Claudia Rosett: Shipping sanctions against North Korea are leaking

Unlike my friend, Claudia Rosett, I’d call the new U.N. sanctions against North Korea a qualified success, despite the fact that implementation is still a work in progress. This post, and the other posts it links, summarize the effects of just one aspect of the sanctions — their restrictions on North Korean shipping, which have idled dozens of North Korean ships. Since then, NK News’s Leo Byrne has reported that no North Korean ships have called in the port of Dandong since late March. Other Chinese ports continue to admit North Korean ships, none of which have been designated by the U.N. 

Given the importance of the coal and mineral trade in the regime’s finances, it’s not surprising that the regime is squeezing its people to make up the difference, but it’s finding that even this has limits. There isn’t much to squeeze out of them, and the squeeze also costs the regime in the loyalty of its subjects, including citizens once deemed loyal enough to send abroad. Obviously, this is no time to relax our diplomatic pressure for strict enforcement. Despite these encouraging signs, the long history of sanctions-busting by China, and by North Korea’s arms clients, demands eternal vigilance, and sometimes, the threat of harsh consequences, or sanctions will leak and fail.

There are already some warning signs of how that could happen. For example, one ship that was designated by the U.S. Treasury Department, but not by the U.N., continues to make crossings between North Korea and China. Another example is the case of the M/V Jin Teng. Three days after the Security Council approved Resolution 2270, and designated 31 ships “owned or controlled by” designated North Korean arms smuggler Ocean Maritime Management (OMM), the Philippines seized one of those ships, the Jin Teng. After the seizure, China successfully lobbied Security Council members to lift the designation of the Jin Teng, and even threatened to block the reauthorization of the Panel of Experts monitoring compliance with the sanctions. This week, among other revelations, Claudia Rosett informs us that the Jin Teng has since been released, “sending the message that it’s hardly worth rushing to enforce U.N. sanctions.” That’s worrying.

There are other worrying signs, too. Rosett points to three ships, the Deniz, the Shaima and the Yekta, which fly the North Korean flag and have made regular voyages between North Korea and Iran.

Since March 2015, the Deniz has made at least 10 calls at Iran, including at least four this year, shuttling among Turkey, Kuwait and Iran’s Bushehr port and Kharg and Sarooj terminals. According to Equasis, the Deniz’s registered owner since February 2015 is H. Khedri—or Hadri Khedri, according to the IMO’s shipping-company database—with an address for Siri Maritime Services in Tehran. The Yekta and the Shaima have been making runs between Dubai and the Iranian port of Abadan, which the Yekta visited as recently as April 5.  [Claudia Rosett, Wall Street Journal]

The ships are not designated by the U.N., although several facts here certainly call for further investigation by the U.N. Panel of Experts. Rosett points to the long history of WMD cooperation between Iran and North Korea, and any WMD-related commerce would clearly be forbidden by U.N. resolutions going back to 2006. To this, I would add the long history of North Korea supplying arms to Iran, for the use of its terrorist clients, which is also prohibited. The names of the ships aren’t Korean and don’t even sound Persian. If you forced me to guess, I’d say they’re Turkish.

This raises several potential violations of UNSCR 2270:

– The odds seem rather low that we can trust Iran to inspect the North Korean cargo as required by paragraph 18. This points to one loophole the Security Council should close after North Korea’s next nuclear test — to authorize the boarding and search on the high seas of vessels owned or controlled by North Korea when a member state at a vessel’s origin or destination has repeatedly failed to carry out its obligations under the resolutions.

– Rosett notes that “[t]he Deniz was reflagged from Japan, the Shaima and Yekta from Mongolia.” The reflagging (registration) of North Korean ships is banned by paragraph 19. Paragraph 19 also prohibits providing crew services to North Korean vessels.

– Paragraph 20 prohibits foreign ships from flying the North Korean flag, and also requires member states to prohibit the leasing and insurance of vessels flagged by North Korea.

The Panel, and Mongolian and Japanese authorities, should investigate, regulate, and prosecute as appropriate. And that is not all.

Among the North Korea-linked ships still on the U.N. blacklist, some are making fresh maneuvers that appear aimed at camouflaging their identities. The North Korean vessel the Dawnlight, which the U.S. has designated since last year, was flagged to Mongolia. In January it was renamed the Firstgleam and acquired by Sinotug Shipping Limited, a company set up just this past September in the Marshall Islands.

The U.N., having apparently missed the update, blacklisted this ship on March 2 under its old name of Dawnlight. A day later, despite a provision calling for member states to deflag North Korean ships, the Firstgleam was reflagged to Tanzania, according to Lloyds. As of this week, the ship, which the U.N. and U.S.-sanctions lists still refer to as the Mongolia-flagged Dawnlight, was signaling a position close to Japan. [Claudia Rosett, Wall Street Journal]

Anna Fifield reported extensively on the Dawnlight here, for The Washington Post, and I’ve also written about it in this post. If investigated, Sinotug may turn out to be another North Korean shell company, but to be clear, I don’t have evidence to conclude that, only that it merits investigation. Tanzania’s reflagging of the Dawnlight is just the latest case of non-compliance by African governments that either don’t know or don’t care that they’re in violation.* The job of our diplomats is to help them know and make them care.

Another continuing problem with China’s implementation continues to be the loophole allowing coal and iron ore imports for “livelihood” purposes. Not one person I know really understands what this ambiguous term means, or what its limits are. If Congress takes up another round of sanctions legislation in response to a nuclear test, it should seek to define “livelihood” more narrowly, perhaps as in-kind exports of food, to be distributed as aid. Coal exports continue to cross the Yellow Sea from North Korea to China. It’s a different story at the land borders, where coal export traffic across the Yalu River has slowed greatly or stopped, while the trade in consumer goods and food continues to flow freely (which, as I keep trying to remind people, is both important and good).

Despite the valuable service Claudia has done for us in this op-ed, I part ways with her when she writes: “It’s highly questionable whether sanctions, however watertight, can stop North Korea’s deeply entrenched nuclear program.” That depends on just exactly how one envisions stopping it. Will sanctions convince Kim Jong-un that it’s in his interest do disarm in good faith? I don’t know anyone who thinks so, although I think it’s important to leave room for that possibility. It may well be that there will be no diplomatic solution as long as His Corpulency weighs down a throne. As I’ve said repeatedly, sanctions are one part of a strategy to convince someone in Pyongyang — most plausibly, the generals surrounding His Porcine Majesty — that the system must change or perish.

Despite these implementation problems, more evidence suggests that shipping sanctions are working than not. Xi Jinping is feeling intense international pressure to seem to be enforcing the sanctions. Six weeks after the passage of UNSCR 2270 seems a bit premature for us to throw up our hands and give up on a promising strategy. What’s needed instead is targeted and tough diplomacy, backed by the threat of tougher national sanctions for those who won’t comply voluntarily.

~   ~   ~

* Corrected after posting, because the reflagging did, in fact, happen one day after the adoption of UNSCR 2270.

Continue Reading

Pyongyang’s sanctions are the ones that hurt the North Korean people the most.

Last month, I wrote about one slightly surprising consequence of sanctions against North Korea — sanctions have prevented Kim Jong-un from selling off and exporting resources needed by the North Korean people, which has flooded North Korean markets with cheap coal and seafood.

Now, we’re starting to see something like the converse of this, in which restrictions on what North Korea’s donju and purchasing agents can import is forcing them to find other ways to kick up steep “loyalty payments” to their overlords in Pyongyang. What’s a donju to do? Find something to send back to North Korea that isn’t covered by sanctions — like apples. The result has been to flood North Korean markets with cheap apples during North Korea’s lean season — called the “barley hump” — when winter food stocks have run out and home-grown crops haven’t been harvested yet.

For this reason, many trading companies have increased their import of daily goods and food products, neither of which are subject to the harsh round of unilateral and multilateral sanctions imposed on North Korea in early March in response to its fourth nuclear test and rocket launch. In particular, fruit such as apples are not included on the list of sanctioned items, so these trading companies can reliably earn foreign currency by buying and selling them. [Daily NK]

Making more food available during the lean season could also have a secondary and beneficial effect, by reducing the incidence of “pre-harvesting” of North Korean crops, which reduces the aggregate food supply.

“Right now the market is so flooded with Chinese apples that vendors are even selling one apiece to customers who don’t have a lot of money,” he said. “It seems like imported fruits are going to dominate the markets until North Korea’s first fruits of the year become available around July.” [Daily NK]

Radio Free Asia even publishes this image of apple boxes stacked up at the customs checkpoint at Dandong.

apples

[via AFP]

It also informs us that there might be more than apples in some of those boxes. 

“It has become impossible to send so-called ‘apple rice’ to North Korea now,” said a trader in Dandong, a border town in northeastern China, in a reference to rice that China sends to North Korea packed in apple boxes rather than regular rice sacks.

But in this instance the source used “apple rice” to describe goods shipped between China and North Korea that are falsely identified on their outer packaging to conceal their true contents, such as materials used to manufacture narcotics in North Korea.

The fact that Chinese traders are no longer able to send “apple rice” to North Korea means that Chinese customs authorities are performing more thorough inspections at the border, the source said.

If such goods are discovered during the inspections, the traders will be fined, and all their freight will be confiscated, he said.

“The trading companies whose ‘apple rice’ is found through random inspections will be in big trouble and have to pay a large fine,” said the source, adding that the customs inspections process has become stricter for goods entering China from North Korea. [RFA]

Why do traders hide rice in apple boxes? Beats me, but it’s not because of sanctions; maybe China has a rule against exporting rice. Either way, increased cargo inspections at the land borders compared to last month are good news, because Pyongyang has taken advantage of lax inspections to smuggle bulk cash and other contraband across the border. They’re also bad news, because smuggling brings food and information into North Korea.

Overall, however, it’s good news that the trade in food and consumer trade continues, because it means that sanctions’ impact on the North Korean people is being minimized, even if it can’t be eliminated completely. The critics who were (and still are) eager to complain that sanctions would starve poor North Koreans won’t find much evidence to support support their arguments. Despite this being the lean season, food prices have remained stable since sanctions were imposed. Motor fuel prices have risen in Pyongyang, although the reasons for this aren’t clear. U.N. sanctions ban the export of jet fuel to North Korea, but they don’t impose an oil embargo. It may be that North Koreans are hoarding, and it may be that the regime itself is, perhaps for political parades or military needs. Fuel prices do have the potential to affect food prices indirectly, so this bears close watching.

The only report I’ve seen of food shortages caused by sanctions is this report, unconfirmed by any others, that a member of the state security forces had begged a defector for money because he’d stopped receiving wages. That’s hardly a tear-jerking tale of woe, if true. Reports that China had cut flour exports to North Korea were likely a measure to alleviate flour shortages in China, and had no evident impact on food prices in North Korea.

But this is not to deny that sanctions have had some adverse impact on workers in state industries targeted by sanctions:

Signs of anxiety have been observed in certain areas near iron and steel mills as well as coal mines following strong international sanctions implemented against North Korea. These come as mine workers seek to secure their finances by moving to smaller and more affordable housing in anticipation of a prolonged period of stalled wages and tighter budgets at home.

“I haven’t seen any panic buying in response to the sanctions, but an increasing number of people living in coal mining areas like Hyesan and Musan are trying to sell their homes,” a source from North Hamgyong Province told Daily NK on Monday. “In one particular neighborhood, there was news that ten households are making efforts to sell their homes.” [Daily NK]

That’s unfortunate, but not that different from what we might see in other countries, including this one, where industries take sudden downturns. Indeed, China had already slowed its imports of North Korean coal a year and a half ago, and the effect of sanctions has been to impose an “abrupt halt on what had already been intermittent” wage payments. There are no reports of malnutrition or starvation among the miners, just reports that they’re retrenching their finances, cutting back on consumer purchases, and hoarding foreign currency. There is also the question of causation. There’s little question that sanctions have indeed hit the North Korean coal and steel industries hard, but it’s also possible that sectoral sanctions on the North Korean coal industry have only accelerated a decline in an industry that had already begun, and was likely to deepen for unrelated structural reasons. Recent reports tell us that China is cutting its own miners’ working hours because of a coal glut, which is probably a function of China’s own economic slowdown.

On the other side of this, critics who don’t understand what sanctions do or are intended to do, like CNN’s Will Ripley, see all evidence of cross-border trade as proof that sanctions aren’t working. But sanctions do not impose a blanket trade embargo on North Korea, for the very reason that the drafters of sanctions want food and other necessities to keep flowing into North Korea. If hunger in North Korea was a deterrent to Kim Jong-un, he wouldn’t be doing so much to enforce it.

The case of the Chinese apples suggests one way in which sanctions can be targeted and enforced to increase North Korea’s aggregate food supply, by shifting state resources back into the markets. Banning North Korea’s food exports might be another way. But those who depend on state industries and wages will invariably continue to lose their paychecks, and will become increasingly dependent on the markets.

The issue of the sanctions’ impact on the people bears close watching over the next year, as nations continue to implement them. On one hand, I think Sokeel Park is right that the (quasi-legal) privatization of agriculture and the food supply means that another famine in North Korea is unlikely. On the other hand, it’s unrealistic to believe that sanctions won’t affect the wrong people at all, in part because the regime will do everything in can to transfer their effects, and already is. This report did a particularly good job of covering this moral dilemma in an honest and balanced way.

