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N. Korea, Lazarus & SWIFT: Are the white hats closing in? (Update: SWIFT cuts off remaining N. Korean banks)

In the last month, major news stories about North Korea have bombarded my batting cage faster than I’ve been able to swing at them. I’d wondered when I’d have a chance to cover Katy Burne’s detailed story in the Wall Street Journal about the empty half of the SWIFT glass — that despite its recent decision to disconnect three U.N.-designated North Korean banks, it’s still messaging for banks that are sanctioned by the Treasury Department, but not by the U.N.:

The U.S. Treasury-sanctioned banks that remain on Swift include the state-owned Foreign Trade Bank of the Democratic People’s Republic of Korea, the country’s primary foreign-exchange bank; Kumgang Bank; Koryo Credit Development Bank; and North East Asia Bank, according to people familiar with the network. A search on Swift’s website listed active bank identifier codes for the institutions as of Monday.

The U.S. designated for sanctions the Foreign Trade Bank in 2013, saying it facilitated weapons of mass destruction programs in North Korea. The other three were sanctioned in December as the U.S. targeted entities it said supported the North Korean government and its weapons programs following the Asian nation’s September 2016 nuclear test.

The apparent sanctions gap raises questions about how easily North Korea could move currency through alternative banking channels, something the U.N. said it has been known to do in the past through fronting companies. [….]

While based in Brussels and regulated by Belgian authorities, the company intersects daily with U.S. financial institutions, processing tens of millions of payment instructions, including through a large facility in Culpeper County, Va. [WSJ, Katy Burne]

I won’t sugar-coat this; the fact that these dirty and important (to His Porcine Majesty) banks can still use SWIFT is a major hole in our sanctions, and whether Congress and the administration are willing to close it will be a test of how serious they are about stranding Pyongyang’s money.

I can understand some of SWIFT’s likely arguments against that, mind you: first, SWIFT has earned much good will from Treasury for favors it has done them on terrorist financing; second, there may be other potential providers of the same service that may be less responsive to U.S. legal pressure. Fair enough, but whoever takes up that slack in SWIFT’s wake should be sanctioned to swift extinction (yes, intended). For a list of North Korean banks indicating which ones are designated by the U.N. and the U.S., see this post, and scroll down.

Meanwhile, Symantec now claims it has additional evidence that the hacker group Lazarus, which it had previously linked to the robbery of the Bangladesh bank using hacked SWIFT software, is responsible for that attack, and more:

A North Korean hacking group known as Lazarus was likely behind a recent cyber campaign targeting organizations in 31 countries, following high-profile attacks on Bangladesh Bank, Sony and South Korea, cyber security firm Symantec Corp said on Wednesday.

Symantec said in a blog that researchers have uncovered four pieces of digital evidence suggesting the Lazarus group was behind the campaign that sought to infect victims with “loader” software used to stage attacks by installing other malicious programs.

“We are reasonably certain” Lazarus was responsible, Symantec researcher Eric Chien said in an interview.

The North Korean government has denied allegations it was involved in the hacks, which were made by officials in Washington and Seoul, as well as security firms.

U.S. Federal Bureau of Investigation representatives could not immediately be reached for comment.

Symantec did not identify targeted organizations and said it did not know if any money had been stolen. Nonetheless, Symantec said the claim was significant because the group used a more sophisticated targeting approach than in previous campaigns.

“This represents a significant escalation of the threat,” said Dan Guido, chief executive of Trail of Bits, which does consulting to banks and the U.S. government. [Reuters]

Further down, the report suggests that one or more Polish banks may also have been hit, but “Reuters has been unable to ascertain what happened in that attack.” The headline having promised evidence of attribution to North Korea, however, the text of the story itself left me wanting more. It’s not news that Symantec has linked Lazarus to North Korea; Symantec did that almost a year ago. Nothing in Reuters’s report adds evidence to that attribution.

Nor does this story suggest that there’s enough evidence for the feds to act against Lazarus, although it does hint that the FBI is investigating. Jurisdiction shouldn’t be an issue in the Bangladesh case; money moved through the New York Federal Reserve Bank. Attribution is the real question. Depending on what they can prove, the feds would have many potential charging options, including bank fraud, wire fraud, the Computer Crime and Abuse Act, racketeering, and money laundering. Furthermore, there are anti-hacking provisions in both the NKSPEA (section 104(a)(7)) and Executive Order 13722, which means that if the feds could find any of Lazarus’s money, or any assets of Lazarus’s co-conspirators — regardless of whether those assets can be traced to any of these specific acts — the Treasury Department could freeze them, and the Justice Department could forfeit them.

And needless to say, the indictment of a state actor would be a big deal, for a lot of reasons.

So far, I don’t see enough in the open sources to support that, but it’s good news that the white hats are working diligently on this. If they can attribute this to senior officials in the North Korean government — most likely, within the Reconnaissance General Bureau — then it would be our legal basis to go after the RGB’s assets, which we’ve recently learned include some sophisticated and global commercial operations. This story bears close watching.

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Update:

Reuters is reporting that SWIFT will disconnect the remaining North Korean banks:

SWIFT, the inter-bank messaging network which is the backbone of international finance, said it planned to cut off the remaining North Korean banks still connected to its system, as concerns about the country’s nuclear program and missile tests grow. SWIFT said the four remaining banks on the network would be disconnected for failing to meet its operating criteria.

The bank-owned co-operative declined to specify what the banks’ shortcomings were or if it had received representations from any governments. Experts said the decision to cut off banks which were not subject to European Union sanctions was unusual and a possible sign of diplomatic pressure on SWIFT. [Reuters]

Now that SWIFT has gotten itself right with Jesus, I would like to implore everyone, everywhere to lay off SWIFT. It’s absolutely true that if we turn SWIFT into a political surrogate for our sundry political conflicts, the world’s dirtiest banks will just take their business elsewhere. That’s not a trend we want to encourage. SWIFT has usually been a responsible member of the financial community, sometimes at great cost to itself.

My argument all along has been that (1) North Korea deserves to be an exception to that rule because (2) North Korea is a unique threat to the financial system — not to mention, to all of humanity — as documented in (3) seven U.N. Security Council Resolutions, a Patriot Act 311 determination, and a call for “countermeasures” by the Financial Action Task Force. You can’t say that about any other country on earth right now — not even Iran. I can’t reconcile messaging for North Korean banks with any of those authorities. And if any competitor tries messaging for the FTB, it’s especially important that the Treasury Department should have the authority to obliterate them (which is why Congress should still proceed with something like the BANK Act).

Having said all that, I wouldn’t be too quick to assume that diplomatic pressure was the main reason for this most welcome decision. “Operating criteria” could mean a lot of things, but it’s a slightly better fit with “massive global bank fraud” than it is with “diplomatic pressure.” If there are more developments in the Lazarus investigation than the Reuters report makes apparent, and if those developments convinced SWIFT that it had unwittingly helped the North Koreans defraud its more reputable clients by sharing its software with them — and their hackers — that would be a perfectly good (and equally plausible) reason for SWIFT to have cut the North Koreans off.

Yet again, the North Koreans are tactically brilliant criminals. And yet again, they’re strategically moronic. It’s a rare and happy day when someone finally holds them to account for it.

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U.N. report: SWIFT banking network violated North Korea asset freeze

Since last year, this blog has covered SWIFT’s continued provision of financial messaging services to North Korean banks, despite suspicions that North Korea was involved in stealing almost $100 million from the Bangladesh Bank by hacking into SWIFT’s messaging software. Later, I wrote about an effort in the last Congress to ban North Korean banks from SWIFT, mirroring a sanction that was one of our most effective measures against Iran. SWIFT is effectively the postal service of the financial system, sending instructions between banks to credit and debit accounts to facilitate payments. Losing SWIFT access makes it slow, costly, and inefficient for a bank to operate.

The U.N. Panel of Experts’ latest report, released over the weekend, now confirms that SWIFT continued to provide services to three North Korean banks — Bank of East Land, Korea Daesong Bank, and Korea Kwangson Banking Corporation, the object of this recent Justice Department indictment — long after those banks were designated by the U.N. and the U.S. Treasury Department. Worse, the Belgian government authorized that. Generally speaking, both sets of designations require the freezing of any of the target’s assets, and prohibit any action that facilitates the target’s transfer of property or interests in property.

248. In response to inquiries by the Panel, SWIFT confirmed to the Belgian authorities that it provided financial messaging services to designated banks of the Democratic People’s Republic of Korea. As part of its procedure for doing so, SWIFT requests authorization from the Government to receive the moneys owed for the services. Upon receipt of such authorization, SWIFT receives payment for its services from the designated banks.  The payments are then entered in its books and recorded as revenue. The Belgian authorities have authorized SWIFT to receive the amounts set out in tables 13 and 14 from designated banks in exchange for the provision of financial messaging services, the provision of the SWIFT handbook, training in the use of the SWIFT network and maintenance costs.

SWIFT stopped providing services to four other North Korean banks — Amroggang Development Banking Corporation, Daedong Credit Bank, Tanchon Commercial Bank, and Korea United Development Bank — not because SWIFT was even minimally principled, but because “those banks themselves requested SWIFT to do so.”

Paragraph 8(d) of UNSCR 1718 requires all Member States, and all persons subject to their jurisdiction, to “ensure that any funds, financial assets or economic resources are prevented from being made available by their nationals or by any persons or entities within their territories, to or for the benefit of” designated entities. The whole point of financial messaging services is to make economic resources available. I can’t for the life of me see how financial messaging on behalf of designated North Korean banks is anything but a clear violation of 1718.

The unavoidable fact of SWIFT messaging is that it enables banks to effect financial transfers. Thus, messaging services that facilitate designated banks’ financial transactions violate a Member State’s duty (in this case, Belgium’s) to “prevent” the funds “from being made available” to designated entities, per paragraph 8(d) of UNSCR 1718 (2006), paragraph 11 of UNSCR 2094 (2013), and paragraph 10 of UNSCR 2270 (2016). To authorize the acceptance of payment from designated DPRK entities would permit those entities to purchase goods and services and access the global economy, which would contravene the plain meaning of an asset freeze. That’s exactly what Belgium and SWIFT did here. Bear in mind that last summer, the Justice Department indicted Dandong Hongxiang for using an off-the-books ledger system to move funds for one of the very same banks.

Then, there is the question of whether SWIFT provided “financial services” to North Korean banks. In relevant part, Paragraph 11 of UNSCR 2094 requires Member States to “prevent the provision of financial services . . . by their nationals or entities organized under their laws . . . of any financial or other assets or resources . . . that could contribute to” activities prohibited by the Security Council’s resolutions. By citing Paragraph 8 (d) of UNSCR 1718 (2006), this provision specifically applies to entities that have been designated by the Security Council.

Now, I take it that SWIFT’s highly-paid lawyers and lobbyists (at least, more highly paid than me) have gone to great lengths to persuade people that financial messaging services aren’t “financial services.” In paragraph 249 of the Panel’s report, Belgium cites domestic and EU law to that effect. At best, that’s a valiant effort to make chicken salad from chicken shit. To its credit, the Panel didn’t buy that, although it focused on a different angle — the receipt of fees by SWIFT from North Korean banks.

The Panel notes that, in the absence of a determination by the Committee that these payments fall under the exemptions in paragraphs 9 (a) and/or (b) of resolution 1718 (2006), the receipt of funds from a designated entity is a violation of the asset freeze pursuant to paragraph 8 (d) of resolution 1718 (2006) and paragraphs 8 and 11 of resolution 2094 (2013).

Myself, I’m much less concerned about the minuscule fees SWIFT received — a few thousand dollars — than the (undoubtedly, much larger) sums SWIFT’s messaging services helped those designated banks to move.

With U.N. resolutions, we’re lucky if many states’ officials read them at all. For the resolutions to have any chance to work as intended, thousands of officials in hundreds of member states have to interpret and apply them consistently. Not all of those officials are banking lawyers. Pedantic interpretations of resolutions that fly in the face of their plain meaning are a recipe for exceptionalism. That’s what happens when a Member State’s interpretation of its domestic law is allowed to contravene the plain meaning and purpose of the resolutions.

Belgium, of all places, now finds itself cast as a unilateralist rogue state defying U.N. resolutions and flirting with money laundering. Given SWIFT’s influence on both sides of the Atlantic, it probably saw itself as above the law. There is nothing on SWIFT’s website reacting to that revelation at the time of posting. But with the truth of SWIFT’s enabling of dirty North Korean banks now revealed, it’s hard for me to believe that it will be business as usual. At a bare minimum, I’d expect SWIFT to disconnect the three designated banks. The next move may well be up to Congress. For SWIFT, that’s a lot of risk to take to feed the hand that bites them.

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Update:

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H.R. 6281, banning N. Korea from SWIFT, would be a powerful sanctions upgrade

Via Yonhap, we learned last week that Rep. Matt Salmon (R, Ariz.), the Chairman of the House Asia-Pacific Subcommittee, has introduced a bill to cut North Korea off from the “specialized financial messaging services” that banks use to send wire transfer orders around the world. The industry leader for financial messaging is SWIFT, whose headquarters is in Brussels, but which also has operations in Geneva and Manassas, VirginiaIf you don’t know what SWIFT does and why it matters, I’ll refer you to this post.

“What we can do is deny them access to services designed to quickly and easily transfer money worldwide. Without access to these services, we can force the North Koreans to purchase supplies and receive support in the way typically favored by state sponsors of terrorism: shipments of anonymous, small denomination bills.” [Yonhap]

You may be able to run a mid-size drug cartel that way, but not a country with a population of 23 million and a large, mechanized army. Although a SWIFT cutoff would be based on a different legal authority from the authority Treasury used against Banco Delta Asia in 2005, Yonhap compares the proposed legislation to BDA.

Should the legislation be enacted, it would have powerful impacts on the North, possibly similar or even greater than the 2005 U.S. blacklisting of a Macau bank for doing business with Pyongyang.

By designating the bank in the Chinese territory, Banco Delta Asia (BDA), the U.S. not only froze $24 million in North Korean money held in the bank, but also scared away other financial institutions from dealing with Pyongyang for fear they would also be blacklisted.

The measure hit Pyongyang hard, and reports at the time said North Korean officials had to carry around bags of cash for financial transactions because they were not able to use banks. The sanctions were later lifted in exchange for a denuclearization agreement that later fell apart. [Yonhap]

A better analogy would be the effect SWIFT sanctions had on Iran’s economy more recently. 

Without SWIFT, global trade and investment would be slower, costlier and less reliable. [….]

The earlier SWIFT ban is widely seen as having helped persuade Iran’s government to negotiate over its nuclear programme. The ban was one of the first sanctions Tehran asked to be lifted, points out Mark Dubowitz of the Foundation for Defence of Democracies, a Washington-based think-tank. Though some of the banks blocked from SWIFT managed to keep moving money by leasing telephone and fax lines from peers in Dubai, Turkey and China, or (according to a Turkish prosecutor’s report) by using non-expelled Iranian banks as conduits, such workarounds are a slow and expensive pain. And the sanctions prompted Western banks to stop conducting other business with the targeted banks. [The Economist]

Keep reading that article to understand some of the good reasons to exercise great restraint in using SWIFT as a sanctions tool. I agree with those reasons; I just happen to believe that there are two cases compelling enough to be deserving exceptions — Iran and North Korea. (In the case of Russia, I’m not yet convinced that this is the right tool; I’d rather see us arm and train the Ukrainians.)

As of posting time, the text of H.R. 6281 was not yet available at Congress.gov, but I’d expect it will bear some resemblance to section 202 of the original introduced version of H.R. 1771, the North Korea Sanctions Enforcement Act, a later version of which the President signed into law in February as H.R. 757, the North Korea Sanctions and Policy Enhancement Act (Public Law 114-122, codified at 22 U.S.C. Chapter 99). The bill already has nine original co-sponsors, including three Democrats.

If you own a calendar and had a television in your home in the 1970s, you already know that the obstacles to getting this bill to the President’s desk this year are signficant. The administration has hinted, however, that it may be asking the European Union, which regulates SWIFT, to effect its own cutoff.

“The SWIFT system which is what I think you are referring to is not a U.S. system, and therefore not under our direct control. I believe it’s an EU system up housed [sic] in Brussels,” Daniel Russel, the Assistant Secretary of State for East Asian and Pacific Affairs at the U.S Department of State said, when asked by how the U.S. administration planned to further penalize North Korea. [NK News, Dagyum Ji]

I’m all for doing things diplomatically if that achieves our objective. No doubt, our diplomats’ work has been made easier by the conduct of the North Koreans themselves, who are suspected of hacking SWIFT to rob its client banks of $80 million and laundering the loot through casinos in the Philippines (Rodrigo Duterte, call your office). Russel’s written testimony is here.

The necessity of far-reaching financial sanctions rose to the surface after the North was suspected to be connected to Bangladesh Bank heist back in May.

“We are in discussions with our partners, including the EU, about tightening the application of sanctions and pressure, including and particularly to deny North Korea access to the international banking infrastructure that it has abused and manipulated in furtherance of its illicit programs,” Russel said.

