Archive for Sanctions

H.R. 1771 passes House of Representatives on a voice vote

Chairman Royce (R, Cal.) and Congressman Gerry Connolly (D, Va.) both spoke strongly in favor. No member was opposed, and no member asked for a vote. The “ayes” had it just after 3 p.m.

If there’s any aspect of this that’s bittersweet, it’s that a lot of people who worked hard for this outcome could not be there to see it because the vote was scheduled on such short notice.

Here is the version that passed the House today.

Now, on to the Senate.

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Update: Jean Arthur explains congressional procedure to Jimmy Stewart in the classic “Mr. Smith Goes to Washington.”

I love that clip.

APG needs N. Korea like the Vienna Boys’ Choir needs Jerry Sandusky

The Asia/Pacific Group on Money Laundering describes itself as “an autonomous and collaborative international organisation … consisting of 41 members and a number of international and regional observers [who] are committed to the effective implementation and enforcement of internationally accepted standards against money laundering and the financing of terrorism, in particular the Forty Recommendations of the Financial Action Task Force on Money Laundering (FATF).”

APG has an Associate Membership in FATF, the world’s primary international organization dedicated to fighting money laundering and terrorist financing, and one of the few international organizations in this world that actually works. Although membership in APG does not confer membership in FATF, it does allow the member (or observer) a degree of secondary influence over FATF’s decision-making. And since 2010, FATF has issued statement after statement cautioning banks and finance ministries about North Korea’s “failure to address the significant deficiencies in its anti-money laundering and combating the financing of terrorism (AML/CFT) regime and the serious threat this poses to the integrity of the international financial system.”

No doubt, Kim Jong Un’s financiers in Pyongyang understand the potential consequence of being severed from the global financial system, which is why, since February, Pyongyang has “engaged” with FATF to “discuss” its deficiencies. Presumably, those discussions are nothing more than discussions; otherwise, FATF wouldn’t still be urging Pyongyang to “immediately and meaningfully address” the deficiencies. It also explains why North Korea wants into APG.

As always, the flaw in this engagement is the absence of evidence that Pyongyang has made a decision to abide by the rules and common values of the association engaged with. As U.N. Security Council Resolution 2094 points out, FATF also supports “targeted financial sanctions related to proliferation.” North Korea not only remains constitutionally dedicated to developing nuclear weapons in violation of that resolution (and others), it is also dedicated to financing its WMD programs by any means necessary. We saw this most recently when North Korea lost a World Cup match of sorts — no, not that internet hoax, but the one it played against the Cambodian police.

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Earlier this month, Yonhap reported that Cambodian authorities had arrested 15 North Koreans in Phnom Penh for running illegal gambling websites that were booking bets on the World Cup, which North Korea did not win, and for conducting cyber warfare against South Korea. The report was sourced to “a South Korean government source,” who also said the Cambodians “seized computers and other related equipment.”

It’s a far better thing to seize computers, which talk, than to seize North Koreans, who don’t. The computers could provide valuable information about North Korean bank accounts, financial relationships, co-conspirators, and the currencies and media of exchange used. It might even provide proof to support longstanding suspicions that North Korea’s overseas restaurants, including those in Cambodia, are fronts to launder money from the proceeds of activities like illegal gambling.

If the Treasury Department were at all serious about targeting North Korea’s financial enablers — a purely theoretical discussion, because it isn’t — an effective computer forensic analysis could give Treasury the basis to sanction North Korea’s third-country enablers.

North Korea has a long history of using illegal online gambling to finance itself. In 2011, the rheumy-eyed, snaggle-toothed old Trotskyists at The Guardian reported that “an elaborate hacking network” run by 30 North Koreas based in China “broke into online sites hosted in South Korea and stole prize points worth almost £3.7m ($6m)” using malicious code. Authorities also arrested five South Koreans for distributing the malware. Just four months before that report, the Russian Foreign Ministry “reprimanded the North Korean and Belarusian ambassadors for running illegal gambling on their premises in Moscow;” specifically, “a large network of underground casinos.” Even Dennis Rodman’s recent visit to Pyongyang was sponsored by Paddy Power, a (legal) Irish online gambling site. More here, here, here, and here.

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Given North Korea’s long, promiscuous history of counterfeiting, proliferation, arms sales to terrorists, and money laundering – and the fact that this history leads right up to the present day – I can’t help wondering whose bright idea it was to offer North Korea “observer” status in APG, whose “members and … observers” are supposed to be “committed to the effective implementation and enforcement of internationally accepted standards against money laundering and the financing of terrorism.”

The arguments against this are as obvious as the reasons why those Craigslist ads say “disease-free.” North Korea will use its usual Jedi mind tricks to make contacts, schmooze, and persuade APG members (and indirectly, FATF) that it’s this close to some endlessly receding horizon that may or may not be a real step toward financial transparency. If, like me, you spent the last ten years watching how well those tricks worked on South Korea and our State Department, you can imagine how they’ll work against APG. The consequence will be the relaxation, rather than the strengthening, of anti-money laundering enforcement standards.

It’s clear enough how accepting this invitation serves North Korea’s interest in perpetuating its money laundering and proliferation.

The APG will decide later whether to elevate North Korea from observer status to a member country once it evaluates Pyongyang based on its annual reports to the organization and visits by the representatives of the group over the next three years.

South Korea and many other members are trying to figure out the motive behind the unexpected move by Pyongyang, because North Korea was previously opposed to joining the APG.

“[North Korea’s motive] is a mystery to us,” said a high ranking government official, who requested anonymity. “We suspect that North Korea, while looking for ways to ease the international financial restrictions imposed on them, decided to show their efforts in improving their global image [by joining the APG].

“But since the lists that they need to follow are long, we will probably have wait and see how sincere and determined they are with their decision.”

In other words, it could be a facade as a way for North Korea to ease the sanctions imposed on it, since the possibility that Pyongyang will give up its nuclear ambitions is low.

The action is particularly suspicious because up until last year’s APG meeting held in Shanghai, North Korea refused to join the organization because of the rule requiring members and observers to follow global standards. North Korea at the time argued that it would join the APG only after the agreement to follow UN resolutions was taken out. [Joongang Ilbo]

It’s hard to see what good this invitation does for APG, FATF, or the financial system. North Korea clearly hasn’t made the fundamental decision to abide by the shared values of any of those associations. And that fundamental decision is what gives “engagement” the potential for those associations to change North Korea, as opposed to the very opposite outcome.

It’s easier to see the dangers this move creates — again, absent evidence that North Korea has seen the evil of its ways and decided to change them. The most obvious is that it gives North Korea undeserved legitimacy in area where it has been the world’s most flagrant recidivist.

