Make Korea China Again? Xi Jinping confirms colonial ambitions for Korea.

As regular readers of this site know, China is opposed to unilateral sanctions, except when it isn’t. In the case of North Korea, China is also opposed to the multilateral sanctions it voted for in the U.N. Security Council; consequently, North Korean missiles ride on Chinese trucks, North Korean proliferation networks operate openly on Chinese soil and launder their money through Chinese banks, North Korea’s weapons are made from components and technology procured from or through China, and those weapons are imported or exported through Chinese ports. North Korean abduction squads kidnap refugees and murder activists on Chinese territory, and North Korean spy rings operating inside South Korea meet in safe houses on the outskirts of Beijing.

China’s answer to these charges, as near as I can make sense of them, is that it only violates the sanctions it voted for because sanctions never work and it’s afraid they’ll work and it has no influence over North Korea anyway and also, it isn’t violating them. But China’s unilateral sanctions to disarm South Korea, which are clearly calculated to leave it prostrate to Pyongyang’s (and Beijing’s) blackmail, put the lie to all of this.

Thus, two weeks ago, I drew the unavoidable conclusion and advanced the inflammatory theory that China’s failure to reign in North Korea’s nuclear program might not be a failure at all. Perhaps North Korea’s nuclear program is a proxy for China to disarm, isolate, Finlandize, and control both Koreas. After all, one could excuse a few lapses in North Korea sanctions enforcement as oversights by a fundamentally corrupt state, but it isn’t plausible that the same people, front companies, and networks could have escaped the all-seeing eye of the world’s most efficiently intrusive surveillance state for decades. And now that Xi Jinping is revealed to have spoken the words that the peoples of Asia fear most — “part of China” — Koreans’ worst fears are confirmed. For the full interview, go here. Here is the quote in context:

But we had a really good meeting [with Chinese President Xi Jinping], and it was supposed to be 10 minute session and then you go into a room with hundreds of people, you know all different representatives, and the meeting was scheduled for 10 to 15 minutes, and it lasted for 3 hours. And then the second day we had another 10 minute meetings and that lasted for 2 hours. We had a — just a very good chemistry.

He then went into the history of China and Korea. Not North Korea, Korea. And you know, you’re talking about thousands of years …and many wars. And Korea actually used to be a part of China. And after listening for 10 minutes I realized that not — it’s not so easy. You know I felt pretty strongly that they have — that they had a tremendous power over China. I actually do think they do have an economic power, and they have certainly a border power to an extent, but they also — a lot of goods come in. But it’s not what you would think. It’s not what you would think. [WSJ]

If South Koreans are worried and outraged, both sentiments are well justified. The scars left by South Korea’s occupation by a certain other predatory neighbor are still raw and painful to South Koreans, and I would argue that the legacy of China’s influence over North Korea has been far worse than the legacy of Japan’s occupation — including war, famine, gulags, smothering thought control, and exploitation of women on a scale and severity comparable to Japan’s exploitation of wartime sex slaves.

In most news outlets, this story is being reported as a Trump faux-pas, which it certainly was to the extent Trump seemed to credit Xi’s imperialist narrative. But that is not the real story, because (1) the world already discounts Trump’s words in ways that it did not discount the words of other presidents, and (2) there are men and women in the White House who are smart enough to disabuse Trump of this nonsense, clean it up, and make the appropriate assurances to South Korea, despite that damage that has been done. Those assurances are going to be very, very important when we are three weeks out from an election in South Korea, when South Koreans are already wondering if we are still a reliable ally.

But in another sense, we should silently thank Donald Trump for (however unwittingly) telling us the real story, which the media seem to be missing entirely. The real story is that Xi Jinping just tipped his hand about his colonial ambitions to control all of Korea. Xi Jinping, after all, does not tweet. He does not ramble, muse, or offer idle, half-considered thoughts. He is nothing if not deliberate and calculating. He went to Mar-a-Lago with meticulously premeditated plans to influence the President of the United States in certain directions, to achieve a certain ambition.

The historically accurate truth is that Korea was never a “part” of China, but was a tributary nation under substantial Chinese influence or control for centuries. Put another way, there is no more historical basis to Xi’s claim than there is to the Northeast Asia Project or Xi’s claim that the South China Sea is a part of China now. Who believes that Xi Jinping will let either truth or law get in his way when he senses that the time has come to make his move? If I were living in South Korea, I’d want missile defense and nuclear weapons now more than ever. I’d also want a president with the greatest possible influence over the United States, and the backbone to stand up to Xi Jinping. In other words, I’d want a choice I don’t have — so I’d pick the lesser evil who can still win.

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Dear Korea: Let’s talk about China’s plans for you in its new co-prosperity sphere

Ever since China embarked on its retaliatory campaign against South Korea, of state-orchestrated protests, business closures, and boycotts, I’ve often tweeted that China is opposed to unilateral sanctions, except when it isn’t. Recently, the Asan Institute released the results of a survey showing that this campaign has done the unthinkable — it has made China even more unpopular than Japan in the eyes of South Koreans.

For anyone who has lived in South Korea, it’s hard to overstate the significance of this. And if China’s goal was to depress South Korean support for THAAD, its strategy has been a failure.

With the caveat that coincidence isn’t the same as causation, the South China Morning Post reasonably concludes that China’s sanctions against South Korea have backfired and increased public support for THAAD:

“Even more surprising is that Koreans are now more favourable toward Japan (3.33) than China (3.21),” it said, noting Japan had consistently been Koreans’ least favoured country after the North.

The survey also showed the ratings of US President Donald Trump, Chinese President Xi Jinping and Japanese Prime Minister Shinzo Abe all declining, but Xi’s falling the most, plunging from 4.25 in January to 3.01 in March.

“The only good news for President Xi was that his rating remained higher than Prime Minister Abe’s,” Asan said.

The survey, of 1000 adults carried out from March 6-8, also showed increasing support for THAAD, with 50.6 per cent in favour, up from 46.3 per cent in November, with opposition falling from 45.7 per cent to 37.9 per cent. [SCMP]

Despite a small and temporary drop in pro-American sentiment after Donald Trump’s election, reports of a Trump Shock (such as this one, from Putinprop outfit Sputnik) turn out to have been greatly exaggerated. All of this is bad news for the Chinese foreign policy and security establishments, which (as I argued here) see themselves as in a zero-sum competition with the U.S. for influence in Asia. The fact that they believe this makes it mostly true, no matter how much pro-China scholars may wish it were not. It’s increasingly undeniable that the little gray men pulling the levers in the Forbidden City are profoundly anti-American, and are waging a propaganda war against us. I’m old enough to remember the Tienanmen Massacre, when all the smart people said that the correct response was to increase trade with China, because capitalism would make China friendly and free (sound familiar?). It’s not working out that way.

Behind this propaganda are both offensive and defensive aspects. One clearly senses that Beijing is on the defensive and sees itself as besieged by our ideas — mostly, as expressed in private speech by journalists and NGOs. (China, like North Korea, makes no distinction between speech by the state, the press, movie studios, and private individuals; it sees censorship as a “responsible” state’s right and duty.) But there is also a more offensive agenda behind what China is sowing here.

It’s worth recalling that Xi Jinping’s ham-handed reaction is to the stationing of a purely defensive missile system in South Korea, to protect South Korean cities from a nuclear threat that China | has | done | so | much | to | create in the first place. If you actually click those links and read those posts, what’s now undeniable is that China’s support for North Korea isn’t just economic support that incidentally aids its nuclear and missile programs. Rather, China is willfully hosting Pyongyang’s proliferation networks, laundering money for entities that are designated by both the U.S. and the U.N. for proliferation, and selling Pyongyang the materiel it uses in its missile programs, including the trucks its missiles ride on.

In other words, China is using North Korea to menace and intimidate South Korea, and when South Korea tries to protect itself, China is using its economic power to bully South Korea into submission and unilateral disarmament. As South Korea’s ally, we must not stand for this. I expect that when President Trump meets with “President” Xi (as China calls its unelected tyrants), he will tell Xi to knock it off. Secretary of State Rex Tillerson previously told the Chinese that its bullying of South Korea was “uncalled-for.” But it was Defense Secretary James Mattis who really nailed it when he said this:

“In the South China Sea, we see China shredding trust as they adopt a tribute-nation kind of approach where all other nations have to pay tribute or acquiescence to the more powerful nation, the larger nation,” Mattis said during a Senate Appropriations Committee hearing.

Mattis also accused China of “seeking veto power over the economic, diplomatic, and security decisions of nations on their periphery.” He did not elaborate, but one such case is Beijing’s retaliatory measures against South Korea for hosting the U.S. THAAD missile defense system. [Yonhap]

Also spot-on was Congressman Ted Yoho, who accused China of “sanctioning the wrong Korea.” Then, yesterday, 26 senators from both parties released this letter:


All of this is exactly right, for now. The U.S. is sending a clear and united message against China’s ham-handed imperial overreach, and that message is being heard in Seoul. It’s a message we can sharpen further: I’m convinced that China means nothing less than to disarm South Korea, suppress its sovereignty, decide what its newspapers can print, and control its resources. Its ambitions for Korea aren’t materially different than Japan’s ambitions for Korea in 1905. For now, Seoul is defiant. But in the long term, China means to impose its own Eulsa Treaty on Korea, and it probably thinks it has found just the man to sign it.

I’ve argued that Xi Jinping’s economic warfare against a close U.S. ally calls for economic deterrence against China in concert with China’s two other largest trading partners, Japan and South Korea. I say this despite acknowledging that finishing the trade war that China started will have costs for everyone. My hope is that a strong and focused response that targets banks, businesses, and the port in, say, Dandong, would cause enough political trouble for Xi to end the war quickly and prevent a recurrence. If Trump is feeling protectionist anyway, why not use a protectionist counter-attack to damage North Korea’s finances and Xi Jinping’s domestic political support, and increase the confidence of our allies that we’ll stand behind them?

But of course, our response doesn’t have to be symmetrical. Other tools at our disposal will do us less harm. One of those is to strike harder in the political war that China is already waging against us. It’s time to speak clearly to the peoples of Asia about Xi Jinping’s plans for a grand new Co-Prosperity Sphere in which they will be China’s tributaries. As in the past, the tributaries’ share of that prosperity will be highly unequal. China’s conduct is both a threat and an opportunity to drive home what is now manifest. Xi Jinping means to bully his way into economic, naval, and (ultimately) political hegemony over all of East Asia. He isn’t building those islands in the South China Sea just to protect Chinese trade routes. He isn’t even building them because he wants the fish and the oil in those waters. As the THAAD episode clearly illustrates, he wants to be in a position to dominate his neighbors. If we mean to prevent that outcome, we will all have to unite against it.

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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.

~   ~   ~

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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Will China cooperate on North Korea sanctions? That depends on which “China” you mean.

I often talk about the importance of pressuring China to pressure North Korea. When I do, people sometimes cock their heads like my dog would do when he heard a new sound, and ask me whether China would cooperate with that. I answer this question with a question of my own: “Which China?” China, for all its top-down authoritarianism, isn’t a monolith. Like most societies, it has different constituencies with different views that fear different risks and pursue different interests. That’s why my answer to the first question depends on the answer to the second.

If you mean the Chinese defense establishment, which is constitutionally hostile to the United States and sees itself as in a zero-sum, Cold War competition against us, the answer will always be “no.” That China is our enemy by its own choice. Its default is to view anything that’s bad for America as good for China. Its attitude is probably hardening.

If you mean the Chinese foreign policy establishment, the answer will also be “no,” but its obstructionism might be tempered by strategic compromises or interrupted by some temporary feints at compliance (currently, the so-called coal ban). It’s almost as hostile to us as the defense establishment, but it pursues its ambitions more intelligently. It may despise Kim Jong-un, or it might just be pretending to, but either way, it probably despises us even more. Still, it recognizes the value of playing us, and it does that very well.

If you mean the Chinese businesses that willingly deal with North Korea, the answer will be “no” as long as North Korea’s checks clear, and it will be “yes” the instant they don’t, and it will be “yes” the instant the businessmen learn — to their abject horror — that some other businessman who deals with North Korea just had his bank accounts frozen and couldn’t make the payments on his Buick and that America can really do that.

If you mean the Chinese Finance Ministry, it will be “no” until we raise the cost of non-cooperation to unsustainable levels, by threatening to depress the levels of growth it must sustain to pay pensions for its aging population and maintain economic stability. That is its mission. And interestingly enough, China’s terrible reputation for financial integrity is a growing threat to that mission. I’ll explain in a moment.

If you mean the Chinese banks, it will be “no” until subpoenas start to rain down on their New York branches and their lawyers tell them that the only way to avoid the fate of BNP Paribas is to cooperate with the feds and settle for reduced civil penalties and deferred prosecution.

It’s a misnomer to refer to a “Chinese” banking industry that relies on access to foreign finance, and thus subjects itself to foreign regulation. Going global can cause some culture shock for banks that are used to China’s lax Anti-Money Laundering (AML) regulation. For the last few years, Treasury’s AML focus has been on European and Middle Eastern banks dealing with Iran, so Chinese banks have had a (mostly) free ride from the feds. But New York and EU regulators haven’t been as laissez-faire about AML compliance and have been handing them some stiff fines. That’s why People’s Bank of China officials recently “pledged a tougher fight against money laundering.”

Behind this clarion call by Beijing’s bank supervisors was an unnerving realization that some of the nation’s biggest banks had left themselves vulnerable to anti-money-laundering sweeps by regulators abroad.

This vulnerability stems from ambitious overseas expansions in recent years by the Bank of China (BOC), the Industrial and Commercial Bank of China (ICBC) and other powerful, state-owned lenders. As of June, according to official data, China’s biggest bank, the ICBC, was operating 412 branches in 42 countries, while the BOC had 564 branches in 46 countries. China Construction Bank (CCB) counted 140 overseas branches, and Agricultural Bank of China (ABC) had 17. [Caixin Global]

Here comes the culture shock.

At home, according to banking experts who spoke with Caixin, Chinese banks have been operating in a regulatory environment that’s generally soft on money laundering rules for financial institutions. Some of these banks have thus learned the hard way that many regulators outside China not only diligently enforce rules designed to prevent dirty transactions, but are also eager to slap violators with heavy fines and even imprisonment.

And also, don’t usually take bribes.

The BOC, the nation’s fourth-largest lender, reportedly agreed on Feb. 17 to pay 600,000 euros ($634,000) to settle a money laundering case involving its branch in Milan, Italy. The branch had been targeted by Italian investigators since June 2015 who had looked into whether BOC helped clients transfer to China about 2 million euros linked to criminal activity.

In addition, a judge in the Italian city of Florence on the same day handed four BOC-Milan branch employees two-year suspended prison sentences after they were convicted of breaking Italy’s anti-money-laundering laws.

