Category Archives: Sanctions

NYC insurer agrees to $271K penalty for insuring North Korean ships

This afternoon, the Treasury Department’s Office of Foreign Assets control announced that as part of a settlement, Navigators Insurance Company has agreed to pay OFAC a civil penalty of $271,000 for 48 sanctions violations involving Iran, Sudan, Cuba, and North Korea. Navigators is a New York-based provider of maritime insurance. It also had a branch in London, which evidently decided to cut costs by skimping on lawyers. Here’s how that worked out for them.

Between May 8, 2008 and April 1, 2011, Navigators and its London, U.K. branch (“Navigators U.K.”) issued global protection and indemnity (“P&I”) insurance policies that provided coverage to North Korean-flagged vessels and covered incidents that occurred in or involved Iran, Sudan, or Cuba—some of which led to the payment of claims. Navigators did not have a formal OFAC compliance program in place at the time it engaged in these apparent violations, and personnel within Navigators U.K. misinterpreted the applicability of OFAC sanctions regulations.

Between May 8, 2008 and February 18, 2011, Navigators provided insurance coverage to North Korean-flagged vessels under 24 P&I insurance policies and collected $1,142,237 in premium payments in relation to these policies. In addition, between February 23, 2009 and October 11, 2010, Navigators paid seven claims totaling $12,236 in relation to these policies. The base penalty amount for this set of apparent violations was $577,237. [OFAC]

In considering the amount of the penalty, Treasury considered that Navigators knew that these policy-holders were sanctioned, was “a commercially sophisticated financial institution,” and “did not have a formal OFAC compliance program in place at the time” of the violations. It also considered that Navigators self-disclosed the violation, and that once Treasury came knocking, Navigators cooperated and took remedial action.

The point being: if you do business with North Korea, good lawyers are a wise investment.

One of the few things our North Korea sanctions still do, specifically Section 2 of Executive Order 13466, is to prohibit U.S. persons from “owning, leasing, operating, or insuring any vessel flagged by North Korea.” That executive order was a place-holder for what remained in place as President Bush lifted most of our sanctions against Pyongyang, and removed it from the list of state sponsors of terrorism, in exchange for Kim Jong Il’s promise to disarm.

Seven years and two nuclear tests later, we’ve just seen the third action in one busy month to sanction North Korean shipping, following the EU’s designation of the Korea National Insurance Corporation, and the U.S. designation of Chinpo Shipping. This is enough data to show a pattern — Treasury is concentrating on North Korean shipping, and the EU might be, although it’s probably too early to say how broad, persistent, coordinated, or effective this effort will be, or how quickly the administration would back off for any deal Pyongyang offers.

With Pyongyang hinting that it will test some sort of nasty device this fall, feel free to insert your own “shot across the bow” pun in the comments.

The focus on shipping is curious in light of how little Treasury has done to North Korea’s banks recently, with the exception of the 2013 blocking of the Foreign Trade Bank. Surely Treasury doesn’t think shipping sanctions are a way to hurt Pyongyang without antagonizing Beijing. No, I didn’t think they’d think that:

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[As of 8:51 p.m. on August 6, 2015]

One important sign to watch for is whether senior U.S. officials will go on tour to enlist other governments to support a new enforcement effort. The action against Banco Delta Asia wasn’t effective just because we sanctioned a single dirty bank, but because Stuart Levey and Danny Glaser met with bankers and finance ministers across Asia and Europe and politely warned them about the risks of doing business with Pyongyang. Today, we tend to overlook the role of financial diplomacy in the success of the BDA effort. Like good diplomats, Levey and Glaser wore their velvet gloves when they shook hands. But anyone could feel that the iron fist within was BDA.

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Switzerland sells luxury watches to Kim Jong-Un, despite U.N. sanctions and food shortages

Throughout North Korea’s Great Famine, as millions of North Koreans either starved to death or watched their loved ones die, suppliers across Europe willingly sold Kim Jong-Il millions of dollars’ worth of luxury cars, yachts, cognac, and Swiss watches. In 2006, the U.N. Security Council recognized the obscenity of this practice by adopting Resolution 1718, which first banned the export of luxury goods to North Korea.

Among European nations, probably none has done more than Switzerland to enable the democidal kleptocracy of North Korea’s rulers. It served both as Kim Jong-il’s banker, and as a willing supplier of luxuries. According to Vanity Fair, Bureau 39 managed “multi-billion-dollar personal bank accounts in Switzerland and other private banking havens around the world” for Kim. Kim’s former Ambassador to Switzerland, Ri Su-Yong, is also said to have played a key role in the regime’s Swiss finances before his promotion to Foreign Minister. North Korean refugees have called on Switzerland to freeze those accounts.

In 2013, the Federation of the Swiss Watch Industry claimed that its exports to North Korea had fallen to just $76,000 per year. But as NK News’s Leo Byrne reports, Kim Jong-Un is on another Swiss watch-buying spree, even as 70 percent of North Koreans are “food insecure,” and as the World Food Program asks foreign donors for $111 million to feed North Korean infants, children, and pregnant women.

North Korean imports of Swiss watches rebounded to their highest levels in years in the first six months of 2015, according to official figures from the ITC Trade Map.

Swiss exports of the luxury items dropped to zero for the whole of 2014, however have since rebounded to nearly $80,000 since the start of the year. [NK News, Leo Byrne]

That is to say, North Korea spent as much on Swiss watches in the first half of 2015 as it spent in all of 2013. Byrne notes that the jump in exports “coincides with the opening of Pyongyang’s new airport terminal, where watches from Switzerland appear to be on sale.” KCNA recently published these photos of Kim Jong-Un — upgraded by me, and you’re welcome — touring one of the duty-free shops where watches were on sale.

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Those photos, as lovely a juxtaposition as they are, did not show the watches in sufficient detail to reveal their cost or their origins. That question is now resolved.

“Air Koryo watches (for man) – Swiss made – price: (US$220) – they said it is a joint venture product with Swiss company – Sells in new Terminal 2 Pyongyang international airport,” Flickr user Jaka Parker writes under a recently taken picture of one of the watches.

Not the most expensive watch that’s been spotted in North Korea, but you can buy a lot of corn for that. Here’s the photo:

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Byrne’s report did not specify that North Korea imported the watches directly from Switzerland, but his report relies on International Trade Centre (ITC) data published by each exporting country, which implies a direct transfer

Although the Security Council resolution makes no distinction between luxury goods imported for domestic consumption and those imported for resale, the Pyongyang duty-free shop may well be a front for allowing the regime to claim that it is only importing the watches for resale, while gifting its elite with most of the inventory.

The U.N.’s ridiculously short list of luxury items does not list watches, but does list “jewelry of precious metal or of metal clad with precious metal.” Switzerland is not an EU member, but it is surrounded by EU states, and the EU list is instructive. It lists “[l]uxury clocks and watches and their parts.” Thus, with the sole exception of its refusal to sell Kim Jong-Un a ski lift, Switzerland continues to be an outlier among European nations for its failure to abide by U.N. Security Council resolutions, and for its irresponsible and unethical trade with North Korea.

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Treasury designates Singaporean shipping company for N. Korea weapons trade, but what about the Bank of China?

More than two years after the North Korean merchant vessel Chong Chon Gang was caught trying to sneak a shipment of Cuban MiGs and missiles through the Panama canal hidden under 200,000 sacks of sugar, the Treasury Department has, slowly and slightly, expanded its sanctions against the shipping companies involved in the incident.

Yesterday afternoon, the Treasury Department’s Office of Foreign Assets Control (OFAC) designated Singapore-based Senat Shipping and its Director, Leonard Lai a/k/a Yong Chian Lai, a Singaporean national. It also blocked Senat’s one-and-only known ship, the Mongolian-flagged Dawnlight, IMO number 9110236. Both designations were under Executive Order 13,551, a 2010 order that allows the Treasury Department to sanction entities linked to violations of U.N. Security Council sanctions against North Korea, and also allows sanctions for North Korea’s money laundering. The designations mean that any property of the designated entities that comes within U.S. jurisdiction must be blocked. Significantly, this includes dollars that pass through correspondent accounts held in U.S. financial institutions.

The most recent report of a U.N. Panel of Experts (UN POE) investigating violations of North Korea sanctions found evidence of Senat’s long-standing (and almost certainly willful) participation in prohibited conduct by North Korea. Senat often acted in concert with North Korean shipping company Ocean Maritime Management (OMM), which arranged for the voyage of the Chong Chon Gang, and which was designated by both the U.N. and Treasury in 2014. During its investigation, the POE asked Senat about its links to OMM and the Chong Chon Gang, but Senat did not respond (see Para. 150). Even after the Chong Chon Gang incident resulted in widespread press coverage of a clear violation of U.N. sanctions, Senat continued to engage in transactions for the OMM-owned Mu Du Bong, which later ran around in Mexico (Para. 191).

Senat performed two main roles. The first of these was acting as a financial intermediary for OMM’s bunkering transactions, conducting dollar-denominated transactions through correspondent banks regulated by the U.S. Treasury Department (Para. 192), in a willful effort to evade U.N. sanctions.

192. The Panel has also obtained evidence of intermediaries issuing instructions for vessel names to be omitted from OMM-related financial transactions, including dollar transactions through United States correspondent banks. Such instructions were issued by Mariner’s Shipping for financial transactions made on behalf of vessels associated with OMM, the Am Nok Gang and the Mu Du Bong, and by Senat Shipping when issuing an invoice to the charterer of the Ryong Gang 2 (then owned by an OMM-associated entity, Taedonggang Sonbak Co Ltd) in January 2009 (see annex XLVII.1-14). Such efforts to obscure the true nature of financial transactions were confirmed by financial institutions contacted by the Panel.

193. The Democratic People’s Republic of Korea has disassociated logistics from the financial aspects of managing its vessels. This frustrates due diligence and allows the country to keep its foreign currency in circulation rather than repatriating it. In the case of the Chong Chon Gang, OMM Dalian arranged for spare parts from a European company to be delivered to Panama, with payments effected through Chinpo Shipping in Singapore (see annex XLVII.15). Mirae Shipping Hong Kong also paid Panama Canal passage costs. Senat Shipping in Singapore has also been heavily used for these types of dissociated transactions (see annex XLVII.1-14).

Senat’s links to Pyongyang are long-standing and extensive, according to Andrea Berger:

Leonard Lai does not hide his affinity for North Korea. In 2008 he went on record for the Singapore Business Federation encouraging companies to do business with the DPRK, adding that “companies can leverage off the strong loyalty and relationship-driven aspects of [North] Koreans.” In fact, Senat Shipping has ten mentions in KCNA, the most recent in mid-2014. Leonard appears to enjoy bringing flowers to the DPRK mission in Singapore and throwing parties in Kim Jong Il’s and Kim Il Sung’s honor. [Andrea Berger, 38 North]

Senat’s second role was reflagging North Korean ships. Berger writes in exhaustive detail about how Lai, along with fellow Singaporeans Chong Koy Sen and Lim Mei Peng, and working through a company called Sovereign Ventures, Inc., arranged for the reflagging of North Korean ships through their offices in Singapore and Panama since the 1980s. In exchange, the North Koreans rewarded Lai, Chong, and Lim with business contracts. The flag states included Cambodia, Mongolia, Tuvalu, Niue, and Kiribati.