Then, there is the example of the U.N. Human Rights Commission to draw from. I suppose that once, long ago, some addlebrained diplomat hypothesized that if only the leaders of China, Cuba, and Libya could be exposed to the principles by which the rest of civilized humanity lives, their leaders would feel compelled to conform themselves to those principles. What happened instead was that China, Cuba, and Libya took over the Human Rights Council, eviscerated its founding values, and destroyed it. So it goes whenever international institutions welcome members who don’t share the common principles of the institutions.

FBME Bank denies money laundering allegations

FBME Bank, whose correspondent accounts were ordered closed by a Treasury Department action under Section 311 of the USA PATRIOT Act last week, has responded to Treasury’s allegations of money laundering:

FBME said it was “shocked” by the content of the US Department of the Treasury notice “that sets out unexplained allegations of weak AML controls,” which, the bank said, it had not been given any opportunity to comment on or refute.

The bank denied the allegations, saying it had commissioned the German division of an international accountancy firm to carry out a detailed assessment into its operations and practices over the past two years.

FBME, it said, was found in compliance with applicable rules on AML regulations of both Cyprus and the European Union.

“FBME Bank welcomes the involvement of its regulator, is cooperating fully with it and reiterates its absolute continued commitment to full compliance with applicable laws and regulations,” the bank said in an announcement posted on its website. [Cyprus Mail]

That welcome may be a bit superfluous, because according to the Cyprus Mail and the Lebanese news site Ya Libnan, the Central Bank of Cyprus has taken over FBME’s operations for “as long as the central bank deems it necessary.” The move is similar to the Macanese government’s takeover of Banco Delta Asia in 2005, after Treasury published a similar set of notices against it for laundering money for North Korea. With Cyprus trying to stave off a broader banking crisis now, the last thing it needs is for a bank operating on the island to collapse, even if that bank is chartered in Tanzania and serving a largely non-Cypriot clientele.

I’ll offer a few points in response to FBME’s statement, which largely misapprehends how Section 311 (codified at 31 U.S.C. sec. 5318A) operates.

First, it is both technically true and legally irrelevant that FBME had no notice of this specific action. A Notice of Finding and a Notice of Proposed Rulemaking under Section 311 are intended to be no-notice actions to block correspondents accounts that may contain illegally derived funds. FBME’s opportunity to respond began with the publication of the notice and will end 60 days after that. After considering any comments on the proposed action, Treasury will make its final findings and conclusions and publish its Final Rule. Presumably, this process will give FBME an opportunity to hire lawyers to argue Treasury hasn’t met the criteria of 31 U.S.C. sec. 5318A(b).

Second, until that point, it would be fair to say the allegations are “unproven,” but it would not be fair to call them unexplained. Treasury’s notices explain them in great detail.

Third, Treasury has no obligation to warn the target of a law enforcement investigation that it is investigating the target for suspected illicit activity; rather, it is the duty of the financial institution to know its customers and make reasonable inquiries about suspicious transactions – that is, to perform due diligence. If true, FBME’s alleged provision of financial services to an unnamed front for a Syrian entity involved in WMD co-development with North Korea suggests that it fell short of these “know your customer” obligations. Presumably, FBME’s response and Treasury’s evidence will be given due consideration before Treasury publishes its Final Rule. If FBME can make the case that it didn’t fall short of these obligations, or that the shortfalls were inadvertent, Treasury should mitigate or rescind the special measure.

Finally, if half the allegations in Treasury’s Notice of Finding are true, FBME can’t honestly claim that it wasn’t on notice of deficiencies in its “know your customer” and anti-money laundering obligations. Of course, FBME has another 55 days to make its case to the contrary. After that, FBME can appeal Treasury’s decision to the federal courts, in which case Treasury’s decision would get a high degree of judicial deference, but its evidence would still be subject to judicial scrutiny. Even classified evidence Treasury relies on would be subject to the court’s in camera review.

You can read the full statement at FBME’s web site, which is loading rather slowly. For some reason.

U.S. should ask Mexico to search the M/V Mu Du Bong

Last week, I linked to a piece by investigative journalist Claudia Rosett (third item), noting the travels of the North Korean freighter Mu Du Bong from Cuba into points unknown in the Gulf of Mexico. Now, thanks to intrepid Miami Herald reporter Juan Tamayo, we learn that the Mu Du Bong has run aground in the Mexican Gulf Coast port of Tuxpan, not far from Veracruz. The ship is said to be empty, but there are a number of suspicious aspects of its behavior.

The 430-foot Mu Du Bong grounded Monday on a reef about seven miles from the Mexican port of Tuxpan, according to shipping industry officials. The job of pulling it off the reef will be complicated and take several days, they said.

The ship was empty and planning to pick up cargo in Tuxpan when it ran aground because its captain “lost his bearings,” according to a report by the Agence France Presse. Tuxpan is known as one of Mexico’s main sugar exporting ports.

Port administrators told El Nuevo Herald aid they did not know whether the Mu Du Bong was entering or leaving the port. An official at the Captain of the Port’s office said no one there was authorized to give information on the case. [Miami Herald]

Like the Chong Chon Gang, the North Korean ship that was caught carrying weapons from Cuba through the Panama Canal last year, the Mu Du Bong had its automatic location beacon switched off for several days, creating a potentially unsafe condition for other ships.

The Mu Du Bong crossed the Panama Canal into the Caribbean June 15. Its transponder signaled June 25 that it was near the port of Mariel, and on June 29-30 that it was in Havana, according to a Forbes magazine article Sunday that first reported its voyage.

For the next nine days its transponder fell silent, Forbes reported. It started working again on July 10, showing the ship was in Havana and then sailed north into the Gulf of Mexico, according to the magazine article.

One shipping industry official called the freighter built in 1983 “an ugly old rust bucket” and said photos of the ship’s deck show an odd mast surrounded by wires that could be some sort of jerry-rigged crane or an antenna. [....]

The Forbes report said shipping records show the two vessels share the same commercial agent, Ocean Maritime Management Company Ltd. U.N. experts who investigated the Chong Chon Gang incident said that company “played a key role in arranging the shipment of the concealed cargo of (Cuban) arms and related materiel.” [Miami Herald]

The Mu Du Bong’s shipping agent was Ocean Maritime Management, the same company that arranged for the voyage of the Chong Chon Gang.

Mu Du Bong

[Image source]

In other words, four months after a U.N. Panel of Experts report laid out conclusive evidence of OMM’s deliberate and premeditated violation of U.N. Security Council sanctions, the U.S. Treasury Department has not sanctioned OMM or any other entity under Executive Order 13551 over the Chong Chon Gang incident, or added it to the list of Specially Designated Nationals. Meanwhile, OMM is still acting as an agent for suspicious North Korean shipping traffic to Cuba.

Under a recent U.N. Security Council resolution, Mexican authorities have the legal authority to inspect the Mu Du Bong.

