“Singapore will prohibit all commercially traded goods from, or to, the Democratic People’s Republic of Korea (DPRK),” the city-state’s customs said in the notice sent to traders and declaring agents last Tuesday, referring to the country by its official name.
The suspension would take effect from Nov. 8, Fauziah A. Sani, head of trade strategy and security for the director-general of customs, said in the notice. [Reuters]
The first question is what this means. NK News adds the useful detail that this order will ban all commercial trade, “regardless of whether [it is] imported, exported, transhipped or brought in transit through Singapore.”
If this means anything, it will help end a brisk trade in prohibited luxury goods of the kind that fill elite shops in Pyongyang while people in the outer provinces barely survive. NK Pro’s remarkable investigation into OCN (S) Pte, Limited’s luxury good exports to Pyongyang, in partnership with Bureau 39, is behind a very high paywall, but it’s well worth reading if you can afford a subscription. If you can’t, this story or this one will give you the gist of it (see also). I’d think that this would end the role of Pan Systems Singapore as a middleman in the trade in components for Glocom’s wares, but someone should get a clear answer to that question.
For years, Singapore’s regulation implementing the U.N.’s North Korea sanctions was several resolutions out of date. Since then, Singapore has done a better job of keeping its regulation updated. Reuters describes Singapore as North Korea’s seventh-largest trading partner, but exporters like OCN, who want to avoid legal scrutiny, may claim a different country of destination for their merchandise. Be skeptical of any official trade statistics about North Korea.
The reports Singapore filed with the U.N. this year and last year on its implementation of North Korea sanctions suggest that Singapore already had tight export controls, and was already enforcing U.N. resolutions requiring the inspection of cargo going to and from North Korea. We now know that this wasn’t true. Just before NK News blew the whistle on OCN, Singapore told the U.N. that it had “completed its review and update of its existing list of luxury goods prohibited for transfer to” North Korea. In 2016, the U.S. offered to assist Singapore with a cargo monitoring system to detect exports of prohibited goods. Clearly, Singapore could use that help.
There is also the question of what this new ban does not cover. After all, Singapore’s main importance for North Korea isn’t as a direct trading partner, but as a hub for laundering its money and registering its front companies. Yet on its face, Singapore is only banning the trade in “goods.” It has said nothing about services.
The DPRK’s Jinmyong Joint Bank also operates a branch in Singapore, while a brochure for Pyongyang’s First Credit Bank claimed it has had ” a joint venture agreement with Singapore for 50 years.”
The U.S. Department of the Treasury in late August designated two Singapore-based companies – Transatlantic Partners and Velmur Management – for links to the North Korean state. [NK News, Dagyum Ji]
In 2013, the Burmese opposition website The Irrawaddy, citing unnamed businessmen, reported that a Burmese general designated by the Treasury Department and linked to the North Korea arms trade, and who visited North Korea in 2008 to seek help with Burma’s ballistic missile program, “may have opened several bank accounts in Singapore in past years in order to help Burma’s military sort out international arms deals.” It noted that “[t]he fact that many of the generals were on a US sanctions list has not hindered their opportunities to visit and do business in Singapore.”
We learned more about North Korea’s money laundering and front companies in Singapore from the Glocom case, from the Velmur forfeiture case, from the U.N.’s investigation of the Chinpo Shipping case, and from Chinpo’s appeal of the fine levied on it. Singapore’s implementation reports claim that it has complied with the U.N. asset freeze provision, but China’s interference and the inefficiency of the 1718 Committee — which still hasn’t even designated Glocom — means that relatively few North Korean entities are designated.
UNSCR 2270 bans direct and indirect correspondent services for North Korean banks, and UNSCR 2371 bans joint ventures with North Korea. If Singapore enforces the resolutions as written — and if its local bank branches know what’s good for them — they ought to shut Pan Systems, any other North Korean joint ventures, and all of their bank accounts.
Singapore also exports other services to North Korea. In 2015, NK News reported that a Singapore firm was building a department store for the elites in Pyongyang. U.N. resolutions do not prohibit the provision of construction services or materials to North Korea, but deals in non-sanctioned goods and services sometimes involve a sanctioned North Korean entity as a partner.