A Hong Kong-based expert on money laundering who declined to be named said while the fine against BOC-Milan was comparatively “moderate,” the criminal convictions were “surprising.” The decisions in Italy followed a November decision in the United States by New York state’s Department of Financial Services, which fined a local ABC branch $215 million for illicit money transfers.

By now, it has become reasonably clear that the Trump administration will soon revoke the sub rosa immunity the Obama administration had given Chinese banks to launder North Korea’s money. Not only will Chinese banks have to worry about EU and state regulators, they’ll have to start worrying about the Treasury Department, too.

That isn’t just a worry for China’s smaller, shadier banks. Some of the biggest banks in China were servicing North Korean customers until at least early 2016. Others were named in the Dandong Hongxiang case for doing so months later. Some of those banks have branches in New York. Those without still depend on U.S. correspondents to process their payments through the financial system, just as Banco Delta Asia once did.

The correspondents, in turn, have legal duties to comply with Know-Your-Customer (KYC) and AML regulations, which will require them to ask questions about the names, nationalities, and passport numbers of their customers; whether they’re sanctioned by the UN, Treasury, or the EU; and whether their business addresses are, say, shell companies in the British Virgin Islands, or empty offices next door to the local North Korean embassy. Treasury expects banks to hire qualified compliance specialists, employ highly specialized compliance software, and implement AML and KYC compliance procedures.

If Treasury begins to enforce those rules, banks will skimp on AML and KYC compliance (such as) at their own peril. If you click those last two links, you’ll see that I just cited examples of Chinese banks that got away with lax compliance in the past. The Agricultural Bank of China (ABC) is an example of one that didn’t:

After the branch opened in August 2012, Yu worked to boost the ABC’s interbank-transaction business through trade financing and other services. His goal was to quickly expand assets at the branch, which was ABC’s only operation in the United States.

But Yu’s strategy apparently exposed the branch to compliance risks, as his favorite businesses involved transactions executed on behalf of other banks’ customers. And ABC had limited access to information about those customers.

Yu maintained his strategic focus despite a 2014 warning by the central bank pointing to risks associated with overseas banking services.

Until a whistleblower came along, anyway.

But that same year, Taft’s allegations landed on investigator desks at the New York Fed, triggering a probe that led to a Fed order in September: ABC was given 60 days to deliver a plan for fixing risk management flaws and enhancing money controls at the New York branch.

The fines were levied two months later after New York state regulators determined ABC had deliberately failed to scrutinize dubious money transfers.

Now for the part where the bank rolls over, cooperates, and promises to get its compliance act together to reduce its penalty.

Sources close to the matter said an original fine of $500 million was eventually cut by more than half following negotiations between regulators and ABC-New York. The branch also agreed to hire an independent, regulator-approved monitor to assess its business.

“After the incident, ABC (headquarters in China) held several meetings emphasizing managing overseas branches and subsidiaries,” said a source at the bank.

Nevertheless, the bank’s reputation had taken a major hit. In November, for example, the credit rating agency Moody’s said the regulatory penalty had highlighted oversight failures at ABC and would have a negative effect on the bank’s credit rating.

Political subversion and human intelligence can be another wedge to incentivize banks to make better choices. Every arrest or defection of a North Korean diplomat or financier has the potential to expose more parts of Pyongyang’s financial network and implicate the banks that skirted the law to do business with them. If banks begin to see North Korea itself as unstable, more of them will begin to see North Korean customers as legally risky. The best possible way for a bank to mitigate that risk? File a Suspicious Activity Report with the Treasury Department and cooperate.

All of which is a long way of saying that China’s generals and diplomats almost certainly won’t cooperate on North Korea, at least not voluntarily — and not yet. That will make it harder to enforce sanctions (especially trade sanctions) but by no means impossible, because the Chinese banking industry has to cooperate. China’s generals and diplomats may not want commercial banks to be AML compliant, but China’s central bank does. Banks in Malaysia, Russia, Vietnam, Singapore, and Tanzania will face the same choice, of course, but China is the lynchpin, the Abbottabad of North Korea’s illicit finance. That finance is absolutely essential to Kim Jong-un’s capacity to buy, sell, import, export, pay, fuel, repair, and sustain. The Workers’ Party almost certainly keeps most of its money in Chinese banks. After all, what are you going to buy with all the money in Pyongyang, especially now that correspondent relationships with North Korean banks are banned by both the U.N. and the U.S.? Answer: stuff imported from China, bought with dollars held on deposit in a Chinese bank.

Freeze those dollars and Pyongyang is living on borrowed time. Sure, you can smuggle bulk cash a few million dollars at a time. Sure, you can run uninsured rust-buckets across the Yellow Sea with their lights and transponders turned off, carrying away whatever wares that cash buys, at least until all the (uninsured) ships smack into rocks, get T-boned by oil tankers, or get seized at the entrance to some canal or another. Drug cartels can run that way for years, but that isn’t a sustainable model for ruling over 23 million increasingly informed and resentful people.

Now that I’ve laid this foundation, you’ll understand the legal and policy implications of my upcoming post about what U.N. Panel of Experts report, and what it just told us about China, North Korea, and money laundering.

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UN report finds extensive evidence that China hosts N. Korea’s proliferation networks

A new report from the Wall Street Journal, quoting “U.S. and Asian officials,” says that the Trump Administration is considering “increasing financial penalties on Chinese companies in response to growing evidence of their support for North Korea’s weapons programs.” Such as:

In a case that particularly alarmed the Trump administration, a North Korean businessman attempted to use Pyongyang’s embassy in Beijing to export a lithium metal that is used to miniaturize nuclear warheads, according to the U.N. report. [Wall Street Journal, Jay Solomon]

As for that “growing evidence,” this year’s report from the U.N. Panel of Experts monitoring the (non-) enforcement of sanctions against North Korea is packed with so much of it that I couldn’t even jam a Cliffs Notes summary into one post. This post will cover the evidence that China is allowing known, U.N.-designated North Korean proliferators to operate from its territory, often openly. We’ll turn to China’s tolerance for (and abetting of) North Korean money laundering later this week, as soon as I find the time to write it up. Bear in mind, this post itself is a sequel to other posts I’ve written in previous years, also documenting China’s flagrant cheating on the sanctions, or its simple refusal to enforce them.

[“Logging vehicles” made by a state-owned company in China, via the U.N. Panel’s 2013 and 2015 reports]

Solomon’s report also adds to the leaks I discussed here, suggesting that the Trump administration will opt for a harder line, including secondary sanctions, against Chinese companies that aid and abet those violations.

But Trump administration officials have signaled there will be even greater financial pressure placed on Beijing if it doesn’t cut off North Korea, a step that risks Chinese retaliation. “We are putting the world on notice: The games are over,” Commerce Secretary Wilbur Ross said while announcing the sanctions on ZTE last week. [….]

U.S. officials said Mr. Tillerson would be discussing North Korea at all his stops in Asia, including the issue of “secondary” sanctions against non-North Korean companies that have been aiding Pyongyang. “All of the existing tools that we have to try to bring pressure on North Korea are on the table, and we’ll be looking to try to see what the most effective combination is,” said a senior U.S. official briefed on the Asia trip.

Republican senators wrote Treasury Secretary Steven Mnuchin last month and called for an investigation into the Bank of China and other Chinese firms for their alleged roles in helping North Korea. [Wall Street Journal, Jay Solomon; link to senator’s letter here]

More on that here, via the New York Times. To be clear, some of this cheating is willful, but most of it is what I’d call willful blindness, where the Chinese authorities knowingly permit North Korean proliferators to operate on their territory, even when the front companies and their agents were designated by the U.N. years ago, and often long after being put on clear notice by the U.N. Panel. In a few cases, China clings to obtuse interpretations of the resolutions to avoid complying with them. What all of these cases have in common is that U.N. experts were able to find violations on Chinese soil, in plain sight, that Chinese government officials somehow could not.

Nuclear Proliferation

Kumsan Trading. Member states are supposed to freeze the assets of, and expel the representatives of, companies involved in North Korean nuclear, missile, and other WMD proliferation. According to the Panel, the Korea Kumsan Trading Corporation is a front for North Korea’s General Bureau of Atomic Energy and helps it procure materials and fund its operations. Kumsan advertises itself online openly as dealing in sanctioned products, including vanadium and precious metals, with locations in both Moscow and Dandong. (Paras. 18-20.)

Korea Mining Development Trading Corp. (KOMID) is North Korea’s main arms dealer. It was designated in 2009 for WMD proliferation, but probably earns most of its revenue through violations of an embargo on conventional arms sales, by selling to governments in Africa and the Middle East. KOMID operates through multiple front companies that do business more-or-less openly in China. China is required to expel the representatives of these companies, but it almost never does. When one of them is exposed, it may revoke a business license or registration, but the operative goes right back into business under a new name at a new address. The Panel also found that at least nine KOMD representatives traveled through China in 2016, despite a requirement that member states deny them entry. (Table 8, Page 68.)

One of KOMID’s fronts is Namchongang Trading, which was designated by the U.N. in 2009 for procuring nuclear-related items. It operates openly in Beijing and Dandong, China, through several Chinese commercial websites. (Para. 156.) Namchongang has also operated as (or in cahoots with) Taeryonggang Trading, Namhung Trading, and Sobaeksu United Corporation, which operates in Beijing, Yingkou and Dandong. The EU designated Sobaeksu in 2010 for “the research and acquisition of sensitive products and equipment.” The Panel suspects that this entire network is involved with KOMID. (Paras. 156-59.) KOMID also does business through a front company called Beijing New Technology. (Para. 163.)

Another KOMID front, Korea Heungjin Trading, which was designated in 2012, for nuclear, missile, and other WMD proliferation, also operates openly in Dandong and Dalian. A North Korean diplomat posted at the embassy in Beijing serves as its director. (Para. 187-89.)

Green Pine Associated was designated by the U.N. in 2012 for its involvement in North Korea’s nuclear, missile, and other WMD programs. It’s still doing business openly in both Beijing, Shenyang, and Hong Kong as Green Pine, Natural Resources Development Investment Corporation, King Helong International Trading, Korea Unhasu Trading Company, and Saeng Pil Trading Corporation. (Paras. 166-83.) Green Pine is the company behind the attempted sale of the lithium from … guess where:

24. The Panel investigated the 2016 attempted online sale of lithium metal by the Democratic People’s Republic of Korea. The enriched lithium-6 isotope, and products or devices containing it, are on the list of prohibited nuclear-related items adopted by the Security Council (see annex 4-4). According to IAEA, lithium-6 is used to produce tritium, an isotope found in boosted nuclear devices. This sales attempt suggests that the Democratic People’s Republic of Korea has access to remaining quantities of the material.

25. Li-6 is advertised for sale by a company of the Democratic People’s Republic of Korea, General Precious Metal, which the European Union has identified as an alias of Green Pine Associated Corporation (Green Pine). Mr. Chol Yun was listed as the contact person of General Precious Metal for sale of the mineral and has an address and phone numbers in Beijing (see annex 4-5). The same name appeared as third secretary of the embassy of the Democratic People’s Republic of Korea in Beijing on an official diplomatic list dated 24 September 2012 (see annex 4-6). The Panel notes a pattern whereby the Democratic People’s Republic of Korea has accredited Green Pine overseas representatives as diplomats. The Panel continues to investigate this diplomat’s involvement in prohibited activities and his possible connection with another prohibited activity (see para. 91).

Korea Ryonha Machinery Joint Venture was designated in 2013 for WMD proliferation, mainly for buying, selling, and manufacturing machine tools used for making both conventional weapons and WMDs. It shows up in POE reports year after year because it continues to operate, and to display its wares at trade shows, in both Russia and China. In 2016, a Chinese company exported several machine tools to North Korea, and the Chinese government was reportedly investigating (!) Ryonha’s involvement. (Para. 196.)

[From the U.N. Panel’s 2014 report]

Training of scientists. The resolutions ban member states from training North Koreans in sensitive technology that could be used for North Korea’s WMD programs. The North Korean universities that train the country’s nuclear and missile scientists have exchange agreements with universities in Russia and China. The Panel asked the Chinese universities to explain, but they never responded. (Para. 135.)

Missile Proliferation

Kwangmyongsong missile parts. Someone, presumably the U.S. Navy, recovered the pieces of a Kwangmyongsong missile North Korea launched in February 2016 and found that it contained “ball bearings and engraved Cyrillic characters … identical to those from the 2012 Unha-3, and a “camera [and] EMI filter” from a “Chinese manufacturer, Beijing East Exhibition High-Tech Technology Co. Ltd.” (Paras. 57-58.) That “someone” also discovered the Pyongyang had imported pressure transmitters from the U.K. and Ireland, via the manufacturer’s distributor in China, via middlemen in China. (Para. 59.) This suggests several layers of violations — China’s failure to expel North Korean representatives of sanctioned entities, to enforce export controls, or to inspect cargo going to North Korea.

Shipment of Scud parts to Egypt. Paragraphs 71-77 of last year’s report discuss a shipment of Scud missile parts to Egypt. Since then, the Panel has determined that the whole scheme was run out of the North Korean embassy in Beijing. (Paras. 88-89.) The shipper was Ryongsong Trading Company, and the seller was Rungrado Trading Company, which you may remember for its human trafficking in Europe. Rungrado was designated by the Treasury Department last year for “the exportation of workers” from North Korea to earn foreign currency for Pyongyang, some of which went to North Korean agencies that were designated for supporting WMD programs. South Korea considers Rungrado to be an alias for Ryongsong. (FN.99.) Although the U.S. Treasury Department routinely designates aliases, it has not designated Ryongsong.

Weapons Trafficking

North Korea is subject to a U.N. embargo on the import, export, sale, or purchase of weapons, including weapons components, technology, services, training, and dual-use items. Since March, China has been required to inspect all cargo “that has originated in the DPRK, or that is destined for the DPRK, or has been brokered or facilitated by the DPRK or its nationals, or by individuals or entities acting on their behalf or at their direction, or entities owned or controlled by them, or by designated individuals or entities, or that is being transported on DPRK flagged aircraft or maritime vessels.”  (Para. 18.) Pretty clearly, that isn’t happening.

Syria rocket shipment. You’ve already read my post on this, right? Last August, Egyptian authorities seized a record haul of North Korean weapons, mostly PG-7 antitank rockets, hidden under iron ore aboard the M/V Jie Shun. I guessed that Syria was the destination because of the geography, but it’s possible that the client could have been Hamas or Hezbollah (which have also been Pyongyang’s arms clients).