Moreover, in the effort to prevent the direct or indirect supply, sale or transfer to or from the Democratic People’s Republic or Korea or its nationals of any banned items, States are authorized to inspect all cargo within or transiting through their territory that has originated in the Democratic People’s Republic of Korea or that is destined for that country.  They are to deny permission to any aircraft to take off from, land in or overfly their territory, if they have reasonable grounds to believe the aircraft contains prohibited items. [UNSCR 2094]

I don’t know whether the U.S. government is currently pressing the Mexican government to assert that right, but a U.S. government with a genuine interest in enforcing U.N. Security Council sanctions would be pressing for an inspection of the Mu Du Bong.

A number of analysts quoted in various press reports doubted that the Mu Du Bong could be carrying weapons because its bills of lading list only civilian goods. But by the same faulty argumentum ad ignorantiam logic, North Korea has no concentration camps because it denies having them, and O.J. is still looking for the real killer. At page 92 of this U.N. Panel of Experts report, you can see the bills of lading for the Chong Chon Gang. They mention 210,000 bags of sugar, and nothing about MiGs or missile parts. The real answer is that we won’t know what the Mu Du Bong is carrying until the ship is inspected.

Update: I changed “press” to “ask” in the title of this post. Better to ask nicely the first time, and “press” only if asking nicely doesn’t work, right?

Update 2: More on this story via Reuters.

Treasury nukes bank with possible North Korea links (updated)

The Treasury Department has gone full Banco Delta on Cyprus-based, Tanzanian-chartered FBME Bank for money laundering, terrorist financing, and possibly even Syrian WMD proliferation — proliferation that is closely linked to North Korea.

According to Treasury’s press release, FBME promoted itself as a provider of no-questions-asked banking services with loose anti-money laundering controls, although I saw no evidence of this at FBME’s Web site. But according to Treasury’s more detailed Notice of Finding, FBME was laundering money for Hezbollah, illegal online gamblers, phishing hucksters, drug lords, African kleptocrats, and various swindlers who ripped off victims in California, Ohio, and Michigan.

Treasury invoked Section 311 of the USA PATRIOT Act against FBME, applying the dreaded Fifth Special Measure, which closes the target’s correspondent accounts and effectively cuts it off from the global financial system. You can read Treasury’s Notice of Proposed Rule-Making here. Or, for those of you who aren’t banking lawyers, I’ll simplify:

Well, almost. A bank can survive that sort of thing and continue to do business, but only on a small, local scale. Banco Delta Asia itself continues to do business for a local customers in Chinese Yuan and Macanese Petacas. In the case of FBME, however, its business model depends on international transactions. It isn’t offering commercial banking services in Cyprus, and it only has four branches in Tanzania.

So far, Treasury has invoked Section 311 against four jurisdictions — the Ukraine and Nauru (since rescinded), Burma, and Iran. It has also listed 13 financial institutions, including Banco Delta Asia, which remains listed to this day.

North Korea, the only existing state known to sponsor currency counterfeiting and drug trafficking, and to encourage illicit activity by its diplomats abroad, has never been listed. Discuss among yourselves.

Treasury’s case against FBME makes no direct reference to North Korea, but according to the Notice of Finding, one of FBME’s customers was a front for a sanctioned Syrian entity, the Scientific Studies and Research Center (SSRC), and used FBME to process transactions through the U.S. financial system. (This is the part that people never get — the bad guys love them some dollars. They just don’t think they’ll get caught, probably because they usually aren’t.)

Treasury did not name the front company.

According to the Nuclear Threat institute, SSRC “collaborates heavily with Iranian and North Korean entities” on missile technology. In February 2013, the Israeli Air Force bombed a convoy loaded with anti-aircraft missiles at SSRC’s complex north of Damascus, damaging what The New York Times described as “the country’s main research center for work on biological and chemical weapons.” Further on, the Times article says, “Intelligence officials also believe that the center has links to North Korea, a source of much of Syria’s missile technology.”

Oh, and those anti-aircraft missiles were SA-17s, the same kind suspected of shooting down that Malaysian airliner today. [Update: Subsequent press reports have said that the missile used to shoot down the airliner was an SA-11.]

Earlier this year, the Times of Israel, citing Jane’s Defence Weekly, alleged that SSRC has gone into the business of manufacturing its own ballistic missiles domestically to bypass international sanctions against Syria, and that it has done so “with the assistance of countries including Iran, North Korea, and Belarus.”

The SSRC is also working on a project with North Korea to help improve its Scud D missile capabilities. North Korean officials at the Tangun corporation have already begun researching and producing components for Scud D missiles which would make it difficult for enemy targets to calculate the missiles’ flight trajectory upon atmospheric entry, Jane’s reported, thus preventing or delaying interception by anti-missile systems, including those in Israel’s possession.

Korea Tangun Trading Corporation appears on the SDN List. For more about the links between SSRC and North Korea, NK News has done some superb investigative reporting on this topic.

According to the Notice of Finding, the SSRC front company shared the same address in Tortola, British Virgin Islands with 111 other shell companies that are also subject to international sanctions. There are only 74 targets on the SDN list with Tortola addresses. Most are fronts for Cuba; a few are sanctioned for links to Hezbollah, Iran, or Zimbabwe. One, DCB Finance, is North Korean, and is a front for Daedong Credit Bank. DCB Finance and Daedong Credit Bank were sanctioned last June for proliferation-related activities.

By itself, the coincidence of address adds little to Treasury’s case, which presumably relies on financial evidence of the SSRC front company’s transactions. It does suggest that in financial terms, you will never find a more wretched hive of scum and villainy than Road Town, Tortola.

FBME had did not immediately respond to a Wall Street Journal reporter who contacted it for comment. Perhaps when he called, the reporter heard a Board of Directors cry out in terror before it was suddenly silenced.

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[Update: Greetings to my visitors arriving from FBME Bank and FBME Card Services on the lovely island of Cyprus. If you want to get your side of the story out there, do feel free to send an email or drop a comment. I have to say this for FBME -- after a lot of searching, I never did find the evidence that it marketed its lax AML compliance, although the pre-paid card services it offered did not have a particularly good compliance reputation.]

You’d be surprised how much tougher our Zimbabwe and Belarus sanctions are than our North Korea sanctions.