Singapore says it will not end diplomatic relations with North Korea. That’s within the Singapore government’s discretion, but UNSCR 2321 calls on all states to reduce the number of staff at North Korean embassies and require them to limit those staffers to one bank account each. Implementation reports filed by Singapore say nothing about compliance with those provisions. Singapore has warned its citizens against tourist travel to North Korea. Last year, it also ended visa-free entry by North Koreans.
The ultimate question is whether Singapore will follow through on its word. Yesterday, the State Department said that Sudan would also end all trade and military ties with North Korea. That would be the third time this “news” has been reported in the last year. North Korea’s commercial ties can be surprisingly resilient, and Singapore has long been a major hub for North Korea’s smuggling and money laundering operations. It will continue to be one as long as Pyongyang is allowed to post a large number of agents on Singapore’s territory under diplomatic cover. Be skeptical of this story until you see evidence that North Korean accounts are frozen, and that North Korean nationals are packing their bags and boarding flights back to Pyongyang.
Last year, Ed Royce, the Chairman of the House Foreign Affairs Committee, and Cory Gardner, Chairman of the Senate Asia Subcommittee, led the charge to cut Pyongyang’s access to the hard currency that sustains it by drafting and passing the North Korea Sanctions and Policy Enhancement Act. We’ve known all along that nothing short of presenting Kim Jong-Un with an existential choice — disarm and reform, or perish — would create the conditions for a negotiated disarmament of North Korea, assuming that’s still possible. And we’ve always known that it would take several years for even aggressively enforced sanctions to present Pyongyang with that choice.
One nuclear test and multiple missile tests later, neither internationalcompliance with U.N. resolutions nor (until very recently) U.S. enforcement of the NKSPEA has been enough to either change Kim Jong-Un’s mind or weaken his hold on power. Congress now seeks to raise the pressure on Pyongyang by closing loopholes in existing sanctions, attacking its developing sources of income (textiles, fisheries, and labor exports), catching U.S. law up with new U.N. sanctions, and most importantly, increasing penalties for foreign banks and governments that (for various reasons) haven’t complied with the U.N. resolutions.
Ed Royce continues to lead this effort with the KIMS Act, which passed the House overwhelmingly in May, and which has now been merged into Title III of the Russia, Iran and North Korea Sanctions Act of 2017, or RINKSA. But the foreign affairs committees can only go so far in attacking Pyongyang’s cash flow through financial regulation before the parliamentarians in Congress give primary jurisdiction over a bill to the financial services committees. Some of the most important remaining sanctions loopholes are within the banking committees’ jurisdiction.
Introducing S.1591, the BRINK Act
An unlikely champion has stepped into this void in the form of Senator Chris Van Hollen of Maryland, a liberal Democrat who sits on the Senate Banking Committee. I say “unlikely,” because historically, it hasn’t been liberal Democrats who’ve led Congress’s efforts to raise the pressure on Pyongyang. This would be a good time to abandon any assumption that Democrats are soft on North Korea. Now, Van Hollen and Republican Senator Pat Toomey of Pennsylvania have introduced S.1591, the Banking Restrictions Involving North Korea Act, or BRINK Act, of 2017. The text of the bill, which you can read here, hasn’t been posted on GovTrack or Congress.gov, although the bill itself was introduced several days ago. At the outset, I’ll just get this bit of full disclosure out of the way. I’ve had some discussions with Senator Van Hollen’s staff about this bill, and ….
The BRINK Act is a tough and sophisticated piece of legislation. It will be a strong complement to both the NKSPEA and the RINKSA. This post will discuss its key provisions, starting with the definitions. A very important new one that appears in multiple places in the bill is “North Korean covered property:”
That definition potentially covers just about every transaction the North Korean government profits from. The key question, of course, is whether the U.S. can reach any given transaction in NKCP — either because a U.S. person (or a foreign subsidiary) is a party to the transaction, or because part of that transaction occurs in the United States (most likely, because a financial transaction is cleared through a U.S. correspondent bank, or because a product seeks to enter U.S. commerce).