This transaction also relied heavily on North Korean agents based in China. The bill of lading lists a shipper whose address is a hotel room in Dalian, a city often used by North Korean operatives. (Para. 63.) The holder of the ship’s compliance document was one Fan Mintan. A second man, Zhang Qiao, was its emergency contact, arranged for the ship’s insurance, and registered the ship’s operator in the Marshall islands. (Paras. 65-66.) Zhang is also involved in the coal trade with North Korea (para. 68), and thus played a role in violating UNSCR 2270 and 2321. He is also linked to another suspected North Korean smuggling ship, the M/V Light. A third man, Li Anshan, whom the Panel links to Ocean Maritime Management, a North Korean shipping company designated by the U.N. for arms smuggling, helped arrange for the Jie Shun’s Cambodian registration.

Eritrea radios shipment and Glocom. I previously posted about Glocom, the Reconnaissance General Bureau front company that manufactured sophisticated military radios and was based in Malaysia. Glocom made headlines after it was exposed just after the assassination of Kim Jong-nam. Starting at Paragraph 72 of its report, the Panel described how Glocom shipped radios to Eritrea. According to the Panel, that shipment “originated in China.”

75. The air waybills listed the shipper as Beijing Chengxing Trading Co. Ltd. According to the Chinese business registry, the company is still active, mainly trading in electronics, mining equipment and machinery (see annex 8-3). Mr. Pei Minhao (???) was listed as a legal representative until 26 February 2016 and still owns most shares in the company (see para. 164).

Glocom had North Korean representatives based in both Malaysia and China; had bank accounts, front companies, and procurement agents in both Malaysia and China; used mostly Chinese suppliers; and shipped its components to Beijing or Dandong for assembly (the report didn’t specify where). (Para. 77-84, 164.) Glocom did most of its business in U.S. dollars or euro through a sanctioned bank, Daedong Credit Bank, “to transfer funds to a supply chain of more than 20 companies located primarily on the Chinese mainland; in Hong Kong, China; and in Singapore.” (Paras. 233-25.)

Naval vessel repair & construction. Last year, the Panel reported that Green Pine had refurbished military patrol boats for Angola in violation of the arms embargo. The parts were shipped from China, the Panel has asked China for an explanation, and China still hasn’t given one. (Para. 103.)

North Korean UAV that crashed in South Korea. A Beijing company, Microfly Engineering and Technology, made it. After that, the trail leads to another Chinese company and two middlemen, who either point fingers at one another or deny all involvement. The Panel asked China to investigate, but China hasn’t responded. (Para. 107.)

Conclusion

When reporters try to make sense of China’s inconsistent and shifting explanations for why it won’t enforce sanctions against North Korea, they often settle on the consensus that China doesn’t really want North Korea to have nukes, but that it’s afraid that strict enforcement of sanctions will cause North Korea to collapse. This evidence should cause us to question that consensus. When China hosts all of these entities that spend scarce North Korean resources on nuclear components instead of food and consumer goods that might stabilize the regime, you have to look beyond regime preservation to explain China’s motives. Frankly, I can’t buy the consensus that Beijing doesn’t want North Korea nuked up when I see this much evidence that it’s helping to make that happen. Maybe the scholars our scholars are talking to don’t want a nuclear North Korea, but I’m not sure those scholars necessarily speak for China’s defense establishment.

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China is waging economic war against S. Korea. We must stand by our ally.

Less than two years ago, I wrote of the coming Korea missile crisis. That crisis has now arrived. As I’ve documented at this site, that crisis is, in large part, a crisis of China’s making. North Korean missiles are made in part from Chinese technology, in large part from components purchased in or smuggled through China, and that are almost always procured by North Korean agents who operate more-or-less openly on Chinese soil. North Korea’s missiles ride on Chinese trucks. North Korea’s nukes and missiles were paid for by dollars laundered through Chinese banks, by commerce (much of it illicit) that passed through Chinese ports. 

Now that those missiles have matured into a grave threat to our allies in South Korea and Japan, and to the Americans (and their family members) stationed on allied soil, the U.S. has deployed defensive missiles to both countries. Now, China has the unmitigated gall to object to South Korea defending itself against a made-in-China threat from North Korea, presumably because missile defense weakens China’s own capacity to bully those allies, Taiwan, and perhaps even the United States.

Since 2006, China has voted for seven U.N. Security Council resolutions (1695, 1718, 1874, 2087, 2094, 2270 and 2321) and proceeded to violate all seven of them almost immediately. Why? Probably because China’s long-term strategic objective was to use North Korea to intimate South Korea, drive a wedge into the U.S.-South Korean alliance, push U.S. forces out of Korea, and then apply the same strategy to Japan. China probably realizes that by backing Kim Jong-un it’s riding a tiger, but it still prefers coddling a Caligula with nukes to allowing one free Korea to arise on its border. China’s grand strategy stands a strong chance of succeeding. Many South Koreans would sacrifice some of their personal freedom and national independence for fear of war or recession. Right now, the people of South Korea are looking to us. They wonder if they can still count on us.

That’s because China, which is opposed to unilateral sanctions except when it isn’t, has just started a trade war with South Korea to disarm the wrong Korea — the one that’s trying to defend itself against the missiles it helped North Korea build. China is closing South Korean stores on administrative pretexts, canceling group tours by Chinese tourists to South Korea, imposing pretexual inspections on South Korean agricultural products, and disrupting other South Korean investments in China. Militarily, we are standing by our ally. THAAD, though by no means a defense against all of North Korea’s threats to Seoul, can stop the largest missiles that carry the most dangerous (read: nuclear) warheads. Diplomatically, we’re saying we stand behind South Korea, and the Secretary of State has just announced a visit to Seoul. Those are good first steps toward showing U.S. resolve in standing by its ally. But if the U.S. isn’t just as prepared to stand by its ally economically as it is militarily and diplomatically, South Korea may well be finlandized as a Chinese satellite under a future President Moon Jae-in, who is no friend of America

To prevent this, the U.S. must send Beijing a strong message of economic deterrence. A trade war with China would be bad for both countries, but worse for China, with its heavy reliance on exports to the U.S. and the dollar economy. Beijing is using its economic power to attack U.S. security interests and those of our allies. We can’t stand for this. As with any other war not of our choice, economic war would come with costs. The question is whether the costs of not fighting back exceed the costs of fighting back. In this case, the cost of not fighting back could include the breakdown of the security system that has freed and enriched billions of people in northeast Asia, the U.S., and (indirectly) around the world. It would include a significant setback in our efforts to prevent North Korea from irreversibly defeating the cause of global nonproliferation. Measures to mitigate the impact on South Korea are only a partial answer. We must also deter a China that is testing a new president’s resolve with a strategy that is at least as dangerous as anything it has done in the South China Sea. That is worth bearing significant economic costs. And there are ways we can, and should, respond.

1. The first and most obvious target should be the Chinese banks that are breaking U.S. law to finance Kim Jong-un’s proliferation. That’s something we should be doing regardless of China’s bullying of South Korea, so arguably, it doesn’t belong on this list at all. Still, China’s bullying might affect the strategy we use and the aggressiveness with which we implement it.

2. U.N. Security Council resolutions require all ports to inspect cargo going to or coming from North Korea. China’s ports clearly aren’t doing that. Under section 205 of the NKSPEA, Customs and Border Protection has the authority to increase inspections of cargo coming from those noncompliant ports. Ports in China’s economically depressed northeast, particularly those that import coal in violation of U.N. sanctions, should be at the top of our target list (but only one or two smaller ports, initially). The effect of such a sanction would be greatly magnified if the South Korea and Japan join it; after all, the U.S., South Korea, and Japan are China’s three largest trading partners. As they might say in New Jersey, it’s time for some traffic problems in Dandong. 

[Hey, it’s Donald. I think I have a job for you after all.]

3. China’s protectionism, censorship, and hacking make its IT companies good targets for sanctions, particularly through a more aggressive posture by the Committee on Foreign Investment in the U.S. and the aggressive policing of technology transfers. Yesterday’s actions against ZTE industries, which included the imposition of a $1 billion fine, are an example of the actions the U.S. could take to prevent China from stealing and selling U.S. technology to our enemies. Importantly, those actions suggest that the Trump administration has revoked China’s de facto immunity from the consequences of breaking U.S. law. As with our money laundering laws, we should enforce our export control and intellectually property laws regardless of how China treats North Korea, but China’s behavior against South Korea can influence our prosecutorial discretion in how aggressively we enforce those laws.

4. As mentioned, the U.S., South Korea, and Japan are China’s top three trading partners. Does China really want a trade war against all three of those economies when its banking sector is teetering under mountains of debt, when it’s trying to deflate a real estate bubble, and when it’s struggling to retain control of its currency and its stock market? Again, a trade war would be bad for everyone; the strategy is to deter China and force it to retreat by making sure it knows it would get the worst of one. The three allies share a strong interest in keeping the U.S.-Korea alliance strong to protect them from a common North Korean threat. For Japan, joining that economic alliance would have the advantage of balancing its villainous image in South Korea with the reality that it can also be a strong ally for South Korea’s security. By identifying appropriate targets in China for sectoral sanctions and combining their economic weight, the three allies can force China to back down and behave reasonably. Some of those targets might include products that include North Korean labor or materials, including seafood, textiles, and precious metals. Targets should be chosen to cause the maximum amount of economic and social unrest in China.

South Korea’s response to China has a political component, too. Its political right should play the anti-China nationalist card as shamelessly the political left played the anti-American nationalist card in 2003. It has criticized the left for cozying up to China in the midst of China’s economic bullying, and should intensify that criticism, making any preemptive capitulation to China an election-year liability for the political left. Both sides in Korea have long played the anti-Japan nationalism card, which continues to put distance between two natural allies over events that concluded 72 years ago. Not one comfort woman can still be saved from the predations of imperial Japan, but thousands of (North) Korean women who are sold as sex slaves in China still can be. I wonder if it might finally occur to Beijing that its bullying is backfiring if human rights activists put a statue of one of those trafficked women in front of the Chinese Embassy in Seoul. At the very least, it might make a few South Koreans stop to think about how China treats North Korean women, and whether that treatment is a metaphor for what China thinks of Koreans generally.

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China’s latest cheating on North Korea sanctions is a test for Trump

Like most people, I would prefer that the new President of the United States refrained from conducting diplomacy by Twitter. Without endorsing the medium, I gave a qualified endorsement to the message President Trump sent to China when he accused it of not helping to reign in His Porcine Majesty. Trump was right about this, of course. Over the last several years, the U.N., no less, has published a wealth of evidence that China has (almost certainly willfully) violated the North Korea sanctions it voted for in the Security Council. Here’s the latest example:

26. Decides … that the DPRK shall not supply, sell or transfer, directly or indirectly, from its territory or by its nationals or using its flag vessels or aircraft, coal, iron, and iron ore, and that all States shall prohibit the procurement of such material from the DPRK by their nationals, or using their flag vessels or aircraft, and whether or not originating in the territory of the DPRK, and decides that this provision shall not apply with respect to:
. . . .
(b) Total exports to all Member States of coal originating in the DPRK that in the aggregate do not exceed $53,495,894 or 1,000,866 metric tons, whichever is lower, between the date of adoption of this resolution and 31 December 2016 …. [UNSCR 2321, Nov. 30, 2016]

Just eight weeks later, the inestimable Leo Byrne cites customs data showing that China imported twice the amount of North Korean coal permitted for the remainder of 2016:

Customs figures show Chinese traders imported over 2 million tonnes of coal in December, up from 1.9 million the previous month. North Korea’s received $168 million for the commodity, a figure over three times that outlined in Resolution 2321. [NK News, Leo Byrne]

So yesterday, a reporter asked the Chinese Foreign Ministry’s mouthpiece to explain herself.

Q: [I]t is stipulated in Resolution 2321 of the UN Security Council that the imported coal from the DPRK by 31 December 2016 should not exceed one million ton or 54 million US dollars. Statistics recently released by China’s customs shows that China’s volume of coal imports from the DPRK in December 2016 exceeded the cap. What is China’s comment on that?

A: On your first question, it is a shared obligation of UN member states to implement resolutions of the Security Council. According to Chinese laws, it is required for the Chinese government to issue a statement for actions taken to implement Resolution 2321. This is a regular practice of the Chinese side. The statement by relevant Chinese ministries is one such step. The list of dual use items and technologies annexed to the statement is a verbatim quote of the list in the resolution.

The mouthpiece is referencing this belatedly updated list of things Chinese companies aren’t supposed to export to North Korea, unofficially translated here, at NK Pro.

On your second question, let me point out that Resolution 2321 should be implemented in a comprehensive and balanced manner. And it is not only China who should implement the resolution. The resolution called for solving the issue of the Korean peninsula through political and diplomatic means. I would like to ask, what efforts have been made by other relevant countries? [ChiCom Foreign Ministry]

The mouthpiece implies that China’s compliance with the sanctions resolutions is conditioned on “other relevant countries … solving the issue of the Korean peninsula through political and diplomatic means.” But the resolutions impose no such obligation or condition. The argument is spurious. It’s also circular, because North Korea’s first demand in negotiations will surely be that we stop enforcing sanctions, meaning that China’s de facto position is that it won’t comply with sanctions unless we lift sanctions.

Specifically on your question, competent authorities of China issued a statement on 9 December, immediately after the adoption of Resolution 2321 by the Security Council, ordering the suspension of coal imports from the DPRK until 31 December 2016. The Chinese side have taken measures in line with the requirements of the resolution and fulfilled its own international obligation. [ChiCom Foreign Ministry]

China’s obligation under Resolution 2321 does not end with issuing a statement and then forgetting about it. Surely China, which can have Jingjing and Chacha at a dissident’s doorstep 20 minutes after an offending Weibo post, can’t expect us to believe that it can’t enforce its laws. Surely China, whose customs authorities know how to detect and hold up shipments when doing so serves Beijing’s interest in bullying its neighbors, can’t expect us to believe that it can’t enforce its customs laws. When confronted with evidence of a violation of a U.N. sanctions resolution China voted for eight weeks ago in a clear, blue question, China’s mouthpiece gave a vague, red answer. That answer shows contempt for the United Nations and the United States.

For eight years, Barack Obama mostly kowtowed in the face of a whole course of aggressive Chinese conduct. Obama’s passivity pleased many “China hands” in academia, but worried our military, shook the confidence of our allies, and yielded some grave setbacks for peace and security in an economically vital part of the world. The most menacing of these is Kim Jong-un’s alarming progress toward nuclear breakout. Beijing acts as if it does not understand the risk of war if sanctions fail, or the risk that this war would involve China. Either that, or China sees a nuclear North Korea as useful for China’s plans to dominate northeast Asia.