The Treasury Department has just tightened its sanctions regulations on … Zimbabwe, more than doubling the number of Zimbabwean entities on Treasury’s List of Specially Designated Nationals (called the SDN List) from 77 to 161, including “President” Robert Mugabe, his wife, and his son. The sanctions are largely directed at the Mugabe regime’s human rights violations, corruption, and subversion of the democratic process. Here, from Treasury’s Federal Register notice, is a summary of what those sanctions do:

Section 1(a) of E.O. 13469 blocks, with certain exceptions, all property and interests in property that are in the United States, that come within the United States, or that are or come within the possession or control of United States persons, including their overseas branches, of any person determined by the Secretary of the Treasury, after consultation with the Secretary of State: 

(i) To be a senior official of the Government of Zimbabwe;

(ii) to be owned or controlled by, directly or indirectly, the Government of Zimbabwe or an official or officials of the Government of Zimbabwe;

(iii) to have engaged in actions or policies to undermine Zimbabwe’s democratic processes or institutions;

(iv) to be responsible for, or to have participated in, human rights abuses related to political repression in Zimbabwe;

(v) to be engaged in, or to have engaged in, activities facilitating public corruption by senior officials of the Government of Zimbabwe;

(vi) to be a spouse or dependent child of any person whose property and interests in property are blocked pursuant to E.O. 13288, E.O. 13391, or E.O. 13469;

(vii) to have materially assisted, sponsored, or provided financial, material, logistical or technical support for, or goods or services in support of, the Government of Zimbabwe, any senior official thereof, or any person whose property and interests in property are blocked pursuant to E.O. 13288, E.O. 13391, or E.O. 13469; or

(viii) to be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked pursuant to E.O. 13288, E.O. 13391, or E.O. 13469.

The property and interests in property of the persons described above may not be transferred, paid, exported, withdrawn, or otherwise dealt in. [79 Fed. Reg. at 39313]

Read together, the old and new rules effectively block all of Robert Mugabe’s closest relatives and key minions out of the global financial system, and specifically penalize (and therefore, deter) activities in furtherance of stealing public funds or votes, censoring free expression, or abusing the human rights of Zimbabweans.

Treasury’s new amendments to the Zimbabwe sanctions regulations tighten existing rules against facilitating or evading the existing sanctions, including a new requirement to obtain an OFAC license before donating food, clothing, or medicine to an entity on the SDN list. They even take the extraordinary step of blocking the assets of family members of those designated. Implicitly, they allow for the designation of entities that use non-dollar currencies to evade these sanctions, allowing for those enablers to be barred from the dollar system as well.

Our North Korea sanctions authorities consist of Executive Order 13466, in which President Bush lifted most of our previous sanctions but preserved some restrictions and the blocking of certain property; Executive Order 13551, which blocks the property of named entities involved in proliferation, weapons trafficking, and money laundering in a non-comprehensive way; Executive Order 13570, which imposes import sanctions; and regulations at 31 C.F.R. Part. 510. Now, how many of the above sanctions from the Zimbabwe regulations appear in North Korea-specific sanctions authorities? If you answered “none,” go get yourself a cookie.

This comparison chart, now slightly outdated, should give you the general idea — our North Korea sanctions are some of the weakest that we bother to maintain against any country. Note the empty squares indicating the lack of “comprehensive” or “financial” sanctions against North Korea, despite everything we’ve learned about how well they worked.

At the top of this post, I told you that 161 Zimbabwean entities are sanctioned. Wanna know how many are designated under North Korea-specific sanctions authorities? Seven. An additional 11 individuals and 25 entities are designated under Executive Order 13382, a Bush-era executive order that isn’t specific to North Korea, but authorizes sanctions against entities trafficking in WMD components and technology. I didn’t count, but it’s likely that most of those entities were designated during Bush’s first term. (I’ve pasted the full list of 43 designated North Korean entities below the fold.)

In case you’re wondering, no, Kim Jong Un, his royal family, and his senior government officials are not listed. The only sanctioned entities of any national consequence are Bureau 39 and the Foreign Trade Bank. The others are largely front companies, minor government ministries, and officials that are as easily replaced as whacked moles.

We can extend this comparison further. Slobodan Milosevic – a dead guy – still appears on the SDN List years after his death (presumably, to prevent the misuse of his estate’s assets). He is one of 231 “persons”* still designated under the Balkans sanctions program, two decades after the end of the Balkans wars. Treasury was so thorough in its targeting that it named many individual alleged war criminals by their nomes-de-guerre.

Alexander Lukashenko, the President of the neo-Soviet fossil state called Belarus, is one of about 50 “persons” designated under the Belarus sanctions program, along with his Justice Minister, KGB head, and the officials in charge of Belarus’s media and “elections.” Let no one say that the targeting of a head of state or a state’s top officials is unprecedented because sensitivities to the state’s powerful sponsor are too great.

The SDN List designates 164 “persons” as part of the Burma sanctions program, including Beijing-based China Focus Development Company. Let no one say that China’s economic links to its oppressive satellites are inviolable.

A whopping 397* “persons” are designated under the Cuba sanctions program, including what must be every website domain name registered in Cuba, and curiously, former Panamanian dictator Manuel Antonio Noriega. (Oddly enough, Fidel and Raul Castro are not designated.)

[*It's likely that I counted a few aliases in these numbers.]

So many Iranian entities are listed — the number clearly runs into the hundreds — that I didn’t have the courage to count them all. Iran sanctions are clearly a small industry, but you can’t deny that Treasury’s focus has gotten results.

Hundreds of other targets are designated under Executive Order 13224, authorizing sanctions against terrorists, their sponsors, and their organizations.

Now, I’m no fan of Robert Mugabe, or any of these other regimes. I spent a few nervous days there in 1990 — and those were much better days for Zimbabweans — and the place certainly felt like a dictatorship. I don’t doubt that Mugabe deserves everything President Obama has dropped on him, but would anyone argue that Zimbabwe represents a strategic threat to the United States or to global peace? Or that its human rights abuses, however tragic, compare to the scale of those going on in North Korea?

When your list of sanctioned entities runs into the triple digits and you publish frequent updates to the list of Specially Designated Nationals, it means you’re serious about sanctioning your target. If, as in the case of North Korea, you’ve sanctioned a paltry three-and-a-half dozen over an entire damn decade, it means you aren’t. This, along with the Obama Administration’s utter inaction five months after the release of the U.N. Commission of Inquiry’s report, can only mean that President Obama is either disinterested in or unserious about addressing North Korea’s proliferation, money laundering, threats to peace, or crimes against humanity — even as he sanctions serious but less severe violations in Zimbabwe, Belarus, and other places.

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Obama administration sanctions everyone except Kim Jong Un

The boys at Treasury have been busy sanctioning nasty people lately … just not nasty North Korean people. In the last 30 days, they’ve imposed sanctions on new targets in Syria, the Central African Republic, South Sudan, and the Ukraine, and put a shiny new Executive Order on the President’s desk blocking the assets of human rights violators in Democratic Republic of Congo. Really? We do that sort of thing? Yes, we do that sort of thing — just not to Kim Jong Un.

(They’ve also substantially weakened U.S. sanctions on Burma, just as it’s becoming increasingly obvious that the Burmese government is going back on many of its promises of democratic reform, and that its generals are still engaging in arms trafficking with North Korea.)

