Archive for Sanctions

Three Cheers for Obama’s Sony attribution, a golf clap for his “proportional” response.

In The Washington Post, Ellen Nakashima describes how Sony’s decision to cancel the premiere of The Interview catalyzed the Obama Administration’s decision to blame North Korea publicly:

The next day, alarmed by the surrender, President Barack Obama convened his top officials in the White House Situation Room and, based on their unanimous recommendation, decided to take an action the United States had never dared before in response to a cyberattack by another nation: name the government responsible and punish it. [….]

The blocking of Sony’s freedom of expression, on top of a highly damaging hack, is what ultimately compelled officials to act, in the name of deterrence.

“The argument I made was the whole world is watching how we as a nation respond,” said Adm. Michael Rogers, the director of the National Security Agency, who, other officials said, was at the previously undisclosed meeting.

“And if we don’t acknowledge this, if we don’t name names here, it will only — I’m concerned — encourage others to decide: ‘Well, this must not be a red line for the United States. This must be something they’re comfortable [with] and willing to accept,’ ” Rogers said at an international cybersecurity conference at Fordham University last week.

There “was a significant debate within the administration about whether or not to take that step” of naming North Korea, a senior administration official said. “Attribution is hard, and there are all sorts of reasons we don’t normally want to do that,” including setting a precedent that would increase pressure to name other countries in future incidents and antagonizing the offending governments.

But the attack on Sony’s right to screen a movie struck a nerve. The entertainment company may not be “critical” to national security, but free speech is “a core value,” said the official, who spoke on the condition of anonymity to describe internal discussions. “Yes, it was a Seth Rogen comedy, but next time it might not be,” he said. What he described as the hack’s “destructive” nature combined with the element of coercion against Sony “crossed the threshold,” he said. “It took us into a new realm.”

The attack was a violation of U.S. sovereignty “coupled with an attempt to interfere with freedom of expression,” said Christopher Painter, State Department coordinator for cyber issues. “You had, in many ways, the perfect storm of all these things coming together that were really important.” [WaPo, Ellen Nakashima]

I applaud this unreservedly. It was the right decision for the right reasons.

~   ~   ~

The administration has stumbled twice since then, however. For several weeks, the administration failed to challenge inside-job theories from some IT security experts. Some of them challenged the sufficiency of the publicly available evidence, which is fair enough. But to argue that North Korea didn’t do it is much more problematic. Some of the inside-jobbers lost sight of the possibility that they were arguing based on incomplete information. Others may have been motivated by grudges against the administration over the Snowden revelations, or other biases. Yet others, including inmates of the Alex Jones, Christine Ahn, and Ron Paul asylums, shared the sort of skepticism that’s unique to the world’s most gullible people.

The administration continued to lose this argument for several weeks before FBI Director James Comey publicly reaffirmed that he was certain that the North Koreans did it. Comey’s call to declassify more of the evidence is now being answered by the National Security Agency:

Spurred by growing concern about North Korea’s maturing capabilities, the American spy agency drilled into the Chinese networks that connect North Korea to the outside world, picked through connections in Malaysia favored by North Korean hackers and penetrated directly into the North with the help of South Korea and other American allies, according to former United States and foreign officials, computer experts later briefed on the operations and a newly disclosed N.S.A. document.

A classified security agency program expanded into an ambitious effort, officials said, to place malware that could track the internal workings of many of the computers and networks used by the North’s hackers, a force that South Korea’s military recently said numbers roughly 6,000 people. Most are commanded by the country’s main intelligence service, called the Reconnaissance General Bureau, and Bureau 121, its secretive hacking unit, with a large outpost in China.

The evidence gathered by the “early warning radar” of software painstakingly hidden to monitor North Korea’s activities proved critical in persuading President Obama to accuse the government of Kim Jong-un of ordering the Sony attack, according to the officials and experts, who spoke on the condition of anonymity about the classified N.S.A. operation. [N.Y. Times, David E. Sanger & Martin Fackler]

The CIA’s malware was built on its highly successful Stuxnet worm:

For about a decade, the United States has implanted “beacons,” which can map a computer network, along with surveillance software and occasionally even destructive malware in the computer systems of foreign adversaries. The government spends billions of dollars on the technology, which was crucial to the American and Israeli attacks on Iran’s nuclear program, and documents previously disclosed by Edward J. Snowden, the former security agency contractor, demonstrated how widely they have been deployed against China. [N.Y. Times]

For those incapable of wrapping their heads around the idea of North Korea being technologically sophisticated enough to hack someone, the Times story also provides an extensive history of Unit 121, and an interview with two defectors with insider knowledge of the unit’s operations.

See also CNN and CBS News (quoting Comey, “We could see that the IP addresses that were being used to post and to send the e-mails were coming from IPs that were exclusively used by the North Koreans.”).

Interestingly enough, just a few weeks before the Sony hack, Director of National Intelligence James Clapper had dinner with Kim Yong-Chol, the head of North Korea’s Reconnaissance Bureau (RGB), the man responsible for overseeing North Korea’s hackers, and also for multiple attempts to assassinate human rights activists and North Korean dissidents in exile. The RGB’s assets are blocked, but Gen. Kim’s are not. I can’t help wonder if Gen. Kim smiled at the thought of how Clapper would react to the Sony attacks. Let’s hope that the Obama Administration gives Gen. Kim cause to regret this lapse of malignant egomania.

It amuses me some to wonder whether there was a small bandage on Mr. Clapper’s right palm when the two men shook hands.

~   ~   ~

Which brings us to the President’s second stumble: his failure, so far, to respond credibly, to deter others from crossing the red line that North Korea crossed in November, and also to deter others from blunting President Obama’s response by undermining sanctions.

It did not take long for American officials to conclude that the source of the attack was North Korea, officials say. “Figuring out how to respond was a lot harder,” one White House official said. [N.Y. Times]

That’s becoming more painfully obvious by the day. President Obama has said that Executive Order 13,687 and the designations of January 2nd were only a beginning, and let’s hope he’s right about that. Sanctions work better when they hit with a shock than when they’re applied incrementally, and give the target time to adapt. If my guess is right, however, Treasury needs more time to do that, because this administration hasn’t made North Korea a priority in its financial intelligence targeting. But so far, as former CIA Director Michael Hayden said, the administration’s new sanctions have been “symbolic at best,” for reasons I explained here. Worse, our apparent lack of determination is inviting troublemakers to undermine the administration’s negative reinforcement.

Here is Vladimir Putin’s cue to enter stage left.

According to this article, Russia has recently begun to service transactions for the U.S. Treasury-sanctioned Foreign Trade Bank of North Korea in rubles. Treasury sanctioned the FTB in March 2013 for its involvement in servicing WMD-related financial transactions. The article’s author, whose work reads like that of a Putinjugend fangirl, may not have considered the possibility that the Russian businesses involved could still be cut out of the financial system under EO 13,687 or (one day in the not-too-distant future, according to Chairman Royce) the North Korea Sanctions Enforcement Act. However unwittingly, fangirl has done us a great public service by bringing this information to our attention.

In his State of the Union speech, President Obama promised to defend us against cyberattacks. He didn’t mention North Korea by name, but the reference was obvious. Deterrence is a critical part of defense. Imposing new cybersecurity laws and regulations on industry alone will not be a complete answer, and the new requirements will come with massive costs to American industry. Even if the administration has good reasons to delay the main thrust of its response to Kim Jong Un until it finds a critical mass of North Korea’s financial nodes, it still needs to make a bold demonstration that it’s unwilling to tolerate the willful subversion of its policies by Russia and others. If the sanctions of January 2nd are the only price a foreign enemy pays for a devastating and chilling attack on the central principle of our political system, those sanctions will mean less than no deterrent at all.

Wanna read about North Korea sanctions law? You know you do.

In the Fletcher Security Review, I attack the myth that our North Korea sanctions are strong, summarize the authorities, describe what has and hasn’t worked, and explain how to make sanctions work as part of a more coherent and effective North Korea policy.

~   ~   ~

Update: See also this Wall Street Journal column, citing yours truly, which I swear I didn’t see coming. If only the author had cited the paper linked above, after I knew the answer to the question posed. But just the same, the article shows a good understanding of the subject matter. It’s gratifying to be read, to be getting through to people, and to be changing the conversation.

NHK Documentary: Money & Power in North Korea

I haven’t watched it all — was busy finishing another project — but it looks to be an interesting examination of the subject that interests me most about North Korea: its money. It talks about the regime’s “gift politics,” luxury goods trade, the “royal court economy,” money laundering, and hunger.

Although the documentary itself is new, some of the info seems a bit dated. There were other things I didn’t know. For example, it claims that in Pyongyang, there’s a massive vault filled with yen, dollars, and euros, in cash. It also claims that North Korea continues to operate out of Macau, selling gold (among other things). It also discusses North Korea’s statue-building business in Africa, and its slave-labor exports.

The documentary also claims that Jang Song-Thaek was purged because of a shortage of funding and because his control of wealth was seen as a threat. That makes sense to me, but I would still treat any “insider” accounts with great suspicion.

~   ~   ~

Update: OK, I finished watching it. It’s well worth seeing, although based on other information I’ve seen, I don’t agree that Kim Jong Un’s hard currency streams are dwindling. Just look at this chart.

Actually, sanctions are looking like the best thing that ever happened to engagement

Since December 19th, when the President blamed North Korea for the Sony hacking and cyberterrorism attacks, Congress has been pushing for tougher sanctions against North Korea, and it has looked increasingly like it has been pushing against an open door. And suddenly, a North Korean leader who has never gone abroad or met a foreign leader during his three-year reign (no, Rodman doesn’t count) has taken a sudden — even urgent — interest in personal diplomacy.

On January 1, Kim Jong Un made a highly conditional suggestion that he might be interested in meeting Park Geun-Hye. Park, with record low approval ratings and a desperate need to change the subject, seized on the offer and has pushed Kim to hurry along to Seoul.

The next day, President Obama issued an executive order authorizing sanctions against all entities and officials of North Korea’s government and ruling party, and (more importantly) against the third-country entities that provide Pyongyang its regime-sustaining hard currency. The order was potentially sweeping and devastating. 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.

