemployed.  [Chosun Ilbo]

If there’s any truth to this, U.S. and South Korean diplomats should intervene at once with the Kuwaiti and Qatari authorities to prevent these workers from being repatriated. But is it true? On the “maybe not” side of the ledger, it’s one report from the Chosun Ilbo citing “sources.” On the “maybe” side, it could be worse — it could be The Hankyoreh. And if, as is customary with the Chosun Ilbo, the sources are in the South Korean National Intelligence Service, the NIS gets a few things right, too.

There are also some tantalizing clues that give credence to the report. Recall that in March, two North Koreans were arrested at the airport in Colombo, Sri Lanka while carrying $150,000 in undeclared cash from Oman to China. The cash consisted of “wages” stolen from workers “at construction sites in Oman.” The Sri Lankan government later confiscated the cash. From there, presumably, the two couriers would have smuggled the cash back to Pyongyang, perhaps by train, wrapped in tin foil and stuffed into pillowcases, because “transfers of U.S. dollars and Chinese yuan were completely blocked by banking systems,” and customs in Dandong isn’t letting bulk cash through the border.

Which is excellent news in its own right — it means enough of the banks in China are complying with sanctions to damage the regime’s internal cohesion.

I’m guessing Yonhap has no way of knowing whether the North Korean workers were based on Oman, Qatar, Kuwait, or the UAE. Either way, if the overseers of North Korean laborers in the Gulf states are one enterprise, the loss of $150,000 and the effect of sanctions could have put them under metamorphic pressure to recoup the lost “loyalty” payments by working their charges even harder.

From any number of recent stories we’ve seen, the regime has imposed steep quotas on trading companies, and isn’t accepting excuses from those who fail to meet them. The 13 restaurant workers who defected cited frustration and fear over rising demands by Pyongyang for “loyalty” payments they couldn’t keep up as a reason for their defection. According to the Daily NK, women fisheries workers in Dandong, China are being forced to work 13-hour days, even when they’re sick, for a diminishing pittance.

“After receiving strong demands from the North, a Chinese fisheries company [name redacted to protect the source] in Dandong, which employs about 200 North Korean workers, wired six months’ worth of their wages to Pyongyang,” a source with knowledge of North Korean affairs in China said, asserting that the move was to help the regime secure more money for the upcoming Party Congress.

The Chinese firm usually sends most of the 500 USD allotted for each worker’s wages to Pyongyang, and the remaining 150 USD is handed over to the North Korean manager to distribute to the employees. However, recently, even the smaller proportion of those wages is not being reliably received. “Because of that I’m hearing more of the female workers say they would prefer to return to the North than stay in China,” the source said.

These female employees not only have long working hours but normally only get two days off per month and are rarely allowed to take leave, even if they are ill.

[….]

The prepaid wages have now added more strain on the workers. Having already been paid for full working hours, the North Korean manager is forcing employees to work even if they are sick. “Some have fallen so ill that they have asked to be sent back home, but they’ve been turned down with no room for consideration,” the source lamented. [Daily NK]

Just keep this in mind when the AP reports that as horrible as conditions for these overseas workers are, they’re better than in North Korea. Conditions from place to place certainly vary, but across the board, they appear to have gotten much worse this year. Eventually, even selected, loyal North Korean workers have a breaking point. That’s an indirect effect of sanctions. The situation stands to get worse soon, following the Treasury Department’s inclusion of North Korean labor exports in Executive Order 13722, and the recent visit to Seoul by the U.S. Special Envoy for Human Rights in North Korea, signaling a new enforcement effort.

South Korea and the United States are working together to determine the extent to which North Korea uses its workers abroad to raise money for its weapons of mass destruction programs, the U.S. special envoy for North Korean human rights issues said Tuesday.

[….]

“It’s very clear that North Korea uses a great deal of its resources for nuclear weapons, for missiles, for military equipment,” he said at the U.S. Embassy in Seoul. “And to say that this dollar from this worker is going to a bomb, you don’t have that kind of ability to account. It’s a process that’s happening and yes, we need to see what we can do to prevent it from happening.”

[….]

“At this point, we’re beginning a process, and one of the things we’re doing is looking for additional information, trying to make sure we know what’s happening and where the workers are, what companies they are working for,” King said. “We don’t have a lot of information at this point. We’re talking with the South Korean government and sharing information with them. We’ll continue to consult with them.”

Some of the information they need is which companies are hiring the workers, what goods they’re producing and whether these products are being sold in the U.S.  [Yonhap]

Other North Koreans abroad are also being called home. The Telegraph cites a Radio Free Asia report that Pyongyang is calling its students back from China, “apparently out of concern that more of its citizens are planning to defect.” North Korea’s ambassador to Germany is the latest diplomat to be called back to Pyongyang, possibly because he’s being held accountable or Germany’s condemnation of North Korea’s nuclear test.

The signs here suggest that Pyongyang’s overseas ventures may be entering a death spiral: sanctions result in assets being blocked or confiscated, or depress earnings, and make it hard to repatriate “loyalty payments.” In its rising financial desperation, the regime pushes the Bureau 39 bosses to earn more. The Bureau 39 bosses push the workers harder until they break. Then, out of fear of defections, and as I predicted, the regime starts calling home the people it needs to earn cash. That only increases the burdens on those who remain. If the people the regime judges to be among the most loyal aren’t, you really have to wonder about the emotional state of those still locked up inside North Korea.

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