Yet this still isn’t our greatest lost opportunity. Recently, Treasury and French parastatal bank BNP Paribas concluded a settlement under which BNP Paribas will pay an absolutely colossal amount — $8.9 billion, which is a record for sanctions violations. BNP Paribas’s M.O. was to strip data from transactions that had to be reported to Treasury, thus avoiding the burden of obtaining licenses to trade with sanctioned countries, or perhaps to evade a requirement to obtain a license that OFAC wouldn’t grant.

Today’s settlement resolves OFAC’s investigation into BNPP’s systemic practice of concealing, removing, omitting, or obscuring references to information about U.S.-sanctioned parties in 3,897 financial and trade transactions routed to or through banks in the United States between 2005 and 2012 in apparent violation of the Sudanese Sanctions Regulations, 31 C.F.R. part 538; the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560; the Cuban Assets Control Regulations, 31 C.F.R. part 515; and the Burmese Sanctions Regulations, 31 C.F.R. part 537. [Treasury Dep’t Press Release]

Notice anyone missing from that list? In case you wonder why, it’s because of the lack of comprehensive financial sanctions against North Korea — the kind of sanctions that are in place and self-evidently effective against these other targets. (No, sanctioning the Foreign Trade Bank is not comprehensive. It in no way compares to our sanctions against Cuba, Syria, or Iran.)

North Korea alone is free to receive foreign investments and all sorts of cash payments, no questions asked, through the dollar-based financial system that uses U.S. banks, and without an OFAC license. This, despite the fact that U.N. Security Council resolutions clearly demand that investors ask questions, and that governments implement and enforce financial transparency.

BNP Paribas wasn’t fined for breaking North Korea sanctions regulations because absent proof that the transactions furthered illicit activity or proliferation, there’s nothing to break. But that’s the catch — there are special licensing requirements on Iran and Syria because that’s how we’re most likely to detect proliferation and money laundering. Instead, our North Korea sanctions are weaker than any of these other national programs. And that makes no sense at all from a strategic, humanitarian, or enforcement perspective.

“Today’s settlement is OFAC’s largest-ever and reaffirms OFAC’s determination to aggressively enforce U.S. sanctions rules and regulations,” said OFAC Director Adam J. Szubin.  [....]

The specific payment practices the bank utilized in order to process sanctions-related payments to or through the United States included omitting references to sanctioned parties; replacing the names of sanctioned parties with BNPP’s name or a code word; and structuring payments in a manner that did not identify the involvement of sanctioned parties in payments sent to U.S. financial institutions.  While these payment practices occurred throughout multiple branches and subsidiaries of the bank, BNPP’s subsidiary in Geneva and branch in Paris facilitated or conducted the overwhelming majority of the apparent violations.  

I don’t dispute the awfulness of the civil war in the DRC, but do its human rights violations equal this in terms of their scale and their drearily methodical state sponsorship? And even if so, why the DRC and not North Korea? The DRC isn’t a strategic threat to U.S. interests. Syria and Iran are, of course, but North Korea is suspected of nuclear cooperation with Iran, has a proven history of chemical weapons and nuclear cooperation with Syria, has attacked on U.S. treaty allies, and has sold arms to Hamasbollah.

On the other hand, none of these nations is suspected of state-sponsored drug trafficking, counterfeiting of U.S. currency and intellectual property, illegal gambling, or money laundering on a comparable scale. Those things represent a direct threat to the financial system on which the global economy depends. So what reason exists to sanction any of those regimes that isn’t just as good a reason to sanction North Korea, too?

Just test the damn thing already.

So the news this week is that the Obama Administration, which for the last five years has stayed its hand from sanctioning North Korea because of Chinese sensitivities, has just blocked the assets of top members of Vladimir Putin’s government over their seizure of the Crimea. That sounds like an effective way to piss them off, but I can’t see how it poses a serious threat to Russia’s economy or Putin’s domestic support, or how it will deter his next aggression. (If you want to do that, give the Ukrainians some capable antitank and antiaircraft missiles, train their troops well, and bait Putin into a long, nasty insurgency that will do to him politically what Chechnya did to Yeltsin.)

The other news this week is that one nuclear test may not be enough for Kim Jong Un, and as I write this, North Korea has just announced a live-fire exercise near the maritime border in the Yellow Sea. North Korea, in contrast to Russia, has unleashed a stream of homophobic, sexist, and arguably racist insults against world leaders, committed crimes against humanity on a massive scale, attacked a U.S. treaty ally twice, proliferated nuclear and chemical weapons technology to Syria, and tested two nukes (and counting).

For which, it faces the full wrath of Samantha Power’s Twitter account.

What this means is that we’re using the strategy against Russia now we that should have used against North Korea ten years ago, that we’re (finally) using the strategy in Syria that we should have used there in 2011 and should be using to help Ukraine defend itself now, we used the strategy in Libya in 2011 that we should have used in Iran in 2009 (only with a more competent follow-through), and we have no North Korea strategy at all. It’s the geopolitical equivalent of a penguin square dance.

~   ~   ~

Obama’s visit to Seoul, designed to reassure our Asian allies, coincided with so much bad press about the incoherence of his North Korea policy that it may have had the opposite effect. The Washington Post portrayed the President as at a loss for solutions to a security challenge he underestimated. The New York Times said this and more, revealing that White House staffers are frustrated, divided, and out of ideas:

“We have failed,” said Evans J. R. Revere, who spent his State Department career trying various diplomatic strategies to stop the North. “For two decades our policy has been to keep the North Koreans from developing nuclear weapons. It’s now clear there is no way they will give them up, no matter what sanctions we impose, no matter what we offer. So now what?”

It is an assessment some of Mr. Obama’s aides say they privately share, though for now the administration refuses to negotiate with the North until it first fulfills its oft-violated agreements to freeze its nuclear and missile programs. A recent effort inside the National Security Council to devise a new approach resulted in a flurry of papers and classified strategy sessions — and the conclusion that all the alternatives to the current course were worse.

“We’re stuck,” one participant in the review said.

The first step toward recovery is recognizing that you have a problem. The second step would be to stop listening to people like Evans Revere who gave you the sort of counsel that got you where you are now. But in the end, the administration is responsible for its own choices. It wasted valuable time on the flawed narrative that Kim Jong Un’s Swiss education meant that he would be a reformer, and “largely left North Korea on the back burner while focusing on sanctions, cyberattacks and pressure on Iran.” This leaves the administration desperate for a deal, yet uncertain what that deal could be:

In recent months the Chinese have led an effort to restart diplomatic talks, and the United States has quietly met with the North. But the goal is unclear. To the United States, the purpose of the talks would be denuclearization; Mr. Kim’s government has already declared that the one thing he will not do is give up his small nuclear arsenal, especially after seeing the United States help unseat Col. Muammar el-Qaddafi of Libya, who surrendered his own nuclear program in 2003. [N.Y. Times, David Sanger]

It’s implausible to me that the White House would have talked to China and North Korea without some willingness to compromise its demands for denuclearization. That lends further weight to what I wrote here a week ago. My best guess is that they were toying with the idea, but it’s not clear that they committed to it. The only thing that’s clear is North Korea’s position.