Suddenly, within a week, press reports said that Shinzo Abe might visit Pyongyang, and that Kim might accept Putin’s invitation to Moscow in May.

Kim even reached out to Washington a little, offering a nuclear test freeze if Washington cancels annual military exercises. This was enough to fool the gullible editors of The New York Times, but not President Obama. Still, it’s more than North Korea has offered Washington for the last year.

Today, North Korea’s Central Bank responded to an obviously planted question from its state news agency by “committ[ing] itself to implementing the action plan of ‘international standard’ for anti-money laundering and combating the financing of terrorism.” (quote from KCNA; Reuters report here.) Kim surely knows that international efforts to enforce financial sanctions against Pyongyang will determine their success.

All of this is great news if you believe that talks are an end in themselves, rather than a means to achieve concrete interests. But it’s also great news if you’re searching for a strategy that raises enough colon-clenching horror in the palaces and ministries of Pyongyang to modify the regime’s behavior.

There’s little question that Kim Jong Un’s sudden interest in diplomacy is fundamentally about frustrating U.S. interests, rather than disarmament or genuine reform. Pyongyang is bracing for financial warfare — trying to break up the formation of an international coalition against its finances, protecting key cash cows like Kaesong, and shoring up its financial lifelines to resist sanctions. But at least for now, despite all of the “expert” opinion that sanctions can do no more, we’ve heard, however indirectly, from the best authorities on that subject — the ones in Pyongyang.

White House considers sanctions, psyops, and cyber responses to N. Korea

Because I’ve begun to develop a certain sense of when interesting events are about to get much more interesting, yesterday morning, I decided to check the web site of KCNA, North Korea’s official “news” service. The site did not load, but it has always been slow to load. Then, news sites began to report that North Korea’s internet access had gone down, and that the White House wasn’t denying that it had a hand in this.

This morning, kcna.kp loaded with its usual masikryeong speed. Let’s all hope that our government has the will and the means to respond more potently than this. Kicking North Korea out of the Internet is like kicking Alabama out of the World Cup, and North Korea without internet is like North Dakota without surfing, Ireland without sunshine, or a Kardashian without a job. Meanwhile, the Japanese mirror site of KCNA kept right on squawking its threats to attack the White House:

Our target is all the citadels of the U.S. imperialists who earned the bitterest grudge of all Koreans. The army and people of the DPRK are fully ready to stand in confrontation with the U.S. in all war spaces including cyber warfare space to blow up those citadels.

Our toughest counteraction will be boldly taken against the White House, the Pentagon and the whole U.S. mainland, the cesspool of terrorism, by far surpassing the “symmetric counteraction” declared by Obama. This is the invariable toughest stand of the army and people of the DPRK.

Fighters for justice including “guardians of peace” who turned out in the sacred drive for cooperation in the fight against the U.S. to defend human justice and conscience and to dismember the U.S. imperialists, the root cause of all sorts of evils and kingpin of injustice, are sharpening bayonets not only in the U.S. mainland but in all other parts of the world. [KCNA.co.jp]

President Bush removed North Korea from the list of state sponsors of terrorism on October 11, 2008. The Obama Administration’s official view is that North Korea is “not known to have sponsored any terrorist acts since the bombing of a Korean Airlines flight in 1987.” Discuss among yourselves.

I can only guess, but if this was an attack, I’d guess that the U.S. government wasn’t behind it, and that independent hackers were. That’s also what I’m hoping, because if this is the worst that the world’s most powerful nation can do to a blighted hell-hole like North Korea, it would be wholly inadequate to deter any other despots who would censor and control our discourse through cyberwarfare and cyberterrorism. A nine-hour DDOS attack wouldn’t do much to deter Kim Jong Un, or contribute to solving the greater problem — the fact that he rules a country to begin with. That level of response, together with the President’s description of North Korea’s attacks as “cybervandalism,” would imply a junior-varsity insouciance about the gravity of this threat:

Sen. John McCain rejected Obama’s characterization of the North Korean hack as “an act of cybervandelism,” instead calling it “a new form of warfare” on CNN’s State of the Union.

“The President does not understand that this is a manifestation of a new form of warfare when you destroy economies, when you are able to impose censorship,” McCain, a Republican from Arizona, said. “It’s more than vandalism. It’s a new form of warfare that we’re involved in and we need to react and we need to react vigorously.” [CNN]

McCain, the incoming Chairman of the Armed Services Committee, promised to call hearings on the issue when the new Congress convenes.

Sen. Lindsey Graham of South Carolina called it “an act of terrorism” and favored reimposing sanctions and adding North Korea to the terrorism list. The United States needs to “make is so hard on the North Koreans that they don’t want to do this in the future,” Graham said. [Joongang Ilbo]

Fortunately, a report from The New York Times claims the White House is considering better alternatives, starting with asking the Pentagon’s Cyber Command for a list of options:

“What we are looking for is a blocking action, something that would cripple their efforts to carry out attacks,” one official said. [….]

For now, the White House appears to have declined to consider what one Defense Department official termed “a demonstration strike” in cyberspace, which could have included targets such as North Korean military facilities, computer network servers and communications networks.

United States officials said that American efforts to block North Korea’s access to the Internet, which is available only to the military and the elite, would necessarily impinge on Chinese sovereignty.  N.Y. Times]

Sort of like China and North Korea just impinged on ours, then.

Tom Kellermann, a former member of the presidential commission on cybersecurity, said one option was what security experts refer to as a “hack back,” in which they use the attackers’ own computer footprints and back doors to deploy an attack that destroys North Korea’s attack infrastructure, or compromises the integrity of the machines that did the hacking. For example, the United States could deploy a malicious payload that encrypts the data on North Korea’s machines, or renders them unable to reboot — clearly “proportional,” in the president’s words, because that was what happened to Sony’s computers.

The White House is also considering financial sanctions, “mirroring those recently placed on Russian oligarchs and officials close to President Vladimir V. Putin,” to “cut off their access to cash … that allows the elite surrounding Kim Jong-un, the North Korean leader, to live lifestyles their starving countrymen can barely imagine.” The Times even invokes the example of Banco Delta Asia, calling it “the one sanction in the past decade that caused the most pain to the North Korean leadership.”

They’re starting to sound like Ed Royce, who is starting to sound like a man ahead of his time.

Finally, they’re considering an offensive of information operations — or if you prefer, psyops, “in which the United States plays on North Korea’s worst fears by using its access to the North Korean domestic computer and radio systems to deploy propaganda inside North Korea’s closed media bubble.”

A combination of those three options could be a serious response, although I’ll reserve judgment until I see the administration actually enforce it.

~   ~   ~

Update: Reuters suggest some other alternatives:

U.S. cyber teams could also go after the hackers aligned with Pyongyang and make their lives miserable. It’s an effective tactic. Bullies are notoriously susceptible to bullying.

Since the FBI has declared that the attack came from North Korea, there’s a good chance the bureau’s experts know which computers and even which hackers it came from. Hackers generally have robust online lives. They use social networks, maintain a presence in online forums and chatrooms and transfer money using Bitcoin or other cryptocurrencies. Washington could make their lives uncomfortably complicated.

It could break into the hackers’ email accounts and publish them – just as the hackers did to Sony Pictures executives. It could ban their Internet protocol addresses or infect their computers with destructive viruses and malware that could store every keystroke the hackers type. Every password, email, website visited would be recorded and stored in a U.S. database. It might only sideline the hackers, by making them spend time and energy fixing the problem or even force them to buy entirely new hardware — a hacker’s worst case scenario.

U.S. cyber teams could also pose online as commentators and ruin the hackers’ reputations among any communities they belong to. For example, they could upload faulty software to the black markets as the Guardians of Peace.

In the long run, those tactics might damage the North Korean hackers’ capabilities, but wouldn’t do much to deter North Korea or other copycat cyberterrorists.

~   ~   ~

This post was edited after publication.

~   ~   ~

Update 2: These hackers claim responsibility for taking down North Korea’s internet. HT: Steve Herman.

What re-listing N. Korea as a state sponsor of terrorism would mean

The New York Times is reporting that President Obama is considering re-listing North Korea as a state sponsor of terrorism:

As the United States moves closer to taking Cuba off the list of state sponsors of terrorism, President Obama said he would “review” whether to return North Korea to the list, part of a broader government response to a damaging cyberattack on Sony’s Hollywood studio.

“We have got very clear criteria as to what it means for a state to sponsor terrorism, and we don’t make those judgments just based on the news of the day,” Mr. Obama told CNN in an interview broadcast Sunday. “We look systematically at what’s been done.” [N.Y. Times]

In fact, the standard isn’t clear, and neither is the Foreign Assistance Act’s definition of terrorism, but it wasn’t until I reviewed a post I wrote several years ago that I realized the full significance of a re-listing. I was reminded that Section 2332d of the Criminal Code prohibits financial transactions by U.S. persons with the governments of states designated as sponsors of terrorism, except in accordance with Treasury Department regulations published at 31 C.F.R. Part 596, which require that those transactions be licensed. Because almost everything in North Korea is controlled by the government, this would effectively force most U.S. corporations and their subsidiaries to divest from North Korea, closing one important loophole in our current sanctions. Compare Part 596 to our leaky existing sanctions at Part 510, and you can see the difference clearly.

(What Part 596 would not do, of course, is hit North Korea’s third-party enablers, or its very access to the financial system, as the North Korea Sanctions Enforcement Act would.)

Companies such as the Associated Press and DHL that do business in North Korea would have to scramble to obtain licenses or withdraw. Any U.S. subsidiaries operating in the Kaesong Industrial Park would also be affected. Although Treasury could grant licenses to those choosing to deal with this regime, a re-listing would nonetheless send a powerful signal to lenders and investors everywhere that providing Kim Jong Un with regime-sustaining cash is politically and financially risky.

A re-listing would also require U.S. diplomats to oppose foreign assistance grants and loans by international financial institutions, such as the World Bank, the International Monetary Fund, and the Export-Import Bank. A state sponsor of terrorism also loses its sovereign immunity from civil lawsuits for personal injury caused by the acts of terror it sponsors. North Korea recently lost several such suits in U.S. federal district courts, relating to actions that took place prior to North Korea’s 2008 de-listing. The plaintiffs are now trying to collect nearly $500 million. As recently as July of this year, U.S. District Judge Royce Lamberth found North Korea liable for sponsoring rocket attacks by Hezbollah.