But there is no question that times are much harder for North Koreans today than they were a year ago, and it’s not because of sanctions imposed by the U.N. or the U.S., but because of sanctions imposed by the North Korean government on its own people. Specifically, the North Korean government — with substantial help from China — continues to crack down on cross-border trade, smuggling, communications, and remittances, which are essential to the livelihoods of millions of poor North Koreans. It is cracking down on market trading and mobilizing people for exhausting make-work forced labor, denying them the time and the energy to pursue their livelihoods. Those are stories that bear careful watching, too, and which some sanctions critics consistently choose to overlook.

Continue Reading

Dozens of North Korean ships stranded by U.N. sanctions

Since this year’s nuclear test and the rounds of U.S. and U.N. sanctions that followed, I’ve tracked the implementation and enforcement of shipping sanctions closely on this site. For ease of reference, here’s a brief chronology of what I’ve observed since March 2, 2016, when the U.N. Security Council approved Resolution 2270, which —

  • required the inspection of all cargo to and from North Korea;
  • banned the reflagging of North Korean ships;
  • banned exports of coal and iron ore (except for “livelihood” purposes);
  • banned exports of gold, vanadium, and rare earths; 
  • designated a list of ships owned or controlled by Ocean Maritime Management; and
  • designated North Korea’s Reconnaissance General Bureau, which also operates a small fleet (though the ships themselves are not designated).

As I’ve repeatedly noted, China has a long and well-documented history of violating North Korea sanctions right after voting for them, which is why any evidence of China’s compliance with the new U.N. sanctions ought to be read skeptically. Still, since March, the signs of China’s implementation of shipping sanctions has been mixed, but mostly good. A short chronology of my posts:

This month’s reports reinforce the trend we’ve observed in those past reports — that for the most part, foreign ports are shunning the designated North Korean ships, including in China.

None of the 27 North Korean ships that are on a UN Security Council blacklist have been able to dock at foreign ports, the Voice of America reported Wednesday. They are either stuck in North Korean ports or marooned on the high seas. A diplomatic source said, “The UNSC sanctions are now biting, and North Korean ships are port-bound or stuck at sea.”

As of March 3, when the UNSC adopted the fresh sanctions, 15 of the North Korean ships on the blacklist were moored at foreign ports or traveling the open seas, according to VOA’s analysis of data from the private website Marine Traffic showing the real-time vessel positions. Four days later seven were still in foreign ports, and last month they had dwindled to two. The others returned to North Korea this month after they were denied entry to ports in China, Hong Kong, and Russia. [Chosun Ilbo, April 7, 2016]

Well … plus or minus. A rather confusing UPI report, citing the Voice of America, finds that all 27 of the North Korean ships designated under UNSCR 2270 are stranded at what UPI calls “various ports,” but also says that a number of ships continue to move between other North Korean ports, or have vanished from online tracking databases.

NK News’s Leo Byrne also finds that China and other countries have generally barred the designated ships from their ports, but with one exception — the M/V Victory 2, which continues to shuttle between Nampo and Lizhao. The U.S. Treasury Department designated the Victory 2 under Executive Order 13722 last month, but the U.N. did not designate it in UNSCR 2270. The Treasury designation links the Victory 2 to Korean Buyon Shipping Company Limited, presumably a shell company used by Ocean Maritime Management, the North Korean shipping company previously designated by the U.N. and the U.S. for arms smuggling.

So what does it mean to be designated by the U.S., but not by the U.N.? As an initial, practical matter, being on the U.S. SDN list means as much or as little as the Treasury Department decides it does. If Treasury doesn’t actually enforce the blocking of the ship or the shell companies behind it, it might scare some banks, and it might mean nothing. If Treasury does enforce it, it could mean that the dollar accounts of the shell companies are blocked, and dollar payments to provide fuel, insurance, registration, and bunkering services for the ship are blocked.

If China and North Korea are circumventing dollar sanctions, the new U.S. sanctions law and Executive Order 13722 would allow Treasury to block the dollar assets of the Chinese middlemen who are knowingly facilitating those non-dollar payments.

If the de facto de-listing follows the pattern of the Jin Teng and other de-listed vessels, China may have argued that the Victory 2 is not, in fact, owned or controlled by Ocean Maritime Management. What this means depends on whether the U.S. and China are dealing with each other forthrightly to enforce the sanctions, or whether China is simply testing the administration’s attention span.

This is all interesting enough, but the most interesting report may be the one that informs us that in early April, the Palau-flagged M/V Lucky Star-8 entered the Japanese port of Rumoi, on the northern island of Hokkaido, where the authorities promptly arrested the vessel’s Chinese captain.

It seems the captain failed to mention that between January 29th and February 1st, he’d stopped over in an unnamed North Korean port, and under new Japanese laws, ships that recently visited North Korea are barred from Japanese ports. Japanese customs found out about the North Korean port call during a cargo inspection, although the ship was carrying no cargo. The ship the left port without its captain.

This is a secondary shipping sanction, like the ones Congress passed in section 205 of the NKSPEA, only targeting third-country ships rather than third-country ports. This could have tremendous impact over time. North Korea’s maritime exports are almost exclusively used to generate revenue for the state and its priorities. It may not be a bad idea for Congress to consider when North Korea launches that missile, subject to an exemption for port calls solely for the delivery of food or humanitarian aid to North Korea. The effect could be that North Korea’s only maritime commerce would be from a few non-designated ships that go between North Korean ports and Chinese ports, and pretty much nowhere else.

Continue Reading

Angola may be defying U.N. sanctions against North Korea

A report last month by the U.N. Panel of Experts found that Namibia has been involved in joint projects with KOMID, a designated North Korean entity, to build an arms factory in the African nation. The finding drew a defiant response from the Namibian government, but as a defense to a sanctions violation, it was a blue answer to a red question. In response, I wrote this post — which attracted much attention in Windhoek — rebutting Namibia’s argument and explaining the potential legal consequences the Namibian Defense Ministry would face if its defiance continues. I also tweeted links to reports that Namibia may also have sold uranium to North Korea.

This week, it’s Namibia’s neighbor to the north, Angola, that’s sharing unwanted headlines with North Korea. First, Radio Free Asia reports that “[a]round 10 North Korean workers dispatched to Angola have died of yellow fever” during an outbreak that has killed 178 people. 

It said some 1,000 North Korean workers are in Angola, including construction workers and medical staff, the report said, referring to the workforce North Korea dispatches overseas to earn money.

The recent deaths of the North Koreans calls into question the quality of North Korea’s yellow fever vaccine and the veracity of North Korea’s claims to have inoculated its workers sent to the African country, according to the report.

Those who became sick have asked to be repatriated, but the North Korean government has opted to not comply out of fear that they could cause the disease to spread at home, the media company said. [Yonhap]

Second, the Angolan government may also be defying UNSCR 2270’s ban on security cooperation with North Korea. Like Namibia, Angola was named in the most recent report of the Panel of Experts. The panel found that Angola bought “items for military patrol boats” from a (subsequently) U.N.-designated North Korean trading company, Green Pine, with the help of our old friend, Josef “Boaty McBoatface” Schwartz.

Then, last week, the official Angolan news agency Angop published this cryptic report, defending the country’s unspecified sharing of “experiences in public security” with North Korea. Meaning?

On the occasion, the board of the Angolan Ministry of the Interior thanked the contribution of the people and government of North Korea have made to Angola, since the early period of the African country’s struggle for national liberation.

The friendship and co-operation relations between the governments of Angola and the Democratic People’s Republic of Korea are based on a politico-diplomatic framework, as well as on the General Agreement signed in May, 1977, a time that Angola’s first president, Dr António Agostinho Neto made an official visit to North Korea.

The Democratic People’s Republic of Korea was among the first states to recognize the independence of Angola (11 Nov, 1975), which the Asian country officially acknowledged on 16 November 1975, a date that marked the start of official relations between the two states, immediately followed by the opening of the Asian country’s diplomatic mission in Luanda (Angola’s capital). [Angop]

The Angolan government may be under the illusion that this kind of argument helps its situation. In fact, it only attracts more attention from troublemakers like me by highlighting the Angolan government’s spurious reading of the sanctions. Like Bill Newcomb, I’ll reserve final judgment about whether Luanda’s security dealings with Pyongyang violate UNSCR 2270 until I know exactly what those dealings are. Still, it’s hard to imagine any form of security cooperation with Pyongyang that wouldn’t violate it.

For the Angolan government to answer that it enjoyed comradely relations with the North Koreans is irrelevant. The sanctions don’t require Luanda to sever diplomatic relations with Pyongyang; they do require it to cease its military cooperation, arms trafficking, commerce in dual-use items, and dealings with designated entities. A reader could reasonably infer that Angop’s report was a response to the panel’s revelations about Angola’s purchases from Green Pine. And why would Angola still feel the need to defend its dealings with North Korea if they’re all in the past? At the very least, it merits further investigation by the Panel of Experts. (This isn’t the full extent of Angola’s questionable commerce with North Korea, which would violate UNSCR 2270 if proven, but I’ll keep the rest to myself.)

Of course, one lesson we’ve learned over the last ten years is that U.N. sanctions don’t enforce themselves. The world’s less responsible actors will continue to engage in opportunistic (and prohibited) trade with North Korea until they confront the risk of consequences. In 2005, the U.S. Treasury Department presented banks around the world with that choice by designating Banco Delta Asia, and by sending Treasury officials around the world to clarify those consequences for banks that didn’t immediately get the message.

It’s time for a similar approach to North Korea’s arms clients in Africa, whose patronage is probably a significant source of income for Pyongyang, and continues to fuel conflict in Africa. The radical idea I’m calling for here is for our State Department to practice some diplomacy. If State is serious about enforcing sanctions against North Korea, it should promptly arrange a tour of Africa, to warn the appropriate ministries in Luanda, Harare, Kampala, Windhoek, Asmara, Addis Ababa, and Cairo that in addition to the unenforceable U.N. sanctions, the NKSPEA attaches serious mandatory sanctions to military cooperation with North Korea — including the blocking and forfeiture of assets, loss of aid, and visa bans.

Not only could such an approach enhance the credibility of the U.N. and cut off a key source of income for Pyongyang, it could also yield valuable information about North Korea’s arms trafficking, either from newly cooperative African governments, or from North Korean arms dealers who come under pressure from sanctions and are consequently induced to defect.

Continue Reading

Why an unprecedented mass defection could be a sign of instability in North Korea

Yonhap is reporting this morning that 13 North Koreans —12 women and a male manager working at one of its overseas restaurants in an unidentified country — have defected and arrived safely in South Korea. The impetus for this unprecedented mass defection? Sanctions — which never work, so we’ve been told.

“As the international community has slapped sanctions on the North, North Korean restaurants in foreign countries are known to be feeling the pinch,” Jeong Joon-hee, a ministry spokesman, told a press briefing. “North Koreans in overseas restaurants are believed to be under heavy pressure to send money to their country.” [….]

The spokesman said that the latest defection indicates that the tougher U.N. sanctions have begun to generate impacts on curbing the North. [Yonhap]

Feel free to insert your own “women cross DMZ” snark in the comments. There was another factor at work here, too: “[T]he North Koreans recently decided to defect to Seoul because they realized the reality of South Korea by watching South Korean TV dramas and movies and were disillusioned with the North’s ideological campaigns.” 

So … a combination of information operations to undermine the regime ideologically and sanctions to undermine its capacity to control its subjects unraveled Kim Jong-un’s control, and with astonishing speed.

I wonder why no one ever thought of that before.

I wrote about the financial difficulties North Korean restaurants have faced recently in this post, but I still find this report astonishing and deeply significant on several levels. Mass defections from North Korea are still relatively rare. The few we do hear about tend to involve fishing boats that “drift” south, sometimes while inexplicably carrying women and children. Even then, the regime’s psychological hold is so strong that some of those aboard go back.

What’s extraordinary about this mass defection is that these restaurant workers are hand-picked, core-class loyalists. Here’s a short list of the levels of significance here:

1. Sanctions are undoing the regime’s financial bindings;

2. The regime is incapable of duct-taping those bindings together with resources from other state organs, possibly because those organs are functioning as semi-independent and competing feifdoms;

3. If the financial bindings come undone, loyalty and ideology aren’t enough to hold people;

4. At least some members of the core class — indeed, some of its most visible members — are disgruntled;

5. Disgruntled members of the core class are willing to share and conspire about their disgruntlement with each other, including the guy whose job it was to “manage” them, and act on it;

6. The South Korean government is willing to help North Koreans act on their disgruntlement; and

7. The South Korean government is willing to talk about all of this publicly, and thus inflict severe wounds to the regime’s morale, and possibly encourage other defections.

I can’t think of any other example of a mass defection by members of North Korea’s elite class. This is unprecedented. One likely consequence of it is that the regime itself will begin to call its restaurant workers home, and possibly shut down its other restaurants. As I’ve noted, the restaurants are probably more important as a cover for money laundering than for the income they generate. That means that the closure of the restaurants will put additional pressure on the regime’s foreign income streams.

~   ~   ~

This report comes just as I’d finished smelting down weeks of reporting on the question we’re all asking ourselves right now — could sanctions also destabilize North Korea itself? The people with the best information — the North Korean security forces — seem to think so. Various reports have emerged to suggest that sanctions are contributing to a decline in morale at all levels of North Korean society. Some cadres are revealing a loss of confidence in Kim Jong-un’s leadership, and in his capacity to survive. 