Senat 1

[U.N. Panel of Experts]

The UN POE also found that “Senat’s Director travelled to the Democratic People’s Republic of Korea in 2011 to attend a trade fair.” (Page 130, Footnote 89)

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Also yesterday, Treasury expanded its designation of OMM, adding OMM offices around the world: Pyongyang, of course, but also China (Dalian, Shenzhen, and Hong Kong); Russia (Vladivostok); Thailand (Bangkok); Egypt (Port Said); Singapore; and Brazil. It also added the OMM aliases East Sea Shipping Company, Haeyang Crew Management Company, and Korea Mirae Shipping Company.

Treasury also designated additional aliases of two officials of Tanchon Commercial Bank under a separate 2005 executive order focused exclusively on weapons of mass destruction, Executive Order 13,382.

Overall, the consequences of the July 2013 seizure of the Chong Chon Gang have been stupefyingly slow. A year after the seizure of the Chong Chon Gang, the former head of the U.N. Panel of Experts called the lack of action “regrettable.” Shortly thereafter, the U.N. designated OMM. The U.S. Treasury Department followed suit, and also designated 18 vessels in OMM’s fleet. Even so, OMM continued to operate out of ports around the world by reflagging and renaming its ships. 

The Panel of Experts opined that under UNSCR 2094, all states should seize any OMM vessels entering their ports (see Paragraph 133), but compliance has been mixed. Mexico seized the OMM ship Mu Du Bong when it ran aground in one of its ports. Japan sanctioned OMM, but then allowed an OMM ship to quietly slip in and out of one of its ports earlier this year. As recently as last week, an OMM ship was in the Russian port of Vanino. China has completely ignored the sanctions, as usual. Cuba, the most flagrant violator of them all, got away from the Chong Chon Gang incident scot-free.

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The use of Executive Order 13,551 — rather than the sweeping Executive Order 13,687 — suggests that the Obama Administration is still not ready to cross the key threshold from conduct-based sanctions to status-based sanctions, a move that the General Accountability Office recently found would greatly improve the lagging enforcement of North Korea sanctions.

Together with the EU’s recent designation of the Korea National Insurance Corporation, the actions suggest combined, but uncoordinated, concentration on North Korean shipping networks, a strategy advocated by Hugh Griffiths and Lawrence Dermody of the Stockholm International Peace Research Institute (SIPRI), in this must-read post.

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The designation of Senat again raises questions about another Singapore-based shipping company that Treasury has not designated, the regrettably named Chinpo Shipping, which shares the same address as North Korea’s local embassy. The UN POE found that OMM used Chinpo for the “payment of costs related to the voyage” of the Chong Chon Gang, and that “OMM arranged for payment for the ship’s passage through the Panama Canal to be made by a firm in Singapore, Chinpo Shipping, which told the Panel that OMM had provided it with funds and requested it to pay fees due a Panamanian firm.”

In June 2014, Singapore’s Public Prosecutor filed criminal charges against Chinpo and one of its officers, Tan Hui Tin, a citizen of Singapore, in connection with the Chong Chon Gang incident.

One possible reason for Treasury’s hesitation to go after Chinpo Shipping is the fact that, according to multiple open-source reports, Chinpo ran its transactions through the local branch of the Bank of China, in U.S. dollars. Blocking Chinpo (now, stop that) would raise serious questions about the Bank of China’s compliance with U.N. Security Council resolutions, and also with Know-Your-Customer obligations under U.S. law. According to the POE’s 2014 report, the Equasis database (link here) also associates Chinpo with Pyongyang-based Korea Buhung Shipping Company. 

Banks that use the U.S. financial system — and the U.N. POE reports that most of North Korea’s transactions are still denominated in dollars — must comply with Treasury’s Know-Your-Customer rules, which require banks to make reasonable, due-diligence inquiries into who their customers are, who their beneficial owners are, and whether their business activities seem legitimate. If the transactions seem suspicious for any reason, the banks are required to report them to Treasury, and may also be required to block them.

Since 2011, the global Financial Action Task Force and Treasury’s Financial Crimes Enforcement Network have repeatedly warned banks about North Korea’s deceptive financial practices and misuse of the financial system, and told them to apply “countermeasures” against that misuse. The FATF has specifically warned jurisdictions to “protect against correspondent relationships being used to bypass or evade counter-measures and risk mitigation practices.” The Chong Chon Gang incident also closely followed the adoption of U.N. Security Council Resolution 2094, which directs member states to require “enhanced monitoring” of North Korean transactions to prevent violations, and to freeze any funds that could be used to further prohibited activities.

If the Bank of China was aware of Chinpo’s links to North Korea, then, it would have been obligated to disclose them to its U.S.-based correspondent banksEarlier this month, this blog post at the Wall Street Journal’s China Real Time alleged that Chinese banks, and the Bank of China in particular, have become lax in their anti-money laundering compliance. The Bank of China has come under scrutiny for shadowy dealings with North Korea before. In 2005, the Asia Wall Street Journal reported that Treasury was investigating the Bank of China for laundering funds for Kim Jong-Il’s regime. The Bank of China denied the allegation.

As Acting Treasury Undersecretary Daniel Glaser recently reminded us, “China’s not going to do us any favors. China is going to work with us because it’s in their interests…. We’ve seen that with China’s commercial banks time and time again.” Indeed.

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Update: Additional coverage from NK News (via Leo Byrne), the AP, the Wall Street Journal, and Yonhap. Deutsche Welle contacted Senat, which called Treasury’s allegations “groundless and unwarranted.” It admitted to chartering ships for North Korea — including the Chong Chon Gang — but insisted that all of its dealings have been “legal” and “transparent.”

Treasury’s announcement of the designations contains this very interesting statement:

“Arms shipments transported by OMMC serve as a key resource for North Korea’s ongoing proliferation activities.  Sales from these shipments contribute to North Korea’s other illicit programs,” said Acting Under Secretary for Terrorism and Financial Intelligence Adam J. Szubin.  “We are working to make it as challenging as possible for North Korea to continue its unlawful behavior by actively targeting anyone or any business that supports these illicit arms transfers.”

I wonder whether Treasury bases this statement on specific financial intelligence about Pyongyang’s innermost financial circulatory system, or on the reasonable assumption that Bureau 39 profits from OMM’s arms shipments, and uses those proceeds to fund proliferation. Again, it’s a reasonable assumption, but why isn’t it equally reasonable to assume the same about the Kaesong Industrial Park? If protecting South Korea from North Korean proliferation was the driving motivation for these resolutions, why is South Korea given a special dispensation to violate the sanctions that Singapore isn’t?

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The Korea Development Institute wants to help companies “bypass” U.N. sanctions against N. Korea

Pyongyang’s latest business model for accessing hard currency despite U.N. sanctions is to rent out tens of thousands of its workers to Chinese factory owners. Those workers then labor in exploitative conditions, while Pyongyang steals most of their wages. Now, the Korea Development Institute—an “independent” think tank created under South Korean law in 1970, and “partnered” with several U.N. bodies and at least one South Korean government ministry—is urging small and medium-sized South Korean firms to join these exploitative arrangements.

I’ve often argued that engagement schemes put cash in Kim Jong-Un’s pockets, no questions asked, while the U.N. is ostensibly trying to starve his WMD programs of funds and crimp his lifestyle until he complies with the resolutions. Proponents of these arrangements usually answer these arguments with a see-no-evil approach–hey, we don’t have any reason to think Kim Jong-Un is using our money for nefarious purposes, and all engagement is good engagement! (Is that so?) It’s rare to see them come right out and admit that their deliberate purpose is to help Pyongyang circumvent U.N. sanctions–here, the same sanctions the South Korean government voted for in 2013:

South Korea’s small and medium enterprises (SME) should try to create an industrial park in northeastern China to bypass international sanctions and expand business ties with North Korea, a state-run think tank said Sunday. [Yonhap]

Perhaps the reporter misunderstood them? Well, no:

“More importantly, investment in the city can bypass new investment restrictions imposed by Seoul against North Korea, as well as the United Nations ban on bulk cash reaching North Korea,” it said. The U.N. ban has been imposed after Pyongyang detonated nuclear devices and fired off long-range rockets.

Judging by state-run Yonhap’s report, the reporter sees nothing wrong with this splendid idea, either. He (or she) never cites any of the U.N. Security Council resolutions or quotes their text, nor does he seek comment from any legal experts or South Korean government officials about the legality of this. Least of all, no one bothers to ask a South Korean labor activist about the ethics of this, not that you’d easily find one who isn’t under Pyongyang’s substantial influence anyway.

Instead, everyone seems to blithely accept circumventing U.N. sanctions and enslaving North Korean workers as a swell ideas. What’s not clear is whether they simply don’t care, because they assume China and South Korea won’t enforce the sanctions, or whether they think they’ve found a neat little loophole. Have they? Let’s unpack what the latest of these resolutions, U.N. Security Council Resolution 2094, has to say about this.

First, Paragraph 11 “decides” that all member states “shall … prevent the provision of financial services … by their nationals or entities organized under their laws … any financial or other assets or resources, including bulk cash, that could contribute to the DPRK’s nuclear or ballistic missile programmes.” It also requires member states to prevent “the evasion of” a series of U.N. Security Council sanctions resolutions going back to 2006.

Next, Paragraph 14 “[e]xpresses concern that transfers to the DPRK of bulk cash may be used to evade the measures imposed in” the resolutions, and “clarifies that all States shall apply the measures set forth in paragraph 11 of this resolution to the transfers of cash, including through cash couriers, transiting to and from the DPRK so as to ensure such transfers of bulk cash do not contribute to” prohibited activities, or “to the evasion of” U.N. sanctions.

Finally, Paragraph 15 “decides” that member states “shall not provide public financial support for trade with the DPRK (including the granting of export credits, guarantees or insurance to their nationals or entities involved in such trade) where such financial support could contribute to” prohibited activities, or “to the evasion of” U.N. sanctions.

So KDI’s scheme would be in clear violation of the sanctions. I’ll leave it to others to decide whether KDI didn’t read them or doesn’t care. Many South Koreans have long subscribed to Korean Exceptionalism, which is not so much an argument as an emotional impulse that subordinates the enforcement of law and principle to ethnic solidarity. To Americans, of course, this is another case of South Koreans violating the very rules that were largely written and approved for their own protection.

The onus now shifts to the South Korean government, which is legally obligated to block this. After all, KDI isn’t just an “entity organized under” South Korean law, it’s also under the government’s obvious and substantial influence. The South Korean government can’t allow this plan to move forward without itself violating the resolutions.

One last point–KDI also claims that “[p]roducts made at such factories should enjoy price competitiveness and could be shipped to other parts of China and the world without restrictions,” but this isn’t quite so, either. Executive Order 13570 prohibits the “importation into the United States, directly or indirectly, of any goods, services, or technology from North Korea.” (Emphasis mine, but you knew that.) Willful violations carry severe penalties, including 20 years in prison, a fine of up to $1 million, and a $250,000 civil penalty.