Other effects would be less significant, such as restricting the availability of non-immigrant visas to North Koreans. Theoretically, restrictions on the export of munitions and sensitive technology to North Korea would be further restricted, although the Commerce and Treasury Departments presumably aren’t granting licenses for those exports now.

The re-listing of North Korea is long overdue. President Bush’s decision to take North Korea off the list in October 2008 was an inducement for a disarmament deal on which North Korea had already begun to renege. It was a decision President Obama (while still a candidate) promised to reverse if North Korea didn’t keep its word, but it was President Obama who didn’t keep his when North Korea conducted two additional nuclear tests. North Korea’s de-listing did not follow any North Korean acknowledgement of its past support for terrorism. It actually marked the beginning of a period in which North Korea increased its terrorist threats against the U.S. and South Korea, its assassinations of (and assassination attempts against) exiles and human rights activists, and its shipment of weapons to Hamas and Hezbollah.

A re-listing, if President Obama actually goes through with it, would effectively foreclose the possibility of another nuclear deal with North Korea during the remainder of President Obama’s term, particularly if Kim Jong Un’s reaction is as impulsive as I suspect it would be. It would belatedly challenge Pyongyang’s sense of impunity.

We are all North Koreans now

As far as I know, I didn’t liberate a single North Korean during my four-year tour with the Army in South Korea, although I’ve argued their distant and forgotten cause ever since I came home. The crimes of Kim Jong Un were still distant just five weeks ago, when Professor Lee and I, writing in The New York Times, sounded a lonely warning about Kim’s efforts to censor his critics in the South with terror and violence, writing that “[c]aving into blackmailers merely begets more blackmail.” To some, that probably seemed absolutist, even hyperbolic. It should seem more prophetic now.

One morning this week, I awoke to the realization that the rights I’m arguing for are my own—in my own home, and in my own neighborhood. Here, in America. In the suburbs of Washington, D.C.  Today, in a very small way, we are all North Koreans. Most of us have spent the last several decades ignoring the men who oppress North Koreans. Now, in a small but incalculably important way, the same men have oppressed us. Here is the FBI’s statement about the Sony hack, and the terrorist threats that followed it:

As a result of our investigation, and in close collaboration with other U.S. government departments and agencies, the FBI now has enough information to conclude that the North Korean government is responsible for these actions. While the need to protect sensitive sources and methods precludes us from sharing all of this information, our conclusion is based, in part, on the following:

- Technical analysis of the data deletion malware used in this attack revealed links to other malware that the FBI knows North Korean actors previously developed. For example, there were similarities in specific lines of code, encryption algorithms, data deletion methods, and compromised networks.

- The FBI also observed significant overlap between the infrastructure used in this attack and other malicious cyber activity the U.S. government has previously linked directly to North Korea. For example, the FBI discovered that several Internet protocol (IP) addresses associated with known North Korean infrastructure communicated with IP addresses that were hardcoded into the data deletion malware used in this attack.

- Separately, the tools used in the SPE attack have similarities to a cyber attack in March of last year against South Korean banks and media outlets, which was carried out by North Korea.

We are deeply concerned about the destructive nature of this attack on a private sector entity and the ordinary citizens who worked there. Further, North Korea’s attack on SPE reaffirms that cyber threats pose one of the gravest national security dangers to the United States. Though the FBI has seen a wide variety and increasing number of cyber intrusions, the destructive nature of this attack, coupled with its coercive nature, sets it apart. North Korea’s actions were intended to inflict significant harm on a U.S. business and suppress the right of American citizens to express themselves. Such acts of intimidation fall outside the bounds of acceptable state behavior. The FBI takes seriously any attempt—whether through cyber-enabled means, threats of violence, or otherwise—to undermine the economic and social prosperity of our citizens. [FBI Press Release]

The feds sound very confident about their conclusions:

Intelligence officials “know very specifically who the attackers are,” said one individual familiar with the investigation, who like others spoke on condition of anonymity because the case is ongoing. [Washington Post]

As with the Cheonan incident, it’s almost as if North Korea wants everyone to know it did it, while leaving just enough doubt to let its apologists do their work. That strategy worked well for them in South Korea, which never responded to the two deadly attacks on its territory in 2010. Why should Kim Jong Un believe that attacking us would lead to different results? That’s one reason why I’m so glad the President said something about the importance of protecting free speech:

“We cannot have a society in which some dictator someplace can start imposing censorship here in the United States,” Obama said. “Because if somebody is able to intimidate folks out of releasing a satirical movie, imagine what they start doing when they see a documentary that they don’t like or news reports that they don’t like.

Obama said he wished Sony had “spoken to me first,” adding: “I would have told them, ‘Do not get into a pattern where you get intimidated by these criminal attacks.’ ” [Washington Post]

Well, depending on who you believe, maybe they did. Still, that’s a welcome change, coming from the President who asked YouTube to take down “The Innocence of Muslims,” and whose Justice Department hustled Nakoula Nakoula off to jail to appease the whooping loonies who dominate the Middle East’s political culture today. But not to worry—the CEO of Sony Pictures says he’s “considering some sort of release on the Internet.”

I’ve never been much of a George Clooney fan, but he’s one of the few people in Hollywood with the spine to stand against North Korea’s terrorism:

“We’re talking about an actual country deciding what content we’re going to have,” he told Deadline. “This affects not just movies, this affects every part of business that we have.”

“What happens if a newsroom decides to go with a story, and a country or an individual or corporation decides they don’t like it? Forget the hacking part of it. You have someone threaten to blow up buildings, and all of a sudden everybody has to bow down. [CNN]

Our attention now turns toward what President Obama will do. Let’s hope it exceeds my low expectations, and Pyongyang’s:

Even in my myopic world view, these attacks raise far weightier questions than what our North Korea policy should be. The President’s response must be enough to restore U.S. deterrence of North Korea, and the confidence of our artists, media, journalists, and lowly bloggers that our government will protect them from the world’s petty despots:

“We will respond proportionally,” Obama said, “and we will respond at a place and time that we choose.”

U.S. officials have made clear for several years that they have a range of diplomatic, economic, legal and military options at their disposal in response to cyberattacks. Those steps might include indicting individuals believed to be behind the attack, asking like-minded states to join in condemning the intrusion, and if North Korea persists, undertaking a covert action to dismantle the computer systems used in the operation. [Washington Post]

I’ve already written here about what that response should include. One of those possible responses seems almost inevitable, now that Senator Bob Menendez has asked Secretary of State John Kerry to put North Korea back on the list of state sponsors of terrorism. It’s difficult to see how he could avoid doing that, given the destructive power of the attack, its chilling effect on free speech, and the extensive evidence that North Korea was already sponsoring terrorism even before this incident.

“The United States condemns North Korea for the cyber-attack targeting Sony Pictures Entertainment and the unacceptable threats against movie theaters and moviegoers,” he said in written statement.

“We encourage our allies and partners to stand with us as we defend the values of all of our people in the face of state-sponsored intimidation,” Kerry added.

Separately, State Department spokeswoman Jen Psaki said U.S. and Chinese officials had met in Washington and Beijing to discuss the issue, adding that: “Both China and the United States agree that conducting destructive attacks in cyberspace is outside the norms of appropriate cyber behavior.” [Yonhap]

As is customary among journalists, The New York Times and Reuters printed the standard-issue, off-the-record-senior-State-Department-official talking point that North Korea sanctions are maxed out, without bothering to read the sanctions. This talking point sometimes comes without any citation of authority whatsoever, and sometimes cites “experts” who appear not to have ever read a sanctions regulation. When I pointed out to these Bloomberg reporters that they’d cited a cybersecurity expert‘s analysis of a legal question–and that the analysis was wrong–I received a polite and interested reply, suggesting that the reporters genuinely intend to research the question. In the case of Reuters, in particular, the propagation of this false narrative is disappointing, because most of the Reuters reporters I follow check their facts painstakingly before publishing them.

The Wall Street Journal’s Jonathan Cheng and Jeyup Kwaak did a better job:

On the financial front, the U.S. has wide latitude to target the North’s financial capabilities and its links to the global banking system, says Joshua Stanton, a Washington, D.C. lawyer and blogger who has advised the U.S. House of Representatives’ Foreign Affairs Committee on North Korea sanctions legislation.

Mr. Stanton says the U.S. can designate the North’s banking system as a money-laundering concern, add the country back to a list of state sponsors of terrorism, and move toward blocking U.S. tourism to the North.

“Our North Korea sanctions are weaker than our Zimbabwe sanctions,” Mr. Stanton said in an interview. “All of the top officials in the government of Zimbabwe have their assets blocked, and none of the top officials in the government of North Korea do.” [….]

“The single biggest thing that we can do is to designate the country as a primary money-laundering concern,” Mr. Stanton says, which he says would block the regime from conducting dollar-denominated transactions through the U.S. financial system, as its institutions can now do.

“That would have a very big impact on North Korea—banks around the world are very reputation-conscious,” he says, and would shy away from conducting any transactions with institutions tied to Pyongyang.

Some defectors from North Korea say Pyongyang has learned from the Banco Delta Asia sanctions, and now keeps much of its money outside the traditional banking system, which could limit the impact of such a move.

Mr. Stanton also notes that U.S. sanctions list just 63 North Korean ships, companies and individuals, far fewer than those for Myanmar or Cuba. He also says that U.S. Congress could start moving legislation that would impose similar restrictions blocking U.S. citizens from traveling to North Korea and spending money. [Wall Street Journal, Jonathan Cheng and Jeyup S. Kwaak]

Bruce Klingner of the Heritage foundation was also battling against this myth:

Oh, and for the record:

A North Korean U.N. diplomat said Pyongyang had nothing to do with the cyber attack. “DPRK (North Korea) is not part of this,” the diplomat told Reuters on condition of anonymity. [Reuters]

I think I speak for all of humanity when I sincerely hope this isn’t all Barack Obama’s pretext to advance Joe Biden’s cryptic plot to dominate North Korea’s vast riches of coal, meth, and refugees.

