Archive for Sanctions

Follow the money. All of it.

March 20, 2013 Money Laundering, Sanctions No comments

Marcus Noland has published two fascinating charts on recent changes in North Korea’s palace economy. According to one, North Korea has begun posting a current account surplus by squeezing its poor, and by taking in foreign exchange from mysterious (but probably Chinese) sources.  That would certainly explain some of its recent, more aggressive behavior — a well-funded North Korea is menacing; an underfunded North Korea is relatively, if temporarily, conciliatory.  Judging by North Korea’s aggressive WMD development and investment in white elephants (gray ones, too) and perks for its elite, the regime doesn’t appear to be starving, even if its people are.  Noland also posts another fascinating chart showing his estimate of the share of North Korea’s income earned through illicit activities, which he estimates at between 5 and 20 percent of its export revenues.

Obvious questions arise about how we can really know such things, but it’s unlikely that anyone in America knows better than Marcus does.  Assuming his charts are correct, enforcement efforts have had considerable success, yet a staggering share of North Korea’s revenues continues to come from illicit sources. It’s now incumbent on us to identify these new revenue sources for the sake of our own national security; indeed, it may also alter our estimates of the “illicit” share of North Korean exports.  Both charts present challenges to the potential effectiveness of sanctions, but not insurmountable ones under anti-money laundering (AML) principles.  It all depends on how widely you’re willing to target North Korea’s income, because our time for playing whack-a-mole has run out.  A strategy that isn’t comprehensive and that doesn’t reach North Korea’s foreign enablers is, by default, a license to proliferate.

How an economist analyzes those challenges is apt to differ from how a lawyer addresses them.  This is why I enjoy my side of this public conversation so much.  Please don’t confuse what follows with criticism.  What it is, is eagerness to devour and parse the research. So having said that, here’s a short list of what else I wish I knew.

First, how do we define “legitimate?” For example, are the Siberian logging revenues legitimate, given that some of the escaped loggers say they aren’t being paid?  That would make any    transaction to facilitate these arrangements “trafficking in persons,” which is a predicate offense for money laundering under 18 U.S.C. 1956(c)(7)(B)(vi), and therefore subject to criminal prosecution, along with the seizure and forfeiture of any proceeds or instrumentalities of the transaction.  The same predicate offense may well describe North Korean gold, coal, iron ore, and copper, probably its largest “legitimate” exports, if they are mined with forced labor (for which North Korea’s mining industry is deservedly notorious).  If the products of this newly announced Chinese-owned garment factory in North Korea (HT) are labeled “Made in China,” importing them into the United States could violate the country-of-origin labeling laws, this executive order, and consequently, the International Emergency Economic Powers Act, which would make the merchandise subject to seizure and forfeiture, and any movement of funds to facilitate that importation (you guessed it) money laundering, under 18 U.S.C. 1956(c)(7)(D).  Drive it past me, and I can probably find a broken taillight that anyone else would be ticketed for. I have never accepted “North Korean exceptionalism,” the idea that we must judge North Korea by a lower standard.

Second, one of the reasons why estimates about illicit revenues are invariably imprecise is the problem of commingling of legitimate and illicit funds.  If a North Korean attache’s diplomatic pouch contains $100,000 in supernotes, $100,000 in dope revenues, and $800,000 in proceeds of North Korean restaurants, how much should the authorities seize?  The answer, under AML principles, is $1 million, because commingling is usually a sine qua non for money laundering, and lawmakers eventually decided to vastly improve enforcement, and save law enforcement officers much annoyance, by empowering them to seize the whole lot.

Third, it’s important to distinguish between proceeds of prohibited activity and instrumentalities of prohibited activity.  Even if you accept the legitimacy of the labor and pay arrangements Kaesong, how do we know that its proceeds aren’t used for WMD development? (My view is that only Jang Song Thaek, Kim Jong Un, and a few people in Bureau 38 really know, and that as North Korea threatens South Korean civilians, and South Korea’s President prepares to visit the United States, for South Korea to revive the idea of importing Kaesong-made products into U.S. markets tariff-free is just crazy talk.)  If those proceeds are misused for WMD programs, they become instrumentalities. Under AML principles, instrumentalities can be seized and forfeited, along with whatever other funds they’re commingled with.

What this means is that, even assuming the accuracy of Noland’s estimates, well-crafted sanctions could and should reach much more than 5 to 20 percent of the regime’s income, and thereby suffice to vaporize its surplus and shock it into instability. After all, the money isn’t being used to better the North Korean people.

