On North Korea sanctions, evidence of an inflection point

As I’ve mentioned previously, this has been a busy month for me, and a difficult one for keeping up with the many developments in North Korea sanctions enforcement. Over the last months, I’ve been keeping a tally of how those efforts are taking shape. The accumulating evidence now gives reason for guarded optimism that at last, the sanctions are starting to show significant effects.

Financial. Treasury Undersecretary Sigal Mandelker sent the right message to the financial industry in her recent testimony before the Senate Banking Committee:

Banks worldwide should take note that we are acting to protect the U.S. financial system from North Korean illicit financial activity.  The new authorities granted to the Treasury Department by the Executive order issued last week give us even greater ability and leverage to target foreign banks that support the Kim regime.  We now have the ability to suspend correspondent account access to, or designate and freeze the assets of, any foreign financial institution that knowingly conducts significant transactions in connection with any trade with North Korea or on behalf of any North Korea-related designated person.  These new financial sanctions will be forward looking, and will apply to behavior that occurs following the date of the Executive order.  These types of sanctions were used to great effect in the Iran context, and present a stark choice to banks around the world.

Treasury took an important step late last month when it designated most of the remaining active North Korean banks (see the list in this post for reference). The designation of North Korea’s Central Bank, which issues its currency and has historically sold gold overseas, could be the most significant. But the designation of 26 individual North Korean bankers, trade representatives, and diplomats (read: money launderers and arms dealers) also matters, because banks everywhere now have a legal duty to close and/or freeze their accounts. Targeting these operatives in larger numbers makes it harder for the regime to react and shift funds to other operatives. The regime probably can’t replace these operatives and their valuable contacts faster than we’re designating them now.

Financial sanctions are also having second-order effects. The decision by China National Petroleum to stop selling fuel to North Korea reflects a concern that Pyongyang can’t pay for it, although Beijing has historically supplied fuel to Pyongyang through a cross-border pipeline, free of charge, and without reporting it in its official trade statistics.  Last month, I noted that banks in China were freezing or closing North Koreans’ accounts.

Similarly, the North Korean coal industry, which has been sanctioned by the U.N., and (perhaps more significantly) targeted by the U.S. Treasury and Justice departments for asset freezes, seizure warrants, and civil forfeiture suits, is clearly suffering, according to Daily NK interviews of citizens living near the mines.

In late September, China reportedly ordered joint ventures with North Korea to shut down. Since then, other reports have suggested that North Korean workers are returning from China in large numbers — despite the fact that U.N. sanctions allow those workers to complete their three-year contracts — and multiple reports suggest that Chinese businesses that relied on the cross-border trade have been hurt or idled. In Russia, too, North Korean money launderers are having trouble remitting funds.

Although most press reports have assumed that these developments were the result of Beijing ordering Chinese firms to comply with U.N. sanctions, I’ve theorized that the actual reason for these changes may be, as one Chinese trader put it, that their North Korean partnerscan’t pay us.” That is most likely a consequence of Chinese banks’ fear of losing their access to the dollar system. Chinese firms may also be concerned that products made with North Korean labor or materials will lose their access to U.S. markets, or that millions in profits may be frozen in correspondent accounts.

Historically, actions by Beijing have tended to generate optimistic headlines until, a few weeks later, we’d learn that its actions weren’t being enforced. It’s too early to conclude that this trend will continue, but it bears watching.

Designations. And yet, there are still some surprising oversights. It is objectively difficult to understand why, months after the U.N. and C4ADS exposed them, the feds still haven’t frozen and forfeited the assets of large North Korean arms-trading fronts like Glocom and Vast Win Trading, unless we believe that Malaysia, Singapore, and China are going to do that for us. Belatedly, Treasury has also designated one of the Chinese companies that sold North Korea the chassis that it converted into transporter-erector-launchers for its missiles.

Lawmakers like Senator Cory Gardner (R, CO) and Ed Markey (D, MA) recently introduced new legislation to toughen the sanctions even more, and to emphasize human rights — a key component that has been missing from our diplomatic efforts to build a global coalition. It’s good that they’re keeping the pressure on, and offering this useful course correction. Legislation is one way to do that, but another is to demand regular classified briefings, which means that congressional committee staffs need more staffers with the right clearance levels.

Diplomatic. A month ago, I aggregated the evidence that State’s efforts to isolate North Korea diplomatically — efforts that only began in the final weeks of the Obama administration, and that began to increase last spring — were starting to pay off. Spain, Mexico, Italy, Kuwait, and Peru all cut diplomatic relations with North Korea. Poland, the Philippines, Malaysia, India, the Sudan, Taiwan, Vietnam, and Egypt all announced that they would reduce trade relations with North Korea, or expel North Korean money launderers, slave laborers, or arms dealers.

Since the publication of that post, Portugal and the United Arab Emirates have also announced that they would sever relations with Pyongyang. The UAE also joins Kuwait in ending its acceptance of North Korean workers. Treasury’s removal of a number of Sudan designations suggests that the administration believes that Khartoum has also stopped buying North Korean weapons. Malaysia has banned travel to North Korea, and will not be replacing its withdrawn ambassador, in the wake of a brief hostage crisis early this year following the assassination of Kim Jong-nam. The EU has imposed new sanctions that ban oil and gas exports, textile imports, joint ventures and investments, and new work authorizations for North Korean laborers.

Finally, sanctions are, if slowly, taking their toll on the North Korean embassies that remain to sell its weapons and launder its money, by requiring national governments to freeze payments and shut down the businesses the embassies use to fund their salaries and operations. These developments represent not just a loss of multiple revenue sources, but also nodes within a global, interdependent money-laundering network.

Domestic. As state industries have increasingly struggled to meet their quotas, the regime has turned increasingly to the taxation of domestic industry, including small businesses, for its revenue. A new yuan-denominated tax on license plates suggests that even the state may be losing confidence in the North Korean won. That’s not entirely a bad thing, as one consequence of it is that more people gain a greater degree of economic independence from the state, people have more access to the things they need, there are more opportunities for corruption to siphon off more of this revenue, and the tax collection process puts more citizens into conflict with the state and its corrupt petty despots.

Personnel changes within the regime suggest that it may be under financial strain. An unconfirmed South Korean report says that Pyongyang may have replaced the head of Bureau 39. And whereas until recently, people associated with Jang Song-thaek were under suspicion, some are now being promoted. Jang’s network of operatives in China was Pyongyang’s financial root system. Their restoration might — I stress, might — mean that in its financial desperation, the regime is now (at least, temporarily) prioritizing money over loyalty.

Domestically, the regime is increasingly coming into conflict with its people as the regime squeezes them to make up for the loss of revenue, but the regime can only squeeze them so much: first, there is hardly anything left to steal from them; and second, as with the Great Confiscation of 2009, the regime knows that it has historically been economic conflicts with the state that have caused North Koreans to resist it. In the last six months, prices of fuel and other commodities have risen. South Korea’s National Intelligence Service believes that North Koreans are already disgruntled over the economic effects of sanctions, and that the regime is “conducting a large-scale campaign” to suppress that disgruntlement. None of these developments is irreversible, but for the first time since 2007, there are clear signs that sanctions are starting to take a toll on Pyongyang’s access to the global economy.

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How the U.S. fishing industry can do its part to disarm Kim Jong-un

Long-time readers know that I’ve had many uncomplimentary things to say about the Associated Press’s North Korea coverage. Its still-undisclosed agreements with the North Korean government to open a bureau in Pyongyang sacrificed journalistic ethics for a dubious dividend of access. Since opening its bureau in 2012, AP and its state-supplied North Korean stringers have reported a great deal of North Korean government propaganda and almost no actual news, while ignoring major news stories (to include a hotel fire, a building collapse, the taking of at least a dozen foreign hostages, and multiple purge rumors).

Careful readers also know that I’ve singled out AP reporter Tim Sullivan as a bright spot in this dreary picture. Like most foreign reporters, Sullivan, who is not a part of AP’s Pyongyang bureau, does his best reporting from outside North Korea. The latest example is his outstanding investigative reporting, along with Seoul-based Hyung-Jin Kim and half a dozen others, finding evidence that Chinese fisheries are smuggling seafood packed by North Korean laborers into U.S. markets.

Through dozens of interviews, observation, trade records and other public and confidential documents, AP identified three seafood processors that employ North Koreans and export to the U.S.: Joint venture Hunchun Dongyang Seafood Industry & Trade Co. Ltd. & Hunchun Pagoda Industry Co. Ltd. distributed globally by Ocean One Enterprise; Yantai Dachen Hunchun Seafood Products, and Yanbian Shenghai Industry & Trade Co. Ltd.

They’re getting their seafood from China, Russia and, in some cases like snow crab, Alaska. Although AP saw North Korean workers at Hunchun Dongyang, manager Zhu Qizhen said they don’t hire North Korean workers any more and refused to give details. The other Chinese companies didn’t respond to repeated requests for comment.

Shipping records seen by the AP show more than 100 cargo containers of seafood, more than 2,000 tons, were sent to the U.S. and Canada this year from the factories where North Koreans were working in China.

Packages of snow crab, salmon fillets, squid rings and more were imported by American distributors, including Sea-Trek Enterprises in Rhode Island, and The Fishin’ Company in Pennsylvania. Sea-Trek exports seafood to Europe, Australia, Asia, Central America and the Caribbean. The Fishin’ Company supplies retailers and food service companies, as well as supermarkets.

American importers and retailers are already cutting their ties with these Chinese suppliers, which may be one reason why Chinese factories are sending their North Korean laborers home, despite the fact that new U.N. sanctions (see paragraph 17) allow the workers to serve out their (typically, three-year) contracts.

Often the seafood arrives in generic packaging, but some was already branded in China with familiar names like Walmart or Sea Queen, a seafood brand sold exclusively at ALDI supermarkets, which has 1,600 stores across 35 states. There’s no way to say where a particular package ends up, nor what percentage of the factories’ products wind up in the U.S.

Walmart spokeswoman Marilee McInnis said company officials learned in an audit a year ago that there were potential labor problems at a Hunchun factory, and that they had banned their suppliers, including The Fishin’ Company, from getting seafood processed there. She said The Fishin’ Company had “responded constructively” but did not specify how.

Some U.S. brands and companies had indirect ties to the North Korean laborers in Hunchun, including Chicken of the Sea, owned by Thai Union. Trade records show shipments came from a sister company of the Hunchun factory in another part of China, where Thai Union spokeswoman Whitney Small says labor standards are being met and the employees are all Chinese. Small said the sister companies should not be penalized.

Shipments also went to two Canadian importers, Morgan Foods and Alliance Seafood, which did not respond to requests for comment.

Boxes at the factories had markings from several major German supermarket chains and brands — All-Fish distributors, REWE and Penny grocers and Icewind brand. REWE Group, which also owns the Penny chain, said that they used to do business with Hunchun Dongyang but the contract has expired. All the companies that responded said their suppliers were forbidden to use forced labor. [AP]

The report is long and detailed, and well worth reading in full. The moral and national security hazards should be clear enough, so I’ll devote most of this post to the legal hazards for the companies involved in this trade. Let’s start with this one:

At a time when North Korea faces sanctions on many exports, the government is sending tens of thousands of workers worldwide, bringing in revenue estimated at anywhere from $200 million to $500 million a year. That could account for a sizable portion of North Korea’s nuclear weapons and missile programs, which South Korea says have cost more than $1 billion. [AP]

Of course, there is no direct evidence that the world’s most financially opaque regime is using its slave labor revenues to fund its nuclear program. As with the Kaesong Industrial Complex, however, the importer’s duty under UNSCR 1718, paragraph 8(d), is to know where its money goes, and to “ensure” that Pyongyang is not using it for nukes. Ignorance is no defense, and cash is fungible. A dollar in Pyongyang’s bank accounts can just as well be used for centrifuge parts, barbed wire, cognac, or cell phone trackers.

Second, the U.N. Security Council has recently banned North Korean exports of seafood, and the KIMS Act authorizes sanctions against transactions in North Korean food exports or fishing rights. Transactions in North Korean forced labor are subject to mandatory sanctions under the NKSPEA, as “severe human rights abuses.” By exposing this latest example of China violating U.N. sanctions, the legal and diplomatic pressure on Beijing to enforce the sanctions it voted for increases.

Third, although these authorities are relatively recent, smuggling any North Korean products into the United States has long been a felony. Executive Order 13570, signed by President Obama in 2011, banned all imports of products made with North Korean goods, services, or technology. Because the authority for this executive order is the International Emergency Economic Powers Act, violations of this order are punishable by 20 years in prison, a $1 million fine, a $250,000 civil penalty, and even the forfeiture of any property “involved in” that transaction. The exporter also faces the risk of designation by the Treasury Department, which would freeze any assets that enter or transit the United States.

Fourth, Chinese fisheries that use North Korean laborers may face additional sanctions under the Trafficking Victims Protection Act.

The workers wake up each morning on metal bunk beds in fluorescent-lit Chinese dormitories, North Koreans outsourced by their government to process seafood that ends up in American stores and homes.

Privacy is forbidden. They cannot leave their compounds without permission. They must take the few steps to the factories in pairs or groups, with North Korean minders ensuring no one strays. They have no access to telephones or email. And they are paid a fraction of their salaries, while the rest — as much as 70 percent — is taken by North Korea’s government.

This use of North Korean labor also puts a powerful sanction in the hands of the U.S. fishing industry. Recall that in this post, I wrote about the similar problem of Chinese textile factories smuggling clothing made by North Korean workers, or using North Korean materials, into the United States, and noted how U.S. textile manufacturers have taken advantage of an obscure Customs regulation to bar Uzbek cotton* exports from entering U.S. commerce if those products may be made by convict or forced labor.

It’s unknown what conditions are like in all factories in the region, but AP reporters saw North Koreans living and working in several of the Hunchun facilities under the watchful eye of their overseers. The workers are not allowed to speak to reporters. However, the AP identified them as North Korean in numerous ways: the portraits of North Korea’s late leaders they have in their rooms, their distinctive accents, interviews with multiple Hunchun businesspeople. The AP also reviewed North Korean laborer documents, including copies of a North Korean passport, a Chinese work permit and a contract with a Hunchun company.