Which isn’t to deny that there are willful violations going on anyway, either for lack of intelligence, lack of interest by the Obama Administration, or both. (Eventually, the North Korea Sanctions Enforcement Act will also make this commerce sanctionable as a product of forced labor or human trafficking.) But like a heat rash, the Obama Administration won’t last forever, and one day, a new administration will come along.

And it will screw this up in a completely different (but almost certainly, less tolerant) way.

Functionally, what KDI wants to do here isn’t that different from Kaesong or any number of similar “engagement” projects run by China, Russia, or other countries. What makes it different is the brazenness with which the proponents admit (in an unguarded moment) what their game is. In doing so, they unwittingly validate my darkest suspicions, not just of KDI’s true motives, but of the true motives behind other engagement projects, too.

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Senators Graham, Menendez introduce companion to N. Korea Sanctions Enforcement Act

Senators Lindsey Graham (R, SC) and Robert Menendez (D, NJ) introduced the bill, numbered S. 1747, last night. I haven’t had a chance to read the full text yet, but from my initial read, it looks similar to S. 3012, which Senator Menendez introduced in the 113th Congress.

Like S. 3012, S. 1747 makes the designations in Section 104(a) discretionary, rather than mandatory. The problem with that approach is that so far, President Obama has exercised his discretion to sanction North Korea as little as possible. The State Department has been patently dishonest in its refusal to hold North Korea accountable for its terrorist threats against Americans, to say nothing of its terrorist attacks against human rights activists and dissidents in exile.

Also like S. 3012, S. 1747 retains key provisions to fund the enforcement of the legislation in a time of shrinking budgets, and to fund humanitarian and human rights promotion programs, using assets forfeited from those who violate the prohibitions in section 104. That language was stripped out of the current House version, probably due to inter-committee jurisdictional drag. If only for keeping that important language in the conversation, S. 1747 is a welcome opening bid from the Senate.

Overall, S. 1747 is an imperfect but a good bill, and an important, bipartisan step toward putting a sanctions enforcement bill on the President’s desk this year. Like Senator Gardner’s S. Res. 180, S. 1747 sends a clear message to the President, urging him to abandon the old, failed approach of North Korean exceptionalism–of refusing to hold North Korea accountable for its threats, attacks, crimes, and atrocities lest we spoil a mood that exists only in the collective imagination of Foggy Bottom.

I wouldn’t assume that S. 1747 is the last bill we’ll see in the Senate before the August recess, either, despite Congress’s present preoccupation with Iran. Senator Corker (R, TN), the Chairman of the Foreign Relations Committee, hasn’t spoken yet.

In the end, I’m confident that Congress will merge what’s best about both bills in the Conference Committee, hopefully this fall. Unless the President vetoes the bill, at great political cost to himself, that bill would re-shape North Korea policy around a two-track policy of sanctioning the regime in Pyongyang, and engaging the North Korean people. If diplomacy has any prospect of success–a prospect that now rests on the fragile reed of Kim Jong Un’s temperament–it lies in an approach that gives our diplomats enough leverage to win concessions to improve human security for the North Korean people, for the region, and for us.

 

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South Korea’s new unilateral sanctions point to a multilateral sanctions strategy

South Korea has imposed unilateral financial sanctions “on six Taiwanese individuals and entities for their alleged arms trade with North Korea,” and on the Syrian Scientific Studies and Research Center. The Taiwanese entities include Global Interface Company, Trans Merits, Trans Multi Mechanics, Tsai Hsein Tai, Su Lu-Chi and Chang Wen-Fu. None of the entities are currently designated by the U.N. Security Council, whose designation process has historically been slow and subject to Chinese and Russian obfuscation.

It is the first time that the government has taken such a punitive step against foreigners and groups who are not from North Korea, in a bid to put pressure on the nuclear-armed communist neighbor.

Officials said there is “evidence of illegal ties” between those blacklisted and the North.

“It’s evident that they are involved in weapons trade with North Korea. They have already faced U.S. sanctions,” a ministry official said, requesting anonymity. “We have shared related information sufficiently with the ally and international organizations.” [Yonhap]

The measure requires South Koreans doing business with the blacklisted companies to request permission from the Bank of Korea. Engaging in any such transactions without BOK permission carries criminal penalties, including fines and prison time. The process sounds roughly similar to the process requiring a license from the U.S. Treasury Department’s Office of Foreign Assets Control.

The South Korean action suggest a model for an effective ad hoc global alliance to make sanctions enforcement more effective, and that China cannot effectively hobble with a veto threat. By itself, South Korea is not a hub of international finance and does not have a convertible currency, but if enough states–and the EU in particular–were to agree on a coordinated blacklist of companies trading with North Korea, that list could become a powerful tool to make the U.N. Security Council resolutions work as intended. The existing institution that’s best equipped to coordinate these efforts is the Financial Action Task Force, which has already published guidelines to prevent the financing of proliferation. The FATF has broad international acceptance and recognition, including from the UNSC.

Governments may be reluctant to use an instrument as blunt as a blacklist against some of North Korea’s larger bankers and trading partners. For those banks and companies, there should be a second, separate Watch List requiring higher levels of compliance and due diligence before transactions can be approved. This would increase the pressure on generally reputable banks to scrutinize (or avoid) transactions with North Korea to protect their reputations.

A challenge for South Korea will be to create a list of sanctioned companies, similar to the Treasury Department’s list of specially designated nationals, commonly known as the SDN List, and getting South Korean banks and businesses to check that list before conducting transactions. In the United States, building a culture of compliance with sanctions regimes took years, and required a willingness to prosecute offenders and set examples. South Korea will also have to create a culture of compliance to make this action effective. If the next South Korean President comes from the left-of-center New Politics Alliance for Democracy, that will present a challenge to the creation of that culture. Historically, the NPAD has been unwilling to impose adverse consequences on North Korea for its conduct.

Japan, which is seeking new ways to pressure North Korea, could also increase its regional influence by adding its economic weight to this informal alliance.

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U.S., allies talk sanctions and human rights (emphasis on talk)

We’d hardly had time to digest all those rumors of “exploratory talks” with North Korea just two weeks ago, before John Kerry was in Seoul, sounding like his speechwriters had slipped him some cut-and-pasted OFK text. There, Kerry denounced Pyongyang’s “recent provocations,” said it wasn’t “even close to” ready for serious about talks, and accused it of “flagrant disregard for international law while denying its people fundamental freedom and rights.”

“The world is hearing increasingly more and more stories of grotesque, grisly, horrendous public displays of executions on a whim and a fancy by the leader against people who were close to him and sometimes for the most flimsy of excuses,” he said, referring to a report from South Korea’s spy agency that the North Korean defense minister was publicly executed with an antiaircraft gun after he fell asleep during a meeting led by Kim.

Kerry vowed to speak out against “North Korea’s atrocities against its own people” and warned that Kim’s mercurial behavior is likely to lead other nations to push for charges against him and North Korea at the International Criminal Court in The Hague. [Washington Post, Carol Morello]

This is all good, although if there’s one execution in North Korea that I care less about than any of the rest of them, it’s Hyon Yong-Chol’s. Overall, my reaction to Kerry’s words is the same as Bruce Klingner’s — I’ll believe them when I see him act on them. (Bruce is now on Twitter, by the way, and you really should be following him.)

Still, the Obama Administration has shown encouraging, if belated, signs of having discovered the advantages of progressive diplomacy. This week, Sung Kim was in Seoul meeting with his South Korean and Japanese (!) counterparts, and 70 year-old distractions have cleared away, if ever so briefly, because of a shared panic over the apparent pace of North Korea’s progress toward an effective nuclear arsenal.

For this instant, anyway, they are all saying sensible things, and in splendid harmony. Amb. Kim said the three nations “agreed on the importance of enhancing pressure and sanctions on North Korea even as we keep all diplomatic options on the table and open.” Kim, rumored to be a soft-liner in the administration’s Korea team, said, “In a sense, they (North Korea) have given us no choice but to cooperate on enhancing pressure ….” South Korean negotiator Hwang Joon-Kook offered also agreed on the need for “stronger pressure” on Pyongyang, in tandem with “active efforts for dialogue.”

And Sung Kim even said this:

“We also agreed on the importance of working with the international community to address the grave human rights situation in North Korea,” Mr. Kim told reporters in Seoul as he emerged from a meeting with his South Korean and Japanese counterparts, Hwang Joon-kook and Junichi Ihara. [….]

Officials here said that other options under discussion included tightening inspections of cargo traveling in and out of North Korea and squeezing the source of hard currency North Korea earns through the tens of thousands of workers it sends to factories, building sites, logging camps and other work sites in China, Russia and countries in Southeast Asia, the Middle East and Africa.

The North Korean workers are estimated to earn hundreds of millions of dollars a year but toil in poor, sometimes slavelike, working conditions and have most of their wages confiscated by their government, according to former workers and rights groups.[N.Y. Times]

If only someone had thought of that before.

Next, Kim and Hwang will fly to Beijing to pressure the ChiComs into turning the screws on the North Koreans. Wanna know how to get their attention? I’ll give you a hint, from my visitors’ log today:
Screen Shot 2015-05-28 at 2.04.39 PM

The three governments are talking about ways to “to deter North Korea’s provocations and increase the effectiveness of sanctions,” which is good, because as the U.N. Panel of Experts and GAO have both told us — and as I told you even before they did — the sanctions we already have aren’t being enforced. The three diplomats didn’t announce any new sanctions. The effort instead seems to be about doing a better job of enforcing the sanctions that already exist.

It’s interesting that North Korea’s recent claim to have tested a submarine-launched missile (which might have been fake) seems to have done more to change policy than a direct North Korean terrorist threat against free expression in the United States (which was almost certainly real).

So what exactly do all of these oscillating signals mean? My guess is, they probably all mean about the same thing: a lot of talk, and not much else. But let no one say the Obama Administration dares not confront grave threats as they gather far from our shores. Your government has deployed a brigade of its finest cops and lawyers, armed with the power of the mighty dollar, to fight that existential threat to our liberties, our security, and the sanctity of humanity itself known as … FIFA, which sounds like the name of small, yappy dog, and is probably about as great a threat to our national interests.

Yes, that’s right: the cops, lawyers, and authorities we should be using to bring Kim Jong Un to heel are being kept busy cleaning up a game that Americans don’t even watch.

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Gloria Steinem was right about isolation (of South Africa)

Gloria Steinem can look back on a life of activism that has built deep reserves of good will among many people. Steinem must have spent heavily from those reserves last week, when Women Cross DMZ attracted largely critical media coverage (and I suspect, an even more critical public reaction). As NK News informs us, its events were stamped from the same propaganda assembly line as those put on for the clown-shod Quisling Alejandro Cao de Benos.

To what end would Steinem jeopardize that good will by entangling herself with a regime that treats women the way Pyongyang does, and whose state media ejaculate this level of misogyny? Steinem’s answer is interesting and telling: “The example of the isolation of the Soviet Union or other examples of isolation haven’t worked very well in my experience.” A prepared (but not as well edited) statement by Women Cross DMZ was on-message: “If history has taught us anything, it is that isolating people only alienates them.”