If the administration is really serious about stopping North Korean proliferation, it needs a new sanctions law, similar to the Iran sanctions acts of 2010 and 2012, which targeted Iran’s main source of income, its oil industry, as an instrumentality for its proliferation and a means to put political pressure on its regime.  As the Financial Action Task Force has been telling us for years, North Korea lacks the financial transparency needed to ensure that its income does not facilitate illicit activity.  We also know that North Korea prioritizes weapons development over providing food, heath care, and education for its people, and even over feeding some less-favored units of its military. North Korea can’t continue to develop its WMD programs or maintain its system of domestic terror without foreign money, particularly from China, but also from South Korea, the Middle East, and a small amount of European trade.

When it comes to investments, aid, and loans to North Korea, we would be well justified, and arguably compelled by Paragraph 8(d) of UNSCR 1718 to shift the burden.  As such, North Korea’s donors, lenders, investors, and insurers should be required to “ensure” that the end use of their funds is not some banned purpose.  If not, those funds should also be subject to blocking, seizure, and forfeiture.

Correction: A previous version of this post contained an image of an incorrect location for Bureau 39. I will try to post an image of the correct location later.

Open Sources, March 17, 2013: Plan B Watch Edition

March 19, 2013 Anju Links, Money Laundering, Sanctions 2 comments

WHACK-A-MOLE:  The news that Treasury has designated North Korea’s Foreign Trade Bank under Executive Order 13382 leaves me underwhelmed.  This executive order provides for the blocking of assets of entities involved in the proliferation of weapons of mass destruction, and restricts transactions with those entities, assuming we can reach them.  I’m dubious about how many assets or transactions are within our reach, but the pin-pricky targeting suggests that this approach is far less comprehensive than what’s needed to defang North Korea.

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THEY AREN’T MUTUALLY EXCLUSIVE:  The Christian Science Monitor argues for a “soft response” to North Korea’s nuke test, by encouraging more refugee flows rather than imposing new sanctions.  The problem with this idea is that the regime has somehow found the resources to crack down on, and cut, the cross-border flow of refugees.  Rather than view these ideas as mutually exclusive, we should see them as complimentary — deny the regime resources, and it will have less money to buy barbed wire and pay border guards.  Eventually, when the regime fears for its stability, even diplomacy can pay a productive part in a multi-faceted strategy.

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THE JAPANESE GOVERNMENT is auctioning off the former headquarters of Chongryeon, aka Chosen Soren, the pro-North Korean association of Korean residents in Japan that once poured half a million into Pyongyang each year, and was brought down by revelations of its involvement in kidnapping Japanese citizens.

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JAPAN HAS ALSO SEIZED a shipment of high-strength aluminum alloy on its way to North Korea from North Korea to Burma, suitable for the construction of centrifuges.  Admittedly, this is mysterious to me. What else might this alloy be suitable for that North Korea builds?  But of course, North Korea has forced us to assume the worst about all of its transactions with the Outer Earth.

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THE TINY ISLAND NATION OF KIRIBATI has been outed for selling fake passports to North Koreans suspected of involvement in illicit activities. Fortunately, the practice was detected and stopped several years ago.  The Seychelles is also implicated.

Plan B Watch: China’s U.N. Bait-and-Switch

March 7, 2013 "United" Nations, China & Korea, Sanctions 5 comments

We’ve seen enough of China’s past conduct when it comes to U.N. resolutions aimed at North Korean proliferation that we ought to recognize duplicity when we see it.  We should also know by now that our hapless U.N. Ambassador isn’t very good at recognizing that duplicity.  That’s why the news that China is expected to vote for another U.N. Security Council resolution this morning underwhelms me.  I even think I have a pretty good  idea what China’s game is here.

Like I said before — China has enough spyware on our computers to see that the political climate in Washington on North Korea policy has shifted.  It knows that its own stalling has put wind in the sails of people like Ed Royce, who know that the U.S. and its allies can do far more damage to North Korea through unilateral (and then multilateral) legislation than they can through the U.N.  China has done everything to enable North Korea and nothing to restrain it, but it has used the U.N. quite effectively to restrain us from restraining North Korea.

China calculates that by agreeing to tougher-looking U.N. sanctions, it might take some wind out of Royce’s sails, give State and its friends in the Senate a basis to oppose legislative sanctions, and maintain its U.N. chokehold over the enforcement of sanctions against North Korea.  In due course, when the Americans calm down, China will go right back to enforcing exactly nothing.  Don’t fall for it.  It’s a bait-and-switch:

The proposed new measures would explicitly ban the sale to Pyongyang of items coveted by North Korea’s ruling elite, such as yachts and racing cars, a council diplomat said on condition of anonymity. The draft also aims to make it more difficult for Pyongyang to move funds around the world. [Reuters]

So, six-plus years after UNSCR 1718 prohibited the sale of luxury goods to North Korea, China is getting around to clarifying that yachts and racing cars are also luxury goods.  Good to know. Maybe next year, they’ll pass a resolution for gold-plated bathroom fixtures, vicuña wool socks, and whichever designer Ri Sol Ju is wearing this week.  Compare this paltry list to the U.S. list of luxury goods in the Code of Federal Regulations (15 C.F.R. sec. 746.1 and supplement, in case you care to look it up).