When a reporter approached a group of North Koreans — women in tight, bright polyester clothes preparing their food at a Hunchun garment factory — one confirmed that she and some others were from Pyongyang, the North Korean capital. Then a minder arrived, ordering the workers to be silent: “Don’t talk to him!” [AP]

Under section 321 of the KIMS Act, products made with North Korean labor now face a rebuttable presumption that they are made with forced labor, which means that Chinese seafood exports made with North Korean labor (whether inside or outside North Korea) could end up spoiling in warehouses or running up storage charges while the petition process runs its course. That, in turn, will incentivize bankers and insurers to do due diligence to ensure that Chinese exporters cleanse their supply chains of North Korean labor.

The reputational cost of using North Korea labor or materials may be just as effective as any legal sanction.

Every Western company involved that responded to AP’s requests for comment said forced labor and potential support for North Korea’s weapons program were unacceptable in their supply chains. Many said they were going to investigate, and some said they had already cut off ties with suppliers.

John Connelly, president of the National Fisheries Institute, the largest seafood trade association in the U.S., said his group was urging all of its companies to immediately re-examine their supply chains “to ensure that wages go to the workers, and are not siphoned off to support a dangerous dictator.”

“While we understand that hiring North Korean workers may be legal in China,” said Connelly, “we are deeply concerned that any seafood companies could be inadvertently propping up the despotic regime.” [AP]

And lastly, lest this point be missed amid the other reasons to be outraged, North Korea’s poor have a severe protein deficiency in their diet. Why is Pyongyang allowed to export its main source of protein for cash while most of its people are malnourished?

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* Previously said “Chinese seafood.” Since corrected.

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Maximum Pressure Watch: Trump puts the squeeze on Kim Jong-un

Donald Trump hit Kim Jong-un with his first sanctions executive order today. The new EO partially implements UNSCR 2371, UNSCR 2375, and the KIMS Act, which the President signed in August. As a strictly legal matter, this EO will not affect anyone’s interests immediately because Treasury didn’t announce any new designations. As a practical matter, however, we may already be seeing the effects of the clear seriousness of purpose that Trump has already shown. You can read the full text here and a White House fact sheet here.

The New Authorities: A Summary

The new provisions broaden the administration’s authority to designate (and thus, freeze any assets within U.S. jurisdiction of) entities that engage in the conduct described below:

  • (i) Sectoral sanctions against anyone determined “to operate in the construction, energy, financial services, fishing, information technology, manufacturing, medical, mining, textiles, or transportation industries in North Korea.”

Treasury previously authorized sectoral sanctions against anyone operating in North Korea’s the mining, energy, transportation, and financial services industries. The newly designated industries include those sanctioned under the new U.N. resolutions and the KIMS Act. Sanctions on the medical industry are a notable exception. This will draw gasps of horror from some, but remember, there’s still a humanitarian general license that exempts “medicine distribution” and “the provision of health services.” Section 7 of the EO exempts UN operations entirely. So why say “medical” at all? The feds may suspect Pyongyang of hiding behind “medical” uses to make biological weapons, but that’s only a guess.  

  • (ii) Shipping sanctions against anyone who owns, controls, or operates any seaport, airport, or land port of entry in North Korea.
  • (iii) Import-Export: “to have engaged in at least one significant importation from or exportation to North Korea of any goods, services, or technology.”

Executive Order 13570 previously banned unlicensed imports and exports between the United States and North Korea. This provision, by contrast, bans any transactions through the U.S. financial system, or by U.S. persons, that facilitate imports to or exports from North Korea by anyone, to or from any country. In effect, if you trade with North Korea now, you have to use a non-dollar currency or get an OFAC license.

  • (iv) Status-based: “to be a North Korean person, including a North Korean person that has engaged in commercial activity that generates revenue for the Government of North Korea or the Workers’ Party of Korea.”

This effectively cuts the Gordian Knot around the spurious claims of China (or this one, by Tanzania) that the North Koreans they’re dealing with aren’t representatives of the North Korean government. Hopefully, Treasury will now start mining names out of the U.N. Panel of Experts reports and designating the members of Pyongyang’s overseas proliferation and money laundering networks, thus putting the banking industry on notice to freeze their accounts.

I’m glad Treasury exempted North Koreans (including refugees) who are legally in the United States. I would have preferred that Treasury had clarified that North Korean refugees in Europe and South Korea are also exempt. I realize that Treasury has no intention of enforcing sanctions against refugees in England or South Korea — and I hope the banks realize this, too. Some clarifying guidance from Treasury might be useful. Refugees in South Korea, in particular, often keep their family members alive by remitting money to them. As I’ve argued before, remittances might be a rare case of financial interaction with North Korea that actually does drive reform, by helping the poor start businesses and achieve financial independence from the state. Thankfully, a general license covers noncommercial, personal remittances.

Things start to get more interesting in Section 2, which provides for a secondary boycott on ships and aircraft. Under the EO, any ships or aircraft that have been in North Korea in the last 180 days can’t land in the United States. This both overlaps with and complements section 315 of the KIMS Act. It is also the same concept that Japan and South Korea had previously applied to North Korean ships, meaning that ships that visit North Korea will now incur a six-month ban from the waters of China’s three largest trading partners. Furthermore, any ship that has done a ship-to-ship transfer with a ship that has been in North Korea in the last 180 days also gets banned from U.S. ports for 180 days. Shipping trackers suggest that a fair number of these transfers are happening off the Chinese coast. A concern, however, is that the existing humanitarian general license may not cover shipments of commercial food imports (which we should want to encourage).

Section 3 contains some very tough secondary financial sanctions. Section 3(a) freezes any funds controlled by a “North Korean person,” or in which a North Korean person as an interest. This is very powerful — much like its ancestor, section 104(c) the NKSPEA, which blocks all property of the “Government of North Korea,” a term that the NKSPEA defines in roughly similar terms to this EO’s definition of “North Korean person.” The EO also extends the blocking to any person who finances, approves, facilitates, or guarantees a transaction that would be frozen under this paragraph.

Section 4 contains some additional penalties that are tailored to the financial industry. Any person who knowingly conducts or facilitates a transaction in property blocked under a North Korea-related executive order, or who knowingly conducts or facilitates a significant transaction in trade with North Korea, can lose access to the U.S. financial system. That potentially means no correspondent accounts, or the freezing of all of the bank’s assets in the United States. This amounts to a mini Patriot Act section 311 just for North Korea. And of course, banks that knowingly deal with Pyongyang could also face prosecution for money laundering, criminal or civil forfeitures, or the kind of civil penalties that were applied to BNP Paribas for violating Iran sanctions.

Which is to say, this section mostly does what section 104(b) of the NKSPEA does, now that President Trump has signed the KIMS Act section 311 amendments into law.

 We sound like we really mean it this time.

The effects of previous, strong-on-paper EOs fell short of their potential because President Obama never showed the world that he was serious about enforcing them (or rather, until the very end of his administration, he showed the world that he wasn’t serious about enforcing them at all). Let no one accuse Donald Trump of indecision or paralysis.

“A new executive order will cut off sources of revenue that fund North Korea’s efforts to develop the deadliest weapons known to humankind,” Trump said at the start of a trilateral luncheon meeting with South Korean President Moon Jae-in and Japanese Prime Minister Shinzo Abe in New York….

Trump said China’s central bank had just told the country’s other banks to “immediately” stop doing business with North Korea, and thanked Chinese President Xi Jinping for that “unexpected” decision.

“For much too long North Korea has been allowed to abuse the international financial system to facilitate funding for its nuclear weapons and missile programs,” he said. [Yonhap]

Take note, humanity: Donald Trump just said the right thing in the right tone, and it all appears to be true, right down to “unexpectedly.” Then, Treasury Secretary Steven Mnuchin said this at the U.N., just to be sure the whole world heard him:

For far too long, North Korea has evaded sanctions and used the international financial system to facilitate funding for its weapons of mass destruction and ballistic missile programs. No bank – in any country – should be used to facilitate Kim Jong-un’s destructive behavior.

This new Executive Order will authorize Treasury to impose a range of sanctions, such as suspending U.S. correspondent account access to any foreign bank that knowingly conducts or facilitates significant transactions tied to trade with North Korea or certain designated persons.…  Foreign financial institutions are now on notice that, going forward, they can choose to do business with the United States or with North Korea, but not both….

We call on countries around the world to join us by cutting all trade and financial ties with North Korea in order to achieve a denuclearized Korean peninsula. [link]

Finally, in a conference call this afternoon, a senior National Security Council official and a senior Treasury Department official (whom we weren’t allowed to name) emphasized the administration’s seriousness. Some key points:

  • This EO goes further than any other sanctions EO — implicitly, including even Iran. He might be right. I might have to shelve my “not the most sanctioned” refrain, assuming the administration enforces this.
  • Treasury will unravel the front companies and shell companies to get to any shipping company that smuggles to or from North Korea in violation of this EO.
  • Treasury is investigating financial institutions that have been involved in facilitating trade with North Korea, and will start enforcing this EO in the near term.
  • Treasury won’t only enforce the EO against Chinese banks. Before the President signed the EO, the administration discussed it with EU, Japanese, and South Korean officials. Oh, and Treasury would really like the South Koreans to use the full extent of their legal authority to publish their equivalent of SDN designations of North Korean enablers.
  • Also, it welcomes the investigative work of NGOs, specifically C4ADS (which single-handedly exposed much of Pyongyang’s money laundering network in China). I hope that means the government will offer them grant funding or rewards, as authorized in section 323 of the KIMS Act. (Leo Byrne and The Beard of Knowledge also received well-deserved praise.)

 Signs of impact on North Korean trade

So, you ask, will the Chinese banks finally listen? I’ve cited the evidence that they already are. Fuel prices in North Korea have spiked, North Korean workers are flooding back over the border to China, and trading companies in China are effectively out of business and unhappy about the freezing of their bank accounts. The coal industry, which has taken some hard hits from the Treasury and Justice Departments lately, is also showing the strain. These things could be consequences of the banks telling their customers to de-risk North Korea. We may soon find out just who’s right here.

Today, Reuters reports that the Chinese government has directed its banks to stop dealing with North Koreans entirely, to include winding down loans with existing customers. If that’s true — and if it lasts — that will be fatal. The timing is curious. One of the “senior administration officials” said that President Trump had only notified President Xi about this EO today, yet the reports of the alleged Central Bank order — the bankers say they received it Monday — come a week after multiple press reports of Chinese banks closing North Korean-controlled accounts. Could Beijing be making a virtue of necessity by ordering banks to do what they’re already doing for their own sake? As I’ve said before, there isn’t just one “China.” Various ministries and industries have diverse and conflicting interests.

This week, President Trump acted strongly, decisively, publicly, and with a deliberate seriousness of purpose. Banks and governments around the world will disregard his words at their peril (meaning, very few of them will). His misbegotten threats against North Korea (as opposed to its regime) shouldn’t distract us from what he did right, if only because his predecessors could not do it right. His words and actions, and in tandem with other governments’ actions to cut their trade and diplomatic ties to North Korea, should be difficult for Pyongyang to withstand for long. We may soon conclude the sanctions-never-work portion of our narrative and enter the sanctions-are-starving-North-Korean-babies portion of our narrative fairly soon. In fact, it looks like we already have.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

~   ~   ~

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

~   ~   ~

Updates:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Then, watch his testimony on video.

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

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

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

~   ~   ~

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

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

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Buzzfeed is out of its depth on Egypt and North Korea sanctions

If journalism can be reduced to its most fundamental purpose, that purpose is to tell the reader important things he does not know. Be mindful of this purpose as we review one example of the slapdash reporting one tends to see whenever North Korea intrudes into the headlines.

As the Trump administration scrambles to respond to North Korea’s nuclear ambitions, it is trying to coax the country’s smaller trading partners, from Sudan to the Philippines, to ramp up the pressure on Kim Jong Un’s regime. Last week, the Trump administration announced that it would cut $96 million in aid and delay $195 million in military funding to Egypt, citing human rights concerns — and, according to reports, over the country’s robust relationship with North Korea.

One of the largest recipients of US aid, Egypt has also had a longstanding relationship with the isolated regime in Pyongyang, particularly trading in weapons. It’s unclear, though, what aspects of Egypt-North Korea relations the administration is displeased with, and whether it includes commerce not prohibited by sanctions. [Buzzfeed, Megha Rajagopalan & Maged Atef]

Not clear which aspect, you wonder? Might Buzzfeed have found some relevance in Pyongyang’s history of selling ballistic missiles to Egypt, no doubt to fund other missile programs that threaten the U.S. directly? Or that in 2015, the Obama administration sanctioned an Egyptian trading company for its ties to KOMID, North Korea’s principal arms exporter?

Buzzfeed’s reporters do finally get around to mentioning — near the very bottom of their piece, by which time wiser readers will have moved on — that “North Korea has even helped Egyptian scientists develop missile systems.” They do not mention that this is a long and ongoing relationship, that it flagrantly violates a U.N. arms embargo that has been in place for eleven years, that this embargo has been reaffirmed and strengthened by at least half a dozen resolutions since then, or that Egypt’s violation of it has been mentioned repeatedly by the U.N. Panel of Experts. Given the reporters’ emission of an inky cloud of confusion about what commerce is or isn’t prohibited by sanctions, wouldn’t more competent journalism have taken a moment to find the resolutions, read them, and explain them to its readers?

“The question is, if this North Korean issue is so important for the US, why didn’t they ever mention it with us before?” said Emad Gad, a member of the Egyptian parliament’s foreign affairs committee. “The Egypt-North Korea relationship is an old one, so why are we suddenly hearing they have problems with our relations with North Korea?”

Hey, I’m no human polygraph, but I know what bullshit smells like. A 30-second Google search yields this New York Times article (I know) noting that “[s]uccessive American administrations have privately raised the issue of North Korea in talks with Cairo, but with little success.” Suddenly?