One thing that seems far more likely today is that the House and Senate will make North Korea sanctions legislation a higher priority. Even before the FBI fingered North Korea for this attack, and before President Obama announced his outreach to Cuba, Senator Menendez introduced a sotto voce version of the North Korea Sanctions Enforcement Act, S. 3012. That bill is too weak to be worth passing in its current form, but it’s structurally similar enough to what the House passed last year that it should be viewed as a serious opening bid and a welcome step toward a good compromise.

A friend on the Hill told me yesterday that in terms of seizing Congress’s attention, the events of this week are the equivalent of “two or three nuke tests.” A Chinese Security Council veto of U.N. human rights sanctions–sanctions that were just recommended by the full General Assembly–should be the equivalent of another. At an exceptionally formative moment, Congress’s attention has been focused on North Korea. The administration is distinguishing North Korea from Cuba, is almost certainly considering new sanctions, and has probably just scrapped its plans for Agreed Framework 3.0. If a bipartisan, centrist consensus concludes that the agony of North Koreans is no longer a problem we can treat as remote and irrelevant, and that it’s time to discard the failed solution of appeasement, we will have reached an inflection point in our North Korea policy.

One avenue of response I hope the President won’t overlook is that information warfare works both ways. Certainly, carefully targeted sanctions can play an important part in defunding and disrupting the regime’s capacity to censor and oppress its people. Symbolically and practically, however, no response–not even sanctions–would do more to alter North Korea than to wage a quiet, non-violent war against its information blockade. It is difficult to imagine that despite all of America’s innovative potential, it still lacks the means to bring free speech to the people of North Korea, and to help them find their own way to rid themselves of the accursed men who tread them–and us–down.

Of course, a better North Korea policy means more than sanctions

Professor Haggard is skeptical that a “sanctions only approach” toward North Korea could work, which compels me to expand on why I agree, and on what a better approach would look like.

It should go without saying that no act of Congress can ever be more than part of a complete foreign policy, something that, by constitutional design, only the executive branch can wield. Certainly the imposition and enforcement of tough sanctions are at the heart of the North Korea Sanctions Enforcement Act, H.R. 1771, because tough sanctions enforcement is a necessary (and presently, a missing) element of a better policy, and because sanctions are also an area where Congress can express its will. H.R. 1771 sets strict conditions for relaxing sanctions to avoid repeating President Bush’s errors of 2007, but those conditions (see sections 401 and 402) clearly contemplate using sanctions as leverage for better, more effective diplomacy and engagement — assuming that’s still possible.

In an acknowledgement that a better policy has more dimensions than sanctions alone, H.R. 1771 also calls for more efforts to fund the free flow of information into North Korea (section 301), and the publication of reports on North Korea’s crimes against humanity (section 302). These, too, are areas where our government has lagged. There is much speculative debate about whether engagement with the regime is realistic at all; certainly, there is little evidence that it has transformed this regime materially, or that its effects are remotely comparable to the transformational effects of markets and smuggling. Nevertheless, H.R. 1771 tests the regime’s trustworthiness and readiness for good-faith negotiations by demanding the cessation of its counterfeiting and the release of its abductees, by demanding the free and fair delivery of food aid, and by demanding material improvements in the conditions in its prison camps.

The regime’s stonewalling on all of these outrages — despite decades of engagement and appeasement — illustrates the flaw of strategies based on obedient supplications and obsequious tribute. Outsiders have focused most of their efforts to “engage” North Korea on an oligarchy whose physical survival depends on the enforcement of the status quo, while overlooking the common people who sincerely seek change that might give them a chance at lives worth living. Wouldn’t a smarter engagement strategy emphasize them instead?

In addition to sanctioning, defunding, and degrading the security forces that are closing North Korea’s borders and suppressing change, a smarter engagement strategy would increase our support for things that really might change North Korea in very real and tangible ways — broadcasting, an independent cellular network, the smuggling of food and information, remittances, quasi-legal private agriculture, clandestine cross-border banking, and whatever else would catalyze the growth of markets that provide food, goods, and information to those who are hungriest for them. Eventually, engaging the North Korean people would create the conditions for the rise of independent trade networks, unions, churches, and political organizations. Certainly, this will require more creativity than the conventional approaches that have failed so consistently. By now, you realize that this isn’t an argument against engagement. It’s an argument that we’ve been engaging the wrong people.

At the same time, every member of the Security Council has agreed, in principle, that sanctions against the regime are a necessary element of a policy designed to alter its behavior (or failing that, its very nature). That does not mean that a better North Korea policy can be based on sanctions alone. An orchestra can no more play a symphony with brass alone than it can play one without it. A better policy will require our government to devote more intelligence, investigative, law enforcement, and (yes) diplomatic resources to this problem. As with engagement, there is no argument against diplomacy to be found here, only an argument that our diplomacy is out of sequence. The initial focus of our diplomacy should be on building unity and cohesion among allies in enforcing sanctions consistently, and as the U.N. has agreed (see section 202). Unanimity among allies can strengthen our capacity to force China and Russia to enforce those sanctions, too. Only then, when sanctions enforcement is broad and consistent, can diplomacy with North Korea have any hope of success. That means that North Korea’s should be the last government we approach, not the first. Diplomacy with a target like North Korea, in particular, requires enough leverage to persuade it to give up things it would rather keep.

As for whether a deal with North Korea is still possible, I personally espouse what I’ll call strategic ambivalence. Either sanctions — in concert with these other elements of a smarter policy — can coerce policy changes in Pyongyang, or they can hasten the destabilization of the regime. The choice lies with Kim Jong Un (and to a lesser extent, with Xi Jinping and Putin) as to which direction the policy will have to follow. As long as the countries that have agreed to sanction Pyongyang subsidize it instead, and until Pyongyang fears that collapse is a real and imminent danger, Pyongyang will be able to choose the status quo, and therefore, it will.

Robert Potter’s “third way” is a good way, but it’s really a second way

Writing at The Diplomat, Potter takes on the futile task to navigating between pro-engagement extremists like Mike Bassett, Felix Abt, and someone named Joe Terwillager, on one hand, and anti-engagement extremists like me, on the other. Potter proposes this third way:

Sanctions of the right kind can ensure that the Kim dynasty never becomes wealthy enough to close the markets down, but removing them entirely could empower the Kims and make the regime less likely to tolerate change. As for engagement, pointing it towards the people of North Korea and working to empower their underground economy could allow those market forces to develop further. This combination of sanctions and support for the developing markets is perhaps the only truly different policy option that has not yet been tested, and it is one that could mobilize the two existing highly divided constituencies. [Robert Potter, The Diplomat]

I enjoyed Mr. Potter’s piece so much that I hardly have the heart to point out that I’ve advocated the same ideas for years. As I must occasionally point out, however, I’m not opposed to engagement, I just think we’ve been engaging the wrong people.

Nor have I ever believed that sanctions alone could transform North Korea. They can only do that as part of a broader strategy, along with subversive information operations and competent diplomacy that seeks international consensus toward forcing real change. Sanctions can target the regime’s military, elites, security forces, and border control. If sustained, they would shift the balance of economic power toward the common people, and toward a nascent middle class that the regime has done its best to tread down.

Must see: An opinion about N. Korea sanctions from an actual sanctions expert (really!)

William Newcomb, formerly of the U.S. Treasury Department and the U.N. Panel of experts (UNPOE), was at The Korea Society last Friday to talk with Stephen Noerper about North Korea sanctions, what they are, and how to make them a useful policy tool again.

Newcomb didn’t have time to explain all of the authorities and their provisions in detail, but he did make some important points.

First, Newcomb blames “politics” for the fact that the UNPOE hasn’t designated a number of “bad actors” that are violating the sanctions, and for the slowness of the UNPOE in obtaining the designation of Ocean Maritime Management. That delay was critical, because financial sanctions need to strand money to work, and after the 2013 seizure of the Chong Chon Gang in Panama, the North Koreans had plenty of scurry time after the light switch flicked on. It isn’t hard to see that Newcomb means China, although I can’t imagine Russia has played a constructive role.

Second, there are more bad actors that we could designate, but haven’t. Newcomb references the relatively small number of North Korean entities on the list of Specially Designated Nationals, something I’ve kvetched about for years now.

Third, Newcomb doesn’t think we have the equivalent of a Banco Delta Asia anymore—that is, a single point of failure that we can attack to cause instant disruption to Pyongyang’s palace economy. That’s not a shock to me, either, although I wonder if we’re even gathering the financial intelligence to know that for certain. After all, most North Korea transactions still don’t even require a license under 31 C.F.R. Part 510.

Certainly, some alternative points of failure come to my mind, but people in Pyongyang, Dar-as-Salaam, Nairobi, Kampala, Phnom Penh, and Ulan Bator read this site, so I’ll keep those thoughts to myself for now. Even so, the hard reality may well be that the North Koreans have squirreled away most of the low-hanging fruit. A financial constriction strategy will take longer to work today than it did in 2007 2005, but if implemented aggressively, it still shouldn’t take as long as it took us to bankrupt Osama bin Laden.

FATF and FINCEN again call for “countermeasures” against N. Korean money laundering

If you will permit me to extend a metaphor for North Korea’s stature in the world of global finance, Pyongyang may have been invited to one Boy Scout jamboree, but it’s still on the sex offender registry. If anything, it has reached a co-equal status with Iran:

Since June 2014, the DPRK has further engaged directly with the FATF and APG to discuss its AML/CFT deficiencies. The FATF urges the DPRK to continue its cooperation with the FATF and to provide a high-level political commitment to the action plan developed with the FATF.

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 money laundering and financing of terrorism (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 Public Statement, Oct. 24, 2014]

Treasury’s Financial Crimes Enforcement Center followed that statement with its own advisory today.