“I think that our hope is that we will in fact ultimately be able to reach an agreement that would further restrict North Korea’s access.” [NK News, Dagyum Ji]

If this bill doesn’t pass in this Congress and diplomacy can’t achieve the same result, I’m sure it’ll be back in the next Congress. In fact, for reasons I’ll explain below, it might be back even if the EU enacts a SWIFT ban. With the arrival of a new U.S. administration and an election year in South Korea, there will be no shortage of provocations to help pass it. North Korea loves to act up during election years. It makes certain kinds of people write op-eds calling for talks and concessions. 

More recently, however, Kim Jong-un’s election-year antics have made him one of Washington’s most effective lobbyists — for new sanctions laws.

This post by Stephan Haggard has sparked some debate as to whether SWIFT is still servicing North Korean banks. According to Haggard’s post, SWIFT’s processing for North Korean banks fell from 50,000 a year in 2011 to a mere 5,000 a year by 2012. Haggard is always very careful with his sourcing and relied on published SWIFT data, but for reasons I shouldn’t share here, I don’t believe the statistics are accurate. I can’t rule out the possibility that SWIFT cut the North Koreans off in mid-2013 or later, however. By then, UNSCR 2094, paragraph 11, prohibited SWIFT from servicing (at the very least) U.N.-designated North Korean banks.

But in the end, whether North Korea is still using SWIFT or not, H.R. 6281 is still useful. If SWIFT is still providing services to North Korean banks, H.R. 6281 can give the Treasury Department and our diplomats more leverage to persuade the EU and SWIFT to cut the North Koreans off now. If SWIFT isn’t providing services to North Korean banks, someone else is. It would make sense that North Korea’s hacking of SWIFT software to steal from foreign banks was both a way to make money and retribution for a SWIFT cutoff.

Either way, North Korean banks need financial messaging services. One of the strongest arguments against the overuse of SWIFT sanctions is that they might give a less responsible service a competitive advantage. If some less responsible competitor has emerged to take on North Korea’s financial messaging business, then H.R. 6281 would enable the Treasury Department to either “reason with” that upstart service or sanction it to extinction. In which case, the potential rise of a SWIFT alternative turns one of the strongest arguments against H.R. 6281 on its head.

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Global wave of bank burglaries should revive calls to kick N. Korea out of SWIFT

In recent weeks, I’ve watched with keen interest, and some schadenfreude, as news reports have implicated Pakistani and North Korean hackers in a series of massive bank burglaries involving as many as 12 banks around the world, starting with the theft of $81 million (or $101 million, depending on which report you believe) from the Bangladesh Bank’s account in the U.S. Federal Reserve.

These burglaries did not involve guns or ski masks. They were something more like armored car burglaries, but they didn’t involve armored cars. They involved malicious code inserted into software used to connect the banks to SWIFT, the Society for Worldwide Interbank Financial Telecommunications. Although the Bangladesh Bank and SWIFT have been pointing fingers at each other, IT security experts are finding North Korean fingerprints all over the malware behind the theft.

It’s now clear the global banking system has been under sustained attack from a sophisticated group — dubbed “Lazarus” — that has been linked to North Korea, according to a report from cybersecurity firm Symantec.

In at least four cases, computer hackers have been able to gain a dangerous level of access to SWIFT, the worldwide interbank communication network that settles transactions.

In early February, hackers broke into Bangladesh’s central bank and stole $101 million. Their methods appear to have been deployed in similar heists last year targeting commercial banks in Ecuador and Vietnam.

Symantec revealed evidence on Thursday that suggests hackers used the same technique to slip into a bank in the Philippines in October. Symantec (SYMC) did not name the bank.

[….]

The “Lazarus” group has been linked to a string of attacks on U.S. and South Korean government, finance and media websites since 2009. Cybersecurity firm Novetta carefully documented how “Lazarus” hacked Sony Pictures in 2014, stealing data and destroying computers at the Hollywood movie studio.

The U.S. government has publicly blamed that hack on the government of North Korea. [CNN]

SWIFT has since released a series of increasingly panicked press releases about cybersecurity. The integrity of its system has never faced a greater challenge.

Security researchers have tied the recent spate of digital breaches on Asian banks to North Korea, in what they say appears to be the first known case of a nation using digital attacks for financial gain.

In three recent attacks on banks, researchers working for the digital security firm Symantec said, the thieves deployed a rare piece of code that had been seen in only two previous cases: the hacking attack at Sony Pictures in December 2014 and attacks on banks and media companies in South Korea in 2013. Government officials in the United States and South Korea have blamed those attacks on North Korea, though they have not provided independent verification.

On Thursday, the Symantec researchers said they had uncovered evidence linking an attack at a bank in the Philippines last October with attacks on Tien Phong Bank in Vietnam in December and one in February on the central bank of Bangladesh that resulted in the theft of more than $81 million.

“If you believe North Korea was behind those attacks, then the bank attacks were also the work of North Korea,” said Eric Chien, a security researcher at Symantec, who found that identical code was used across all three attacks.

“We’ve never seen an attack where a nation-state has gone in and stolen money,” Mr. Chien added. “This is a first.” [N.Y. Times, Nicole Perlroth & Michael Corkery]

And of course, North Korea isn’t the kind of place where hackers operate independently from their moms’ basements. Hacking by North Koreans means hacking by North KoreaIn a way, we should count ourselves lucky that the North Koreans only got away with Jed Clampett money; they tried to steal much more:

In the attack at Bangladesh’s central bank in February, the thieves tried to transfer $1 billion in funds from an account at the Federal Reserve Bank of New York. Fed officials became suspicious of the some of requested transfers and released only $81 million to accounts in the Philippines.

“If you presume it’s North Korea, $1 billion is almost 10 percent of their G.D.P.,” Mr. Chien said. “This is not small change for them.” [N.Y. Times]

Although I have no love of North Korean hackers or bank burglars, and no enmity against the utility of SWIFT’s services, I can’t help feeling some schadenfreude for SWIFT, given its resistance to enforcing U.N. sanctions, including sanctions against North Korea. SWIFT tried to stay neutral in the world’s (admittedly half-hearted) struggle to force North Korea to live by the world’s rules. Now, SWIFT may become North Korea’s greatest victim.

SWIFT is not a bank; it’s the virtual post office for banks. It’s a financial messaging service, a consortium established by the banking industry as a more efficient way to deliver messages between banks to debit and credit accounts. Think of SWIFT messages as sealed envelopes, with the name of the sender and recipient, and their addresses, written on the outside. SWIFT is an electronic network that delivers those envelopes, but doesn’t open them. Nearly every bank on earth relies on SWIFT, and in a sense, its reach is broader than Treasury’s, because SWIFT messages transactions in all currencies, not just dollars or Euro. SWIFT is based in Belgium, with large facilities in Switzerland and Virginia, and is regulated by EU law.

SWIFT has long had an uncomfortable coexistence with sanctions. In Treasury’s War, Juan Zarate tells the story of how a Treasury official persuaded a friend at SWIFT to share information from financial messages going to and from known terrorist financiers. The information made an invaluable contribution to Treasury’s early successes against Al Qaeda’s finances. Exposure of the program by the New York Times in 2006 was a severe setback to Treasury, and an embarrassment to SWIFT, which had cultivated a reputation for protecting the confidentiality of its transactions. That revelation has caused SWIFT to resist cooperating with international sanctions ever since, even sanctions approved by the U.N. Security Council.

Starting in early 2012, advocates of sanctions against Iran began to demand that Iran be disconnected from SWIFT, and it didn’t take long for that to happen — Congress introduced legislation that would authorize sanctions against SWIFT (see section 220), the EU passed a sanctions regulation clarifying that financial sanctions on Iranian banks also apply to financial messaging, and SWIFT cut off 30 Iranian banks, including its Central Bank. The SWIFT sanctions legislation was controversial and drew strong opposition from banking industry lobbyists.

At the time, SWIFT’s chief executive called the action “extraordinary and unprecedented,” but as an EU official conceded, it was “a very efficient measure” that could “seriously cripple the banking sector of Iran.” By most accounts, disconnecting Iran from SWIFT was one of the most effective sanctions against Iran, denying those banks the means to transfer money in any currency. The Economist later wrote, “The earlier SWIFT ban is widely seen as having helped persuade Iran’s government to negotiate over its nuclear programme.”

In 2001, the same year that SWIFT began passing information about Al Qaeda to Treasury, SWIFT welcomed North Korean banks to its network. As of 2013, SWIFT was only messaging about 50,000 transactions a year for North Korean banks (compared to about 1 million for Iran). This probably reflects the concentration of North Korea’s wealth in the state, and the almost complete absence of truly private enterprise with exposure to the financial system (in North Korea, truly private enterprise operates on cash, usually yuan and dollars, in the gray markets called jangmadang).

Since 2013, when the United Nations Security Council approved Resolution 2094, SWIFT has arguably been obligated to cut off certain North Korean banks by this paragraph:

“11.  Decides that Member States shall, in addition to implementing their obligations pursuant to paragraphs 8 (d) and (e) of resolution 1718 (2006), prevent the provision of financial services or the transfer to, through, or from their territory, or to or by their nationals or entities organized under their laws (including branches abroad), or persons or financial institutions in their territory, of any financial or other assets or resources, including bulk cash, that could contribute to the DPRK’s nuclear or ballistic missile programmes, or other activities prohibited by resolutions 1718 (2006), 1874 (2009), 2087 (2013), or this resolution, or to the evasion of measures imposed by resolutions 1718 (2006), 1874 (2009), 2087 (2013), or this resolution, including by freezing any financial or other assets or resources on their territories or that hereafter come within their territories, or that are subject to their jurisdiction or that hereafter become subject to their jurisdiction, that are associated with such programmes or activities and applying enhanced monitoring to prevent all such transactions in accordance with their national authorities and legislation;

Can SWIFT honestly argue that financial messaging isn’t a “financial service”? Can it excuse itself from the obligation to “prevent … the transfer” of funds to sanctioned banks and entities with the lame excuse that it doesn’t open the “envelopes,” it just delivers them?

Yet SWIFT has yet to announce any cutoff of North Korean banks — even those that the U.N. itself has designated. Stephan Haggard wrote in 2014 that North Korea’s SWIFT business had declined to almost nothing by 2012, but I have good reason to doubt this was true as of 2013, and let’s just leave it at that. (It has occurred to me that SWIFT actually did quietly cut the North Koreans off sometime after 2013, and that hacking SWIFT is Pyongyang’s way of inflicting some payback, but I have no evidence to support that speculative hypothesis.)

There are valid arguments against involving SWIFT in too many sanctions efforts — mainly, that less reputable services could arise to handle that business. The answer to those concerns is that the U.S. and EU should move aggressively to sanction and block any alternative messaging services that flout U.N. sanctions. Meanwhile, if any actor warrants disconnection from SWIFT, it’s North Korea, which is now the subject of six United Nations Security Council resolutions, imposing increasingly stringent sanctions on its heavily tainted banking sector. And as the North Koreans have shown again and again, if you deal with them, they’ll eventually burn you. For years, sanctions advocates have called for SWIFT to disconnect North Korean banks. Now, for the sake of SWIFT’s own integrity, would be a good time to heed those calls.

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Seven NK Refugees Enter SK School; All Are Swiftly Betrayed, Arrested, and Repatriated

I wish the South Korean government would stop pretending that it makes protests against things like this when the Chinese are so conspicuously comfortable about ingoring them:

Seven North Korean defectors who entered the compound of a Korean international school in the Northwestern Chinese city of Yantai, Shandong Province, on Aug. 29 and requested safe passage to South Korea have been returned to the North. The group consisted of two men and five women, four of them from the same family.

The Foreign Ministry on Friday confirmed they were repatriated. “Despite our request for a transfer of custody, Chinese security forces apprehended them and returned the group to the North a month later,” an official said.

This could be the start of a more hardline approach to North Korean refugees in Beijing. Since 2004, some 100 North Korean escapees managed to make their way into international schools in China, but this is the first time China has deported them. “This is a deviation from China’s usual practice,” the ministry official said. Last November, China arrested 62 defectors who had been staying on the outskirts of Beijing and repatriated most of them.

The government last Thursday called in Chinese Ambassador to South Korea Ning Fukui to protest against the deportation of North Korean defectors. On Monday, the Foreign Ministry released a statement urging China to prevent similar occurrences in the future. Beijing says the step was a deterrent because a growing number of defectors have made it difficult for international schools to go about their normal business.

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Computer crime, bank fraud & money laundering: A preview of Kim Jong-un’s indictment

The Wall Street Journal is reporting that hackers employed by the government of North Korea have been implicated in yet another international bank fraud scheme using hacked SWIFT software. This time, the victim is a bank in Taiwan, and the take was $60 million, all of it laundered through accounts in Cambodia, Sri Lanka, and the United States.

In a blog post Tuesday, cybersecurity researchers at U.K. defense company BAE Systems PLC also implicated Lazarus in the Taiwanese theft, saying that tools used in the attack on the Far Eastern International Bank include those used by Lazarus in the past.

“The attack this month on Taiwanese Far Eastern International Bank has some of the hallmarks of the Lazarus group,” BAE researchers wrote.

The suspected ties to Lazarus suggest the group’s continued focus on financial cybercrimes. In addition to the Bangladesh Bank theft, the BAE researchers said the group has been targeting bitcoin and is behind attacks on banks in Mexico and Poland.

Security researchers suspect the group has links to North Korea. U.S. authorities have said that one hack also linked to Lazarus—the 2014 Sony Pictures hack—originated in North Korea. The country has denied being behind the attack.

The BAE researchers said they found further evidence of the group’s North Korea links, saying they observed infrastructure in North Korea controlling the malware used in a previous Lazarus-linked attack. Representatives at North Korea’s Beijing embassy and Hong Kong consulate weren’t immediately available for comment. [WSJ, Dan Strumpf]

Sri Lankan authorities have arrested two suspects, one of whom was trying to withdraw $520,000 (which is more than my ATM ordinarily allows me to take out before a trip to Home Depot for plywood and router bits).

That report closely follows this New York Times story on the recent history of North Korea’s cyber crimes, including the Bangladesh Bank fraud, where the North Koreans got away with $81 million, the 2013 Dark Seoul cyberattacks, the 2014 Sony cyberattack and cyberterrorist attack against the U.S. homeland (about which the United States of America did approximately diddly squat), and (consequently) this year’s the WannaCry ransomware attacks.

Earlier this year, I wrote about reports that high officials in U.S. intelligence and law enforcement agencies had found evidence implicating North Korea in recent cyberattacks. Clearly, the FBI is investigating this course of criminal conduct, which is something I presume the FBI wouldn’t do without some prospect of a prosecution. We are speaking, after all, of conduct that is highly dangerous, ongoing, and undeterred. That gives the U.S. government a powerful incentive to charge those who conspired to commit these crimes.

Which brings us to this question: Is there any real doubt as to who the real person of interest is here? Of course, the feds would need at least some proof to get a grand jury to indict. The opacity of the royal court in Pyongyang presents some obvious challenges to this, but just over a decade ago, when prosecutors very nearly indicted His Porcine Majesty’s father for counterfeiting — before George W. Bush stopped them for political reasons — they concluded that those challenges were surmountable.

“The most difficult thing is connecting evidence of criminality to a state’s leader, because there is so much deniability built in. But there isn’t a whole lot of activity in North Korea that isn’t sanctioned by the leadership, and the evidence we had already built up was very good. These cases were very doable.” The criminal cases, says Asher, were based on information from undercover agents, informants, and a vast surveillance operation. [Vanity Fair, David Rose]

If you’ve read the links above or my posts on the Sony cyber attacks, it’s apparent that our signals intelligence is part of the case that implicates state-sponsored North Korean hackers. The Justice Department has cited the testimony of defectors in recent civil forfeiture cases against North Korean funds, and at least two defectors with inside knowledge of North Korean cyber operations have spoken publicly.

But even assuming there are no defectors who testify to His Porcine Majesty’s complicity, and that the government offers no signals intelligence implicating him (which it might not want to do to protect sources and methods) the feds could still do what the plaintiffs did in their lawsuits against North Korea for the state sponsorship of terrorism — they could call experts to testify about North Korea’s system of government, command systems, and the certainty that this conspiracy must have been approved at the very top.

Then, what would the feds most likely charge? Prosecutors’ opinions inevitably vary, but here are my best guesses. I’ve linked the relevant sections in the Criminal Code so that you can read the elements yourself.

  • Count I: Conspiracy. This one is pretty much a given in most federal prosecutions now. Note that cases interpreting the federal conspiracy statute define “defraud the United States” broadly.
  • Count II: Bank Fraud. Which should be self-explanatory.
  • Count IV: Violations of the Computer Fraud & Abuse Act. This is the statute the feds use to charge computer hacking offenses.
  • Count III: Money Laundering. In plain English, the transfer, use, or spending of crime-tainted funds with intent to carry out, facilitate, or profit from one of the predicate offenses listed in subsection (c) of the money laundering statute. This is an important count, because — let’s face it — it’s not like we’re ever going to arrest Kim Jong-un short of his overthrow. The only way to hold people beyond our personal jurisdiction accountable is to shame them and seize and forfeit their funds. The indictment shames; the forfeiture count takes the money away.
  • Count V: Criminal Forfeiture. This is how we take money away from people after they’re convicted (but hold that thought for a moment).