Another significant definition is “knowingly,” which includes circumstances in which a party to the transaction “should have known” that it was prohibited.
Section 101 of the BRINK Act creates a blacklist of Chinese and other foreign banks that are failing their due diligence obligations to prevent North Korea from accessing the financial system, or are helping North Korea evade sanctions by facilitating offshore dollar clearing, or dealing with North Korea in precious metals or other stores of value. It then provides a list of sanctions that restrict the access of those banks to the U.S. financial market, add additional civil penalties to the criminal penalties under 31 U.S.C. 5322, or (at worst) block their assets here.
Like all of the sanctions under the BRINK Act, this sanction can be suspended if North Korea makes progress toward disarmament and accounting for American POW/MIAs, and can be lifted when North Korea completes that disarmament and accounting.
Section 102 requires any transactions in North Korean covered property within U.S. jurisdiction (involving a U.S. person or occurring in whole or in part in the United States) to be licensed by the Treasury Department’s Office of Foreign Assets Control. As we’ve learned from recent actions by the Justice Department, North Korea’s banks, smugglers, and money launderers — and their Chinese bankers — tend to evade OFAC licensing requirements, despite their preference for dealing in U.S. dollars. Under this provision, any unlicensed transactions in NKCP are punishable by a $5 million fine and 20 years in prison. More importantly, the proceeds of unlicensed transactions, and property “involved in” unlicensed transactions, will be subject to forfeiture. In most cases, that’s the only form of “punishment” we have the power to impose on the targets of these activities.
Section 103 authorizes sanctions against providers of specialized financial messaging services to North Korean financial institutions, a topic I previously covered here, here, and here.
Section 104 authorizes new sanctions against foreign governments that fail to comply with U.N. sanctions, such as those that require member states to freeze the property and close the offices of designated North Korean entities (KOMID, Korea Kwangson Bank, the Reconnaissance General Bureau, Bureau 39, etc.), to expel representatives of North Korean banks and North Korean diplomats who engage in arms trafficking, and to deregister North Korean ships. For governments identified as noncompliant, the U.S. can limit exports of goods or technology to those countries, withhold foreign aid, and instruct our diplomats to vote against them getting IMF, World Bank, and other international loans. This provision may well put teeth into sections 313 and 317 of the RINKSA (discussed below) and broadens the sanctions authorities of section 203 of the NKSPEA.
Section 105 authorizes grants for governmental and non-governmental organizations that currently provide the U.S. government with much of its actionable intelligence on North Korea money laundering — the U.N. Panel of Experts, and private groups like the Center for Advanced Defense Studies and Sayari Analytics. (Again, this complements a provision in the RINKSA — specifically, section 323, which provides rewards for informants who provide information leading to the arrest of persons responsible for North Korean money laundering or cyber attacks).
Section 106 requires a report on North Korea’s use of beneficial ownership rules to mask its interests in property (previously discussed here).
Section 107 directs the President to team up with the World Bank’s stolen assets recovery initiative to go out and find the hidden, ill-gotten gains of Kim Jong-Un and his minions, wherever in the world they can be found, block them, and release them for humanitarian use.
Section 108 will undoubtedly create headlines in South Korea — it urges South Korea not to reopen Kaesong until North Korea completely, verifiably, and irreversibly dismantles its nuclear, chemical, biological, and radiological weapons systems and any systems for delivering them.
Sections 201 through 204 call on and encourage assets and pension fund managers to divest from companies that have investments in North Korea, and immunize those fund managers from suit for any such divestment.
The KIMS Act becomes Title III of the RINKSA
For a while, it looked like all that would survive of the KIMS Act in the Senate was an untitled bill called S.1562, which removed most of the KIMS Act’s toughest provisions except for secondary sanctions on North Korea’s labor exports. But last week, S.1562 was referred, ironically enough, to the Banking Committee, taking it out of the hands of Foreign Relations. More importantly, the White House is also signaling its support for a newer bill, the Russia, Iran, and North Korea Sanctions Act. The RINKSA incorporates nearly all of the KIMS Act into Title III (full text here; scroll down to page 144).