For all that was wrong with the Obama administration’s North Korea policy, the former President did lay down a marker in blocking the assets of the North Korean military-controlled companies responsible for most of the coal exports. To the extent that Chinese importers purchased from those designated suppliers or failed to limit North Korean coal imports as required under U.N. resolutions and Chinese law, the U.S. has the authority to freeze the Chinese importers’ dollars. Alternatively, it could invoke section 205 of the NKSPEA to increase the inspection of cargo arriving at U.S. ports from Chinese ports that facilitated violations of the coal cap. This is a test for the new Trump administration. We’re about to find out if Donald Trump’s tough talk is more than just talk.

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Trump’s tweets show the right instincts on North Korea.

Kim Jong-un’s New Year speech turned out to more interesting than I’d predicted. No, he isn’t going on Atkins; he’s threatening to fire an ICBM that can hit the United States with a nuke. One wonders how the usual suspects at 38 North will spin this speech into predictions of glasnost and perestroika, but for now, consistent with another prediction I made, Kim Jong-un’s transition-year provocations are molding the President-Elect’s policy at a critical moment, and not to Kim Jong-un’s advantage:

For the last several months, Korea watchers have speculated which Donald Trump we’d see making our North Korea policy. Would it be the deal-maker who, in one breath, suggested he’d withdraw our troops from South Korea, sit down with a mass-murderer over hamburgers, and cut a deal? Or would it be the one who, in the next breath, called His Porcine Majesty “a maniac” and suggested that China should kill him? The two tweets Trump posted last night have given us the clearest vision of his North Korea policy since Election day. 

Whatever you may think about trade policy, Trump is unquestionably right about North Korea. China has done much less than nothing to help us in North Korea; it has actively undermined sanctions against it. Its companies sell North Korea the trucks that haul its missiles, its ports let WMD components and weapons pass through on their way to the Middle East and Africa, and its banks are laundering the money that ships North Korean weapons and enriches North Korean proliferators. If the Chinese government hasn’t been willing to help until now, it isn’t going to help unless it faces a much higher cost for its conduct. In fact, it probably won’t be swayed to help at all, but China’s banks and trading companies can be. In the short term, they should be our first targets.

In the long term, our strategy should be to put the North Korean government into something like financial receivership. We should identify and freeze every North Korean account, releasing only as many dollars as necessary for North Korea to import food, medicine, fertilizer, and humanitarian necessities. That strategy must be pursued unblinkingly — subject only to temporary and partial waivers — either until North Korea’s disarmament is verified and it makes fundamental humanitarian reforms, or until the regime no longer exists. We cannot afford to repeat the errors of 1994 and 2007 by throwing away our leverage before North Korea is disarmed, one way or another.

Lest anyone accuse me of proposing a “sanctions-only” policy — and I have never proposed one — our next targets should be the North Korean elites in Pyongyang. We must persuade them that they have no future with Kim Jong-un — that their salvation from purges and a bleak future for their children lies in reunification. How, exactly? Well, read this strategy paper.

We must also reach out to North Korea’s poor, beyond the limits of Pyongyang. We should advocate for their human rights at the United Nations, bilaterally, publicly, and at every opportunity — and we should tell them we doing so. We should help them build the clandestine banks, churches, schools, unions, factories, farms, clinics, newspapers, relief agencies, and police forces — a clandestine civil society that could also become the political foundation of both a national resistance movement and a reunified Korea.

Finally, if North Korea goes through with launching that missile, Trump should tell the military to shoot it down.

Before Donald Trump even ran for President, my wife and I had an involved conversation about what makes presidents effective. We concluded that Reagan was effective, whereas Obama and Carter, despite being much more intelligent men, were not. Why? Because an effective president doesn’t necessarily have to master the details of policy. All an effective president really needs are good instincts about policy, good judgment about appointees, the decisiveness to pick policies and stick with them, and the judgment to know when he’s about to cripple himself with a bad ethical or policy decision. To my liberal friends, and to my friends who are reluctant conservatives, hold that last thought. In fact, hold all of them until we see what the new cabinet and policies look like.

For now, in two tweets, Donald Trump has shown better instincts about the nature of our problem in North Korea, and how to address it, than Barack Obama (undoubtedly a fine man and a highly intelligent one) displayed in eight years in office. When Trump decides to make policy of the instincts he displayed in his tweets, the first man he should turn to is Senator Cory Gardner.

While the Obama administration has implemented portions of the North Korea Sanctions and Policy Enhancement Act, I encourage the Trump administration to continue with the full implementation and more importantly, the enforcement of the sanctions outlined in the legislation.

In particular, I urge the new administration to utilize the so-called “secondary sanctions,” which target outside entities, or companies, that help Pyongyang engage in illicit behavior. Many of these companies are based in the People’s Republic of China, and the US must not be afraid to anger Beijing by going after them. While the Obama administration has sanctioned and indicted four Chinese nationals and one Chinese-based company for its business tied to North Korea’s weapons program, there are many more that the Treasury Department can — and should — target with financial sanctions. [CNN]

Whether you voted for Trump or not, you should be rooting for him to get North Korea right. So much depends on that. We only get one president at a time. For the next four years, this is the president we are going to have. At this point, if Trump has any designs on making a North Korea deal, the indications are pointing more toward the parody I wrote nearly a year ago than “just another walk in Central Park.”

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Trump is right: China isn’t helping us disarm N. Korea

The Chinese government and the anti-anti-Beijing commentariat in the U.S. are apoplectic over Donald Trump again — this time, because Trump questioned the sacrosanct one-China policy and China’s cooperation in disarming North Korea:

Trump’s latest foray into East Asian affairs came when he was asked by “Fox News Sunday” about the planning for the Dec. 2 call. He said he learned about the call “an hour or two” before it took place but said he understood the stakes.

“I fully understand the One China policy, but I don’t know why we have to be bound by a One China policy unless we make a deal with China having to do with other things, including trade,” he said.

“I mean, look,” he continued, “we’re being hurt very badly by China with devaluation; with taxing us heavy at the borders when we don’t tax them; with building a massive fortress in the middle of the South China Sea, which they shouldn’t be doing; and, frankly, with not helping us at all with North Korea.”

“I don’t want China dictating to me,” he said. [Washington Post, Emily Rauhala]

A point of order at the outset: the U.S. has never formally accepted China’s creed that there is no China but China and that Xi Jinping is its prophet, although China hands have exercised their proxy to submit to it on our behalf.

The criticism of Trump’s statement that’s hardest for me to take seriously concerns North Korea. For example, the White House has said that U.S. acceptance of “one China” is the price of Beijing’s cooperation on North Korea, to which I ask, “What cooperation?” Although it’s a mild overstatement that China isn’t helping us “at all,” Trump also understates the problem. For years, China’s North Korea policy has been a long and (mostly) unchecked series of flagrant violations of U.N. sanctions to prop up the regime in Pyongyang and negate the pressure the members of the Security Council had agreed to exert on it. If it can be said that China “cooperated” with those sanctions by voting for them in the Security Council, those votes were also Beijing’s inducements to prolong negotiations over each resolution’s provisions and water them down before inevitably violating them.

Similarly, concerns that China could ignore North Korea sanctions if Trump plays the “Taiwan card” ring hollow. Beijing isn’t going to enforce North Korea sanctions voluntarily, but we might achieve that effect if its banks and trading companies are penalized for their dealings with Pyongyang. That will undoubtedly do short-term harm to U.S.-China relations, but given the escalating nuclear crisis in Korea, that cost may be worth paying.

Some China hands have taken their alarmism to ridiculous extremes. James Fallows has even pointed to a threat to sever diplomatic relations by that modern-day Mencius, Shen Dingli — the same Shen Dingli who green-lighted North Korea’s first nuclear test and compared the four South Koreans killed in the Yeonpyeong bombardment to fish (Shen also predicted that Trump would be easy to handle). Fallows calls Shen “the opposite of a hothead,” but if that’s so, I’d hate to see what the hotheads are writing. I incline to the view that Shen is a hothead, a nationalist, and bluffing. For China to sever relations would be bad for both countries, but it would be much worse for China, which has a shaky, export-oriented economy and a rapidly aging population.

Both Trump and Shen are impulsive nationalists who appeal to constituencies of hot-heads, but they rise from different environments. In the U.S., most academics and politicians discourage confronting China’s nationalism and expansionism; China’s establishment indoctrinates its subjects with anti-American nationalism. Trump voters reflexively reject “the establishment.” In China, the establishment is known as “the Chinese Communist Party,” no one votes for it, and no one is free to reject it. The CCP plucks hotheads like Shen Dingli from obscurity and lifts them to high office and global prominence where they act as quasi-official mouthpieces for state policy. Shen is no moderate by our standards, but he isn’t an outlier by China’s:

A Monday editorial in the Global Times, a state-controlled newspaper known for its strident nationalism, suggested Trump ought to read some books on U.S.-China ties. It also warned that if the United States abandoned the One China policy, Beijing would have no reason to “put peace above using force to take back Taiwan.” [WaPo]

As far as I know, Xi Jinping doesn’t tweet, but the Global Times doesn’t print editorials unless Xi Jinping’s censors approve them. It may be less staid and authoritative than the People’s Daily, but the Global Times is probably a better reflection of Xi’s nationalist views. Its threat of war validates that our deference to China has not bought more than an illusory and temporary peace. But keeping our commitments to Taiwan serves the U.S. interest in showing its reliability as an ally and deters war. Sidelining Taiwan is a formula for a slow strangulation of the best evidence that Chinese people are capable of self-government. And if the U.S. abandons Taiwan, from Taipei’s perspective, given its already advanced state of diplomatic isolation, it would make sense for it to acquire nuclear weapons.

“China needs to launch a resolute struggle with him,” the editorial said. “Only after he’s hit some obstacles and truly understands that China and the rest of the world are not to be bullied will he gain some perception. “Many people might be surprised at how the new U.S. leader is truly a ‘businessman’ through and through,” the paper said. “But in the field of diplomacy, he is as ignorant as a child.” [WaPo]

For Americans who find Trump’s statements to be emotionally satisfying, and for Chinese who find Global Times editorials to be emotionally satisfying, it’s wise to question the tactical utility of each side’s rhetoric. Taking these in inverse order, surely the editors of The Global Times have learned by now how well Donald Trump responds to criticism. Their editorials can make James Fallows call for his smelling salts, but other than that, the best possible outcome they can have is if Donald Trump never reads about them on Twitter.

The utility of Trump’s statements is more complex, because one could view those statements as corrections of the opposite extreme — the deferential policies of his predecessors. In accord with Trump’s statement, it has often seemed that China did, in fact, dictate to American presidents, who overlooked a series of actions by Beijing that damaged U.S. interests, disrupted the international order, violated international law, or were calculated to insult our leaders. Examples include China’s seizure of the South China Sea and its defiance of an international arbitration; its bullying of Taiwan, Vietnam, Japan, and the Philippines; its international abductions of Taiwanese and anti-“Western” show trials of dissidents; its hacking of OPM’s files; forcing President Obama to exit through the back door of Air Force One; and of course, its many violations of U.N. sanctions against North Korea.

Barack Obama indulged all of this without attaching serious consequences to any of it. And just as proponents of appeasing Pyongyang err by assuming that asking nicely is our only policy option and ruling out more coercive alternatives, proponents of appeasing China cannot see any policy options beyond asking nicely. What if asking nicely isn’t enough? It’s not an unreasonable question, given that the results of asking nicely speak for themselves. In any negotiation, unless you’re prepared to walk away and impose some penalty on an uncooperative adversary, you aren’t negotiating, you’re supplicating. The trick is to impose consequences without unduly escalating the problem.

Trump’s unpredictability frightens people near DuPont Circle and in Manhattan, which may eventually weaken him (though such predictions have had a poor track record so far). It won’t play well with many U.S. allies, who don’t want to be tied to an erratic ally, and who will need to be reassured that this is an act (and by all means, beseech the deity of your choice that it is). For that matter, it sometimes frightens me. But although Trump’s words sound impulsive and often are, in this case, they’re rooted in the coherent and well-thought-out views of those who are schooling him, whether you agree with those views or not. Support for closer relations with Taiwan extends to thoughtful, moderate conservatives who haven’t always supported Trump, but who reject the counsel of those who would have him indulge China’s arrogant expansionism. In recent years, China’s predations have only grown more extreme as American presidents have indulged them.

Unpredictability can also have tactical advantages for dealing with adversaries. Richard Nixon called his strategic unpredictability “the Madman Theory.” If Trump can take a methodical and minimally disciplined approach to what costs he’s willing to impose on China for its misconduct — and admittedly, that’s asking a lot — the result may be more U.S. leverage, more effective diplomacy, and a prevention of the very war that China hands are raising panic about. It’s not without its own risks, of course. In the end, this may be the strongest criticism of Trump on Taiwan:

“Trump’s call with President Tsai may signal a possible readjustment of the U.S. policy toward Taiwan and China respectively,” he said. “But from the perspective of the Taiwanese people,” he said, “the legitimate principle should be that Taiwan should not be used as something for trade between the great powers.” [WaPo]

Taiwan is not a card; it’s a country. It’s a vibrant democracy of 24 million people besieged by a repressive and illegitimate dictatorship whose legitimacy we nonetheless acknowledge for pragmatic reasons. Far be it from me to concede the importance of defanging Kim Jong-un, but if the price of protecting one ally is to sell the freedom and independence of another, that price is too high. The Taiwan-North Korea linkage can become a dangerous trap if taken too far. Our message to Beijing must be that while the U.S.-Taiwan relationship will not ebb below a certain minimal level, it might crest well above China’s present expectations if China continues to destabilize the region.

I’ll close with a qualified apologia for Trump, whose critics raise the concern that he may give Russia free reign to achieve its territorial ambitions forcefully. It would not excuse Russia or Trump to recall that the Clintons have had a series of foreign influence scandals of their own, including over their campaign contributions from donors linked to China. Hillary Clinton and Barack Obama, for whatever reasons, gave China license to achieve its territorial ambitions forcibly. Trump is now standing up to China on Taiwan and North Korea just as his critics expect him to stand up to Russia on Ukraine and the Baltic states. Give him credit for getting it at least half right for now, and hope he gets the other half right very soon. One can only hope that by 2020, our democracy will offer us better choices than picking the candidate whose patron dictator we fear the least. 

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The U.S. may (finally) be serious about capping North Korea’s coal exports

For almost three months after North Korea’s fifth nuclear test, the U.N. Security Council remained deadlocked over how to respond, with the U.S. and its allies pressing to limit Kim Jong-un’s access to hard currency and China trying to shield its belligerent protectorate from the consequences of its behavior.