Egypt makes up a very small part of the value of North Korea’s total trade — but it attracted headlines in 2008 when Orascom, an Egyptian telecom firm, set up the first North Korean 3G network. And Egypt is a well-known buyer of North Korean missiles and other weapons.

Again, Buzzfeed is out of its depth, leaving out revelations by better reporters that Orascom’s venture in North Korea was a likely violation of U.S. law, a fiasco for its shareholders, and a career-discriminating event for its CEO, Naguib Sawiris. All of which also goes unmentioned.

In Cairo, the development was met with confusion, and in some quarters, frustration.

“The North Korean-American issue is a conflict between the US and its allies against North Korea — not the whole world against North Korea,” said Gen. Hamdi Bakhit, a member of parliament who sits on the powerful Defense and National Security Committee. “China, for example, has a balanced relationship with both the US and North Korea … America is just fishing for a mistake to pressure Egypt.”

All of which Buzzfeed takes at face value, uncritically, without further inquiry or elucidation of its readers that a government’s mouthpiece has just lied to them like Anthony Weiner talking to a vice squad detective. Yes, we are but a simple junta leading a government that rules over almost 100 million people! We sing, we dance, we smoke our hookahs, and we craftily expunge all traces of shadowy extremist sects from every slum in Cairo, and that is all! We cannot be bothered to read U.N. Security Council resolutions or U.N. Panel of Experts’ reports, or file an implementation report that even fills a single sheet of paper.

Meaning, the Egyptian government knows damn well where to find these resolutions, what they mean, and what they prohibit. Which is more than I can say for Buzzfeed’s reporters.

Look, I understand that many journalists despise Donald Trump. I can understand why. It isn’t hard to find conservative pundits who share that sentiment. It isn’t hard to find journalists who would clearly despise a President Kasich almost as much for the sole reason that he’s a Republican. But something is terribly wrong with anyone whose moral lens is so monochromatic that she defaults to a certain sympathy for anyone whom Trump is against, even when that anyone is a sanctions-busting military junta. Or Kim Jong-Un.

In this case, however, the Trump administration is doing precisely what Barack Obama, George W. Bush, and Bill Clinton ought to have done over the last 24 years — diplomatically, nonviolently, and consistently with a sheaf of U.N. Security Council resolutions — working to end a grave and direct threat to the United States and all of the world, and to prevent a nuclear war in Korea. Does understanding that really require extraordinary moral agility, or might a willingness to use Google suffice?

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Do you own any clothing made in North Korea? (Answer: Don’t be so sure.)

The U.N. Security Council is reportedly considering a variety of new sanctions against North Korea over its latest missile test, and according to Reuters, a ban on textile exports is among the sanctions under consideration. For a few years, we’ve known that the export of textiles (or textile workers, who labor under sweatshop conditions for little or no pay) is increasingly lucrative for Pyongyang. I don’t need to explain that historically, textile work has lent itself to particularly exploitative labor arrangements.

As always with North Korea sanctions, enforcement is the rub. We can expect North Korean exporters to continue sewing “made in China” labels on their wares and sneaking them into foreign markets — including the United States — to defraud customs officials to get lower tariff rates, and to defraud consumers who would boycott North Korean products and the stores that sell them. In case you’re wondering, yes, we have a law against country-of-origin fraud, and yes, President Obama did sign an executive order prohibiting imports of goods made with North Korean goods, services, or technology (so that’s two felonies, in case you’re keeping count).

It’s entirely possible, of course, that retailers may be selling North Korean-made textiles without knowing it. This recent New York Times story, for example, claims that North Korean sweatshops sew “made in China” labels on their products. That’s consistent with other reports I’ve bookmarked over the years that Chinese exporters are conspiring to commit country-of-origin fraud. Way back in 2004, in the earliest days of this venerable blog, the Korea Times reported that JC Penney was importing and selling North Korean-made textiles in its stores. At the time, I wrote to JC Penney to inquire about the story. JC Penney wrote back promptly and strongly denied having ever imported or sold North Korean-made goods in its stores.

In other cases, manufacturers knowingly use North Korean labor while hoping we won’t find out about it. RipCurl Sportswear and Woolen Mills clothing both became objects of controversy recently for using North Korean labor. And of course, textiles were among the main products manufactured in the Kaesong Industrial Complex. Textile export sanctions would be yet another blow to Moon Jae-In’s plans to revive Kaesong.

As with other facets of the North Korea problem, there isn’t just one answer to this problem. Part of the answer lies in better due diligence by merchants about their supply chains. Next, suspend your sense of historical irony and learn a lesson from the American cotton industry, which has waged an effective anti-slavery campaign against cheap imports made with Uzbek cotton. The cotton industry collected evidence that this cotton is often harvested with forced labor, and then joined forces with human rights NGOs to mount an effective public and political pressure campaign. It also made good use of this regulation to petition Customs and Border Protection to exclude the imports from U.S. commerce.

Finally, when NGOs, industry groups, and investigators discover evidence of fraudulent or illegal North Korean exports within U.S. jurisdiction — either because the transactions were cleared through U.S. banks, because a U.S. person was involved in a transaction facilitating the exports, or because the wares entered U.S. commerce — the U.S. government has several tools it can use to prosecute offenders, and to freeze or forfeit their assets. These include the prohibition against country-of-origin customs fraud, Executive Order 13570 , the new discretionary textile export sanctions authority in section 104(b)(1)(E) of the NKSPEA (as amended here), and the new sanctions against users of North Korean forced labor, which blacklist not only the manufacturers that use North Korean labor, but also the governments that tolerate it.

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FBI, Treasury & DOJ hit N. Korean enablers with secondary sanctions, forfeitures

Two months ago, the Center for Advanced Defense Studies (C4ADS) released its groundbreaking report, “Risky Business,” which used open-source business records to trace the 5,233 companies that (according to C4ADS) comprise nearly the entirety of North Korea’s “limited, centralized, and vulnerable” financial networks in China. At the time, I speculated that we hadn’t heard the last word from the FBI, the Treasury Department, and Justice Department, and yesterday, my suspicions were confirmed.

First, Treasury designated a series of North Korean, Chinese, and Russian nationals for dealing with sanctioned entities through the dollar system, in violation of the International Emergency Economic Powers Act. The effect of the designations is to freeze any assets of those entities that are in the United States, prevent them from using the dollar system for future transactions, and prevent U.S. persons from providing them with any goods, services, or technology.

“Treasury will continue to increase pressure on North Korea by targeting those who support the advancement of nuclear and ballistic missile programs, and isolating them from the American financial system,” said Treasury Secretary Steven T. Mnuchin. “It is unacceptable for individuals and companies in China, Russia, and elsewhere to enable North Korea to generate income used to develop weapons of mass destruction and destabilize the region. We are taking actions consistent with UN sanctions to show that there are consequences for defying sanctions and providing support to North Korea, and to deter this activity in the future.” [Treasury Dep’t Press Release]

Among yesterday’s notable targets:

* China-based Dandong Rich Earth Trading Co., Ltd., for buying vanadium from sanctioned Korea Kumsan Trading Corporation, a front for the General Bureau of Atomic Energy.

* Russia-based Gefest-M LLC and its director, Ruben Kirakosyan, for procuring metals for sanctioned Korea Tangun Trading Corporation, a front for the Second Academy of Natural Sciences, which is involved in North Korea’s WMD and missile programs.

* China- and Hong Kong-based Mingzheng International Trading Limited (“Mingzheng”), the subject of this previous Justice Department forfeiture case, which acts as a front company for the Foreign Trade Bank (FTB) of North Korea. Treasury designated the FTB in 2013 for proliferation financing. The U.N. recently designated it in UNSCR 2371.

* Three more Chinese companies that are “collectively responsible for importing nearly half a billion dollars’ worth of North Korean coal between 2013 and 2016,” including Dandong Zhicheng Metallic Materials Co., Ltd. (“Zhicheng”), JinHou International Holding Co., Ltd., and Dandong Tianfu Trade Co., Ltd. Dandong Zhicheng was exposed by C4ADS as part of the Sun Sidong network in June. This is the single largest purchaser of North Korean coal. That’s going to leave a mark.

* Three Russians and two Singapore-based companies involved in providing oil to North Korea.

Transatlantic Partners Pte. Ltd. (“Transatlantic”), Mikhail Pisklin, and Andrey Serbin were designated pursuant to E.O. 13722 for operating in the energy industry in the North Korean economy. Pisklin, through Transatlantic, concluded a contract to purchase fuel oil with Daesong Credit Development Bank, a North Korean bank designated in 2016. Serbin is a representative of Transatlantic who worked with Irina Huish of Velmur Management Pte. Ltd. (“Velmur”) to purchase gasoil for delivery to North Korea. Velmur was designated for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, Transatlantic. Velmur also sold gasoil to North Korea. OFAC also designated Velmur’s executive director, Irina Huish, for acting or purporting to act for or on behalf of, directly or indirectly, Velmur, and she has also worked with Transatlantic to circumvent sanctions. Both of these companies have attempted to use the U.S. financial system to send millions of dollars in payments on behalf of North Korea-related transactions.

Lest anyone accuse Treasury of singling China out, the designation of Singapore-based entities should send a strong message to a state that has largely overlooked the enforcement of North Korea sanctions and consequently become a haven for Pyongyang’s money laundering. I was also pleased to see Treasury go after KOMID’s slave labor racket and arms factory in Namibia, which I’ve previously written about here, here, and here, although I maintain that the NKSPEA also requires the President to sanction the Namibian entities that have knowingly dealt with sanctioned North Korean entities like KOMID. I hope Angola will be next.

~   ~   ~

Just over an hour after Treasury released those designations, the Justice Department filed two civil forfeiture complaints against $11 million belonging to Velmur, Transatlantic, and Dandong Zhicheng. I downloaded both complaints from PACER, for the good of humanity, so you don’t have to.

Velmur complaint   |  Dandong Zhicheng complaint

You’re welcome, humanity.

This complaint alleges that Velmur and Transatlantic Partners Pte. Ltd. (Transatlantic) laundered United States dollars on behalf of sanctioned North Korean banks that were seeking to procure petroleum products from JSC Independent Petroleum Company (IPC), a designated entity. The complaint also seeks a civil monetary penalty against Velmur and Transatlantic for prior sanctions and money laundering violations related to this scheme.

According to the complaint, designated North Korean banks use front companies, including Transatlantic, to make U.S. dollar payments to Velmur. The complaint relates to funds that were transferred through four different companies and remitted to Velmur to wire funds to JSC Independent Petroleum Company (IPC), a Russian petroleum products supplier. On June 1, 2017, the Department of the Treasury’s Office of Foreign Asset Controls (OFAC) designated IPC. The designation noted that IPC had a contract to provide oil to North Korea and reportedly shipped over $1 million worth of petroleum products to North Korea. [U.S. Attorney’s Office]

Don’t focus on the fact that the putative claimants were selling fuel. Focus on the fact that they were dealing with a sanctioned North Korean entity through the dollar system, which is a felony. (U.N. sanctions only ban exports of aviation and rocket fuel, and U.S. fuel export sanctions are discretionary and have humanitarian exceptions.)

The government is seeking to forfeit $6,999,925 that was wired to Velmur in May 2017. The U.S. dollar payments, which cleared through the U.S., are alleged to violate U.S. law, because the entities were surreptitiously making them on behalf of the designated North Korean Banks, whose designation precluded such U.S. dollar transactions. The government also is seeking imposition of a monetary penalty commensurate with the millions of dollars allegedly laundered by Velmur and Transatlantic. [U.S. Attorney’s Office]

Regarding Dandong Zhicheng, a/k/a Dandong Chengtai …

The government is seeking to forfeit $4,083,935 that Dandong Chengtai wired on June 21, 2017 to Maison Trading, using their Chinese bank accounts. The investigation revealed that Maison Trading is a front company operated by a Dandong Chengtai employee. These U.S. dollar payments, which cleared through the United States, are alleged to violate U.S. law, because the recent North Korean sanctions law specifically barred U.S. dollar transactions involving North Korean coal and the proceeds of these transactions were for the benefit of the North Korea Worker’s Party, whose designation precluded such U.S. dollar transactions.

This case relates to a previously unsealed opinion from Chief Judge Beryl A. Howell of the U.S. District Court for the District of Columbia, which found that probable cause existed to seize funds belonging to Dandong Chengtai.  [U.S. Attorney’s Office]

As noted here. And lest we forget to give credit where it’s due …

The FBI’s Phoenix Field Office is investigating the case involving Velmur Management Pte Ltd. and Transatlantic Partners Pte., Ltd. The FBI’s Chicago Field Office is investigating the case involving Dandong Chengtai Trading Co. Ltd. Both investigations are being supported by the FBI Counterproliferation Center.

Assistant U.S Attorneys Arvind K. Lal, Zia M. Faruqui, Christopher B. Brown, Deborah Curtis, Ari Redbord, and Brian P. Hudak, all of the U.S. Attorney’s Office for the District of Columbia, are prosecuting both cases. Paralegal Specialist Toni Anne Donato and Legal Assistant Jessica McCormick are providing assistance. [U.S. Attorney’s Office]

Finally, let’s not forget the important work of C4ADS. Today, it will release an update to “Risky Business,” revealing that in addition to having funds in U.S. banks, the Chinese national who runs Dandong Zhicheng, Sun Sidong, owns real estate in the United States. Check C4ADS’s web site for the update.  

When I read C4ADS’s reports, I’m often reminded of the line from “Lawrence of Arabia” when Mr. Dryden (delivered by the wonderfully dry and underrated British actor Claude Rains) learns that Lawrence has conquered the Turkish base at Aqaba with an army of Arab tribesmen: “Before he did it, I’d have said it couldn’t be done.” Indeed, for years, scholars at famous think tanks assured us it couldn’t be done. First, they told us that sanctions against North Korea were maxed out. Then, they told us that Pyongyang’s networks were needles in a field of haystacks, and that the field itself was obscured and beyond our sight. And yet, without so much as a single security clearance between them, two brilliant young analysts at C4ADS mined data from open sources and traced the networks. It may be on the brink of proving all the “experts” wrong.