Uganda is violating U.N. sanctions against North Korea

When North Korea sends its diplomats to Africa, presumably to ask for their votes against a General Assembly resolution that would refer Kim Jong Un to the ICC, I hope it sends at least some of the same diplomats who called Botswana’s U.N. Ambassador a “black bastard,” if only to show the hypocrisy of the African leaders who received them:

President Yoweri Museveni of Uganda gave a state banquet late Thursday in honor of North Korea’s ceremonial head of state, praising Pyongyang for what he said was its prominent role in fighting imperialism.

Kim Yong Nam, the president of the country’s parliament, is in Uganda as part of a rare tour of Africa, where North Korea has actively tried to cultivate potential allies like the long-serving, increasingly anti-West Museveni.

The North Koreans are training Ugandan police in martial arts and Museveni hailed North Korea for helping to mechanize Uganda’s military over the years. North Korea is also training Ugandan military pilots, he said.

Kim visited Sudan and the Republic of Congo before arriving in Uganda for “an official goodwill visit,” according to the Korean Central News Agency. [AP]

Any training in the use of “arms and related materiel” would violate UNSCR 1874:

“9.   Decides that the measures in paragraph 8(b) of resolution 1718 (2006) shall also apply to all arms and related materiel, as well as to financial transactions, technical training, advice, services or assistance related to the provision, manufacture, maintenance or use of such arms or materiel;

“10.  Decides that the measures in paragraph 8(a) of resolution 1718 (2006) shall also apply to all arms and related materiel, as well as to financial transactions, technical training, advice, services or assistance related to the provision, manufacture, maintenance or use of such arms, except for small arms and light weapons and their related materiel, and calls upon States to exercise vigilance over the direct or indirect supply, sale or transfer to the DPRK of small arms or light weapons, and further decides that States shall notify the Committee at least five days prior to selling, supplying or transferring small arms or light weapons to the DPRK;

Here’s a link to UNSCR 1718, in case you want to pursue that, too. The North Korean military relationship with Uganda goes back to at least 2010, when North Korean instructors first began to train Ugandan police officers in tae kwon do. Having drawn no reaction from the State Department for that, the Ugandans apparently decided that it was safe to expand the relationship to clear violations of the resolutions.

U.S. relations with Uganda have been under strain recently, because of the latter’s extreme anti-gay legislation. I’d say cut their aid and cancel a military exercise, but we just cut their aid and canceled a military exercise. Still, the U.S. recently “ordered a sharp increase” in the deployment of U.S. Special Operations forces to Uganda to hunt down warlord Joseph Kony.

Off-hand, I can think of several places where those forces are needed more badly to defeat a more direct threat to U.S. interests. Indeed, North Korea’s proliferation and its violation of U.N. sanctions are a greater threat to our national interests than the doings of a local warlord in Central Africa, and the humanitarian crisis in North Korea is far greater than the one in Uganda. Perhaps it’s time to force Uganda to choose between having a military relationship with North Korea, and a military relationship with the United States.

How to write like an expert on sanctions: Step 1, read the sanctions.

I don’t doubt that Stanford scholar Yong Suk Lee’s minor premise—that Pyongyang shifts economic pain to the proles and peasants—is correct. To extend this into a convincing policy argument, however, that Pyongyang would only shift the pain of sanctions to the North Korean people, requires a more convincing case for his major premise–that the deprivation of the North Korean people is a function of sanctions, rather than state policies that willfully impose that deprivation. It’s a case that Lee fails to make, in part because he fails to demonstrate a basic understanding of the subject matter through the citation, analysis, and explanation of the sanctions themselves. You don’t have to be a lawyer to do this. Treasury’s summary of U.S. sanctions on North Korea is simple, readable, and publicly available.

Yet nowhere does Lee cite 31 C.F.R. Part 510, the North Korea sanctions regulations, or tell us what they do and don’t do. Nowhere does he discuss the main executive orders that apply—13382 (proliferation sanctions), 13466 (a place-holder for sanctions that weren’t lifted in 2008), 13551 (belatedly implementing UNSCR 1718), and 13570 (banning imports from North Korea, of which there were virtually none anyway). Nowhere does he count or track the North Korean entities on the SDN list–and it’s not that hard to count to 63–or compare their significance or number to those of other sanctions targets (hundreds each in the case of Iran, Cuba, and the Balkans).

Of course, there are also sanctions authorities promulgated by the U.N., the EU, and Japan. In the case of China, there is the notable lack thereof. That matters very much, because China is North Korea’s largest natural and historic trading partner, and China isn’t enforcing U.N. sanctions, including in luxury goods and missile carriers lumber trucks. If Pyongyang can sell and buy pretty much anything it wants, but for some reason still isn’t feeding and providing for anyone beyond the limits of Pyongyang, that would tend to kick the major premise out from under Lee’s syllogism.

Lee’s failure to understand his subject matter means he misses the yawning gaps in current U.S. and U.N. sanctions, and the negligible effect they’ve consequently had, except between September 2005 and February 2007. Instead of a detailed legal and historical analysis of the sanctions, Lee instead offers an incomplete selection of high-profile events that either sanction or aid the regime, and ends up blending and baking this into one simple integer to describe the strength of “sanctions,” without regard to their very different authorities, targeting, and impact. The result, in Table 1 at page 28, looks more like the product of a 20-minute Google search than the result of a careful, year-on-year observation sanctions as they’ve been imposed, relaxed, or simply not enforced. In doing so, Lee subtracts food aid from sanctions targeted at proliferation—which is an apples-to-artichokes comparison.

This methodology causes Lee to make significant errors. For example, he notes North Korea’s placement on the list of state sponsors of terrorism, but fails to register President Bush’s removal of North Korea from the list in 2008–discuss among yourselves–or the lifting of Trading With the Enemy Act sanctions. He speaks of “a unanimous UN Security Council Resolution that restricted North Korean activities in all dimensions,” which would certainly make Kim Jong Un giggle as he schusses down the slopes of his new ski resort. Judging from Table 1 of Lee’s paper, this is a rather wild exaggeration of UNSCR 1874 (Lee fails to mention the more significant UNSCR 1718 and 2094). Lee’s table also refers to U.S. restrictions on financial transactions, but with the exception of transactions specifically tied to proliferation, where are those? (Hint: read 31 C.F.R. 510.201; they aren’t there.)

Lee even bumps his integer upward in 2007, just as the Bush Administration was busy weakening North Korea sanctions. An annotation in Table 1 says of the U.S., “impose license requirements for export to DPRK and travel further regulated.” Lee misapprehends that any changes to export license requirements that year were actually the replacement of stronger regulations with weaker ones. As for travel sanctions, there are no travel sanctions against North Korea. If you don’t believe the U.S. Treasury Department, just ask Kenneth Bae.

At pages 24 through 27, Lee then even attempts to tie his sanctions index to the amount of light visible in North Korea in satellite photos at night in graphic form, producing a chart that assumes that sanctions became tougher throughout the entire duration of George W. Bush’s presidency—again, when they were substantially weakened!—as well as that of President Obama.

A more accurate sanctions chart would have shown sanctions largely outweighed by aid from 1994 to 2001 (and most likely a negative value), then rising and peaking in late 2006, falling precipitously through 2009, and then showing some small peaks in 2010, 2011, and 2014. I didn’t bother to make that chart myself, because it would have been a data loaf that combines very different kinds of sanctions and tells us nothing. Furthermore, all of these increases and increases would be relative, thus overlooking their small significance in absolute terms (again, with the exception of the 2005 to 2007 years). One could just as well take note of the serious and determined relative mass movement of every passenger and deck chair during the Titanic‘s last hour. The absolute effect would still be negligible.

It is certainly true that the wrong kind of sanctions, or carelessly targeted sanctions, could have adverse effects on the North Korean people–which is why Section 207 of this sanctions law is riddled with exemptions and flexibilities to avoid those consequences. The obvious off-limits targets include food, medicine, and inexpensive clothing, but sanctions on fuel, for example, could have adverse secondary effects on agricultural production (tanks and tractors both burn diesel). On the other hand, it’s difficult to conceive of how blocking the funds involved in purchasing a ski lift, a centrifuge, or a Pullman limousine will turn off the lights or cause mass starvation in Chongjin (although it’s easy to see how Europe’s laissez-faire trade policies toward Pyongyang might contribute to it). By grouping dissimilar sanctions with dissimilar impacts and policy implications, Lee ends up with a product that is useless for policymakers.

Given the lack of empirically verifiable data about North Korea, Lee is to be commended for his creative pursuit of information and relationships, but the linkage in the relationship he seeks to prove is a weak one. Most of North Korea’s electricity is from domestically produced coal and hydroelectric power, and its electricity shortages are more a function of rationing and governmental incompetence–its inability to maintain a functioning power grid despite its ability to access just about any product whose procurement it really prioritizes. Even if Lee had understood the sanctions well enough to empiricize them, any correlation he might have shown between sanctions and luminosity could just as well have been a case of coincidence as causation.

Another North Korean money man vanishes

The head of a foreign currency-earning enterprise, which is said to be involved in managing Kim Jong Eun’s slush fund, has disappeared, raising questions as to why. The company, which is based in Yangkang Province, operates under the No.121 Department, a bureau that specializes in timber supplies. [Daily NK]

Based on my reading of the reports, it doesn’t sound like the same person as that guy who was reported in August to have defected in Russia, but I’m not 100% certain.

On Europe, the U.N., luxury goods, and the ethical limits of engagement.

The latest rant from Professor Lee and me is published here, on CNN International, in the hope that it will catch the eyes of European audiences (and maybe even give Felix Abt a migraine).

Mind you, I think the EU’s leadership of the U.N. response to the Commission of Inquiry report has been commendable, but Europe has to do a better job of enforcing U.N. sanctions, and curbing the actions of unethical profiteers who would sell Kim Jong Un cigarette-making machinery and ski equipment, cash his checks, and let North Korean kids starve.

If Yoon Sang-Hyun’s information is correct, North Korea spends six times as much on luxury goods as on food for its hungry (corrected).

South Korean Saenuri Party lawmaker Yoon Sang-Hyun, citing Chinese Customs data and “studies on North Korean trade patterns” compiled by the National Intelligence Service South Korean government,* has leaked a report alleging that in 2013, Pyongyang imported $644 million in luxury goods. Yoon says this is enough to buy “more than 3.66 million tons of corn or 1.52 million tons of rice, far more than the country’s food shortage of 340,000 tons estimated by the U.N. Food and Agriculture Organization and World Food Program for the year 2013-2014.”