But Gloria Steinem clearly didn’t believe this on December 19, 1984, when she was arrested outside the South African Embassy while protesting against Ronald Reagan’s “policy of seeking change in South Africa through quiet diplomacy.” The demonstrations were coordinated by the lobby TransAfrica, which led America’s (and ultimately, the world’s) movement to isolate South Africa, and to force it to repeal its apartheid laws.

I first learned this bit of trivia from an article in the agitprop site Foreign Policy in Focus, to which Women Cross DMZ organizer Christine Ahn is a frequent contributor. An article there by Francis Njubi Nesbitt, “The Peoples’ Sanctions,” reminds us that Steinem once joined a movement that targeted “South African consulates, federal buildings, coin shops that dealt in gold Krugerrand coins, and businesses with South African interests . . . to cut apartheid South Africa off from the rest of the world.”

By the 1980s, most of the world’s countries had imposed political, economic, and military sanctions on the South African regime. The exceptions were South Africa’s major trading partners: the United States and Britain. These countries disingenuously argued that sanctions would hurt black Africans most.

In the United States, however, a vigorous grassroots movement demanded that cities, states, pension funds, banks, and universities divest their resources from companies doing business in South Africa, making it a liability for anyone to do business in the racially segregated state. Eventually, international corporations pulled out in a massive exodus that helped to bring down the apartheid system. [FPIF]

So deep was the connection Steinem built to the anti-Apartheid movement that she later married David Bale, a South African-born anti-Apartheid activist, and the father of actor Christian Bale.

Anyone who lived through the 1980s knew that enforcement of the People’s Sanctions was as much a function of social pressure as it was of law. Then, breaking the boycott of South Africa would have been career suicide for any celebrity, and would have risked a shareholder revolt in any corporation. Yet although Apartheid-era South Africa was banned from most sporting events, North Korea was welcome at the 2010 World Cup … in Johannesburg. “Constructive engagement” with North Korea falls within the acceptable norms of hipster chic, and attracts press coverage that, if not wholly sympathetic, certainly isn’t unsympathetic. The author Mark Bowden wrote a lengthy article that was largely devoted to the charms of Kim Jong Un’s hospitality, as if this trait were more revealing of Kim’s misunderstood nature than his tendencies to starve his citizens and slaughter his minions.

By any objective standard, North Korea’s human rights abuses vastly exceed those of South Africa, yet as our friends in Europe are coming to realize, North Korea shows no glimmer of “engagement” aimed at moderating, much less ending, those abuses. Reading Nesbitt’s article, one can’t help observing (again!) how much the political polarities in the contest over South Africa policy have reversed on the question of North Korea.

What explains this disparity? Was it racism that made Apartheid uniquely evil? North Korea is almost certainly more racist than South Africa ever was. For all the petty racism one could see during Apartheid’s death-rattle, its state media would not have called a foreign leader “a monkey in a tropical forest,” “a crossbreed of unclear blood,” or “an ugly subhuman.” Whatever you think about the recent clamor to isolate Indiana, no public official this side of Kampala could survive calling a respected jurist “a disgusting old lecher with 40-odd-year-long career of homosexuality.”

Today (as then) most of us accept that the liberals were right about South Africa policy. Nesbitt goes on to narrate the history of how economic isolation brought down Apartheid. He hails decisions by Citibank and Chase Manhattan to refuse the South African government short-term credit, which had “a devastating effect on South Africa’s economy.” He is rightfully triumphal about the passage of the Comprehensive Anti-apartheid Act in 1986, when half the Republicans in Congress joined Ted Kennedy to override President Reagan’s veto. He writes that Congress later “strengthened sanctions against South Africa, banning all trade, investment, and bank loans.” He tells how U.S. leadership inspired Europe to impose its own sanctions, which “meant total isolation for the apartheid regime” and brought South Africa’s economy to “the verge of collapse” within months. All of this was very much to the good, and Steinem is rightfully praised for her role in this movement, even today.

To Nesbitt, it was isolation that eventually forced F.W. DeKlerk to negotiate the end of apartheid. This rings mostly true, though not entirely. I arrived in South Africa in May of 1990 for a summer job in the mines, three months after Nelson Mandela was released from prison. I did not see an economy on “the verge of collapse,” but an economy that was steady, yet punch drunk and bleeding, and a population (regardless of race) that was tired of being ostracized from global sporting events and culture. South Africa sits on vast deposits of gold, platinum, and other minerals, so it might have resisted sanctions for another decade or more, but sanctions had broken the will of most of the white minority to resist, and encouraged the black majority to defy Apartheid. North Korea, by comparison, has a greater will to resist, but fewer means to do so for long. When the U.S. imposed financial sanctions on North Korea in 2005, Kim Jong Il defied demands to disarm for a little more than a year before agreeing to them.

One final point on the subject of hypocrisy: the organizer of Women Cross DMZ, Christine Ahn, supports a movement to divest from Israel. Never let it be said, then, that Ahn and Steinem are philosophically opposed to isolating regimes they despise. Having exhausted all principled distinctions, we can only wonder if there might be less principled ones.

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GAO: State Dep’t must step up diplomacy to enforce N. Korea sanctions

The General Accountability Office has released a new report on the enforcement of sanctions against North Korea. The report, requested by Senate Foreign Relations Committee Chairman Bob Corker, will probably influence the contours of the Senate’s version of the North Korea Sanctions Enforcement Act. You can read the full report here and a summary here, and listen to a podcast here.

The report correctly points to a key flaw in the enforcement of the sanctions that exist now — a lack of financial intelligence. The reasons for this, however, are multi-layered. The report explains some of those underlying reasons, but not all of them.

Agency officials cited obtaining sufficient information about North Korean persons to be their greatest challenge in making sanctions determinations. Most North Korea–specific sanctions authorities require a determination that a person engaged in a specific activity…

. However, officials said that gathering information on the activities of North Korean persons and personal identifying information can be difficult because of the nature of North Korean society, whose citizens are tightly controlled by the government. Without sufficient information, the United States could mistakenly designate and therefore block the assets of the wrong person, particularly one with a common surname. [GAO 15-485, p. 14]

Executive Order 13,687, signed by President Obama on January 2, 2015, could do much to improve the enforcement of financial sanctions against North Korea, because it is status-based, rather than conduct-based. This would relieve State and Treasury, particularly the overworked staff at the Office of Foreign Assets Control, of the burden of assembling evidence that specific North Korean entities had engaged in categories of conduct prohibited by Executive Orders 13,382 and 13,551, the executive orders under which most North Korean entities are designated today.

“Could” is still the operative word, however. Of the 13 entities designated under Executive Order 13,687, three were already designated, and ten others were individual arms dealers who’ve no doubt returned to Pyongyang and had their places taken by ten other North Korean arms dealers. It’s doubly disappointing to see the administration fail to harness EO 13,687’s potential at a moment of possible political instability in Pyongyang, when our leverage over Kim Jong Un is greatest. The GAO report fails to make recommendations about designations under EO 13,687.

GAO also overlooks another financial intelligence shortcoming — the lack of any broad and detailed requirement to report financial transactions with North Korea to OFAC, except for those incident to imports and exports to or from the United States. And even this doesn’t cover foreign subsidiaries of U.S. companies.

Because sanctions are most effective when enforced multilaterally, the U.N. Security Council’s sanctions resolutions should also be bringing in a wealth of shared financial intelligence about how and where North Korea does its prohibited business. They aren’t, and that’s a problem of political will. Other U.N. member states aren’t making the reports they should be making to the U.N. Panel of Experts (as noted in this post, and this one). Many more of them would if the State Department made it a priority to encourage member states to make them, or to help build capacity in those states that can’t (page 29). GAO found State’s answers about this to be lacking in specificity:

State Department officials informed us that the United States has offered technical assistance to some member states for preventing proliferation and implementing sanctions. However, they were unable to determine the extent to which the United States has provided specific assistance aimed at ensuring that member states provide the UN with the implementation reports it needs to assess member state implementation of UN sanctions on North Korea. [GAO 15-485, p. 30]

State has also failed to press China, Russia, the EU, and other states to harmonize their lists of designated “persons,” or to define simple terms like “luxury goods,” as Section 201 of the NKSEA calls for. GAO should have said more about this, but actually spent more time talking about Uganda’s violations of the resolutions than China’s.

This brings us to another important reason for the slowness of sanctions enforcement — the two usual suspects, Russia and China. Because the U.N.’s sanctions committee operates by “consensus,” either country can hold up a designation indefinitely (see diagram on page 22 for an explanation of the procedure). That’s why it took a full year after the Panama weapons seizure for the 1718 Committee to designate Vladivostok-based Ocean Maritime Management. Even when the U.N. does designate a party, such as Korea Ryonha Machinery Joint Venture Corporation, China and Russia continue to allow that party to operate on their territory. GAO should have mentioned this, too.

GAO’s overall conclusion, however, is correct. State needs to devote more diplomatic resources to getting other member states to implement and enforce UN sanctions. This is the kind of language GAO uses when a government agency isn’t doing enough:

GAO recommends the Secretary of State work with the UN Security Council to ensure that member states receive technical assistance to help prepare and submit reports on their implementation of UN sanctions on North Korea. [GAO 15-485, p. 31]

Failing that, Treasury should impose secondary sanctions on “persons” that flout the resolutions by continuing to buy weapons from North Korea, by failing to block the assets of designated entities, and by failing to carry out “enhanced monitoring” of North Korean transactions. That’s what H.R. 757 will do, and that’s why H.R. 757 is needed. As GAO’s report notes, the panel has no enforcement authority. But because North Korea is still using the dollar system, the U.S. government does:

The panel also identified that in most cases the investigated transactions were made in United States dollars from foreign-based banks and transferred through corresponding bank accounts in the United States. The panel’s 2015 final report indicated that North Korea has successfully bypassed banking organizations’ due diligence processes by initiating transactions through other entities on its behalf. The panel expressed concern in its report regarding the ability of banks in countries with less effective banking regulations or compliance institutions to detect and prevent illicit transfers involving North Korea. [GAO 15-485, p. 27]

There is also the more basic issue of manpower. Treasury either needs more staff at OFAC to collect and act on North Korea-related financial intelligence, or it needs to re-prioritize some of the staff it has working on other sanctions programs.

I also caught some inaccuracies in its report. On Page 7, GAO implies that the Iran, North Korea, and Syria Nonproliferation Act (INKSA) sanctions Pyongyang’s trade in luxury goods. Feel free to read the INKSA yourself, deep within the fine-print notes at the bottom of the International Emergency Economic Powers Act. If you can find any reference to luxury goods there, you may redeem the citation of that language for the carbonated grain-based beverage of your choice. In fact, the INKSA is narrowly focused on the proliferation of WMD technology. The U.S. government does have luxury good sanctions in the Commerce Department regulations, but administrations can always rescind or amend regulations — perhaps in exchange for false promises to disarm — after a process of public notice and comment. Statutes can only be repealed by an act of Congress.

Table 3 on Page 19 says that four North Korean entities are sanctioned under Executive Order 13619, which blocked the assets of “persons” threatening the peace, security, and stability of Burma. This didn’t sound familiar to me, so I control-F’ed by my way through the SDN list (which sounds vaguely erotic, but isn’t) and found no references to any North Korean entities sanctioned under the Treasury’s Burma sanctions (SDN Code, “Burma”). In fact, EO 13619 doesn’t even have an SDN index code, because it relaxes (rather than imposes) sanctions on Burma. I wonder if GAO meant to refer to some other executive order. If so, I can’t imagine what other executive order that might be.

