Archive for Sanctions

Obama Administration hints at sanctioning N. Korean human rights violators

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

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

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

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

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

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

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

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* Grammatical error in original.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

203. At the time of the freeze order, Mr. Kim Yong Nam was a Reconnaissance General Bureau officer operating under the cover of a contract as an employee at the headquarters of the United Nations Educational, Scientific and Cultural Organization (UNESCO) in Paris and Mr. Kim Su Gwang was a Reconnaissance General Bureau officer operating under the cover of a position as an international civil servant at the World Food Programme (WFP) in Rome. Ms. Kim Su Gyong works at the Korean United Development Bank in Pyongyang and was engaged in financial activities under false pretences in order to conceal the involvement of her country. The three are related and have all provided support to Reconnaissance General Bureau officers abroad. Additional information obtained by the Panel regarding these individuals is summarized in annex 49.

One can only speculate as to how that infiltration has affected the WFP’s internal integrity or external messaging. The very fact that the WFP hired a North Korean government official into its headquarters in Rome is disturbing, much less a spy. After all, the WFP’s own Inspector General reports give the WFP ample notice of the risk of manipulation and diversion. I’ve yet to hear a single report that the WFP has begun an investigation, or fired the spy.

Let’s make no mistake here — sanctions are not the reason North Koreans are going hungry. UN aid agencies have an obligation to be honest about the greater causes, including North Korea’s inequality, military spending, and its restrictions on aid workers. If the aid agencies don’t protect their candor and integrity, the donor fatigue problem will only worsen.

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It’s the same story in other parts of the UN bureaucracy, where a whistleblower scandal is arising from the export of computers to North Korea:

At the center of the debate is the World Intellectual Property Organization, whose mandate includes helping governments create patent systems, allowing it to send technical equipment to sanctioned countries such as North Korea and Iran. Critics including former Justice Department official John Yoo argued that the computers could be used to develop nuclear weapons.

When three WIPO officials raised concerns over the shipments with member states in 2012, the U.S. House Foreign Affairs Committee began an investigation. WIPO Director-General Francis Gurry blocked two of them from testifying before the committee and later fired one before he was due to publicly criticize the agency’s leadership, according to the three whistle-blowers, James Pooley, Miranda Brown and Moncef Kateb. [Swissinfo]

As The Daily NK noted when this story first broke in 2012, this isn’t just about a few loose MacBooks; it involves “advanced computer technology and data-storage servers.” How advanced? It would be nice to know a little more about just what that technology was. It may turn out that obstructing the whistleblowers’ testimony was a greater sin than the sanctions violation.

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There is, of course, a fourth U.N. report that no one is even talking about here — the Commission of Inquiry’s report on human rights. It would do much to inform the other reports, especially Relief Web’s. Unfortunately, there is no UN bureaucracy whose job it is to represent the interests of that report’s subjects, or to implement its recommendations.

More broadly, all four reports point to a widening divide between different UN bodies, their interests, and their influences. It’s clear that North Korea has succeeded in wedging those divides to pit concerns for the humanitarian needs of the North Korean people against the interests of the Security Council in enforcing sanctions meant to disarm North Korea, thus exploiting the former and weakening the latter. No one in the UN is mediating and adjudicating these conflicting interests, even where (as with humanitarian exceptions to the sanctions) sensible compromises are within easy reach. Consequently, “United Nations” is again proven to be an oxymoron.

The obvious conclusion one draws is of a leadership vacuum in the higher reaches of the UN. But perhaps strong leadership that stifles free debate and disclosure would be even worse. That’s especially so when one considers that the leader is Ban Ki-moon.

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Updates, 15 April 2015:

[1] More about North Korea’s financial means, and how it chooses to spend it: North Korea increased its military spending by 16 percent over the last five years, to $10.2 billion (with a “b”) last year. That’s nearly 100 times the $111 million (with an “million) UN is asking for.

[2] Today, the Daily NK published another fascinating report on private farming, and it makes me wonder if we’re missing the real ag-reform story. To North Korean farmers, June 28th is so 2012:

While the North Korean authorities continue to push the bunjo [cooperative farm production unit] system, residents, on the other hand, are largely focusing on cultivating individual plots. According to sources within the country, this is because after failing to see the increased allotment of production under the nascent  system, discontent with the state’s hollow promises has spread rapidly among the population.

“As preparations for spring cultivation are in full swing, people feel that individual farming is far more of a priority than collective farming. It’s a major shift from last year,” a source from Yangkang Province reported to Daily NK on April 13th. “With spring upon us, more households are facing decreased food supplies, so groups of residents have been gathering together to commiserate and mull over the matter together.”

North Korea stipulated in its “June 28th Measures,” announced in 2012, plans for the state to establish a “new economic management system in its own style.” Under the new system, production units on cooperative farms shrank from groups of 10 to 25, to smaller factions [pojeon] of 4 to 6 members. The state receives 70% of the target production, with farmers taking 30% and any surplus if targets are exceeded. [Daily NK]

According to the report, farmers have been cheated so many times now that they distrust the state to keep its share-cropping promises. Instead, they’re doing what they can to slip outside the state’s system and grow food privately. The story even causes me to wonder whether the June 28th measures were nothing more than a way to pacify farmers whose sotoji farms were being confiscated, or whose crops were being cut down.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Breaking news! FINCEN rehashes same old North Korea advisory.

To hear Yonhap tell it, the Treasury Department’s Financial Crimes Enforcement Network just stuffed Kim Jong Un into a size XXXXL iron maiden, financially speaking:

The United States has issued another advisory on financial transactions with North Korea, designating the communist country as a jurisdiction with high money laundering and terrorist financing risks, a U.S. report said Wednesday.

The guidance to U.S. financial institutions, issued Monday by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), is based on the international money laundering watchdog Financial Action Task Force’s updated list of countries with anti-money laundering and counter-terrorist financing deficiencies, according to the Radio Free Asia (RFA) report. [Yonhap]

The truth is much less dramatic. In reality, FINCEN didn’t “designate” North Korea as anything. It’s just echoing the latest iteration of the same call for “countermeasures” against North Korean money laundering that the Financial Action Task Force (FATF) has been issuing since 2011. If you actually read FINCEN’s advisory, there’s a section called “Summary of Changes to this List,” which shows that the advisory language applicable to North Korea didn’t change at all.

Jurisdictions in this section (Iran and DPRK) are subject to the FATF’s call on its members and other countries to apply countermeasures to protect the international financial system from AML/CFT risks. U.S. financial institutions should continue to consult existing FinCEN and U.S. Department of the Treasury (Treasury) guidance on engaging in financial transactions with Iran and DPRK. Previous FinCEN advisories and guidance on Iran and DPRK remain in effect. [….]