Assuming the feds do indict, would His Porcine Majesty, a sitting head of state, be immune from prosecution in a U.S. court? I want to thank one of my Twitter followers, Shin Chang-hoon, for pointing me to this interesting discussion of that potential obstacle in the broader, global context. In the U.S. federal courts, however, there is at least one precedent for the feds successfully indicting, prosecuting, and convicting a sitting, de facto head of state. That would be Manuel Antonio Noriega, the former dictator of Panama, whom we arrested after the 1989 U.S. invasion of that country. Noriega argued his indictment on drug charges must be dismissed because he was immune from prosecution. The U.S. Court of Appeals for the 11th Circuit rejected Noriega’s argument on the grounds that the U.S. had not recognized him as the lawful head of state, and because (and this is admittedly circular) by invading Panama, and by arresting and extraditing him, the U.S. showed that it did not intend to immunize him. You can read the court’s decision here.

Yes, the potential for such prosecutions to get out of hand is obvious, but it’s hard to believe that a federal court of appeals would immunize a head of state from prosecution for straight-up international bank fraud. The key distinction is whether the prosecuted conduct consists of the acts of a head of state or “for private or criminal acts.”

Having navigated past one problem, we encounter a more difficult one: the requirement to have a defendant present for the arraignment before a prosecution can go forward. (One of my least pleasant trials was a case where I defended a man who ran away after his arraignment and before trial. Much like Clint Eastwood did not do in 2012, only more effectively, I had to defend an empty chair. The chair got three years — a good result, given the charges and the evidence.)

So, does this bring us to an Emily Litella moment?

Not quite. Admittedly, my experience in federal civilian criminal litigation is limited, but as I read the Federal Rules of Criminal Procedure and the U.S. Attorneys’ Manual, you don’t need to have custody of a defendant to indict. The statute of limitations (typically, five years) stops running when the feds indict. Then, the indictment sits on a shelf until arraignment, which starts the ticking of the defendant’s speedy trial clock. But why do that? Again, past history is instructive.

The final stage, which David Asher says President Bush had been fully briefed about, would have been the unsealing of criminal indictments. “We could have gone after the foreign personal bank accounts of the leadership because we could prove they were kingpins,” Asher says. “We were going to indict the ultimate perpetrators of a global criminal network.” “The world wanted evidence that North Korea is a criminal state, not a lot of hoo-ha,” says Suzanne Hayden, a former senior prosecutor at the Department of Justice who ran its part of the Illicit Activities Initiative. “The criminal cases would have provided the evidence. It would have been in the indictments. As with any money-laundering investigation, we would have identified the players and traced them back, from Macao to those who were behind it in North Korea.” [Vanity Fair, David Rose]

A better reason might be to charge and prosecute the third-country nationals and businesses that provide the North Korean hackers with the havens and support they require.

The feds would also have the alternative of filing a civil forfeiture case under 18 U.S.C. 981, alleging all of the same counts in a civil, in rem suit against funds that belong to Kim Jong-un, on the theory that the funds are proceeds of that conduct, or are facilitating property (such as property co-mingled with the stolen funds to conceal their origin and ownership). The advantage of that strategy is that the feds would only have to prove the forfeitability of the property by a preponderance of the evidence, and the feds would win the suit by default unless Kim Jong-un enters an appearance in federal court and intervenes in the proceeding.

In 2005, President Bush decided not to go forward with the prosecution of Kim Jong-il because it was afraid that he’d walk out of six-party talks. But of course, North Korea did walk about of six-party talks in 2008, hasn’t returned since then, and is absolutely adamant in its refusal to negotiate either a freeze or denuclearization, that concern isn’t present.

Of all the dumb things smart people tend to write about North Korea, the dumbest of them all may be the idea that what North Korea needs most is for us to teach it how to do capitalism. Over the last week, I’ve read reports of how North Korea and its officials make money through drug trafficking, racetrack gambling, tourism, and ivory and rhino horn smuggling. It runs one of the world’s more sophisticated money laundering operations using front and shell companies in Hong Kong. The last thing Pyongyang needs us for is to teach it how to make money. To Pyongyang, capitalism is not a path to reform, but a path to the enslavement of all Koreans. What Pyongyang needs to learn is an object lesson in the rule of law — that at last, its crimes will have consequences, even if some of those consequences are symbolic. And for a system of government built on symbols and myths, symbolic consequences can be some of the most powerful ones.

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The State Department’s efforts to isolate Pyongyang are starting to pay off

The reviews of Rex Tillerson are in, and most of them aren’t good. We could have predicted this ten months ago; after all, most of the commentariat harbors center-left or pro-“engagement” views and it wasn’t going to agree with Trump’s policies anyway. Still, it’s hard for me to accept at face value the criticisms of those who have defended, to varying degrees, the self-evidently disastrous North Korea policies of Barack Obama and second-term G.W. Bush — policies that have more similarities than differences. It’s an additional challenge to separate one’s views of this President and his Twitter habits from an assessment of his North Korea policies, or how competently his administration has executed them. Still, one can agree with Trump’s decision to break from the failed policies of his predecessors, which brought us to this crisis, and still acknowledge that some of the criticism has merit. Overall, this administration is getting more things right than its predecessors did, but let’s start with the areas that need improvement.

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First, an effective Secretary of State speaks articulately for his country. Tillerson isn’t a vocal or charismatic advocate of our interests or of the values that serve those interests. I can understand why Tillerson might be more concerned than his predecessors about upstaging his boss, or about saying something his boss might contradict later on Twitter. Maybe the recent diminution of the nationalist wing in the White House will liberate Tillerson, but his reticent personality may also be part of the problem. 

The State Department’s hiring freeze, which continues months after it was lifted for the rest of the government, retards the pace at which State can review and approve sanctions designation packages and dispatch envoys to persuade other nations to cut their ties to Pyongyang. I don’t yield to anyone as a critic of the State Department’s performance on North Korea policy or in agreeing that State needs some profound cultural and personnel changes. Agreed Frameworks I and II and the Leap Day Agreement have justly cost it credibility it may never regain. Even so, the President needs a strong diplomatic corps to build a global coalition against Pyongyang and, when the time is right, to know how to leverage that pressure to achieve our core interests in negotiations with our frenemies and our foes. We need good diplomats for both tasks.

Tillerson has also sent mixed signals on its willingness to negotiate with Pyongyang. His recent statement complimenting North Korea for not launching a missile against Guam resulted in a predictable embarrassment — he might as well have dared Kim Jong-un to test a nuke.

Tillerson’s greatest error on North Korea policy, however, has been to overlook the importance of human rights as a key element of U.S. policy, and as an argument for a global coalition against Pyongyang (for more on that point, see this by the Heritage Foundation, no less). Tillerson himself referred to the “moral dimension” of isolating Pyongyang, saying, “These first steps toward a more hopeful future will happen most quickly if other stakeholders in the region and the global security (sic) join us.” 

Yet by merging the duties of the Special Envoy for human rights into another full-time position, and by explicitly disavowing any efforts to destabilize the regime, Tillerson is throwing away the very leverage he imagines he’s clinging to when he says, “All options are on the table.” Pyongyang dismisses this as a bluff, but friends whose support we’ll need don’t. It’s our talk about human rights that really terrifies Pyongyang. What Kim Jong-un and his generals see in their nightmares is a day when they’ve lost control of the minds of the North Korean people, and can’t afford to pay, equip, or maintain the security forces to suppress 70 years of grievances from those they’ve cheated, abused, and bereaved.

By ceding human rights, Tillerson is missing an opportunity to build a global coalition around the principles articulated in the U.N. Charter. And no one has a greater need of a persuasive public advocate than a Secretary of State who isn’t one himself. Also, Pyongyang thinks we’re trying to overthrow it anyway. If anyone asks us if we’re encouraging the North Korean people to overthrow His Porcine Majesty, we shouldn’t say we are or that we aren’t. We should just be vague.* Let our frenemies and foes use their imaginations and be afraid of what we’ll do if diplomacy fails.

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Still, let’s give Tillerson credit where it’s due. He can boast of some successes here that build on the significant gains that Yun Byung-se achieved before Park Geun-hye’s impeachment. He probably deserves some credit for getting two useful resolutions (2371 and 2375) through the U.N. Security Council, although Ambassador Haley and the USUN staff probably deserve most of it. Liberals tend to overestimate the moral authority of U.N. resolutions, while conservatives tend to underestimate their utility in getting wavering, reputation-conscious states to put economic and diplomatic pressure on Pyongyang. In fact, U.N. and U.S. national sanctions are mutually complementary. Neither works very well without the other.

There has also been significant progress toward isolating Pyongyang internationally, consistent with what Tillerson called for in this April 28th speech to the U.N.: first, to implement existing U.N. Security Council resolutions; to suspend or downgrade diplomatic relations with North Korea; and third, to isolate North Korea financially — a request Tillerson delivered with an explicit threat of secondary sanctions.

Recently, State’s efforts to disconnect North Korea’s diplomatic and trade links to the global economy have gained momentum. Start with this post from February and this one from June on Tillerson’s slow start. This post from August documents the first public signs of the administration’s efforts, through the spring and summer, to get southeast Asian nations to cut their ties with Pyongyang. Although State Department people say that much of this work is being done quietly and without publicity, in recent weeks, there have been more public reports that those efforts are starting to pay off — in some cases, because we’re backing them with threats.

  • 8/31: Spain says it will reduce the number of North Korean diplomats in its country.
  • 9/7: Mexico expels North Korea’s ambassador over its latest nuclear test.
  • 9/8: The Philippines’ Foreign Secretary says his country, which had recently become one of Pyongyang’s largest trading partners and a haven for drug dealing and money laundering — including the proceeds of the Bangladesh Bank/SWIFT hack — will end all trade with North Korea.
  • 9/9: Trump and Abe ask the President of France to increase pressure on North Korea.
  • 9/10: Japan’s Foreign Minister asks Qatar to stop using North Korean slave labor, before visiting Saudi Arabia and Egypt.
  • 9/11: Peru announces that it will expel the North Korean ambassador.
  • 9/11: Japan’s Foreign Minister, having failed to extract commitments from Saudi Arabia and Qatar to stop buying slave labor from North Korea, takes his appeal to the Arab League.
  • 9/12: President Trump meets with the Prime Minister of Malaysia, a haven for North Korean money laundering, and says (for what it’s worth) that Malaysia had agreed to stop doing business with Pyongyang.
  • 9/12: Egypt, a major and long-standing North Korean arms client, says it will cut its military ties to Pyongyang after the U.S. withholds an aid payment (more here).
  • 9/18: Vietnam expels another representative of the U.N.-designated Tanchon Commercial Bank.
  • 9/18: Kuwait says it will expel North Korea’s ambassador and reduce the size of its embassy staff from nine to four.
  • 9/28: Poland halts temporary residence and work permits for North Koreans, Sri Lanka restricts visas for North Koreans, Malaysia bans most travel to North Korea.
  • 10/1: Italy expels North Korea’s ambassador.

Reducing North Korea’s diplomatic presence abroad is essential to any campaign of diplomatic pressure, because North Korea’s diplomats do double-duty as arms dealers and money launderers. Of course, some important caveats apply. First, take any government’s promise to cut ties with North Korea with several grains of salt. For example, last November, Sudan said it would cut its military ties to North Korea, but as of July, the U.S. was still urging Khartoum to keep its promise and threatening to cut aid. Namibia promised to cut its military ties to North Korea, but we later learned that this wasn’t true, either. Second, Rex Tillerson cannot take full credit for this strategy, merely for his part in executing it. In the final months of the Obama administration, State Department official Danny Russel said that the U.S. has asked governments around to “downgrade or sever” their diplomatic relations with North Korea.

I’ve long argued that diplomacy would play a critical role in addressing the collection of crimes and crises collectively known as “North Korea.”  The theory I’ve advanced is what I call “progressive diplomacy,” which means that we should build coalitions with friendly and persuadable nations before we attempt to negotiate with hostile ones. Our objective should be to isolate Pyongyang and its allies until we have sufficient leverage for negotiations to have a chance of achieving our interests. Rather than approach Pyongyang now, while its leverage exceeds our own, we should approach friendly states (South Korea, Japan, Canada, the UK, the EU, Singapore, Panama) first and ask them to cut their economic and diplomatic ties to Pyongyang. Our next targets should be wavering states (Malaysia, Zambia, Namibia), then Pyongyang’s more willful enablers (China, Russia) and finally, Pyongyang itself. That sequence maximizes our leverage at each stage of this diplomatic process by approaching hostile states only after they are relatively isolated.

For the last 20 years, we’ve had that sequence entirely wrong. Give Rex Tillerson credit for getting it right, and for what he has done in the last several months to translate that strategy into policy. If the unplugging of Pyongyang’s diplomatic and financial links to the world is starting to cause it pain, and there are growing signs that it may be, I would expect Pyongyang’s provocations to escalate. Contra the pro-engagement critics who characterize each new nuclear and missile test as proof that sanctions aren’t working, it’s at least as likely that those escalating provocations are signs that they are. 

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* I don’t advocate a declared policy of “regime change.” First, what those words mean to most people (as in, invasion) would be disastrous for Korea. Second, it’s no use proclaiming a policy that can’t be explained or defended publicly, and a subversion project would necessarily include overt, covert, and clandestine elements. Our public position should be that nations are obliged to consider what their trade is supporting, that our financial system is closed to those who aid and abet crimes against humanity, that we will prioritize giving the North Korean people freedom of information, and that it is for the North Korean people to decide how they will use that information.

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Updates:

  • 7/19: Spain says it will expel the North Korean ambassador.
  • 7/19: Kuwait and Qatar both say they will stop issuing visas to North Korean workers. Qatar reportedly hosts 1,000 workers whose contracts will expire in 2018. Kuwait hosts 3,000 more.
  • 7/19: Taiwan says it will halt oil and LNG exports to North Korea, and will also halt textile imports (as required by UNSCR 2375).
  • 7/22: Taiwan adds that it will end all trade with North Korea. Taiwanese suppliers have previously exported dual-use machine tools to North Korea.

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After a near miss in the Senate, the KIMS Act heads for the President’s desk

While the rest of you talk about missiles, I’m going to talk about responses. Last night, by a vote of 98 to 2, the Senate passed H.R. 3364, a bill imposing new sanctions against Russia, Iran,* and North Korea. The bill previously passed the House by a vote of 419 to 3, and now goes to the President’s desk. The North Korea sanctions are contained in Title III, which previously passed the House as the KIMS Act by a vote of 419 to 1. Most of Title III’s key provisions amend and expand the North Korea Sanctions and Policy Enhancement Act of 2016.

Section 311 of the bill requires the President to freeze the assets of (and imposes other sanctions on) any person who —

  • “(10) buys gold, titanium ore, vanadium ore, copper, silver, nickel, zinc, or rare earth minerals from North Korea;
  • “(11) sells rocket, aviation, or jet fuel (except for use by a civilian passenger aircraft outside North Korea, exclusively for consumption during its flight to North Korea or its return flight);
  • “(12) facilitates a significant transaction or transactions to operate or maintain, a vessel or aircraft that is designated by the U.N. or the Treasury Department; 
  • “(13) facilitates the registration of, or maintains insurance or a registration for, a vessel owned or controlled by the Government of North Korea.

All of those provisions mirror U.N. sanctions from UNSCRs 2270 and 2321. This is implementing legislation of the kind that our diplomats are currently asking their counterparts in dozens of other countries to enact and enforce. Section 311 also authorizes discretionary sanctions against anyone who —

  • “(D) buys coal, iron, or iron ore from North Korea, in excess of the limitations provided in applicable United Nations Security Council resolutions;
  • “(E) buys textiles from North Korea;
  • “(F) facilitates a significant transfer of funds or property of the Government of North Korea that materially contributes to any violation of an applicable United Nations Security Council resolution;
  • “(G) transfers bulk cash, precious metals, gemstones, or other stores of value to or from North Korea;
  • “(H) sells crude oil, condensates, refined petroleum, other types of petroleum or petroleum byproducts, liquified natural gas, or other natural gas resources to North Korea (except for heavy fuel oil, gasoline, or diesel fuel for humanitarian use;
  • “(I) facilitates North Korea’s online commercial activities, including online gambling;
  • “(J) buys fishing rights from North Korea;
  • “(K) buys food or agricultural products from North Korea (whose people go hungry while Kim Jong-Un exports what they grow for hard currency);
  • “(L) facilitates the exportation of workers from North Korea;
  • “(M) engages in transactions involving North Korea’s transportation, mining, energy, or financial services industries;
  • “(N) facilitates the operation of any branch, subsidiary, or office of a North Korean financial institution.”

Some of those provisions (the coal cap) mirror U.N. sanctions, while others (food and textile exports) go beyond them. Other key provisions:

  • Section 314 imposes a potentially severe sanction on ports that don’t inspect North Korean cargo as required by UNSCR 2270, by authorizing enhanced customs inspections of shipments from those ports. Many shippers might prefer to ship through compliant ports instead of taking the risk that their merchandise might be held up in customs.
  • Section 315 imposes a sanction on shipping registries that reflag North Korean ships, in violation of UNSCR 2321. Ships flying those flags of convenience can be banned from U.S. waters. Shipping companies may well switch to other flags of convenience to avoid that consequence. That creates an incentive for registries to avoid North Korea’s business.
  • Section 321 allows the President to freeze the assets of companies that employ North Korean forced labor, and to sanction governments that permit the use of North Korean forced labor under the Trafficking Victims Protection Act. Goods made with North Korean labor or materials are presumed to be banned from the United States as products of forced labor, which may cause manufacturers to cleanse North Korean sources from their supply chains.