If enforced — a very big “if,” that — this would be better:

She said the new sanctions would target “the illicit activities of North Korean diplomatic personnel, North Korean banking relationships, (and) illicit transfers of bulk cash.”

Or so Susan Rice said at a press conference, without providing any details.

[A] Security Council diplomat familiar with the measure, who spoke on the condition of anonymity because the language may still be subject to revision, said it broke new ground with restrictions and prohibitions on North Korean banking transactions, new travel restrictions and increased monitoring of North Korean ship and air cargo.  [N.Y. Times]

Here’s a little more on the inspections authority:

The council diplomat said that once the resolution is approved, states will be obligated to expel any North Korean agent of a U.N.-blacklisted entity and will be required to inspect suspicious North Korean cargo on their territory. Such inspections of North Korean vessels are currently voluntary.

“All States shall inspect all (North Korea-linked) cargo within or transiting through their territory …. if the State concerned has credible information that provides reasonable grounds to believe the cargo contains items the supply, sale, transfer, or export of which is prohibited,” the draft says. [Reuters]

Ships that refused inspection would not be permitted to dock.  Of course, you don’t have to be a lawyer to see the loopholes in “credible information” and “reasonable grounds.”  Oh, would someone please bring this to the attention of the corrections desk at the New York Times?

It would be the fourth Security Council sanctions resolution on North Korea, which has defied the previous measures with increasing belligerence. A vote was expected on Thursday.

Nope, fifth:  1695, 1718, 1874, 2087, and the next Groundhog Day, however It shall be numbered (don’t these guys check my sidebar before they write these things?).

American officials said privately that the latest resolution did not go as far as they would have liked, reflecting China’s insistence that the punitive measures remain focused on discouraging North Korea’s nuclear and missile behavior and avoid actions that could destabilize the country and lead to an economic collapse.

But the text was stronger than what some North Korean experts had anticipated, particularly the measures that could slow or frustrate the country’s banking activities and extensive dependence on cash payments in its trade with other countries.

“Going after the banking system in a broad brush way is arguably the strongest thing on this list,” said Evans J. R. Revere, a former State Department specialist in East Asian and Pacific affairs, and now senior director at the Albright Stonebridge Group, a Washington-based consulting company. “It does begin to eat into the ability of North Korea to finance many things.”  [N.Y. Times]

Whatever is in this draft, “western diplomats” sound confident that it will pass, plus-or-minus a few tweaks.  If so, I’ll probably start reading it after work, which means I probably won’t have time to digest and analyze it until this weekend.

This isn’t to say that this resolution is worse than nothing, like 2087 was.  After I read it, I’ll know, but it will never be a substitute for well-enforced U.S. and allied legislation providing for tough sanctions against non-compliant entities and nations.  A U.N. resolution will provide the impetus for tougher enabling legislation and better enforcement in Japan, Europe, and Southeast Asia.  It will not mean anything to countries like Syria and Iran. With respect to China, where implementation matters most, a new resolution will be just as unenforceable as the old ones unless Congress “helps” China — and the Chinese banks and companies that also do business with the United States — to enforce it. If Tuesday’s hearing was any indication, most members of both political parties are ready to offer that help.

Another big question is South Korea and its participation in the Kaesong Industrial Park.  I see growing international pressure for the South to either extract some real financial transparency out of Kaesong — ie., put a mechanism in place to use 100% of the proceeds to buy corn and provide commodities directly to the workers there — or shut the place down.  Park will want to resist that, right up to the moment North Korea changes her mind by doing something stupid.

As I read this resolution, I’ll be asking myself what the objective is.  Is it really to end North Korea’s nuclear program, or is it just to make it a little less convenient for North Korea to cheat for another year or so?  If your objective is the former, nothing short of putting the North Korean economy into what amounts to international receivership will do it.  If the latter, then we’re still on the same trajectory we’ve been on since at least 2006, and we can all see where that leads.  It will mean more rounds of whack-a-mole, whereby a sanctions committee receives a report on some prohibited activity, spends two months investigating it, spends another eight months fighting Chinese stalling and blocking, and finally adds a few suspect individuals and entities to some list long after they’ve moved on and folded up their booths.

To be effective, sanctions have to be (1) comprehensive enough to cover all sources of North Korean funds that could be used for prohibited purposes, (2) flexible enough to catch fly-by-night operators, (3) burden-shifting, such that the burden is on North Korea to prove the permissible use of the funds.

Correction:  Sung Yoon Lee reminds me of another resolution from way back in 1993.  So the actual number is now six.

Plan B Watch

February 23, 2013 Money Laundering, Sanctions No comments

Via the Chosun Ilbo, and according to “a diplomatic source:”

The U.S. government is considering labeling North Korea as a money-laundering state to pave the way for sanctions after Pyongyang’s latest nuclear test.  [....]