Existing U.S. sanctions – in particular, those under the North Korea Sanctions Regulations and Executive Orders 13570 and 13551 – create a legal framework that limits U.S. financial institutions’ direct exposure to the types of North Korean financial or commercial transactions contributing to DPRK’s proliferation activities that are the focus of UNSCRs 2087 and 2094, as well as UNSCR 1718. [FINCEN]

Warnings like these may well dissuade the more reputation-conscious banks from handling transactions with North Korea or encourage them to report the suspicious ones, but this advisory doesn’t block anything, and strictly speaking, isn’t even a sanction. It’s the banking equivalent of, “Hey, kid, be careful, broken glass.”

In fairness, I vaguely recall that I made the same mistake myself several years ago, when I knew much less about this subject. There isn’t really much of a story here at all.

For those interested in what our North Korea sanctions actually do — and don’t do — the only primer I’m aware of is the one I wrote for the Fletcher Security Review.

Russia’s nuclear cooperation with N. Korea violates at least three UNSC resolutions

My final excerpt from the draft U.N. Panel of Experts report is a lengthy graf (below the fold) describing long-standing and continuing Russian assistance to, and cooperation with, some of the same scientists involved in North Korea’s nuclear weapons program.

It’s hard for me to understand how this is not a violation of the UNSC sanctions. Despite the fact that key scientists in designated North Korean agencies (for example, its General Bureau of Atomic Energy) were invited to do research in Russia, Russia argues that technically, it didn’t invite any designated individuals, that its own facility’s purposes are peaceful, and that North Korea “should not be excluded from fundamental science activities.”

The POE responds that “all … nuclear programmes” means what it says. I’ll helpfully insert the relevant provisions, starting with this one from UNSCR 1718 (2006):

6. Decides that the DPRK shall abandon all nuclear weapons and existing nuclear programmes in a complete, verifiable and irreversible manner, shall act strictly in accordance with the obligations applicable to parties under the Treaty on the Non-Proliferation of Nuclear Weapons and the terms and conditions of its International Atomic Energy Agency (IAEA) Safeguards Agreement (IAEA INFCIRC/403) and shall provide the IAEA transparency measures extending beyond these requirements, including such access to individuals, documentation, equipments and facilities as may be required and deemed necessary by the IAEA;

And there is this, from UNSCR 1874 (2009):

“8.   Decides that the DPRK shall abandon all nuclear weapons and existing nuclear programmes in a complete, verifiable and irreversible manner and immediately cease all related activities, shall act strictly in accordance with the obligations applicable to parties under the NPT and the terms and conditions of the IAEA Safeguards Agreement (IAEA INFCIRC/403) and shall provide the IAEA transparency measures extending beyond these requirements, including such access to individuals, documentation, equipment and facilities as may be required and deemed necessary by the IAEA;

And this, from UNSCR 2094 (2013):

“5.   Condemns all the DPRK’s ongoing nuclear activities, including its uranium enrichment, notes that all such activities are in violation of resolutions 1718 (2006), 1874 (2009) and 2087 (2013), reaffirms its decision that the DPRK shall abandon all nuclear weapons and existing nuclear programmes, in a complete, verifiable and irreversible manner and immediately cease all related activities and shall act strictly in accordance with the obligations applicable to parties under the NPT and the terms and conditions of the IAEA Safeguards Agreement (IAEA INFCIRC/403);

Under Section 104(a) of the NKSEA, the Russian institute concerned would be subject to mandatory asset blocking, and possibly to criminal prosecution leading to the forfeiture of its U.S.-based assets. Unless, of course, the institute was unwise enough to have kept its funds in Euros or (may God help them) Rubles. In which case, the question would shift to which bank the Institute uses.

The POE stops short of concluding that Russia is in violation, but says it will continue to investigate. The POE is also investigating that recent report that Russia invited North Korean representatives to attend a weapons trade fair. All in all, it’s a promising candidacy for the Axis of Evil. Excerpts follow.

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Why legal investments in North Korea are a money laundering risk

You’ve often seen me write about the importance of “financial transparency” in transactions with North Korea. For a decade, economic engagement has mostly been done by one of two models: (1) controlled interactions with members of the elite, the actual effects of which are negligible at best; and (2) barbed-wire capitalism, where a few North Korean officials relay orders from foreign managers to hand-picked workers, and where the regime seals the whole enterprise off to prevent it from influencing the local community.

The former are, for the most part, of little financial significance. The latter may represent a significant source of income for illegitimate uses, and may also help the regime hide its flows of dirty money.

It wasn’t supposed to be this way by now. The idea behind economic engagement was to gradually draw North Korea into compliance with the rules that the civilized world lives by. Yet ten years later, the South Korean Unification Ministry can’t tell us how much (if anything) Kaesong’s workers receive after the regime takes its cut from their wages, and the Undersecretary of the Treasury recently expressed his concern about just how North Korea is spending that money.

The U.N. Panel of Experts now expresses a related worry — that North Korea could be using its ostensibly legal businesses to conceal and launder the proceeds of illicit activity:Screen Shot 2015-03-03 at 7.32.53 AMScreen Shot 2015-03-03 at 7.33.11 AMA few days ago, we saw that North Korean diplomats have been smuggling gold to earn hard currency for Pyongyang. That’s not just of concern because of how North Korea spends the earnings, but also because of concerns about conditions in which the gold is mined. As noted here, however, North Korea continues to run most of this business through the dollar system.

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Hence, the renewal of FATF’s warning about “countermeasures.”

Recently, a scholar friend emailed me that his opponent in a debate had criticized the effrontery of blocking North Korean assets that are the co-mingled proceeds of legal and illicit activity. In fact, that is standard law enforcement practice, because co-mingling is the essence of how criminal organizations conceal the illicit origin of their earnings.

Defendants often commingle SUA proceeds with legitimate funds. The government need not prove that all proceeds in a transaction were unlawfully derived, but must be able to trace some of the proceeds to a SUA. Criminally derived proceeds deposited with legal funds are considered to be withdrawn last unless the account/business is deemed to be permeated with fraud. This implies that the business operations are so intertwined with fraud that to segregate the legitimate operation and profits is impossible. Special agents should work closely with the attorney for the government when investigations involve commingled funds to ensure the elements of the crime are met. [IRS]

That’s why Congress, and many third-country parliaments, have long given their law enforcement agencies the authority to seize co-mingled funds.

The Treasury Department could do a great deal to regulate transactions with North Korea — and perhaps, put more food into empty bellies and drive the development of a true market economy — simply by requiring OFAC to license them. As a condition of each license, the Treasury Department could ask the applicant for assurances that the ultimate end-use of the funds would be for items that would benefit the people: food, clothing, medicine, consumer goods, materials for civilian construction projects, or electronic items like desktop computers that help to open up information flows.

To make this requirement truly effective, the EU Central Bank could impose similar requirements for Euro-clearing transactions. If Canada, Britain, Australia, and Switzerland joined, they would collectively cover just about all of the world’s convertible currencies, leaving only trades in Chinese Yuan unregulated. Of the latter, the Treasury Department could still target the most egregious with secondary sanctions.