Most of the media attention is now on whether the President will veto the bill because of the Russia sanctions, but given the veto-proof margins by which it passed, it will probably become law sooner or later.

Before the Senate voted, there was also briefly a threat by Senator Corker to strip the North Korea sanctions out of the bill. Other than my own speculation, which I’ll keep to myself, I really don’t understand how the most popular part of this bill ended up becoming its most controversial part. I can’t credit the notion that “[n]ot a word of the North Korea bill” that the House passed by an overwhelming margin on May 4th “has been looked at” on the Senate side. It was also suggested that the Senate wanted a stronger bill, with resolution-of-disapproval language limiting the President’s authority to lift sanctions without Congress’s consent. But Congress previously wrote strict presidential certification conditions into the NKSPEA, and resolution-of-disapproval language may also be an unconstitutional legislative veto that would not be enforceable, and consequently, not worth fighting about. The only winners of an intra-partisan, inter-cameral fight are America’s enemies.

To the extent that the Senate would also like the House to vote on more of its legislation, that’s a perfectly reasonable request. For example, I hope (and believe) that the House will offer its strong support when Senator Van Hollen and Senator Toomey’s bipartisan BRINK Act comes up for a vote. The BRINK Act is easily the equal of either the NKSPEA or the KIMS Act in its toughness and sophistication, and I’m surprised that it hasn’t attracted the media attention it merits.

But it’s in the areas of human rights and freedom of information where the leadership of the Senate Foreign Relations Committee is now needed most. It will have another opportunity to set the agenda when the North Korea Human Rights Reauthorization Act comes up for a vote this year. A House version of that reauthorization finally made it through committee markup yesterday and now heads for the full House floor. If the Senate amends the House’s bill to add language similar to former Congressman Salmon’s DPRK Act, calling for the administration to step up its information operations in North Korea, I’m absolutely confident that the House would support it.

So, despite this near miss, there is good news in yesterday’s vote. Just as Congress built the legislative framework for Iran sanctions in several layers, it has now added a second layer to its North Korea sanctions, identifying and closing off Pyongyang’s sources of hard currency, loophole by loophole. The third layer, the BRINK Act, is ready when Congress is. So for all the talk of North Korean money launderers’ indefatigable cunning, swiftness, and flexibility, Congress has (however improbably) shown that it can act in a bipartisan way with even greater speed, sophistication, and adaptability than Pyongyang. The greater shock to Pyongyang may be that small knots of sophisticated amateurs and investigative journalists have exposed much of its money laundering network. It is now up to the administration to destroy it.

Here, we arrive at my greatest concern. Last year, when Congress passed the NKSPEA by similarly overwhelming margins, my concern (well founded, as it turned out) was that the President would slow-walk enforcement. This year, we have an administration that seems to have the will to use the legal tools Congress has given it, and those tools are nearly all in place. Now, my concern is that the administration lacks sufficient time and resources to execute the strategy. It has not put enough intel analysts, investigators, lawyers, and diplomats on the job of enforcing the new sanctions, and the political appointees who must direct and coordinate it aren’t in place. No strategy can succeed unless this presidency overcomes the bureaucratic anarchy that has consumed it thus far. Who sees that happening now? When a presidency fails, the country fails with it.

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* For those wondering why new Iran sanctions don’t violate the Joint Comprehensive Plan of Action, take a look at the Treasury Department’s F.A.Q. on this subject. The JCPOA does not affect sanctions on Iran for, among other things, its sponsorship of terrorism, its proliferation, or its support for the Assad regime or the Houthis in Yemen.

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OFK Exclusive: House, Senate move new North Korea sanctions legislation

Last year, Ed Royce, the Chairman of the House Foreign Affairs Committee, and Cory Gardner, Chairman of the Senate Asia Subcommittee, led the charge to cut Pyongyang’s access to the hard currency that sustains it by drafting and passing the North Korea Sanctions and Policy Enhancement Act. We’ve known all along that nothing short of presenting Kim Jong-Un with an existential choice — disarm and reform, or perish — would create the conditions for a negotiated disarmament of North Korea, assuming that’s still possible. And we’ve always known that it would take several years for even aggressively enforced sanctions to present Pyongyang with that choice.

One nuclear test and multiple missile tests later, neither international compliance with U.N. resolutions nor (until very recently) U.S. enforcement of the NKSPEA has been enough to either change Kim Jong-Un’s mind or weaken his hold on power. Congress now seeks to raise the pressure on Pyongyang by closing loopholes in existing sanctions, attacking its developing sources of income (textiles, fisheries, and labor exports), catching U.S. law up with new U.N. sanctions, and most importantly, increasing penalties for foreign banks and governments that (for various reasons) haven’t complied with the U.N. resolutions.

Ed Royce continues to lead this effort with the KIMS Act, which passed the House overwhelmingly in May, and which has now been merged into Title III of the Russia, Iran and North Korea Sanctions Act of 2017, or RINKSA. But the foreign affairs committees can only go so far in attacking Pyongyang’s cash flow through financial regulation before the parliamentarians in Congress give primary jurisdiction over a bill to the financial services committees. Some of the most important remaining sanctions loopholes are within the banking committees’ jurisdiction.

Introducing S.1591, the BRINK Act

An unlikely champion has stepped into this void in the form of Senator Chris Van Hollen of Maryland, a liberal Democrat who sits on the Senate Banking Committee. I say “unlikely,” because historically, it hasn’t been liberal Democrats who’ve led Congress’s efforts to raise the pressure on Pyongyang. This would be a good time to abandon any assumption that Democrats are soft on North Korea. Now, Van Hollen and Republican Senator Pat Toomey of Pennsylvania have introduced S.1591, the Banking Restrictions Involving North Korea Act, or BRINK Act, of 2017.  The text of the bill, which you can read herehasn’t been posted on GovTrack or Congress.gov, although the bill itself was introduced several days ago. At the outset, I’ll just get this bit of full disclosure out of the way. I’ve had some discussions with Senator Van Hollen’s staff about this bill, and ….

The BRINK Act is a tough and sophisticated piece of legislation. It will be a strong complement to both the NKSPEA and the RINKSA. This post will discuss its key provisions, starting with the definitions. A very important new one that appears in multiple places in the bill is “North Korean covered property:”

That definition potentially covers just about every transaction the North Korean government profits from. The key question, of course, is whether the U.S. can reach any given transaction in NKCP — either because a U.S. person (or a foreign subsidiary) is a party to the transaction, or because part of that transaction occurs in the United States (most likely, because a financial transaction is cleared through a U.S. correspondent bank, or because a product seeks to enter U.S. commerce).

Another significant definition is “knowingly,” which includes circumstances in which a party to the transaction “should have known” that it was prohibited.

Section 101 of the BRINK Act creates a blacklist of Chinese and other foreign banks that are failing their due diligence obligations to prevent North Korea from accessing the financial system, or are helping North Korea evade sanctions by facilitating offshore dollar clearing, or dealing with North Korea in precious metals or other stores of value. It then provides a list of sanctions that restrict the access of those banks to the U.S. financial market, add additional civil penalties to the criminal penalties under 31 U.S.C. 5322, or (at worst) block their assets here.

Like all of the sanctions under the BRINK Act, this sanction can be suspended if North Korea makes progress toward disarmament and accounting for American POW/MIAs, and can be lifted when North Korea completes that disarmament and accounting.

Section 102 requires any transactions in North Korean covered property within U.S. jurisdiction (involving a U.S. person or occurring in whole or in part in the United States) to be licensed by the Treasury Department’s Office of Foreign Assets Control. As we’ve learned from recent actions by the Justice Department, North Korea’s banks, smugglers, and money launderers — and their Chinese bankers — tend to evade OFAC licensing requirements, despite their preference for dealing in U.S. dollars. Under this provision, any unlicensed transactions in NKCP are punishable by a $5 million fine and 20 years in prison. More importantly, the proceeds of unlicensed transactions, and property “involved in” unlicensed transactions, will be subject to forfeiture. In most cases, that’s the only form of “punishment” we have the power to impose on the targets of these activities.

Section 103 authorizes sanctions against providers of specialized financial messaging services to North Korean financial institutions, a topic I previously covered here, here, and here.

Section 104 authorizes new sanctions against foreign governments that fail to comply with U.N. sanctions, such as those that require member states to freeze the property and close the offices of designated North Korean entities (KOMID, Korea Kwangson Bank, the Reconnaissance General Bureau, Bureau 39, etc.), to expel representatives of North Korean banks and North Korean diplomats who engage in arms trafficking, and to deregister North Korean ships. For governments identified as noncompliant, the U.S. can limit exports of goods or technology to those countries, withhold foreign aid, and instruct our diplomats to vote against them getting IMF, World Bank, and other international loans. This provision may well put teeth into sections 313 and 317 of the RINKSA (discussed below) and broadens the sanctions authorities of section 203 of the NKSPEA. 

Section 105 authorizes grants for governmental and non-governmental organizations that currently provide the U.S. government with much of its actionable intelligence on North Korea money laundering — the U.N. Panel of Experts, and private groups like the Center for Advanced Defense Studies and Sayari Analytics. (Again, this complements a provision in the RINKSA — specifically, section 323, which provides rewards for informants who provide information leading to the arrest of persons responsible for North Korean money laundering or cyber attacks).

Section 106 requires a report on North Korea’s use of beneficial ownership rules to mask its interests in property (previously discussed here).

Section 107 directs the President to team up with the World Bank’s stolen assets recovery initiative to go out and find the hidden, ill-gotten gains of Kim Jong-Un and his minions, wherever in the world they can be found, block them, and release them for humanitarian use.

Section 108 will undoubtedly create headlines in South Korea — it urges South Korea not to reopen Kaesong until North Korea completely, verifiably, and irreversibly dismantles its nuclear, chemical, biological, and radiological weapons systems and any systems for delivering them.

Sections 201 through 204 call on and encourage assets and pension fund managers to divest from companies that have investments in North Korea, and immunize those fund managers from suit for any such divestment.

The KIMS Act becomes Title III of the RINKSA

For a while, it looked like all that would survive of the KIMS Act in the Senate was an untitled bill called S.1562, which removed most of the KIMS Act’s toughest provisions except for secondary sanctions on North Korea’s labor exports. But last week, S.1562 was referred, ironically enough, to the Banking Committee, taking it out of the hands of Foreign Relations. More importantly, the White House is also signaling its support for a newer bill, the Russia, Iran, and North Korea Sanctions Act. The RINKSA incorporates nearly all of the KIMS Act into Title III (full text here; scroll down to page 144).

Bob Corker, the Chairman of the Senate Foreign Relations Committee, has expressed some concern about how easy it will be to pass a bill that big this year. I don’t have the knowledge to say whether this was a good tactical move or not, so I’ll defer to the congressional leadership on that point. (Some of us are keenly aware that Congress still has to reauthorize the North Korean Human Rights Act this year, or it will expire.) Instead, I’ll describe the provisions of Title III in a bit more detail than I described the KIMS Act before.

Section 311 amends the key provision of the NKSPEA, section 104, to expand both the mandatory sanctions of section 104(a) and the discretionary sanctions of NKSPEA 104(b). Mandatory sanctions would now apply to purchases of precious metals from North Korea, selling aviation or rocket fuel to North Korea, providing bunkering services for any U.N.- or U.S.-designated ship, reflagging North Korean ships, or providing correspondent services to any North Korean bank (Title III, section 312, also codifies a prohibition on providing indirect correspondent account services to North Korean banks).

Section 311 also expands the President’s discretionary authority to designate and sanction persons who violate U.N. sanctions, and U.S. regulations and executive orders, that apply to North Korea. These new, discretionary authorities also authorize the President to designate persons who purchase more coal and iron ore than U.N. limits allow, who purchase textiles or food products from North Korea, who transfer bulk cash or other stores of value to North Korea, and who export crude oil to North Korea (humanitarian exports of gasoline, diesel, and heavy fuel oil are exempt). Other new sanctions authorities apply to North Korea’s online gambling, sale of fishing rights, labor exports, and banking, transportation, and energy sectors.

Some of these areas are already subject to the potential for asset freezes under Executive Order 13722, but designations under section 104(a) or 104(b) of the NKSPEA can have additional and more severe consequences.

Sections 313 and 317 are secondary sanctions provisions applicable to governments that aren’t complying with U.N. sanctions. Section 313 amends and strengthens NKSPEA 203 sanctions against governments that engage in arms deals with North Korea, by denying them most foreign assistance. Section 317 creates a blacklist of noncompliant governments, which would dovetail nicely with the sanctions provisions of section 104 of the BRINK Act.

Section 314 expands the President’s authority to increase customs inspections for cargo coming from ports that fail to inspect all cargo going to or coming from North Korea, as required by UNSCR 2270. This provision is a secondary shipping sanction. It presents a very real risk that cargo coming to the U.S. from noncompliant ports may be held up longer in Customs, which could cause shippers to take their business elsewhere. As with all secondary sanctions, it forces third-country entities to choose between doing business with the U.S., or with North Korea. It also provides a list of suspect ports in China, Russia, Iran, and Syria that would be first in line to blacklisted for additional inspections.

Section 315 is another secondary shipping sanction, and a very tough one indeed — ships flagged by countries that reflag North Korean ships (a violation of UNSCR 2270 and 2321) could be denied access to U.S. ports and waterways. Vessels that have visited North Korea recently, for other than strictly humanitarian purposes, could also be banned.

Section 316 orders a report on WMD cooperation between North Korea and Iran.

Section 318 orders a report on whether SWIFT and other providers of specialized financial messaging continue to service North Korean banks, including those designated by the U.N.

Section 321 is a set of powerful sanctions against employers of North Korean labor and the sellers of products made with North Korean labor. It subjects those employers to potential sanctions under the Trafficking Victims Protection Act or the freezing of their assets. Governments that allow the use of North Korean labor could also see their TVPA status drop. A rebuttable presumption would apply to any goods made with North Korean materials or labor, excluding from U.S. commerce under section 307 of the Tariff Act.

Section 323 provides for the government to pay rewards to informers — whether these be defectors or NGOs — that provide information leading to the arrest of North Korean money launderers or persons responsible for cyber attacks.

Section 324 again raises the pressure on the State Department to declare North Korea to be a state sponsor of terrorism.

~   ~   ~

Both of these bills attempt to attack North Korea’s third-country enablers. Legislation of this kind is necessarily creative and complex because it’s not always obvious how the U.S. can reach North Korea’s income while minimizing harm to legitimate commerce and to the North Korean people. If the target only does business with North Korea, then our next option is to target the bankers, shippers, and insurers that deal with the primary target and force them to choose between access to the U.S. or the North Korean economy. The most common ways we can influence the conduct of these enablers are (1) prohibiting U.S. persons and their subsidiaries from dealing with the target; (2) denying the target access to U.S. financial markets, trade, foreign assistance, and technology. Clearly, the U.S. has a stronger case when it enforces the terms of a U.N. Security Council resolution than when it acts alone.

While it may be too difficult to merge RINKSA Title III and the BRINK Act at this point in the congressional calendar, the two bills would go together like chocolate and peanut butter. Minor inconsistencies between the two will likely be resolved by amendments to the BRINK Act. I’ll defer to others how best to enact them, but each bill serves important purposes in making sanctions work, and in presenting Kim Jong-Un with that existential choice.

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Why Moon Jae-In can’t make the sun shine again

Given the background of Moon Jae-In and some of his closest confidants, the question that has nagged at me is whether Moon is (1) a closet hard-left ideologue who has managed to let everyone around him say and do the extreme things he avoids saying and doing himself; (2) just another oleaginous opportunist who paddled his canoe to the swifter currents on the left side of the stream; or (3) a hopelessly naive squish who thinks he can simultaneously charm, tame, and please his hard-left base, moderate voters, Donald Trump, Xi Jinping, and Kim Jong-Un, and who is consequently fated to end as tragically as (if less horribly or bravely than) Andres Nin.

Whatever theory comes closest to the truth, it’s apparent that Moon is no fool and has enough political sense to know his limitations. Evidence of those limitations comes in the form of new polling data from the Asan Institute. Generally, South Koreans —

– dislike the United States much less than they dislike their neighbors (I’m suspicious of Asan’s use of an approval index instead of a straight percentage of favorables). They dislike North Korea the most intensely. The biggest shift is that they now dislike China as much as they dislike Japan. That’s a fairly stunning shift, and it has been persistent since China began sanctioning the wrong Korea.

– favor the U.S. over China as their “preferred partner” by an overwhelming margin of 67 to 22, a gap that has widened by 18 percentage points in the last year after having steadily narrowed between 2014 and 2016. We can guess that China’s sanctions against South Korea, and perhaps its failure to reign in North Korea, have caused immense damage to its favorability on the Korean street. (I’ve long felt that a nationalist message with distinctly anti-China overtones has potentially high appeal in both Koreas, and elsewhere in Asia. These numbers may support that supposition.)