“Party cadres these days do not feel a true sense of loyalty towards the regime, but have rather been forced to demonstrate it for a long period of time. Cadres have been saying among themselves that the recent string of events is yet another example of Kim Jong Un putting his own gains ahead of the fate of the nation.” [Daily NK]

The closure of Kaesong hurt the morale of cadres who knew of its importance in the regime’s finances, and the workers who found it a better place to work than any of the alternatives, despite the ethical problems it raised from our perspective.

For poor North Koreans, food prices are still mostly stable. The state gives them next to nothing, and another word for “nothing left to lose” is “freedom.”

A resident in Samsu County, Ryanggang Province, who is aware of the fresh sanctions levied against North Korea, also weighed in, noting, “It’s not as if this is our first or second round of international sanctions, so from a citizen’s perspective none of this is really a surprise, but the cadres appear to be smoldering. This is because support from South Korea and the UN never trickled down to us; the high-ranking cadres sucked it all up for themselves.”

As word of looming sanctions churns in North Korea’s rumor mill, the public’s belief in the regime’s propaganda is wavering. Domestic media outlets and official rhetoric are devoid of any mention of the sanctions, instead attempting to craft a narrative of international support for the endeavors. But for the public, past is prelude, and they therefore fully expect ramifications. [Daily NK]

People are questioning the propaganda that’s being fed to them. Many of them appear to have a vague sense that Kim Jong-un provoked the U.S., the U.N., and South Korea to imposing and enforcing sanctions.

“The TV [Korean Central Television, or KCTV] and the Rodong Sinmun [Party-run publication] say it was a satellite, but people have already heard about KIC shutting down and they automatically connect the dots that the launch served another purpose. The other thing is that in the footage surrounding the event, the scientists commended for their efforts were seated right next to soldiers. So some people are saying it seems as though whatever happened might have had some connection to the military.”

For some, like one North Korean resident currently in China on a personal travel visa, these seeds of doubt grow into full blown certainty with the right exposure. “When I came to China, I felt as  though we have really been living in the dark. The propaganda that says Kim Jong Un is guiding us so that the people can live well is nothing more than him trying to build up his ‘achievements,’” she told Daily NK.

“If the public at large were to see and understand this, it would blow things wide open. People would doubtless point their finger at Kim Jong Un’s inept governance and its direct connection to their suffering.” [Daily NK]

The regime (with help from China) has also clamped down on the borders, as I discussed here. That may have a greater impact on the food supply in the markets than sanctions. Although the development of private agriculture and markets makes another North Korean famine unlikely, if the people suffer economic hardships, they could blame the regime.

That the average North Korean will be hit by these economic shifts is inexorable. With people relying solely on China to secure essential goods, a cutback on trade will challenge the supply of these daily goods. [….]

Another North Korea watcher explained, “These days, the subject of admiration and respect in the North is not the top leader but the money people secure from the markets to sustain their livelihoods.” Given this, once the sanctions start to influence the daily lives of North Koreans, it could turn people’s sentiments against Kim Jong Un and potentially lead to groups of unrest in society, the expert added.

“This is why we should work to let these people know that the international sanctions come from Kim Jong Un’s ambitions for nuclear and missile development in order to drive a wedge between the leadership and the general public,” the expert concluded. [Daily NK]

For North Korea’s poor and middle-class people, sanctions are only an indirect source of hardship, so far. The regime is squeezing them, both to extract cash from them, and to keep them busy and tired.

Complaints are rising as the people can’t receive wages or rations even if they go to work places. Several inside reporters informed that the people are coerced to deposit 1,000 won to banks every month during the period of the 70 days battle. [Rimjin-gang]

It’s pushing gold miners to increase production, extracting more “loyalty” payments from overseas party cadres and merchants, and mobilizing them for make-work projects before the party congress and Kim Il-sung’s birthday. Shockingly enough, the effect of waking people up at dawn to perform “loyalty” labor and make “loyalty” payments hasn’t been as good for loyalty as some may have hoped.

“It may just be some individuals, but there are residents who have been vocal about how mobilization is driving them crazy,” a source in South Hamgyong Province said. “Some even get into altercations with their inminban leaders, angry at the fact that people are constantly being mobilized and asked for money.” [Daily NK]

There is only so far the regime can go with these tactics before they instigate unrest, like what we saw after the 2009 currency redenomination, effectively a mass confiscation of savings. The people don’t have much to give, and what they have, they hoard.

~   ~   ~

Meanwhile, His Corpulency’s Secret Service is working overtime to head off political instability, just as Pyongyang prepares for a May party congress where Kim Jong-un will seek to “bolster his legitimacy” by promising his subjects prosperity.

Sources who are familiar with the internal situation of North Korea say that the North’s intelligence agency has beefed up its surveillance, notably on families of defectors, and dispatched more agents to the pubic areas such as markets, train stations and Mansude, where the statues of founder Kim Il-sung and the late Kim Jong-il stand in central Pyongyang.

“Ahead of the 7th Party congress, the North’s State Security Department held a convention recently, promising to gift Kim Jong-un ‘silent borders,’” a source said in a phone interview with Yonhap News Agency, adding that the State Security Department “is strengthening control over residents, blaming them for internal information leaks to South Korean media.”

It is reportedly said that the North’s intelligence agency is cracking down on people who are trying to cross the border to China, as well as people who are talking with South Koreans by phone.

According to a civic activist group, No Chain for North Korea, Pyongyang has recently set up barbed-wired fences along the Chinese border, which were originally being used at Hoeryong concentration camp, officially known as Camp No. 22, in North Hamgyong. [Joongang Ilbo]

The regime has told the State Security Department and the Ministry of Public Security (MPS) to get ready for war, presumably against its own population. In the provinces, the officers are on alert, working late nights, “inspecting their weapons storage,” and employing their inminban neighborhood-rat system.

In Pyongyang, senior officials are now required to check in and report their whereabouts every hour, and to turn in daily logs of what they did, who they met, and what they talked about. I’ve previously aggregated evidence of discontent among the higher castes, and it’s clear that Kim Jong-un is worried enough that they’ll move against him that he’s taking stringent precautions against that. The purge of Ri Yon-gil in February must surely have contributed to unease among the elites.

For what it’s worth, there is also an unconfirmed rumor that the security forces arrested “[a]t least two suspects who attempted to assassinate” His Porcine Majesty, near the border with China.

As the regime watches the elites, it’s also expecting the elites to keep the wavering classes in line by serving as role models and parroting the state’s anti-American propaganda. The MPS also has the waverers under close watch “to nip in the bud any rumblings of political unrest engendered by members of society more likely to speak out about the pressure squeezing North Korea.” Those under close watch also include “those with family members originally from South Korea prior to the war” and “the Hwagyo [overseas Chinese community].” It’s also worried that sanctions could cause a backlash among the well-connected merchants called donju, who have substantial influence over North Korea’s economy, and whose loyalty the regime is eager to hold.

So, that’s pretty much everyone, then. Which means the surveillance system may have reached its saturation point. Even MPS officers are grumbling about the long hours they’re working: “Do we really need to watch these people every single day?” “Who would do something when things are as tense as they are right now?”

~   ~   ~

The best North Korea experts agree that Kim Jong-un needs a steady stream of hard currency now more than ever to maintain and consolidate power. Let’s start with Ken Gause, probably the single most respected student of North Korean Kremlinology. Even before this year’s nuclear test and the resulting sanctions, Gause thought the royal economy was losing money and was spending at twice the rate Kim Jong-il had to buy the support of the elites. He concluded that Kim Jong-un “doesn’t have the resources to be able to consolidate his power and buy relationships.” Gause also noted Kim Jong-un’s failure to surround himself with trusted regents and advisors since the purge of Jang Song-thaek in late 2013. This leaves Kim Jong-un exposed to power struggles around him, which would marginalize him “within the next two to five years.”

Although the recent construction boomlet in Pyongyang and the widening gap between rich and poor caused me to suspect that the regime’s finances had improved, other reports support Gause’s view that the North Korean economy declined last year, due to falling coal and iron ore prices and declining demand in a slowing China. Trade accounted for around half of its official economy and the regime’s income. About 70 percent of its manufactured goods and half of the agricultural products trade in its markets came from China. Thus, the North Korean economy entered 2016 in a more vulnerable state that Kim Jong-un may have realized. Consequently, “additional pressure” on the North’s trade relations could throw its economy into “a serious crisis,” and “an economic crisis could lead to a political one.”

Seoul National University Professor Kim Byung-yeon also believes that the “[g]ood times have gone for North Korea” because of economic mismanagement and a lack of willingness to institute meaningful reforms. He also notes that “[c]ontrary to common assumptions … the North Korean economy is highly open, with trade making up half of GDP, close to the average of the Organization for Economic Cooperation and Development member nations. If it is correct that “North Korea’s exports of mineral resources … account for 40 percent of its total export earnings,” the sudden loss of this revenue will hurt His Corpulency’s status as an economic breadwinner.

Experts cited by The Daily NK also noted that mineral exports had been a particularly important source of “loyalty funds” for Bureau 39, and that disrupting that funding “may lead to a disruption in unity among cadres of all affiliations” as they’re forced to compete for diminishing resources. 

A study by the Industry-Academy Cooperation Foundation, which is affiliated with the Seoul National University of Education, speculates that without continued economic growth, the military could also become disgruntled and feud with the ruling Workers’ Party over limited resources. Kim Jong-un has recently enhanced the status of the party and purged a number of senior military leaders.

The Director of the Korea Institute for National Unification, Choi Jin-wook, was the most unequivocal: “Collapse is coming.” Choi believes “economic weaknesses” compounded by “worsening isolation from the international community will destabilize” the regime. Its choices are to maintain its isolation or “accept institutional changes that reform and open up the country,” but seems incapable of making that choice. Consequently, “the Kim Jong Un regime’s days are numbered.”

To keep the money flowing, the regime is smuggling gold and cash, which will keep it alive for a while, at least until the press and various governments push China to ramp up its border inspections. But the implementation of U.S. and U.N. sanctions has only begun, and deadlines are approaching for implementation of the new U.S. sanctions law. That means that whatever pressure the regime is feeling now will only increase over the next year. No wonder the regime is railing about sanctions. No wonder it has begun to mix its threats with calls for dialogue and negotiations. Kim Jong-un’s survival may depend on breaking the collective political will of the states that are strangling his regime.

Continue Reading

Does our State Department want denuclearization or an exit strategy?

I’ve long wished that I could attend more ICAS events, but they tend to coincide with busy times in my work schedule. That was also the case when Assistant Secretary of State Danny Russel spoke to ICAS earlier this week. The State Department has since published this transcript. A reader (thank you) forwarded it, and asked for my views. 

Sending a consistent message to North Korea and China is very important at this moment, and it hardly serves that purpose to try to be Jimmy Carter and John Bolton in a single speech. Russel’s message begins with a lengthy defense of Jimmy Carter, Chris Hill, and the failed Agreed Frameworks of the past, and strongly suggests that our goal now is a freeze deal and another agreed framework — in other words, a return to business as usual. He eventually gets around to threatening stronger sanctions enforcement, but says that sanctions are designed “to bring [North Korea’s] leaders to their senses” but “not to destroy North Korea.”

As one of the designers, I’d respectfully ask Assistant Secretary Russel to speak for himself. But the greater problem with Assistant Secretary Russel’s statement is that it reveals a fundamental misapprehension of the nature of our problem. North Korea’s leaders haven’t taken leave of their senses; they’re deliberately and methodically pursuing nuclear weapons to extort their way to hegemony, and with obvious success. As long as we mirror-image their interests in terms of our own logic, we will continue to misapprehend them. If Kim Jong-un is as invested in his nuclear weapons programs as most observers think he is, and if we’re unwilling to use sanctions to undermine and destroy his misrule, then the message we’re sending to Pyongyang and Beijing is that they should cut a freeze deal, get the sanctions relaxed, wait a few months for the administration to leave town, and renege on the next president’s watch.

The irony is that diplomacy stands little chance of success unless we openly consider other alternatives — alternatives that frighten Pyongyang and Beijing more than the idea of a negotiated denuclearization.

In my youth back in South Dakota, on the way to the used car lot one day, I learned an expression that’s as wise as it is ungrammatical: if you want a deal real bad, a real bad deal is what you’re going to get. Next year, we will have another president. Let’s not throw away her leverage just yet.

Continue Reading

The Panama papers, Pyongyang, and Nigel Cowie

Here at OFK, we keep a running list of gullible foreigners who’ve tried to get rich in North Korea, justified their support for its regime as ways to reform and open it to global commerce, and instead met the same fate as Hyundai Asan, Volvo, Yang Bin, David Chang and Robert Torricelli, Chung Mong-Hun, Roh Jeong-ho, and Orascom’s Naguib Sawaris, who I predicted back in 2008 would “eventually meet the same fate.” Regulators should require securities issuers to disclose their investments in North Korea as a material risk. This isn’t just because of the risks associated with sanctions; it’s because North Korea is flypaper for con artists — the Trump University of foreign investment — a place where hucksters’ claims are as hard to verify as disarmament agreements.