Article 311 of the Patriot Act was created following the Sept. 11, 2001 attacks and authorizes the U.S. Commerce Department to identify an individual, financial institution or state as a “primary money-laundering concern.” This would ban the target from transacting business with any system that handles U.S. dollars.

This measure is much tougher than the freezing by the Bush administration in 2005 of around US$25 million held in some 50 North Korean bank accounts at Banco Delta Asia in Macao.

Theoretically, yes.  But it won’t be tougher in practice if North Korea is designated and the Chinese and South Korean entities that continue to fund the regime aren’t.  The key to effective economic pressure against North Korea is to cut its financial lifelines to its foreign enablers.  Yes, the North Koreans will always be able to use old money laundering tricks to evade sanctions, like shifting its transactions to bulk cash and stored value cards, and by “structuring” transactions (splitting big transactions into small ones) to avoid reporting requirements.

A drug cartel or a small terrorist organization can operate like that for years, but no one has ever tried to finance a police state, govern 23 million people, or feed and maintain a million-man mechanized army that way.  Sanctions don’t need to be 100% airtight to work; even sanctions that are 30% effective would create a massive shock to the palace economy, disrupt its system of gifting and patronage, impede WMD development, and force the regime to excommunicate large segments of its Inner Party.  That’s potentially destabilizing for a regime that’s recently purged a number of senior officials to consolidate its power base.

How North Korea evades international financial sanctions

February 19, 2013 Money Laundering, Sanctions No comments

There is no such thing as a perfect plan, and the idea of pressuring North Korea through international financial sanctions is no exception.  Like money launderers everywhere, the North Koreans have adapted to get around anti-money laundering controls.  Reuters has an excellent, must-read report on North Korea’s use of bulk cash transactions to avoid the scrutiny of banks and law enforcement.  The report features an interview with Kim Kwang Jin, who defected and revealed his role in an international re-insurance scam.

North Korea has also responded by splitting its income streams via more banks.  South Korea claims that it’s difficult to associate specific accounts with illicit activity, which is always the case with money laundering.  That’s the whole idea of such classic money laundering methods as “structuring” — dividing large payments into smaller ones to evade reporting requirements — and “co-mingling” — mixing illicit funds with the proceeds of “legitimate” activity.  The usual law enforcement approach to such tactics is to impose special measures on all of the suspected launderer’s income and assets.  That approach shifts the burden to those handling the suspect’s transactions to establish the legitimacy of the origin and use of the funds.  It was also the clear intent of Paragraph 8(d) of UNSCR 1718.

All of which suggests that an appropriate U.N. sanction would be to ban bulk cash transactions with North Korea, its nationals, and its agencies.

I’ve often marveled at the inventiveness of the North Koreans at coming up with new schemes to bring in money. What’s more, I wouldn’t hold any of it against them if they were using it to feed their hungry people.  The example that sticks with me is the recent scam in which North Koreans hacked into popular South Korean online games, created algorithms to autoplay them, collected online credits, sold the credits for cash online, and gave the proceeds back to the regime to use for God-knows-what.  The New York Times thinks God-knows-what means “nuclear weapons programs and to smuggle Rolex watches and other luxury goods, which he doles out to buy the allegiance of the party and the military elite,” but with North Korea, no one ever really knows where the money goes.

One source of illicit North Korean income that has probably dropped off is the drug trade.  This piece, which discusses the cross-border meth trade between North Korea and China, doesn’t say whether the trade is state-sanctioned, but I tend to suspect most of it isn’t, except for the involvement of corrupt officials.  Japan’s crackdown on remittances and trade with North Korea badly damaged the state’s capacity to earn through the meth trade, and a lot of the chemists behind the trade turned pro.

OFK in the WaPo

February 12, 2013 Human Rights, Sanctions, The Camps 2 comments

Many thanks to my friend Prof. Sung Yoon Lee for offering me the opportunity to co-write this with him, especially since he frankly did most of the writing this time.  It’s a pleasure to write with Prof. Lee.  He’s a terrific writer, and our views align so closely that there’s no need for painstaking negotiations over wording and content.  Really, I don’t know of anyone who (1) understands the pathology of North Korea better, and (2) can express it so well in my native language (which he speaks better than me, to tell the truth).

After you’re done with that, don’t miss this paper Prof. Lee wrote as part of a symposium for the National Bureau of Asian Research.  In the pages of Foreign Policy, Dan Blumenthal highlights it as “a much-needed dose of reality about what exactly we are dealing with.”  Must reading.

I also have to compliment the WaPo folks for a particularly speedy and professional job of editing this for publication.  I’ve been an editor, and I know how hard it is to boil something down to the space limits without harming the author’s intent.