– oddly, hold the most favorable views of Xi Jinping of any neighboring leader. Given the other findings in the survey, it sounds like South Koreans respect Xi more than they like him. Their views of Trump recovered considerably after his reassuring phone call to Park Geun-Hye last November, although favorable views of Trump remain far lower than their favorable views of the United States. They hold Kim Jong-Un in the lowest esteem, by far.

– favor the deployment of THAAD by 55 percent, compared to just 37 percent who disapprove. This, despite Trump’s ham-handed stumbles, demanding that South Korea pay for it despite an agreement to the contrary, just before South Korea’s election. Most South Koreans, however, believe the National Assembly should ratify the THAAD deployment, which almost certainly means gridlock and indefinite delay.

– disfavor reopening Kaesong by a margin of 50 to 46, and disfavor resuming humanitarian aid by an overwhelming 72 to 26, absent a change in North Korea’s behavior (personally, I’d be much more receptive to resuming humanitarian aid that reaches the poor than resuming Kaesong, which is a wage-theft scam to fund Bureau 39).

The other interesting finding is that South Koreans in their 20s are much more conservative on national security issues than those in their 30s and 40s. That tells us that if these young voters’ views have been shaped by recent experiences, and if they continue to hew conservative as they age, the U.S.-Korea alliance may have a stronger demographic future than I’d feared.

Overall, the numbers suggest, first, that as I suspected, Moon Jae-In has no mandate to revive the Sunshine Policy; second, that they expect Moon to maintain a strong alliance with the United States; and third, that they hold extremely dim views of North Korea and His Porcine Majesty. That explains why Moon was so eager to avoid a fight with Trump during his visit to Washington. He knows very well that security issues are a vulnerability, and that by appearing to put distance between himself and Washington, he stands to lose much of his currently stratospheric approval rating, which is certain to decline as his honeymoon wears off and the media stop covering him like KCNA covers Kim Jong-Un. That is to say, if Moon Jae-In was on his best behavior, it may be because, like any good politician, he knows how to read a poll.

For the last week, I’ve been picking away at a still-unfinished post, commute by commute, about Pyongyang’s rejection of Moon’s offers of “engagement,” and demands for supplication instead. Whatever the true feelings of Moon and his inner circle about North Korea, then, a return to Sunshine faces three obstacles that seem insurmountable for now: first, of course, Pyongyang itself; second, U.S. opposition to any engagement that would undermine “maximum pressure;” and third, the South Korean people themselves. That is to say, Moon is starting his term (as did Lee Myung-Bak and Park Geun-Hye) by offering Pyongyang conditional engagement, only to find that Pyongyang isn’t interested in anything conditional.

If Moon is an intelligent politician — and I suppose he is that, if nothing else — he’ll decide to emphasize other parts of his agenda instead: breaking up the chaebol, cracking down on public corruption, putting limits on working hours and making other improvements to the rights of workers and consumers, and giving Korea a better-functioning welfare state. If Moon makes progress on these initiatives and supports our North Korea policy until such time Pyongyang denuclearizes (unlikely) or overthrows its king (more likely), we should support him. If he actively undermines our North Korea policy, a few well-timed and carefully written tweets (that don’t look carefully written) could damage his party in the next round of National Assembly elections.

If Moon really wants to really make me cheer, he’ll reform the Korean legal system to give defendants a right to counsel that’s more than just pro-forma, the right to a trial by jury, the right to confront one’s accusers, robust discovery rights, a hearsay rule, and other procedural protections to ensure that people can get fair trials. Also, truth should be a defense in libel suits. But by now, I’m asking too much.

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Stop talking about bombing North Korea. Talk about the revolution it desperately needs.

The supreme art of war is to subdue the enemy without fighting.  – Sun Tzu

On the Fourth of July, I had a long talk with a Famous Person who would probably prefer that I not mention his name here. He’s famous (or infamous — your mileage may vary) for his association with a foreign policy philosophy described as “neoconservative,” whatever that means. Like many Famous Persons, this person’s public image is an injustice to his actual views, which sounded classically liberal to my ears. He had an easy and unpretentious manner, and great depth in both experience and intellect. He recalled, at length, his support for Kim Dae-Jung’s life and freedom during South Korea’s right-wing dictatorship and other events I watched in rapt attention years ago. Because I’m not naming him, he probably won’t mind me quoting a wise thing he said: “This talk of bombing North Korea is scaring our friends more than it scares our enemies.” I couldn’t agree more. The word I keep returning to is “madness.” Not that it should matter, but there are people in Seoul I love.

It will probably also scare some of our friends that I made the case to this Famous Person that we must match Pyongyang’s escalation and deter the next one by helping the people of North Korea to resist the regime, but at least that suggestion has the advantage of terrifying our enemies and merely dividing our friends. Already, some of you are thinking that I’m scaring the Chinese and the Russians away from cooperating with us, as if all of the State Department’s supplications of the last 20 years have achieved anything. Or, that I’m scaring Pyongyang away from the negotiating table, as if Pyongyang would come back to the negotiating table otherwise, and as if Pyongyang doesn’t already believe we’re trying to overthrow it. Or that I’m ignoring the danger of loose nukes — as if the danger of WMD proliferation isn’t just as great or greater with this regime intact.

If we’re really honest, we’re all praying for some kind of regime change in North Korea. Prayer, of course, is not a strategy. The Sunshine Policy didn’t work, but it was a strategy for regime change by other means. Former South Korean President Kim Dae-Jung, the architect of that policy, was extraordinarily cautious about suggesting an intent to catalyze political change in the North, but a careful reader could see that it necessarily had political objectives: “Through open interaction with the global economy, North Korea will emerge as a responsible member of the international community, contribute to the stability of the peninsula, and develop its economy efficiently.” As Professor Lee, Bruce Klingner and I explained in the pages of Foreign Affairs, that is also why Pyongyang couldn’t let the Sunshine Policy succeed. I also doubt that Kim Dae-Jung was only speaking of South Korea’s former right-wing dictators when he quoted Confucious in his Nobel acceptance speech: “The king is son of heaven. Heaven sent him to serve the people with just rule. If he fails and oppresses the people, the people have the right, on behalf of heaven, to dispose of him.” (This is a point I’ll return to later in this post.)

The same is true of Americans who believe (or believed) in the Sunshine Policy. As the unreconstructed arch-engager David Kang once wrote, “I am totally for regime change, or a regime that modifies its ways and introduces economic and social reforms that improve the lives of its people.” At the height of talks over the 1994 Agreed Framework, Wendy Sherman pined for something more kinetic: “We just thought all that would bring about the collapse of the North Korean government within two or three years.”

We’ve all wished for a change of regime in North Korea, if only on an emotional level, notwithstanding how expensive, chaotic, and dangerous we know Kim Jong-Un’s Götterdämmerung could be. For years, we desperately hoped there might be some path to easy, evolutionary change. The unstated part of this hope was that with sufficient time and engagement, that evolutionary process might terminate as it did in Eastern Europe. But as events have proven beyond a reasonable doubt, there is no path to easy, evolutionary change in North Korea. There is profiteering and outright theft, and Pyongyang’s rich are getting richer. Call that capitalism if you want, but it’s the capitalism of a predatory military-industrial complex that’s no more a harbinger of peace or political reform than Krupp, Messerschmitt, or I.G. Farben were.

Contrary to Wendy Sherman’s expectations, the North Korean government did not collapse, because the North Korean people were too afraid, too hungry, too exhausted, and (above all) too isolated from each other to challenge the state. That is why, though there have been a thousand small and not-small acts of armed and unarmed resistance by the North Korean people against the state in recent years, those acts could not threaten the state’s control or disrupt its oppressive strategy. The people of North Korea had no means to communicate, organize, or resist. For those things, they will need our help. We should give them that help, in ways that would be public knowledge, and in other ways that would necessarily remain covert or clandestine. I don’t see another way. If you do, the comments are open.

In this week’s posts, I’ve explained why every other option ends in either a nuclear war, a surrender of South Korea, the collapse of nonproliferation, or grave threats to our own security and freedom. The hard realities are, in no particular order, that we cannot live with a nuclear North Korea, and that neither talks, nor surrender, nor China, nor the Swiss-educated reformer who never was will solve this crisis for us. War would, but it would also be a catastrophe of incalculable proportions. All options that remain — including the option of doing nothing, or seeking an accommodation with the regime — come with a significant or unacceptable risk of ending catastrophically. There is no safe option left to us; there are only less-dangerous ones. Dramatically improved enforcement of sanctions is the only nonviolent one left, and while I continue to believe that vigorously enforced sanctions could bring the regime to an existential crisis that could dethrone His Porcine Majesty, only the removal of Kim Jong-Un from power (and consequently, from this Earth) can disarm Pyongyang now.

It is increasingly hard to avoid the conclusion that Kim Jong-Un must die so that Korea may live, and that the coup de grâce must come from within, and not from us. It may be that the only way to prevent a larger war is to catalyze a smaller one. But that smaller war — or even the credible threat of one — may stand the best chance of ending with a peace agreement worthy of its name, from which Korea would emerge intact, liberated, unoccupied by foreign powers, and on a manageable timetable for reunification.

~   ~   ~

Let’s stop tiptoeing around what most of us have quietly wished for, but which we’ve done nothing — at least nothing I can see — to instigate: North Korea needs a revolution. It is in our interest to be rid of Kim Jong-Un, but above all, it’s in the interests of the North Korean people to be rid of him. The merchants who have waged an unarmed war of resistance against the state’s uniformed shake-down artists and press-gangs want to be rid of him. The nameless victims of torture who wanted nothing more than the right to live and move freely want to be rid of him. The people of North Hamgyeong, who are still waiting for an uncaring government to help them more than a year after floods devastated their homes and farms, want to be rid of him. The dirt-poor private farmers whose land is being confiscated, even as food prices rise, want to be rid of him. The collective farmers whose hopes for agricultural reform were dashed into the reality of exploitative sharecropping want to be rid of him. The poor in North Korea’s cities and towns, who scrape through life inside the confines of a state-imposed class system, want to be rid of him. The soldiers who are killing their abusive officers or walking through minefields to freedom want to be rid of him. The desperately hungry border guards who carry their guns into China and desert want to be rid of him. The elites in Pyongyang, who have begun defecting in greater numbers than ever — to include diplomats, money launderers, security officials, and (most recently) one of Kim Jong-Un’s bodyguards — want to be rid of him. The men, women, and children in the gulags must surely pray that they may live long enough to be rid of him. The 30,000 North Koreans who risked everything to flee to South Korea — and the countless others who died along the way, or in prison camps after they were recaptured — wanted to be rid of him.

Our real military option isn’t bombing, but a combination of overt, covert, and clandestine operations to catalyze the formation of a resistance movement by North Korea’s rural poor, historically its most exploited and discontented class, particularly in the northern and eastern provinces. The tried-and-tested argument for that uprising is the timeless appeal of class warfare. North Korea’s is a society of artificial, politically assigned, hereditary classes that mark every citizen for life and decide her access to education, a decent job or place to live, and even food.

As for the organizational foundations of such a movement, I’ve already discussed them at length, but they aren’t so different from the model used by Hamas or the Muslim Brotherhood. That model begins with a guerrilla banking system that seeds a multitude of unaffiliated, clandestine social welfare organizations and evolves into a shadow government, providing for the needs of the people that the state does not, and that resists the state’s violation of the fundamental human rights of the people in whatever ways it can. The essential and missing element is a means of communication, but even that isn’t far off. I’ll keep the discussion of logistics to myself or leave that to Dave Maxwell — he’s the retired Special Forces colonel, not me. I’ll only say that North Korea has two long coastlines, one long and partially porous border, robust smuggling networks, and a population that has learned to be extraordinarily resourceful to survive. The markets in North Korea seem to provide anything for which there is a demand.

I think — and there is a basis for my speculation — that Kim Jong-Un’s nightmare scenario is to wake up one day to hear that after an MPS officer beat a merchant who refused him a bribe, that the merchants rioted and killed the officer with a pistol bought from a deserting soldier, that riots spread throughout the province once people began texting the news on smuggled phones, and that people had set up roadblocks all over Hoeryong, within sight of journalists just across the border in China.

There would be no question, of course, of a peasant army marching on Pyongyang. That would be impossible, undesirable, and unnecessary. It would present Pyongyang with the sudden, use-it-or-lose-it choice that we must carefully avoid. The state’s loss of control would instead be gradual. If North Korea’s vast, almost roadless interior dissolved into anarchy as Syria and Libya did so unexpectedly, Pyongyang could lose its land access to the fisheries of the east, the coal mines and power plants in the interior, and all the remote places where it hides his missiles. Broadcasts directed at his elites, who are already defecting in growing numbers, would show them how the countryside was slipping into anarchy. If the security forces were already sanctioned to the verge of bankruptcy, they would be hard-pressed to pay, fuel, and maintain an army to patrol the borders, and the villages and fields near the most critical roads, railroads, and power lines. It is the economic and political blows, not the military one, that would be fatal, and that would force Pyongyang’s elites to demand peace talks on terms that would lead to a genuine peace.

As border control broke down, information would flow in and people would flow out. Trade links to China would become untenable, adding more financial pressure to the effects of sanctions. As Pyongyang functionally became a city-state surrounded by an ungovernable countryside and a patchwork of liberated zones, the elites might decide that the world was closing in on them and hedge their bets about the future. In exchange for our covert support, a thousand unseen eyes in the mountains could report the location of every missile truck, slip messages to unit commanders, or send out videos of gulags or abuses by soldiers. In the towns and villages of Ryanggang and North Hamgyeong, the State Security Department’s officers would become prisoners of the people, too afraid to patrol the markets and reduced to taking bribes from those they no longer dared to extort, in exchange for looking the other way at more open acts of subversion. No foreign power, including China, would dare wade into this mess. As for the generals, all that would be asked of them to save themselves and their families would be to make sure that at the critical hour, their troops don’t move and don’t shoot.

~   ~   ~

What can America give to the people of North Korea? First, a means to communicate and organize among themselves; second, a message to galvanize and focus their discontent; third, a concerted legal attack on the finances of the security forces to give the people breathing space; and perhaps, as a deterrent to further acts of aggression and oppression, a covert supply of arms, or a way to manufacture them in small guerrilla workshops.

We already have specialized aircraft designed for hijacking the airwaves of hostile states. The message we broadcast must be tailored to different audiences — the elites, the military, and the rural poor. For the elites in Pyongyang, the message must be that there is a better future without Kim Jong-Un than with him. That for those who resist the state and refuse to take part in its crimes against humanity, there will be clemency, freedom, and a better life in the future. If the regime persists, they can expect to meet the same fate as Jang Song-Thaek and his family.

For the soldiers, it must be a message of rice, peace, and freedom. In the event of war, they must refrain from killing their brothers and sisters in the South. They must be told that the targets assigned to them are civilian targets, and that their duty as Koreans is to disable their weapons, refuse to fire, or intentionally miss those targets.

For the rural poor, it must be that they are poor and hungry because of the state’s choices — to build weapons and ski resorts, and to import yachts and missile trucks, instead of feeding them. That the state keeps them hungry to control them. That it divides them against each other by making them inform on one another. The message must be rich with actual, credible stories about people like them who have suffered from the regime’s abuse, corruption, and oppression. They must awaken to the fact that they alone can change that, because no one else is coming to save them.

For all North Koreans, we should help them begin a conversation about the difficulties that sudden change will mean to a society that isn’t prepared for them. Should they stay in place or move? Who will own the soil, and who will till it? Will they be allowed to sell the land, and for what price? Will rich South Koreans flood in and make them second-class citizens in their own country? Will they acquire legal ownership of their own homes? Will industries in the hands of the state, the donju, or foreign investors be nationalized and sold off? Will the communes be broken up or consolidated? How can they prevent foreign occupation? What is the right balance between free speech and social stability? Who will be held responsible for crimes against the North Korean people, and who will be forgiven in the name of ending them? They must feel that they will have a say in how those questions are answered.

~   ~   ~

Our sanctions-targeting strategy must also evolve with the recognition of these same hard realities. During this event on Capitol Hill several weeks ago, former Treasury Undersecretary and former CIA Deputy Director David Cohen made a profoundly important statement that would have been easy to miss. Cohen said that the strategy for sanctions enforcement depends on the objective of sanctions. Until now, it has been to pressure Kim Jong-Un to negotiate away his nukes, based on the flawed premise that he cares about the welfare of his people and the development of his country (in fact, those things would pose serious threats to his internal control by breaking the peoples’ material and ideological dependence on the state).

If we agree that Kim Jong-Un will never disarm voluntarily, then our sanctions should instead target the regime’s security forces and their capacity to suppress the population. How? We know, for example, that two sanctioned North Korean coal export companies support the military and that a third supports the Reconnaissance General Bureau. The security forces fund themselves with certain trading companies. If so, our sanctions should preferentially target the regime’s immune system to disrupt its capacity to oppress, to compel its security forces to rely on corruption, and to break down barriers to the smuggling of goods, people, and information across North Korea’s borders.