In his paper about labor conditions in Kaesong, Marcus Noland called for investors in North Korea to adhere to a single set of minimal standards, akin to the Sullivan Principles. What I’m calling for here is a financial analogue to the Sullivan Principles — a requirement that investors ensure that their money will be used to better the lives of the North Korean people, rather than being wasted on weapons and luxury goods.

The real flaw in the engagement argument today, ten years after it began, is that it can’t show any significant, enduring, positive impact on North Korea, its treatment of its people, or its relations with the wider world.

It’s unfortunate that so many advocates of engagement are too focused on making nice with their minders to insist that the regime make any of the changes they once promised. Two good places to begin would be transparency in their labor and financial arrangements. If they did, they might strengthen their argument by showing that they’ve made legitimate, positive change in how North Korea does business.

North Korea evades U.N. sanctions with shell games, spell games, and whack-a-mole

On any given day, the U.S. Treasury Department’s Office of Foreign Assets Control may publish several pages of new designations for the list of Specially Designated Nationals. Inevitably, most of the designations will be designations of aliases. That’s because one of the oldest sanctions-evasion tricks is renaming an entity, so that when banks type its name into their software, they don’t get a hit that might warn them to decline the transaction, block the account, or file a Suspicious Activity Report.

In the case of North Korea, there’s an additional and related problem. North Korea can also play spell games with the English transliteration of Korean names. The U.N. Panel of Experts has specifically raised that issue as a problem that requires closer attention from national governments.

So when Treasury designates a list of North Korean smuggling ships, as it did last July, it’s not enough to publish their names and IMO numbers and call it done.

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Like any sanctions program, the enforcement of sanctions against North Korea requires constant attention and follow-up.

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It’s a long game of what Marcus Noland calls Whack-a-Mole. And judging by the POE’s latest report, we aren’t winning that game.

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This isn’t a grand new revelation. NK News’s Leo Byrne, one of the very best reporters to cover North Korea for any publication, noticed this last October. Four months later, Treasury hasn’t followed up with new alias designations. You can even extend that M.O. back to this 2006 New York Times report, on North Korea’s use of deceptive shipping practices, like re-naming and re-flagging. Whether Treasury’s inaction reflects a lack of political will or a simple lack of resources, I’ll decline to speculate.

A key point the POE makes is that member states are required to seize these vessels as soon as they identify them.

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Instead, several nations are allowing Ocean Maritime Management to continue operating on their soil, or from their ports.

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OMM doesn’t just rename its ships; it also renames itself. Lately, for example, it has gone by the names “Haejin Ship Management Co Ltd.” and “Yongjin Ship Management Co Ltd.” Sometimes, it puts each ship under the ownership of its own shell company. The POE also suspects that OMM is working through Singapore-based entities known as ”Senat Shipping & Trading Private Limited,” “Senat Shipping Limited,” and “Senat Shipping Agency Pte. Ltd.,” particularly for the handling of its financial transactions. The POE put some questions to Senat. Senat hasn’t responded.

OMM’s deceptive practices don’t only appear to be designed to evade sanctions. They also appear to be intended to evade creditors. Switching the ownership of each ship to a single shell company is helpful for that.

As a result, OMM is still in business. And in some cases, its agents are actually North Korean diplomats.

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The POE even made this interesting diagram.

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North Korea isn’t only playing whack-a-mole with shipping. Notorious (and U.N.-designated) proliferator Ryonha Machinery sometimes goes by “Millim Technology Company.” It operates openly in Dandong and Beijing, China under that name. The General Department of Atomic Energy of the DPRK now calls itself the “Ministry of Atomic Energy Industry of DPRK.” The Korean Committee for Space Technology recently renamed itself the “National Aerospace Development Administration,” or NADA (couldn’t you have checked that one with your Cuban friends?). The Second Academy of Natural Sciences has taken to calling itself the “National Defence Science of the Democratic People’s Republic of Korea.”

The moles, in other words, are popping up faster than we can whack them. Thanks to Chinese stalling, the U.N. bureaucracy is too hopelessly slow to keep up, and the member state governments (including ours) that are supposed to be enforcing these sanctions aren’t paying attention.

The report tells us some other interesting things about North Korea’s merchant fleet. As North Korea’s fleet ages out, it is switching to smaller vessels. In a rare bit of good news, its port calls in non-Chinese foreign ports have declined dramatically in recent years, “to just 6 percent of 2008 figures,” according to the POE. Today, nearly all of its direct shipping trade is with China. It would make sense for North Korea to migrate to smaller ships in that case. In the past, for example, in the 2009 ANL Australia incident, North Korea shipped its cargo to Chinese ports in containers, and then played a shell game with port authorities all the way to Dubai, and very nearly to Bandar Abbas.

North Korea is also relying more on reflagging — the use of so-called “flags of convenience,” to dodge inspections.

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The obvious answer is for governments to call on these states to stop reflagging North Korean ships, unless they physically cross-check their IMOs. If these states continue reflagging vessels that are subject to immediate seizure, vessels flying these flags should be targeted for inspection by the United States and other countries. This is a national security issue. God only knows what the North Koreans might want to slip into this country in a shipping container. For more on that option, see Section 205 of the NKSEA.

One potential exploit in North Korea’s shipping system is insurance. North Korea has found it difficult enough to insure its vessels that it self-insures.

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We saw, in the case of the Mu Du Bong, that North Korean self-insurance isn’t particularly useful. One solution to that problem is for ports to refuse to accept KSPIA as a valid insurer. When port directors and customs inspectors see that a vessel is insured by KSPIA, that should also be a signal for them to check the vessel’s IMO number, or any links to Ocean Maritime Management or its aliases. If they can, they should be seizing any of its vessels on the spot.

Finally, North Korean ships are switching off their transponders.

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Screen Shot 2015-02-27 at 6.56.41 PMThat’s often the first sign of a vessel that’s engaged in smuggling or piracy. Those vessels should be followed to port, boarded, and inspected.

The POE also seems close to calling for the designation of Air Koryo, although I’d personally counsel against that, absent some established link between them and North Korea’s post-UNSCR 1874 smuggling:

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I’ll close with this graphic of POE’s various methods of deception.

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Clearly, many member states aren’t taking the enforcement of these sanctions seriously. What’s most obviously lacking is any coordination of enforcement among governments. If only there were some inter-governmental organization whose mission were to control proliferation through international air and maritime cargo. Even better, if only that organization were unencumbered by a requirement for unanimous consent, or the threat of a veto from Russia or China. Oh, wait. There is exactly such an organization. So what’s stopping us?

Yes, North Korea is still using the dollar system to launder its money.

The Financial Action Task Force has re-issued its call for “countermeasures” against the risks of money laundering and terrorist financing emanating from North Korea. The FATF’s call is not significantly different from advisories the FATF has issued since 2011, but it is significant in one way.