The same table also claims that a total of 86 North Korean entities have been designated, but this number includes some double designations (for example, the 13 “persons” designated under EO 13,687 are added to those designated under EO 13551 and 13382, despite the fact that some of these are the very same entities). I actually count 73, excluding aliases. My count assumes that “persons” designated under the INKSA are also designated under EO 13,382 (SDN Code, “NPWMD”).

Appendix I contains a chart comparing North Korea sanctions to Iran sanctions. The chart could have been a very useful tool, but because it reduces broad categories of sanctions to a binary “X” rather than breaking them down by type and degree, it ends up being more misleading than informative, suggesting a parity that does not exist. It overlooks some of the most important sanctions, including special measures under Section 311 of the USA PATRIOT Act (Iran, yes; North Korea, no), comprehensive transaction licensing requirements (ditto), terrorism-related sanctions (ditto), tourist travel sanctions (Cuba, yes; North Korea, no), and the blocking of assets belonging to the government and its top officials (Belarus, Zimbabwe, Syria, and Russia, but not North Korea).

Worst of all, the chart contains an “X” indicating that there are human rights sanctions against North Korea. This is also misleading. Not one single North Korean person or entity has has been sanctioned for human rights violations (again, in contrast to most of the top leaders of Belarus, Syria, and Zimbabwe). The only possible basis for this claim is the fact that EO 13,687 — the one POTUS signed on January 2nd — finally refers to human rights, along with a host of other evil things Kim Jong Un is doing.

What GAO’s report really tell us, then, is that the administration hasn’t prioritized the enforcement of North Korea sanctions. The lesson for Congress is that if it wants that to change, it will have to force the administration’s hand through legislation and oversight.

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N. Korea’s expatriate labor needs ethical and financial limits

N. Korea increasingly relies on expat labor for hard currency

A series of new reports suggests that the export of labor has become a major source of income for Pyongyang. The Financial Times cites an NGO estimate that the regime earns $1.5 to $2.3 billion a year from contract labor, in line with educated estimates of its annual revenue from missile sales ($1.5 billion) or arms deals with Iran ($1.5 billion to $2 billion). Ahn Myeong-Cheol, a former prison camp guard and leader of the NGO NK Watch, says that there are now 100,000 North Koreans working overseas, double the number it had posted overseas in 2012. Ahn believes North Korea is increasing its use of contract labor to compensate for arms revenue lost to U.N. Security Council sanctions. Marzuki Darusman gives the lower estimate of 20,000. In testimony appended to the end of this post, Greg Scarlatoiu of the Committee for Human Rights in North Korea puts the figure at around 53,000. He also offers this very specific breakdown:

Currently, 16 countries reportedly host workers sent by the North Korean regime: Russia (20,000), China (19,000), Mongolia (1,300), Kuwait 5,000), UAE (2,000), Qatar (1,800), Angola (1,000), Poland (400-500), Malaysia (300), Oman (300), Libya (300), Myanmar (200), Nigeria (200), Algeria (200), Equatorial Guinea (200) and Ethiopia (100).4 Although North Korea is not a member of the International Labor Organization (ILO), all but two of the 16 states officially hosting North Korean workers are ILO members.

Scarlatiou cites this study by the Asan Institute, which I haven’t read, as the source of these figures.* For years, North Korean workers have been sent to stitch BMW headrests in Europe; build political monuments in Africa (at costs that are suspiciously above market value); mine coal in Malaysia; and cut down trees in the 40-below cold of Siberia without proper winter clothing or safety equipment. Recently, Radio Free Asia reported that North Korean managers were deported for pimping out female textile workers in China. Needless to say, such working conditions fall far short of ILO standards.

Media scrutiny causes Qatar to fire N. Koreans over labor violations

Recently, Qatar became a target for criticism by human rights groups for using North Korean labor to build venues for the 2022 World Cup. Pressure on Qatar has led one construction company to fire 90 North Korean workers, or half of its North Korean work force, for “a series of violations and misconduct by the North Korean workers and their supervisors.” A North Korean company called Genco (not to be confused with that other shady front company of literary infamy) employs the workers.

“The Korean supervisors responsible for the wellbeing of their workers have been continuously forcing them to work more than 12 hours a day. The food provided to their workforce is below standards. Site health and safety procedures are ignored regularly,” said one representative of the company, according to the document. [VOA News]

UPI adds that at least one North Korean worker died due to violations of safety standards. A hundred other North Korean workers continue to work at the company’s construction projects in Qatar. The report did not make clear whether the projects were related to the World Cup. The FT found severe conditions at one Gulf State construction project, where North Korean managers forced their workers to keep toiling in the 120-degree heat, when foreign laborers from other Asian countries took shelter.

As a result of this scrutiny, North Korea has tried to impose information blockades around its expatriated workers. In April, Radio Free Asia reported that the regime has directed its workers to physically assault reporters who try to cover them, and smash their cameras. New Focus also reported that the regime had forbidden its workers in China, where dubbed South Korean dramas are broadcast regularly, from watching TV. Workers were previously “allowed some degree of freedom” if they moved in groups of two or three. Now, they’re forbidden from leaving the work area except in groups of 15 or more. Those who break the rules are sent back to North Korea. God only knows what happens to them (and their families) after that.

Workers receive little or none of their “wages”

Whether you define North Korea’s labor arrangements as slave labor may depend on how you define the term, and on the circumstances of each project. How much of their wages North Korean overseas laborers get to keep varies from project to project:

Current and former North Korean overseas workers describe how the vast majority of their nominal wage is lost to management fees and contributions to the ruling Korean Workers’ Party. Their testimonies suggest a common system where managers agree to send a set monthly sum back to North Korea. If funds are short, the workers may be denied their wages or made to contribute to the remittance.

Yet workers can still earn $1,000 for a year’s work — a significant sum in North Korea, where most rely on the black market for sustenance and where bribery can be a crucial means of obtaining professional or other opportunities, such as securing education for their children. “The bribes to get into a good university are expensive — Kim Il Sung University is about $10,000,” says one former overseas worker. [Financial Times]

In some cases, defectors reported that they were left with nothing after party contributions were deducted; their bosses told them to be thankful they got two meals a day. The FT’s sources reported that they received either a small percentage of their nominal wages, or in one case, most of a $4-a-month pittance. One said that the money was enough to buy a decent apartment at home. Another, quoted in The Chosun Ilbo, said he was allowed to keep $100 out of a nominal salary of $750. The fact that North Korean workers in Muslim countries are regularly caught bootlegging alcohol suggests that their take-home earnings are insufficient to feed themselves, and their families. At Kaesong, arguably the most-scrutinized of all these arrangements, it still isn’t clear whether the workers receive any cash wages at all.

Defenders of these labor-export arrangements argue that the North Korean workers there earn more and live better than those who remain behind, but the same justification might also be true of a child prostitute in Cambodia, or other human trafficking victims of any number of nationalities and circumstances. It still doesn’t justify exploitative and dangerous working conditions, which are harmful to the North Korean workers, to workers in the host countries, and ultimately, to those imprisoned inside North Korea by a system perpetuated by exploitation.

Toward a More Ethical Model of Engagement

There are two possible approaches to this problem. One approach is suggested by the conduct of the Qatari firm that fired half its North Korean work force, and warned that the rest would be fired if they failed to comply with labor standards. In this 2014 paper, Marcus Noland argued that Kaesong and other consumers of North Korean labor should agree to a code of ethics, akin to the Sullivan Principles, which were used to pressure South Africa to treat its African work force more fairly. But as Noland notes, the adoption of the Sullivan principles “did not occur in isolation;” companies adopted them under the threat of boycotts, divestment campaigns, shareholder resolutions, and eventually, U.S. sanctions laws. Users of North Korean labor must also comply with the financial transparency requirements of U.N. Security Council Resolution 2094, which prohibits the provision to North Korea of economic resources that could be used for prohibited weapons programs.

If users of North Korean labor agreed on a similar code of conduct, there would be far fewer objections to these arrangements, and the balance of equities in this debate might shift. That code would have to include basic worker safety protections, and guarantees that the workers would receive, spend, and repatriate a living wage. The regime could receive the remaining proceeds to purchase food, medicine, and other humanitarian needs and services in kind.

Because moral suasion doesn’t work on everyone, standards that conflict with profit motives need hammers. In the case of South Africa, the hammers included the fear of reputational harm, and eventually, sanctions. Under Section 104(a)(1)(F) of the North Korea Sanctions Enforcement Act, those who engage in transactions in forced labor or human trafficking would be subject to the blocking of their assets in the dollar-based financial system.

Greg Scarlatoiu’s testimony here: Testimony of Greg Scarlatoiu Final

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* This is my cue to unburden my soul of something. Some months ago, I bruised an Asan scholar and OFK reader by writing (on reflection, unjustly) that Asan “largely” (then changed to “sometimes”) “reflects the views of, and serves the interests of, the South Korean government.” I’ll keep the original basis for that conclusion to myself, but Asan’s work since then has convinced me that it simply isn’t true. I don’t think there’s any question that Asan is the foremost Korean think tank publishing work on North Korea today. I apologize for the slight.

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Obama Administration hints at sanctioning N. Korean human rights violators

A year after a U.N. Commission of Inquiry found the North Korean government responsible for crimes against humanity whose “gravity, scale and nature … reveal a State that does not have any parallel in the contemporary world,” action at the U.N. has effectively stalled in the face of Chinese and Russian veto threats. As I have written before, Congress can impose effective sanctions on those responsible in ways that the U.N. can’t and the Obama Administration won’t. But now, the administration is warning that it is “reviewing options” to hold North Korean officials accountable for their crimes against humanity:

“We’re reviewing options related to accountability for North Korean officials responsible for serious human rights violations, which the Commission of Inquiry concluded in many instances may amount to crimes against humanity,” a State Department spokesperson told VOA’s Korean Service, in reference to a United Nations panel report on North Korea’s human rights conditions released in February 2014.

The State Department official said Friday the U.S. will work with the international community to press for North Korea “to stop these serious violations, to close its prison camps, to urge greater freedoms for North Koreans and to seek ways to advance accountability for those most responsible.” [VOA]

According to the VOA report, the spokesman and Sung Kim, U.S. Special Representative for North Korea Policy have both suggested, separately, that the Obama Administration could use the new Executive Order 13,687 to do this. That order would allow the blocking of any property of persons who “have materially assisted, sponsored, or provided financial, material, or technological support  for, or goods or services to or in support of, the Government of North Korea or any person whose property and interests in property are blocked pursuant to this order.” This may be the most important provision in EO 13,687, because what really makes financial sanctions programs work is the in terrorem effect they have on third-country enablers, and their tendency to isolate the target financially.

The prerequisite to designating a third-country enabler, however, is to first block some agency, entity, subsidiary, or official of the North Korean government or its ruling party that the enabler materially assists. And here, the Obama Administration has shown a degree of restraint that borders on the farcical — it has yet to determine that Kim Jong Un is an official of the government of North Korea for purposes of this executive order. (As my Uncle Irving might have asked at such a moment, “Is the Pope Catholic?”) So far, the administration has used EO 13,687 to re-designate just three previously designated North Korean government agencies, and just ten mid-to-low-level arms dealers who were probably all replaced by other mid-to-low-level arms dealers months ago.