Part of this strategy could take several years to prepare, unfortunately. The critical communications technology to allow North Koreans to organize still isn’t in place. Once resistance begins, it’s difficult to know whether it would spread or how quickly. If we controlled its funding, we could exercise some control over its conduct, but only to an extent. We can expect Pyongyang to hit back (though in limited, non-suicidal ways) if it knows or assumes that we’re supporting internal resistance. In the meantime, we’ll need an interim containment strategy, including aggressive sanctions enforcement, the accelerated deployment of missile defenses and deterrence, and perhaps a blockade. The President may have to use force to deter the next Yeonpyeong-do incident or slow North Korea’s missile development, and hope that a limited conflict stays limited. At the same time, we must never close the door to an agreement in which Pyongyang would disarm and begin a graduated process of humanitarian reform in exchange for the suspension of sanctions. But in the end, containment alone is not a permanent solution to this problem, and deterrence has been failing since 2010.

For years, the experts who have held the tiller of our policy for so much of the last three decades have offered Pyongyang “security guarantees” for a disarmament deal. Pyongyang either didn’t take them or took them and reneged. It’s time to turn this formula on its head and offer Pyongyang insecurity guarantees as long as it refuses to disarm. Once we pose a credible threat of destabilizing the countryside between Pyongyang and Dandong, our chances of a diplomatic solution rise from zero to something more than zero. How much more depends on the credibility of the threat and how much we have to offer in terms of trading stability for a lasting peace.

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When Kim Dae Jung quoted Confucious in his Nobel speech, he reminded his audience that Confucious spoke those words 2,000 years before John Locke wrote of his version of the social contract theory, which incorporated a right of revolution. Against Locke, Thomas Hobbes argued, based on his bitter experiences during England’s civil war, that the subject’s duty was to obey the sovereign for better or for worse lest he reduce his kingdom to a state of anarchy where life would be “nasty, brutish, and short.” But North Korea, where the regime has imposed its social contract on the people, is as Hobbesian a place as you will find — it is a living (if one can call it that) exhibit to Locke’s brief for the right to revolution. In another hundred years, Thomas Jefferson would write that when a government becomes destructive of the ends of the life, liberty, and happiness of the people, “it is the right of the people to alter, or to abolish it.” I do not reserve that right to Americans alone. That would make me an American exceptionalist.   

In our long war of skirmishes against the Kim Dynasty, it has always been the people of North Korea who have been our most important — and most overlooked — potential allies. Kim Jong-Il now presents a grave threat to our freedom, our security, our prosperity, and our way of life. We are justified in threatening the integrity of his political system in return. The perpetuation of that system represents a grave threat to us, to our allies, and to the people of North Korea most of all. We also compelled to do this in a way that reduces the risk of catastrophe as much as that is still possible, and that minimizes unnecessary suffering by the North Korean people. Our support for any resistance group must be strictly conditioned on its adherence to the Law of Armed Conflict. It must tolerate no attacks against noncombatants, no banditry, and no theft. The choice to resist, of course, is a choice that belongs to the people of North Korea. But if they are willing to make it, they should find no better friend than us.

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WSJ: Feds may indict North Koreans in Bangladesh Bank fraud

This story just gets more interesting by the day:

Federal prosecutors are building cases that would accuse North Korea of directing one of the biggest bank robberies of modern times, the theft of $81 million from Bangladesh’s account at the Federal Reserve Bank of New York last year, according to people familiar with the matter.

The charges, if filed, would target alleged Chinese middlemen who prosecutors believe helped North Korea orchestrate the theft, the people said.

The current cases being pursued may not include charges against North Korean officials, but would likely implicate North Korea, people close to the process said. [Wall Street Journal, Aruna Viswanatha and Nicole Hong]

Traditionally, robbery has meant theft by means of force or intimidation. I thought this case sounded like a better fit for bank fraud until I read the Criminal Code section on bank robbery, which is much broader than the common law definition and covers the whole life cycle of the criminal course of conduct.

The FBI’s Los Angeles Field Office and the U.S. Attorney’s Office for the Central District of California have the lead, which means the indictments would most likely issue in the Central District of California (and consequently, the Ninth Circuit). It’s not an ideal place to pick venue if you’re the government. The USAO for the Southern District of New York is also investigating other bank fraud cases it suspects of being the work of the same North Korean hacking group, known as “Lazarus.”

As I noted in my report on North Korea’s sponsorship of terrorism, the U.S. government thinks the Reconnaissance General Bureau (which is designated by both U.S. Treasury and the U.N. Security Council) did the Sony cyber attack. Recent reports have also linked the code used in the Bangladesh fraud to the code used in the Sony attack. That would make the RGB a prime suspect in both attacks, which means it would have been a violation of the International Emergency Economic Powers Act (IEEPA) for anyone to knowingly engage in dollar transactions with the RGB’s agents after August 30, 2010, when that agency was first designated.

If charges are filed against alleged middlemen in the Bangladesh theft, they are expected to be similar to charges unsealed in September against a Chinese businesswoman, Ma Xiaohong, some of these people said.

That makes sense. The “Chinese middlemen” could be charged with violating the IEEPA and money laundering whether the feds can pin the bank fraud on the North Koreans or not. Here’s my post on the Ma Xiaohong/Dandong Hongxiang case, with links to the indictment and the civil forfeiture complaint.

There is, apparently, a “minority view” among the feds that the North Koreans may have sold the code to third parties without being directly involved. Depending on the evidence, that might still be a crime — most likely conspiracy to commit bank fraud or a violation of the Computer Fraud and Abuse Act, or aiding and abetting one of those crimes. That might even be a smarter charging strategy.

The report also says the Treasury Department may freeze the assets of those under investigation (I’d guess under Executive Order 13722, implementing the NKSPEA, or EO 13757, Obama’s eleventh-hour cyber executive order).

A decade ago, the feds were ready to indict North Korean officials for counterfeiting, but political pressure from the State Department got the case shelved — permanently. That was the George W. Bush administration. I don’t get the impression that the Trump administration would do any such favors for Kim Jong-un.

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Royce introduces bill to toughen sanctions on N. Korea; subcommittee holds hearing

The big news yesterday was that Ed Royce, the Chairman of the House Foreign Affairs Committee, has introduced a sequel to the North Korea Sanctions and Policy Enhancement Act, or NKSPEA. You can read the full text here, but briefly, the bill —

  1. Expands the mandatory and discretionary sanctions in NKSPEA 104 to match the sanctions added by UNSCR 2270 and UNSCR 2321. It also adds a few more, like authorizing Treasury to sanction anyone who imports food from North Korea — a gravely immoral thing when so many North Koreans are going hungry, and when the state obviously isn’t using its food export revenue to buy gbrain to feed them.
  2. Provides new authorities to ban North Korea from financial messaging networks. Of course, SWIFT is reportedly disconnecting all North Korean banks, but this provision now becomes important to prevent SWIFT’s less reputable competitors from taking that business on.
  3. Codifies the Treasury Department’s new regulatory ban on providing indirect correspondent account services to North Korean banks.
  4. Toughens the NKSPEA 203 provisions denying aid to states (mostly in Africa and the Middle East) that buy weapons from North Korea.
  5. Toughens the NKSPEA 205 provision allowing U.S. Customs to increase inspections of cargo coming from ports that aren’t meeting their UNSCR 2270 obligations to inspect North Korean cargo. It also creates a blacklist of non-compliant ports, including Dandong and Dalian. That could put pressure on those ports to either meet their inspection obligations or shun North Korean cargo altogether. Think of it as the customs equivalent of Banco Delta Asia. But I haven’t even told you the best part yet.
  6. Creates the authority for secondary shipping sanctions against North Korea by giving the Coast Guard the authority to ban ships, shippers, and flags that violate U.N. shipping sanctions from U.S. ports and waterways. That will make for some lively discussions with the Ways and Means and Transportation committee staffers. It also takes a page from the South Koreans and Japanese who’ve enacted similar measures. That would effectively bring the U.S. into a coalition with those nations to isolate North Korea from the global trade system. Given that this coalition would now include China’s three largest trading partners, that’s potentially quite a powerful measure. And as I’ve noted more than once, let there be no doubt that it was China that started the trade war over North Korea. This is how we stand by our allies and deter economic bullying.
  7. Increases sanctions against companies that employ North Korean slave labor, and threatens to raise the tier status of those governments under the Trafficking Victims Protection Act.
  8. Adds a new condition for the suspension of sanctions — that North Korea permit Korean-Americans to have unrestricted and unmonitored meetings with their North Korean relatives before they die.
  9. Offers rewards to defectors, and maybe other informants, who provide information leading to the arrest or conviction (in any country) of persons involved in North Korean WMD, cyberattacks, or money laundering.
  10. Piles on more pressure to designate North Korea as a state sponsor of terrorism.

And we still haven’t even seen the member amendments, which promise to be lovely. (On a related note, the Senate is also moving separate legislation to sanction the companies that have participated in China’s island-building in the South China Sea.) This promises to be an action-packed year for all you sanctions geeks out there. The dark circles under my eyes should be proof enough.

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The other big event yesterday was the first hearing run by the new Chairman of the Asia-Pacific Subcommittee, Ted Yoho of Florida. As of yesterday morning, I hadn’t really viewed Yoho as a thought leader on Asia policy, but after his performance yesterday, I’ve reassessed that view. Yoho ran a tight ship, kept the proceedings on time, and despite this being his debut, projected a sense of calm command of the proceedings. More importantly, both Yoho and new Ranking Member Brad Sherman came in extremely well-briefed on the issue, and in full command of the facts. There was undoubtedly some first-rate staff work behind that. They’ve clearly digested the Panel of Experts’ latest, something that I’m still in the process of doing. You should really watch the whole thing:

The panel members were Bruce Klingner of the Heritage Foundation, Professor Sung-Yoon Lee of the Fletcher School, and former State/Treasury official Anthony Ruggiero, who has added much-needed expertise to the debate about sanctions policy and administration. I thought all three were extremely effective in breaking through to the members, but then, I consider all three men to be good friends, so I won’t even pretend to be objective. I’ll just post a money quote from each of them. First, Klingner sets the stage for where we find ourselves today, and why Americans should care:

Professor Lee’s statement, frankly, is some of his best work. It’s a must-read, not just for its historical insight about the often-strained relationship between China and North Korea and what that doesn’t mean, and not just for its insight into North Korea’s political objectives, but for the beauty of its prose (which Chairman Yoho also praised).

Ruggiero then brings his practical experience and careful research to the often-underinformed discussion of sanctions as a policy tool. And if I had to pick one panelist whose testimony really seems to have broken through to the Committee members, it’s probably Ruggiero, who reformatted their c-drives about a lot of junk analysis about sanctions:

Thanks for that!

Ruggiero also had some choice words for SWIFT, which I’ll let you read on your own.

With the Trump administration about to conclude its policy review and clearly headed in the direction of a harder line that will emphasize sanctions without sparing Chinese violators, this advice will undoubtedly find audiences in the White House, the National Security Council, and the State and Treasury Departments. My guess is it’s going to be a tense dinner at Mar-a-Lago when — or if — Xi Jinping comes around. But as I’ve said before, our relations will China may have to get worse before they can get better.

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Top NSA official attributes attempted $1B bank heist to North Korean hackers

The story of the Bangladesh Bank/SWIFT heist has gotten much more interesting of late. Now, not only do we have a senior U.S. intelligence official attributing it to a government, we learn that the North Koreans tried to steal nearly ….

A senior National Security Agency official appeared to confirm that North Korean computer hackers were behind a multi-million dollar heist targeting Bangladesh’s central bank last year.

Computer hackers attempted to steal $951 million, but only got away with $81 million, some of which was later recovered. After the theft, security firms quickly pointed the finger at North Korea. Other experts disputed that finding. But on Tuesday, NSA Deputy Director Rick Ledgett appeared to say North Korea was the culprit during a cryptic exchange at a Washington forum.

Speaking at an Aspen Institute roundtable, Ledgett pointed out that private sector researchers had linked the digital break-in in Bangladesh to the 2014 hack on Sony Pictures, which the U.S. government attributed to Pyongyang.

“If that linkage from the Sony actors to the Bangladeshi bank actors is accurate — that means that a nation state is robbing banks,” Ledgett said. “That’s a big deal.” [Foreign Policy]

To be clear, this isn’t U.S. government attribution, and there’s no explanation here of why Ledgett thinks the North Koreans were behind the theft, but Ledgett is described as a “30-year veteran” of the NSA who is due to retire later this year. Such a person wouldn’t ordinarily make that statement unless (1) he believed it, and (2) he was fairly certain the agency management was OK with him saying it in a public forum. In fact,  I think we’re all going to be hearing much more about why people think North Korea is now the only government that robs banks. What I’m also hoping we’ll find out is what bank accounts the money ended up in.

By attacking a bank and making off with large sums of money, North Korea can evade sanctions and obtain foreign currency, but so far, that effort has not delivered serious dividends for Pyongyang.

North Korea: tactically brilliant and strategically moronic since 1948. By the way, don’t expect SWIFT to publicly admit that its software was hacked. Standard behavior for any corporate victim of a cyberattack is to refuse to comment, or even to deny. They’re more worried about their reputations for systems security than in helping to punish hackers and hold them accountable. In most cases, hackers don’t have reputations to protect. When the hacker is a government, however, it has far more to lose by being accused of bank fraud.

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Trump admin leaning toward tougher sanctions & (maybe) “covert actions”

For weeks, we’ve heard that the Trump administration was expected to complete a top-to-bottom review of North Korea policy by the end of this month. Barely into the second week, Reuters is already giving us a peek at where the review is headed. Skim past the mandatory all-options-are-on-the-table disclaimer and “senior U.S. officials” say this:

They added a consensus was forming around relying for now on increased economic and diplomatic pressure – especially by pressing China to do more to rein in North Korea – while deploying advanced anti-missile defenses in South Korea and possibly in Japan, as well. [Reuters]

Just as I predicted somewhere, the North Koreans did something provocative early in Trump’s presidency, and that strategy backfired bigly:

Among the other possibilities, one U.S. official said, was returning North Korea to the U.S. list of countries that support terrorism. That would be a response to the suspected use of nerve gas to kill Kim’s brother at a Malaysian airport last month. It would subject Pyongyang – already heavily sanctioned by the United Nations and individual states, so far to little effect – to additional financial sanctions that were removed when it was taken off the list in 2008.

Sensibly, “U.S. officials” have concluded that bombing them is too dangerous an option, and just as sensibly, they say that the idea could “gain traction” if Pyongyang approaches the capability of nuking the U.S. This also intrigued me very much.

Trump also could opt for escalating cyber attacks and other covert actions aimed at undermining the North Korean leadership, a U.S. government source said.

As I say, it takes many instruments to play a symphony, and “covert actions” would do rather nicely in complementing sanctions as a means to shift the internal balance of power in North Korea and convince the elites that they must change or be changed.

Yonhap aggregates reports from various sources, including Reuters, and also concludes, “For now, a consensus is forming around the option of increasing economic and diplomatic pressure, especially by pressing China to exercise more of its leverage over Pyongyang while beefing up defenses with advanced anti-missile defenses in South Korea and Japan.” 

Other recent reports lend credibility to that view.

The cancellation of the visas for the North Korean diplomats who were on their way to Track 1.5 talks in Washington certainly doesn’t suggest that Trump is desperate to deal now. I wouldn’t read that as a complete aversion to talks so much as a sound judgment that this isn’t the time, because (1) we have no leverage to bargain with, (2) North Korea had just carried out a missile test and history’s first state-sponsored act of WMD terrorism, and (3) North Korea’s pre-talks declarations that its nukes and missiles were off the table. Ergo, talk about what?

A series of statements by President Trump himself, and by his reported confidant Edward Feulner, suggest that he’s leaning toward a harder line. Republicans in both the House and the Senate have also called for a policy that tightens sanctions and expands information operations.

The administration looks like it’s laying the diplomatic foundation to pressure Pyongyang. Secretary of State Tillerson has already been pushing China to use “all available tools” and its “unique leverage” to pressure North Korea to disarm, and quickly rejected China’s freeze proposal. (Let’s pray Nikki Haley is wrong about Kim Jong-un being irrational, although it’s hard for me to explain the K.L. attack as rational.)

There are early signs of financial diplomacy, too. The new Treasury Secretary, Steve Mnuchin, recently met with his South Korean counterpart to talk about how to implement sanctions against North Korea. The two governments, along with Japan, are already coordinating ways to combine their economic and financial leverage against North Korea. I’d have to think that the administration would have opposed the SWIFT ban of three North Korean banks if its policy was headed in a different direction.

This week’s actions by the Justice, Treasury, and Commerce departments against Chinese IT firm ZTE for exporting Commerce-controlled technology to Iran and North Korea suggest that China has lost its immunity from consequences for breaking our laws. Although it would be overstating matters to say that China was completely off-limits during the Obama administration, for Trump to go this big this soon sends a strong signal when Trump and Xi are still sniffing each other out. If I can offer the Chinese banking industry some advice that could save them billions of dollars, it would be to invest in Anti-Money Laundering compliance and Know-Your-Customer programs.