Already, the Panama Papers scandal, following a massive leak of documents from the Panamanian law firm Mossack Fonseca, is offering fresh evidence of this. In a fascinating report for 38 North, J.R. Mailey tells the story of British businessman Kevin Leech, whom he accuses of “deals with Pyongyang” that “raise serious questions about potential violations of economic sanctions on a global scale,” and of a failed North Korean mining investment promotion that turned out to have no operational mines behind it at all. (Last month, the Treasury Department imposed sectoral sanctions on the North Korean mining industry.)

This week, the neocon hegemons at The Guardian also accused British banker Nigel Cowie of “set[ting] up a secret offshore finance company allegedly used by the Pyongyang regime to help sell arms and expand its nuclear weapons programme.” (See also this report from The Independent.Cowie, the subject of previous OFK posts here, here, here, and here, is a former HSBC banker who moved to North Korea in 1995 and set up its first foreign bank. The bank was known as Peregrine Daesong Development Bank until 2000, when it was renamed Daedong Credit Bank. Later, Cowie registered an offshoot finance company, DCB Finance Limited, in the British Virgin Islands, where the laws allow a high degree of anonymity.

Initially operating out of a ramshackle Pyongyang hotel with a staff of three, Cowie led a consortium that in 2006 bought a 70% stake in the bank. [….]

Giving his address as Pyongyang’s International House of Culture, he registered DCB Finance Limited, an offshoot of the bank, in the BVI in summer 2006, with a senior North Korean official, Kim Chol-sam. The Panamanian law firm Mossack Fonseca incorporated the company, despite North Korea being an obvious high-risk destination. [The Guardian]

Cowie first achieved global infamy in 2005, after Treasury hit Banco Delta Asia with a 311 designation, resulting in the blocking of around $10 million worth of Cowie’s funds. Cowie portrayed himself as the victim of heavy-handed feds for what he repeatedly referred to as “legitimate” business. In media interviews, he called himself an agent of (wait for it) North Korea’s opening and reform, and argued that allowing Daedong Credit Bank to continue its operations was therefore in the U.S. interest.

From Pyongyang he gave several interviews to visiting foreign journalists, extolling North Korea as an under-appreciated investment opportunity. He told the Wall Street Journal he was part of an “effort to try to get the country going again”. Asked if he might prefer to work out of New York or Hong Kong rather than under an oppressive Stalinist dictatorship, he told the paper: “This is a lot more fun.”  [The Guardian]

As a critic of the Treasury Department and a defender and enabler of Kim Jong-il, Cowie became an unlikely cause celebre among members of the pro-Pyongyang crowd who suspended their usual disbelief in capitalism for the greater cause of defending Kim Jong-il. For example, long-standing North Korea apologist Gregory Elich sympathetically quoted Cowie (and conspiracy nut Klaus Bender) in a 2006 piece for the extreme-left rag Counterpunch, questioning Treasury’s allegations of North Korean counterfeiting. Pro-Beijing shill Peter Lee called Cowie the victim of “serial harassment of a legitimate enterprise — moreover one that was in the vanguard of North Korean economic reform and opening to the outside.” (Jang Song-thaek could not be reached for comment on the current state of North Korea’s reforms.)

~   ~   ~

Then, in 2007, Cowie sold his stake in Daedong Credit Bank to one Colin McAskill, who just four years before had been sentenced to six months in jail by an Australian court over a series of failed investment schemes. McAskill, former U.S. foreign service officer Lynn Turk, and others were officers in The Chosun Fund, which helped North Korea sell gold to survive the cash drought that followed the BDA designation. McAskill and his new partners in Daedong Credit Bank planned to persuade Treasury to lift its designation of BDA. 

(By then, it was publicly known that at least some of North Korea’s gold was mined in political prison camps. This year, the U.N. Security Council finally restricted North Korea’s gold sales out of concern that they could “contribute to the DPRK’s nuclear or ballistic missile programs.”)

McAskill had also partnered with Geoffrey Taylor, a fixer of shell companies, in an Australian solar energy concern whose public listing was canceled by regulators in New Zealand after it went insolvent. In 2009, Taylor’s son incorporated SP Trading, the company that leased the Il-76 that was intercepted at Bangkok in 2009, while carrying 30 tons of weapons, including man-portable surface-to-air missiles, from Pyongyang to Iran, allegedly for the use of Tehran’s terrorist clients. According to the Sydney Morning Herald, the incorporation of SP Trading “appeared to have no other purpose” than to lease the aircraft. After the seizure, there were rumors of indictments, but none came. 

~   ~   ~

Although Cowie ostensibly cut his ties to Daedong Credit Bank in 2007, his involvement with DCB Finance continued for several more years. And despite all of the publicity he had so recently attracted, it took the Panamanian law firm Mossack Fonseca until 2010 to figure that Cowie and DCB Finance were linked to North Korea.

It was only in 2010 that Mossack Fonseca realised it had been dealing with North Korean entities, and resigned as agent. The discovery came after the law firm got a letter from the British Virgin Islands’ Financial Investigation Agency asking for details of Cowie’s company. The next year, Cowie sold his share in the bank to a Chinese consortium.

The Panama Papers include acrimonious emails between Mossack Fonseca’s BVI office and its head office in Panama. In 2013, a member of the firm’s compliance department admitted Cowie’s North Korean address “should have been a red flag”. She wrote: “It is not the ideal situation and it is not gratifying issuing a letter highlighting the inefficiencies of Mossack Fonseca BVI.” [The Guardian]

Cowie says DCB Finance “was used for legitimate business and that he was unaware of any unlawful transactions.” In 2013, the U.S. Treasury Department found otherwise.

Daedong Credit Bank has engaged in the same type of activity that was at issue in the FTB designation, most notably providing financial services to the Korea Mining Development Trading Corporation (KOMID), Pyongyang’s premier arms dealer as well as KOMID’s main financial arm, the Tanchon Commercial Bank (TCB), both of which have been previously designated by the U.S. for the central role they play supporting North Korea’s illicit nuclear and ballistic missiles programs.  KOMID and TCB were also designated by the United Nations.  UNSCR 2094 requires the imposition of targeted financial sanctions on entities that work for or on behalf of, or at the direction of, UN-designated North Korean entities.  Since at least 2007, Daedong Credit Bank (DCB) has facilitated hundreds of financial transactions worth millions of dollars on behalf of KOMID and TCB.  In some cases, DCB has knowingly facilitated transactions by using deceptive financial practices.

Since at least 2006, Daedong Credit Bank has used its front company, DCB Finance Limited, to carry out international financial transactions as a means to avoid scrutiny by financial institutions avoiding business with North Korea.  DCB Finance Limited is registered in the British Virgin Islands and also operates out of China.

Kim Chol Sam is a representative for Daedong Credit Bank who has also been involved in managing transactions on behalf of DCB Finance Limited.  As a Dalian, China-based representative of DCB, it is suspected Kim Chol Sam has facilitated transactions worth hundreds of thousands of dollars and likely managed millions of dollars in North-Korean related accounts. [OFAC Press Release, June 27, 2013]

Treasury’s language suggested that even after 2007, DCB Finance and Daedong Credit Bank continued to work in concert with Tancheon Commercial Bank, which was designated by the U.N. and the Treasury Department in 2009 for arms dealing and links to North Korea’s missile programs.

Cowie responded that he had left banking in 2011 to focus on other business commitments. In a letter, his lawyer said: “My client was a shareholder in DCB Finance Ltd, a company set up to enable DCB to continue to operate after correspondent banks had closed its accounts. The name was specifically chosen in order to reflect the historical connection with DCB. DCB Finance Ltd was used for legitimate business. My client was, and still is to this day, unaware of any transactions being made with any sanctioned organisation or for any sanctioned purpose, during his tenure.” [The Guardian]

Cowie is saying, in other words, that he didn’t really know who his own company was dealing with, which sounds (to steal a line from a friend) like something Alfred E. Neuman used to say. After all, as the American Bar Association reminds us, Know Your Customer and due diligence obligations have been “a basic tenet of [anti-money laundering] risk management for a very long time.” Treasury’s Financial Crimes Enforcement Network has been publishing guidance on those obligations, including in the specific context of North Korea, for at least a decadeFor years, the Financial Action Task Force warned bankers and regulators around the world to take “countermeasures” against North Korea’s money laundering risks. Certainly if Cowie continued to deal with Tanchon or Kim Chol-sam after 2009, he was on notice.

Cowie’s definition of “legitimate” couldn’t have comported with how most newspaper readers defined the term. Unfortunately, at the height of Cowie’s fame, few newspaper writers did much digging into his claims. Neither, apparently, did Mossack Fonseca. If Mossack Fonseca was slow on the uptake, so was The Guardian and most of the press. The news for DCB and Cowie is damning for sure, but the real bombshell here is three years old, and it’s Treasury that dropped it. Even this blog was on hiatus at the time (I was busy with other things).

So, assuming that DCB Finance facilitated North Korea’s arms-dealing, was it illegal? Actually, maybe not, depending on the timing. Although the BDA action of 2005 and Treasury’s warnings to other banks had a major effect on North Korean finance, they weren’t technically “sanctions,” but the enforcement of money laundering laws that apply to everyone. During the period between 1995 and 2010, when Cowie says he left the banking business, Treasury’s North Korea-specific sanctions regulations and designations were particularly weak. The Trading With the Enemy Act sanctions in effect against North Korea until 2008 only prohibited arms sales to North Korea. North Korea was listed as a state sponsor of terrorism, which meant that any dollar-denominated transaction with its government required a license from the Office of Foreign Assets Control, but it’s not clear that the transactions DCB Finance allegedly handled were denominated in dollars. Executive Order 13551 first banned transactions incident to North Korean arms dealing in 2010. Presumably, if Treasury was interested in prosecuting DCB Bank, DCB Finance, or Cowie, it would have done so by now.

So, what did we learn from all of this? First, when people doing business with North Korea protest that their business is legitimate, take those claims with a very large grain of salt. Second, engagement never changes Pyongyang, but it often changes the people who engage with it, and very seldom for the better.

Continue Reading

Radio Free Asia launches investigation of N. Korean forced labor

Radio Free Asia has launched an investigative reporting project into the use of North Korean labor on three continents, and the dangers those joint ventures pose not only to the North Korean workers, but to their customers abroad. RFA also published this infographic about where the North Korean workers are, doing everything from logging and construction to staffing medical clinics. No doubt, the conditions in which the North Korean workers labor also vary, which causes some to criticize the description of these workers as “slave” or “forced” laborers. But just try to rationalize this:

Desperate for hard currency, North Korea has been sending tens of thousands of its people abroad to earn cash for the state, dispatching lumberjacks to Russia, construction workers to the Middle East and medics to countries in Africa. Tanzania hosts as many as 12 medical clinics, including four in the capital Dar es-Salaam, that remit about $1 million a year to Pyongyang. The clinics, however, face growing criticism among Tanzanians for doctors who are unqualified and can’t communicate with patients, misdiagnosis of illnesses, unsanitary conditions and poorly labeled medicines that contain toxic metals. [Radio Free Asia]

Throughout history — including in the American South — slaves have always experienced variable degrees of brutality. Nat Turner and Sally Hemmings lived in different circumstances, but the forced servitude of both was disgraceful. The fact that the conditions of servitude for some North Koreans are relatively benign when compared to the conditions experienced by others (at home, or in Siberia) in no way excuses the evil of imposing the terms or conditions of labor on another person, regardless of her will.

The use of North Koreans as doctors and nurses in Africa is an aspect of the story I did not know much about. Given the deplorable state of North Korea’s own health care system, it seems criminal of Pyongyang to send its doctors and nurses abroad to earn cash, until you read the reports of the quack cures the North Koreans are foisting on their African patients. Viewed in that light, the quality of the services North Koreans are denied seems dubious. The crime is shifted to a different class of victims instead.

Legally, each of these reports is pregnant with legal significance. Any of these reports would be “credible information” that would trigger a mandatory investigation under section 102(a) of the North Korea Sanctions and Policy Enhancement Act. Under section 104(a)(5), persons who knowingly engage in, are responsible for, or facilitate “serious human rights abuses by the Government of North Korea” are subject to mandatory sanctions, including the blocking of their assets and the denial of visas to enter the United States. Executive Order 13722, which implements the new law, blocks the dollars of persons determined by the Secretary of the Treasury to have “engaged in, facilitated, or been responsible for the exportation of workers from North Korea, including exportation to generate revenue for the Government of North Korea or the Workers’ Party of Korea.” Note that the executive order does not specify “forced” or “slave” labor.

This means that any of these enterprises that run transactions through the dollar system are subject to severe sanctions.

Continue Reading

European Union publishes new N. Korea sanctions regulation to implement UNSCR 2270

I’ve previously written about the importance of Europe’s role in enforcing U.N. sanctions against North Korea. On March 5th, the EU designated 16 people and 12 entities under its existing North Korea sanctions program. Yesterday, it finally announced the publication of a new “restrictive measures” regulation to implement UNSCR 2270. Based on the summary, the new regulation follows last month’s Security Council resolution right down the line.

The measures extend, inter alia, export and import prohibitions to any item (except food or medicine) that could contribute to the development of the operational capabilities of the DPRK’s armed forces. Member states will be required to inspect all cargoes to and from the DPRK on their territories, to ban DPRK chartering of vessels or aircraft and to de-register vessels. They will have to ban flights carrying prohibited items and port calls of vessels engaged in violation of the relevant UNSC resolutions. They will also be required to ban exports from the DPRK of certain mineral products (including coal, iron and gold) and exports to the DPRK of aviation fuel. Member states will be required to expel DPRK representatives and third country nationals involved in the DPRK’s illicit programmes (as identified by the relevant UNSC resolutions).