More sensible Korea-watchers are accustomed to the pavlovian response of the South Korean press, and of certain American academics, whenever North Korea hints at being willing to talk. We saw this again after Kim Jong Un’s New Year speech, which was (as is traditional) so selectively overanalyzed that Kim Jong Un’s intent could not be identified from dental records. We saw it when the editors of The New York Times seized on a risible North Korean offer and called on President Obama to “test North Korea’s intentions” — it would be equally enlightening to test Dennis Rodman’s urine — as if the last 20 years have tested nothing. By my count, North Korea has conducted three underground tests of its intentions. But I digress.

We saw the same Pavlovian response in some reporters after North Korea agreed to hold talks with the FATF, and after its Central Bank issued a statement committing “to implementing the action plan of ‘international standard’ for anti-money laundering and combating the financing of terrorism.” (As if.) Yonhap even took it seriously when Pyongyang announced that it had established its own anti-money laundering body. And here’s how the FATF dispensed with that:

Since October 2014, the DPRK sent a letter to the FATF indicating its commitment to implementing the action plan developed with the FATF.

However, the FATF remains concerned by the DPRK’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. The FATF urges the DPRK to immediately and meaningfully address its AML/CFT deficiencies.

The FATF reaffirms its 25 February 2011 call on its members, and urges all jurisdictions, to advise their financial institutions to give special attention to business relationships and transactions with the DPRK, including DPRK companies and financial institutions. In addition to enhanced scrutiny, the FATF further calls on its members, and urges all jurisdictions, to apply effective counter-measures to protect their financial sectors from ML/FT risks emanating from the DPRK. Jurisdictions should also protect against correspondent relationships being used to bypass or evade counter-measures and risk mitigation practices, and take into account ML/FT risks when considering requests by DPRK financial institutions to open branches and subsidiaries in their jurisdiction. [FATF]

The force may have a strong influence on the weak-minded, but Pyongyang’s mind tricks haven’t influenced the FATF’s bankers. Maybe all those years of foreclosing on tearful widows and orphans have built an immunity that can, in a different context, serve mankind’s greater good. It never ceases to fascinate me how much better bankers are at diplomacy than diplomats are. A certain discipline may come with the expectation that the words in contracts are meaningful and enforceable as written. The FATF expects more than words from North Korea, and the latest draft U.N. Panel of Experts report goes far to explain why.

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That is, North Korea habitually uses deceptive financial practices similar to those used by criminal organizations. Moving money this way has a higher risk premium, higher cost, slower speed, and less flexibility. North Korea wouldn’t use these cryptic, bronze-age methods unless it was hiding something. Similarly, if Pyongyang’s finances are legit, why is it using Reconnaissance General Bureau agents as bulk cash smugglers?

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The U.N. report also tells us that North Korea continues to use the dollar system for those deceptive practices.

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That isn’t the only report this week that King Dollar rules in Pyongyang, partially as a consequence of Pyongyang’s catastrophically self-destructive currency “reform.” An interesting report in The Daily NK tells us that North Korea’s Ministry of Railways expects payment for shipping from both its state-controlled “foreign-currency earning enterprises” and “individual vendors” in U.S. dollars. This Yonhap report quotes an anonymous source, who says that “Pyongyang has become a de-facto dollar-using economy,” although the Yuan is more popular near the Chinese border.

And here’s an example of how this works in practice:

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The FATF’s warnings, of course, are merely persuasive authority; they don’t have the force of law. They are persuasive to responsible governments and banks, but North Korea finds its enablers among the world’s less responsible actors. That will not change until the U.S. Treasury Department and other regulators credibly threaten those actors with secondary sanctions. You can almost hear the Panel of Experts calling on the Treasury Department to do exactly that here, with respect to North Korean weapons smuggler/shipper Ocean Maritime Management, and others:

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And what has President Obama done about any of this lately? On January 2, 2015, he signed Executive Order 13687, the actual legal effect of which was to block the assets of ten low-level arms dealers. If there is a single theme that emerges from the latest POE report, however, it is Pyongyang’s speed and deftness at whack-a-mole. I can just about guarantee you that those low-level arms dealers have been replaced by ten other low-level arms dealers. Whatever the effect of EO 13687’s original designations, they were minimal and brief.

There are several conclusions this evidence points to. First, Pyongyang is worried about sanctions. Second, its growing dependency on King Dollar gives it good reason to be. Third, it continues to use the dollar system to engage in money laundering and to violate U.N. Security Council sanctions. Fourth, the Obama Administration has yet to show that it is serious about protecting the U.S. financial system from North Korea’s money laundering, or about making U.N. sanctions work. It tells you everything you need to know that even the U.N. is (in its own subtle way) pleading for the President to enforce the law.

North Korea’s arms trade flourishes as U.S. diplomacy falters

The latest U.N. Panel of Experts report is a bleak one for the U.N., and for an Obama Administration that seems content to outsource its policy to it. North Korea shows no sign of complying with the resolutions, and every sign of pursuing its WMD programs at full speed. Yongbyon was active for a while last year, and as recently as last September, there were signs of new excavation at North Korea’s nuclear test site at Punggye-ri. North Korea has improved its Seohae missile test site, tested a KN-08 engine, and fired off large numbers of rockets and missiles from its east coast.

By design, the U.N. can’t enforce its own resolutions, and governments’ enforcement of the U.N. sanctions is flagging. This chart from the latest U.N. Panel of Experts report should tell you most of what you need to know:

Screen Shot 2015-03-02 at 8.23.14 AMIn other words, most member states are less likely to have reported back to the U.N. on their enforcement of North Korea sanctions than they were to have reported on their enforcement of other U.N. sanctions. We’ll turn to why later in this post, but a number of anecdotes reported by the POE should give you a good idea:

– Iran (of course) has been shipping North Korean weapons to Yemen (most likely to Houthi militias). That would be consistent with Iran’s long-standing practice of buying North Korean weapons for Hamas and Hezbollah.

– Ethiopia, a longstanding arms client of North Korea, is suspected of violating the arms embargo to buy ammunition from the Korea Mineral Trading General Corporation, or KOMID, which has been designated by Treasury for its proliferation-related activities.

– Next door, Ethiopia’s arch-enemy, Eritrea is suspected of “arms-related cooperation” with Green Pine Associated Corporation, another North Korean proliferator.

I’ve previously accused Uganda of violating the arms embargo by hiring North Koreans to train its police, and apparently, the POE agrees:

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– North Korean-made 107- and 122-millimeter rockets have been found in the possession of rebels in the eastern D.R. Congo. The POE is still investigating, but Uganda and Rwanda are both known to have armed rebel groups there.

– The POE also updates us on the abortive sale by corrupt Mongolian military officers of MiG-21s to North Korea. The story has a happy ending: the sale was blocked, and the North Koreans never got their money back.