Now, to be completely fair to the North Koreans here, Pyongyang told the WFP that it was going to import 300,000 tons of that amount commercially. Still, North Korea’s spending on luxury goods again raises the question of why North Korea needs food aid at all, or why anyone there has to go hungry.

According to the World Food Program’s most recent published data, North Korea was expected to have a food deficit of 507,000 metric tons for the year between November 2012 to October 2013. In the year from November 2013 to October 2014, North Korea had a better harvest, and that deficit fell to just 340,000 tons. In each of these years, the North Korean government said it would import the same amount — 300,000 metric tons — leaving international donors to cover the remaining 207,000 metric tons (2013) and 40,000 tons (2014).

In 2012, perhaps projecting from that year’s leaner harvest, the World Food Program asked donor nations for $200 million for a two-year program to feed 2.4 million pregnant women, nursing mothers, infants, and children in North Korea.** The donors, however, have stayed away in droves, and if you put all of these import statistics into one chart, it goes far to explain why***:

Screen Shot 2014-10-17 at 9.02.25 AM

As the WFP explains, nearly a third of North Korean children are chronically malnourished or stunted, 20% of breastfeeding women are malnourished, “more than 82 percent of households do not have acceptable household food consumption during the lean season,” and many have “poor dietary diversity,” which means they survive on corn and other cheap carbohydrates, and maybe some vegetables.

The statistics on North Korea’s commercial food imports come from WFP/FAO assessments, here and here. Of course, those figures are what the North Koreans promised the WFP, and I don’t have to explain the value of a North Korean promise to you. The figures are for cereal imports only, and probably also exclude other, higher-end or luxury food imports. They are simply that percentage of North Korea’s unmet cereal needs that Pyongyang itself says it intends to fill.

While one should always be wary of Pyongyang’s manipulation of need assessments, plenty of reporting from inside North Korea confirms that for most people, the food situation is dire. Publicly, the WFP attributes this situation to a number of reasons, including a long series of droughts and floods that never caused anyone to starve in South Korea, and also on Pyongyang’s “scant foreign currency reserves to buy food on the international market.” It is this assertion that I intend to refute as conclusively and embarrassingly as possible, if only to prod the WFP to address it truthfully.

Screen Shot 2014-10-11 at 6.15.36 PM

[Yoon Sang-Hyun, Yonhap photo]

Yoon has made an annual event of releasing these data, as reliably as a [circle one: flood/drought] destroys North Korea’s entire corn crop, but not South Korea’s. In 2011, Yoon gave The Telegraph a year-on-year accounting of North Korea’s increasing luxury goods imports for the years 2008 to 2010, including $216 million for TVs, digital cameras, and other electronics, and $9 million in whiskey and other expensive liquor. In 2012, a report Yoon released, citing (in part) Chinese Customs data, claimed that North Korea imported $446 million in luxury goods in 2010 and $585 million in 2011:

Imports were especially pronounced for high-end cars, TVs, computers, liquor and watches. Inbound shipments of luxury cars and associated components almost doubled to 231.93 million dollars last year from 115.05 million dollars in 2009. [….] Artworks and antique imports reached 580,000 dollars last year, more than 10 times the figure of 50,000 dollars in 2009. Perfume, cosmetics and fur saw their inbound shipments double. Among items that saw sharp drops in imports were leather products and musical instruments. [Dong-A Ilbo]

Later that year, NPR reported on how the other four-fifths were getting by:

But all five North Koreans I met in China say that’s not the whole story. The markets are full of food, they agree, but most ordinary people can’t afford to buy it. State rations aren’t being distributed, and even some soldiers are going hungry. One man who gave his name as Mr. Kim described the drastic action one family he knew took.

“I saw one family, a couple with two kids, who committed suicide. Life was too hard, and they had nothing to sell in their house. They made rice porridge, and added rat poison,” he recalls. “White rice is very precious, so the kids ate a lot. They died after 30 minutes. Then the parents ate. The whole family died.” [….]

The U.N. report found that in Ryanggang province, where the situation is worst, almost half of the children are stunted from malnutrition. Even in the showcase capital, home to the elite, one in five kids is stunted.

“I saw five people who died of starvation right before I left this year,” says another interviewee, Mrs. Kim, who lives on the outskirts of Pyongyang and is not related to Mr. Kim. Talking to reporters is risky for North Koreans, so NPR is using only the surnames of the people interviewed for this story. “There was one father, who worked in the mines, but his job provided no rations. His two children died. Apart from that family, I know of one other woman and two men who starved to death.” [NPR, Louisa Lim]

In 2013, Yoon again provided data “gathered by South Korean agencies” to The Asahi Shimbun, which reported that Pyongyang imported pet dogs from Europe, sauna equipment from Germany, along with plenty of watches ($8.18 million) and expensive booze ($31.11 million). The imports totaled $323 million in 2009, $584 million in 2011, and $646 million in 2012, representing a doubling of known luxury imports in just two years. The Telegraph cited the same source and statistics in this report, noting that the Pyongyang also imported $37 million worth of electronics.

[The same year this video was taken, incidentally.]

In addition to doling out swag to the elite, the regime has recently used some of this to stock the shelves of elite department stores in Pyongyang, which presumably means that the regime expects to make a tidy profit. I’ll say this for state capitalism — it’s a more efficient way to separate the hoarders from their loot than old-fashioned confiscation.

Screen Shot 2014-10-11 at 6.17.52 PM

[They damn well better have my Emmental]

Had donors fully funded the WFP’s program, its one-year food cost would have been half of $137 million, or $68,500,000, just 10.6% of what North Korea spent on luxury goods in 2013. Put another way, what Pyongyang spends on luxury goods, according to the best available statistics, is 9.4 times higher than what the WFP pays to import food to feed pregnant women, nursing mothers, and children in North Korea.

And obviously, Pyongyang is also spending a lot of money on weapons on top of that.

One problem with taking these data too literally is the risk that the South Korean government is inflating them to disinform us. On the other hand, because luxury goods imports violate U.N. Security Council Sanctions, and also the national laws of the United States, the EU, and Japan (among others), many of the sellers have good reasons to conceal some of these imports. This means that there are risks of the data being overstated and understated. It may never be possible to authenticate precisely what North Korea spends on luxury goods, but it is possible to corroborate, based on other sources, that that spending is very substantial, and rising.

This report in The Chosun Ilbo, accompanied by photographs, show shops in Pyongyang selling the wares of “Chanel, Lancome, L’Oreal’s,” “expensive jewelry by Cartier and Swarovski,” and “luxury watches by Rolex and Omega, and clothes by Italian designers.” In 2011, South Korean government officials told The L.A. Times’s John Glionna that while North Korea continued to receive foreign food aid, Pyongyang’s appetite was for all things Gucci, Armani, and Rolex. It also imported $500,000 in high-grade beef, a description that can’t possibly include the Big Macs Kim Jong Un had flown in on Air Koryo. In 2013, Reuters reported that members of the North Korean elite jammed bags of luxury imports onto every flight from Beijing, right under the noses of Chinese Customs.

[Also that year]

Is there evidence to corroborate the dramatic rise in luxury imports that Yoon’s figures suggest? There is, to a degree. In January 2012, Wall Street Journal reporter Jeremy Page examined Chinese customs data and U.N. reports, and found that “Since 2007, North Korea’s imports of cars, laptops and air conditioners have each more than quadrupled, while imports of cellphones have risen by more than 4,200%.” Page’s report was rich in interesting detail:

The U.N. data show that China has replaced Japan as the biggest exporter of cars to North Korea since Tokyo added them to the luxury list in 2006, and that in 2010 China overtook Singapore as the biggest exporter to the North of tobacco products, which many countries consider luxury items under the sanctions. [….]

“The sanctions don’t work because as long as China allows the export of luxury goods, the North Korea elite will be paid with them to support the regime,” said Jiyoung Song, an associate fellow at London-based think tank Chatham House, who has studied North Korea since 1999. [….]

Among the exports of liquor to North Korea from Hong Kong in 2010 were 839 bottles of unidentified spirits, worth an average of $159 each, and 17 bottles of “spirits obtained by distilling grape wine or grape marc” worth $145 each, according to the U.N. figures.

In 2010, North Korea also imported 14 color video screens from the Netherlands—worth an average $8,147 each—and about 50,000 bottles of wine from Chile, France, South Africa and other countries, as well as 3,559 sets of videogames from China, the U.N. data show. [….]

In 2010 alone, North Korea imported 3,191 cars, the vast majority from China—although one, valued at $59,976, placing it in the luxury category, came from Germany.

Page even produced this graphic:

WSJ graphic on NK luxury imports

[Wall Street Journal]

This trend is also both mirrored and amplified by a very visible increase in spending on leisure and sports facilities. The ROK National Intelligence Service, estimates that North Korea spent $300 million on those facilities in recent years. It’s not clear whether Yoon’s figures include those costs, or how much of them.

Much of the luxury goods trade in China is done openly, at shops near the North Korean Embassy in Beijing that cater to an elite clientele. After China, Europe was the second-worst offender. An Austrian man was implicated for selling North Korea luxury sedans, and attempting to sell them Italian yachts. Despite Italy’s success on this occasion, North Korea directly imported jet skis from Italy, and also “imported sauna equipment from Finland and Germany.”

It’s also possible to search the U.N. Comtrade database for some corroboration. I ran a quick search, which revealed multiple exports of alcoholic beverages and electronics by China and various European countries in 2013. Perhaps in the coming months or years, I’ll try to aggregate some of these data myself to look for patterns, and to identify countries whose enforcement of the Security Council resolutions is particularly suspect.

~   ~   ~

* Oops. Forgot the strikethrough when I posted this.

** Of the requested $200 million, just $137 million would be for food costs (page 1). The rest probably consists of salaries of shipping and support costs, some of which will be paid to Pyongyang for the costs of storage, transportation, fuel, and labor — costs whose accounting the WFP Inspector General questioned recently. (See Annex A-I).