~   ~   ~

Update: C4ADS writes in to say that the update was delayed, and will be released in a few days.

Continue Reading

UNSCR 2371: Text and commentary (see update)

Today, the U.N. Security Council adopted Resolution 2371 unanimously. The text is in black, my commentary is in blue italic.

PP1: Recalling its previous relevant resolutions, including resolution 825 (1993), resolution 1540 (2004), resolution 1695 (2006), resolution 1718 (2006), resolution 1874 (2009), resolution 1887 (2009), resolution 2087 (2013), resolution 2094 (2013), resolution 2270 (2016), resolution 2321 (2016), and resolution 2356 (2017), as well as the statements of its President of 6  October 2006 (S/PRST/2006/41), 13 April 2009 (S/PRST/2009/7) and 16 April 2012 (S/PRST/2012/13), (updated PP1 of UNSCR 2321)

PP2: Reaffirming that proliferation of nuclear, chemical and biological weapons, as well as their means of delivery, constitutes a threat to international peace and security, (PP2 of UNSCR 2321)

PP3: Expressing its gravest concern at the July 3 and July 28 of 2017 ballistic missile  tests by the Democratic People’s Republic of Korea (“the DPRK”),  which the DPRK has stated were tests of intercontinental ballistic missiles, in violation of resolutions 1718 (2006), 1874 (2009), 2087 (2013), 2094 (2013), 2270 (2016) 2321 (2016), and 2356 (2017), and at the challenge such tests constitute to the Treaty on Non-Proliferation of Nuclear Weapons (“the NPT”) and to international efforts aimed at strengthening the global regime of non-proliferation of nuclear weapons, and the danger they pose to peace and stability in the region and beyond, (PP3 of UNSCR 2321)

PP4: Underlining once again the importance that the DPRK respond to other security and humanitarian concerns of the international community, (PP4 of UNSCR 2321)

PP5: Underlining also that measures imposed by this resolution are not intended to have adverse humanitarian consequences for the civilian population of the DPRK, (PP5 of UNSCR 2321)

PP6: Expressing serious concern that the DPRK has continued to violate relevant Security Council resolutions through repeated launches and attempted launches of ballistic missiles, and noting that all such ballistic missile activities contribute to the DPRK’s development of nuclear weapons delivery systems and increase tension in the region and beyond, (PP6 of UNSCR 2321)

PP7: Expressing continued concern that the DPRK is abusing the privileges and immunities accorded under the Vienna Conventions on Diplomatic and Consular Relations, (PP7 of UNSCR 2321)

PP8: Expressing great concern that the DPRK’s prohibited arms sales have generated revenues that are diverted to the pursuit of nuclear weapons and ballistic missiles while DPRK citizens have unmet needs, (PP8 of UNSCR 2321)

Are you listening, Singapore?

PP9: Expressing its gravest concern that the DPRK’s ongoing nuclear- and ballistic missile-related activities have further generated increased tension in the region and beyond, and determining that there continues to exist a clear threat to international peace and security, (PP9 of UNSCR 2321)

PP10: Acting under Chapter VII of the Charter of the United Nations, and taking measures under its Article 41,

1. Condemns in the strongest terms the ballistic missile launches conducted by the DPRK on 3 July and 28 July of 2017, which the DPRK has stated were launches of intercontinental ballistic missiles, and which used ballistic missile technology in violation and flagrant disregard of the Security Council’s resolutions; (Based on OP1 of UNSCR 2270)

Reading that language, it’s not hard to reverse engineer how the argument between the U.S. and Russian diplomats went.

2. Reaffirms its decisions that the DPRK shall not conduct any further launches that use ballistic missile technology, nuclear tests, or any other provocation; shall suspend all activities related to its ballistic missile program and in this context re-establish its pre-existing commitments to a moratorium on missile launches; shall abandon all nuclear weapons and existing nuclear programs in a complete, verifiable and irreversible manner, and immediately cease all related activities; and shall abandon any other existing weapons of mass destruction and ballistic missile programs in a complete, verifiable and irreversible manner; (OP 2-4 of UNSCR 2270, adapted and combined)

Designations

3. Designate individuals and entities for asset freeze/travel ban:  Decides that the measures specified in paragraph 8(d) of resolution 1718 (2006) shall apply also to the individuals and entities listed in Annex I and II of this resolution and to any individuals or entities acting on their behalf or at their direction, and to entities owned or controlled by them, including through illicit means, and decides further that the measures specified in paragraph 8(e) of resolution 1718 (2006) shall also apply to the individuals listed in Annex I of this resolution and to individuals acting on their behalf or at their direction; (OP3 of UNSCR 2321)

4. Designation of additional WMD-related Items: Decides to adjust the measures imposed by paragraph 8 of resolution 1718 (2006) and this resolution through the designation of additional goods, directs the Committee to undertake its tasks to this effect and to report to the Security Council within fifteen days of adoption of this resolution, and further decides that, if the Committee has not acted, then the Security Council will complete action to adjust the measures within seven days of receiving that report; (OP25 of UNSCR 22270)

5. Designation of additional Conventional Arms-related Items: Decides to adjust the measures imposed by paragraph 7 of resolution 2321 (2016) through the designation of additional conventional arms-related items, materials, equipment, goods, and technology, directs the Committee to undertake its tasks to this effect and to report to the Security Council within thirty days of adoption of this resolution, further decides that, if the Committee has not acted, then the Security Council will complete action to adjust the measures within seven days of receiving that report, and directs the Committee to update this list every 12 months; (Based on OP7 of UNSCR 2321 and OP25 of 2270)

Transportation

6. Prohibit port calls by designated vessels tied to illicit activities: Decides that the Committee may designate vessels for which it has information indicating they are, or have been, related to activities prohibited by resolutions 1718 (2006), 1874 (2009), 2087 (2013), 2094 (2013), 2270 (2016), 2321 (2016), 2356 (2017), or this resolution and all Member States shall prohibit the entry into their ports of such designated vessels, unless entry is required in the case of emergency or in the case of return to its port of origination, or unless the Committee determines in advance that such entry is required for humanitarian purposes or any other purposes consistent with the objectives of resolutions 1718 (2006), 1874 (2009), 2087 (2013), 2094 (2013), 2270 (2016), 2321 (2016), 2356 (2017), or this resolution; (New)

I’m not sure this adds much to existing sanctions that already require member states to seize designated North Korean ships that enter their harbors. It may be that member states were so reluctant to deal with the hassle of disposal that someone figured it would be easier to require them to keep the ships out of port entirely. I’m not so sure. 

7. Prohibit chartering of vessels flagged by the DPRK: Clarifies that the measures set forth in paragraph 20 of resolution 2270 (2016) and paragraph 9 of resolution 2321 (2016), requiring States to prohibit their nationals, persons subject to their jurisdiction and entities incorporated in their territory or subject to their jurisdiction from owning, leasing, operating any vessel flagged by the DPRK, without exception, unless the Committee approves on a case-by-case basis in advance, apply to chartering vessels flagged by the DPRK;

The only country I’ve heard was doing this is a Middle Eastern country that starts with “i” and ends with “n” and is spelled “i-r-a-n.”

Sectoral

8. Full ban on coal, iron and iron ore: Decides that paragraph 26 of resolution 2321 (2016) shall be replaced by the following:

“Decides that the DPRK shall not supply, sell or transfer, directly or indirectly, from its territory or by its nationals or using its flag vessels or aircraft, coal, iron, and iron ore, and that all States shall prohibit the procurement of such material from the DPRK by their nationals, or using their flag vessels or aircraft, and whether or not originating in the territory of the DPRK, decides that for sales and transactions of iron and iron ore for which written contracts have been finalized prior to the adoption of this resolution, all States may allow those shipments to be imported into their territories up to 30 days from the date of adoption of this resolution with notification provided to the Committee containing details on those imports by no later than 45 days after the date of adoption of this resolution, and decides further that this provision shall not apply with respect to coal that the exporting State confirms on the basis of credible information has originated outside the DPRK and was transported through the DPRK solely for export from the Port of Rajin (Rason), provided that the exporting State notifies the Committee in advance and such transactions involving coal originating outside of the DPRK are unrelated to generating revenue for the DPRK’s nuclear or ballistic missile programs or other activities prohibited by resolutions 1718 (2006), 1874 (2009), 2087 (2013), 2094 (2013), 2270 (2016), 2321 (2016), 2356 (2017), or this resolution; (New)

The good news: there is no longer a coal cap for China to cheat on. The bad news: there is now a complete coal ban for China to cheat on. A little birdie tells me – and in the near future, that little birdie will also tell you — that the North Koreans are smuggling their coal to China via third countries. My guess is that even if this isn’t airtight in practice, it will still make it harder and more expensive for Pyongyang to sell its coal, meaning it will cut into Pyongyang’s export profits.

9. Prohibit seafood exports from the DPRK: Decides that the DPRK shall not supply, sell or transfer, directly or indirectly, from its territory or by its nationals or using its flag vessels or aircraft, seafood (including fish, crustaceans, mollusks, and other aquatic invertebrates in all forms), and that all States shall prohibit the procurement of such items from the DPRK by their nationals, or using their flag vessels or aircraft, whether or not originating in the territory of the DPRK, and further decides that for sales and transactions of seafood (including fish, crustaceans, mollusks, and other aquatic invertebrates in all forms) for which written contracts have been finalized prior to the adoption of this resolution, all States may allow those shipments to be imported into their territories up to 30 days from the date of adoption of this resolution with notification provided to the Committee containing details on those imports by no later than 45 days after the date of adoption of this resolution;

Good on you, U.N., for using this nifty idea. I first suggested the same thing in this post, and section 311 of the KIMS Act now allows the President to designate anyone who buys fishing rights, food, or agricultural products from North Korea. I read the resolution’s language to cover the sale of fishing rights as well as seafood. For its next act, the U.N. should also ban food exports entirely. Pyongyang has no business exporting food for hard currency while the poor starve.

10. Prohibit lead exports from the DPRK: Decides that the DPRK shall not supply, sell or transfer, directly or indirectly, from its territory or by its nationals or using its flag vessels or aircraft, lead and lead ore, and that all States shall prohibit the procurement of such items from the DPRK by their nationals, or using their flag vessels or aircraft, whether or not originating in the territory of the DPRK, and further decides that for sales and transactions of lead and lead ore for which written contracts have been finalized prior to the adoption of this resolution, all States may allow those shipments to be imported into their territories up to 30 days from the date of adoption of this resolution with notification provided to the Committee containing details on those imports by no later than 45 days after the date of adoption of this resolution;

I did not even realize North Korea exported lead, but evidently, it does

11. Ban the hiring and paying of additional DPRK laborers used to generate foreign export earnings: Expresses concern that DPRK nationals frequently work in other States for the purpose of generating foreign export earnings that the DPRK uses to support its prohibited nuclear and ballistic missile programs, decides that all Member States shall not exceed on any date after the date of adoption of this resolution the total number of work authorizations for DPRK nationals provided in their jurisdictions at the time of the adoption of this resolution unless the Committee approves on a case-by-case basis in advance that employment of additional DPRK nationals beyond the number of work authorizations provided in a member state’s jurisdiction at the time of the adoption of this resolution is required for the delivery of humanitarian assistance, denuclearization or any other purpose consistent with the objectives of resolutions 1718 (2006), 1874 (2009), 2087 (2013), 2094 (2013), 2270 (2016), 2321 (2016), 2356 (2017), or this resolution; (New)

Here is the first binding limit on North Korean labor exports, but it’s really a cap. On the bad side, because everyone involved in these contracts was already concealing or misrepresenting the number of North Korean laborers anyway, it will be hard to tell what “exceeds.” On the good side, this doesn’t prevent the U.S. from using section 321 of the KIMS Act to sanction employers of North Korean slave labor or their governments, and it will give the U.S. a stronger argument to convince host nations to send those workers home. This assumes we’re making that effort – and I keep hearing that we are, quietly. I also don’t interpret this to diminish the existing requirements of UNSCR 1718, paragraph 8 that purchasers of North Korean labor (a) “ensure” that the money doesn’t go to the nuke fund, and (b) abstain from dealing with designated persons.

Financial

12. Prohibiting new or expanded joint ventures and cooperative commercial entities with the DPRK: Decides that States shall prohibit, by their nationals or in their territories, the opening of new joint ventures or cooperative entities with DPRK entities or individuals, or the expansion of existing joint ventures through additional investments, whether or not acting for or on behalf of the government of the DPRK, unless such joint ventures or cooperative entities have been approved by the Committee in advance on a case-by-case basis; (New)

So, got your tickets yet for that big investment fair in Rason in two weeks? Are those tickets refundable? Yeah. Unfortunately, the word “existing” means that this isn’t necessarily the end for the MKP Group, although some parts of it (such as banking joint ventures) are banned by other resolutions. Ditto Orascom. It would be nice to get more definition on the words “new,” “existing,” and “expansion,” which seem like potential loopholes.

13. Clarifies that the prohibitions contained in paragraph 11 of resolution 2094 (2013) apply to clearing of funds through all Member States’ territories; (New)

This is useful. Although section 201 the NKSPEA effectively (if indirectly) banned direct and indirect dollar clearing services for North Korean banks, this extends that obligation to other issuers of convertible currencies – the EU, the UK, Canada, Australia, Switzerland, Hong Kong, Japan, etc. – and also closes a potential loophole for offshore dollar clearing. As always, detection and enforcement will be key.

14. Clarifies that companies performing financial services commensurate with those provided by banks are considered financial institutions for the purposes of implementing paragraph 11 of resolution 2094 (2013), paragraphs 33 and 34 of resolution 2270 (2016), and paragraph 33 of resolution 2321 (2016); (New)

In other words, shadow banks and money launderers (such as DCB Finance and Kim Chol-Sam) are banks for purposes of the resolutions. That matters, because North Korea increasingly relies on trading companies to perform the functions of banks.