All of this would be the best possible start for getting the fundamental policy direction right. What remains to be seen is whether Trump will put sufficient resources, competent staff, and political will on this problem. It’s a policy that will require steadiness and patience against an enemy that’s good at breaking our attention and our coalitions with both bribery and extortion. And building pressure is never as hard as knowing how to use that pressure to achieve realistic outcomes. 

A programming note: This was supposed to be the short post that lasted half a commute while I turned back to writing about the U.N. Panel of Experts report. See how well that plan worked? Tomorrow, we return to our regularly scheduled programming, God willing. Please, Kim Jong-un, try not to do anything too stupid for two or three days so I can keep up, OK?

Update: So just around the time I posted this, the news of Park Geun-hye’s removal from office broke. I probably won’t post about that, because: (1) I’m not a Korean lawyer; (2) I haven’t read the decision; (3) consequently, I have no useful knowledge to contribute to your understanding of it; (4) I accepted this as the likely outcome months ago; (5) I want to use my limited time to write about other things where I have more value to add; and (6) my feelings on this topic are conflicted. If Park really did extort bribes — and I have to give the court the benefit of the doubt that she did — then she deserved to be removed from office. Belatedly, she ended up getting North Korea right, which makes it all the more disappointing that she dragged a sound policy down with her. The only thing I’m fairly certain of now is that the next South Korean president will have a worse North Korea policy than the last one, and if it’s Moon Jae-in, we may be headed for a crisis in the alliance. If Moon takes his North Korea policy where I think he wants to take it, the Trump administration may view that alliance as more of a liability — or a bargaining chip — than an asset. It’s never too early for buyer’s remorse.

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GOP heavyweights push for secondary boycott of North Korea

Six Republican senators — Ted Cruz (TX), Cory Gardner (CO), Thom Tillis (NC), Marco Rubio (FL), Pat Toomey (PA) and David Perdue (GA) — have signed a letter to newly confirmed Secretary of the Treasury Steve Mnuchin* calling for improved implementation and enforcement of the North Korea Sanctions and Policy Enhnancement Act (NKSPEA).

As Kim Jung-un has exposed his willingness to increase ballistic missile testing with the ultimate goal of achieving nuclear breakout, the potential for this regime to attain a developed and capable intercontinental ballistic missile (ICBM) poses an imminent threat that cannot be ignored,” the senators wrote. “North Korea’s test of an intermediate-range ballistic missile this past weekend demonstrates advancement in fuel and launch technology, underscoring the necessity of faithfully executing the law to meet this growing threat. [Sen. Ted Cruz]

The letter (the full text is here, and it’s an absolute must-read) proposes ten actions that President Obama never got around to, that would substantially improve the effectiveness of sanctions: (1) designate North Korea’s remaining banks; (2) hire enough cops and lawyers to enforce the sanctions; (3) invoke more Patriot Act special measures to require record-keeping and reporting on North Korean beneficial owners; (4) talk to Rex Tillerson about re-designating North Korea as a state sponsor of terrorism; (5) replace our weak and outdated North Korea sanctions regulations; (6) strictly enforce Know-Your-Customer and reporting rules on North Korean banking transactions; (7) investigate the banks involved in the Dandong Hongxiang and Chinpo Shipping cases; (8) enforce the law against any bank caught providing North Korean banks with direct or indirect correspondent account services; (9) work to cut North Korea out of SWIFT; and (10) show some willingness to impose secondary sanctions on Chinese sanctions violators.

That’s a good list — a very good list. I couldn’t have written it better myself (OK, maybe slightly, but only slightly).

The instigator and drafter of this letter is the man some now refer to as The New Ted Cruz. Although I’m not nearly as conservative as Cruz is on some issues, Cruz deserves commendation for stepping forward to lead on this issue, despite not even being a member of the Foreign Relations Committee or previously showing particular interest in foreign policy. (Tillis and Toomey aren’t Committee members, either; kudos** to them for signing on.) And while we’ve come to know Gardner and Rubio as leaders on North Korea policy, this episode also teaches us the importance of being willing to follow when someone else proposes good ideas. Rubio and Gardner in particular are highly respected in the Senate for their intellect and understanding of foreign affairs. It’s to their credit that they added their heft and gravitas to the letter by signing on. In doing so, they’re shaping the new administration’s policy at an early and malleable stage, when Trump probably needs all the good advice he can get.

Also deserving similar credit is Edwin Feulner, a (the?) founder of the Heritage Foundation and (so I’ve read in various press accounts) a man Donald Trump listens to. Yonhap also calls Feulner a leading candidate to be our next Ambassador to South Korea. Feulner sat down for an interview with Yonhap’s Chang Jae-soon and Shim In-sung, where he expressed similar views to those of the Gang of Six:

“I think anything that happens post January 20, 2017 is a test and is a challenge to President Trump and that President Trump takes anything that happens while he is the President of the U.S. he is going to take it very seriously,” Feulner said of the missile launch.

Increasing pressure on North Korea, including making China, through secondary sanctions, use more of its leverage over Pyongyang as the main provider of food and energy assistance, would be a key part of Trump’s policy on the North, Feulner said.

“Mr. Trump … will be expecting China to do a lot more. The notion of economic pressure on North Korea is one that Mr. Trump understands. Mr. Trump is not going to be reluctant to use his willingness to invoke secondary boycotts, for example, of organizations in North Korea or in China that are pass-through entities for exports from North Korea to cut off even more economic help,” Feulner said.

“Mr. Trump … will not hesitate to employ more significant measures,” he said. [Yonhap]

Also encouraging was Feulner’s call to bring more attention to North Korea’s crimes against humanity, and to appoint a “widely recognized, respected ambassador” for human rights issues, as mandated by the North Korean Human Rights Act (which is up for reauthorization this year, and will be reauthorized).

The rumor of Feulner’s potential nomination as ambassador may be the most encouraging news I’ve heard about the Trump administration so far. Historically, Korea only got the attention it deserved in Washington when ambassadors have had strong political pull and close relationships with the President. And while it’s hard to think of someone with better judgment or public diplomacy talents than Mark Lippert, Feuler’s combination of close ties to Korea, political strength in Washington, good policy instincts, and understanding of the subject matter would make him an outstanding candidate for the job as the North Korea crisis reaches a critical phase.

Most of what the six senators and Feulner said also sounds consistent with what Rex Tillerson, Yun-Byung-se, and Fumio Kishida said after their first trilateral meeting this week, in Germany.

“The ministers condemned in the strongest terms North Korea’s February 12, 2017 ballistic missile test, noting North Korea’s flagrant disregard for multiple United Nations Security Council resolutions that expressly prohibit its ballistic missile and nuclear programs,” the three countries said in a joint statement.

“Secretary Tillerson reiterated that the United States remains steadfast in its defense commitments to its allies, the Republic of Korea and Japan, including the commitment to provide extended deterrence, backed by the full range of its nuclear and conventional defense capabilities,” it said.

The sides pledged to collaborate to ensure that all countries fully carry out U.N. Security Council sanctions on Pyongyang and that violations of Security Council resolutions will be met with an “even stronger international response,” according to the statement.

The top diplomats urged Pyongyang to refrain from provocative actions and “abandon its proscribed nuclear and ballistic missile programs in a complete, verifiable, and irreversible manner” and comply with all U.N. resolutions, the statement said.

“Only in this way can North Korea be accepted as a responsible member of the international community,” it said.

The sides also agreed to continue to draw international attention to the North’s “systemic, widespread, and gross violations” of human rights. [Yonhap]

That latter point is an important one, not only from an ethical or a legal perspective, but from a utilitarian one. Since the release of the Commission of Inquiry’s report, Pyongyang has shown surprising vulnerability to criticism on human rights, to the point where that criticism may be affecting the cohesion of the elites and the stability of the regime itself. It will not be any single vulnerability that convinces the generals there that they have no future on the path set by Kim Jong-un, but a combination of vulnerabilities — financial, diplomatic, and political, both foreign and domestic — converging at once. It’s gratifying to see that the Americans (Update: well, some of them, anyway) who will have the most influence over the future of Korea understand what those vulnerabilities are.

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* Mnuchin’s confirmation hearing is here. It’s about 5 hours long, in case you have a long weekend coming up and no life.

** Previously said “kudus.” Since corrected, although I wouldn’t mind “kudus” myself. As I can testify from personal experience, kudu is delicious.

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Why talk of human rights unnerves North Korean diplomats so much, and why that matters

The Wall Street Journal’s Jonathan Cheng has taken note of the rise in defections by members of the North Korean elite. Over the last year, this blog closely followed that trend, including the unprecedented group defections of workers in Malta, China, and Russia; soldiers guarding the Yalu River border; high-ranking intelligence officers; and even diplomats. Last week, a Chinese media report also claimed that “approximately 10 North Korean IT technicians and hackers went missing around 9 p.m. Wednesday in Changchun in the northeastern Chinese province of Jilin.” It is not just the rank and status of these defectors that matters so much, but also what group defections tell us about the potential for conspiratorial and collective action against the world’s most repressive state.

So far, Thae Yong-ho is the only North Korean diplomat to have come out publicly, but Thae now says there are others.

“A significant number of diplomats came to South Korea,” Thae Yong-ho told a conference hosted by the conservative Bareun Party which will be formally launched this month. “Even now, there are a number of (North Koreans) waiting to head to the South.”

“There will be an increase in the number of elite-class defectors seeking a better life,” he added. “I am the only high-ranking official whose identity has been revealed to the public. South Korean media do not know but North Korean diplomats are all aware of it.” [Yonhap]

That aligns with this NK News report, citing South Korean press reports (which, in turn, cite “unnamed local officials”) that at least seven North Korean diplomats posted in Bulgaria, Russia, and East Asia defected last year. If true, that would be remarkable; it could also be profoundly consequential. For obvious reasons, Thae can’t confirm who those other defectors are, but some tantalizing, still-unverified reports last year claimed that top-level Bureau 39 slush fund managers defected from China, Europe, and Russia. Again, if those reports are true, these men could expose the funding network that pays the soldiers, guards, civil servants, and security forces that sustain Kim Jong-un’s misrule. They could also cause nervous bankers across China, Russia, and Europe to flip and report suspicious North Korean transactions to the Treasury Department, for fear of being outed by defectors and penalized for sanctions violations or money laundering.

Thae hasn’t said as much about his own knowledge of regime finances, but he does say that North Korea’s insurance fraud scam continued until the EU’s recent blocking of the Korea National Insurance Corporation, despite its exposure years ago by Kim Kwang-jin. The greater impact of Thae’s defection, however, will be the damage it does to North Korea’s political cohesion. We will not know its full extent until his calls for revolution reach his homeland. Nor will we know its full effect on the new Trump administration until Thae speaks directly to American policymakers in his excellent English. 

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What causes the disgruntlement of a scion of one of North Korea’s most privileged bloodlines and a trusted member of His Porcine Majesty’s foreign service? Thae Yong-ho’s path toward dissent and defection sounds like another case of Marxist criticism being particularly (and ironically) applicable to what I’ll call North Korean crisis theory; that is, his faith was undone by the system’s internal contradictions. He wanted a better life for himself and his children than the system could offer. He wanted Kim Jong-un to be a reformer. And for all the propaganda that North Koreans have nothing to envy, Thae knew better. He could not defend the system against the evidence of its inhumanity.

Thae also emphasized the importance of international pressure on North Korea’s human rights issue based on his experience as a former diplomat. According to him, North Korean diplomats can remain defiant and proud on the issue of nuclear development, but when it comes to the issue of human rights, they often lose their nerve.

“North Korean diplomats can talk proudly about nuclear development wherever they go, because although it seems that the world is united against North Korea, many countries are actually keeping their eye on how the North will develop itself as a nuclear power. Some countries are interested in following North Korea’s path to becoming a nuclear power themselves. Therefore, North Korean diplomats retain their dignity despite the criticisms of international society,” Thae explained.

“However, there is not a single country that approves of North Korea’s human rights violations. The most frequent question I received was, ‘Do you think North Korea is an egalitarian society?’ North Korea will inevitably be put on the defensive in a debate over the human rights issue,” Thae added.

Thae particularly emphasized the importance of taking Kim Jong Un to the ICC (International Criminal Court), adding that North Korean diplomats are doing everything in their power to prevent it.

“It is not easy for North Koreans to understand the concepts of the ICC or human rights. But they will be greatly interested if they hear that Kim Jong Un will be tried at the international court. It will be a direct sign that Kim Jong Un is a criminal and his regime has no future,” Thae added. [Daily NK]

Look at some of the videos of Thae defending the North Korean system, knowing now that he probably didn’t believe half of it. He did it better than Jang Il-hun did it at the Council on Foreign Relations a little more than two years ago. (In one particularly absurd moment, Jang cited North Korea’s new ski resort as evidence that human rights conditions had improved. Human Rights Watch, not surprisingly, has a different view). Having to defend the indefensible to foreign audiences eventually takes a toll.

Exposed to the outside world and information, North Korean diplomats often face a dilemma of knowing the fabrication of Pyongyang and having to still speak for the regime’s pursuit of nuclear weapons and human rights records.

“North Korea’s elite class is living an opportunistic life and believes that they can continue to live like that (with the privileges they enjoy). During the day, they extol the virtues of Kim Jong-un, but at night they hide themselves under a blanket to watch (South Korean) dramas,” the 55-year-old career diplomat said.

“I, myself, had to cry hooray for Kim Jong-un … but I had a very difficult time defending the North Korean state during meetings with people in Britain in which most people denounced the North’s system and challenged my vindication of it,” according to him.

The North Korean government is well aware of such a dilemma and strains to keep outside news from its people, even from the country’s top echelons, he noted.

“Even a vice head of the Organization and Guidance Department (OGD) of the Workers’ Party of Korea cannot enter a (foreign ministry) room where CNN is being played although a common member of the foreign ministry is given access to it,” Thae said. “The OGD vice head may have complete sway over me, but he is only allowed government-filtered information, and nothing else.”

Diplomats also keep their mouth shut primarily out of desperation to protect themselves and their families who can fall victim to the regime’s merciless dealings with those who let out banned information.

“North Korean society is sustainable only on the condition that the inflow of outside information is shut out. The day such information makes inroads, North Korea would fall apart,” he said. [Yonhap]

Other North Korean diplomats are finding their hosts increasingly critical of Kim Jong-un by name. 

North Korean embassies are in a pinch as their attempts to defend Pyongyang’s human rights record overseas is backfiring and the international community is now criticizing their leader, Kim Jong-un, by name.

Fed up with North Korea human rights issues, European countries are making especially critical remarks of Kim Jong-un, according to a government source Wednesday.

As North Korea continues to defend its human rights situation, which is condemned by the United Nations, Kim Jong-un has subsequently been called “a kid who knows nothing” and worse.

Thus, Pyongyang, in the midst of harsh economic sanctions, faces further isolation.

“These remarks are coming in foreign ministers’ meeting, so high-level officials and North Korean embassies are all actively trying to respond to this,” the official continued. “While this hasn’t been reported in media, as such news is being spread in diplomatic circles, North Korean overseas embassies are actively working to respond to this.”

Hungarian Foreign Minister Peter Szijjarto referred to the North Korean leader as a “lunatic communist dictator,” which prompted Pyongyang’s embassy in Austria to demand an explanation, VOA reported last week. But this backfired, and Hungary reportedly sent an official letter stating that the foreign minister’s words are his views and beliefs.

Szijjarto last month visited Seoul and met with South Korean Foreign Minister Yun Byung-se on Dec. 16. The Hungarian foreign minister was said to have recounted his childhood under the brutalities of a communist dictatorship. [Joongang Ilbo]

Fear also takes a toll on the diplomats. The regime, concerned that diplomatic isolation will deny it access to foreign markets, finance, and legitimacy, has ordered them to “contain the situation” and has threatened to punish those who fail to do so. 

The diplomatic source here said, “They are ordered to take all measures and invest whatever resources needed to block such critical talk of Kim Jong-un from becoming public opinion. If they do not take care of this issue properly, it is said the diplomats of the respective embassies will be summoned home and punished.”

Pyongyang has especially been sensitive on the issue since Washington for the first time imposed sanctions on North Korean leader Kim Jong-un over human rights abuses in July. [Joongang Ilbo]

As I said at the time, symbols are powerful things, especially to North Korea.

It is often said that North Koreans are more interested in foreign media that entertains than openly subverts (which is my excuse to plug Baek Jieun’s book, “North Korea’s Hidden Revolution”). To be sure, this is true of most human beings anywhere. Neither Barack Obama nor Donald Trump has as many Twitter followers as Katy Perry, Justin Bieber, or Taylor Swift. But once Thae Yong-ho became receptive to political criticism, openness became active interest, and active interest became a compulsion. 

But he also said that North Korean diplomats overseas are, nevertheless, eager to hear news on North Korea as reported by foreign media.

“I was checking reports by South Korean media on North Korea and Yonhap News agency’s section for ‘North Korea’ every day on my smartphone. I read every news story related to defectors who settled in South Korea. I shed tears reading their stories, and [somehow] garnered the courage to defect as a result of them,” Thae said.

“All North Korean officials and their family members overseas are checking South Korean news every day. By tomorrow, every North Korean diplomat abroad will be aware of what I have said right now.” [Daily NK]

Which is my excuse to (again) plug Commander Skip Vincenzo’s report on information strategies to sway the North Korean elites away from war, and toward peace and reunification.