In case you’re keeping score, that’s one-two-three times I’ve been linked by the Post today, which must be some kind of record.  For that, I owe many thanks to Adam Cathcart and, of course, Max Fisher.  After all these years, I’d grown accustomed to being dismissed as a crank raving from the margins.  I hope I won’t miss that old familiar feeling.  I mostly hope that all of this effort will eventually matter where it counts.

Update:  Geez.  Get a load of The Washington Post‘s Editorial Board, sounding like us:

This should not mean trying once again to engage North Korea in negotiations: More than 15 years of such efforts have demonstrated that the United States lacks the leverage to induce the regime to give up its nukes. If any country has such leverage, it is China, which supplies its neighbor with fuel and food. U.S. diplomacy should be aimed first at pressuring Beijing to take responsibility for the growing menace on its doorstep. New Chinese leader Xi Jinping has the opportunity to change a policy that, in backing the Kim regime in the interest of “stability,” has made the Korean peninsula steadily more dangerous.

Though sanctions on North Korea are already tight, the Obama administration should look for new ways that the U.S. financial system can be used to cut off the regime’s access to international banks. It should work to bring greater attention to the human rights calamity in the North.

That’s the next best thing to an endorsement. I never thought I’d live to see that.

Good Sanctions and Bad Sanctions

February 12, 2013 Anju Links, Famine & Food Aid, Sanctions 5 comments

Weeks before North Korea’s latest nuclear test, it was clear that the political climate surrounding North Korea policy was ready for a big shift away from honor-system diplomacy and toward tougher sanctions.  This test is likely to mean a major legislative push here in Washington — not just to punish North Korea, but to craft and enact sanctions that attack the regime’s structural weaknesses, with the intent of either coercing its disarmament or destroying it.  For all the tension that will prompt in the short term, it is the only plausible non-military path to a long-term solution.

Republicans in Congress will start by pushing to re-list North Korea as a state sponsor of terrorism.  Opponents of such a move are fond of arguing that this would be be motivated by factors unrelated to terrorism, but those people either don’t know the facts or are hiding them.  It was the Bush Administration that de-listed North Korea for political reasons, in spite of North Korea’s refusal to acknowledge, end, or renounce its past and ongoing terrorism.  Opponents of re-listing North Korea should read the legal definition of “international terrorism” at 18 U.S.C. 2331, and then explain why the abduction and murder of the activist and rescuer, the Rev. Kim Dong Shik, doesn’t count.  Or the attempted assassination of defector-dissident Park Sang-Hak.  Or the attempted assassination of defector-dissident Hwang Jang-Yop.  Or all of those other poison needle assassination attempts against human rights activists North Korea’s agents were behind, whether in China or South Korea.  Or its calls for its supporters to slit Lee Myung Bak’s throat, or its threat to shell the Blue House.  Or its threat to shell the offices of newspapers that criticize the regime.  I could go on, and on.  North Korea has never sponsored more terrorism in its dreadful history than in the period since George W. Bush removed it from the list of state sponsors of terrorism on October 11, 2008.

This is only a start. I also expect to see a much broader, more comprehensive sanctions effort aimed at North Korea’s proliferation and money laundering, certainly in Congress and perhaps Read more

Why Susan Rice’s new Security Council resolution is a great victory … for China and North Korea

January 27, 2013 "United" Nations, Sanctions No comments

The Obama Administration spin on the long-stalled U.N. Security Council Resolution 2087 is that it “tightened” U.N. sanctions against North Korea, and that securing China’s vote for that resolution represents some sort of diplomatic accomplishment for the U.S. and Susan Rice.

Despite China’s rejection of proposals by the United States to add new sanctions, the Obama administration sought to characterize the vote as a tough response. “This resolution demonstrates to North Korea that there are unanimous and significant consequences for its flagrant violation of its obligations under previous resolutions,” said Susan E. Rice, the American ambassador to the United Nations.  [N.Y. Times]

I wish the reporters who repeated that spin, often unskeptically, would have bothered to read the resolution and compare it to UNSCR 1718, the John Bolton-authored resolution on which it largely leans.  Had they done so, they would have seen that by specifically naming a few long-sanctioned entities, individuals, and small fry, it implicitly narrows the potential breadth of its predecessor resolutions.