*** Correction 17 Oct 2014: I took a second look at my math and realize that I either used the wrong figure for 2012 and 2013 or made an error in calculating cereal prices. Although I can’t find where the WFP reports a dollar cost of the cereals Pyongyang said it imported, one can arrive at a reasonable estimate by calculating the commercial price from the data in Annex A-1 (42 million divided by 115,000) and multiplying that price by 300,000. The WFP data tell us that food prices and Pyongyang’s commercial cereal imports were both relatively constant for both years (page 8). That works out to a higher figure of $110 million, about a sixth of what Yoon’s ROK government figures say Pyongyang imported in luxury goods. Note that this is consistent with the 2010 figure (the 2011 figure is probably a partial-year figure, so don’t put too much stock in it). I regret the error and have corrected the chart accordingly.

Kurt Campbell: We need tougher sanctions on North Korea.

Kurt Campbell, President Obama’s former Assistant Secretary of State for East Asian Affairs and now CEO of The Asia Group, continues to debunk the pair of academic urban legends that North Korea sanctions (a) are maxed out, and (b) therefore, not a promising policy alternative. At a forum in Seoul last week, Campbell called on his former boss to “further toughen financial sanctions against North Korea” if it continues to refuse to give up its nuclear program and continues its military provocations.

“If we face real serious provocations going forward with North Korea, we have to keep one option … The fact is that if we choose, we can make life much more difficult through financial sanctions on North Korea,” Kurt Campbell, the assistant secretary of state for East Asian and Pacific affairs during the first term of President Barack Obama, said in a forum in Seoul. [Yonhap]

Unlike most journalists and academics who parrot these urban legends, Campbell has actually had the benefit of an informed examination of the authorities.

“I thought North Korea was the most sanctioned country in the world, but I was (proven) wrong when I was involved in the previous U.S. efforts to lessen sanctions on Myanmar in the past,” he said. “Myanmar is sanctioned about 10 times (more than) North Korea.” 

It would be interesting to know whether Campbell is taking a jab at his successors, or whether (as I suspect) he’s really sending a message on their behalf. Campbell also offered this elegant critique of the Sunshine Policy and its many variations:

The U.S. has for the past 20 years tried to give North Korea a choice between engagement with the international community and isolation, he said.

“The North Korean answer has always been both as opposed to choice … and it’s not clear we would be able to try to accommodate this,” he said.

Then, Campbell made another provocative suggestion: perhaps Six Parties are too many for regional diplomacy with North Korea. The question Campbell didn’t answer is who should be kicked out. There are so many good candidates for expulsion that it’s hard to see who ought to remain. North Korea itself has consistently reneged on its commitments with the other parties; talks about North Korea have proceeded before when North Korea boycotted them, and could continue as a place for the other five parties to coordinate policy and improve sanctions enforcement.

That China has demonstrated a consistent pattern of double-dealing and sanctions-busting is beyond serious debate. Talks could continue without China, among parties that really are serious about disarming North Korea. Dealings with China would have to continue in other venues, of course, but won’t make progress until China sees that the other parties are serious about enforcing sanctions.

I’ve always thought Russia’s inclusion in the 6PT was a me-too afterthought. Including Russia mostly served to give China a partner in reluctance. Since Putin’s invasion of the Ukraine, Russia has shifted toward propping Pyongyang up financially and flouting North Korea sanctions, notably by forgiving North Korea’s debt and hosting Ocean Maritime Management. Japan has also broken with its allies to go its own way, and so, for that matter, has the United States when it suited us.

Finally, there is South Korea, the country with the most direct security interest in disarming North Korea, and the beneficiary of billions of dollars in U.S. defense spending each year. It’s especially ironic that Seoul has never committed itself to offering North Korea the strategic choice Campbell is talking about. Its byungjin-friendly financial subsidy of North Korea has blunted the pressure that U.N. sanctions were intended to apply, signaling to North Korea that it can have both nukes and ski resorts.

Europe is not one of the six parties, but some Europeans have offered that it should be. Europe could be offered a place, but only if it commits to playing a more productive role than it has in the past. Until recently, Europe’s main interaction with North Korea had been to host Kim Jong Un’s offshore slush funds in its banks, to sell him the luxury goods that should have paid for food instead, to support byungjin-friendly (that is, largely unconditional, regime-focused) engagement with Pyongyang despite its manifest failure, and then to oppose the strong enforcement of U.N. Security Council sanctions on humanitarian grounds. Despite rising consciousness of North Korea’s crimes against humanity in Europe, its compliance with U.N. sanctions is still poor.

It’s not clear to me whether there should be fewer parties than six or more, or which nations should be represented in them. It is clear that the United States has failed to use the full extent of its financial, diplomatic, cultural, and military influence to unite around a strategy of effective pressure, and then to pursue it until North Korea is disarmed — completely, verifiably, and irreversibly. Ironically for a President and a Secretary of State who each had emphasized diplomacy in their respective campaigns for the presidency, neither has had diplomatic success in coordinating the North Korea policies of our allies and military dependents in Northeast Asia, to say nothing of our rivals.

~   ~   ~

* Byungjin is North Korea’s term for a doctrine under which it will both enrich itself economically and continue to improve its nuclear weapons capability.

H.R. 1771: A response to Stephan Haggard

Stephan Haggard has published the second of two comments on H.R. 1771, the North Korea Sanctions Enforcement Act, at KEIA’s blog, following Bruce Klingner’s first post on the subject. Haggard and I have a history of genial disagreement about North Korea policy, but I find much more in this thoughtful and well-considered post to expand on than to argue with. Haggard has obviously read and understood the legislation before opining about it. (Marcus Noland, Haggard’s co-author at Witness to Transformation, has also commented on the legislation, at about 37 minutes into this audio.)

Among our perhaps narrowing differences, Haggard clearly has more reservations than I do about the impact of sanctions on nominally “legitimate” North Korean commerce:

One concern, however, is whether the legislation has intentionally or unintentionally blurred the line between WMD-related and commercial trade. The justification for doing so is arguably legitimate. In such a highly centralized regime, it is difficult if not impossible to draw the line between illicit and commercial activities. Nonetheless, to date the international community has sought to draw such a line, and for several reasons. [KEIA Blog]

What follows will merely expand on what Haggard acknowledges — that Pyongyang itself has blurred that distinction. Somehow, Pyongyang has found the financial means to finance its WMD programs and its brutal security forces, and although its finances are opaque, ostensibly lawful commerce such as mining almost certainly plays a key role in paying for it. Under its byungjin policy, Pyongyang asserts the intention of having it both ways, enriching itself economically while still developing an effective nuclear arsenal. H.R. 1771 seeks to force Pyongyang to choose between those priorities, without harboring any illusions about which alternative Pyongyang will choose, at least initially. But we’ll return to sub-topic that later in this post.

H.R. 1771 isn’t the first recognition of North Korea’s co-mingling of legitimate and illicit funds. Two months before H.R. 1771 was introduced, the U.N. Security Council adopted Resolution 2094 (2013), which also recognized the risk that North Korea misuses both commerce and consular activities. The resolution responded by “targeting the illicit activities of diplomatic personnel, transfers of bulk cash, and the country’s banking relationships,” and by requiring “enhanced monitoring” of “assets or resources, including bulk cash, that could contribute to” Pyongyang’s weapons programs. This language builds on Resolution 1718 (2006), which required member states to “ensure that any funds, financial assets or economic resources are prevented from being made available” to persons involved in breaking sanctions.

Then, In March of 2013, one month before H.R. 1771 was introduced, the Treasury Department sanctioned the Foreign Trade Bank of the DPRK, a bank that was heavily involved in financing nominally legitimate trade, transactions with humanitarian NGOs, and also, according to the Treasury Department, “transactions on behalf of actors linked to its proliferation network.”

Like H.R. 1771, Treasury’s action and the Security Council’s language acknowledge that North Korea, like all money launderers, hides its illicit transactions within otherwise lawful commerce. It also uses the proceeds of that commerce to finance more illicit activities. Its objective is to make the lawful and the unlawful as indistinguishable and inseparable as possible. Like Hamas, Hezbollah, and Al Qaeda, Pyongyang also shields its financial lifelines by entangling them with humanitarian activities—activities that are only necessary because of Pyongyang’s deliberate misuse of money that should be spent on food, and which it could easily disentangle from its proliferation by allowing humanitarian NGOs to bank elsewhere.

In practice, the targeting of some of these North Korean entities will require a careful, case-by-case weighing of costs and benefits based on good financial intelligence. That is why Section 207 of H.R. 1771 provides generous exemption and waiver provisions to avoid doing further harm to North Korea’s food supply, beyond the harm already being done by Kim Jong Un’s crackdown on market activities and cross-border smuggling.

I share more of Haggard’s concern that China will intensify its efforts to help Pyongyang evade sanctions:

One of the perverse effects of the post-2003 sanctions efforts is that North Korea has become increasingly dependent on China; my estimates with Marc Noland suggest that China may account for as much as 70 percent of the DPRK’s total trade. This growing dependence has had the odd consequence of reducing the influence of sanctions as trade has shifted toward the weakest links in the sanctions chain. China probably provides fewer direct supports than is commonly thought, but it remains strongly committed to a strategy of deep economic engagement with the country. It is possible that firms and particularly banks conducting business with North Korea will reconsider, and that is a good thing. But we should not have exaggerated expectations; there are plenty of firms and financial institutions that will continue to ply this trade, and we are unlikely to get much sympathy from Beijing in tracking them down. To the contrary, the Chinese government has already signaled its concern about the use of secondary sanctions and has shown little inclination to use the economic leverage over North Korea that it quite obviously has. Will this legislation make cooperation with China on North Korea easier or harder?

There’s little question that China will try to frustrate the enforcement of H.R. 1771, just as it has tried to frustrate the enforcement of every other effort to sanction North Korea. What distinguished the brief Banco Delta Asia episode from every other such effort, and contributed to its widely acknowledged success, was the Chinese government’s relative powerlessness to blunt it. Recent experience suggests that this hasn’t changed, although China’s willingness to sacrifice its own interests for Kim Jong Un’s may have waned since the purge of Jang Song-Thaek.