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The POE also reports that an unknown European state provided information leading to the discovery of “an air shipment” of “spare parts for Yugo class submarines that were procured in the United States market, for a military-related company based in South-East Asia.” Really? There are people in the United States who deal in that sort of gear? So where are the indictments? Maybe they’re filed in the same receptacle as Dennis Rodman’s civil penalty.

While we’re on the subject of luxury goods, the U.S. is in good company in its lackluster enforcement:

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There are certainly plenty of knowing suppliers, although the only guilty party these particular facts implicate is the one that the luxury goods almost necessarily traversed to get to North Korea.

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So while one part of the U.N. goes begging for aid for malnourished North Korean kids, another part of the U.N. can only point out that Kim Jong Un is spending freely on limousines, ski equipment, and yachts:

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Not even rule-bound Britain would (or could) make Princess Yachts answer the POE’s questions about selling yachts to North Korea. That’s typical: of 262 requests the POE sent out last year, asking for information, it only received 116 responses.

Numerous states also hosted offices of U.N.- and U.S.- sanctioned Ocean Maritime Management “including Brazil (São Paulo, Brasilia), China (Dalian, Hong Kong, Shenzhen), Egypt (Port Said), Greece (Athens), Japan, Malaysia (Kuala Lumpur), Peru (Lima), the Russian Federation (Vladivostok), Singapore and Thailand (Bangkok).” But more on shipping in a future post.

Then, there is the example of Cuba. It violated the North Korea sanctions flagrantly, yet neither the U.N. nor the Treasury Department sanctioned a single Cuban person or entity for it. You may agree with the U.S. policy shift toward Cuba, and you may not, but the U.S. was able to improve its relationship with Burma and still sanction Burmese generals for their arms deals with North Korea.

~   ~   ~

The picture this paints is of a sanctions regime that few governments — including ours — believe they have to take seriously. It isn’t the job of the POE, after all, to enforce the law. That’s something member states have to do through their national laws.

The Ugandas, Ethiopias, and Chinas of the world have their own reasons for violating sanctions. They aren’t going to be persuaded to change their behavior the easy way. We can raise the cost of their non-compliance, but that would require political will. States that receive U.S. aid may find themselves denied aid one day under Section 203 of the NKSEA, and the bureaucrats responsible for arms deals with North Korea could have their assets blocked. In the case of China, forcing change will require a combination of credible threats and face-saving diplomacy.

Other governments are probably more passive and persuadable, but they might reasonably ask why they should be the only ones enforcing the resolutions. They aren’t necessarily looking to the U.S. for leadership, but because of America’s economic power, U.S. leadership would certainly sway many of them toward a global consensus of serious enforcement of North Korea sanctions. If forced to choose whether to have an economic relationship with the United States or an economic relationship with North Korea, the choice would be an easy one for most banks and governments. Right now, that’s not a choice anyone has to make. But if the U.S. doesn’t lead, who will? And if it doesn’t, who will follow?

Most people remember that the Treasury Department sanctioned Banco Delta Asia. Few people remember that top Treasury Department officials did much more than sanction one bank in 2005 — they launched a campaign of financial diplomacy to persuade bankers and finance ministers from Moscow to Ulaanbaatar to Hanoi to distance themselves from North Korea. It was multilateral diplomacy at its best, and it worked, until the State Department swallowed Kim Jong Il’s bait and undid all of it. What’s needed today is neither war nor appeasement, but some good diplomacy. Of course, all good diplomacy requires leverage, in the form of veiled consequences.

So, what “appropriate measures” *did* the feds take against Dennis Rodman for violating N. Korea sanctions?

The newest U.N. Panel of Experts report* on North Korea sanctions enforcement contains this buried treasure:

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The first question this raises is what those appropriate measures were. The use of passive voice conceals whether the feds took any measures at all.

The second question is why there should be a “lack of information” from Rodman, when the Commerce and Treasury Departments have subpoena powers and an obligation to cooperate with U.N. authorities enforcing North Korea sanctions. The law applies to superpowers and celebrities, too.

There is video evidence of Rodman personally giving Kim Jong Un banned luxury gifts in violation of Commerce Department regulations and Executive Order 13551. I previously explained here why that’s a felony, and there’s no question that at least some of the goods presented are listed on Supplement 1 and were luxury goods.

Don’t get me wrong here. There are bigger fish in this sea than Dennis Rodman. I don’t believe this is the sort of thing that justifies prison time, but it does compel making an example of Rodman and his assortment of camp followers and opportunistic sociopaths, even if only through a modest civil penalty and a (publicly posted) cautionary letter. Ignorance (or willful ignorance) of the law may mitigate punishment, but it’s not a defense.

Having said that, this sort of thing does matter. Cutting off Kim Jong Un’s luxury goods is ultimately about North Korea’s chronic food crisis and the completely needless suffering of its people. The purpose of the ban is to force him to prioritize feeding the 80% of North Koreans who are barely getting through the lean season each year. Conduct like Rodman’s sends a message that the world doesn’t care about their suffering, and that it’s willing to give Kim Jong Un access to the fruits of the world’s fleshpots anyway.

Overall, the POE report paints a picture of a sanctions framework that is being ignored by most U.N. member states. There’s a display of concern when North Korea does something hideous that actually makes headlines, and then everyone goes right back to ignoring them. How are North Korea’s arms clients in Uganda, Tanzania, and Ethiopia supposed to react if the U.S. doesn’t appear to be serious about enforcing them, either?

~   ~   ~

* This is from a draft leaked to me; the final still isn’t published.

Kim Jong Un seeks friends and funds abroad as he isolates his people.

In the three years that he has been in power, His Porcine Majesty has found plenty of time for Dennis Rodman, but none for meetings with foreign leaders. Suddenly, in the last two months, he has flirted with (1) a summit with South Korean leader Park Geun-Hye, (2) inviting Japanese Prime Minister Shinzo Abe to Pyongyang, (3) and a visit to Vladimir Putin in Moscow in May. His central bank even “committed itself to implementing the action plan of ‘international standard’ for anti-money laundering and combating the financing of terrorism.” (I’m sure Pyongyang will find some way to reconcile this with its arms sales to Hezbollah and Hamas.)

If you believe that talks with North Korea are immediately capable of solving anything, or that they are an end in themselves, you may be pleased that Kim Jong Un has developed this urgent interest in diplomacy. What accounts for this belated quinceañera, assuming that any of these meetings comes to pass? Only Kim Jong Un knows, but I doubt it has anything to do with a yearning for more intelligent companionship. There’s almost certainly a financial motive, if not more than one.

One motive may be a growing threat of sanctions. Kim’s charm offensive began just after December 19th, when FBI and President Obama announced that North Korea had hacked Sony Pictures and threatened audiences for “The Interview.” Almost immediately, Congress called for stronger sanctions, and centrist figures in the foreign policy establishment, including Richard Haass and Winston Lord, began calling for regime change. President Obama himself suggested that the collapse of North Korea’s system was inevitable, although he didn’t declare an intent to catalyze that result.