~   ~   ~

Sadly, our President can’t even sound credible when he threatens to impose new sanctions. Here is what he said in Seoul last week, amid rumors of an imminent nuclear test:

President Barack Obama says it may be time to consider further sanctions against North Korea “that have even more bite” as the country is threatening its fourth nuclear test.

Addressing a joint news conference alongside South Korean President Park Geun-hye, Obama said threats by North Korea will get it “nothing except further isolation” from the global community. But Obama acknowledged there are limits to what impacts additional penalties can have on the country.

“North Korea already is the most isolated country in the world by far,” Obama said. “Its people suffer terribly because of the decisions its leaders have made. And we are not going to find a magic bullet that solves this problem overnight.” [Korea Herald]

The veracity of that statement depends on the North Korean, but I’ll have more to say about that later this week. As threats go, the President could learn a few things from the North Koreans about clarity and message discipline. He may not believe in a magic bullet — especially if he isn’t really willing to use a high enough caliber — but a speech designed to restore the confidence of nervous allies is no place to sound wobbly, equivocal, and agnostic about his own threats. He’d have been clearer if he’d borrowed the script of ex-aide Robert Einhorn:

“There is no question, if there is fourth round of test, the U.S. will take additional sanctions, steps,” Einhorn, a former adviser on nonproliferation and arms control at the U.S. State Department, said in a press meeting on the sidelines of an international forum in Seoul. “And they will increase the overall effectiveness of the sanctions regime against North Korea. I think it would be a real mistake in terms of North Korea’s own interest for them to go ahead with a nuclear test.” [Yonhap]

Other prominent members of Obama’s party have also been arguing for tougher sanctions recently.

The international community should step up efforts for “targeted sanctions” on the North Korean leadership before it hands over nuclear weapons to terrorist groups, a former U.S. nonproliferation official said Thursday. “The DPRK (North Korea) looks like a good place for targeted sanctions,” said Joseph DeThomas, who served as principal deputy assistant secretary of state for nonproliferation under the Bill Clinton administration. [....]

DeThomas emphasized the importance of finding “very targeted mechanisms to go after the leadership of a country doing bad things without doing damage to the population.” He said a lot of hard currency is put aside in foreign banks for leadership purposes. “Any time you can affect their access to hard currency, that has significant impact,” he said. 

The problem is not the will to impose sanctions on Pyongyang but a lack of information, said DeThomas. He said the possibility of North Korea proliferating its nuclear technology and equipment is more worrisome than another nuclear test. [Yonhap]

Every word of that makes sense to me. Finally, Treasury’s Undersecretary for Terrorism and Financial Intelligence recently told a Senate subcommittee that North Korea is “susceptible to” financial sanctions:

“What we are going to continue to do is to implement the sanctions programs that we have in place, which are focused on North Korea’s efforts to develop its nuclear program, as well as North Korea’s other illicit activity,” David Cohen, Treasury undersecretary for terrorism and financial intelligence, said at a congressional hearing.

The North is clearly susceptible to sanctions, he added, testifying before the Financial Services and General Government Subcommittee of the Senate Appropriations Committee. [....]

The Obama administration is constantly reevaluating what it has been doing with respect to North Korea, which is a topic actively under consideration within the government, he added. Cohen added denuclearizing North Korea is an unswerving goal of the administration. [Yonhap]

Or so we hope. For its part, the U.N. had already been considering the designation of two more North Korean entities — Ocean Maritime Management and Chinpo (snicker) Shipping — for their role in the scheme to smuggle MiG-21s from Cuba to North Korea. But this whack-a-mole strategy can’t hope to outpace North Korea’s production of shell companies. Its banks are its weak link.

There are three things that can be said now that we could not say one year ago today. First, the administration is under new pressure from a newly critical media to show that it has a coherent North Korea policy. Second, if North Korea provokes in some way, the President will come under strong pressure from within his own party, and probably from within his own administration, to impose financial sanctions. Third, the President will face new pressure from Republicans and Democrats in Congress, who have offered a coherent alternative to contrast with his own incoherence. Now there is a trigger, just waiting for someone to pull it.

It may well be that if the President is forced to act, he’ll prefer to claim credit by signing an executive order rather than a legislative creation like H.R. 1771. There are certainly loopholes in existing sanctions that the President could close, particularly on human rights, but as with any sanctions regime, the enforcement will be more important than the authority. That’s why the President would make a deeper impression by announcing a round of asset blocking actions under the existing Executive Orders 13,551 and 13,382. But if North Korea continues to provoke, it will only raise more election-year calls for the President to abandon incremental pressure for something that has the potential to change policies — or personnel — in Pyongyang.

The U.N. Panel of Experts is starting to follow Kim Jong Un’s money.

The main headlines that will come of the U.N. Panel of Experts’ new report on the enforcement of North Korea sanctions will mostly cover the Chong Chon Gang incident — the large amount of weapons seized, the brazenness of its deception, and the complexity of its corporate and financial links to entities operating from Russia, Singapore, and China. There has been relatively little attention paid to the newly revealed evidence that North Korea has helped Syria and Iran arm terrorists. In this post, I’ll discuss some other important conclusions we can draw about the enforcement of UNSCR 2094 a year after its adoption.

1. North Korea is still making a lot of money selling weapons.

In case you doubted it, the latest POE report finds that North Korea “remains … actively engaged in trade in arms and related materiel in violation of” U.N. Security Council resolutions, and concludes, “[T]here is no question that it is one of the country’s most profitable revenue sources.” How profitable? The POE doesn’t pretend to know and “doubts that all existing illicit cooperation has been identified,” but something is paying for all that rice and baby formula ski lift equipment. There has been a construction boom in Pyongyang recently, and those who know how Kim Jong Un is paying for it aren’t saying.

Clearly, North Korea is doing a brisk trade in weapons, mostly with Africa and the Middle East. Paragraphs 90 to 115 of the report recount a long series of reports of North Korean arms smuggling — everything from the fuzes in rockets fired at Israel to specialized alloys to submarine parts to gas masks — that the POE is either still investigating, or found out about after the fact and by happenstance. It’s obvious that the sanctions are leaky, and the U.N. POE admits it.

That’s why I can only shake my head when the Foreign Minister of Korea says that the POE report shows that “relatively successful in restricting the country’s ability to raise funds.” The statement could only mean two things: either he didn’t read the report, or South Korea isn’t serious about enforcing these sanctions at all. I mean, just have a look:

Screen Shot 2014-03-16 at 9.39.43 PM

Obviously, I can’t say what this construction costs, but it’s safe to assume it’s enough to feed a lot of hungry North Koreans. The POE doesn’t know how North Korea can afford to build two high-rise bank towers in Pyongyang, either, but judging by its inference about the arms trade, it’s fair to say that plenty of the money that’s paying for these buildings is illegally derived and laundered. This is not a picture of effective enforcement.