Among the most hotly debated questions was how to limit North Korea’s coal exports to China, one of His Porcine Majesty’s most important sources of hard currency. Although UNSCR 2270, passed in March after the fourth nuke test, banned most of Pyongyang’s mineral exports, there was a gaping loophole allowing exports of coal, iron, and iron ore for “livelihood” purposes. Unfortunately, it soon became clear that “livelihood” translated into Chinese means “whatever.” The exception soon swallowed the rule, and coal exports did not fall; they rose … by a lot. By September, China’s coal imports from North Korea had risen 12.8 percent over the same period last year, to a record high. The Obama administration clearly felt that China was cheating. (See also my posts from March, July, and October and Stef Haggard’s post from yesterday.)

The eventual compromise the U.S. and China reached in UNSCR 2321 was disappointing, to say the least. Rather than take any plausible steps to ensure that Pyongyang really used its coal money to provide for the livelihoods of its hungry people, the resolution simply capped coal exports at $400 million or 7.5 million metric tons a year, whichever is less. (In 2015, North Korea exported $1 billion worth of coal to China) On paper, Chinese power companies were also prohibited from buying any amount of coal from entities associated with North Korea’s WMD programs.

The flaws in this “solution” are obvious. How will we know how much coal North Korea exported, and at what price? By relying on Chinese customs statistics? How will we know which North Korean entities really sold the coal? And more fundamentally, given that cash is fungible and North Korean despots have consistently prioritized their arsenals and their own high lifestyles over the survival of their people, how can anyone verify how the world’s most financially opaque society spent the money? If China really gave a whit about the “livelihoods” of North Koreans — in fact, it holds the lives of North Korean men, women, and children in utter contempt — it would have agreed to pay for “livelihood” coal in the form of food, or to the World Food Program. An unverifiable cap is a license to cheat.

~   ~   ~

But Treasury’s announcement last week of bilateral sanctions against certain North Korean coal exporters, who Treasury believes “may benefit the Government of North Korea or the Workers’ Part (sic) of Korea,” could go far to swallow the “livelihood” cap exception to the coal ban that swallows the rule.

OFAC designated Daewon Industries and the Kangbong Trading Corporation for having sold, supplied, transferred, or purchased, directly or indirectly, to or from North Korea, metal, graphite, coal, or software, where revenue or goods received may benefit the Government of North Korea or the Workers’ Part of Korea.  The Kangbong Trading Corporation’s parent is the Ministry of People’s Armed Forces.  Daewon Industries also operates in the energy industry in the North Korean economy, and may be subordinate to the Munitions Industry Department, which is sanctioned in UNSCR 2270, designated by the U.S. pursuant to E.O. 13382, and responsible for overseeing the development of North Korea’s ballistic missiles, including the Taepo Dong-2. [U.S. Treasury Dep’t Press Release]

With that action, Treasury’s clear message to Chinese buyers is that certain North Korean sources are off limits, cap or no cap. The recent example of the Dandong Hongxiang indictment and forfeiture complaint hovers over all of this, posing a credible threat that Chinese buyers could have their dollar assets frozen. And in case anyone thinks Dandong Hongxiang was a one-off, our diplomats have said it isn’t.

The United States has warned China it will blacklist Chinese companies and banks that do illicit business with North Korea if Beijing fails to enforce U.N. sanctions against Pyongyang, according to senior State Department officials. The tougher U.S. approach reflects growing impatience with China and a view that it has not strictly enforced existing sanctions to help curb Pyongyang’s nuclear program, which a U.S. policy of both sanctions and diplomacy has failed to dent.

U.S. Deputy Secretary of State Antony Blinken gave the message to Chinese officials in meetings in Beijing in October after North Korea conducted its fifth and largest nuclear test, the officials said. U.S. National Security Adviser Susan Rice and Secretary of State John Kerry stressed the importance of choking off financial flows to Pyongyang during a meeting with Chinese State Councilor Yang Jiechi in New York on Nov. 1. [Reuters]

There are some early signs that Chinese industry may have gotten that message, although it’s typical for Chinese companies to slow their trade with North Korea temporarily after the U.N. passes new sanctions. As I’ve pointed out here more than once, there is undeniable evidence that China has violated North Korea sanctions frequently and flagrantly for years. China will not wait long to resume its cheating and test our resolve. With demand for North Korean coking coal high, we’ll need a strong deterrent to enforce sanctions. If our President-Elect has done anything right, he has sent a clear (and apparently calculated) message that China’s sensitivities will not prevent him from acting decisively to protect U.S. interests. After all, it’s not as if our sensitivities have had much visible effect on China’s behavior.

This wasn’t the only energy sanction Treasury imposed last Friday:

OFAC designated the Korea Oil Exploration Corporation for operating in the energy industry in the North Korean economy.  The Korea Oil Exploration Corporation is a state-controlled enterprise of the North Korea Ministry of Oil.  The Korea Oil Exploration Corporation has reportedly worked to establish contracts with Iranian oil entities, in part to supply crude oil to two refineries in North Korea. [U.S. Treasury Dep’t Press Release]

Among others, that’s probably bad news for James Passin, a hedge fund manager who gambled his shareholders’ money on a refinery and oil exploration in North Korea. U.N. sanctions ban exports of aviation and rocket fuel to North Korea, but not crude. Until recently, China continued to export petroleum products to North Korea. (For the record, I oppose banning exports of gasoline, diesel, and heating oil to North Korea, for humanitarian reasons.)

~   ~   ~

The Obama administration’s designation of the North Korean companies consolidates a U.S. shift to a harder line on sanctions enforcement, reflecting a bipartisan consensus for tougher action in Congress. It’s also satisfying to me personally, because the administration has adopted the strategy I advocated here in October.  Note that the language in the Treasury Department’s press release (“revenue [that] may benefit the Government of North Korea or the Workers’ Part of Korea”) does not match the language of UNSCR 2321 (“entities that are associated with the DPRK’s nuclear or ballistic missile programmes or other activities prohibited by [applicable U.N.] resolutions”), because the administration relied on the domestic legal authority of Executive Order 13722 instead:

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

   (i) to operate in any industry in the North Korean economy as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State, to be subject to this subsection, such as transportation, mining, energy, or financial services;

   (ii) to have sold, supplied, transferred, or purchased, directly or indirectly, to or from North Korea or any person acting for or on behalf of the Government of North Korea or the Workers’ Party of Korea, metal, graphite, coal, or software, where any revenue or goods received may benefit the Government of North Korea or the Workers’ Party of Korea, including North Korea’s nuclear or ballistic missile programs;  [EO 13722]

Those provisions, in turn, implement sections 104(a)(8) and 104(b)(1) of the North Korea Sanctions and Policy Enhancement Act. They may have also reflected Treasury’s interpretation of the coal export ban as passed in March, in UNSCR 2270. U.N. resolutions don’t enforce themselves. They require U.N. member states to implement their sanctions through legislation. Member states that want U.N. sanctions to work benefit from a U.N. imprimatur to globalize sanctions enforcement. Each level of authority needs and complements the other.

Tactically, it was wise of the administration to wait for the (undoubtedly difficult) negotiations with China to conclude before it acted. The clear message it sent at the conclusion of that negotiation is that, for the time it has left, it will hold China to its word. Let’s hope the next administration is equally serious.

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Why Seoul’s blacklisting of Air Koryo & Dandong Hongxiang matters

South Korea is the first of the Free Three (the U.S., South Korea, and Japan) to announce independent multilateral sanctions on North Korea following the approval of UNSCR 2321. Some of the measures, such as the blacklisting of Choe Ryong-hae and Hwang Pyong-so, will probably mean almost nothing until some future left-wing president tries to give one of them a ticker-tape parade along the Chongro.

An extension of South Korea’s ban on ships that have entered North Korean ports within the last 180 days will do more, by forcing shipping companies to choose between the modest trade with North Korea and the much more significant trade with Japan and South Korea. With North Korea’s own ships already under rising pressure even pre-2321, and now facing a loss of access to insurance, North Korea may soon find itself increasingly isolated from its export markets.

South Korea’s blacklisting of Air Koryo, while not directly significant by itself (Air Koryo doesn’t fly to South Korea) may foreshadow a corresponding action by the U.S. Treasury Department, which would freeze North Korea’s national airline out of the dollar system and seriously crimp its operations. (Update: That turns out to have been a pretty good guess. OFAC just released a new round of designations that includes North Korean banks, slave labor merchants, the Korea National Insurance Corporation, and Air Koryo. I’ll have more to say after work.) It could also clear the way for South Korean diplomats to lobby middle powers like Malaysia, Thailand, Kuwait, and Singapore to deny Air Koryo landing rights. That would be a severe blow to Pyongyang. South Korea’s diplomatic campaign against North Korea’s foreign clients has been highly effective this year.

The most important and courageous move, however, was this one:

In particular, Dandong Hongxiang Industrial Development and four of its executives were included on the list, marking the first time that a Chinese firm is facing South Korea’s unilateral sanctions.

The company is under investigation on suspicions that it exported aluminum oxide — a nuclear bomb ingredient — to the North at least twice in recent years. In September, the U.S. blacklisted it along with its owner and other company officials.

With the latest action by Seoul, a total of 79 individuals and 69 entities will be subject to sanctions in connection with the North’s nuclear programs. The government announced a blacklist in March as a follow-up move to the UNSC’s Resolution 2270 adopted in the wake of the North’s fourth nuclear test in January.

Any financial transactions with them will be prohibited, while their assets in South Korea will be frozen. The blacklisted people will also be banned from entering the country, which is seen as a symbolic action given that there are no exchanges between the two Koreas. [Yonhap]

This could be the first sign that the three allies, acting outside the U.N. and beyond the reach of a Chinese or Russian veto, are forming a coalition to combine their economic power behind secondary sanctions against Pyongyang. If Japan joins in this, it will mean that the Chinese trading companies that prop up His Corpulency’s misrule will now face not only the freezing of their dollar assets, but the loss of their trade relationships with the two most important non-Chinese markets in northeast Asia. If those Chinese trading companies think they can mitigate the risk of secondary sanctions by insulating themselves from the dollar, Seoul has just added an additional layer of risk for those that continue to trade with Pyongyang. If the Free Three have coordinated their sanctions well, Tokyo will soon add its heft to that risk. Trading companies’ shareholders, officers, and bankers may find that risk increasingly unacceptable.

Beijing knows that while Dandong Hongxiang is itself a dead letter, this sort of Progressive Diplomacy represents a dangerous precedent for its interests. I expect it to react furiously. Even a year ago, I could not have imagined Park Geun-hye antagonizing South Korea’s greatest trading partner this way. Today, with all the noise about impeachment and the North Korean crisis, the Chinese reaction could be crowded out of the headlines. But with Park having conceded that she cannot hold onto power for long, she has nothing to lose.

Not only does Park have no reason not to burn bridges, she may have her own reasons to punish China. If she’s at least as paranoid as I am, she may suspect China, or its North Korean dependent, of directly or indirectly supporting the media frenzy that led to her downfall. It seems plausible in the age of Wikileaks that foreign governments give clandestine support to media hostile to leaders who oppose their interests. She may even suspect them of having planted the tablet that first broke the scandal. Personally, I see no direct evidence of it, nor do I think it’s more than 20 percent likely, but I’ve yet to see anyone explain (or even inquire into) the remarkable coincidence by which a discarded device just falls into the lap of a hostile press and topples a head of state. It seems easier to pull off than, say, throwing Wisconsin to Trump.

Either way, Park Geun-hye isn’t going quietly, and she’s gambling that the actions she takes on her way out the door will have the support of a future President Trump. No matter how much the Hankyoreh rages, that will make those actions even harder for her successor to undo than for her to do. What we may be seeing here is the first brick in a multinational sanctions coalition in which the members concentrate their collective power against Pyongyang’s enablers. For now, the Free Three are the core of that coalition, but with skillful diplomacy and time, that coalition may soon include other middle powers, other issuers of convertible currencies, and key members of an increasingly fractious European Union.

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China breaks N. Korea sanctions it says won’t work because it’s afraid they’ll work

In yesterday’s post, I linked to reports suggesting that China’s failure to agree on the terms of a new U.N. sanctions resolution responding to North Korea’s latest nuclear test may be motivated by a desire to wait out the end of President Obama’s administration. This theory would only make sense if China figures it can get better terms from President Trump next year, but my post pointed to evidence of the opposite of this — that what we know so far about the key people advising Trump is that some want to increase sanctions against His Supreme Corpulency and his Chinese backers, and others would prefer to terminate his command with extreme prejudice. 

First, I’ll offer an important caveat: it can be treacherous trying to divine President Elect Trump’s policy views by listening to his advisors.

With that caveat, then, if the present pattern of selections and nominations continues, differences between the U.S. and China over North Korea may have to get worse under a Trump administration before they can get better. Men like John Bolton, Mitt Romney, James Mattis, and Michael Flynn probably believe that President Obama’s deferential approach to China, rather than improving relations, likely contributed to China’s (correct) calculation that it could get away with grabbing vast areas of the South China Sea, bullying its neighbors, undermining North Korea sanctions, and doing other things to escalate regional tensions. They may see more pressure on China as a prerequisite to defanging North Korea. They may dismiss China’s explanations of its North Korea policy as mendacious and double-dealing, which is only natural, given that China actually has at least six of them — all of them risible, mutually inconsistent, or both.

First, there is China’s official diplomatic position, expressed in its vote for no less than six resolutions at the Security Council. Implicit in these votes are two ideas — that China wants a nuclear-free Korean peninsula, and that economic pressure is an important part of a policy for achieving that end.

Second, there is the reality of China’s material and financial support for the North Korean regime, often in violation of U.N. sanctions, including the sale of proliferation-sensitive technology (missile trucks, for example). China has spent the last decade violating the same sanctions it voted for because trade and engagement and all that. As I’ve pointed out more than once, those violations are much too extensive and long-standing to be anything less than willful state policy.

Third, there is the propaganda line advanced by China’s scholars and acolytes that sanctions — that is, the ones China has spent the last decade violating — never work. (Except, of course, when they do, but more on that in a moment.)

Fourth, when called on its years of flagrant violations, China says it’s afraid that sanctions will work so well they’ll destabilize the regime in Pyongyang. Here’s a typical example of something you’ve read at least a hundred times:

China fears that stricter measures against North Korea, such as cutting off provisions of oil and food, would lead to a humanitarian disaster with millions of refugees flocking across the border. The collapse of Kim’s government could also put soldiers from South Korea and its U.S. ally right on China’s border, a scenario Beijing’s leaders want to avoid. [Bloomberg]

A premise of that view is that China would rather have a nuclear-armed, genocidal North Korea along its border than a democratic one friendly to the United States, which it views with intense hostility. Usually, that premise goes unspoken, but not always.

“The United States cannot rely on China for North Korea,” said Shi Yinhong, a professor of international relations at Renmin University in Beijing. “China is closer to North Korea than the United States.”