On January 2nd, President Obama signed Executive Order 13687, authorizing sanctions against all entities and officials of North Korea’s government and ruling party, and (more importantly) authorizing secondary sanctions against the Chinese, and other entities that provide Pyongyang its regime-sustaining hard currency. The order was potentially sweeping and devastating, but in its actual impact, it reached only three entities that were already sanctioned, and ten mid- to low-level arms dealers. But the President also said that this was only a first step, which left Pyongyang scurrying to secure its financial lifelines.

Pyongyang’s charm offensives always seem to come just as the political will waxes to enforce sanctions against it. The charm offensives play on the individual interest of each interlocutor — Park Geun Hye’s domestic unpopularity, Shinzo Abe’s desire to bring abductees home, Putin’s search for ways to f**k with Obama — to disrupt any coordination among them. It works because we’re dumb enough to let it. And once sanctions enforcement wanes, so will Kim Jong Un’s interest in diplomacy.

One thing is clear enough: a credible threat of sanctions certainly hasn’t done any harm to prospects for diplomacy with North Korea. I could also say, with equal conviction, that they haven’t harmed John Hinckley’s odds of marrying Jodie Foster.

~   ~   ~

Another possible explanation is a series of reports suggesting that North Korea’s trade relations with China are declining. For one thing, fewer North Koreans are traveling there:

Overall figures for North Korean residents entering China annually totaled between 100,000-120,000 until 2010 before jumping to 150,000 in 2011. A steady period of continual increase in visitors followed until 2013, when the number of North Koreans traveling to China reached an all-time high of 200,000, roughly half of whom noted their reason for making the trip as “looking for work.” Aside from finding employment, 34,000 went to conduct business or attend a conference, and 1,500 went purely to travel. This represents a 60% and 50% respective reduction when compared to last year’s figures. Visits to friends and relatives dropped to 1,100–one-third of those making the trip for the same reason in 2013.

Male visitors [150,000] composed five times total amount of females [30,000] visiting China from North Korea. Most North Koreans [77,000] traveled by boat for the trip. [Daily NK]

North Korean agents who do travel to China are also having more difficulty doing business there. There’s no evidence this has anything to do with sanctions. It appears to be because of a combination of a sagging Chinese economy and the lingering effects of the Jang Song-Thaek purge. After that purge, I posted here that the regime had called home large numbers of its China-based money men, presumably men who were loyal to Jang or thought to be, and that the money men had stayed away in droves. Subsequently, I posted about another reported defection of a senior financier in Russia. That trend continues:

A source in a northeastern Chinese city, who spoke on condition of anonymity because of the sensitivity of the issue, said only about 30 percent of the North Korean businessmen have returned to China after being summoned.The summonses are also believed to be part of efforts by North Korea to redistribute the “rights of doing businesses with China,” a key source of earning hard currency, to its ruling elite, the source said.”The replacement of businessmen loyal to Jang Song-thaek has been gradually carried out and a lot of North Korean businessmen were summoned until late last year,” the source said. “Of those being summoned, only about 30 percent returned to China.”There are no official data on how many North Korean businessmen are working in the Chinese border cities.A second source in another Chinese border city with North Korea said that about 170 North Korean businessmen in the city were replaced over the past year.With Chinese investor confidence eroding over the North’s unpredictable behavior, the new North Korean businessmen come under further pressure in building business connections with their Chinese counterparts, the second source said. [Yonhap, via the Korea Herald]

Not only is the sagging Chinese economy hurting Bureau 39, but according to the report, “Chinese investor confidence” is also “eroding.” One reason may be the arbitrary behavior of North Korean officials, including their inclination toward unilateral price increases and demands for bribes and prostitutes. I can’t speak to the latter concern, but the former concern can’t have improved since Kim Jong Un had Jang shot for “selling off precious resources of the country at cheap prices.” This is consistent with evidence of a sudden onset of distress in North Korea’s mining industry, although I can’t say whether poor investor relations are a cause of the problems or a consequence of them.

The report cites Korea Trade and Investment Promotion Agency (KOTRA) figures, according to which, “North Korea’s annual trade with China fell 2.4 percent from a year ago in 2014,” from $6.54 to $6.39 billion, “marking the first decline since 2009.” These figures are sourced to Chinese government statistics, which is one reason to distrust them. For example, we read a lot of reporting last year that China had cut off North Korea’s crude oil supply, only to find that China had merely reclassified its trade as aid, or supplied Pyongyang with refined petroleum products (such as jet fuel) instead.

The report also claims that “North Korea’s exports of coal to China slipped 17.6 percent from a year ago to $1.13 billion, marking the first drop in 8 years.” I see more extrinsic evidence that that report is accurate.

And there are other signs of trouble: it would be a snub for Kim Jong Un to visit Russia before he visits China, and it was a snub for the leaders of China and South Korea to meet before the leaders of China and North Korea met. China didn’t send a representative to Kim Jong Il’s latest birthday party, either. This doesn’t yet mean that China has broken with North Korea. It certainly doesn’t mean that China wants to destabilize North Korea. It bears watching, however.

~   ~   ~

In other ways, Pyongyang is intensifying its isolationism. The ones that have attracted the most media attention are its bans on foreigners entering North Korea for a marathon and its creepy Arirang Festival. (By contrast, it recently granted permission for this “peace” march by a group of left-wing activists, led by Christine Ahn and Gloria Steinem). The dubious pretext for Pyongyang’s isolationism is that it is a precautionary quarantine against Ebola. This has inconvenienced two groups of useful idiots — the North Korea tour companies and the slummers who use them. I don’t see the down side to that. In the long run, it will mean fewer hostages for Pyongyang, and less hard currency for its bank accounts.

Why would Pyongyang shut down this lucrative, low-risk traffic in people with more money than sense or soul? No one knows but Pyongyang. Maybe it really is terrified of Ebola, yet confident that Gloria Steinem isn’t a carrier. Then again, maybe it’s terrified of a contagion of another kind.

For years, the pro-“engagement” argument for tourism in North Korea has been that there is something transformational, even dangerously subversive, about it that minders, deceptions, and other controls can’t contain. (Somehow, I doubt that Koryo Tours and Young Pioneers make the same argument to their contacts in Pyongyang.) I’ve usually been dismissive of this argument, although I’d be genuinely interested in hearing any evidence that Pyongyang thinks it has anything to fear from this kind of tourism. Even if that argument had any merit, Pyongyang knows how to deal with foreign subversive influences. Maybe it just did.