The report calls for no new sanctions, but once you read it, it’s apparent why: states aren’t even enforcing the sanctions that exist now. It says that member states already have adequate enforcement tools at their disposal — a point I’d quibble with — although it’s obvious that not all member states are using those tools.

2. China is violating North Korea sanctions — flagrantly.

China, naturally, is caught in flagrante delicto. The POE recounts the story of a trade show in China last year, when a concerned citizen spotted a booth festooned with a banner bearing the name of Korea Ryonha Machinery Joint Venture Corporation, a subsidiary of a firm designated by the U.N. for proliferation activities, and an entity named on Treasury’s list of Specially Designated Nationals.

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When the POE pointed that out, hilarity ensued:

149. In its reply to the Panel’s inquiry, Chinese authorities reported that Ryonha’s name was not on the list of exhibitors provided by the Democratic People’s Republic of Korea, nor did it appear on any booth before the fair’s opening. Upon discovering its presence, China requested Ryonha to withdraw from the fair and ensured that the relevant persons left its territory (according to Panel information there were at least seven Democratic People’s Republic of Korea nationals working on behalf or at the direction of Ryonha during the fair).

150. The Panel also discovered that, even though designated, Ryonha remained listed as a “recommended company and member” on the website of the China- Democratic People’s Republic of Korea Trade Network.103 In reply to an enquiry from the Panel, China responded that Ryonha had been removed from the listing.

At the end of the day, the POE wasn’t even able to confirm that the ChiComs had frozen Ryonha’s assets and seized the machinery on exhibit, as required under UNSCR 2094. Another North Korean firm, Leader International, still appears on Hong Kong’s official business registry more than a year after its U.N. designation.

Embarrassments like this will not cause China to actually enforce the sanctions it supported in the Security Council. Nothing less than sanctions against the Chinese entities that knowingly fail to enforce sanctions will do that. And because China would block those additional sanctions at the U.N., it’s up to the Treasury Department, which can bar those companies from the global financial system, to put some teeth into the sanctions now.

3. Other nations, including nations in Europe, aren’t taking sanctions seriously enough.

China isn’t the only member state that has failed to enforce North Korea sanctions effectively. Taiwan, in particular, has emerged as North Korea’s main new source of precision machine tools and related technology since it lost its access to the Japanese market. Plenty of states haven’t met their requirements to file compliance reports with the POE. Others aren’t reporting violations they find out about.

Notably, not a single Member State reported a violation of the luxury goods ban, despite the many violations that occurred at the Masik Pass Ski Resort. Even the U.K. failed to report North Korea’s attempt to purchase a yacht from a British manufacturer.

In most of these cases, the non-enforcement isn’t coming from the highest levels of the government, as with China. It’s a simple problem of member states failing to make enforcement a priority, or failing to reign in the profiteers in their jurisdictions. That’s a problem that could be dealt with through competent bilateral diplomacy in most cases, though sanctions and criminal prosecution should be options for deserving violations.

There is an another, more fundamental problem — what, exactly, are member states supposed to report? U.N. definitions of controlled items are often too narrow. For example, ski lift equipment doesn’t fit the U.N. definition of a “luxury good.” (Update: It does fit the U.S. and EU definitions.)

The same problem recurs with North Korea’s acquisition of missile parts. When the South Korean Navy recovered the remains of the last Unha-3 from the bottom of the Yellow Sea, it found that the rocket contained numerous foreign components, including some of U.S. origin, that were not on the U.N. list of controlled items.  A shipment intercepted by “a Member State” contained parts described as being for “freezing carriers”and “fish-factory mother ships,” all of which were “spare parts or other items related to Scud ballistic missile systems.” Yet those items also did not meet “the criteria defined by the lists of prohibited items, material, equipment, goods and technology related to nuclear, other weapons of mass destruction and ballistic missile programmes.”

This calls for the POE itself to proffer an expanded list of controlled dual-use items, something that was (but for a few especially sensitive items) lacking in the POE’s report. (Update: If it wanted to, the U.N. could borrow or cross-reference the U.S. Munitions List.)

4. Existing financial sanctions on North Korea only show the tip of a big, dirty iceberg.

The best news in this report is that it appears to be the work of people who are intelligent, inquisitive, and serious about their work. They’ve begun investigating how North Korea launders the money it makes from its illicit activities:

166. During its mandate, the Panel commissioned an in-depth study to learn more about how the Democratic People’s Republic of Korea makes use of foreign-based firms and individuals to evade scrutiny of its assets, financial and trade dealings. It sought a comprehensive view of the Democratic People’s Republic of Korea’s commercial footprint abroad to learn how entities and individuals that have figured in its investigations relate to this broader network and to one another. The Panel believes that an examination of those linkages would assist its efforts to detect and advise the Committee and Member States about others who might play controlling and supportive roles in evading trade and financial measures adopted in the resolutions.

167. [....] The study provided the Panel with a rich database of leads for further investigation. Starting with less than 500 loosely connected or unconnected individuals and entities that had come to the Panel’s attention during its investigations, the study found connections to an additional 700 individuals, more than 1,600 companies and nearly 2,500 corporate identifiers.

168. The results of the study show that the operations of the Democratic People’s Republic of Korea abroad no longer fit the description of “two persons and a fax machine”. Instead, it found a relatively mature, complex and international corporate ecosystem. Patterns that emerge from examination of the connections between identified individuals and entities show six large, discrete networks, all of which share links.

Other North Korean banks come under suspicion because of the POE report.  A table at Annex XXXIV gives a list of banks known to be affiliated with North Korea, including those designated by the U.S., the U.N., and the EU. But among those not designated —

  • The Ilshim International Bank “was reported to be associated with the Ministry of People’s Armed Forces.”
  • The Koryo Bank is “possibly associated with Office 38 of the KWP.” (Office or Bureau 38 is the slush fund of Kim Jong Un and his court, and receives funds from the more notorious Bureau 39, which is in charge of laundering the proceeds of North Korea’s illicit activities by co-mingling those proceeds with the proceeds of “legitimate” business operations, like its overseas restaurants. The restaurants are believed to fall under the control of Bureau 39.)
  • The Kumgang Bank is “described as a window of the Foreign Trade Bank,” which was recently designated by the Treasury Department for its involvement in proliferation.
  • The North East Asia Bank is “[a]ssociated with the Korea National Insurance Corporation,” whose massive insurance fraud scam was the subject of international litigation and revealed by former KNIC official Kim Kwang Jin.