Moreover, additional financial measures being introduced include:

  • an asset freeze on government entities associated with the DPRK’s nuclear or ballistic missile programmes or other activities prohibited by UNSC resolutions

  • an obligation to close:

    • existing branches, subsidiaries or representative offices of DPRK banks;
    • existing joint ventures, ownership interests and correspondent banking relationships with DPRK banks; and
    • existing branches, subsidiaries or banking accounts in DPRK if they could contribute to DPRK’s illicit programme
  • a ban on private financial support for trade if such financial support could contribute to DPRK’s illicit programmes

The new regulation will become effective when it’s officially published in the EU’s official journal later today. The restrictions on exports and the requirement to inspect all cargo going to North Korea should also limit the supply of European luxury goods to North Korea, although some will invariably continue to leak in through China. It will be interesting to see if the new regulation also expands the definition of “luxury goods.”

The provisions that bear the most careful watching, however, are those that affect finance. The termination of correspondent relationships and the closing of certain accounts should trap large sums of money in European banks. If the dollar is by far the world’s most important reserve currency, the Euro is the second-most important, so this action closes off the most important remaining avenue of escape for those funds.

The Wall Street Journal also quotes EU foreign policy chief Federica Mogherini as saying that the EU “is still considering additional EU-only sanctions on top of the U.N. measures,” and cites unnamed officials as saying that “some preparatory work has started on this.” Previously, the EU has gone beyond U.N. requirements by blocking North Korea’s national insurance company, which is suspected of defrauding European insurers out of millions of dollars.

One important measure the EU could take would be to expel North Korean forced laborers. This working paper, by the North Korean Alliance for Human Rights in North Korea, documents the surprisingly widespread use of North Korean labor by EU nations, and notes that North Korean laborers in the EU earn more cash for Pyongyang per capita than those in China, Africa, or the Middle East. Two of the worst offenders are Malta and Poland.

The EU could also ban the sale of equipment that can be used for surveilliance or censorship, or by the security forces for political repression. According to multiple reports in the Daily NK, a German company is supplying North Korea with equipment to track down illegal cell phones. The EU should also implement the U.N. Commission of Inquiry’s recommendations by freezing any assets owned or controlled by individual North Korean officials found to be responsible for human rights violations.

The single most important step Europe could take would be to cut off North Korea’s access to the SWIFT financial messaging service. In the case of Iran sanctions, that measure was one of the most effective in putting financial pressure on that regime.

The new regulation will not completely terminate North Korea’s financial shenanigans on the continent, however. For example, Switzerland and Liechtenstein, two states where large North Korean slush funds are reportedly held, aren’t EU members. North Korean prison camp survivors have called on Switzerland to freeze North Korean assets. The new EU regulation should increase pressure on both states to fully implement UNSCR 2270, and both the U.S. and South Korea can add their own diplomatic voices to that pressure.

Continue Reading

N. Korea’s restaurants, rumored to be involved in money laundering, are closing down.

North Korea’s overseas restaurants are not a significant percentage of its GNP,* but they are an important source of hard currency for Kim Jong-un. As early as 2008, one writer estimated that each restaurant remitted between $100,000 and $300,000 to Pyongyang each year. As of February of this year, there were 130 of them earning $100 million annually. Since then, the South Korean government has told its citizens to stop patronizing the restaurants, and business has fallen dramatically:

On some other night, when the house is packed and the soju flowing, this might set off a drunken singalong, with tables of South Korean tourists clapping wholesomely in the front and smoky huddles of their expat businessmen compatriots leering not-so-wholesomely from the back.

But not tonight.

In the northeast corner of Beijing, the Okryugwan restaurant is feeling the far-flung effects of the latest standoff on the Korean Peninsula. Since the North conducted a nuclear test in January and went ahead with a rocket launch earlier this month, Seoul has instructed its citizens to not patronize the government-affiliated North Korean restaurants that usually pull in a steady stream of curious South Korean travelers, and their precious foreign currency.

“We usually have many tables of South Korean tourists, but business is not good,” North Korean waitress Han Ahn Min said as she poured tea at one of just a handful of occupied tables in a high-ceilinged dining hall capable of welcoming visitors by the busload. [AP]

The Daily NK has reported that the regime had stopped paying the waitresses their salaries.

On the 22, a source close to the issue in China informed Daily NK that female employees at North Korean restaurants were regularly receiving their pay until February (handed out by North Korean managers overseeing each establishment), even if the amounts were meager. However, in February these paychecks failed to materialize, and the outlook for March is also grim.

An additional North Korean source currently residing in China corroborated this news.

“For these female workers from Pyongyang, who scrape by and carefully save every penny, not receiving a month’s pay is a serious and heart-wrenching affair. Unable to voice their complaints over this injustice, these women can only comfort each other during the dark nights before they sleep at night far from home, with tears in their eyes as they think of their parents,” she explained. [Daily NK]

But the greater significance of the restaurants is almost certainly their use for laundering money. The restaurants are a stream of “clean” cash for commingling with the illicit funds North Korea’s diplomats and laborers earn abroad. Commingling, the mixing of legally and illegally derived funds, is the essence of what the Men in Blue call “money laundering.” The restaurants’ inflated prices are one indication of this function. Another is the fact they are controlled by Bureau 39, North Korea’s overseas money laundering agency, which is designated and blocked by both the U.S. Treasury Department* and the U.N. Security Council.

So the news that North Korea’s restaurants in China are closing down is more important and better news than Kim Jong-un’s take from selling naengmyeon or soju. Adam Cathcart even posts this picture of a closed-down restaurant on his Twitter feed.

The closure of the restaurants will likely complicate North Korea’s movement of cash from its illegal enterprises to the Chinese banks that still take its deposits.

One question still gnaws at me: if North Korean restaurants abroad are likely fronts for money laundering, handle revenue from other enterprises, and have a utility beyond their own profitability, a simple drop-off in business wouldn’t be enough to shut them down. I wonder if there’s another reason why the restaurants suddenly became unviable. I wonder if it might have something to do with their bank accounts being frozen. Given the restaurants’ reported control by Bureau 39, banks would be taking a very high legal risk by continuing to service those accounts. Indeed, the Daily NK reports that the regime has blamed sanctions for the closure of the restaurants. It will be worth watching whether banks in Europe, Southeast Asia, and other places follow this trend.

~   ~   ~

* Previously said “GDP,” since corrected, because Curtis.

* Previously said “United Nations,” since corrected.

Continue Reading

Daily NK: China not taking North Korean coal shipments

Last week, I posted about the conflicting reports about China’s compliance with the new sanctions on North Korea. Just after I posted that, I noticed that the Daily NK had also added a report of its own, suggesting that amid a regime mobilization to expand coal production, coal exports were being refused by Chinese ports.

“Recently, we’ve seen a full ban on our [North Korean] ships at the Port of Yingkou in Liaoning Province, where coal trade had been most active with China,” a source from Pyongyang told Daily NK in a telephone conversation on Tuesday. “We’ve also received notice that the Port of Rizhao in Shandong Province will also gradually restrict entry.”

An additional source in the capital corroborated this news.

“The news suddenly arrived as a unilateral announcement from China two days ago, leading to chaos at the commerce ministry,” the source explained. “Cadres have been unable to decide whether to turn around all of the other ships at sea, on top of the coal and iron ore vessels that are still awaiting orders after being refused port entry at Yingkou.” [Daily NK]

Contrary to the predictions of sanctions skeptics, the bad economic news is not causing people to rally to the regime.

This setback was reported to the Central Party, but trade officials have instead chosen to admonish others for not taking action in advance to mitigate the problem rather than consider potential solutions. There has also been indirect criticism of the nuclear test and long-range rocket launch, with questions as to why they need to “clean up a mess made by others,” he reported.

Some cadres are reportedly expressing their concerns over the financial implications of these events, exclaiming, “If we can’t export coal any more, we’re done for.” The question of who will be held responsible for the export blockage also has people on edge, with some reminded of Jang Song Thaek shouldering the blame for the country’s failed currency reform and the stalling of construction for the 100,000 homes project in Pyongyang.

The source added that coal workers are also troubled by the export block after having been excited about the prospect of receiving increased rations as a reward for the “70-day battle” production surge. “Cutting off ration supplies [received from China with remuneration for coal] will negatively affect workers and result in diminished output, and by extension impact power plants, the industrial sector, and other aspects of people’s lives. This may in turn ignite a good deal of anger within the public,” he speculated. [Daily NK]

The export ban will affect the operation of the mines in due course. Last year, mine workers weathered another slowdown in Chinese imports because most of the miners’ wives trade in the markets.There will also be many, varied, and complex effects on North Korea’s industrial capacity, some of them completely desirable, and others that may cause the U.S. and China to agree that a use of the “livelihood” loophole in UNSCR 2270 is appropriate.

There will be impacts on the power supply, which has long been spotty, even in Pyongyang where it is disproportionately allocated. No doubt, this will be a good year for the solar panel trade. One positive impact of the last decades of unreliable government services is that North Korea’s poor have learned to be resilient, resourceful, and independent of the state. That’s why, despite last year’s drought and dire predictions of a new famine, North Koreans managed to avert the worst, probably through private agriculture.

It won’t be possible to completely shield the North Korean people from the impact of sanctions, but it is our obligation to mitigate it as much as we can, while telling the North Korean people the real reason why they suffer. Sadly, some short-term hardship may be North Koreans’ only way to escape a future filled with starvation, oppression, and war. The only escape from that future is to break either the regime, or its will to resist change, peace, and openness.

Continue Reading

China’s reaction to North Korea shipping sanctions shows strain, confusion

Two weeks ago, I surveyed the evidence of China’s compliance with new U.N. sanctions and found  mixed, yet hopeful signs.” One area in which the signs has seemed especially hopeful was the enforcement of shipping sanctions. The Philippines had already seized one designated ship, the Sierra Leone-flagged M/V Jin Teng, and detained another, the non-designated, North Korean-crewed, Tuvalu-flagged tanker M/V Theresa Begonia. There was also some evidence that Chinese ports were complying, but we’ll get to that later. 

Under the resolutions, all member states are required to seize designated ships, like the Jin Teng, but the reasons for the detention of the Theresa Begonia aren’t clear. A report that an unnamed U.N. member state had cancelled its registrations of North Korean ships could be a clue. If the state in question is Tuvalu, the ship might have arrived in port without a valid registration. North Korea’s reflaggers of choice have been Mongolia, Cambodia, Liberia, Sierra Leone, Tuvalu, and Kiribati. 

Since then, however, China has pushed the U.S. into supporting the removal by the U.N. of four ships’ designations — the Jin Teng and three other North Korean ships — on the basis that China “discovered” that they were not owned or controlled by U.N.-designated Ocean Maritime Management Company at all. It’s worrying that this decision doesn’t appear to be based on any finding of the Panel of Experts, but on a unilateral conclusion by the Chinese, who pressured the U.S. to accede.

The U.S. did not accede easily. Reuters obtained several diplomatic messages between U.S. and Chinese diplomats, revealing that China threatened to hold up reauthorization of the U.N. Panel of Experts unless the U.S. agreed to removing the designations. This led to what Reuters called a “frustrated back and forth between Washington and Beijing,” in which Samantha Power accused the Chinese of “blackmail.”

The removal of the Jin Teng‘s designation presumably means that Filipino authorities will allow the ship to depart with its crew after the mandatory inspections are completed. Reuters had previously reported that a U.N. inspection team was on the way to the Philippines to inspect the Jin Teng.

It bears careful watching just how often the U.S. will be willing to cave to Chinese demands like these. On balance, it’s probably better to recognize and adjudicate exemptions, designations, and removals of designations than to just go back to what we all used to do — ignore China’s cheating. But there is also a great deal of confusion over how Chinese ports are enforcing shipping sanctions. According to a detailed report in the Asahi Shimbun, the ports of Tainjin, Yingkou, Rizhao, Penglai, Weifang, and Nantong have all barred North Korean ships from entering.

Sources close to Chinese port authorities and trading firms said the port authority in Yingkou, Liaoning province, initially prohibited the entry of all North Korean vessels to Yingkou port based on verbal instructions from the nation’s maritime affairs authority on March 16.

In addition, local port authorities had imposed a ban on entry by North Korean ships at the ports of Rizhao, Penglai and Weifang in Shandong province as well as Nantong port in Jiangsu province and Tianjin port as of March 21.

The five newly-added ports are all major gateways for China’s imports of natural resources from North Korea, while Yingkou port serves as a major hub for coal imports from the belligerent neighbor.

Port authority sources at Penglai and Weifang ports acknowledged that entry by North Korean vessels is prohibited.

“We received a verbal order out of the blue from the customs authority on March 19, and all North Korean vessels are anchored outside the port awaiting permission to enter,” said an official of the Penglai port authority on March 21. [Asahi Shimbun]

Note well that the sources quoted are all local port authorities and traders, rather than national authorities.