Because they didn’t, I did, and I’m about to walk you through it.  As you consider the language in these resolutions, you need to keep a few things in mind.  First, the key to making sanctions work is to build enough financial pressure against the regime that it has to choose between its weapons programs and its ability to pay its military and its party elite.  Playing whack-a-mole (as Marcus Noland call it) with just a few North Korean banks and trading companies is futile, because those North Korean banks and trading companies can change names, switch individual representatives, and shift assets to other entities faster than we can sanction them.  Second, we’ll never be able to interdict North Korea’s illicit arms trade as long as China knowingly gives that trade the sanctuary of Chinese airspace, or as long as China’s state-owned enterprises keep selling North Korea missile technology.  Third, sanctions can only work if the unethical third-country banks, investors, and trading companies that provide Pyongyang regime-sustaining hard currency are deterred from doing so.  That strategy can only work if resolutions are read broadly and applied flexibly to those entities that are known to have helped North Korea proliferate — entities like state-owned China Aerospace Science and Industry Corporation, which sold North Korea the chassis for missile transporters that now carry a new type of North Korean ballistic missile, one that some analysts had recently dismissed as fakes, but which now have the U.S. intelligence community and Secretary of Defense sounding very worried.

How will this new resolution influence the behavior of companies like CASIC?  For the answer, we turn to the resolution itself.  Paragraph 5(a) of UNSCR 2087 says that “[t]he measures specified in paragraph 8 (d) of resolution 1718 (2006) shall apply to the individuals and entities listed in Annex I and II, and the measures specified in paragraph 8 (e) of resolution 1718 (2006) shall apply to the individuals listed in Annex I . . . .” Annex I consists exclusively of North Korean entities that had already been sanctioned by the U.S. Treasury Department, and Annex II is also all North Korean, except for one solitary Hong Kong-based trading company.

The original language of UNSCR 1718, however, was much broader than this. Paragraph 8, which contains its key financial provisions, says:

(d) all Member States shall, in accordance with their respective legal processes, freeze immediately the funds, other financial assets and economic resources which are on their territories at the date of the adoption of this resolution or at any time thereafter, that are owned or controlled, directly or indirectly, by the persons or entities designated by the Committee or by the Security Council as being engaged in or providing support for, including through other illicit means, DPRK’s nuclear-related, other weapons of mass destruction-related and ballistic missile-related programmes, or by persons or entities acting on their behalf or at their direction, and ensure that any funds, financial assets or economic resources are prevented from being made available by their nationals or by any persons or entities within their territories, to or for the benefit of such persons or entities;

(e) all Member States shall take the necessary steps to prevent the entry into or transit through their territories of the persons designated by the Committee or by the Security Council as being responsible for, including through supporting or promoting, DPRK policies in relation to the DPRK’s nuclear-related, ballistic missile-related and other weapons of mass destruction-related programmes, together with their family members, provided that nothing in this paragraph shall oblige a state to refuse its own nationals entry into its territory;

Emphasis mine.  Of course, effective enforcement always depended on a robust and decisive sanctions committee, something that clearly wasn’t going to happen after North Korea signed up for Agreed Framework II and Chris Hill’s faction got the U.S. government to stop enforcing its most flagrant violations.  After that, China effectively blocked and stalled the sanctions committee’s reports, which implicated China in repeated violations of 1718 and 1874, which followed in 2009.

By specifying a short list of mostly North Korean entities, however, 2087 effectively tells the myriad of Chinese banks and companies that were and are flagrantly violating 1718 — and 1874, and 1695 — that, by implication, they are home free.  This isn’t quite a grant of prosecutorial immunity to all of those other entities (North Korean, Chinese, and other) that continue to violate U.N. sanctions, but given the lilliputian paralysis of the U.N. Sanctions Committee, it’s pretty close.  This is, effectively, a huge victory for Chinese proliferation, and for North Korea.

As far as North Korea’s weapons trade goes, 2087 does nothing that UNSCR 1874 and 1718 had not done years ago, notwithstanding the triumphalism of The Guardian.

I have maintained that no enforcement action that relies on the consent and good faith of the Chinese government has any chance of success, but that multilateral actions to combat North Korean proliferation and money laundering can force Chinese entities to isolate North Korea, despite the opposition of the Chinese government.  This has been done effectively through the partnership of the U.S. Treasury Department and the Financial Action Task Force, a quietly effective global alliance of finance ministries.  Unfortunately, Treasury’s follow-on announcement of sanctions against three “usual suspects” under Executive Order 13,382 only reinforces that Treasury will do nothing to enforce those resolutions independently, because it sanctions just two individual North Korean representatives of a long-sanctioned North Korean bank, and one Hong Kong-based small-fish trading company that China itself was willing to sanction in 2087.  Does anyone suppose that Leader Trading Company had not long since liquidated and hidden its assets?

This isn’t to say that sanctions against small entities can’t work, too, provided that bigger entities also worry they might be next.  I’ve written frequently about how in 2005, sanctions against a small Macau-based bank, Banco Delta Asia (BDA), has a disproportionate impact on multiple sources of North Korean finance, whether illicit, comingled with “legitimate” trade, or indistinguishable.

in 2005 and 2006, the Asian Wall Street Journal, the South China Morning Post, and the Chosun Ilbo printed allegations that the Bank of China and one of its Hong Kong subsidiaries were under the scrutiny of U.S. authorities for possible links to North Korean laundering of illegally derived funds.  The Bank of China denied any involvement in laundering North Korean money, but in 2007, it was so terrified by the alleged association with illicit North Korean funds that it balked at moving $25 million in blocked North Korean funds from BDA to the New York Federal Reserve, at the request of both the U.S. and Chinese governments, to facilitate Agreed Framework II.