Curiously absent from the list is Sili Bank, which is based in Shenyang, China, and which briefly aroused international curiosity when it began offering e-mail services to and from North Korea, but which has no functioning English web site today. At one time, Sili Bank was the only game in town for anyone, including North Korean companies, to obtain international e-mail service.

Ocean Maritime Management, which the Washington Post describes as “a Pyongyang-based company with links to the North Korean government,” used a Sili Bank e-mail address to send a protest letter to the Panamanian authorities when they boarded the Chong Chon Gang and found a cargo of MiGs, MiG engines, missiles, and other weapons hidden under a layer of sugar. OMM, which arranged the shipment from its Vladivostok office, denied knowing of any cargo other than the sugar, which it describes as “essential for our people’s living” and “a cargo of humanitarian nature.”

5. Air Koryo is effectively an arm of the North Korean Air Force, and is involved in suspicious financial dealings.

North Korea’s General Administration of Civil Aviation, which is controlled by the North Korean Air Force and in turn controls Air Koryo, also lists a Sili Bank e-mail address. Air Koryo falls under the POE’s suspicion for a series of “dubious” debts owed to it by “recently formed shell companies” related to gold trading.

The Panel is suspicious that the Democratic People’s Republic of Korea may be using or considering the use of precious metal sales on credit terms to create “accounts payable”. Such sources for funds would not necessarily show as being under its control and even could be swapped with other firms to further distance its connection and thereby better evade sanctions and enhanced due diligence by banks.

Because of its military links, the POE says that “providing financial transactions, technical training, advice, services or assistance related to the provision, maintenance or use of Air Koryo’s aircraft” could be a violation. It will be interesting to see whether future POE reports confirm whether Sili Bank (a) still exists and (b) is knowingly facilitating illicit activities.

6. North Korea’s overseas monument business may be a money laundering scheme, too.

Finally, North Korea’s work building memorials and statues overseas has drawn its share of snark from bloggers and reporters, but the POE gives us cause to suspect that those operations could be used as fronts for money laundering, too:

Available media reports, particularly about projects in several African countries, note that project values appear inflated. Participation in overseas construction also takes place through joint ventures where a foreign partner could hold funds on behalf of or for the benefit of designated entities and prohibited programmes.

For example, if the Syrians wanted to pay for North Korean technical assistance with a missile program or a reactor while avoiding detection, they could commission the construction of a grandiose memorial at an inflated price. All perfectly legal, right?

If so, the POE should be wondering whether North Korea has recently made illicit deals with Zimbabwe and Namibia. Ironically, Zimbabwe once paid North Koreans to train their troops, who proceeded to kill tens of thousands of civilians in areas backing the Zimbabwean African Peoples’ Union, led by Joshua Nkomo. Today, Zimbabwe is paying North Korea to build a statue of Joshua Nkomo, and Zimbabwean dissidents have taken note.

A Christian blogger in Namibia also protests his government’s hiring of North Korea to build political monuments in Windhoek, when North Korea is rumored to be shooting people for having contact with Christian missionaries. (By contrast, nearby Botswana severed diplomatic relations with North Korea when the U.N. COI report came out.)

U.N. Panel of Experts releases new report on N. Korea sanctions enforcement

The report, which you can find here, publishes photographs and a detailed description of the weapons seized from the Chong Chon Gang.

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I had not realized how big the shipment was:

72. The Panel found that the hidden cargo (see figure XI, a complete list at annex VII and detailed analysis at annex VIII) amounted to six trailers associated with surface-to-air missile systems and 25 shipping containers loaded with two disassembled MiG-21 aircraft, 15 engines for MiG-21 aircraft, components for surface-to-air missile systems, ammunition and miscellaneous arms-related materiel. This constituted the largest amount of arms and related materiel interdicted to or from the Democratic People’s Republic of Korea since the adoption of resolution 1718 (2006).

The POE goes into great detail about the modifications to the ship, the false bills of lading, deceptive statements by both the Cuban and North Korean governments, and other deceptive practices to conceal the cargo, its ownership, and its destination. It also calls out a Vladivostok-based shipping company, Ocean Maritime Management Company, for operating the Chong Chon Gang without listing it as a part of its fleet.

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The report concludes that the incident was a violation, but suggests that in many cases, North Korea isn’t the final destination for the weapons, but a middleman that buys up old equipment, refurbishes it, and resells it. In this case, as I noted here, the Chong Chon Gang MiG engines already appeared to have been refurbished when shipped.

The POE also implicates Burma, Eritrea, Ethiopia, Tanzania, Uganda, Somalia, and of course, Iran for suspected arms deals with North Korea. This casts considerable doubt on the news item here, suggesting that North Korea exported only $11 million in arms last year.

The POE also discusses suspected violations of the luxury goods ban, including the Masikryong ski resort, a attempted yacht purchase from the UK, and Dennis Rodman’s gifts to Kim Jong Un.

Most tantalizingly, the report begins to examine North Korea’s sanctions-busting financial arrangements in greater detail. Here’s a taste.

164. Financial measures in the resolutions, along with the strengthening of standards governing international finance, have combined to change fundamentally the financial environment in which the Democratic People’s Republic of Korea operates. In particular, it has become much more difficult to make direct use of its banks to remit earnings and make payments for transactions in prohibited goods, training and technology. The long-term trajectory of changes to improve standards promoted by the Financial Action Task Force (FATF)106 promises it will face even more difficulty in future. The technical efforts of FATF, especially recent steps taken to help counter the financing of proliferation, complement Security Council actions.

165. Consequently, the Democratic People’s Republic of Korea has had to adapt, explore and perfect ways to evade detection and circumvent constraints on the financing of prohibited programmes and activities. All evasion techniques involve higher risk, extra cost and loss of timeliness. The Panel has begun to examine more deeply the institutional frameworks and operational techniques it employs. It is experienced in using foreign-based individuals, front companies and shell companies and joint ventures engaged in legitimate business to mask illicit activities associated with sourcing nuclear, ballistic missile and other weapons of mass destruction programmes. Ownership structures often are complex and opaque and take advantage of lax rules in some Member States regarding the identification of beneficial owners.

The report calls for a more in-depth investigation of North Korea’s financial activities, connections, and methods. I certainly look forward to reading it.

I think the U.N. has been trying to confuse me by being effective recently. It’s working. But then, the U.N. still can’t really enforce measures like these without the cooperation of U.S. and EU financial regulators. POE reports can, however, be highly complimentary of national enforcement authorities, including those of Treasury.

Unlike most other U.N. products, Panel of Experts reports make for interesting reading, and often contain hard-hitting findings. Here are links to previous UNPOE reports from 2010, 2012, and 2013, along with the U.N.’s list of persons designated for asset blocking. Note that the list does not match the EU list, or the U.S. Treasury list of Specially Designated Nationals. Members states (and the U.N. itself) have far to go to harmonize their enforcement efforts, but reporting on those gaps is a good beginning.