Not one North Korean entity or foreign enabler has yet been sanctioned specifically for human rights violations. In comparison, the administration maintains and enforces robust human rights-based sanctions against Iran, Burma, and Sudan, to name a few examples. If the administration wants to demonstrate some seriousness here, it might start by designating the German company that’s reportedly selling Pyongyang its advanced detection equipment to track down North Koreans who use illegal cell phones.

The likely stimulus for these latest statements is a strong denunciation of Kim Jong Un’s crimes by Rep. Ed Royce, Chairman of the House Foreign Affairs Committee and the leading proponent of sanctions legislation against North Korea (full disclosure: I assisted with the drafting of that legislation). Both the administration and the North Koreans seem worried about the legislation, for different reasons. Pyongyang knows that in the financial weapon, the “Americans have finally have found a way to hurt us.”* An administration that has stayed its hand for six years, and whose political influence on foreign policy is ebbing, may now be fearful that Congress will seize the initiative, and with it, the President’s relevance during his final years in office.

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* Grammatical error in original.

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Expert: cash shortage could undermine Kim Jong Un’s succession

You won’t find a more authoritative open-source study of North Korea’s police state than the one Ken Gause did for the Committee for Human Rights in North Korea. When it comes to North Korea’s internal security, kremlinology, and command systems, Gause earns a great deal of respect among North Korea watchers. So when Ken Gause tells Yonhap that Kim Jong Un “has not fully consolidated his power,” and is at risk of failing to do so “in a couple of years” because of a lack of hard currency, I pay attention to that. Gause explains:

“The royal economy, which is part of the economy surrounding the Kim family, is losing money. They can’t bring in as much money. He’s having to spend about twice as much money than his father did to buy support within the regime,” Gause said. “He doesn’t have the resources to be able to consolidate his power and buy relationships.”

Power struggles, which have been frozen in place since Kim’s execution of his uncle Jang Song-thaek, could thaw out in one to two years, and if those power struggles happen, Kim no longer has the regent structure around to protect him, the expert said.

“He is now directly exposed to those power struggles and he can be undermined by that. Not toppled, not coup, but marginalized and turned into a puppet. I think that would happen within the next two to five years. I really think he needs to do this within the next couple of years,” Gause said.

The economic problem is one of three things Kim must address to consolidate the power he inherited from his father, Kim Jong-il, who died in late 2011, the expert said. The two other tasks are to purge potential adversaries and bring in people and to make progress in defense systems, such as the missile and nuclear programs. [Yonhap]

Gause, who is generally supportive of the regime-“engagement” view of which I’m a skeptic, thinks this financial desperation explains why Pyongyang is “largely maintaining its charm offensive toward South Korea” and refraining from greater provocations. I could cite some counterexamples: the 2012 missile test, the 2013 nuke test, the 2013 closure of Kaesong, the 2014 cyberattacks on Sony and the South Korean nuclear power plants, and the escalating threats against the leaflet balloons. Still, this doesn’t necessarily refute Gause’s theory, if you believe that the point of those provocations was to extort money and sanctions relief from South Korea and the United States.

I would love to believe that Gause is right about this, and that Kim Jong Un is a softer target for financial sanctions than even I had believed. That is why I feel such a sense of duty to question it. The main problem I have with Gause’s theory is that the regime isn’t spending like it’s desperate. North Korea’s known spending on imported luxury goods has tripled since Kim Jong Un came to power. Foreign observers have noted the recent building boom in Pyongyang, including new bank towers, leisure facilities that are far out of reach for most North Koreans, and a crash program to build new housing (pun not intended). Pyongyang has increased its defense spending by 16% in the last five years, to more than $10 billion. As we used to say in South Dakota, you can’t eat like a sparrow and shit like a goose. (Not for long, anyway.)

What can we tell about North Korea’s (legal) income sources? Along the border with China, the signs are more mixed. Anna Fifield’s recent report from the Chinese side of the border suggests that import commerce is brisk, although the statistics tell a somewhat different story. On the other hand, exports are soft, with China’s refusal to accept North Korean coal shipments being a particular danger. The critical mining sector is showing signs of distress as a result.

Of course, governments have been known to spend beyond their means. In America, we can sustain that by printing bonds. Mindful of the rather slow market for North Korean government securities lately, I can only suppose that if Kim Jong Un is spending beyond his means, he’s sustaining that by selling gold, or (more likely) by drawing on his offshore cash reserves, which could be enough to sustain him for years. That would make this a particularly opportune time to trap those reserves abroad by blocking them out of the financial system.

Wondering about the basis for Gause’s conclusion, I emailed him, and he kindly agreed to let me print his comments.

While it is true that the KJU regime has opened up the taps to provide goods to the elites, the amount of funding the regime is bringing in through Kim family channels (Office 39, etc…) is shrinking. Events that used to be punctuated with gifts, for example, have given way to expressions of appreciation. The average elite (director level or above) in the past could expect on average around $20K in luxury goods from the SL each year. No more, the largess gravy train has come to an end.

At some point, KJU’s ability to keep up with the rising expectations and the requirements for largess in the regime could hamper his ability to consolidate his power. This is in part, I believe, driving the regime’s prolonged charm campaign. Reinvigorating the people’s economy would free up resources and give Kim more flexibility in running the regime.

Gause adds the enticing news that he has written a book about this topic, which is currently with the editors, and should be published in time to put it on your summer reading list. The book will have a chapter devoted to Pyongyang’s royal-court economy, “[b]ased on extensive interviews over the last [two] years in the region,” including with North Koreans with inside knowledge of the system. Still, Gause concedes that one cannot achieve 100% clarity in studying such an opaque system.

I look forward to reading Gause’s book and will reserve judgment until I do. For now, however, the signs suggest to me that the North Korean regime has more revenue than it did a few years ago. That means that Kim Jong Un has more freedom to make decisions that threaten us and his people. That wouldn’t be happening if the Obama Administration had showed some leadership among its allies, and made a serious effort to enforce financial sanctions on North Korea. Gause is probably right about the fact that Kim Jong Un’s consolidation of power is still very unfinished. We continue to read reports of officials being purgedreplaced, and promoted. That means that the window of opportunity has not yet closed.

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Why does North Korea still need food aid? (Updated)

The UN aid agencies working in North Korea — the Food and Agriculture Organization, the UN Population Fund, UNICEF, the World Food Program, and WHO (writing collectively as Relief Web) — have published a new report. I draw three main conclusions from it. First, despite some reports of improved food production, the humanitarian situation is still bad. Second, aid agencies still aren’t being forthcoming about the most important reasons for that. Third, various UN entities are working at cross purposes, and don’t share a single coherent vision of how to balance providing for North Koreans in need with responding to the aggressive behavior of their government.

The Relief Web report finds that “[f]rom a population of 24.6 million, approximately 70 per cent (18 million) are food insecure and highly vulnerable to shortages in food production.” As a misery index, this is a lower estimate than in the December 2013 WFP and FAO study, which found that 84% of North Korean households have “poor” or “borderline” food consumption, a difference that’s probably attributable to slightly different questions and methodologies. (The 2013 study looked at consumption during the lean season, the Relief Web report focuses on dietary diversity.) The new report also finds that “[t]he chronic malnutrition (stunting) rate among under-five children is 27.9 per cent (about 540,000) while acutely malnourished (wasting) affects four per cent of children under-five (about 90,000).”

As always, one should accept such estimates with great caution. The regime is very practiced at skewing assessments like these by showing aid workers precisely what it wants them to see. For example, North Korea denied the UN assessment teams access to the entirety of Jagang Province, a remote mountainous area that, according to the same report, has one of North Korea’s highest rates of food insecurity. We also know that — despite the professed principle of “no access, no food,” North Korea has long denied the aid agencies access to its horrific prison camps. Marcus Noland often says that one should never trust a statistic from North Korea that includes a decimal point.

~   ~   ~

So why, after 20 years of aid, can’t this fully industrialized state feed its people? Primarily, the UN finds that “[f]ood production is hampered by a lack of” things that money can buy from any number of commercial sources, including (most obviously) food, but also “agricultural inputs, such as soybean seeds, fertilizer and plastic sheets.” But as OFK readers know, lack of money isn’t an issue for Kim Jong Un.[1]

The report also repeatedly describes North Korea as “vulnerable” to “shocks” like natural disasters, but doesn’t explain how it is that North Korea (again, in contrast to all other industrialized societies) remains vulnerable to famine after two decades of food aid. The report cites “the fragility of the national emergency response capacities,” but that’s an essential government function that other governments prioritize. If you can assemble, equip, and train a million-man army with special forces and a mobile missile force, why not a disaster response agency or EMTs? North Korea is in a temperate zone, not the sahel, so it’s not uniquely vulnerable to extreme weather. When is the last time you heard about anyone going hungry because of extreme weather in South Korea, or for that matter, Mongolia?

The report also reminds us not to assume that increased food production, even if we’ve measured it accurately, translates to a better nutritional situation:

DPR Korea’s Crop Production and Food Security Assessment (CPFSA), carried out by the Government in November 2014, reported a modest increase of 48,700 MT in cereal production in 2014, despite a prolonged dry-spell from spring to autumn. However, production did not reach the targeted level, which was higher than previous years due to increases in consumption patterns, as well as the need to use cereals for seed and livestock feed. As a result the shortfall of cereal increased from 40,000 MT in 2013 to 891,508 MT in 2014. Soybean production also decreased to 160,364 MT in 2014; approximately 1.83 per cent lower than 2013 and the third consecutive year of decline. Crop rotations of soybeans are critical to improve nitrogen levels in the soil and also to provide dietary protein for a number of protein-rich products, such as soymilk, soy-sauce and soy-flour. The estimated level of vegetable production was 0.45 million MT against a requirement of 2.50 million MT, leaving a gap of 2 million MT. Despite improved harvests in some crops, the food security situation will remains similar to previous years with poor food consumption in most households. [Page 7]

Does “increases in consumption patterns” mean that people are eating more, that the UN is adjusting expectations to account for what a human being needs to eat, or is it just creative accounting? I can’t tell.

What Relief Web doesn’t explain is that private, gray-market (sotoji) farming is another important component in North Korea’s food production story that UN survey statistics can’t measure. Andrei Lankov once wrote that in some areas, sotoji farming could account for “as much as 60 percent of all food sold on the local market.” To some extent, and despite all of the renewed talk of agricultural reform, the state’s confiscatory policies toward sotoji agriculture may also be offsetting these nominal increases, but to an unknowable degree. The crackdown is manifested in two ways: increased fees for the use of the plots, and the confiscation of some plots in the name of reforestation. In the recent past, the regime has also exported “excess” production for hard currency. Stories like these cause me to wonder, at times, whether Pyongyang is deliberately limiting the food supply.[2]

According to the report, donor fatigue is a growing problem: “[F]unding for United Nations (UN) agencies decreased substantially over the past decade, from US$300 million in 2004 to less than $50 million in 2014.” It isn’t hard to think of any number of sound reasons for that, from the regime’s own culpably malignant priorities, to its interference with aid workers (see also Steph Haggard’s comment on this) by limiting access or expelling them, to the aid agencies’ own refusal to confront those problems frankly and directly. The UN agencies still appear to be relying on the state’s Public Distribution System, a system that experts will tell you barely functions at all.