According to officials at trading firms involved in China-North Korea commerce, China’s maritime affairs authority has demanded that the operators of North Korean freighters stranded outside the six ports resubmit documents that are required for a port entry application. [Asahi Shimbun]

As a result, North Korean freighters are reportedly hovering offshore, waiting for the Chinese port authorities to review their documents. If the documents check out, they may be allowed to dock. The delays alone will be disruptive to Pyongyang’s finances. Increased inspections could also have a strong impact on North Korea’s lucrative counterfeit cigarette smuggling industry. NK News adds:

While NK News was unable to get confirmation from port authorities at the time of writing, live shipping data shows irregular groupings of North Korean vessels in anchorage off and in close proximity to the listed ports, a possible indicator that the measures are being implemented.

A group of 10 North Korean flagged ships is clustered around Longkou harbour, which is only 40km from Penglai, with a further five North Korean affiliated ships among them. The North Korean flagged Tong Chon is also in close proximity and is around 9km from the port of Penglai.

Four North Korean flagged vessels are also near Bayuqaun, which is within 50km of Yingkou, and are joined by a further eight North Korean affiliated vessels sailing under foreign flags of convenience.

According to the website of China’s Maritime Safety Administration, Yingkou’s port authority also has jurisdiction over Bayuquan port.

“There are an unusually large number of North Korea linked ships near Bayuquan and Longkou, which indicates they could have been rerouted from other ports,” Leo Byrne, Director of Data and Analytics at NK News said.

Another grouping of five DPRK flagged vessels has been seen near the port of Lanshan within the last 24 hours. Lanshan is 35km from the port of Rizaho, which is also on the alleged list of ports banning North Korean vessels from entering. Several of the North Korean flagged ships have since headed away from the anchorages of Lanshan and Rizaho.

“It’s worth noting that if accurate, the Chinese embargo would go well beyond what’s required in Resolution 2270,” Byrne said.

“But questions remain, it’s unclear why North Korean ships would be barred from those ports, yet not Dalian – the most visited port of call for North Korean ships in the area.” [NK News, Hamish Macdonald]

So what do the national authorities say? Beijing has denied implementing “a blanket ban” on North Korean ships, saying, “The reports have no truth,” and that the media should “not invent stories.”

The accusation is preposterous, typical of China’s hostility toward foreign media, and revealing of the pressure China is feeling. The Asahi and NK News reports are well supported and credible. They aren’t inventions, but they are inconsistent with other reports. Last week, for example, Reuters reported that China had banned only U.N. designated ships, and Yonhap reported that the port of Dandong had turned away a North Korean ship “as part of a broader ban on North Korean ships.” Adding to the confusion is the fact that North Korean ships have been turning off their transponders while at sea to avoid tracking.

As I’ve noted before, a complete embargo is more than either U.N. or U.S. sanctions require. U.N. sanctions bar coal imports except for “livelihood” reasons (whatever that means in practice) and require member states to seize ships owned or controlled by designated entities, such as Ocean Maritime Management and the Reconnaissance General Bureau.

U.S. sanctions authorize U.S. Customs and Border Protection to raise inspection requirements for cargo coming from ports and airports where “inspections of ships, aircraft, and conveyances originating in North Korea, carrying North Korean property, or operated by the Government of North Korea are not sufficient to effectively prevent the facilitation of any of the activities described in section 104(a).” Those activities include arms smuggling and WMD proliferation. They also mandate secondary sanctions against Chinese buyers of North Korean coal and other minerals.

In other words, U.N. and (especially) U.S. sanctions directly threaten the interests of local Chinese ports and traders, which is to maintain unfettered access to U.S. markets and the dollar system. Given the choice of trading with North Korea and trading with the U.S., some ports and shippers may — I stress, may — be choosing the latter. That represents a sharp divergence of the ports’ interests from those of Beijing, which is expending diplomatic capital to limit the harm sanctions do to Pyongyang.

This isn’t the only possibility here. The simplest is that Chinese ports and shippers are themselves getting conflicting and confusing instructions from Beijing. There is also some evidence that undercuts this theory. As recently as last week, some Chinese buyers were still accepting North Korean coal, perhaps believing that the “livelihood” loophole applied to their purchases (but see this). And the reported enforcement of cargo inspections at land border crossing almost certainly was based on instructions from Beijing.

If Beijing is now in a contest with Washington to influence the conduct of ports in northeastern China, then Kim Jong-un has indeed become a serious “strategic liability” for Beijing, just as its economy is slowing. It shows. For example, I’ve never seen the nationalist, anti-American Global Times show so much irritation and pessimism about North Korea. Read that last link. It’s precisely the kind of sentiment the U.S. should be encouraging in China. When North Korea becomes enough of a liability for China, China will rethink its interests, and maybe diplomacy will stand a chance.

Continue Reading

North Korean diplomats behaving badly

If you’re a North Korean diplomat, a good general rule is that all publicity is bad publicity. Over the last two weeks, North Koreans, most of them diplomats or former diplomats, have attracted much publicity of the kind they couldn’t have wanted.

The Chinese government reports that “a North Korean consular official” killed two Chinese citizens while driving home drunk in Dandong last month. The North Korean diplomat was on his way home from an “event celebrating North Korea’s launch of a long-range rocket.” So, that’s another way post-launch events may not have worked out quite as His Porcine Majesty might have hoped.

Also this week, Tanzanian authorities expelled a former North Korean diplomat, Kang Sungguk, for using forged passports and for suspected involvement in various unspecified illegal activities. Prior to 2001, Kang had been an “economic councilor” at the North Korean embassy in Dar-as-Salam. Since then, he had been “a prominent North Korean businessman with supposed diplomatic status who ran several businesses from his base in Guangzhou, China.” It’s always China.

The acting Commissioner of Immigration (Border Management and Control), Wilson Bambaganya, said that immigration officers with support from security officers had been watching Kang closely for sometime and observed his various violations of both national and international laws.

“We (Immigration) gathered information about his habit of changing passports with fake names, different dates of births and numbers,” Bambaganya said. “We asked ourselves what his motives were for constantly forging those details, and we realised that for a person of his status to do such things, he must be engaged in some illegal business, although we couldn’t establish exactly what business.”
When Kang was recently interrogated by immigration officers, he failed to produce any traceable legal business links, which only served to raise more suspicions about him, the senior immigration department official said.

“We even tried to communicate with his country’s embassy here in Tanzania, but they also said they had no proper information about Kang and his current businesses. So we finally decided to expel him via a PI note,” Bambaganya explained.

He added: “Even if he (Kang) was a genuine businessman in China or anywhere else, here in our country we have concluded that he was dealing in illegal business activities.” [IPP Media, via The Guardian]

Last week, Sri Lankan authorities detained two North Koreans for carrying $150,000 in cash. That’s U.S. dollars, in case it matters to you which convertible currency discriminating North Korean money launderers prefer. The two — contra the post title, these two probably were not diplomats — were on their way from Oman to China carrying home “wages earned by themselves as well as other co-workers at construction sites in Oman.” Like many governments, Sri Lanka requires persons carrying more than $10,000 in cash to declare it to the authorities.

In China, the two would presumably have deposited the cash into a bank that would have been willing to scrub the subsequent wire transfers of all references to a North Korean affiliation. Not that any Chinese bank would do thatNorth Korea has since demanded the release of the men and the return of the money. Because the money consists of proceeds of North Korean labor exports, it’s subject to blocking under Executive Order 13722, but not under U.N. Security Council Resolution 2270 (unless, of course, it’s associated with WMD programs, weapons trafficking, or luxury goods imports).

North Korean consulates are expected to be self-financing, so North Korean diplomats often find themselves placed under arrest in far-flung, exotic locations, like Mozambique, were North Korean diplomat Pak Chol-jun was arrested in May of last year with ten pounds of rhino horn worth $99,300. South Africa later expelled Pak, who was posted at the North Korean embassy in Pretoria.

Just over a year ago, Son Young-nam, the first secretary of the North Korean embassy in Dhaka was arrested by Bangladeshi authorities carrying 59 pounds of gold, worth $1.4 million, which he hadn’t declared to customs. North Korea later apologized, and Bangladesh expelled the diplomat. Gold smuggling is a traditional method for North Korea to evade sanctions and money laundering crackdowns. UNSCR 2270 requires member states to “prohibit the procurement of” gold by North Koreans.

Also on the slave labor front, the Daily NK has an exposé of the role of North Korean consulates in China in procuring human chattels for rental.

“Starting from about a few years ago, officials in the North Korean consulates in China started to provide young female workers to ethnic Korean owned toll processing businesses for a fee. Recently, one such consulate has been receiving a 200-Yuan per month fee in similar transactions with a wig-making factory. The fee in this case is transferred from the worker’s account in accordance with the contract,” a North Korean source currently residing in China reported to Daily NK on March 18.

This development was corroborated by an additional source close to the issue in China.

The brokering of these deals originated in Shenyang, where ethnic Korean managers of seafood processing and packaging, textiles manufacturing, and wig and artificial eyebrow making factories started hiring young, cheap female workers from Pyongyang. The number of Chinese businesses looking to hire young, pretty, 20-something natives of Pyongyang is so large that the consulates have stepped in to facilitate.

Demand from Chinese businesses in the Northeast cities of Jilin, Heilongjiang, and Liaoning quickly built on the momentum, meeting supply from North Korean authorities looking to export labor for a profit. There is a heavy emphasis on beautiful young girls from big cities like the capital. Even now, in the face of strict primary and secondary sanctions targeting the North Korean regime, the demand for young North Korean female workers has not abated. [Daily NK]

If a plain-looking woman can pack seafood or knit a wig just as efficiently as a pretty one can, it’s unclear why the Chinese employers put such a premium on appearance unless they intend to exploit the women sexually. This goes unstated in the article, but previous reports have alleged that North Korean managers had pimped out female North Korean workers in a food processing plant in Donggang.

Finally, a number of sources are reporting that two countries are about to expel North Korean diplomats who’ve been designated by the U.N. Security Council. North Korea has replaced its Ambassador to Burma after the Security Council designated the incumbent, Kim Sok-chol. The U.S. Treasury Department designated Kim last November for activities on behalf of the Korea Mining Development Trading Corporation, or KOMID, a trading company designated for proliferation.

Egypt is also said to be about to expel North Korean Ambassador Pak Chun-il after his designation. Pak allegedly “played a key role in establishing an Egyptian branch of … KOMID,” and was involved in weapons smuggling and other illegal activities. Egypt has recently come up in multiple reports on North Korea sanctions violations, and was mentioned in the most recent U.N. Panel of Experts report. Last November, the U.S. Treasury Department designated Eko Development and Investment Company, a/k/a, Eko Development and Investment Food Company, a/k/a Eko Import and Export Company, a North Korean trading company based in Cairo, for being a KOMID front. Treasury also designated Egypt-based Ri Won Ho last week, when it first published Executive Order 13722. Treasury describes Ri as “an official of the DPRK’s Ministry of State Security based in Egypt” who was working for KOMID.

Last month, investigative journalist George Turner revealed that Egyptian-U.S. dual national Naguib Sawaris of Orascom/Koryolink infamy was in partnership with North Korea’s Foreign Trade Bank, designated by Treasury for proliferation, through the Orascom-linked, North Korean-chartered Orabank.

Continue Reading

China & Russia alarmed about secondary sanctions, because sanctions never work.

After years of extensive, flagrant, and well-documented violations of U.N. sanctions against North Korea, China is finally reaping the consequences. Americans don’t agree on much anymore, but Beijing’s cheating has achieved a political impossibility — it has united 418 representatives, 96 senators, The New York Times, The Washington Post, and the mainstream of North Korea watchers in support of secondary sanctions on the (mostly Chinese) banks and businesses that are propping up Kim Jong-un financially. That policy is now expressed in law, and the U.S. Treasury Department has taken its first steps toward aggressive implementation.

Not surprisingly, China isn’t happy about this.

The so-called secondary sanctions will compel banks to freeze the assets of anyone who breaks the blockade, potentially squeezing out North Korea’s business ties, including those with China.

Asked whether China was worried the sanctions could affect “normal” business links between Chinese banks and North Korea, Foreign Ministry spokesman Lu Kang said this was something China was “paying attention to”.

“First, as I’ve said many times before, China always opposes any country imposing unilateral sanctions,” Lu told a daily news briefing in Beijing.

“Second, under the present situation where the situation on the Korean Peninsula is complex and sensitive, we oppose any moves that may further worsen tensions there.”

“Third, we have clearly stressed many times in meetings with the relevant county, any so-called unilateral sanctions imposed by any country should neither affect nor harm China’s reasonable interests.” [Reuters]

So far, Treasury hasn’t frozen any Chinese and Russian assets, but it’s delivering a message to Chinese banks to stay away from North Korea, and the banks are listening. Even before the U.N. Security Council approved UNSCR 2270, some Chinese banks and businesses began freezing North Korean assets.

“Any so-called unilateral sanctions imposed by any country should neither affect nor harm China’s reasonable interests,” Lu warned. He said Beijing has stressed this point many times.

The new sanctions “up the ante quite significantly,” said Elizabeth Rosenberg, a sanctions expert at the Center for a New American Security, the new sanctions “up the ante quite significantly.”

“It does impose something akin to a full embargo on persons who do business with North Korea,” she said.

Victor Cha, senior fellow to the Bush Institute on North Korea and director of Asian studies at Georgetown University, said these comments show Beijing is concerned about getting caught in the sanction net. In an interview with Foreign Policy, he said China was especially worried about the slave-labor provisions.