China sees living with a Communist-ruled nuclear-armed state on its border as preferable to the chaos of its collapse, Mr. Shi said. The Chinese leadership is confident that North Korea will not turn its weapons on China, and that China can control its neighbor by providing enough oil to keep its economy afloat.

The alternative is a strategic nightmare for Beijing: a collapsed North Korean regime, millions of refugees piling into China and a unified Korean Peninsula under an American defense treaty. [N.Y. Times]

A fifth argument is that Beijing has little real influence over Pyongyang, which is spurious nonsense: 

China provides North Korea with most of its food and energy supplies and accounts for more than 70 percent of North Korea’s total trade volume (PDF). “China is currently North Korea’s only economic backer of any importance,” writes Nicholas Eberstadt, senior fellow at the American Enterprise Institute. [Council on Foreign Relations]

That argument looks especially spurious this year, as China uses trade as a blunt instrument against South Korea over its deployment of the THAAD missile defense system, and against the United States itself. China has made more threats against the U.S. and South Korea over missile defense this year than it has against North Korea in a decade over the missiles and nukes that gave rise to the threat itself.

Finally, China has a last line of defense: We are, too, enforcing sanctions!  If it comes under sufficient diplomatic pressure, for a few weeks or months, Beijing will encourage a few banks and companies to freeze a few accounts, arrest a few North Korean money launderers, or inspect some cargo entering or leaving North Korea. This compliance typically lasts for a few weeks or months until the trade returns to business as usual.

In 2013, and again this year, Chinese banks seemed (for a few weeks) to have frozen North Korean accounts right after a sanctions resolution passed. But by September, the Justice Department’s indictment and forfeiture action against Dandong Hongxiang proved that Chinese banks had gone right back to servicing His Porcine Majesty’s slush funds. At first blush, a new Washington Post report by Anna Fifield, indicating that Sino-North Korean trade dropped off suddenly in recent weeks, looks like the latest Chinese head-fake in response to pressure from the outgoing Obama administration.

[T]rading has become significantly harder in recent weeks, a dozen people involved in doing business with North Korea said in interviews, the result of a double-pronged attempt by Beijing to communicate its anger with the regime in Pyongyang. 

“Everything’s become tougher since September,” a Korean Chinese factory owner who employs North Korean workers here told The Washington Post. “This crackdown is because of the missile and nuclear tests, and it doesn’t look like it’s going to blow over.” [Washington Post, Anna Fifield]

This could be a head-fake, but it could also mean something entirely different and much more significant — Chinese companies may be showing their fear of U.S. secondary sanctions. Specifically, Fifield sees some evidence that the Dandong Hongxiang action had an in-terrorem effect on other Chinese trading companies. Indeed, she speculates that this action had a greater impact than the passage of U.N. sanctions:

But an equal or even bigger influence is the surprise detention of a prominent Dandong business executive, a member of the Communist Party no less, who stands accused of helping North Korea dodge sanctions and obtain materials for its weapons program.

“When business people hear this kind of story, of course we feel very constrained and it makes us very cautious,” a South Korean businessman trading in this area said on condition of anonymity. The atmosphere is so tense that none of the businessmen interviewed were willing to be publicly identified, even as they insisted everything was aboveboard.

Business is down, but no one knows how long that will last. And even now there are plenty of ambiguous signs: The annual trade fair here was canceled- yet coal exports from North Korea are breaking records. China holds the lever, and its intentions can only be speculated upon. [Washington Post, Anna Fifield]

This highlights a point that sanctions skeptics tend to miss or gloss over — that the goal of secondary sanctions isn’t so much to change the attitude of the Chinese government (probably a fool’s errand) but to threaten the divergent interests of the Chinese banks and business that are the instruments of Beijing’s sanctions-busting. Chinese banks and businesses are content to break sanctions if it’s profitable to do so, but not at the cost of their assets or their access to international markets, trade, or finance. 

Fifield treats these reports with justifiable skepticism, noting that the Chinese government’s interest in maintaining North Korea’s status quo (however horrific for North Koreans) probably hasn’t changed. Indeed, I see little clear evidence in Fifield’s report that this drop-off is the result of Chinese government action. What’s interesting and noteworthy is the timing of this change (in September). On September 9th, North Korea conducted its fifth nuclear test, which brought more diplomatic pressure on the Chinese government to enforce sanctions. The Dandong Hongxiang actions were announced on September 26th. One could argue that either event was a greater influence than the other.

Fifield and Andrei Lankov, whom Fifield quotes, then proceed to say that years of sanctions have failed, even as Fifield sees evidence that the Dandong Hongxiang action might have worked. But this is a false distinction. It misses the key point that U.S. authorities acted against Dandong Hongxiang for laundering money for Korea Kwangsong Bank, which was designated by both the U.N. and the U.S. for proliferation financing in violation of U.N. sanctions. This was an example of a Member State using its national laws to enforce U.N. sanctions, which is the only way U.N. sanctions can be enforced. Dandong Hongxiang is precisely what it looks like when someone bothers to enforce U.N. sanctions for once.

It’s difficult to believe that a single enforcement action — particularly one that failed to act against the Chinese banks behind Dandong Hongxiang’s violations — will be enough to put significant and lasting pressure on Pyongyang. Chinese businesses may be waiting to see how the new Trump administration responds. Or, we may be seeing the Chinese government’s latest head-fake. But for now, the report bears watching, and may eventually validate the effectiveness of secondary sanctions. 

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If China is gambling on Trump to blunt N. Korea sanctions, it could lose bigly*

By all outward appearances, President Obama never really had a coherent North Korea policy. While pursuing a deal that Pyongyang either didn’t want or wouldn’t keep, it reacted to each nuclear test by building on John Bolton’s work and nominally tightening the sanctions the U.N. initially imposed a decade ago, in Resolution 1718. The idea, apparently, was to deter Pyongyang by threatening its plans to develop Hamhung and Chongjin, something it no more intends to do than the Confederacy intended to institute a slave literacy campaign. Under President Obama, sanctions were always incremental, were never well-enforced, and never seemed to be part of any plausible broader strategy.

Still, if only to make a display of doing something after each test, the U.S. would expend much diplomatic energy on haggling with China (and Russia — let’s not forget Russia) over the terms of a new resolution. In due course, the Security Council would approve it, and for three or four months, everyone would pretend that this time was different before returning to business as usual.

As of today, 74 days have passed since September 9th, when North Korea conducted its fifth nuclear test, yet there is still no agreed draft resolution. For those keeping score, that’s the longest delay yet between a test and a resolution (the previous record of 56 days was set earlier this year, after the fourth nuclear test).

Three weeks ago, The Wall Street Journal reported that the P-5 were close to a deal on “[a] new sanctions package … that more effectively blocks the regime’s overseas funding sources,” and might narrow a “livelihood purposes” loophole that effectively nullified a ban on North Korea’s coal exports (see also). The U.S. side was also pushing China to agree to “crack down” on North Korea’s slave labor exports.

Meanwhile, Bureau 39 continues to rake in millions of dollars from higher coal prices, at the expense of military-controlled trading companies (but see this contrary report that coal prices are actually falling).

Reports today say that talks between the U.S. and China are in “their final stages,” but we’ve heard that before, and we still have no word that the two sides have agreed on a draft resolution. A few days ago, Obama had his last meeting with Xi Jinping. The meeting produced little more than a pro-forma agreement that the Korean Peninsula should be nuclear-free, a statement that increasingly becomes moot for North Korea as it gains relevance for South Korea. One of Obama’s priorities for that meeting was to push China to crack down on North Korea. If the result isn’t a significantly tougher resolution within a week, we can probably conclude that President Obama failed to achieve that goal.

That would lend credence to reports that China is stalling talks on a new resolution, perhaps until Obama leaves office. According to those reports, China is still smarting over the U.S. indictment of flagrant sanctions cheat Dandong Hongxiang Industrial Development (while sparing the banks that facilitated the violations). It may be calculating that a President Trump will be more focused on economic issues and won’t want to start off by antagonizing China over a low-priority issue like North Korea. That would be a big gamble.

trump-casino

If so, China may be miscalculating. Although the President-Elect has yet to name several key members of his national security cabinet, what we know so far doesn’t suggest that he’s likely to adopt a soft line or make North Korea a back-burner issue. The most talked-about contenders for Secretary of State are Mitt Romney and … John Bolton (enough said?). James Mattis, who recently spoke to the President Elect about North Korea and other issues, didn’t earn the nickname “Mad Dog” by calling for agreed frameworks. (Update: My favorite Mattis quote: “I come in peace. I didn’t bring artillery. But I’m pleading with you, with tears in my eyes: If you fuck with me, I’ll kill you all.”)

There is also direct evidence of what those close to President Elect Trump have said about North Korea policy. In a meeting with South Korea’s deputy National Security Advisor Cho Tae-yong, Michael Flynn, the selectee to be the next National Security Advisor, called the U.S.-South Korea alliance “vital” and said the new administration would make North Korea a priority. At the time, Flynn did not specify how, but Cho later said that Trump would adopt “stern measures,” and that his aides see “no momentum” for dialogue with North Korea. Flynn was previously quoted as saying, “We should not let the current North Korea regime … exist for a long time.” 

Despite Trump’s loose talk of talks with His Porcine Majesty, one Trump advisor, former congressman Pete Hoekstra, has already ruled them out for “the near future.” Heritage Foundation ex-President and Trump advisor Edward Fuelner has specifically said that the U.S. would impose a secondary boycott on Chinese firms that are propping up Pyongyang financially.

Even before Election Day, we knew that the next president could clash with China over North Korea. The result of the election doesn’t seem to have diminished the likelihood of that. I increasingly incline to the view that either the current President or the next one should signal to the Chinese that if they don’t agree to and enforce tough new sanctions, we’ll walk away from talks over a new resolution and act on our own. That strategy would use a combination of progressive diplomacy and the thinly veiled threat of Executive Order 13722 sanctions to get foreign governments to enforce UNSCR 2270. President Obama knows what he needs to do, but lacks the will. China would be ill-advised to assume the same of President Trump.

~   ~   ~

* Update: I couldn’t resist changing the title.

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While Obama sleeps, China cheats, and Korea’s doomsday clock ticks

“The era of procrastination, of half-measures, of soothing and baffling expedients, of delays is coming to its close. In its place we are entering a period of consequences.” – Winston Churchill

It has now been six weeks since North Korea’s fifth nuclear test, and the U.S. and China remain deadlocked in their talks about a new resolution to close the loopholes in existing U.N. sanctions. Pyongyang is racing to make its nuclear armament a fait accompli before the next U.S. administration warms the chairs in the White House and Foggy Bottom. Kim Jong-un also has reason to hope that after 2017, it might be dealing with the sort of alt-left South Korean leader who would ask his permission before enforcing U.N. sanctions, and who would pressure a Clinton administration to start “peace” talks, Pyongyang’s preconditions for which would amount to de facto recognition of North Korea as a nuclear state. That would put His Corpulency within sight of achieving hegemony over the entire Korean peninsula. At the current rate, he is winning that race.

Would President Park choose to let that happen and go quietly into the night, or would she prefer to take her chances with preemptive strikes, with or without U.S. support? President Park’s Plan B may well look very much like Israel’s Operation Opera in 1982. The risks of miscalculation and escalation should require no elaboration. So when sanctions skeptics warn us of the risk that effective sanctions enforcement triggers a financial crisis in Pyongyang, just consider the alternatives.

Over the last few days, I’ve read a smattering of self-congratulatory reports that China is finally enforcing sanctions against North Korea by cutting back on coal imports. This is flawed and dangerously wishful thinking. First, China has historically reacted to U.S. diplomatic pressure by dialing down commerce with Pyongyang for a few weeks or months until the heat is off. Then, it goes right back to propping up Pyongyang and breaking sanctions like it always has. Second, the skyrocketing price of coal could yield a massive financial windfall for Pyongyang:

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At these prices, His Porcine Majesty can sustain his regime and keep nuking up by exporting a fraction of the volume of coal he exported last year.

China is helping North Korea break sanctions in other ways, too. It’s exporting kerosene to North Korea, in direct violation of UNSCR 2270. Work at the Musan mine near the Chinese border doesn’t appear to have slowed at all. North Korea’s main port at Nampo is crowded with ships loaded with coal, seafood, and other wares for the Chinese market. Some of the North Korean vessels approach the Chinese coast, hover offshore, meet up with smaller vessels coming from Chinese ports, and return to North Korea. Such “hovering vessels” have historically been used for smuggling, by evading customs inspections. This report is consistent with what trusted friends have observed in shipping trackers for months. If I had to venture a guess, I’d say this is probably indicative of the smuggling of bulk cash or gold, either of which would also violate UNSCR 2270.

The idea that China is willfully undermining U.N. sanctions by permitting such brazen sanctions violations shouldn’t shock anyone. It would be absolutely consistent with how China has behaved for the last 20 years. What are a few sanctions violations to a government that routinely aids and abets Kim Jong-un’s crimes against humanity? What will it take for us to realize that a government that talks like our enemy and acts like our enemy is, for purposes of North Korea policy, our enemy?

The administration knows what it needs to do. Regardless of the price of coal, and regardless of the volume of coal — or anything else — that North Korea exports, all of that revenue goes into bank accounts in China. In recent months, I’ve become convinced we know where most of those bank accounts are. What is the answer to China’s years of duplicity, bad faith, double-dealing, and stalling? The answer is to walk away from the negotiations with China, build a diplomatic coalition to enforce sanctions with the authorities we already have, and freeze Kim Jong-un’s offshore accounts.

President Obama’s North Korea legacy will be to leave his successor and our allies with an escalating nuclear crisis, a deteriorating humanitarian situation, and possibly a nuclear arms race in Asia. History will eventually rank it alongside the failure of the Green Revolution in Iran, the near-collapse in Iraq, and the Syria fiasco as one of his greatest foreign policy failures. The question now is whether he will leave his successor with the makings of a strategy to stop Kim Jong-un while there’s still time … if there’s still time.

Enough procrastination. Enough half-measures. We can close the livelihood exception ourselves by using the NKSPEA, Executive Order 13687, and Executive Order 13722 to penalize the banks that hold Kim Jong-un’s revenue and launder his money. Freeze and forfeit the bank accounts, already! It’s the law, the President signed it, Congress wants him to enforce it, our allies want him to enforce it, and a global financial coalition is ready to help us execute it. Once we’ve got them by the banks, their hearts and minds will follow. Until we have, Korea’s doomsday clock will keep ticking toward midnight.

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How to close the livelihood loophole in N. Korea sanctions, even without China’s help

It has now been more than a month since North Korea carried out its fifth nuclear test, and the U.N. Security Council has yet to respond by approving a new resolution to strengthen its sanctions. After North Korea’s previous nuclear tests, it took between four and six weeks to overcome Chinese and Russian objections, and the world is growing impatient.