Similarly flexible sanctions could work now, but the Obama Administration won’t apply them.  I don’t know whether to attribute that to a spineless reliance on a U.N. Security Council that’s long been a hostage of Chinese duplicity, the incompetence of Susan Rice, the stultifying influence of John Kerry, or a simple aversion to any policy more decisive than trying to “manage North Korea out of the headlines,” but this resolution — if that is indeed our final response to North Korea’s last missile test — was much, much worse than no resolution at all.

What comes next isn’t hard to predict.

Over at Foreign Policy …

January 9, 2013 Counterfeiting, Missiles, Money Laundering, North-South, Proliferation, Sanctions, WMD 3 comments

… Professor Sung Yoon Lee and I have a piece up discussing the world’s next, almost-certain-to-be-lost opportunity to respond to North Korea more effectively than having Susan Rice continue to beat her cranium against the Great Wall of China at the Security Council.  It’s a blend of Professor Lee’s prognostications about what the North will do next, and some of the financial constriction ideas I’ve been pushing as one of those Three C’s.

I’ll say this about FP — it’s certainly a great place to find an audience that isn’t, erm, accustomed to reading that sort of proposal, which makes me all the more appreciative that they decided to publish it.  I’m sure the comments will be just … fascinating.

I want to offer my sincere thanks to Professor Lee for his co-authorship, without which I doubt FP would have given this serious consideration.  Admittedly, there are many people who share his linguistic head start toward understanding the pathology of North Korea; very few who are his equal in judgment, intellect, and knowledge; and none who can communicate that understanding so cogently to those of us who aren’t Korean.  Honestly, I think his English is actually several levels better than mine.  That’s what makes him such a unique resource.

Update:  Here’s Prof. Lee saying many of the same things in 2009.

North Korea’s missile test will be Susan Rice’s big chance to be effective (for a change). Update: They did it.

December 6, 2012 "United" Nations, Missiles, Sanctions 13 comments

As North Korea completes preparations for its latest ICBM test, the United States, Japan, and South Korea are trying to deter it with state-of-the art, laser-guided words.  Success, while unlikely, isn’t completely out of the question; after all, Kim Jong Un seemed to be preparing to conduct a nuke test several months ago, but never went through with it.  If Kim Jong Un really did defer a nuke test, I have no idea why, but it probably wasn’t because he wants a fresh start in his relations with Earth.

So far, the public face of U.S. deterrence has been to threaten what has never worked before – to take North Korea to the Security Council.  Our diplomats aren’t specifying what measures we’ll take against Kim Jong Un’s regime, but they’re hinting at more sanctions:

A senior security aide to President Barack Obama said Monday the U.S. is concentrating efforts in cooperation with South Korea, China, Russia and Japan to dissuade North Korea from pressing ahead with another rocket launch.

Gary Samore emphasized that if the launch takes place Washington will take “appropriate actions.”

“We’ve made it very clear that we consider this to be a very unfortunate provocative event, which is not going help North Korea nor the people of North Korea,” Samore told Yonhap News Agency.  [Yonhap]

Ed Royce calls the missile test a “wake-up call” that the administration’s policy toward North Korea has been ineffective, which is my first cue to link to my list of unused sanctions options and how those options fit into a more effective North Korea policy – one that could force even China to engage in good-faith efforts to disarm North Korea.  The Daily NK interviews other experts who also see the need for a more comprehensive sanctions effort:

Cho Bong Hyun, a researcher with the Industrial Bank of Korea (IBK) Economic Research Institute told Daily NK, “If we do not cut off North Korea’s lines of credit then sanctions cannot be effective. Therefore, they will try to strengthen economic sanctions. The trade that is currently going normally could be faced with more difficult conditions, and humanitarian assistance could be stopped, too.”

Cho added, “In addition, it looks like a number more individuals and institutions will be added to the UN Security Council sanction list.”

Another anonymous researcher commented, “The best thing would be to apply financial sanctions in order to freeze North Korean funds, as was done with Banco Delta Asia (BDA). The BDA issue created fresh resistance in North Korea; however, freezing North Korean funds can still inflict a huge blow on their money channels.”

Some voices have suggested that the role of the UN North Korea Sanctions Committee should be improved, with disciplinary actions for those who fail to support it.