Chemical Weapons

15. Prohibiting use of chemical weapons and calling for accession to the CWC: Recalls paragraph 24 of resolution 2270 (2016), decides that the DPRK shall not deploy or use chemical weapons, and urgently calls upon the DPRK to accede to the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and Their Destruction, and then to immediately comply with its provisions; (Based on OP24 of UNSCR 2270)

For reasons that ought to be obvious ….

Vienna Convention

16. Abiding by the VCDR/VCCR: Demands that the  DPRK fully comply with its obligations under the Vienna Convention on Diplomatic Relations and the Vienna Convention on Consular Relations; (New)

In South Dakota English, this means stop renting out your embassies as eurotrash flophouses.

Impact on the People of the DPRK

17. Regrets the DPRK’s massive diversion of its scarce resources toward its development of nuclear weapons and a number of expensive ballistic missile programs, notes the findings of the United Nations Office for the Coordination of Humanitarian Assistance that well over half of the people in the DPRK suffer from major insecurities in food and medical care, including a very large number of pregnant and lactating women and under-five children who are at risk of malnutrition and nearly a quarter of its total population suffering from chronic malnutrition, and, in this context, expresses deep concern at the grave hardship to which the people in the DPRK are subjected; (New)

I can’t overstate how smart and important this language is. Pyongyang will always try to use its people as human shields against sanctions. It will always steal from the poor to give to the rich and the military. The world needs to remember exactly why so many North Koreans are poor and hungry, and it’s not because North Korea is a poor country, or because of weather, or sanctions. It’s because of choices – choices that are made in Pyongyang.

Sanctions Implementation

18. State implementation report: Decides that Member States shall report to the Security Council within ninety days of the adoption of this resolution, and thereafter upon request by the Committee, on concrete measures they have taken in order to implement effectively the provisions of this resolution, requests the Panel of Experts, in cooperation with other UN sanctions monitoring groups, to continue its efforts to assist Member States in preparing and submitting such reports in a timely manner; (based on OP36 of UNSCR 2321)

If they weren’t filing their reports before, it’s going to take more than a strongly worded appeal to make them file now. That’s where the BRINK Act becomes important. Take a gander at section 104 for some of the sanctions non-compliant states might face.

19. Redouble implementation efforts: Calls upon all Member States to redouble efforts to implement in full the measures in resolutions 1718 (2006), 1874 (2009), 2087 (2013), 2094 (2013) 2270 (2016), 2321 (2016), and 2356 (2017), and to cooperate with each other in doing so, particularly with respect to inspecting, detecting and seizing items the transfer of which is prohibited by these resolutions; (OP38 of UNSCR 2321)

20. Update Committee and POE mandate: Decides that the mandate of the Committee, as set out in paragraph 12 of resolution 1718 (2006), shall apply with respect to the measures imposed in this resolution and further decides that the mandate of the Panel of Experts, as specified in paragraph 26 of resolution 1874 (2009) and modified in paragraph 1 of resolution 2345 (2017), shall also apply with respect to the measures imposed in this resolution; (OP39 of UNSCR 2321)

21. Standard “seize and dispose” provision: Decides to authorize all Member States to, and that all Member States shall, seize and dispose (such as through destruction, rendering inoperable or unusable, storage, or transferring to a State other than the originating or destination States for disposal) of items the supply, sale, transfer, or export of which is prohibited by resolutions 1718 (2006), 1874 (2009), 2087 (2013), 2094 (2013), 2270 (2016), 2321 (2016), 2356 (2017), or this resolution that are identified in inspections, in a manner that is not inconsistent with their obligations under applicable Security Council resolutions, including resolution 1540 (2004), as well as any obligations of parties to the NPT, the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on Their Development of 29 April 1997, and the Convention on the Prohibition of the Development, Production and Stockpiling of Bacteriological (Biological) and Toxin Weapons and on Their Destruction of 10 April 1972; (OP40 of UNSCR 2321)

This provision addresses what I call the Mu Du Bong problem. Remember when Mexico seized the Mu Du Bong after it ran aground off the port of Tuxpan? For the longest time, the Mexicans didn’t know what to do with the ship. This question eventually came to me via an indirect route. I pointed out that paragraph 8 of UNSCR 2087 already authorized Mexico to seize, destroy, or dispose of the ship as it saw fit. Of course, 2087 isn’t a Chapter VII resolution, but the Mu Du Bong became an artificial reef shortly thereafter, so I’d like to think I played some small role in the lives of some red snapper and grouper.

22. Force majeure clause: Emphasizes the importance of all States, including the DPRK, taking the necessary measures to ensure that no claim shall lie at the instance of the DPRK, or of any person or entity in the DPRK, or of persons or entities designated for measures set forth in resolutions 1718 (2006), 1874 (2009), 2087 (2013), 2094 (2013), 2270 (2016), 2321 (2016), 2356 (2017), or this resolution, or any person claiming through or for the benefit of any such person or entity, in connection with any contract or other transaction where its performance was prevented by reason of the measures imposed by this resolution or previous resolutions; (OP41 of UNSCR 2321)

This keeps governments that freeze assets from getting tied up in litigation for enforcing the resolutions – theoretically. Of course, not all member state courts will recognize this, and it only applies to claims by North Korea or by designated persons. It will require good implementing legislation, which (let’s face it) very few countries have.

23. Request Interpol notices: Requests that Interpol issue Special Notices with respect to designated individuals, and directs the Committee to work with Interpol to develop the appropriate arrangements to do so; (New)

OK, I’ll admit that I’m mildly impressed by this. I’ll believe it when Kim Chol-Sam leaves China for good.

24. Expand POE capacity and resources: Requests the Secretary General to provide additional analytical resources needed to the Panel of Experts established pursuant to resolution 1874 (2009) to strengthen its ability to analyze the DPRK’s sanctions violation and evasion activities; (Based on OP42 of UNSCR 2321)

Hmm. Are they hiring lawyers, and what do they pay?

Political

25. Reiterates its deep concern at the grave hardship that the people in the DPRK are subjected to, condemns the DPRK for pursuing nuclear weapons and ballistic missiles instead of the welfare of its people while people in the DPRK have great unmet needs, and emphasizes the necessity of the DPRK respecting and ensuring the welfare and inherent dignity of people in the DPRK; (OP45 of UNSCR 2321)

As stated above, this matters.

26. Reaffirms that the measures imposed by resolutions 1718 (2006), 1874 (2009), 2087 (2013), 2094 (2013), 2270 (2016), 2321 (2016), 2356 (2017), and this resolution are not intended to have adverse humanitarian consequences for the civilian population of the DPRK or to affect negatively or restrict those activities, including economic activities and cooperation, food aid and humanitarian assistance, that are not prohibited by resolutions 1718 (2006), 1874 (2009), 2087 (2013), 2094 (2013), 2270 (2016), 2321 (2016), 2356 (2017) and this resolution, and the work of international and non-governmental organizations carrying out assistance and relief activities in the DPRK for the benefit of the civilian population of the DPRK and decides that the Committee may, on a case-by-case basis, exempt any activity from the measures imposed by these resolutions if the committee determines that such an exemption is necessary to facilitate the work of such organizations in the DPRK or for any other purpose consistent with the objectives of these resolutions, and further decides that the measures specified in paragraph 8(d) of resolution 1718 (2006) shall not apply with respect to financial transactions with the DPRK Foreign Trade Bank or the Korea National Insurance Corporation if such transactions are solely for the operation of diplomatic missions in the DPRK or humanitarian assistance activities that are undertaken by, or in coordination with, the United Nations; (Based on OP46 of UNSCR 2321)

So, spoiler alert: the FTB, which Treasury designated in 2013, and which featured prominently in this recent civil forfeiture suit, is designated in one of the annexes below, which is good. When I say that Pyongyang uses its people as human shields, the Foreign Trade Bank is a perfect example of that strategy, and how some humanitarian aid NGOs have been willing accomplices of it. That exemption is probably a smart move, tactically.

27. Reaffirms its support for the Six Party Talks, calls for their resumption, and reiterates its support for the commitments set forth in the Joint Statement of 19 September 2005 issued by China, the DPRK, Japan, the Republic of Korea, the Russian Federation, and the United States, including that the goal of the Six-Party Talks is the verifiable denuclearization of the Korean Peninsula in a peaceful manner, that the United States and the DPRK undertook to respect each other’s sovereignty and exist peacefully together, that the Six Parties undertook to promote economic cooperation, and all other relevant commitments; (OP47 of UNSCR 2321)

Note the language “reaffirms its support.” I occasionally see claims, either from soft-liners here or from Beijing, that the resolutions require us to return to six-party talks — never mind that North Korea won’t return to them — and that some notion of reciprocity consequently releases China from its obligations to enforce the other provisions. But “reaffirms its support” is non-binding language, in contrast to the sanctions provisions that say “decides,” and which are binding. The obligations aren’t reciprocal, and the idea that this provision requires anyone to return to the talks (including Pyongyang) is baseless. The resolutions do, however, use “decides” when they require Pyongyang to completely, verifiably, and irreversibly dismantle its nuclear, chemical, biological, and ballistic missile programs.

28. Reiterates the importance of maintaining peace and stability on the Korean Peninsula and in north-east Asia at large, and expresses its commitment to a peaceful, diplomatic, and political solution to the situation and welcomes efforts by the council members as well as other States to facilitate a peaceful and comprehensive solution through dialogue and stresses the importance of working to reduce tensions in the Korean Peninsula and beyond; (OP48 of UNSCR 2321)

29. Affirms that it shall keep the DPRK’s actions under continuous review and is prepared to strengthen, modify, suspend or lift the measures as may be needed in light of the DPRK’s compliance, and, in this regard, expresses its determination to take further significant measures in the event of a further DPRK nuclear test or launch; (OP49 of UNSCR 2321)

30. Decides to remain seized of the matter. (OP50 of UNSCR 2321)

Now, the designations.

Annex I

Travel Ban/Asset Freeze (Individuals)

1. CHOE CHUN YONG

a. Description: Representative for Ilsim International Bank, which is affiliated with the DPRK military and has a close relationship with the Korea Kwangson Banking Corporation.  Ilsim International Bank has attempted to evade United Nations sanctions.

b. A.K.A.: Ch’oe Ch’un-yo’ng

c. Identifiers: Nationality: DPRK; Passport no.: 654410078; Gender: male

With respect to each of these guys, I can only ask: are their designated successors in Beijing yet?

2. HAN JANG SU

a. Description: Chief Representative of the Foreign Trade Bank.

b. A.K.A.: Chang-Su Han

c. Identifiers: DOB: November 08, 1969; POB: Pyongyang, DPRK; Nationality: DPRK; Passport no.: 745420176, expires on October 19, 2020; Gender: male

3. JANG SONG CHOL

a. Description: Jang Song Chol is a Korea Mining Development Corporation (KOMID) representative overseas.

b. AKA: n/a

c. Identifiers: DOB: 12 March 1967; Nationality: DPRK

4. JANG SUNG NAM

a. Description: Chief of an overseas Tangun Trading Corporation branch, which is primarily responsible for the procurement of commodities and technologies to support the DPRK’s defense research and development programs.

b. A.K.A.: n/a

c. Identifiers: DOB: July 14, 1970; Nationality: DPRK; Passport no.: 563120368, issued on March 22, 2013; Passport expiration date: March 22, 2018; Gender: male

5. JO CHOL SONG

a. Description: Deputy Representative for the Korea Kwangson Banking Corporation, which provides financial services in support to Tanchon Commercial Bank and Korea Hyoksin Trading, a subordinate entity of Korea Ryonbong General Corporation.

b. A.K.A.: Cho Ch’o’l-so’ng

c. Identifiers: DOB: September 25, 1984; Nationality: DPRK; Passport no.: 654320502, expires on September 16, 2019; Gender: male

6. KANG CHOL SU

a. Description: Official for Korea Ryonbong General Corporation, which specializes in acquisition for the DPRK’s defense industries and support for the DPRK’s military-related overseas sales. Its procurements also likely support the DPRK’s chemical weapons program.

b. A.K.A.: n/a

c. Identifiers: DOB: February 13, 1969; Nationality: DPRK; Passport no.: 472234895

7. KIM MUN CHOL

a. Description: Representative for Korea United Development Bank. 

b. A.K.A.: Kim Mun-ch’o’l

c. Identifiers: DOB: March 25, 1957; Nationality: DPRK

8. KIM NAM UNG

a. Description: Representative for Ilsim International Bank, which is affiliated with the DPRK military and has a close relationship with the Korea Kwangson Banking Corporation.  Ilsim International Bank has attempted to evade United Nations sanctions.

b. A.K.A.: n/a

c. Identifiers: Nationality: DPRK; Passport no.: 654110043

9. PAK IL KYU

a. Description: Official for Korea Ryonbong General Corporation, which specializes in acquisition for DPRK’s defense industries and support to Pyongyang’s military-related sales. Its procurements also likely support the DPRK’s chemical weapons program.

b. A.K.A.: Pak Il-Gyu

c. Identifiers: Nationality: DPRK; Passport no.: 563120235; Gender: male

List Update for Aliases:

• JANG BOM SU (KPi.016) – New AKA: Jang Hyon U with date of birth 22 February 1958 and diplomatic passport number 836110034, which expires on 1 January 2020.

• JON MYONG GUK (KPi.018) – New AKA: Jon Yong Sang with date of birth 25 August 1976 and diplomatic passport number 836110035, which expires on 1 January 2020.

Annex II

Asset Freeze (Entities)

1. FOREIGN TRADE BANK (FTB)

a. Description: Foreign Trade Bank is a state-owned bank and acts as the DPRK’s primary foreign exchange bank and has provided key financial support to the Korea Kwangson Banking Corporation.

b. AKA: n/a

c. Location: FTB Building, Jungsong-dong, Central District, Pyongyang, DPRK

Now we’re talking.