China’s adoption of state capitalism has enriched it, through the creation of businesses and parastatals that are highly dependent on global trade and the international financial system. It’s not surprising that a mixed economy has also had a mixed response to sanctions. At the state level, China routinely overlooks U.N.-mandated sanctions. China’s banks, on the other hand, have been highly sensitive to any veiled threat by Treasury to sanction banks that do business with North Korean money launderers and proliferators. We first saw this in 2005, shortly before Banco Delta Asia, when The Wall Street Journal reported that the Bank of China was under investigation for laundering North Korean funds. The report caused the Bank of China to spurn much of its North Korea business. Remarkably, even after Agreed Framework 2.0 in 2007, it still refused to help move $25 million in illegally derived funds back to Pyongyang, despite the express requests of the U.S. and Chinese governments.

As recently as May of 2013, two months after Treasury sanctioned the Foreign Trade bank and a little more than a week after the introduction of H.R. 1771, China’s four largest banks — the Bank of China, the Industrial and Commercial Bank of China, the China Construction Bank, and the Agricultural Bank of China  — all halted money transfers to North Korea. Other, smaller Chinese banks, like the Bank of Dandong, continued to move money for Pyongyang, and at the lowest reaches of the financial ecosystem, North Korean money launderers still operate in Guangdong with impunity, and more discreetly, in places like the British Virgin Islands. Enforcing sanctions is like mowing the lawn. If you don’t do it regularly, things grow back quickly, and it’s the weeds that will thrive the most. Unlike mowing the lawn, you can’t take a uniform approach to different enforcement targets.

That is why H.R. 1771 was designed to be scaleable, allowing harder sanctions for smaller banks that the financial system wouldn’t miss, and more subtle sanctions for larger banks that have historically been highly sensitive to reputational risks. Securing compliance at all levels of the financial ecosystem will require a great deal of hard work by financial investigators and lawyers, and a new demonstration of Treasury’s determination to deter such conduct, both in China and in other countries.

Post-BDA, and since the ascent of Kim Jong-un in particular, North Korea has also sought to diversify its trade, investment and financial links. The KPA and its associates have developed relationships with financial entities that are not concerned with access to the U.S. market, both in China and outside it; Russia will be particularly interesting to watch in this regard but there is also the open field of the Middle East. Throughout, the legislation recognizes that the administration will need to conduct a vigorous diplomacy to close the loopholes created by the fact that some firms and financial institutions will not be deterred by secondary sanctions.

Without question, North Korea’s response to Banco Delta Asia has been to decentralize its hard currency operations overseas. Recently, North Korean senior defectors have provide some direct evidence of this to bolster the suspicions of the U.N. Panel of Experts. One obstacle to untangling this is the laxity of U.S. sanctions against North Korea, which do not require the licensing of most financial transactions like investments, loans, and other transfers. (See 31 C.F.R. 510.201, which bans proliferation-related transactions, imports from North Korea, and little else, and compare that to the corresponding breadth of the Iran and Cuba sanctions regulations). This deprives Treasury of valuable financial intelligence that could help it enforce a sanctions program more effectively, if the President ever directed it to do so.

Even so, it’s probable that North Korea still remains dependent on a relatively small number of key overseas financiers, abetted by a few unethical banks that are still willing to violate the intent of U.N. Security Council sanctions (by “relatively” small, I’m comparing my best guess to the hundreds of persons and entities designated by Treasury for financing Iran or various terrorist organizations; just 62 North Korean entities are designated today).

Of course, there’s nothing new about rogue regimes, terrorists, and drug lords hiding their money. With determined enforcement, it took Treasury three years to bring Iran’s relatively large, diverse, and interconnected economy to the brink of collapse, and about five to force Burma to free Aung San Suu Kyi. Bankrupting a terrorist organization with a low overhead was far more difficult, but within ten years, even Osama Bin Laden died bankrupt and isolated, cloistered with his wives and his extensive library of pornographic videos. There’s more overhead required to run a country with a population of 23 million and a million-man mechanized army, even if one runs it into the ground. This can’t be done with briefcases full of cash. Given Pyongyang’s relatively fragile links to the global economy — its chief exports are coal, meth, and refugees — one could realistically believe that sanctions would create significant leverage as quickly as they did in the case of Iran.

Without question, this will be harder today than it would have been if pursued with determination in 2007. But to suggest that the absence of a single weak link like Banco Delta Asia means that there are no others is to ignore the vulnerability of Pyongyang’s own banking system. One alternative would be to simply shut that system down entirely and force Pyongyang to work through responsible foreign banks, as Section 207(d) of H.R. 1771 contemplates. As Haggard says, correctly:

The outside world has a strong interest in encouraging reform and opening of the North Korean economy, to shift its strategic orientation away from the byungjin line of trying to pursue economic development and nuclear weapons simultaneously. If this legislation were to have the effect of encouraging deeper economic integration, it would be through an initial phase of even greater isolation, autarchy and external controls.

I agree with this, but I believe we’ve gotten the sequence wrong. Reform won’t be possible until North Korea accepts transparency and broad interaction with the outside world, and those prerequisites clearly don’t exist yet. The consequence of shutting down the North Korean banking system would be to force North Korea to rely on foreign banks. Responsible foreign banks that apply stringent transparency and compliance requirements on North Korea’s business transactions could extract some degree of financial transparency from Pyongyang — I’m suggesting something like receivership — that would force it to spend its money more wisely and humanely. Naturally, Pyongyang would never accept this until it was cornered directly over the trap door to Hell.

Another question is whether the sanctions will have the broader strategic effect of moving the North Koreans toward serious negotiation of its nuclear program. I am extremely dubious. Proponents of such sanctions point to BDA as a success in gradually bringing North Korea back to the table after its nuclear test in October 2006. But this assessment confuses a tactical move with the failure of the broader get-tough policy of the first Bush administration, which probably contributed to North Korea’s determination to go nuclear in 2006 in the first place. The incremental progress made during 2007-8 rested on the lifting of the BDA sanctions and extending offers of assistance as well.

This may be my only point of sharp disagreement with Haggard. The history suggests that Pyongyang began a determined pursuit of nuclear weapons in the late 1980s, continued that pursuit despite nuclear disarmament agreements with Bill Clinton and George W. Bush, and after Barack Obama asked Kim Jong Il to unclench his fist in 2009. Since then, North Korea has tested two more nukes and broken another disarmament deal. The revelation of North Korea’s uranium enrichment program is strong evidence of the continuity of North Korea’s intent. It also suggests that what happened in 2007 and 2008 was not progress at all, but the premature relaxation of pressure before North Korea’s disarmament was verified.

The point is a general one. The paradoxical feature of sanctions is that they rarely have the direct effect of forcing the target country to capitulate. The HR 1771 sanctions will have effect only when coupled with strong statements of a willingness to engage if North Korea showed signs of interest in doing so. The legislation provides plenty of sticks; the administration will have to continue to articulate the prospective carrots in a way that is credible. Strong sanctions legislation makes that difficult to do if the legislation places a series of binding constraints on the president’s discretion. Why negotiate with the U.S. if there is no return from doing so?

The experiences of 2007 and 2008 explain those binding constraints. If H.R. 1771 represents a vote of no confidence in the Obama Administration’s North Korea policy, sections 401 and 402 represent a vote of no confidence in the State Department, after its premature relaxation of sanctions against North Korea, Burma, and Iran. The United States has gotten good at using sanctions to gain diplomatic leverage. It has had a much poorer record of using that leverage to achieve its interests.

It’s fair to notice that Barack Obama wasn’t President in 2008. Is it also fair to constrain him over the actions of Bush’s State Department? I think it is, because the number of holdovers from one administration to another belies the essential continuity of both policies. Another long-standing sore point in Congress is its perception that the State Department has failed to enforce the North Korea Human Rights Act as intended. To a great extent, then, these sections not only express Congress’s distrust of North Korea, but its concerns that the State Department has abused its discretion and requires more limits. In future budgets, it wouldn’t surprise me to see this reflected in more fiscal limitations on how the State Department spends its appropriations.

Haggard is pessimistic that Kim Jong Un will ever give up his nuclear weapons voluntarily, and it’s a pessimism I share. It’s entire possible that only a coup or some kind of crisis will make effective diplomacy possible, but it will certainly require extraordinary leverage — leverage we don’t have today.

The longer North Korea refuses to disarm, the more assets and income streams Treasury will identify, block, and cut off. The loss of access to his offshore wealth will leave Kim Jong Un unable to sustain his own lifestyle, advance his WMD programs, pay his ruling elite, or feed his military and internal security forces. His mechanized military will degrade for lack of spare parts, fuel, and ammunition. The capabilities, discipline, and cohesion of his military and internal security forces will degrade until they are unable to suppress internal dissent. One beneficial effect of this would be to degrade the regime’s capacity to suppress markets, track cell phones, seal the borders, and block remittances and information from abroad. It’s possible that sanctioning the “palace” economy will help the gray-market people’s economy to flourish again.

In due course, these developments will also begin to destabilize the core of the regime. That may cause China to reassess its North Korea policy, enforce U.N. sanctions, and pressure Kim Jong Un to disarm diplomatically. Failing this, it may seek to euthanize the Kim Dynasty to preserve its greater interest in stability on the Korean Peninsula.

Alternatively, the regime’s financial isolation and political destabilization could cause other senior officials to prevail on Kim Jong Un to change his policies, or to remove him from power in favor of more rational leadership. The question today — so many years after our last good options evaporated — is which crisis we’d rather deal with. One is a North Korea with an effective nuclear arsenal, the willingness to proliferate it to others, a proven disregard for human life, and a dangerously impulsive leader. The other will require us to confront the tension attendant to fracking the Kim Dynasty into something we can deal with. Haggard and I will probably never give the same answers to that question, but he makes honest, objective, and compelling arguments about things policymakers must pay careful attention to as they implement a tougher new policy. In the end, however, one does not derive a clear sense of what strategy Haggard believes would be more likely to achieve our interests, which may explain his conscientious ambivalence about this legislation.

~   ~   ~

Update: A reminder that the views I express here, including my inferences about the views of others, are mine alone.