Perhaps donors should still do more to meet UN’s requests for vaccination programs to prevent tuberculosis, malaria, and cervical cancer, and for the treatment of tuberculosis and pneumonia. Even medicine isn’t completely free of the risk of diversion, however, which means that monitoring is still important.

~   ~   ~

Of course, what the report does not confront is the fact that North Korea shouldn’t need humanitarian aid at all. According to Marcus Noland, North Korea could close its food gap with “less than two-tenths of one percent of national income or one percent of [its] military budget.” Its known annual spending on luxury goods is six times the amount of the UN’s latest appeal for North Korea. Its gap between rich and poor is obscene and growing. Similarly, every North Korean who died in the Great Famine of the 1990s was a victim of Kim Jong Il’s priorities — not weather, not lack of resources, and not sanctions. And yet the report says this:

Recent political developments resulted in further international sanctions on DPR Korea, creating additional constraints in providing vital assistance. As a result of sanctions on the Foreign Trade Bank imposed in March 2013, led to the significant issues and delays in transferring funding into DPRK throughout 2014. UN agencies put in place contingencies to continue programmes, with lifesaving activities prioritised. Measures to reduce in-country payments included maximizing off-shore payments and minimizing in-country operating expenses. The inability of UN agencies to use their regular banking routes created multiple operational obstacles and affected in-country procurement, monitoring visits, effective programme delivery, in-country capacity building programmes and general operating expenditures. [Page 15]

Now, here is what a UN Panel of Experts charged with monitoring the enforcement of UN Security Council resolutions just said about that same topic:

209. While the Panel has been made aware of allegations that sanctions are contributing to food shortages, its assessment has found no incidents where bans imposed by the resolutions directly resulted in shortages of foodstuffs or other humanitarian aid. National legislative or procedural steps taken by Member States or private sector industry have been reported as prohibiting or delaying the passage of certain goods to the Democratic People’s Republic of Korea. It is sometimes difficult to distinguish these measures from United Nations sanctions. The Panel will continue to seek information on the issue. 210. Although the resolutions underline that the sanctions measures are not intended to have adverse humanitarian consequences for the country’s civilian population, there is no exemption mechanism in the resolutions under embargoes to that end. The Panel therefore recommends that the Committee propose to the Security Council exemptions under embargoes, provided that such items are confirmed to be solely for food, agricultural, medical or other humanitarian purposes. [U.N. Panel of Experts, Feb. 2015 report]

The latter recommendation, of course, is both humane and sensible. Sanctions resolutions and legislation should always contain flexible waiver and exemption provisions for purely humanitarian transactions. But agonizing dilemmas like these again point us to Pyongyang’s skill at using its own poor as human shields to divide the world’s response to its offenses and outrages.

To the extent sanctions have complicated aid delivery, the UN Relief Web report attributes that to “recent political developments” — that is, Kim Jong Un’s decision to test a nuclear weapon in February 2013 — and then says that this “resulted in further international sanctions” by the UN Security Council. The U.S. Treasury Department is obligated to enforce UN sanctions, so when Treasury concluded that North Korea was using its Foreign Trade Bank “to facilitate transactions on behalf of actors linked to its proliferation network,” it blocked that bank out of the dollar system. It’s unfortunate that North Korea also forced humanitarian groups to use the same bank, but thankfully, according to Ghulam Isaczai, the UN Humanitarian Coordinator for North Korea, UN aid agencies have “been able to work around” those complications “and still bring in humanitarian aid to support the population.”

On close reading, the “complications” the aid agencies cite are related to “local procurement.” Those complications only exist because Pyongyang is demanding payment for that local procurement in U.S. dollars. In plain English, it looks like Pyongyang is charging UN aid agencies for fuel and labor in hard currency, leaving the aid agencies to feed poor North Koreans, while Pyongyang spends its own cash on ski resorts, limousines, private jets, and flat screen TVs.

Despite all of this, the aid agencies and NGOs choose to reserve all of their public criticism for the U.S., because they know the U.S. can’t expel them from North Korea, and actually cares if North Koreans starve. But that selective criticism only does more harm to their credibility and fuels more donor fatigue. Last month, in a supreme irony, Pyongyang expelled the Country Director of one of the NGOs that complained when Treasury blocked the Foreign Trade Bank.

And of course, the latest UN Panel of Experts report also contains this explosive allegation:

202. On 30 January 2014, the French Ministry of Economy and Finance ordered the freezing of assets held by two Democratic People’s Republic of Korea nationals affiliated with the Reconnaissance General Bureau, Mr. Kim Yong Nam and Mr. Kim Su Gwang, and one affiliated with the Korean United Development Bank, Ms. Kim Su Gyong, on the grounds that they were likely to engage in activities prohibited by the resolutions (Table 11).

203. At the time of the freeze order, Mr. Kim Yong Nam was a Reconnaissance General Bureau officer operating under the cover of a contract as an employee at the headquarters of the United Nations Educational, Scientific and Cultural Organization (UNESCO) in Paris and Mr. Kim Su Gwang was a Reconnaissance General Bureau officer operating under the cover of a position as an international civil servant at the World Food Programme (WFP) in Rome.

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On N. Korea’s crimes against humanity, Congress can do what Obama won’t and the U.N. can’t.

It’s nearly a sure bet that you hadn’t heard that last month, American diplomats in Geneva co-sponsored yet another resolution (HRC/28/L.18) at the U.N. Human Rights Council, expressing “deep concern about human rights violations in North Korea.” For those who may have lost track, that follows the HRC’s vote to begin an inquiry into human rights in North Korea (March 2013), the presentation of the report (February 2014), an HRC vote endorsing the COI report (April 2014), a General Assembly resolution (November 2014), and eventually, placement of the human rights question on the Security Council’s permanent agenda (December 2014). Placing the issue on the UNSC’s agenda was not subject to a veto for the simple reason that this move, by itself, is likely to amount to approximately nothing as long as China and Russia remain certain to veto any meaningful resolution.

North Korean diplomats reacted to each of these events with lies, denials, whataboutisms, insults, and the occasional racial slur. Safe to say, there is no sign that Pyongyang has any plans to accept political reform.

And yet, the U.S. diplomats have the gall to call the latest HRC resolution introduction “important,” apparently expecting us to forget that the move puts us right back where we were a year ago. Although the U.S. claims to be “extremely concerned” about the North’s crimes against humanity, once again, it led from behind, allowing the EU and Japan to introduce the resolution.

This is not to say that absolutely nothing has been gained. One day, a better president who really is “extremely concerned” about this issue will be better positioned to raise human rights at the Security Council, and to pressure the next South Korean government to let the newly established OHCHR office in Seoul do its work. The best we can hope from President Obama is that he might schedule “briefings” to the Security Council, which China and Russia will skip, and where those who bother to attend will nod along in sagacious impotence. If there was any question that President Obama would earn his Nobel Peace Prize with a serious and meaningful policy response to crimes against humanity comparable to those of the Khmer Rouge, the Bosnian Serbs, and (on a per capita basis) the Nazis, that question is now resolved. Obama will not force a vote on a Chapter VII resolution at the Security Council, an act that would force China and Russia to veto the resolution and forever own Kim Jong Un’s crimes against humanity. North Korea will be Samantha Power’s Rwanda, and hopefully, history will at least hold her, Obama, and Ban Ki Moon accountable for their failures.

But what else would a Security Council vote achieve? There has been much emphasis on pressing for a referral to the International Criminal Court, a body that’s unlikely to lay its jurisdictional hands on any North Korean official responsible for crimes against humanity. A more effective response would be the sort of cultural and economic boycott that ultimately forced change in South Africa, when paired with an effective grass-roots campaign. But then, we already know what North Korea’s vulnerability is, and Congress knows that it has a greater power to attack that vulnerability than the U.N. itself. After a short spasm of vitality, a divided U.N. has failed again. The President appears apathetic, and has abdicated his responsibility. Now, Congress must act.   

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With Sony in mind, Obama signs new cyberwar E.O., but will he enforce it?

On Wednesday, the President signed a new executive order authorizing sanctions against anyone the State and Treasury Departments decide has engaged in conduct we’d colloquially call cyberespionage, cyberwarfare, or cyberterrorism. The new categories of sanctionable conduct include —

(A) harming, or otherwise significantly compromising the provision of services by, a computer or network of computers that support one or more entities in a critical infrastructure sector;

(B) significantly compromising the provision of services by one or more entities in a critical infrastructure sector;

(C) causing a significant disruption to the availability of a computer or network of computers; or

(D) causing a significant misappropriation of funds or economic resources, trade secrets, personal identifiers, or financial information for commercial or competitive advantage or private financial gain. [link]

The E.O. also targets the theft of trade secrets and intellectual property, and in a novel provision, also authorizes the blocking of property of those who profit from those crimes. Deep breath now:

(A) to be responsible for or complicit in, or to have engaged in, the receipt or use for commercial or competitive advantage or private financial gain, or by a commercial entity, outside the United States of trade secrets misappropriated through cyber-enabled means, knowing they have been misappropriated, where the misappropriation of such trade secrets is reasonably likely to result in, or has materially contributed to, a significant threat to the national security, foreign policy, or economic health or financial stability of the United States; [link]

The order also contains standard (but crucial) clauses authorizing sanctions for assisting, sponsoring, facilitating, or attempting to commit those crimes. In a significant omission, it does not authorize sanctions against those who threaten to commit them.

For the most part, however, the new E.O. follows a well-worn path. It essentially does to certain cybercriminals and their enablers what Executive Order 13,224 does to terrorists and their enablers, or what Executive Order 13,382 does to proliferators and their enablers. The main substantive differences are the targeting of those who profit from the crimes, and a provision for the exclusion of aliens who are designated under the new order (something that Section 206 of the NKSEA would also do to enablers of North Korea’s illicit, prohibited, or sanctionable activities, including cyberwarfare).

In an accompanying Q&A and blog post, the White House names China, Russia, Iran, and North Korea as being responsible for the conduct the E.O. is meant to target. And yet the Obama Administration hasn’t designated anyone under this new executive order yet.

The program’s effectiveness will depend on its implementation, said Bruce Klingner, senior research fellow for Northeast Asia at the Heritage Foundation. On North Korea, for instance, he said that the administration “has pursued a policy of timid incrementalism — of talking a tough game, but not following through on its rhetoric.” [Washington Post, Ellen Nakashima]

And crucially, the Sony hackers operated more-or-less openly from Chinese soil, to no less an extent than the Taliban allowed Al Qaeda to operate from Afghan soil. What the law enforcement people will tell you is that to shut down that kind of behavior, you have to show the hosts and sponsors that you’re willing (even eager) to go after them, too.

But James A. Lewis, a cyberpolicy expert at the Center for Strategic and International Studies, said the new program is promising — especially as a tool to combat one of the nation’s top cyberthreats: economic espionage by China.