2. KOREAN NATIONAL INSURANCE COMPANY (KNIC)

a. Description: The Korean National Insurance Company is a DPRK financial and insurance company and is affiliated with Office 39.

b. AKA: Korea Foreign Insurance Company

c. Location: Central District, Pyongyang, DPRK

Another good one, though the failure to designate the Korean Shipowners’ Protection and Indemnity Association, which insured the Chong Chon Gang, seems like an oversight

3. KORYO CREDIT DEVELOPMENT BANK

a. Description: Koryo Credit Development Bank operates in the financial services industry in the DPRK’s economy.

b. AKA: Daesong Credit Development Bank; Koryo Global Credit Bank; Koryo Global Trust Bank

c. Location: Pyongyang, DPRK

4. MANSUDAE OVERSEAS PROJECT GROUP OF COMPANIES

a. Description: Mansudae Overseas Project Group of Companies engaged in, facilitated, or was responsible for the exportation of workers from the DPRK to other nations for construction-related activities including for statues and monuments to generate revenue for the Government of the DPRK or the Workers’ Party of Korea. The Mansudae Overseas Project Group of Companies has been reported to conduct business in countries in Africa and Southeast Asia including Algeria, Angola, Botswana, Benin, Cambodia, Chad, the Democratic Republic of the Congo, Equatorial Guinea, Malaysia, Mozambique, Madagascar, Namibia, Syria, Togo, and Zimbabwe.

b. AKA: Mansudae Art Studio

c. Location: Pyongyang, DPRK

In theory, African dictators will have to build their own big, ugly statues now. Recall that UNSCR 2321 banned the export of statues. But … no Air Koryo? Really? I guess we’ll have to wait for the nuke test for that one.

These sanctions could be damaging — if member states enforce them. The sanctions in UNSCR 2270 should have been more damaging than they were, but China violated them and, until very recentlygot away with it. Getting other member states to enforce the sanctions will require the President to use the authorities Congress has given him in the NKSPEA and the KIMS Act. A truly effective policy will require a whole-of-government approach: the State Department will have to lobby foreign governments, the Treasury and Justice Departments must be prepared to sanction violators, and the Homeland Security Department must step up the screening of cargo from ports that don’t inspect North Korean cargo.

Finally, the administration must speak coherently about sanctions, diplomacy, human rights, the proper role of engagement, what happens if diplomacy fails, and how to reunify Korea peacefully (or, as peacefully as possible). So far, I’ve seen some encouraging steps on sanctions enforcement, but not the coherent whole-of-government effort we’ll need.

~   ~  ~

The question most people are asking now is, “Will things be any different this time?” There’s one reason to think that they just might be. No, this isn’t the first sanctions resolution that might have done serious harm to Pyongyang’s palace economy if it had been enforced, but as I’ve said before, U.N. sanctions don’t enforce themselves. All the U.N. can really do is pass new resolutions and issue the occasional Panel of Experts report. (The Panel, which had previously issued its reports annually, will now start issuing them bi-annually. Its first mid-term new report should be coming out in the new few days. Expect it to be bleak about enforcement and compliance efforts so far, but it will also call out more cheaters and concentrate the attention of the FBI, the Treasury Department, and the Justice Department on them.)

Persuading governments and companies that want to trade with Pyongyang to stop doing so sometimes requires either an inducement or a threat. Yun Byung-Se was skilled at the use of inducements, particularly in Africa, but with Moon Jae-In in office, the U.S. has probably lost Seoul as a valuable diplomatic ally against Pyongyang. 

The Trump administration has recently become more willing to use threats. It hasn’t talked about it much yet, but the Treasury and Justice Departments have begun to seize and forfeit the funds of the trading companies that broker Pyongyang’s coal exports to China. It has also zapped one Chinese bank that was involved in laundering money for North Korea, and fired a shot across the bow of the correspondent banks that carelessly clear those transactions through our financial system. As the Justice Department noted last September, Pyongyang has tried to switch to non-dollar currencies, but without much success. Sellers prefer dollars. Now, for the first time, the U.S. has made a credible threat to banks and trading companies that facilitate Pyongyang’s coal exports. 

As for those who might be tempted to accept China’s view that Pyongyang’s coal exports were for “humanitarian” purposes, a new story by the Washington Post’s Peter Whoriskey cites the Justice Department filings I refer to in the preceding paragraphs to debunk that cynical lie (as I characterize it in the article, which quotes me):

Documents from a recently unsealed U.S. court filing, combined with another federal case, suggest that much of the money China has paid to North Korea for coal over the years went toward the country’s weapons and military efforts.

The coal trade cited in the court documents, which has accounted for as much as a third of North Korean exports, helps explain how North Korea continued to develop its weapons programs despite being impoverished and under trade sanctions. The connections to the military also undermine Chinese claims that their imports were benefiting North Korean civilians.

“We considered that to be a very narrow [humanitarian] exception, but it soon became clear that not all others shared our view,” a State Department spokesperson said before the vote.

In the most recent court filing, unsealed last month, U.S. government attorneys were granted a seizure warrant against the largest Chinese importer of North Korean coal and four related front companies after presenting evidence that the Chinese company’s transactions with North Korea were “ultimately benefiting sanctioned North Korean end users, including North Korea military and North Korea weapons programs.”

The documents cite a defector, deemed “reliable,” who said that the vast majority of the revenue from the country’s coal exports go toward the military, nuclear missiles and weapons programs.

Those disclosures followed a court case filed in September in which federal attorneys cited a spreadsheet showing a major Chinese coal importer making purchases from various North Korean government agencies.

The Chinese importer was also purchasing from a North Korean company controlled by a secretive government branch believed to be conducting illicit activities and slush funds for political leaders. [WaPo, Peter Whoriskey]

It’s always refreshing to see journalists find, read, and cite primary sources rather than call up the same familiar “experts” who may not know anything about sanctions or even about North Korea, but who can be relied on to validate their own opinions. Read the whole thing. 

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Maximum pressure watch: North Korea, sanctions & diplomacy

The nature of human beings is to remember dramatic events longer than methodical processes, even when the methodical process may be of equal or greater importance. That may be why North Korea watchers remember the September 2005 action against Banco Delta Asia but tend to forget the greater part of the strategy that action served: sending Stuart Levey, Daniel Glaser, and other officials on a world tour to warn bankers and finance minister to cut their ties to Pyongyang or risk losing their access to the U.S. economy. It was not merely the stroke of one pen that brought Kim Jong-Il to the brink of insolvency; it was the stroke of a pen that put iron behind the velvet gloves that Levey and Glaser wore.

For months now, I’ve been watching for signs that the Trump administration would deploy such a strategy against Kim Jong-Un. The good news is that the signs of such an effort are now unmistakable. The bad news is that this effort is proceeding too slowly to deliver the necessary results in time. 

Starting in May, the President asked the leaders of the PhilippinesIndia (see also) and Vietnam to step up their enforcement of North Korea sanctions and cut their economic ties to Pyongyang. More recently, Ambassador Joseph Yun visited Malaysia, Singapore, and Burma to ask those governments to do likewise. Both Singapore and Malaysia have been havens for North Korean money laundering. Burma has long hosted North Korean arms dealers and been involved in suspicious arms-related deals with North Korea, including some involving nuclear technology. Yun’s message to Burma was that it should not expect the U.S. to restore full diplomatic relations until those dealings end.

Recently, the U.S. delivered a similar message to Sudan, another North Korean arms client. Otherwise, however, there is little evidence that the U.S. has pressured Namibia to shut down a North Korean arms factory, Angola to end its arms deals and use of slave labor, Egypt to expel its local KOMID representatives, or Tanzania to ensure that it cancels the registrations of North Korean ships.

Congress has also joined the effort by pressing Taiwan to cut its commercial ties in a provision of the new Taiwan Security Act. For an ostensible U.S. ally, Taiwan has been implicated in transferring sensitive technology to North Korea with disturbing frequency. For example, starting in 2009, the Treasury Department designated (and the U.N. Panel of Experts has repeatedly mentioned) a Taiwanese arms dealer and several of his companies for selling machine tools to North Korea. 

Last week, banking regulators in Latvia fined two banks for flunking their due diligence obligations to detect and prevent North Korean money laundering. Let’s hope that this is only the first of many similar moves by states to enforce the financial due diligence obligations found in paragraphs 11 through 16 of Resolution 2094, and in subsequent resolutions.

In 2016, while the Obama administration slept, South Korea’s Minister of Foreign Affairs, Yun Byung-Se, also went on tour and secured commitments from multiple states to reduce their economic ties with North Korea. It should not surprise us that since the election of Moon Jae-In filled the Blue House with advisors with histories of addlebrained appeasement or alarming, even violent, pro-North Korean activism, the pace of Seoul’s diplomacy has dropped off to almost nothing. I’ve found evidence of one effort by Seoul in sympathy with this campaign, when Moon had a telephone call with the UAE’s Crown Prince, although it’s far from clear whether he asked the UAE for anything specific, such as sending North Korean slave laborers home. Diplomatically, one can hardly say that Seoul is an ally at all anymore. It barely suffers the burden of accepting a subsidized defense from North Korean missiles, courtesy of American taxpayers.

Tokyo, by contrast, has coalesced with us in much a more valuable way, by joining the U.S. in the collective enforcement of sanctions designations against businesses that deal with Pyongyang, and against the Bank of Dandong. That strategy, which I’ve referred to as “progressive diplomacy,” and which involves coalescing with our friends first, and approaching our enemies only after they’ve been isolated, will greatly multiply the power of each designation.

I’ve noted before that collectively, the U.S., Japan, and South Korea are China’s top three trading partners. I’ve sometimes wondered if that pressure would be even more effective if it took an analytical approach, akin to the Strategic Bombing Survey of World War II, that targets vulnerable or labor-intensive industries in cities such as Dandong and Dalian that trade with North Korea. There are some new tools in the KIMS Act that may be worth considering in the context of such a strategy. One that might be the most potentially devastating authorizes the President to target those cities’ ports.

If South Korea, Australia (see also), the U.K., and Europe were to join in this coalition, the diplomatic and financial pressure on Beijing and Pyongyang might be irresistible. Pyongyang sounds worried. For the long term, it should be. In the short term, however, promises by governments to enforce sanctions against North Korea sometimes mean less in practice than they do on paper, either because those governments backslide, or simply don’t understand what the sanctions require. It is helpful that the U.N. has finally published this summary of the sanctions. It would be more helpful if the U.N., the U.S., or the Financial Action Task Force would promulgate model legislation to ensure that states can easily enact legislation to enforce U.N. sanctions.

~   ~   ~

But nothing would be more important in implementing the President’s new strategy than good management in the White House. One necessary step would be for the new Chief of Staff to seize control of the vetting and nominations for key cabinet posts from the political commissars and return that authority to the cabinet secretaries the President chose. Even a sound strategy will fail unless it’s executed competently. The diplomatic visits described in this post began in early May, and so far, the results they have produced are neither clear nor decisive. They have proceeded at too slow a pace to address a problem as urgent as this.

You won’t find a more strident critic than me of the thinking that has predominated in the State Department, particularly with regard to North Korea. But it is one thing to criticize an agency’s culture and the policies it continued to support long after their failure was manifest. It is another thing to destroy the agency itself. Good diplomacy will be an essential element of “maximum pressure.” That not only requires better direction from the White House, it also requires good diplomats. 

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WaPo editors ask, “What if sanctions don’t work?” … and answer correctly.

Regular readers know by now how many keystrokes I’ve spent at this site and in print in various places citing the evidence that sanctions against North Korea were largely a sham until last year, and could work if we enforced them in earnest. Still, the editors of the Washington Post ask a question that even the most strident sanctions advocate must consider:

ONE SCHOOL of North Korea experts has been arguing for some time that sanctions will never induce the isolated regime of Kim Jong Un to give up its nuclear weapons nor its race to develop intercontinental ballistic missiles that could carry them to the United States. A good answer is that while they might be right, sanctions are still the best available option — and unlike others, such as negotiations with the regime, they have never been given a robust try. Fortunately, that may be about to change.

I’d go the editors one better. The actions the Justice and Treasury departments began taking earlier this month are the kind of actions what will be necessary to break the link between North Korea and the financial system. We have yet to see the administration begin to impose the kinds of heavy penalties against larger, more connected banks that the Obama administration applied to banks like BNP Paribas in the Iran context, but DOJ has followed the money trail to the correspondent banks, which must be nervous about their compliance by now. There are hints that more is to come.

After waiting in vain for China to apply serious pressure to the Pyongyang regime following President Trump’s first meeting with Xi Jinping, the administration is readying sanctions against a number of Chinese companies and banks that do business with North Korea, a senior administration official said this week. A sanctions bill on its way through Congress mandates additional steps against North Korean shipping, countries that evade U.N. sanctions and those that employ the slave laborers whom the regime exports to other countries. Still-tougher measures are in a pending Senate bill developed by Maryland Democrat Chris Van Hollen.

Clearly, sanctions would work far better with Chinese enforcement than without. There is much the U.S. can do without Beijing’s cooperation to shut down Pyongyang’s finance. The new tools in the KIMS Act could vastly raise the pressure on its shipping, on shipping registries, insurers, and ports that fail to inspect North Korean cargo as UNSCR 2270 and 2321 require. There is much less we can do about what crosses the land border, however, and all of the evidence suggests that China isn’t simply negligent in its non-enforcement of sanctions against Pyongyang, but willfully weaponizing it.

If the administration aggressively and consistently exploits the new authorities — an open question, given the endless chaos in the White House and gaping personnel holes at the State Department — it might be able, over time, to cut off a substantial part of the flows of hard currency that last year allowed North Korea to increase its trade by nearly 5 percent and that financed $1.7 billion in imports from China in the first half of 2017.

Internationally, there are some encouraging signs that the Trump administration has undertaken and prioritized a campaign of diplomacy to break Pyongyang’s economic lifelines from countries other than China (breaking these links would increasingly isolate Bejing as an enabler of Pyongyang). The problem is that all of this will take time, and here, I think, is where the news is bleak:

The problem is a lack of time. Even successful sanctions campaigns, including that which induced Iran to bargain over its nuclear program, can take years to produce results — and the time North Korea may need to acquire the ability to threaten a nuclear attack on the U.S. homeland appears to be rapidly shrinking. The Post reported Tuesday that U.S. intelligence agencies have concluded the Kim regime could produce a missile that could reach the U.S. homeland with an atomic warhead in a year, years faster than previously estimated. On Friday, the regime carried out a new test of what appeared to be a long-range ICBM, the second this month.