~   ~   ~
Kim Jong Un has been isolating low-caste North Koreans since the very beginning of his reign. His regime continues to do that by terrorizing traders, cracking down on cell phones, and blocking the flight of desperate people:

“A family of four from North Hamkyung Province attempted to escape with the help from a border guard and a smuggler near the end of last month; however, someone tipped off the proper officials, resulting in their arrest,” a source in Yangkang Province reported to Daily NK on February 4th. “To expedite the family’s escape, the smuggler got a number of soldiers, all of whom he deemed trustworthy, involved. But too many caught wind of the family’s plot to defect, which led to the family’s eventual capture.”

The family’s eldest son purportedly fled while being held in custody, leaving behind the parents and their younger son to endure relentless interrogation at a SSD-run detention center, where they are “as good as dead,” according to the source, because not only were they themselves planning to defect, but now their son presumably succeeded in doing so despite being held in custody. [Daily NK]

Human Rights Watch has documented the border crackdown in a new report, which you can read here.

“North Korean authorities are using brutal punishments to shut the door on people fleeing the country, and cracking down on those who share information with the outside world,” said Phil Robertson, deputy Asia Director. “Kim Jong-Un is trying to silence news of his systemic and pervasive rights crimes by going after the messengers, such as people with connections in South Korea or those who can help North Koreans flee there.”

The North Korean leadership has made clear the country must redouble its efforts to remain shut to the outside world.

“We must set up two or three layers of mosquito nets to prevent the poison of capitalism from being persistently spread by our enemies across the border into our territory,” said Kim Jong-Un, North Korea’s supreme leader, during a speech at the 8th Conference of Ideological Workers of the Korean Worker’s Party on February 25, 2014. “We also have to be active to block the imperialists’ plots for ideological and cultural invasion.” The “mosquito net” system Kim referred to was developed in the North to attract the inflow of foreign investment while blocking the infiltrations of foreign ideas, news, and culture. [….]

According to the escapees, the North Korean government has also been actively tracking down unauthorized phone calls from cell-phones operating on Chinese service provider networks being used by people in the North Korean border areas to call to China or South Korea. “The phones have no signal in the cities anymore and I have heard they even have mobile technology to find the exact location of the caller even after you hang up,” said Kim. “I used to call from my living room, but later I had to go high up in the mountains in the middle of the night and I was scared to talk for more than a minute or two.” Park said she used to get calls from North Korea at all times of the day and talk for long periods, but now the number of calls she receives has shrunk by approximately 60 percent since 2012.

“North Korea feels threatened by news and images of the outside world seeping into the country and now is trying to reassert its control by going after people bringing in the information,” said Robertson. “Talking on an overseas phone call, or watching a foreign television show should not be considered crimes, but the government is tightening control through repression and fear.”

More here and here. One backlash of this increased border control is a rise in cross-border violence, and more tension with China. North Korea’s border guards had come to rely on the bribes and extortion they taxed from this localized, illicit cross-border trade. With the loss of that income, the underpaid guards have turned to violent crime, and like all criminals, they go where the money is. China has since raised militias to patrol the border regions, and North Korea has purged an official of the Supreme Guard Command as punishment for the violence. There were also purges at the local level.

There is a very important point here, one that makes Kim Jong Un’s diplomatic outreach completely consistent with his isolationism: it costs money to pay border guards, buy cell phone trackers, and isolate the people you consider “wavering” or “hostile.” North Korea earns that money by extracting aid from foreign sources, and through its officially sanctioned trade relationships. Here is another way that sanctioning the regime can actually open North Korea to outside trade and influence.

~   ~   ~
These reports paint a picture of a regime that is struggling to maintain its financial links to the outside world, while severing the economic, social, and cultural links between its people and the outside world. If a less isolated, less hungry, less brutal, and less provocative North Korea is in our interests, then our obvious policy response is to undermine both aspects of that policy — to facilitate illicit cross-border flows of information, people, money, and goods, while cutting Pyongyang’s hard currency flows.

The first part of this strategy is the more difficult one. Some of it can be done through broadcasting, some requires creative technological thinking, and some will require clandestine operations.

The second part is about sanctions enforcement, which requires financial intelligence, legal tools, effective diplomacy, and political will.

The reports of defections by North Korean financiers suggest a potential windfall of financial intelligence. Each of these men, and each of their laptops, represents a potential Rosetta Stone. I certainly hope some of them have found safety in the care of U.S. and South Korean intelligence agents. I’ll also express my hope that The Guardian and Al-Jazeera will refrain from getting them — and their entire families — killed, by printing their names.

The Obama Administration will also have to find the political will to dissuade South Korea and Japan from subsidizing Pyongyang and loosening their own sanctions. It will have to find the political will to threaten secondary sanctions against the Chinese and Russian interests that prop Pyongyang up. Lacking this, the administration’s policy will continue to fail. My guesses are (respectively) that it won’t, it won’t, and so it will. North Korea’s hostage-taking, threats, and inducements will recoup more modest financial benefits for the regime. That’s about all Pyongyang needs to undermine the effect of U.N. sanctions, and to sustain its provocative and repressive ways.

More food for hungry North Koreans is not “bad news” for sanctions proponents.

I don’t always agree with Scott Snyder’s views, but I’ve always enjoyed reading his work. In almost every case, I’ve found it to be well-researched and objective. In a blog post for the Council on Foreign Relations, Snyder cautiously concludes that North’s cereal production is “stable and improving” — from 5.93 million tons last year to 5.94 million tons this year, a more generous characterization than the U.N. Food and Agricultural Organization report he cites, which calls North Korea’s food production “stagnant.” My own characterization would be “suspiciously constant.”

The UN FAO estimates that this year’s deficit will be 407,000 tons. That’s still low by historical North Korean standards, but hardly a sign that happy days are here again. The FAO also tells us that the impoverished government of North Korea only intends to import 300,000 tons, leaving an “uncovered deficit” of 107,000 tons. Here is Mercy Corps’s cue to tell us all how desperately North Korea needs food aid.

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[Above: An actual sanctions target, riding aboard another sanctions target.]

At least the World Food Program shouldn’t have to worry about any lack of transport to do monitoring and assessment visits. Maybe His Porcine Majesty can even give Christine Ahn a ride in it, the next time she’s in Pyongyang to complain about how U.S. sanctions are starving North Korean babies.

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Snyder is honest enough to admit some weaknesses in his conclusion. For one, the UN FAO estimate he cites relies on Pyongyang’s own food production statistics, because this year (glasnost alert!), Pyongyang wouldn’t let the FAO do an on-the-ground food security assessment. But that’s no cause for alarm; after all, North Korea wouldn’t try to falsify information about its food supply or manipulate aid agencies, would it?

Snyder also admits that North Korea’s winter crops are falling well short of forecasts, a point that caused aid groups to warn of another food crisis recently:

“We’re concerned about seed scarcity and the low level rain and snowfall,” John Aylieff, deputy Asia director at the U.N.’s World Food Program, said from Pyongyang. “All of these things are raising concerns about the winter harvest this year.”