“China imports North Korean slave labor,” he said. “That’s the piece the Chinese don’t like the most, the secondary sanctioning.”

“This is a grade up from the level of sanctions that had been in place before,” Cha added. [Foreign Policy, David Francis]

Russia, too, has actively aided North Korea’s violations of U.N. sanctions, and it’s also upset about “unilateral” U.S. sanctions. Its propaganda machine is churning out tired arguments that sanctions will only hurt the North Korean people, although I don’t recall Russian propaganda outlets complaining that North Korea’s last long-range missile test cost enough to fund World Food Program operations in North Korea for 15 years.

Despite Moscow’s ambivalence about sanctioning Pyongyang, Gazprom just cut its ties to North Korea. Oddly enough, the U.N. sanctions don’t even require this. Sure, it’s possible that Vladimir Putin has had a change of heart and decided to pressure Kim Jong-un, but it seems more likely that Gazprom is concerned about the legal risks from Treasury’s sectoral sanctions on North Korea’s energy industry.

The reports on China’s compliance with the sanctions continue to be mixed. Defense Secretary Ashton Carter says, “China could do much more than it has to get North Korea to ‘stop provocations,’” while a senior State Department official recently told the Senate Foreign Relations Committee that China was “ready to work with us on detailed implementation and consultation on a range of issues.” Both of those things could be true, I suppose, but they yield different headlines.

Until recently, cargo had transited the land border between China and North Korea more-or-less unimpeded, but now, according to both Yonhap and the Chosun Ilbo, China has stepped up inspections at its border crossings, too. With respect to maritime cargo, Yonhap cites South Korean government sources who claim that Beijing has directed local governments to bar the 31 U.N.-designated North Korean ships from its ports. The Asahi Shimbun reports that “China has banned the entry of North Korean vessels to Yingkou port in Liaoning province, a major gateway for China’s coal imports” from the North.

As of March 18, two North Korean ships were stranded outside the port, located about 200 kilometers northwest from the border between the two countries. The vessels have reportedly decided to return to North Korea. “China will likely impose a similar embargo at other ports from now on,” a source familiar with the matter told The Asahi Shimbun. [Asahi Shimbun]

Two press reports dated the same day contradict each other about whether China is enforcing the ban on importing North Korean coal. Reuters says that the Chinese government hasn’t told Chinese coal buyers to stop importing North Korean coal; the Joongang Ilbo says it has. To further complicate matters, the U.N. sanctions have a “livelihood” loophole, while U.S. sanctions have much narrower humanitarian exceptions. A reasonable, middle-ground approach that’s completely consistent with both authorities would be to interpret “livelihood” to require payment in food, humanitarian supplies, or donations to the World Food Program or other humanitarian aid programs. It should prohibit payment in gold, dollars, or other convertible currencies.

U.N. sanctions ban mineral imports from North Korea and require member states to seize property of designated entities, including Ocean Maritime Management and the Reconnaissance General Bureau, which also reportedly operates a small fleet of ships . They do not impose a blanket embargo on North Korean trade. U.S. sanctions do not impose a trade embargo, either, but do authorize U.S. Customs to step up inspections of cargo coming from ports that fail to inspect cargo coming from or going to North Korea. This amounts to a secondary sanction.

On the financial front, the Chosun Ilbo quotes “sources” as claiming that the Dandong branch of the U.N.- and U.S.-designated Korea Kwangson Banking Corporation has closed. In 2013, it simply went underground for a while, but this time, it actually appears to have closed. The Chosun also reports that “[a] growing number of North Korean restaurants in northeastern China are closing down.”

Meanwhile, the U.S. and South Korea are meeting this week to “review and discuss ways to maximize pressure on North Korea by effectively applying the three axes of the Security Council resolution, unilateral sanctions imposed by South Korea and the U.S., and pressure by the international community.” In Seoul, Sung Kim, the U.S. representative to the six-party talks, says our government intends to enforce U.N. sanctions with “vigor and energy,” but undercuts that conclusion with this:

Asked if Russian and Chinese companies employing North Korean workers would be subject to the sanctions, Fried said the new executive order provides “very broad authorities” to deal with the issue. “It doesn’t mandate anything in particular, but the authorities are there if needed,” he told reporters, standing next to Sung Kim. [Yonhap]

Ambassador Kim is mistaken. The executive order implements a statute whose sanctions are mandatory. Recently, China has expressed interest in three-way consultations with the U.S. and South Korea about enforcement of the sanctions. Expect those consultations to be tense. The left-leaning Hankyoreh Sinmun reports that the South Korean and Chinese foreign ministers “clashed” over the enforcement of sanctions against the North in a recent phone call. Securing our interests will require firmness and resolve, but it would still be preferable for all involved if China implements the sanctions “voluntarily.”

Continue Reading

Designation of N. Korea’s propaganda agency could mean trouble for AP Pyongyang

Yesterday, a reader — he can identify himself if he chooses to do so — asked me an excellent question that had not occurred to me: what are the implications for the Associated Press’s Pyongyang Bureau of the Treasury Department’s designation of North Korea’s Propaganda and Agitation Department for censorship? From Treasury’s Wednesday press release:

OFAC has designated the Workers’ Party of Korea, Propaganda and Agitation Department (the “Propaganda and Agitation Department”) as an agency, instrumentality, or controlled entity of the Government of North Korea. The Workers’ Party of Korea has full control over the media, which it uses as a tool to control the public. The Propaganda and Agitation Department also engages in or is responsible for censorship by the Government of North Korea. Each month, the Propaganda and Agitation Department delivers party guidelines explaining the narrative that all broadcast and news reporting plans must follow. The North Korean media must follow all Party guidelines. The Propaganda and Agitation Department is also the primary agency responsible for both newspaper and broadcast censorship.

The designation was compelled by NKSPEA § 104(a)(4), which requires the President to designate any person who “knowingly engages in, is responsible for, or facilitates censorship by the Government of North Korea.” Yesterday’s executive order translates this as follows, in section 2(a)(vi):

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

[….]

(vi) to have engaged in, facilitated, or been responsible for censorship by the Government of North Korea or the Workers’ Party of Korea;

Critically, section 2(a)(viii) of the E.O. clarifies that a designation also includes persons who are “owned or controlled by, or … have acted or purported to act for or on behalf of, directly or indirectly, any person” designated under the new executive order. That means that if an entity is designated, its subsidiaries, sub-agencies, officers, and employees are designated, too.

The nexus to AP didn’t occur to me until my reader raised it, but a few moments of googling brought me to this post by Michael Madden at 38 North. Can you read the second box from the left?

madden

How about now?

Screen Shot 2016-03-17 at 9.56.24 PM

Uh-oh. So, if that’s true, the designation of the Propaganda and Agitation Department is also a designation of KCNA, the Korean Central News Agency, the world’s least credible news agency. The same KCNA that AP signed its still-undisclosed MOUs with, establishing its Pyongyang Bureau, and detailing two North Korean minders journalists to report for it.

Well, maybe if the AP has an OFAC license, it can be grandfathered in, right?

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

No such luck, then. But if the AP doesn’t pay KCNA any money, there’s no need for a license. Only, when is the last time North Korea gave anything away for free? Also, the draft AP-KCNA MOU Nate Thayer obtained certainly suggests that money has changed hands. AP denies the authenticity of the draft, but it hasn’t released the signed, final MOU, either. Maybe this would be the time to do that.

Or, maybe one of OFAC’s new general licenses covers AP. I guess if any of them is a fit, it would be General License Number 7, which says:

(2) This general license does not authorize:

(i) The provision, sale, or lease of telecommunications equipment or technology; or

(ii) The provision, sale, or lease of capacity on telecommunications transmission facilities (such as satellite or terrestrial network activity).

Um….

So, to summarize: The executive order blocks persons who are designated for engaging in censorship on behalf of the North Korean government. It also blocks persons or entities who are owned or controlled by those who are designated and blocked. Treasury designated the Propaganda and Agitation Department, and there’s publicly available, credible evidence that the Propaganda and Agitation Department controls KCNA. If that evidence is correct, KCNA is also blocked, and no U.S. person may transfer funds to KCNA. If AP had an OFAC license before yesterday, the new executive order voided it. Also, none of OFAC’s general licenses appear to apply here.

I see three options for the AP: either (1) AP gets an OFAC license (or general license) to keep paying KCNA; (2) North Korea lets AP run a bureau for free of charge; or (3) AP closes its bureau and visits Pyongyang when something interesting happens, just like it did before 2011, when its North Korea coverage was actually better. Also, AP can’t fly any more North Korean “journalists” and propagandists to New York for Kim Il-sung commemorative photo exhibitions. Section 4 of the E.O. bars designated entities’ employees from the United States.

Or, the AP can find a business partner in North Korea that isn’t censoring North Koreans’ rights to free expression, committing crimes against humanity, running guns, or proliferating WMDs. The legal obstacles to this would seem significant, given the breadth of the executive order’s blocking of all interests in property of the government of North Korea.

460. Can U.S. persons do business with entities in North Korea?

No. Unless authorized pursuant to a general or specific license from OFAC and/or BIS, the new E.O. prohibits new investment in North Korea by a U.S. person and the exportation or reexportation, from the United States, or by a U.S. person, of any goods, services, or technology to North Korea. [Published on 03-16-2016]

By now you may be wondering: Josh, are you really devious enough to have induced a nearly unanimous Congress and the President of the United States to get the AP kicked out of Pyongyang because you despise the secrecy and corruption of its dealings with Pyongyang? Tempting as it is to tent my fingers and declare in a serpentine Montgomery Burns hiss, “Now I am become death, the destroyer of worlds,” I swear I’m not. I do admit that when we drafted the legislation that became H.R. 757, it was my idea to make censorship a basis for designation. But although this is a new idea for North Korea — there was no comprehensive North Korea sanctions law before H.R. 757 — it’s not a new idea for Earth. Other states (Iran, Syria) have been sanctioned for censorship before, just like other states (but not North Korea) had been sanctioned for human rights violations before. I just stole the idea from the people who drafted those sanctions, because like most Americans, including at least 418 members of Congress, 96 senators, and the President of the United States, I hate censorship.

But mostly, I assumed OFAC would issue a general license for journalistic activities in North Korea, as it did for Cuba, Iran, and other sanctioned countries. AP has a bureau in Tehran, despite censorship sanctions that apply to Iran’s government. And maybe AP will get one for its Pyongyang bureau, too.

But I’d be lying if I denied that this thought had crossed my mind: if the AP experiment fails because of this, it would be for the good of journalism and humanity, and also, it couldn’t happen to nicer people

Some people will say that the withdrawal of the AP would be a setback for efforts to open up North Korea. Those people will be wrong. It would really be a setback for the co-option and corruption of our news media by genocidal totalitarians who want to buy down press criticism. The AP didn’t change North Korea; North Korea changed the AP. KCNA didn’t start broadcasting truthful and objective news because the AP came to Pyongyang. AP came to Pyongyang and promptly abandoned its principles, submitted to North Korean censorship, and broadcast a stream of North Korean propaganda, fakery, hostage videos, and vox populi interviews with obvious (to me) plants to hundreds of millions of people around the world. And called it “journalism.”

And for what prize did AP sell its soul? Nothing newsworthy that was exclusive, and nothing exclusive that was newsworthy. It failed to confirm or refute credible reports of a famine in South Hwanghae Province in 2012, just an hour’s drive from Pyongyang. Or any of the dozens of rumors of purges or prolonged disappearances by North Korean generals, or of Kim Jong-un himself. Or about North Korea’s deplorable crimes against humanity, as the world’s attention turned to them so belatedly.

Or, that time an apartment building fell down—what, ten minutes away from its bureau?—possibly killing hundreds of people, when the AP never even reported from the scene. A Rimjingang reporter risked his life to take clandestine photos and predict this disaster. NK News found imagery online and published time-lapse photography of the building vanishing from the Pyongyang skyline … from a thousand miles away. And then, last year, when the most famous hotel in Pyongyang caught fire, the AP, just ….

shrug

Journalism is about asking uncomfortable questions, digging for the truth and telling it, and unmasking lies. Whatever the AP is doing in Pyongyang, it isn’t journalism. That’s why OFAC could grant AP a license, but shouldn’t. It’s why if the AP has any shame, it won’t even ask for one. It will silently acknowledge what the rest of us have said for years, collect as much of its dignity and its equipment it can, and drive them to back across the DMZ to Seoul.

~   ~   ~

Update: Oh, and the Propaganda and Agitation Department is headed by Kim Jong-un’s sister, Kim Yo-jong, whom some Korea-watchers expected to be designated individually (she wasn’t).

Continue Reading

U.S. will announce new North Korea sanctions as early as this week.

At this event at the Heritage Foundation yesterday, I emphasized that U.S. and U.N. sanctions are mutually complementary, and that for the U.N. sanctions to work, the U.S. must show its determination to back them with the new authorities in H.R. 757, and by harnessing the power of the dollar.

The signs I’m seeing this week all suggest that the Obama Administration finally gets this. On Monday, President Obama said “that effective enforcement of sanctions on North Korea is one of the key tasks facing the country.” Yesterday, Treasury Secretary Jack Lew briefed a congressional committee on his talks with Chinese officials about enforcing North Korea sanctions, which he described as only “theory until you implement them” through “sustained efforts.” Said Lew, “We know from these sanctions programs that it’s grueling day-to-day work. You’ve got to identify the entities, act against the entities.” Exactly right.