It is always a minority that takes an active (rather than a passive) interest in political criticism. That tendency must be especially pronounced in a place where thoughtcrime means a quick and painful death for you, and a slow and painful death for the people you love. But this minority produces a nation’s civil servants, its generals, its corrupt officials, and eventually, its dissidents and rebels. When it arrives at such a political consciousness, this minority exerts a disproportionate influence.

“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; see also]

Thae is uniquely positioned to help other doublethinkers in Pyongyang — and in its embassies abroad — make the same journey he made. No wonder the regime is making him its Emmanuel Goldstein; its survival may depend on that. For Thae, the end of his journey from oligarch to dissident came when he gathered his sons and said, “I will cut off your slave chains as your father from this moment.” 

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What the Treasury Department’s blocking of Air Koryo means

Last week’s North Korea sanctions designations by the U.S. Treasury Department’s Office of Foreign Assets Control — commonly known as OFAC — go far to explain why U.N. Security Council Resolution 2321 took so long to negotiate and pass. There were many reasons why I panned the terms of that resolution last week, including new and not-improved coal export limits, and the U.N.’s failure to designate North Korea’s state airline, Air Koryo.

Friday’s OFAC designations — which block any of the targets’ assets in the United States, and more importantly, any dollar assets that move through the U.S. financial system for international transactions — plug many of the holes UNSCR 2321 left. Treasury has sent a strong signal that when China blocks swift and effective consequences for North Korea’s provocations, the U.S. is (at last, at least for now) prepared to join with its allies and go beyond the United Nations. This almost certainly means that the U.S. made no sub rosa agreement to stay its hand.

I. There was strong evidence that Air Koryo had violated U.N. sanctions for years.

U.N. reports alone provided ample evidence to support the designation of Air Koryo. For years, the U.N. Panel of Experts that oversees (non-)compliance with U.N. sanctions had called Air Koryo out for lending its aircraft to the North Korean air force for military purposes, for arms smuggling, and for suspicious financial transactions. In 2014, for example, the Panel reported that Air Koryo was, for all intents and purposes, an arm of the North Korean military, and cited NK News’s reports that Air Koryo Il-76s were sometimes repainted for military exercises and shows. It published photographs of one Air Koryo Il-76 after an air show, with camouflage still showing through the white paint of its civilian livery.

141.  As previously indicated by the Panel, Air Koryo and all airports or airfields within the Democratic People’s Republic of Korea are controlled by the Korean People’s Air Force through its Civil Aviation Bureau. Reportedly, all personnel are members of the air force and all in-country maintenance is conducted by Air Force engineering staff.  The absence of boundaries between Air Koryo and the air force was further highlighted by the 27 July 2013 military parade during which three military Ilyushin (Il) 76 flew over Kim Il Sung square (see figure XXV). [UN POE]

Then, there is this language from the 2014 report, suggesting that Air Koryo may have been running an elaborate money laundering scheme, one that foreshadows its likely sanctions evasion strategy:

178.  An example of a transaction being financed in an unusually complex manner was an Air Koryo contract in 2012 to purchase new aircraft.  Payments were structured through eight Hong Kong, China-registered companies, which asserted that they were trading partners of Air Koryo and were wiring funds they owed it. The resolutions do not prohibit the purchase of civilian passenger and cargo aircraft. The Panel, however, was dubious of the explanation that debts were the source of the funds; some companies appear to be recently formed shell companies. It also finds remarkable the coincidence of all eight firms owing significant amounts to Air Koryo at the time funds were contractually due to be paid to the seller of the aircraft. The names of shells and activities of others appear to share a connection with gold trading. The Panel is suspicious that the Democratic People’s Republic of Korea may be using or considering the use of precious metal sales on credit terms to create “accounts payable”. Such sources for funds would not necessarily show as being under its control and even could be swapped with other firms to further distance its connection and thereby better evade sanctions and enhanced due diligence by banks. [UN POE]

There were also regular reports (and photographic evidence) that North Korean officials and couriers used Air Koryo to import luxury goods and smuggle bulk cash, in violation of U.N. sanctions. The 2016 Panel of Experts report published photographs of a consignment of SCUD missile parts shipped from North Korea to Egypt aboard an Air Koryo flight. In 2015, the Panel made this conclusion:

120. Given the evidence of military use, the Panel considers that providing financial transactions, technical training, advice, services or assistance relating to the provision, maintenance or use of Air Koryo’s cargo aircraft could constitute a violation of the embargo on all arms and related materiel as defined by paragraph 10 of resolution 1874 (2009). [UN POE]

Although it’s apparent that China blocked a U.N. designation of Air Koryo in UNSCR 2321, it’s also apparent that experts appointed to the panel by other nations saw ample justification for a designation of Air Koryo, and had been pushing for one for years. Pyongyang also used Air Koryo to transport slave laborers abroad and back, including the flight that brought home 100 mutinous workers from Kuwait, almost certainly to a very dark fate. Belatedly, UNSCR 2321 expressed “concern” about this exploitation, albeit with non-binding language.

That’s why OFAC’s designation of Air Koryo, two days after the U.N. failed to do so, was anything but “unilateral.” That matters, because we will need the cooperation of other states to make Air Koryo sanctions effective. For example, South Korea’s own designation of Air Koryo will have little direct effect, because Air Koryo doesn’t fly to South Korea, but (depending on how South Korea’s political crisis resolves) South Korean diplomats may soon call on Malaysia, Singapore, Thailand, Kuwait, and other countries to join the ban. (Singapore, an important North Korean trading partner, doesn’t have its own independent SDN list for North Korea sanctions; it just adopts the U.N. list.) The EU will probably also cooperate. Even before the OFAC designation, it had banned most Air Koryo planes over safety concerns.

If anyone in this story acted unilaterally — aside from North Korea, of course — it was China, in blocking Air Koryo’s designation despite all of the incriminating evidence. I don’t doubt that China will try to help Air Koryo continue operating with Renminbi transactions, although it remains to be seen whether Chinese banks will risk handling them. But with each new North Korean provocation, China will find itself increasingly isolated and pressured to yield to the consensus. That’s how Progressive Diplomacy should work.

Now, every venue that gives Air Koryo landing rights will come under diplomatic pressure to stop doing so. Expect Air Koryo’s itinerary and Pyongyang’s tourist income to continue to ebb, but past history (more on that below) suggests that Pyongyang will find ways to keep Air Koryo flying, even if only at a punishing financial loss. Viewed that way, sanctions won’t only be costly if they destroy Air Koryo. They may be even more costly if they don’t.

II. How U.S. sanctions will affect Air Koryo’s operations.

OFAC didn’t just designate Air Koryo last Friday; it also designated its offices and all its individual aircraft — well, almost all. Compare Treasury’s list of designated Air Koryo aircraft to Table 9 from the 2015 U.N. Panel of Experts report, and you’ll see that Treasury’s list is three planes short of the POE’s list — specifically, one Tu-134 and two Il-62s. Did Treasury spare the three remaining aircraft for some reason? Did it simply lack full identifying information about them? Probably not. First, note that the three aircraft are among the oldest in Air Koryo’s fleet. A more likely explanation comes from Paragraph 117 of the 2014 POE report, which says that Air Koryo bought two of its Il-62s from Cuba in 2012 and cannibalized them for spare parts. OFAC probably saw no point in designating two old hangar queens. It’s likely that the remaining Tu-134 aged out, too.

How will the OFAC designation affect Air Koryo? Let’s start by establishing its baseline. Two years ago, the Panel of Experts offered this summary of Air Koryo’s itinerary:

139.  The numbers of air carriers operating scheduled flights and routes to or from Pyongyang Sunan International Airport remain very limited. However, the number of flights per route has changed since May 2013. The number of weekly rotations to Beijing has increased from six to eight, with five rotations operated by Air Koryo and three by Air China, the only foreign airline regularly serving the Democratic People’s Republic of Korea.  Air Koryo now also operates two weekly rotations to Vladivostok. The number of rotations to Shenyang is unchanged (twice a week), while the number to Kuala Lumpur decreased (from twice to once a week). The status of its weekly rotation to Bangkok is unknown. This flight and others to Kuwait City, Moscow, Nanjing, Shanghai and Yanji, China, are most likely operated on an ad hoc and/or seasonal basis. [UN POE]

This is not the first time the Treasury Department has designated a rogue state’s flag carrier. Treasury designated Syrian Air in 2013 for smuggling weapons, and the EU soon followed suit. Syrian Air kept flying to the Gulf states with the help of front companies, money laundering, and bulk cash smuggling. Treasury designated Iran Air in 2011, after years of U.S. export controls made it difficult for the airline to buy spare parts. In 2010, the EU banned some Iran Air craft over safety concerns. After its OFAC designation, Iran Air’s flights to Western Europe had to make fuel stops in Eastern Europe, but the airline limped along until President Obama lifted its designation earlier this year. The 1998 designation of Sudan Airways, along with “financial troubles and mismanagement,” eventually reduced it to just six working (but aging) aircraft. In 2015, the U.S. government fined EgyptAir for leasing two 737s to Sudan Airways. But then, Sudan Airways’s two-letter flight code, “SD,” has long been said to stand for “sudden death.”

This history suggests that Pyongyang will try to keep its flag carrier flying, even if at great expense and inconvenience, to show its defiance and maintain its prestige. But like Iran Air and Sudan Airways, Air Koryo was already straining to maintain a fleet of aging aircraft before its OFAC designation. If North Korea runs an airline as ineptly as it runs, say, its food supply, over time it will be forced to drop routes and flights, which Chinese air carriers will try to pick up. Currently, Air China is the only other airline with regular flights to North Korea. (Spring Airlines had expressed interest in starting flights to Pyongyang, but later shelved that plan.) These airlines will have greater dollar exposure and more reluctance to risk ferrying luxury goods or slaves. They will feel more constrained by UNSCR 2321’s mandate to inspect all checked baggage to and from North Korea for, say, bundles of cash, stashes of gold, or big screen TVs.

Air Koryo may try to collect fares and buy parts in non-dollar currencies, but past history suggests it will simply try to evade the dollar sanctions. This will come with great costs and inconveniences. As we learned from the Dandong Hongxiang indictments, it’s almost impossible to operate in the global economy without dollars, and evading dollar sanctions requires working through shady middlemen who sometimes charge commissions of more than 20 percent. The more layers of protection you want, the more middlemen you need, and each layer adds to that cost. It will be hard, but still possible, for Air Koryo to keep flying with its dollar accounts frozen and its capacity to acquire spare parts and new aircraft curtailed. (UNSCR 2321 bans North Korea from purchasing or leasing new vessels and helicopters, but not fixed-wing civilian aircraft.) The operations of a national flag carrier aren’t easily concealed. Air Koryo will have to market itself to sell seats and operate profitably. Every destination where its planes land will come under investigative and diplomatic scrutiny. 

III. How the designation of Air Koryo will affect the North Korea tourist industry.

Much of the media interest in the designation of Air Koryo has focused on how the designation will impact tourism to North Korea — specifically, tourism to North Korea by Americans and Europeans. That interest, in turn, probably derives from the inexplicably popular idea that (overwhelmingly) white people who travel to North Korea will shine their gentle, warming rays on the local savages by “open speech and simple an hundred times made plain, to seek another’s profit and work another’s gain.” ICYMI:

For some people, visiting North Korea is like dating Madonna — plodding a tired, well-worn, loveless, and morally ambiguous path that gives some people an inexplicable feeling that they’ve entered an unexplored place. Except that Dennis Rodman and countless others already did. 

Designating Air Koryo will undoubtedly reduce Pyongyang tourist revenue, but it’s hard to say by how much. Yonhap has published an estimate that in 2014, tourism poured $43 million into North Korea. Some experts have told me that estimate sounds high, but Sheena Chestnut Greitens (who is, due to unrelated developments, about to become the First Lady of Missouri) previously cited an unnamed South Korean expert’s “high estimate” of $100 million. How much of this income is from Air Koryo’s ticket sales is anyone’s guess. The overwhelming majority of tourists who visit North Korea are Chinese who may find it more convenient to fly Air China or take the train.

Air Koryo’s designation will have a greater impact on Europeans and Americans, who pay a premium to travel to North Korea. Uri Tours, one of the companies that sells group tours of North Korea to slummers, inept evangelists, prospective hostages, and other unrequited masochists turns out to be a business partner of North Korea’s missile-part-smuggling, money-laundering, slave-ferrying airline.

Uri Tours is the exclusive General Sales and Ticketing Agent of Air Koryo in the Americas. We service tourists, business travelers, corporations, foreign workers and government officials to provide expedient Air Koryo ticketing in advance of your trip. We take credit card payment and we can offer same day ticketing.

Air Koryo is North Korea’s only airline and has a history of over 50 years in flight. Air Koryo operates internationally scheduled flights between Pyongyang, China (Beijing, Shenyang and Shanghai), Russia (Vladivostok), Thailand (Bangkok), and Kuwait. It also operates charter flights to and from Malaysia (Kuala Lumpur), Singapore and a handful of other countries. Domestic flights to Mount Paekdu and Mount Chilbo (and soon Wonsan) are also operated by Air Koryo. [Uri Tours]

Uri Tours reacted to OFAC’s designation of its North Korean partner with a blog post that tells us that as of last week, it was still in the denial stage.

Do these new sanctions affect tourism?

E.O. 13722 does not prohibit U.S. persons from engaging in transactions ordinarily incident to travel to or from any country. This means that U.S. persons can travel to North Korea. You are also still permitted to book tours to North Korea with a U.S. tour operator. It is our position that Uri Tours’ travel activities are covered under the IEEPA exemptions and moreover, we were an existing tour service to North Korea before E.O. 13722 which prohibits new investment in North Korea by a U.S. person. [Uri Tours]

To unpack Uri’s “position,” begin with OFAC’s specific legal authority for the designation of Air Koryo, Executive Order 13722, which authorizes sectoral sanctions against North Korea’s transportation industry (along with mining, energy, and financial services). Taking Uri’s arguments in reverse order, it claims that because its business relationship with Air Koryo predated the OFAC designation, its relationship is not affected. But section 1(b) of EO 13722 states as follows:

The prohibitions in subsection (a) of this section apply except to the extent provided by statutes, or in regulations, orders, directives, or licenses that may be issued pursuant to this order or pursuant to the export control authorities implemented by the Department of Commerce, and notwithstanding any contract entered into or any license or permit granted prior to the effective date of this order. [EO 13722]

If Uri Tours doesn’t have a lawyer, this would be a good time to invest in one. If Uri Tours has a lawyer, this would be a good time to invest in a better one. The penalties for violating the IEEPA include 20 years in one of these

Uri also cites an OFAC FAQ, Number 464, and characterizes it as opining that Americans are free to travel to North Korea for tourism. In fact, the FAQ only provides guidance on humanitarian travel (which is exempt from sanctions under a general license that doesn’t apply to tourism). The FAQ was published on March 16, 2016, the day after the President signed EO 13722, but long before the designation of Air Koryo. It says nothing about tourist travel.

Uri makes a stronger argument when it cites our old friend, the International Emergency Economic Powers Act, which creates the legal authority for sanctions executive orders and designations, but withholds (in section 203(b)(4)) “the authority to regulate or prohibit, directly or indirectly . . . any transactions ordinarily incident to travel to or from any country.” But if Uri Tours thinks the U.S. can’t designate an airline because of section 203(b)(4), I’ve already shown you ample precedent to the contrary. Whether an individual U.S. tourist can book an Air Koryo flight is an interesting question I’ll leave to the Treasury Department to resolve in a future FAQ, but good luck booking that flight if no bank will process your fare payment. Uri’s suggestion that 203(b)(4) allows it to go right on transacting with a blocked entity seems dangerously wishful, but Uri’s legal risk isn’t my concern. It misrepresents the law at its own peril. It misrepresents the safety and ethics of travel to North Korea at yours.

Clearly, 203(b)(4) doesn’t exempt airlines from the reach of nonproliferation sanctions. Just as clearly, Treasury makes a distinction between blocking one airline’s assets and a travel ban. Do proliferation sanctions that have incidental effects on travel exceed the authority of 203(b)(4)? I’d guess not, but I’ll let OFAC answer that for itself. But then, the fact that Treasury currently lacks the authority to impose a travel ban doesn’t mean that Congress won’t simply impose one, mooting Uri’s argument. Meanwhile, travel to North Korea all you want on a Chinese airline. All that’s stopping you is your intelligence and your conscience.

~   ~   ~

In the end, the biggest winners from OFAC’s designation of Air Koryo will be Air Koryo’s passengers, and not just the slaves among them. One of them recently related his near-death experience when an Air Koryo crew ran up and down the aisle of his flight, shouting “no problem! no problem!” as the cabin filled with smoke, the plane plunged toward the earth, and the passengers wept for their dear lives. In that story, I saw a fitting microcosm of, and metaphor for, the entire North Korean condition. That was one of their newer planes, too. But if you really want to hear the definitive analysis of how Air Koryo’s designation affects the North Korea tourism industry, ask Otto Warmbier. Unfortunately, he wasn’t available for comment at post time.

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