As noted yesterday, the U.S. is correctly focused on cutting off North Korea’s sources of hard currency. Judging by the statements of U.S. officials, one key U.S. demand going into the negotiations is likely the curtailment of, or a ban on, North Korean labor exports, of which China and Russia are major consumers. Another measure under discussion is a ban on tourist travel, which would be useful to making any travel ban more than an inconvenience for Pyongyang, because most of North Korea’s tourists are Chinese, and presumably spend Renminbi during their travels.

A third measure frequently mentioned in the press over the last several weeks is closing the “livelihood” loophole in paragraph 29(b) of UNSCR 2270 — the provision that bans North Korea from selling coal, iron, and iron ore, but carves out an exception for sales exclusively for “livelihood” purposes. In practice, the exception has swallowed the rule. North Korea’s coal sales to China dipped shortly after the Security Council adopted UNSCR 2270, but have since risen to pre-sanctions levels. Typically enough, China is balking at closing this loophole.

“We cannot really affect the well-being and the humanitarian needs of the people and also we need to urge various parties to reduce tensions,” Chinese U.N. Ambassador Liu Jieyi told Reuters on Saturday of discussions with the United States on “a draft resolution with a wider scope of measures.” [….]

U.S. Ambassador to the United Nations, Samantha Power, said on Sunday that some of the exemptions included in the March resolution – out of concern for the welfare of North Koreans – appeared to have been exploited.

“In the negotiation that we are currently in the midst on in the new resolution, we are hoping to address some of the shortcomings that we have seen,” Power told reporters during a visit to Seoul. [Reuters]

China claims that it is resisting tougher sanctions because it’s worried about hurting the North Korean people, an uncharacteristically humanitarian argument coming from the same government that regularly sends North Korean refugees back to Kim Jong-un’s gulag by the dozen, that ignored the U.N. Commission of Inquiry report, and that has consistently opposed U.N. action on Kim Jong-un’s crimes against humanity.

But if the U.S. wants to close the livelihood loophole and China wants to avoid starving the people, the obvious compromise is to force Chinese buyers to pay for North Korean coal in food, medicine, and other strictly humanitarian supplies. Sanctions need humanitarian safety valves to allow U.N. member states to mitigate possible negative effects on the North Korean people. If that’s what China really wants, that’s how China can use “livelihood” coal as that humanitarian safety valve. To prevent cheating, the in-kind “payments” could be monitored by U.N. humanitarian agencies at Chinese ports and customs posts. Surely if North Korea imports enough food, much of this will flood into North Korea’s markets and drive down prices. To further amplify this effect, China should agree to ban North Korea from exporting food — mostly to China — for cash.

The more plausible explanation is that China is more interested in protecting Kim Jong-un and profiting from its access to his resources than it is in enforcing sanctions. China’s violations of the sanctions have been too blatant to be anything but willful. Although the conventional wisdom is that China is simply afraid of a potential regime collapse in Pyongyang, that view doesn’t explain China’s long history of selling proliferation-sensitive materials to North Korea, including a Chinese state-owned company’s sale of missile carriers to North Korea. This evidence suggests a more malicious explanation. It’s almost as if China wants North Korea to be a greater threat to the U.S. and South Korea.

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Of course, all of the aforementioned measures are effectively trade sanctions — the kind of sanctions that legions of peace studies grad students and other unschooled critics are really talking about when they hector us about how long sanctions take to work. We may simply be out of time for such gradualist strategies now. The South Koreans, the Council on Foreign Relations, and even some Chinese speak openly of preemptive military strikes today. South Koreans are justifiably worried about falling under the shadow of nuclear blackmail. The sense of urgency in Seoul, Tokyo, and Washington has never been greater. That sense of urgency has not yet arrived in Beijing.

Without question, trade between China and North Korea has risen recently, diluting the effect of U.N. sanctions, and that is a problem. But those who are legitimately concerned about this rising trade — including coal and iron ore trade — between China and North Korea would do well to remember that all of the money North Korea earns from its sales of everything from coal to seafood to missile parts goes into bank accounts, mostly in China, and we probably know where many of those accounts are. If the U.S. and its allies want to adopt a strategy that will work quickly enough to create a sense of urgency in both Beijing and Pyongyang, the Obama administration should do what Congress has demanded and what the law requires — freeze North Korea’s slush funds and penalize the Chinese banks that keep them on deposit.

(My other suggestions for possible new measures can be found at the bottom of this post by Stephan Haggard; chief among the enforcement gaps is a need to make member states, banks, and businesses report North Korean beneficial ownership interests, to help identify North Korean property and bank accounts.)

Yes, it would be lovely if China suddenly became convinced that all of this represents a threat to its interests and its very security. Certainly, some ordinary Chinese citizens can see that (see, for example, this Chinese-language Google search result for “third fatty,” forwarded by a journalist reader). I’m skeptical that the Chinese government will ever really crack down on North Korea for more than a few months, especially as America is about to descend into the periodic chaos of a political transition.

~   ~   ~

Until reporters and op-ed writers stop misleading their readers with the myth that our sanctions against North Korea have been strong, I’m going to keep linking to my legal arguments that in fact, our North Korea sanctions were comparatively weak until February and March of this year, and that even these authorities have yet to be fully implemented. On paper, however, we finally have enough authorities to threaten the survival of the regime in Pyongyang and force it to choose between its nukes and its survival, if we apply our diplomatic and legal power to forcing other U.N. member states to comply.

Perhaps, then, we’ve reached the point where we’d be better off walking away from deadlocked negotiations with China and Russia and channeling our diplomatic power toward progressive diplomacy. Rather than continue to pound our heads against the Great Wall, perhaps the U.S. and South Korea should start building an ad hoc coalition aimed at the strict enforcement of existing resolutions. Existing U.S. law and U.N. resolutions may provide enough of a legal foundation that we’re better off aggressively enforcing the sanctions we already have than bargain away enforcement to get new ones. After all, the EU didn’t need the U.N.’s approval to designate the Korea National Insurance Corporation, and the U.S. didn’t need the U.N.’s approval to designate the Foreign Trade Bank. By coordinating their designations and secondary trade boycotts in concert with a collection of like-minded states with strong buying power and convertible currencies, a new coalition could put strong pressure on North Korea and its Chinese enablers. Potential partners for that coalition include (of course) South Korean and Japan, the EU, the U.K., Switzerland, Canada, Australia, and Singapore.

If, on the other hand, we just want to close the “livelihood loophole,” why not designate the abusers of that provision under section 104(a) of the NKSPEA? Recently, anonymously sourced news stories have identified the Wanxiang Group as the “largest importer of a wide variety of North Korean minerals,” including “coal, iron ore, gold and rare earths.” Interestingly, a Wanxiang Group affiliate holds “more than 60 properties” in the United States. If further investigation confirms these reports, the Wanxiang Group’s assets in the United States, and its heavy investment in a North Korean industry subject to Treasury Department sectoral sanctions, could make it the perfect target.

Of course, our relations with China would suffer in the short term, but it’s not as if our sotto voce China policy has contained China’s hegemony, protected the security of our allies, or paid obvious dividends in bilateral relations. Our relations with China will probably have to get worse before they can get better. For our relations to get better, China will need a hard shove for its policies to reflect a fair acknowledgment of U.S., South Korean, Japanese, and global security interests.

None of which means we can’t go back to the U.N. Security Council at some point to get a stronger resolution; it just means that we shouldn’t let China prevent us from designating targets that are violating the existing resolutions. If the Chinese government isn’t responsive to our pleas, we already know that the Chinese banking industry is responsive to our threats. If North Korea lost its access to the banking system, its insurance, banking, and shipping industries, and its national airline, it would be reduced to operating a country of 23 million people by trying to smuggle briefcases full of bulk cash around the world on other peoples’ airlines and ships. It’s hard for me to believe North Korea could last long that way. That’s why, as nice as it would be to have Beijing’s cooperation, it would be far better to focus our diplomatic energies elsewhere. In the meantime, the Obama administration should enforce the law the President signed.

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China suppresses “viral” images of anti-Kim Jong-un protest in Yangzhou

A favorite long-time reader and volunteer copy-editor forwards this fascinating story, via the UPI’s Elizabeth Shim.

An anti-Kim Jong Un rally was held in a Chinese city but photographs of the protest were promptly deleted by Chinese government censors, according to the Chinese-language press.

Protesters in the eastern Chinese city of Yangzhou gathered to express their opposition to North Korea’s nuclear tests and to condemn the North Korean leader.

The photos then went viral on Chinese social media, Hong Kong’s Apple Daily and New York-based Duowei News reported.

Yangzhou is the hometown of Jiang Zemin, who served as president from 1993 to 2003.

In images that were captured prior to their removal from the Internet, protesters were seen holding red banners that read, “Let’s overthrow the Kim dynasty, and hang Kim Jong Un by the neck in an execution.” [UPI]

What’s both frustrating and somewhat understandable is that the report tells us nothing about the sentiments behind the protest. Is His Corpulency perceived as endangering China’s security or the health of its people? As bringing the risk of war to China’s doorstep? As hurting China’s reputation? Or is it that Kim is simply perceived as an ungrateful vassal?

When images of the signs (see UPI’s report) “circulated rapidly across” Weibo and Weixin, Jing-Jing and Cha-Cha sprang into action to delete them.

But while the images were still available online, “Chinese mainland netizens showed strong interest in the anti-North Korea rallies that were taking place in Jiang Zemin’s hometown of Yangzhou,” according to Apple Daily.

U.S.-based Chinese-language newspaper Duowei News stated that the removal of the pictures indicates there is a “large gap in perspective on the demonstrations between the Chinese government and the people.”

There may be an angle for us to exploit here, if we knew more about the protestors’ sentiments. At some point, intense public antipathy might be enough to effect modest shifts in China’s policies, although I emphasize “modest.”

Chinese commenters have previously disparaged the North Korean ruler, calling him a derogatory word that translates into “the third fat member of the Kim family,” while condemning North Korea provocations.

That’s consistent with reports I’ve heard more than once from a well-respected Korea analyst, who would probably prefer not to be named. I’ve found nothing else online to confirm or further explain this report. Any Chinese-speakers who can help with that will earn my gratitude.

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Congress to Obama: Enforce N. Korea sanctions against Chinese banks

Three weeks before North Korea’s fifth nuclear test, I wrote, “The Obama administration isn’t following Kim Jong-un’s money. Congress should ask why.” Unfortunately, subsequent events soon affirmed that criticism; fortunately, Congress is asking, and it’s asking the right questions. The failure of the administration’s North Korea policy has even become an election-year liability for Hillary Clinton, forcing her to distance herself from the President and his policy (or more accurately, the lack of one).

The Obama administration’s single greatest North Korea policy failure in eight years has been its failure to apply the kind of secondary sanctions that proved so effective against North Korea a decade ago. Some of that blame lies with the bad advice the President has received from certain think tanks, which has made its way into the State Department and the National Security Staff. After every North Korean nuke test, attack, or other outrage, a nothing-we-can-do chorus of China-friendly scholars and State Department retirees steps up to misinform gullible, ill-informed reporters that we have no options but appeasement, because the Chinese government will never push North Korea to the brink of collapse.

Yet for years, a Panel of Experts appointed by the U.N. Security Council has published extensive evidence implicating Chinese banks, businesses, nationals, and state-owned companies for a pattern and practice of violations that can only be willful, as I’ve argued here and here (see the U.N. POE’s reports from 2010, 2012, 2013, 2014, 2015, 2016). We have a North Korea problem because China, which has recently emerged as an accomplished bully when it comes to our allies, denies that it has the means to influence Kim Jong-un. 

And in fact, we have pushed North Korea to the brink of collapse before, without the cooperation of the Chinese government, by threatening the Chinese banks that hold North Korea’s slush funds with fines, penalties, and even the denial of access to the dollar-based financial system. U.N. Panel of Experts reports prove that most of those funds are denominated in dollars and wired through the U.S. financial industry. No bank can afford to defy such a threat, and Kim Jong-un couldn’t last long without that cash. 

This year, Congress finally lost its patience with the Obama administration’s passivity and drift and passed the North Korea Sanctions and Policy Enhancement Act, which mandates sanctions against third-country (read: Chinese) enablers of North Korea’s proliferation, arms trafficking, and money laundering. The bipartisanship of the vote (418-2 in the House, 96-0 in the Senate) was a minor political miracle in a polarized Congress in an election year, regarding an issue that had itself polarized Washington in previous years. Congress’s clear mandate to the administration was that it must break the link between Kim Jong-un’s regime and the hard currency that sustains his regime and legitimizes his rule.

Even before North Korea’s fifth nuclear test, Congress had begun to express its frustration at the Obama administration for failing to enforce the new law. It’s not that we don’t know who Kim Jong-un’s bankers are, either. In 2013, the Chosun Ilbo reported that the Treasury Department had identified hundreds of millions of dollars in North Koreans slush funds in banks in Shanghai. In January, Bonnie Glaser testified as follows before the House Foreign Affairs Asia Subcommittee:

In 2013, US and South Korean authorities uncovered dozens of overseas bank accounts worth hundreds of millions of dollars that were linked to top North Korean leaders, which they proposed including in UN sanctions lists, but Beijing refused. China has also strongly opposed levying sanctions on high-level North Korean officials such as the head of the North Korea’s agency responsible for conducting its nuclear tests. [link]

That same month, the New York Times reported, “The Treasury Department has identified similar institutions used by Mr. Kim’s son, the current leader, Kim Jong-un.” In February, the U.N. Panel of Experts implicated dozens of North Korean and third-country entities in China, Africa, the Middle East, and elsewhere in Asia. The Center for Advanced Defense Studies will soon publish a report implicating a large Chinese conglomerate in violating U.N. sanctions against North Korea; that report will also cast suspicion on the Bank of Dandong for handling some of its transactions. 

There’s plenty more where that came from in The Panama Papers. No doubt, there’s plenty more stored away in the laptops, cell phones, and human intelligence being collected from the North Korean diplomats and slush fund managers who’ve defected in Southeast Asia, Russia, China, and Europe recently. Which is to say, it’s not for lack of intelligence or lack of means that the Obama administration refuses to shut down Kim Jong-un’s access to the financial system. It’s solely due to a lack of political will.

In the wake of the test, China’s latest failures to enforce U.N. sanctions — and the Obama administration’s failure to enforce the law against Chinese banks and companies — has drawn a sharp reaction from Congress.

The House Asia Subcommittee has already held one hearing since the latest test, in which four separate witnesses recommended that the Obama administration apply secondary sanctions. Ed Royce, Chairman of the Foreign Affairs Committee, has been sharply critical of the administration’s failure to enforce the law.