“You have to create a process to change the behavior of people who do cyber-economic espionage,” he said. “Some of that is to create a way to say it’s not penalty free. This is an effective penalty. So it moves them in the right direction.” [WaPo]

Both Klingner and Lewis are correct, but the early signs aren’t encouraging. The new E.O. does fill key gaps in our authorities against cyberespionage and the theft of intellectual property, and those things are doing great damage to our economy and our national security. But the absence of designations suggests that like E.O. 13,687, this may turn out to be another empty threat, at least until we have a president who’s tough-minded enough to protect our interests and our most fundamental freedoms from foreign threats.

In the case of Sony, for example, the Administration already had sufficient tools to sanction those responsible. The threats against “The Interview” moviegoers were clearly terrorism, and the administration could just as well have designated those responsible under Executive Order 13,224, or even charged them criminally under Chapter 113B of Title 18. So why didn’t it? Probably because that would have undermined the State Department’s flat-earth dogma that North Korea hasn’t sponsored an act of terrorism since 1987. North Korea’s December 2014 attacks against South Korean nuclear power plants, which were reportedly meant to cause a reactor malfunction, could also have been designated under E.O. 13,224, and if the evidence was strong enough, should have been.

It may be that the administration is as worried about Congress as it is about the North Koreans, and is trying to stay ahead of it and protect its own role. For example, the new Congress recently passed discretionary sanctions authorities against cyberespionage in Section 1637 of the Carl Levin and Howard P. “Buck” McKeon National Defense Authorization Act for Fiscal Year 2015. Section 104(a) of the NKSEA will also provide for mandatory sanctions against North Korean hackers, and Section 104(b) will provide for discretionary sanctions against their enablers.

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Tell me who you boycott and I’ll tell you who you are: On Indiana, S. Africa & N. Korea

As I write this, advocacy groups nationwide are recomposing the tested strategy of using economic isolation to coerce an oppressive, backward regime to improve its human rights practices. The regime, unfortunately, isn’t North Korea; it’s Indiana. That strategy, however, is a moral muscle memory to those of us who came of age as America and Europe mobilized to boycott and sanction apartheid out of existence. Then, when President Reagan came out for “constructive engagement” with South Africa, he was met with such universal outrage that congressional Republicans abandoned him and overrode his veto of the Comprehensive Anti-Apartheid Act of 1986. Until F.W. de Klerk put South Africa irreversibly on the path to democracy, breaking the cultural or economic boycotts would have been career suicide for any celebrity, and would have risked a shareholder revolt in any corporation.

By May of 1990, however, Nelson Mandela was a free man, and South Africa was on that path, irreversibly. By then, it did not trouble my conscience to accept a temporary job there. I arrived there just late enough to watch apartheid die from the vantage of a conservative mining town just outside Johannesburg, one repeal at a time, but just soon enough to witness a system that was grossly unjust, profoundly loathsome, and only recently and reluctantly self-aware of this. The best thing that could be said of it was that it was a far cry from North Korea.

So it has always been. Tell me what you boycott and I’ll know what you hate; tell me what you hate and I’ll know what you believe; tell me what you believe and I’ll know who you are. I might even tell you.

In 1986, half of the Republicans in Congress (including then-freshman Sen. Mitch McConnell) defied President Reagan and voted to override his veto of the Comprehensive Anti-Apartheid Act, which imposed a wide range of trade and economic sanctions against South Africa, but relatively few financial sanctions. On that occasion, Edward “Ted” Kennedy, the Senate’s most important proponent of that legislation, said, “The Senate’s action today expressed the best ideals of the American people. The message to countries all over the world is, the United States will lead, and we’re proud to lead.” Can anyone imagine Jim Webb or Rand Paul saying such a thing today without recognizing it as a strip-tease of burlesque electoral cynicism?

Reading the text of the Comprehensive Anti-Apartheid Act today, I’m struck by the similarity of strategies between that bill and the North Korea Sanctions Enforcement Act, although the bills’ specific legal authorities are very different.

Ted Kennedy’s leadership of anti-apartheid sanctions legislation is one of the issues where history remembers him the most fondly today. History has been less kind to Ronald Reagan’s opposition to it. Today, Ted and Bobby Kennedy’s anti-apartheid legacy carries on, through the Robert F. Kennedy Center for Justice and Human Rights, which has emerged as the strongest liberal force for sanctions against North Korea. Say what you will about the Kennedy family — and no one will accuse it of political neutrality — but it’s hard to argue with the moral consistency of those positions on both South Africa and North Korea. Nothing speaks more highly of their principle than the fact that they’ve pressed the Senate to pass legislation that was drafted at the direction of a conservative Republican Committee Chair, Ed Royce.

Don’t tell me the sanctions didn’t work against South Africa. They certainly did not work in the way that North Korea sanctions would, but to many of the white South Africans I met then, the prospect of rugby and football matches against New Zealand and Australia did much to compensate for their fears about their future as a minority among an empowered majority. South Africans were also sensitive about their nation’s image, as all people are, and as Koreans are to a far greater degree than most. Yes, many South Africans expressed their resentment of the sanctions, but they also grudgingly accepted the importance of lifting them. That acceptance allowed de Klerk to win the general election of 1989 and the referendum of 1992 (by which time change was a fait accompli).

There are, of course, more differences than similarities between North Korea and South Africa. The former oligarchy is far more determined, malignant, and violent, but it is also more vulnerable to financial isolation. Unlike South Africa, North Korea does not sit on mountains of gold, diamonds, and platinum, and it has a relatively greater reliance on the hard currency that runs through our banking system.

From a strictly moral perspective, there is no principled argument that it was unjust to engage the apartheid regime, yet just to engage North Korea’s. For all its evils, apartheid did not consign hundreds of thousands of people to political prison camps, or starve a million or two to death. For that matter, North Korea is every bit as racist as South Africa ever was, and even manages to have its own system for imprisoning a majority of its people in economic injustice, poverty, and hunger from the cradle to the grave. (It also compounds the sins of mass starvation, domestic terror, arbitrary execution, and democide with both sexism and homophobia.) Despite the world’s unfocused outrage, North Korea denies the very commission of its crimes against humanity, a nearly sure sign that it means to go on perpetuating them, as long as we allow it to.

Let’s also be clear about this: all foreigners in North Korea are engaging with the regime — either intelligence agents, or a hand-picked elite beholden to its preservation and enrichment. Those who claim to be engaging with “ordinary” North Koreans are either fooling themselves, or trying to fool you. 

To me, however, the most striking thing about the comparison between South Africa then and North Korea now is the extent to which the arguments about engagement and isolation mirror each other, except with their polarities reversed. Today, it is conservative Republican Ed Royce who is the conscience of the Congress on North Korea policy, who is leading a bi-partisan coalition to isolate North Korea, and who is challenging the cynicism of the State Department. Below the fold, I’ve reprinted liberal Democratic Representative William Gray’s response to President Reagan on anti-apartheid sanctions. At one point, Gray even invokes North Korea sanctions (which then included sanctions under the Trading With the Enemy Act) as a comparison to those against South Africa.

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Must read: Iranian bank handled arms transactions for Tehran, Pyongyang through Seoul branch

Investigative journalist Claudia Rosett, who covered the Tienanmen Massacre and exposed the U.N. Oil-for-Food scandal, has written an extensive report about the operations of Iran’s Bank Mellat in Seoul during the administrations of Roh Moo-Hyun and Lee Myung-Bak:

In a cable dated March 20, State asked its embassy in Seoul to tell the South Korean government that “Bank Mellat has facilitated the movement of millions of dollars for Iran’s nuclear program since at least 2003.”

Four days later, State followed up with a cable asking its embassy to “Inform Seoul that the U.S. views Bank Mellat’s Seoul branch as a key node for facilitation of proliferation-related activities.” That same cable included a list of U.S. allegations regarding specific transactions of Bank Mellat in Seoul. For example, State alleged that in 2007 Bank Mellat in Seoul had served as an intermediary for a Hong Kong company that was “almost certainly a front company for Tanchon Bank (North Korea’s primary weapons trade bank)” and that Bank Mellat in Seoul had played a role in financial transactions related to Iran’s ballistic missile program, purchase of a surface-to-air missile system, and illicit nuclear procurement networks in China.

Tanchon is a front for KOMID, the Korea Mining Development Trading Corporation, a notorious proliferator for North Korea. Treasury designated  KOMID under Executive Order 13,382 in 2005, and the U.N. designated it in 2009. Treasury designated Tanchon Bank under the same Executive Order in 2009.

E.O. 13,382 is an authority that allows the blocking of the dollar-denominated assets of entities involved in the proliferation of weapons of mass destruction.

South Korean officials thanked the U.S. for this demarche, and reaffirmed their commitment to investigating Bank Mellat’s branch in Seoul.

A few months later, in June, 2008, U.S. authorities, in turn, thanked Seoul, and urged them, consistent with U.N. sanctions on Iran, to “establish reporting and/or licensing requirements for all transactions executed by Bank Mellat Seoul.” The U.S. also suggested that South Korea, “once its investigation is complete, explore options for closing Bank Mellat Seoul.”

So while 28,500 Americans were in South Korea, defending it from North Korea’s growing WMD threat, South Korea let an Iranian bank front for a North Korean proliferator … admittedly one that Treasury itself has not yet designated.

Still, you’d think that Seoul would be especially sensitive to violations of U.N. Security Council Resolutions 1695 and 1718, which prohibited North Korea’s missile programs, and sales or purchases of major weapons systems. Those resolutions were largely U.S. initiatives to protect South Korea’s security, meaning that South Korea ate our sugar from one end and shat it right out the other. I’ll just let that be your kachi kapshida image for that day. (Update: No, I won’t. Not this day. See the next post.)

Two more years went by, during which the U.S. continued to prod South Korea to take action. In June, 2010 the U.N. Security Council passed its fourth sanctions resolution on Iran. This resolution included, in an annex, the statement that “Over the last seven years, Bank Mellat has facilitated hundreds of millions of dollars in transactions for Iranian nuclear, missile and defense entities.”

… and by this time, the U.N. Security Council had also passed UNSCR 1874, further tightening the restrictions on North Korea’s arms trade.

Even then, it took three more months, and a visit from the State Department’s then-serving special advisor for nonproliferation and arms control, Robert Einhorn, before South Korea in Sept. 2010 worked around to blacklisting Bank Mellat’s branch in Seoul. [Claudia Rosett, Forbes]

Although Rosett makes a strong case that South Korean regulators turned a blind eye to Treasury’s pleas for years, Treasury itself was slow to act against Bank Mellat. Bank Mellat is not listed as a Primary Money Laundering Concern by Treasury, and Treasury did not designate Bank Mellat under Executive Order 13,382 until 2011. To an extent, I can understand the South Koreans’ slow reaction: why should they take action against Bank Mellat when not even Treasury itself had done so? You would think that South Korea’s own security interest in the success of the global nonproliferation system would answer that question, but that sort of logic does not match the prevailing point of view in South Korea then or now.

In any event, the chronology you see illustrated here is a combination of financial diplomacy and enforcement that this administration would take against a target in which it shows genuine interest. That’s exactly what you won’t see with respect to North Korea.

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