That is to say, sanctions typically take years to work, and President Trump’s predecessors wasted years that we no longer have. I think sanctions can work, and no evidence I’ve seen disturbs that belief yet, but there is no such thing as guaranteed success for any strategy, which means that every Plan A needs a Plan B, a Plan C, and a Plan D.

Not surprisingly, both the administration and outside experts are debating other options. CIA Director Mike Pompeo recently hinted at a strategy to “separate” the Kim regime from its weapons. If that means regime change, it would require far greater cooperation from a Chinese government that so far has been unwilling to seriously pressure its neighbor.

Here is the first point the Post makes with which I’ll express mild disagreement. But for all the reasons I explained here and here, there is no stable coexistence with a nuclear North Korea. The more Pyongyang perfects its nuclear arsenal, the more risks it will feel free to take, the more it will threaten our core interests, and the more likely war becomes. Brian Myers also argues what’s increasingly difficult to deny — Pyongyang says it seeks to reunify Korea under its control, it acts accordingly, and ultimately, it cannot survive as the poorer Korea. It means to use a nuclear arsenal to extort Seoul into disarmament and capitulation.

Some analysts suggest the United States should take up a Russian-Chinese proposal for a freeze on North Korean missile and nuclear tests in exchange for a halt to U.S.-South Korean military exercises. But history shows that any North Korean commitment to a freeze would be temporary and unreliable, while Washington’s agreement to the deal could introduce a permanent crack into its alliance with South Korea.

Here in America, some of us still fantasize about a deal Pyongyang says it doesn’t want and has no incentive to take. But the only talks Pyongyang is interested in now amount to a “peace process” to secure the lifting of sanctions, the unilateral disarmament of Seoul, the withdrawal of U.S. forces, and the assertion of de facto editorial and political control over South Korean society.

One helpful proposal comes from the State Department’s former human rights chief, Tom Malinowski, who wrote in a Politico essay that the United States should ramp up efforts to provide the North Korean people with information, including about the far freer and more prosperous lives of South Koreans. Political change in North Korea forced by its own citizens, he says, is more likely than denuclearization by the current regime. That clear-eyed but ultimately hopeful forecast strikes us as sensible.

As I discussed here. What the editors are effectively saying is that if Pyongyang won’t disarm diplomatically, our next-best option may be to induce the overthrow of the North Korean government. That’s right, and furthermore, it’s a threat to bring the one thing to China’s borders that Beijing fears more than anything else — instability. The advantage of this is that if the U.S. demonstrates a capacity to induce instability in North Korea, China will realize that its choices come down to a controlled demolition of the Kim Dynasty, an outbreak of violence and anarchy along its border, or wading into a messy counterinsurgency that will sap domestic political support for Xi Jinping’s rule. Beijing has been perfectly willing to support Pyongyang in threatening core American security interests. Why must we restrain ourselves from threatening Beijing’s interests in that case? Isn’t threatening the interests of hostile powers what deterrence is ultimately about?

We’ve now wasted decades on the fool’s errand of appeasing Pyongyang, and our chances of disarming it voluntarily, which are already low, diminish with each missile or nuclear test. The best outcome we can hope for now is that a coup d’etat removes His Porcine Majesty from the picture and devolves power to men who are willing to negotiate a grand bargain with us. For that bargain to achieve a real and lasting peace, it involves not only nuclear disarmament, the dismantlement of other WMD programs, and the removal of North Korean artillery from within 50 miles of the DMZ, but also fundamental humanitarian reforms without which verification of disarmament will never be possible. And, although there may be a brief transitional period for Pyongyang to remain a distinct political entity as it reforms gradually, in the end, the Korean crisis will only end when the Korean people themselves decide the time and manner for becoming a nation once again.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

~   ~   ~

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

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

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

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

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

Introducing S.1591, the BRINK Act

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The KIMS Act becomes Title III of the RINKSA

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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What construction in Pyongyang tells us, and doesn’t tell us, about sanctions

As the Trump administration looks to sanctions, including secondary sanctions, to gain the leverage to disarm North Korea, it is natural that North Korea watchers would try to gauge the potential for sanctions to impact Pyongyang’s finances. In a place where predictions of glasnost go to die, it is natural that they would measure what the regime puts on display, like the development of Pyongyang’s skyline. And regrettably, it is natural that any analysis whose research begins and ends with news clippings that are half-wrong or half-read, and that betrays little understanding of the sanctions authorities or how their enforcement has evolved, will be of nearly no predictive value whatsoever.

So it is with this contribution by Henri Féron for 38 North, which suggests that sanctions can’t work in 2017 based on the failure of sanctions that either didn’t exist or weren’t enforced between 2014 and 2016. (An online bio for Féron describes him as a post-doctoral research scholar specializing in Korean language who has previously studied law in China — hardly the best place to gain a useful understanding of what the U.N. resolutions require — but hey, I went to law school in Nebraska and I do this as a hobby, so there’s that.) 38 North summarizes Féron’s argument thusly:

The construction boom in Pyongyang, along with other indicators of improved economic performance such as food production and foreign trade, provide further evidence of the ineffectiveness of current economic sanctions. The North Korean economy appears to be beating sanctions thanks to Chinese aid and trade, as well as the reallocation of conventional defense spending to the civilian economy.

There are several problems with this argument, starting with the fact that there is no general blockade of trade with North Korea and never has been. Féron argues that stable food prices (which have risen sharply recently, but that’s the subject of another post) suggest that sanctions have failed, despite the fact that all U.N. and U.S. sanctions exempt food imports. Féron writes, “[c]omparatively speaking, our most reliable indicators are food production and trade statistics.” I’ll just pause and give you a chance to stop laughing now.

Worse, citing U.N. World Food Program data, he writes, “North Korea is now more or less back to the nutritional self-sufficiency of the 1980s.” But earlier this year, UN aid agencies said that 70 percent of North Koreans were undernourished, and in 2015, they said that 80 percent of North Korean households had “poor” or “borderline” food consumption. The U.N. World Food Program, Food and Agriculture Organization, UNICEF, and the U.N. Development Programme all continue to assist North Korea. Self-sufficiency indeed!

Féron cites the recent decline in defections to imply that Kim Jong-Un’s regime is more popular, but the article he cites correctly notes that this is really a function of increased border security. Féron knocks down a straw-man “narrative of destitution” about Pyongyang, but there is general agreement that Kim Jong-Un has improved material standards of living for Pyongyang’s one percent (though elite defections continue to rise for other reasons). In North Korea, the destitution has always fallen on the victims of a unilateral class war Pyongyang wages against the “expendable” ones in the countryside and the provinces. 

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But Féron’s Exhibit A is Pyongyang’s recent construction boom. At the outset, construction is a dubious metric for the effectiveness of sanctions. There are no U.N. or U.S. sanctions on construction materials or equipment and never have been. As Féron notes, North Korea has plenty of cement (he might have added that it has plenty of sand, gravel and building stone, too). As a Rimjing-gang guerrilla journalist documented in 2015, Pyongyang builds its buildings using army construction laborers working on starvation rations, without modern equipment, and under grossly unsafe working conditions. Pyongyang probably had to import lighting and plumbing fixtures, tiles, and floor coverings, but it probably didn’t need as much foreign capital for its new construction as appearances alone would suggest.

On the outside, the new construction looks great — the sort of “progress” that would look impressive from the window of a train passing a second-rate Chinese factory town. Indeed, the main purpose of this facelift appears to have been to show North Korean elites, potential investors, foreign journalists, and gullible op-ed writers that sanctions can’t stop Kim Jong-Un:

The project is intended to show “the spirit of the DPRK standing up and keeping up with the world, despite all sorts of sanctions and pressure by the U.S. imperialists and their followers,” and “the truth that the DPRK is able to be well-off in its own way and nothing is impossible for it to do,” state-media quoted Kim as saying when he ordered the beginning of construction in March. [CBS]

Still, images can be deceiving — especially in Pyongyang. In December 2015, the “completed” apartments on Mirae Scientists’ Street had no power, no running water, no heat, unfinished interiors, unsafe construction, and broken elevators that made the upper floors of the high-rise apartment buildings uninhabitable (imagine hauling your own water up 30 stories, to think nothing of what you might have to haul back down if the sewage system fails). It’s a similar story at another showpiece, Ryomyong Street (see also).

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Could other sanctions provisions have applied to showpiece construction projects like Mirae Scientists’ Street and Ryomyong Street? Potentially. For example, there is evidence that other construction projects in Pyongyang, KKG Street and those revealed by this extraordinary new work of investigative journalism by Justin Rohrlich for NK News, had links to Bureau 39. Any dealings with Bureau 39 would be a clear sanctions violation today. Unfortunately, the world has been slow to designate Bureau 39, and even slower to enforce that designation. The U.N. didn’t designate Bureau 39 until March 2016, presumably because China blocked the designation until then. And even then, Treasury (to say nothing of the U.N., or China) would have hesitated to freeze any assets without a clear link between a particular construction project and a designated entity. A competent investigator with access to the right intelligence might find some link between a particular construction project and a sanctioned North Korean entity, but I don’t have that evidence, and Féron certainly doesn’t cite any.

Although much of the money for these building projects probably flowed through correspondent banks in New York, until very recently, U.S. sanctions were a case of trying to dam a river with a tennis net: in 2014, when Ri Jong-Ho was working for Bureau 39 in Dandong, there were just 43 North Korean entities designated (compared to 50 in Belarus and 161 in Zimbabwe) and (critically) no secondary sanctions — again, as I’ve been saying for years. The U.S. Treasury Department first designated Bureau 39 in 2010, five years after Treasury’s final rule about Banco Delta Asia detailed Bureau 39’s laundering of counterfeit currency. Treasury imposed some potentially broad sanctions under Executive Order 13687 in January of 2015, but has hardly used that authority to designate anyone. President Obama (reluctantly) signed the North Korea Sanctions and Policy Enhancement Act in February 2016. A ban on new investment in North Korea only came into effect in March 2016. Before any of the significant sanctions that might have halted it existed, tenants were already moving into Mirae Scientists’ Street. Dozens had probably moved out again.

The same is not true of Ryomong Street, which was only completed in the spring of this year. But as with Mirae Scientists’ Street, it isn’t clear what sanctions this would have violated without further investigation — investigation that no one was doing. I don’t see evidence of a clear link to Bureau 39 or another sanctioned entity in the open sources, and given how badly President Obama under-resourced the investigation of North Korea sanctions violations, he probably didn’t, either.

Simply designating “Bureau 39” by itself is meaningless. Bureau 39 doesn’t hold its bank accounts under “Bureau 39;” it hides them behind the names of front companies, shell companies, and various Chinese trading companies, co-conspirators, and patsies. With sufficient resources and talent, we could expose these companies and agents and freeze their assets. The work of the U.N. Panel of Experts, investigative journalists like Rohrlich and Mailey, and NGOs like C4ADS and Sayari Analytics has shown us how. But ask yourself: doesn’t it seem at all strange to you that the U.N., NGOs, and journalists keep exposing networks that our own government didn’t? If you’re a journalist or a congressional staffer, here’s a question you should ask the Treasury Department: how many full-time investigators and intel analysts are dedicated full-time to investigating North Korea?

If the necessary financing for Ryomyong Street wasn’t already done by 2016, President Obama might have tried to block those transactions as they flowed between Chinese commercial banks and U.S. correspondent banks, but as I’ve discussed ad infinitum here, Obama wasn’t willing to do that, except in one isolated case, well into the eleventh hour of his presidency. I could refer you to all of the pieces I’ve published documenting this policy of passive non-enforcement. I could do even better by citing Anthony Ruggiero’s exhaustively researched testimony for the House Financial Services Committee this week, or Dan De Luce’s real-time coverage of Obama throwing away his last chance to show some spine, or this, by Bill Powell for Newsweek, showing us how China abetted Pyongyang while Obama watched and did nothing:

A one-off case against a big Dandong-based holding company such as DHID is one thing. Beijing apparently didn’t protest too much when the Treasury issued its sanctions, apparently believing that it needs to show at least some willingness to pressure Pyongyang, even at the expense of one of China’s own firms. But several Trump appointees in the national security community are increasingly scathing about the efforts of both the Obama administration and Beijing to hobble Kim’s nukes. “As the North continued to make progress [toward an intercontinental ballistic missile capable of delivering a nuke], the U.S. and the U.N. tightened sanctions, it’s true,” says one Trump official. “But those were sanctions with a big caveat: They didn’t much apply to China, at least when China wanted to ignore them.” Another Trump official says the Obama team was focused on climate change as the key issue in bilateral relations with Beijing—not North Korea. “At no point was the sanctions regime against North Korea as effective as the sanctions were against Iran before they came to the [nuclear negotiating table],” says one senior Trump official, “and that’s almost entirely because of China.” [Newsweek]

President Trump took the Oath of Office in January. Then, he ordered a policy review that took four months, met with Xi Jinping in April, and gave him two more months before tweeting that China wasn’t helping. Around that time, the tenants of Ryomyong Street were first climbing the stairs to their new 50th-story lofts. In July, the Trump administration finally started targeting Pyongyang’s finances in earnest, including its use of Chinese banks to evade U.N. and U.S. sanctions. Even this is only a beginning of what will be necessary to how visible effects on the palace economy, which will likely take at least a year to show. 

The lessons being: first, even the best 2017 sanctions can’t stop 2016 construction; second, one cannot measure the effect of sanctions through non-sanctioned commerce; and third, when offering expert analysis on any topic, there’s no substitute for some careful research. Féron is right that sanctions failed to prevent Kim Jong-Un from slapping up a lot of spiffy-looking buildings in Pyongyang, most of which did not immediately fall down. But in the end, that may not tell us much about the potential for aggressively enforced, well-targeted sanctions to present Pyongyang with some very hard choices.