Winter crops — including wheat and barley — should be growing now, but after an exceptionally dry year in 2014, rainfall around the country has been markedly lower than usual so far this year, particularly in the “cereal bowl” provinces of Pyongan in the west and Hwanghae in the south.

Although the winter harvest makes up only 5 percent of North Korea’s domestic food supply, it is a critical time because the crops see the country through the lean season known locally as the barley hump — the period between May and August before rice and corn crops are harvested.

“If there is a big gap, this could prolong the lean season and it could prove a ‘flash point’ for malnutrition,” Aylieff said.  [WaPo, Anna Fifield]

Take this with a grain of salt, too. I’ve often suspected that some aid groups exaggerate conditions in North Korea, whether to influence policy debates here or to rake in more donations. You can’t even blame them for it. If they don’t know where the trends are heading, they almost have to raise the alarm prematurely to be able to respond to a catastrophe in time.

Snyder also cites Andrei Lankov’s recent writings, which, as I’ve argued here and here, don’t look very well sourced to me, and haven’t held up well against better-sourced evidence. As a friend said about Andrei today, he’s always interesting, and often brilliant, even when he’s wrong. It still looks like wishful thinking to me — evidence that’s mostly apocryphal, ephemeral, or parochial, or a misattribution of market trends unrelated to regime policies.

We’ll know better by November. Meanwhile, obsessing over North Korean agricultural policies is like watching the paint dry on the side of a burning house. Hardly anyone still argues that Pyongyang is interested in broad, serious, structural reforms to its agricultural, economic, or political systems. No one believes they’ll cede their nuclear weapons. I doubt that anyone really knows what the true food situation is, including in Pyongyang. How could it be otherwise in a country where those who do not hoard, starve?

This bring us to another problem. Even if North Korea is growing more food, that doesn’t mean the people are eating more of it. It’s no good to produce more food if regime officials simply seize what they consider to be “surplus” crops for export. And as Snyder concedes, “growing income inequality in North Korea has resulted in continuing malnutrition among some sectors of the population, especially in rural areas.”

Two other interesting points in Snyder’s post reinforce this suspicion: first, North Korea has cut way back on its commercial food imports since the famine years. Second, it raised them again to adjust for a decline in external food aid. In other words, Pyongyang seems to be using commercial imports to calibrate the domestic food supply to a level that, according to the best evidence we have, is a pretty marginal one for 84% of North Koreans. That’s why I call the North’s food supply statistics “suspiciously constant.” We’ll pick that point up again in a moment.

~   ~   ~

My main issue with Snyder’s post, however, is his conclusion:

North Korea’s apparent economic progress is bad news for those who expect increased sanctions to be decisive in driving North Korea to make a strategic choice to give up its nuclear weapons. So far, the effects of increased sanctions have been far from generating sufficient economic pressure to induce North Korea to make such a choice. Under current circumstances, there is nothing to stop North Korea from having its cake and its yellowcake, too.

Well, where does one begin with that? First, here again is the urban legend that our sanctions against North Korea have been strong, and thus properly tested as a tool of policy. For those who haven’t yet read it, I’ve refuted that argument here. It’s certainly true that sanctions have been enforced poorly by just about everyone — from the Chinese, to the South Koreans, to the Obama Administration, and most recently, the Russians. Private jets don’t import themselves, after all.

My real problem with Snyder’s argument, however, is its implication that sanctions would target North Korea’s food supply. I don’t know a single sanctions proponent who wants to target North Korea’s food supply or starve innocent people. Let’s have a look at the care H.R. 757, the North Korea Sanctions Enforcement Act, takes to avoid that, starting with Section 207(a)(2), which provides exemptions for imports of food and medicine:

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There’s also a catch-all waiver provision at Section 207(b)(3) in the event a particular sanction has unintended humanitarian consequences:

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We even wrote a provision at Section 207(d) that would allow the Treasury Department to license a responsible foreign bank to handle transactions to bring food and other humanitarian supplies into North Korea:

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Of course, some banks could adopt excessively cautious interpretations of the law. The answer to that problem is for the Treasury Department to publish guidance and general licenses to give the banks peace of mind that transactions in food and aid don’t violate the law — promptly. As in, Treasury should start drafting that guidance now.

I’ll take this a step further: those of us who advocate for Kim Jong Un’s Götterdämmerung, and for policies that are just as content to catalyze that outcome as to extract change diplomatically, want the North Korean people to have more food, not less. Not only would that be far better for the North Korean people, it might hasten the regime’s overthrow. I’ve long argued that the regime uses hunger as a tool of control: it seeks to keep its people too weak and too exhausted to think of anything but survival. Historically, starving people do not overthrow their oppressors. People who overthrow their oppressors have enough to survive, and to seethe against the ruling class. It is the envy of oligarchs, not famine, that causes revolutions. An ample food supply would not preempt North Korea’s class war, but it would do much to free those on the lower regions of the songbun ladder to contemplate the differences between existence and life.

In short, there would be no “bad news” for any sanctions proponent in a rise in North Korea’s food supply. Pending sanctions legislation takes extreme pain to avoid reducing it. It is wrong to suggest that so many proponents of targeted sanctions legislation — chief among them, longstanding human rights advocates — are so callous about human life and suffering as to intentionally attack the food supply of Kim Jong Un’s victims. It’s an offense that could easily have been avoided by taking the time to read and understand the sanctions before implying as much.

Introducing H.R. 757: The North Korea Sanctions Enforcement Act of 2015

Ed Royce and Elliot Engel, the Chairman and Ranking Member of the House Foreign Affairs Committee, have introduced the new, improved, post-Sony version of H.R. 1771.

Why I’m concerned about the overuse of financial sanctions

As much as I’ve advocated the use of financial sanctions as a potentially effective tool against North Korea, and as much as financial sanctions against Russia appear to have played a significant role in crashing the ruble, it worries me that if we use this tool too much against the wrong targets, we risk blunting the power of our financial weapon.

I think North Korea is a good target for financial sanctions because it is (a) dependent on the financial system, (b) misusing the system in ways that raise traditional law enforcement and money laundering risks, (c) not an important trading partner to anyone, and (d) subject to theoretically strict financial safeguards under U.N. Security Council resolutions.

That is to say, this weapon is for the worst of the worst–rogue states with weak links to the financial system, where there is (or could be) broad international agreement that financial sanctions are an appropriate countermeasure. (In the case of Russia and the Ukraine, better training and weapons for the Ukrainians might have been a better response. Russia’s history of losing wars to smaller neighbors is older than the Winter War against Finland and more recent than Afghanistan).

In this post, Walter Russell Mead worries that financial sanctions might have been the wrong tool against Russia, and that it might cause more states to agree that they need an alternative reserve currency. It’s a concern I share. In the case of Russia, for the first time ever, we’ve blocked out a large, interconnected economy without basing that action on concerns about money laundering, terrorist financing, or proliferation.