Baek Seung Joo of Korea Institute for Defense Analyses said, “Currently, sanctions against North Korea have been implemented across multi-faceted areas, but the problem is whether or not the sanctions are being implemented correctly. There need to be measures to warn those countries who are not actively taking part in the sanctions, and more monitoring of those countries which must apply them.”  [Daily NK]

These are good ideas; it’s too bad we won’t make use of them.  But at least Susan Rice will get a chance not to be our worst U.N. Ambassador since “Kim Jong Bill” Richardson.

I suppose I should explain.  The first rule of deterrence is progressive discipline — the principle that each similar misdeed will be met with more (not less) severe punishment.  Yet when North Korea launched its first missile of the Obama Administration in 2009, Rice did no better at the Security Council than a weak Presidential Statement.  The resolution she obtained after North Korea’s 2009 nuke test, UNSCR 1874, was little more than a warmed-over version of John Bolton’s UNSCR 1718, and was no better enforced (links to both resolutions in the sidebar).  When North Korea sank the ROKS Cheonan, the best Rice could get was another non-binding Presidential Statement that didn’t even name North Korea.  When North Korea later shelled Yeongpyeong Island and killed four civilians, the Security Council did bupkes.  Ditto with respect to North Korea’s brazen nuclear proliferation during Rice’s tenure.  And when North Korea launched a missile earlier this year, the Administration quickly decided not to seek further Security Council action after China made clear its intent to block it.  Rice got eaten by the Chinese every time (sorry).

Depending on your perspective, you might also think that Rice disqualified herself from higher office for responding to a premeditated Al Qaeda attack by scapegoating one man’s exercise of his right to free speech.  Rice’s statements weren’t true, but they would be just as objectionable if they were.  Non-violent speech is never a defense to the culpability of those who practice violence.  It does not explain it, and it does not mitigate it.

Yet with all this having said, I could more easily abide a weakened and timid Susan Rice than the arrogant incompetence of John Kerry.  All of which is sad, because off-hand, I can think of several prominent Democrats and members of this administration who would be great for Secretary of State, starting with Samore.  Lieberman, you say?  No, that would be asking too much.

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Update, Dec. 12, 2012:  Reuters is reporting that North Korea launched it, and there seems to be a general consensus that the missile reached orbit.

“The satellite has entered the planned orbit,” a North Korean television news reader clad in traditional Korean garb announced, after which the station played patriotic songs with the lyrics “Chosun (Korea) does what it says”.

The rocket was launched just before 10 a.m. (0100 GMT), according to defense officials in South Korea and Japan, and was more successful than a rocket launched in April that flew for less than two minutes.

The North American Aerospace Defense Command (NORAD) said that it “deployed an object that appeared to achieve orbit”, the first time an independent body has verified North Korean claims.

The North claims that the rocket boosted a weather satellite into orbit.

Foreign observers are suggesting that this will boost Kim Jong Un’s domestic legitimacy inside North Korea, but I’m wary of these counterfactual analyses.  It will probably increase North Koreans’ sense of awe of their overlords, and cause them (and us) to grudgingly acknowledge their competence at matters they deem to be state priorities.  On the other hand, it could also serve to highlight the state’s comparative failure to feed the people ahead of a cold winter and a hungry spring.

Although the launch has probably helped the political right win election in Japan, my best guess is that a provocation that primarily threatens the United States will be popular among many South Koreans who harbor intense but latent anti-Americanism and pan-Korean nationalism.  To this extent this has a significant effect on the South Korean election, it’s more likely to help the political left, which supports appeasing North Korea.

North Korea’s technical success may mean that Americans will start to take North Korea seriously as a threat again. With Richard Lugar now out of the way, John McCain is getting a seat in the Senate Foreign Relations Committee, where for years, Republicans had effectively abstained from the policy debate about North Korea. With Ed Royce and John McCain soon to be the most prominent Republican voices on foreign policy in Congress, maybe we’ll finally have a debate about whether appeasement, payoffs, unenforced U.N. resolutions, overlooking China’s duplicity, and Agreed Framework III are really the best way to deal with this problem.  For his part, Royce is saying the right thing — that we ought to scour the world’s moldiest corners for North Korean assets to freeze.

What would be a novel and serious way to respond to this?  First, we’d publicly announce that we’re not seeking any new resolutions at the U.N., and follow that with some off-the-record comments that the resolutions themselves are fine — the problem is that China willfully facilitates the violation of those resolutions.  Second, we’d make it clear that instead of wasting our energy with the U.N. and its weak (pro-appeasement South Korean) General Secretary, we’ll work with our allies and trading partners to isolate North Korea economically in the same way our Treasury Department did with the Banco Delta Asia sanctions of 2006, only much more comprehensively.  Third and most critically, we must use those sanctions to target and freeze the assets of North Korea’s foreign trading partners, including those in China and South Korea.

Given the North Korean regime’s dependency on foreign hard currency, if we pursued and enforced a policy like that, I doubt there would even be a North Korea two years from now.  So much the better for all of humanity.

 

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