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Maximum pressure watch: The Dandong Zhicheng warrants foreshadow N. Korea-related indictments

Last fall, as America was consumed by (depending on your state of residence) post-election trauma or celebratory gunplay, China blew past the North Korean coal import caps it had just agreed to at the U.N., and the Obama administration issued what would be some of its final North Korea sanctions designations — of Daewon Industries (a coal exporter subordinate to the North Korean military) and Kangbong Trading Corporation (a coal exporter subordinate to the Munitions Industry Department and involved in the development of North Korea’s ballistic missiles).

At the time, I suggested that the administration might have shown a belated willingness to enforce the coal cap that China would not. A few months later, the Trump administration designated Paeksol Trading Company, a third coal exporter that answers to the Reconnaissance General Bureau, the agency that carries out Pyongyang’s foreign intelligence operations, terrorism, and cyberattacks, and some of its arms smuggling.

The real significance of these three coal designations was not the amount of money that Kangbong, Daewon, and Paeksol might have been laundering through the United States, although Americans tend to underestimate such things. Their real significance is that by designating these three entities, the Justice and Treasury departments were laying down a marker for anyone who was knowingly dealing with them, for violations of the International Emergency Economic Powers Act, money laundering, or conspiracy. What’s that, you say? It doesn’t matter if there’s no one here to arrest? Not to worry. The smarter strategy need not burden the taxpayers with feeding and housing crooked Chinese traders and bankers; it can be even more effective to seize their ill-gotten gains, bankrupt them, terrify other bankers into meeting their due diligence obligations, and depositing said gains into either of two U.S. government forfeiture funds that pay for the cost of other law enforcement operations.

That is to say, I don’t know how Donald Trump will make Mexico pay for the wall, but I do know how he can make the Chinese banks pay for bankrupting Kim Jong-Un.

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By now, it is now clear that Treasury’s designations of the North Korean coal exporters were only the first steps, and that there is substance, strategy, and policy behind the Trump administration’s talk of “maximum pressure.” The first clear sign came last month, when the Justice Department sued to forfeit almost $2 million Mingzheng International Trading Limited laundered for the Foreign Trade Bank of North Korea (FTB). A few weeks later, it cut the Bank of Dandong off from the financial system for laundering money for North Korean arms dealer KOMID and Korea Kwangson Banking Corporation, an FTB subsidiary. (Treasury blocked KKBC and FTB in 2009 and 2013, respectively, making it illegal to do business with them inside the United States, though corrupt trading companies stepped up to help them access the dollar system indirectly, for commissions of up to 25 percent per transaction). We can now see the feds’ emerging strategy taking shape — to bankrupt the Chinese trading companies that fill His Porcine Majesty’s coffers and make them toxic to the entire financial industry.

North Korea’s latest missile test changes the administration’s calculus, said Nicholas Eberstadt, a North Korea security expert at the American Enterprise Institute. He expects the White House to accelerate its sanctions against Chinese firms.

A central aim of the strategy of freezing out a Chinese bank from the U.S. financial system is to chill transactions by other Chinese institutions. Access to U.S. financial markets and the dollar are critical for trade and finance around the globe. But for that effort to be perceived as a credible, said Mr. Eberstadt, the administration will have to list other Chinese banks to instill broader fear.

“If I wanted to send a message, I’d probably send several postcards,” Mr. Eberstadt said.

Analysts and senior officials from two previous administrations say the existing sanctions regime against North Korea have so far been elementary compared with the thicket of actions applied against Iran at the height of the Obama administration’s punitive actions against Tehran. That effort pushed the country into recession and persuaded the country to negotiate, although many foreign-policy experts question the effectiveness of the subsequent deal the U.S. reached with Iran. [WSJ, Ian Talley]

Then, last week, the U.S. District Court for the District of Columbia unsealed this seizure warrant for funds of Dandong Zhicheng Metallic Materials Company that entered eight U.S.-based correspondent banks. According to the warrant, Dandong Zhicheng processed $700 million in prohibited North Korea-linked transactions through those eight correspondents since 2009, including $52 million in the last seven months alone. Yes, that’s right — Pyongyang was laundering its money through our banks and right under our noses all along, just like I’ve been saying.

Tantalizingly, the warrant cites a cites a grand jury subpoena that isn’t published on PACER, most likely because it’s still sealed under Rule 6(e) of the Federal Rules of Criminal Procedure, which protects the secrecy of grand jury material. This particular warrant is a “damming warrant,” a tool prosecutors use when they have probable cause to seize evidence or contraband that regularly transits through a specified place, even if it isn’t there at the moment (such as drugs through a dealer’s P.O. box, or funds through a money launderer’s account). It means that money goes into, but not out, of the account subject to the warrant. In this case, the damming warrant lasted 14 days, which may be as long as a depositor would continue to dump money into a bank account before wondering why his checks weren’t clearing.

I found the names of the correspondent banks on PACER so that wouldn’t have to: Bank of America, Deutsche Bank Trust Company Americas, Citibank, Bank of New York Mellon, HSBC, JP Morgan Chase, Standard Chartered Bank, and Wells Fargo. So far, the feds aren’t directly targeting those banks for legal action, and neither the banks nor the feds are saying anything else about that, but read on. You’ll also see in footnote 5 of the court’s order that the feds have now begun to make good use of the NKSPEA; evidently, the prosecutors cited section 104(a)(8) it in their warrant application.

By now, the more astute readers among you have picked up on the familiarity of Dandong Zhicheng’s name. No, this isn’t the Chinese network exposed in C4ADS’s report (and mostly undone by the Justice Department’s indictment and forfeiture complaint) last year. That was Dandong Hongxiang (or DHID). Dandong Zhicheng (or DZMM) is the Chinese network exposed by C4ADS’s most recent report, just last month.

In 2016, a single company, Dandong Zhicheng Metallic Material Co. Ltd. 丹东至诚金属材料有限公司, reportedly accounted for 9.19% of total North Korean exports to China. Established in July 2005, just as North Korean coal exports began to increase as a percentage of total exports, Dandong Zhicheng Metallic Material Co. Ltd. is a commodity company based in Dandong, China. The company’s archived website states that, as of April 6, 2016, it was recording annual sales of US$250 million, mainly of North Korean coal. This fact is recorded in trade data: 97% of the company’s imports were of North Korean coal. The company’s rapid growth and subsequent market position today is best described by a 2013 statement by one of the company’s traders, “The golden time for high profit has ended. It is now difficult to expand the market share further, and small players are out of the game.” Since 2014, Dandong Zhicheng Metallic Material Co. Ltd. has reportedly been the top overall importer from North Korea in China. [C4ADS]

If C4ADS is right that North Korea’s financial networks are centralized, limited, and vulnerable, the Justice and Treasury departments can damage or destroy the Chinese conglomerates that link Pyongyang to the financial system. To hear C4ADS tell it, DZMM is the single biggest Chinese importer of coal and other products from North Korea. Reuters backs that up by citing a 2013 online profile for DZMM, which claims that it imported $250 million worth of North Korean coal that year. By contrast, UNSCR 2321 capped North Korea’s total annual coal exports at $400 million. Thus, DZMM is almost certainly Pyongyang’s single largest coal customer and one of its key links to the global economy (no matter how many “experts” say that Pyongyang is already too isolated to sanction or that those links are too well hidden to find).

Nothing in the damming warrant mentions Kangbong, Daewon, or Paeksol, but it’s almost a sure bet that at least one of them is having some cash flow problems today, if not all three. The fact that the warrant reveals that a grand jury has been empaneled is also telling. Reuters got someone at DZMM to answer the phone, but they wisely refused to comment. If the cliché is correct that you can indict a ham sandwich, we should expect to see an indictment unsealed in the coming weeks or months, and we’ll learn the names of DZMM’s banks.

Asked about the issue, Chinese Foreign Ministry spokesman Geng Shuang reiterated that any infringements of U.N. resolutions on North Korea would be dealt with according to Chinese law, and that China opposed “long-armed jurisdiction”. [Reuters]

That is to say, China is opposed to unilateral sanctions, except when it isn’t. I can’t recall when I’ve ever heard China sound so upset and concerned about the prospect of paying a penalty for Pyongyang’s behavior.

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When the feds indicted Dandong Hongxiang last September, they hastened to add that the banks were not suspected of any wrongdoing. How much legal jeopardy are the banks in this time? Potentially, plenty. The court issued the DZMM warrant in May, so presumably, the affected transactions would have come after Treasury’s Financial Crimes Enforcement Network (FINCEN) issued this new regulation, based on its finding that North Korea is a jurisdiction of primary money laundering concern. The FINCEN regulation requires banks to cut North Korean financial institutions off from both direct and indirect access to the financial system, and requires due diligence of banks processing transactions to that end. Clearly, the banks should not have processed transactions for designated North Korean entities — including the FTB, KKBC, Daewon, Paeksol, or Kangbong. This time, DZMM’s Chinese banks and their U.S.-based correspondents both face higher legal burdens due to the new FINCEN regulation. The amount of jeopardy depends on how apparent DZMM’s links to North Korea were, or alternatively, how many hard questions they asked DZMM and each other about their customers.

What’s clear, regardless of the outcome, is that the banking industry has to step up its compliance game. And judging by the clarity of the message the feds are finally sending, I expect it already is.

Have all the shoes dropped? By no means. A grand jury is (or was) in session, indictments are thus more likely than not, the feds have plenty of other options short of that, and according to the Wall Street Journal, their strategy has backing at the highest levels of the administration. Our government is now promising — and taking steps to implement — a secondary boycott of North Korea’s enablers around the world, Nikki Haley is telling countries that they cannot trade with both the U.S. and North Korea, and the U.S. is moving to combine its economic power with that of South Korea and Japan (collectively, China’s three largest trading partners). Yes, China and Russia are stalling approval of a new U.N. sanctions resolution, but I’ve long felt that we’ve reached the point of diminishing returns from new U.N. sanctions anyway. What’s needed now is strict enforcement of the existing sanctions and anti-money laundering authorities, and that’s what I’ve just been talking about here.

Last year was a bad year for North Korean banks. Although the effects of that still aren’t clear, this year promises to be much worse for them. And we haven’t even gotten to the tools the Senate is about to give the feds.

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We cannot live with a nuclear North Korea (or rather, it will not live with us)

Yesterday, the North Korean threat finally crossed the ocean to our shores. As it is after every fresh outrage from Pyongyang, the question many will ask is, “Now what?” Certainly, there are plenty of legal, financial, and diplomatic options on this list that President Trump’s cabinet can exercise. Congress is also ready to act, or nearly so. You should expect to see the Senate move legislation you’ve seen (or something similar to it) and legislation you have not yet seen. That is good, but is there still time? After years of indecision and neglect, it will take concerted diplomatic and law-enforcement efforts for financial pressure to show its effects on Pyongyang, and no pressure that fails to threaten the very end of Kim Jong-Un’s misrule will be sufficient.

As you read this, “experts” across Northwest D.C., including some of those who are most responsible for getting us into this mess in the first place, are proof-reading their next op-eds calling for us to beg for a deal that Pyongyang doesn’t want and wouldn’t keep. As Pyongyang has said repeatedly (though too many of us choose not to hear it) it will not negotiate away its nuclear arsenal. A freeze would only trade away valuable concessions until Pyongyang seizes on the slightest pretext to renege on it.  Those who tell us that we must talk to North Korea ignore the evidence of how often we have tried. Indeed, it is they who aren’t listening to North Korea. These people are deluding everyone — most of all themselves. Pyongyang did not starve millions of “expendable” people to build a nuclear arsenal so that it could trade that arsenal away. Kim Jong-Un does not want nuclear weapons merely to defend himself from us. He will use them to blackmail Seoul into a “peace process” that would achieve the incremental surrender of South Korea and ultimately, the legacy to which his father and grandfather devoted their lives — the reunification of Korea under his rule. I believe he now sees that goal as within his reach. He may be right.

Can we learn to live with a nuclear North Korea that sold missile technology to Iran, built a nuclear reactor in a part of Syria now controlled by ISIS, and threatened to sell nuclear weapons to terrorists? That attacked our South Korean treaty ally or U.S. forces stationed in Korea in 1968, 1969, 1970, 1976, 1983, 1987, 1998, 2002, 2010, and 2015, killing 50 South Koreans in 2010 alone? That sends assassins to murder human rights activists and dissidents in exile? That has launched cyberattacks against banks, newspapers, nuclear power plants, and the Seoul subway? That launched another cyberattack against a Hollywood movie studio, made terrorist threats against movie theaters in the United States, and chilled the freedom of expression that Americans cherish and have given their lives for? That murdered the half-brother of its tyrant with a deadly nerve agent, in a crowded airport terminal, in the capital city of a friendly nation, 5,000 miles away? That may already be able to strike the United States with a nuclear weapon? The very idea is madness. One day, Kim Jong-Un, whose tolerance for risk always exceeds the calculations of our “expert” class, will go further than we are prepared to tolerate. Down this path lies war — a war whose potential will grow more destructive with each passing year.

Any fool who can hear the rising roar and see the boiling cloud of mist ahead knows where this current is carrying us. We cannot live with a nuclear North Korea if it means — as it assuredly does — the end of nonproliferation and the beginning of an age in which nuclear, chemical, biological, and cyber-terrorism will cease to be theoretical and become imminent and frequent. Fundamentally, the question isn’t really whether we can live with a nuclear North Korea, but whether a nuclear North Korea so inculcated with hatred of America, and with contempt for our open and democratic society, would live with us.

For now, I doubt we’ll make much progress with Russia or China at the U.N., though I think we should give it a token try. One additional provision that’s now worth asking for is an air and sea blockade in which only imports of food, non-luxury consumer goods, and humanitarian supplies should go through. But China and Russia would not agree to this, and I increasingly incline toward not wasting our political capital there. Instead, we should re-focus our diplomatic energy on progressive diplomacy to build a coalition outside of the U.N. to enforce existing U.N. sanctions and deny the North Korean regime the funds that sustain it. But is there still time? And more importantly, don’t Pyongyang’s escalations call for a reassessment of what sanctions are meant to achieve, and therefore the targeting strategy?

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