But much of the discussion in Washington focused on the North Korea Sanctions and Policy Enhancement Act. Passed by Congress and signed by Obama earlier this year, it gives the Obama administration, among other things, new authority to sanction any individual who “imports, exports, or re-exports luxury goods to or into North Korea” or “engages in money laundering, counterfeiting of goods or currency, bulk cash smuggling, or narcotics trafficking that supports the government of North Korea or its senior officials.”

Rep. Ed Royce (R-Calif.), who chairs the House Foreign Affairs Committee and led the push for more sanctions authority, said Obama’s policies are “falling short” by not imposing sanctions on Chinese companies and banks.

Royce referenced a leaked U.N. report that accused China of lax enforcement and “cites evidence that Pyongyang moved tens of millions of dollars through a Singaporean branch of China’s biggest bank to evade sanctions,” according to a report in Foreign Policy magazine.  [Politico]

Small correction to Politico — the U.N. report is publicly available.

The report found that North Korea “has been effective in evading sanctions and continues to use the international financial system, airlines and container shipping routes to trade in prohibited items.” [Politico]

The Senate Foreign Relations Committee will hold a top secret briefing on the administration’s enforcement efforts today, and a letter signed by 19 Republican senators is a strong indication that the staffers will ask the right questions in that briefing. Last week, Senator Cory Gardner (R, Colo.), the Senate’s leading advocate of a tougher North Korea policy, assembled the group of senators, who signed this letter to President Obama. It’s a long quote, but worth reading.

On February 18, 2016, you signed into law the North Korea Sanctions and Policy Enhancement Act of 2016 (P.L. 114-122), but your Administration’s implementation of this legislation has been disappointing. While we commend the designation of North Korea as a jurisdiction of “primary money laundering concern” and the designation of top North Korean officials, including Kim Jong Un, as human rights violators, these actions only scratch the surface of the sanctions authorities provided to you under the new law.

First and foremost, you must begin to designate entities that are assisting the North Korean regime, especially those based in China — the country with which North Korea currently conducts an estimated 90% of its trade and that has historically served as Pyongyang’s largest military and diplomatic protector. 

As you know, Section 102 of P.L. 114-122 mandates, not simply authorizes, investigations against all entities, no matter where they are based, “upon receipt by the President of credible information indicating that such person has engaged” in illicit conduct outlined in the legislation.

As the Wall Street Journal wrote in an editorial on August 18, 2016: “The promise of secondary sanctions is that they can force foreign banks, trading companies and ports to choose between doing business with North Korea and doing business in dollars, which usually is an easy call…  But this only works if the U.S. exercises its power and blacklists offending institutions, as Congress required in February’s North Korea Sanctions and Policy Enhancement Act. The Obama Administration hasn’t done so even once.”

As the Wall Street Journal further noted, for instance, the Administration has not acted on information from the United Nations Panel of Experts report in March 2016 that the Bank of China “allegedly helped a North Korea-linked client get $40 million in deceptive wire transfers through U.S. banks.”  Moreover, there is ample evidence of increased North Korean efforts to evade sanctions with help from China-based entities.  According to the New York Times report on September 9, 2016, “To evade sanctions, the North’s state-run trading companies opened offices in China, hired more capable Chinese middlemen, and paid higher fees to employ more sophisticated brokers, according to Jim Walsh and John Park, scholars at MIT and Harvard.”

We respectfully ask you to immediately provide written answers to the following questions:

1) Has the Administration received credible evidence that entities based in China are engaging in illicit activities outlined in P.L. 114-122?   If so, what is the status of these investigations?  Why have no Chinese-based entities been designated to date?

2) Do you believe that China is in full compliance of UN Security Council Resolution 2270 and all preceding U.N. Security Council resolutions regarding North Korea?  Please provide a detailed account of China’s compliance or non-compliance and what actions, if any, have been pursued at the U.N. for China’s non-compliance. 

3) Why has the Administration not designated any entities for malicious cyber-enabled activities, as required by Section 209 of P.L. 114-122?

4) Does the Administration believe that the multilateral enforcement of UNSCR 2270 and its own enforcement of P.L. 114-122 has had a credible and measurable impact on North Korea’s regime ability to obtain luxury goods? 

5) Is North Korea’s state-owned Air Koryo airline involved in any activities outlined in Section 104 of P.L. 114-122 and if so, has the Administration initiated an investigation for the designation of Air Koryo under the law?  If not, why not?

6) What actions has the Administration taken to discourage the North Korean forced labor camps and trafficking of North Korean workers?  Is the Administration pursuing any designations for entities that are assisting in “the operation and maintenance of political prison camps or forced labor camps, including outside of North Korea”, as required by Section 104(a)(8) of P.L. 114-122? If not, why not?

Mr. President, we must send a strong message to Beijing that our patience has run out and exert any and all effort with Beijing to use its critical leverage to stop Pyongyang.  As Secretary Ash Carter stated on September 9, following the latest nuclear test:  “China shares important responsibility for this development and has an important responsibility to reverse it. It’s important that it use its location, its history and its influence to further the denuclearization of the Korean Peninsula and not the direction things have been going.” [full text here; link added by me]

The Hill, which also covered the letter, lists the names of the signatories.

The letter was signed by Republican Sens. Cory Gardner (Colo.); John Boozman (Ark.); Shelley Moore Capito (W.Va.); Tom Cotton (Ark.); Ted Cruz (Texas); Steve Daines (Mont.); Deb Fischer (Neb.); Johnny Isakson (Ga.); Jerry Moran (Kan.); David Perdue (Ga.); Jim Risch (Idaho); Jeff Sessions (Ala.); Pat Roberts (Kan.); Mike Rounds (S.D.); Marco Rubio (Fla.); Ben Sasse (Neb.); Richard Shelby (Ala.); Dan Sullivan (Ark.); and Roger Wicker (Miss.). [The Hill]

Separately, Senator Ted Cruz (R, Tex.) and Kelly Ayotte (R, N.H.) also called on the administration to hit Kim Jong-un’s Chinese enablers with secondary sanctions.   

Not to be outdone, Senate Democrats introduced a resolution condemning the test and calling for the U.N. to approve more sanctions against North Korea. Although the resolution highlights the passage of the NKSPEA in its findings, it stops short of criticizing President Obama for failing to enforce it. Hillary Clinton, on the other hand, offered some veiled-but-cryptic criticism of the President’s policy:

In a further effort to distance herself from current policy, Clinton also called for a “rethinking” of America’s strategy toward North Korea during a news conference in New York. Sanctions are “not enough,” she said, proposing an “urgent effort” to pressure Beijing into cracking down on Pyongyang. [Politico]

Will the administration finally act? I suspect not. Instead, it is running out the clock. Instead, it is negotiating yet another resolution with China, which China will also fail to enforce. As long as those negotiations continue, the administration probably won’t want to provoke China with secondary sanctions. And to be sure, there are loopholes in the current resolutions that should be closed, new sanctions that should be imposed, and new designations that should be made.

But in the end, all of North Korea’s profits from exporting coal, gold, weapons, and slaves ultimately end up in banks, mostly in China. If we freeze the accounts where those earnings are deposited, and from where the proceeds are spent, it won’t matter how much earnings potential those revenue sources have in the next two years. We could nullify North Korea’s profits from any gaps in the sanctions, and effectively enforce the sanctions that already exist, by beginning an earnest effort to penalize Kim Jong-un’s accomplices in the banking industry. Which is why, when China balks at passing a tough new resolution, our diplomats should not be afraid to walk away and act in concert with their allies in Japan, South Korea, Europe, Canada, and Australia. It would be far better to enforce the sanctions we have now than to enforce nominally tougher sanctions poorly.

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Clinton’s North Korea epiphany: We have always been at (cold) war with China

So desperate are we to avoid a Cold War (or worse) in the Pacific that throughout the Obama years, we’ve pretended that China hasn’t been waging one unilaterally the whole time. Meanwhile, China has seized the South China Sea, bullied our allies with spurious territorial claims, whipped up anti-American rhetoric to persecute human rights activists, and effectively quit enforcing sanctions against North Korea despite signing on for a nominally tough new resolution in March.

Evidence, you ask? Start with this new Australian report showing that China isn’t enforcing the U.N.’s new cargo inspection requirements at all. China still hasn’t stopped buying minerals like gold and titanium, which is isn’t supposed to buy in any quantity. Coal and iron imports, which are supposed to be limited to “livelihood” purposes, fell sharply in the first quarter of this year, only to rise again in the second. Chinese online vendors have even been selling North Korean coal. China continues to sell kerosene (read: jet fuel) in violation of a U.N. ban. Sanctioned North Korean ships have been seen leaving port. One, the Victory 2, has made regular calls in Chinese ports. Others have been seen hovering just off the Chinese coast. A China-based company, Blue Ship Management, continues to operate two sanctioned North Korean ships. More than 800 agents of North Korea’s Reconnaissance General Bureau, which was designated in UNSCR 2270, continue to operate on Chinese soil, mostly hunting for defectors and policing overseas workers. Et cetera, et cetera, et cetera, and so forth.

These are the wages of our weakness toward North Korea and China. The new realization that North Korea could be just two years away from having a second-strike capability to hit our West Coast with nuclear weapons has raised the danger of nuclear war to their highest level since 1962, as I predicted it would a year ago. Unfortunately, the President has been poorly served by his National Security Staff and State Department, which have counseled him to hold back on holding China accountable for enabling the steady rise of this threat. China’s friends in Washington, and others who should know better but don’t, are fond of saying there’s nothing we can do about this. But we know what scares and moves China — secondary sanctions. Congress gave the President the authority (and a mandate) to impose them because China’s violations of sanctions against North Korea are nothing new. They have been so longstanding and so flagrant as to eliminate any other possibility but a deliberate, willful policy.

Even before the last nuclear test, there was a growing sense that President Obama had failed to hold North Korea’s Chinese enablers to account for those violations, despite having so recently signed a new legal mandate to do so. Even before that test, President Obama had said he would seek to toughen sanctions in response to North Korean missile test, and revealed his irritation with China after its rude treatment of him, and after getting an earful of its unreasonable objections to THAAD:

“China continues to object to the THAAD deployment in the Republic of Korea, one of our treaty allies. And what I’ve said to President Xi directly is that we cannot have a situation where we’re unable to defend either ourselves or our treaty allies against increasingly provocative behavior and escalating capabilities by the North Koreans,” Obama said at a news conference in Laos after the East Asia Summit.

“And I indicated to him that if the THAAD bothered him, particularly since it has no purpose other than defensive and does not change the strategic balance between the United States and China, that they need to work with us more effectively to change Pyongyang’s behavior,” he said, according to a White House transcript. [Yonhap]

And even before that test, the Chairman of the Foreign Relations Committee had called on the President to enforce the North Korea sanctions law he has signed just seven months ago, including by imposing secondary sanctions on Chinese entities. Similar reactions came from Paul Ryan and Ed Royce, the Chairman of the House Foreign Affairs Committee (HFAC).

China has to understand that we will sanction those banks again, those Chinese banks that are transferring the hard currency…We need to use these powers that now the administration has under the bill that I authored – that’s been signed into law by the President – to tell China, ‘No, there will be secondary sanctions on any economic activity you are engaged in with North Korea.’ Because our goal right now is to shut [North Korea’s] economy down so they cannot continue to expand this nuclear weapons program.” [CNN]

HFAC’s Asia Subcommittee has already scheduled a hearing for Wednesday afternoon. Even before the hearing was announced, I predicted that it would be contentious — this is an election-year embarrassment the administration and Hillary Clinton don’t need. Now, freshly humiliated by North Korea’s latest nuclear test, the administration is suggesting that it’s finally ready to seek new U.N. sanctions, possibly to close existing loopholes (probably the “livelihood” exception to the coal and iron ore import ban) and ban fuel exports to North Korea. The Washington Post reports that the U.S. and South Korea may also push to ban North Korean labor exports, which will hurt North Korea’s ability to launder money by giving it less “legitimate” income for co-mingling and hiding illicit income. More importantly, the administration is saying that it’s finally ready to follow the law and enforce the sanctions that already exist.

“We will be working very closely in the Security Council and beyond to come up with the strongest possible measure against North Korea’s latest actions,” said U.S. envoy Sung Kim on Sunday.

“In addition to action in the Security Council, both the U.S. and Japan, together with the Republic of Korea, will be looking at unilateral measures, as well as bilateral measures, as well as possible trilateral cooperation,” he said, referring to South Korea by its official name. [Reuters]

So much for the idea that this time is different — that China had finally lost patience with North Korea. In an epiphany that I thought would never come to Washington, Hillary Clinton (of all people) has articulated why — China has been using North Korea as a “useful card” to divide U.S. forces in Asia and the Pacific (left unsaid: while China seizes the South China Sea and surrounds Taiwan).

“Up until relatively recently, I think (China was) under the impression that they could control their neighbor and they didn’t want to crack down because they saw it as a useful card to play,” Clinton said.

“If (North Korean leader Kim Jong-un) gets a little crazy, maybe the South Koreans will move toward (China) a little bit; he gets a little crazier, maybe they can make some deals with the Japanese about things they want. It was a strategic calculation,” she said. [Yonhap]

Separately, Clinton called the North Korean nuclear and missile programs “a direct threat to the United States” that we “cannot and will never accept,” which is welcome news at a time when some people are seriously suggesting that we can and must.

Clinton, a former secretary of state, also said that she supports President Barack Obama’s calls for strengthening the existing sanctions and impose additional measures.

“At the same time, we must strengthen defense cooperation with our allies in the region; South Korea and Japan are critical to our missile defense system, which will protect us against a North Korean missile,” she said.

“China plays a critical role, too, and must meaningfully increase pressure on North Korea — and we must make sure they do,” she said.  [Yonhap]

Clinton is right, of course, as is her rival in this election.

“North Korea’s fifth nuclear test, the fourth since Hillary Clinton became Secretary of State, is yet one more example of Hillary Clinton’s catastrophic failures as secretary of state,” Trump communications aide Jason Miller said in a statement.

“Clinton promised to work to end North Korea’s nuclear program as secretary of state, yet the program has only grown in strength and sophistication,” he said. [Yonhap]

Park Geun-hye has called on China to enforce sanctions as it had agreed, a brave thing considering that China has increasingly tried to bully South Korea with its considerable economic leverage. No doubt, Park knows what’s at stake. There is already speculation about a sixth nuclear test. If the U.S. and South Korea uncover and freeze the money that keeps Kim Jong-un in power, victory and reunification could be within sight. A slow defeat of extortion and enslavement is in sight, too. If these are our choices, better a banking crisis in China than a war in Korea.

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