The administration has also begun the hard work of financial diplomacy:

Adam Szubin, acting undersecretary of Treasury of terrorism and financial intelligence, will be in Beijing and Hong Kong on Monday and Tuesday to meet with senior government officials and compliance officers to discuss “a range of issues of mutual interest,” according to an advisory notice from Treasury. It comes in light of recent United Nations and U.S. sanctions on North Korea imposed this month, Treasury said.

“This trip provides an important opportunity for discussions of ways to strengthen U.S.-China coordination in response to North Korea’s destabilizing behavior and to ensure sanctions targeting the North Korean regime are as effective as possible,” the advisory notice said. [WSJ, Risk & Compliance Blog]

According to Channel News Asia, Szubin was to meet “with both government officials and the private sector” with regard to the implementation of both U.N. and U.S. sanctions. Reading the reports together, Szubin appears to have met with officials of certain banks that may hold North Korean assets. It may be a complete coincidence that Szubin visited Hong Kong just as HSBC froze Sam Pa’s accounts, and that HSBC’s top legal officer is Stuart Levey, Szubin’s predecessor. Coincidences do happen.

What we often forget about Treasury’s anti-money laundering effort against North Korea in 2005 and 2006 is that it was more than an action against one dirty bank. It was a broader campaign of financial diplomacy, led by Levey and Daniel Glaser (who is still a senior Treasury Department official today). It looks like we’re starting to see a similar strategy re-emerge now. There’s no question that implementing it will be challenging, based on what the U.N. Panel of Experts told us last week about North Korea’s extensive use of deceptive financial practices.

179. The financial sanctions notwithstanding, the Democratic People’s Republic of Korea continues to gain access to and exploit the global international financial system (including banking and insurance) through reliance on aliases, agents, foreign individuals in multiple jurisdictions, and a long-standing network of front companies and embassy personnel, all of which support illicit activities through banking, bulk cash and trade.

180. The Panel has concerns about banks without adequate banking regulations and the intent to enforce them, especially in countries lacking effective laws and compliance institutions.91 Transactions originating in foreign banks have been processed through corresponding accounts in the United States and Europe. The enhanced due diligence required under the resolutions in the case of the Democratic People’s Republic of Korea is frustrated by the fact that companies linked to the country are often registered by non-nationals, who also use indirect payment methods and circuitous transactions dissociated from the movement of goods or services to conceal their activity.

Cooperation and information sharing among member states will be essential to the success of the strategy.

181. The implementation of financial sanctions becomes more complex as it moves from targeted financial sanctions based on designation lists to activity-based sanctions,92 an endeavour that requires first establishing whether an entity is being controlled or used by a designated entity. The situation is complicated because lists of aliases are never exhaustive, not least because of alternative ways to transliterate Korean names. In addition, the Panel is hampered in updating information on designated entities owing to time lapses in responses to its inquiries, allowing entities more room to continue their activities.

Yonhap also reports that “[t]he U.S. is putting together a package of unilateral sanctions against the North to carry out the Security Council sanctions and the recent congressional legislation tightening the screws on Pyongyang.” Special Envoy for Human Rights Robert King adds, “There is an Executive Order being drafted right now that will deal with these additional sanctions.”

This is welcome, if unexpected. After all, what could a new executive order do that Executive Order 13687, which the administration has barely used, doesn’t already do? (Search “DPRK2.”) I suppose it could further clarify that the President may impose secondary sanctions on persons who engage in arms trafficking with North Korea, insure or reflag its ships, or maintain correspondent accounts for its banks, but H.R. 757 already gives the President the authority to address those things. What would be more useful would be a round of designations under section 104.

Treasury also sorely needs a better set of sanctions regulations to replace the weak ones at 31 C.F.R. Part 510. Instead, it needs something broadly analogous to the more comprehensive regulations that apply to Syria (Part 542), or to Iran (parts 560, 561, and 562). One important part of the new regulation would be its general licenses for humanitarian transactions, subject to the limits of section 208. Another would expansive definitions of “arms or related materiel” (to include technical assistance) and “severe human rights abuses” (to include the use of North Korean forced labor). Let’s hope Treasury is working on that, too, but for now, the good news is that Treasury is working.

Continue Reading

So far, sanctions are cutting off Pyongyang’s cash while sparing North Korea’s poor.

A month after the President signed the North Korea Sanctions and Policy Enhancement Act and two weeks after the U.N. Security Council approved Resolution 2270, enough information has emerged from North Korea to allow for a preliminary assessment of how the sanctions are affecting those they are meant to target, and those they are meant to spare. 

Sanctions have begun to hit their intended targets. The Daily NK reports that the donju, the well-connected traders who help finance Pyongyang’s priorities through trade with China, initially refused to believe (or plan for) the possibility that China would cooperate with sanctions or cut off the coal trade.

Donju are the fulcrum of North Korea’s coal industry, their massive dollar investments propping up foreign-currency earning enterprises tasked with production and export of a product providing North Korea with much-needed cash from a resource-strapped China.

Now, they’re panicking. Those who are “connected to the export of minerals are reeling after hearing that trucks bound for export have been stopped at the customs office in Sinuiju, North Pyongan Province.” 

“On news that coal exports have come to a halt, donju, the chief actors in the country’s coal distribution industry, have stopped investing,” a source from South Pyongan Province told Daily NK on Tuesday. “Some had been thinking of completely giving up their coal handling and storage facilities, but with the new rumors surfacing about exports resuming in a few months, they’re now mulling over whether to reinvest.  [Daily NK]

The regime is worried that “a prolonged strangle on donju investment could eventually challenge the operation of the mines themselves, and by extension stymie a robust source of funds buttressing the leadership.” This could have long-term consequences for the regime’s financial stability. To maintain the confidence of the donju and keep their money flowing, the regime is spreading rumors that the mineral export ban won’t last for long.

At first, market traders also panicked about the sanctions, fearing that they could lose access to their Chinese sources of merchandise. Some citizens also reacted angrily, according to the Daily NK, saying, ‘‘Those cadres don’t care if us normal people starve,” and, “This is what happens when the authorities pursue useless things [nuclear weapons, missiles] and go around bragging about it.”

All true, and actions by the regime may have been greater immediate causes of hardship. In the build-up to the party congress I prefer to call the Ides of May, the state has cracked down on street stalls, restricted the opening hours for markets, and mobilized people for forced labor (as always, exemptions can be had for a price). At first, some traders hoarded food, but the markets have been resilient, and food prices have stabilized:

“There had been concern we would see fewer goods in the market because of UN sanctions, but in reality, there hasn’t been much difference,” a source from North Pyongan Province told Daily NK in a telephone conversation on Sunday. [….]

Further confirming trends previously reported by Daily NK last week, an additional source in North Hamgyong Province reported yesterday that some people had stocked up food worried about sanctions from the UN, but that this hasn’t led to a violent gyration in prices. “Actually, in some regions, we’re seeing prices of certain products drop,” he noted. [Daily NK]

One of the more interesting effects of the sanctions is that in some ways, they’ve actually increased the supply of fuel and food. Prohibitions on coal exports have diverted more coal into the markets, so despite the cold weather in Korea, coal and firewood are cheap. Incredibly for a country that depends on international food aid and has a massive malnutrition problem, North Korea earns hard currency by exporting food, such as seafood and pine mushrooms. Recently, however, China has halted or sharply curtailed maritime traffic from North Korea, so state-controlled trading companies have dumped their wares on the markets, where ordinary North Koreans can buy them.  

“These days items that were previously hard to find because they were earmarked for export are suddenly emerging at the markets,” a source from North Hamgyong Province told Daily NK on Thursday. “The price haven’t gone down enough yet, so you don’t see too many people actually buying them. But you do see flocks of curious people coming out to the markets to see all the delicacies for sale.”

She added, “High-end marine goods like roe, sea urchin eggs, hairy crab, and jumbo shrimp and produce like pine nuts, bracken, and salted pine mushrooms were once considered to be strictly for export, but now they’re easy to find. The number of such products, referred to as ‘sent back goods,’ at Sunam Market and other markets around Chongjin is growing by the day.”

Additional sources in both North and South Hwanghae Provinces reported the same developments in those regions. [….]

Unlike in the past, when they had to pick out the high-end fisheries goods only to hand over to state foreign-currency earning enterprises, now they can sell the entire load to wholesale merchants.

“People are getting their hopes up, saying they might be able to eat some of the highest quality fish for a cheap price, if the UN sanctions continue to carry weight until the summer,” she explained. “They’re actually welcoming the sanctions now saying that for average people they’re bringing good fortune since the number of goods they can get their hands on are continually on the rise.” [Daily NK]

Why would Chinese ports reject these shipments? As immoral as it may be for a hungry nation to export food, neither the U.S. nor U.N. sanctions prohibit food exports (although perhaps they should). One possible explanation is the fact that North Korea’s seafood trade is controlled by none other than the Reconnaissance General Bureau, or RGB, which was just designated by the U.N. under UNSCR 2270.

The bureau owns dozens of ‘trade vessels’ that it uses for missions and also to secure capital. Along main ports near the West and East Sea, the bureau employs cargo ships like Chong Chon Gang that are tens of thousands of tons in size, or ‘trade vessels’ and ‘reefer ships’ such as Nam San 1, 2, Kum Gang San, Mu Bong 1, 2, Po Thong Gang 11, 12, Seung Ri, and Myong Song, which are 800 to 1,000 tons.

North Korea has given vessels like Po Thong Gang and Mu Bong a monopoly on king crabs, shrimp, and conch fishing. Therefore, they’re able to secure some 1,000 tons annually in marine goods and sell them to individual companies in Japan to buy the necessary reconnaissance equipment.

These bureau vessels also conceal their true origins and engage in trade as regular ships. Especially when they are subject to international sanctions and unable to make port entry, they use tactful tricks such as remaining in international waters, where Chongryon (General Association of Korean Residents in Japan, an entity holding strong ties with Pyongyang) companies will come to their aid in trade.

The reconnaissance bureau operates the ‘Birobong Trading Company’ to earn foreign currency, and under this are needlework and garment factories, as well as marine stations for fishing. Also, it uses the Unit 96 equipment supply station in Pyongyang’s Sonkyo District to buy reconnaissance supplies from overseas and then transfer them to subordinate military installations who will then distribute the equipment to each associated military corps. [Daily NK]

In related news, the Donga Ilbo reports that China has also begun to inspect air cargo to and from North Korea. We’ll see how that affects the flow of jewelry and flat-screen TVs into Pyongyang.

Meanwhile, along the border with China, the source of most of the goods sold in the markets, the Daily NK reports that “[d]espite the sanctions that have already kicked in, products from China are still flowing into North Korea.” The Economist also reports that non-sanctioned trade continues to flow freely in both directions — and spins this as a failure of the sanctions. But neither U.S. nor U.N. sanctions attempt to impose a blanket trade embargo. Their objective is to target the currency reserves and income that sustain the regime — to starve it of cash without starving the ordinary people. That is an important distinction that some reporters don’t seem to understand.

The news bears careful watching, but so far, the sanctions show signs of constricting the cash flows that fund the regime, without starving the poor and underprivileged. As Yonhap quotes me today, much could still go wrong, and it’s much too early to declare victory.* The U.S. and U.N. member states have only begun to implement the sanctions. Effective enforcement will require more investigative resources, long months of rat-catching, and sustained political will. The U.S. and its allies must avoid unforced errors that cause adverse humanitarian impacts and deny the effort the political support it will need. There will be more provocations, tests, and war scares. Those things are the inevitable costs of belatedly confronting a problem, rather than applying palliatives to its symptoms. But the signs we’ve seen since January are the signs I’d expect to see at this stage if my theory was right.

~   ~   ~

* Errata: My reference to section 302 was incorrect. It’s actually section 304. Thanks to the encyclopedic mind of Professor Lee for catching this. Also, “His Corpulency” and “His Porcine Majesty” are registered trademarks of OneFreeKorea.

Continue Reading

HSBC freezes “at least” $87M in assets of North Korea-linked Chinese tycoon

You all remember Sam Pa, right? He’s the Chinese ex-spy with a history of dubious business dealings in Africa, for which he was eventually sanctioned by the Treasury Department. Pa’s 88 Queensway group also had dealings with Korea Daesong General Trading Corporation, a financial arm of North Korea’s Bureau 39, for which he was not designated. Today, this happened:

HSBC has frozen more than $87m in accounts linked to a Chinese tycoon behind several multibillion-dollar deals in Africa, while it investigates allegations of “serious financial crimes”.

Accounts controlled by Sam Pa and his business associate Veronica Fung were blocked by the bank a year ago, but its internal investigation is still going, court documents have revealed. Last week, a Hong Kong judge declined Mr Pa and Ms Fung’s request that he order HSBC to release the funds, which are “extremely substantial”, according to the ruling. One account alone contains $87m, the documents show.

Mr Pa has built a network of interests in oil, minerals and infrastructure by cultivating regimes regarded as among the world’s most repressive and corrupt, from Angola to North Korea — often blazing a trail for Chinese state-owned groups. [Financial Times]
The story included no suggestion that the action was related to Pa’s links to North Korea. Oh, and you all remember who’s in charge of compliance at HSBC, right? Good for HSBC.

Continue Reading
1 2 3 21