Bob Corker, the Chairman of the Senate Foreign Relations Committee, has expressed some concern about how easy it will be to pass a bill that big this year. I don’t have the knowledge to say whether this was a good tactical move or not, so I’ll defer to the congressional leadership on that point. (Some of us are keenly aware that Congress still has to reauthorize the North Korean Human Rights Act this year, or it will expire.) Instead, I’ll describe the provisions of Title III in a bit more detail than I described the KIMS Act before.
Section 311 amends the key provision of the NKSPEA, section 104, to expand both the mandatory sanctions of section 104(a) and the discretionary sanctions of NKSPEA 104(b). Mandatory sanctions would now apply to purchases of precious metals from North Korea, selling aviation or rocket fuel to North Korea, providing bunkering services for any U.N.- or U.S.-designated ship, reflagging North Korean ships, or providing correspondent services to any North Korean bank (Title III, section 312, also codifies a prohibition on providing indirect correspondent account services to North Korean banks).
Section 311 also expands the President’s discretionary authority to designate and sanction persons who violate U.N. sanctions, and U.S. regulations and executive orders, that apply to North Korea. These new, discretionary authorities also authorize the President to designate persons who purchase more coal and iron ore than U.N. limits allow, who purchase textiles or food products from North Korea, who transfer bulk cash or other stores of value to North Korea, and who export crude oil to North Korea (humanitarian exports of gasoline, diesel, and heavy fuel oil are exempt). Other new sanctions authorities apply to North Korea’s online gambling, sale of fishing rights, labor exports, and banking, transportation, and energy sectors.
Some of these areas are already subject to the potential for asset freezes under Executive Order 13722, but designations under section 104(a) or 104(b) of the NKSPEA can have additional and more severe consequences.
Sections 313 and 317 are secondary sanctions provisions applicable to governments that aren’t complying with U.N. sanctions. Section 313 amends and strengthens NKSPEA 203 sanctions against governments that engage in arms deals with North Korea, by denying them most foreign assistance. Section 317 creates a blacklist of noncompliant governments, which would dovetail nicely with the sanctions provisions of section 104 of the BRINK Act.
Section 314 expands the President’s authority to increase customs inspections for cargo coming from ports that fail to inspect all cargo going to or coming from North Korea, as required by UNSCR 2270. This provision is a secondary shipping sanction. It presents a very real risk that cargo coming to the U.S. from noncompliant ports may be held up longer in Customs, which could cause shippers to take their business elsewhere. As with all secondary sanctions, it forces third-country entities to choose between doing business with the U.S., or with North Korea. It also provides a list of suspect ports in China, Russia, Iran, and Syria that would be first in line to blacklisted for additional inspections.
Section 315 is another secondary shipping sanction, and a very tough one indeed — ships flagged by countries that reflag North Korean ships (a violation of UNSCR 2270 and 2321) could be denied access to U.S. ports and waterways. Vessels that have visited North Korea recently, for other than strictly humanitarian purposes, could also be banned.
Section 316 orders a report on WMD cooperation between North Korea and Iran.
Section 318 orders a report on whether SWIFT and other providers of specialized financial messaging continue to service North Korean banks, including those designated by the U.N.
Section 321 is a set of powerful sanctions against employers of North Korean labor and the sellers of products made with North Korean labor. It subjects those employers to potential sanctions under the Trafficking Victims Protection Act or the freezing of their assets. Governments that allow the use of North Korean labor could also see their TVPA status drop. A rebuttable presumption would apply to any goods made with North Korean materials or labor, excluding from U.S. commerce under section 307 of the Tariff Act.
Section 323 provides for the government to pay rewards to informers — whether these be defectors or NGOs — that provide information leading to the arrest of North Korean money launderers or persons responsible for cyber attacks.
Both of these bills attempt to attack North Korea’s third-country enablers. Legislation of this kind is necessarily creative and complex because it’s not always obvious how the U.S. can reach North Korea’s income while minimizing harm to legitimate commerce and to the North Korean people. If the target only does business with North Korea, then our next option is to target the bankers, shippers, and insurers that deal with the primary target and force them to choose between access to the U.S. or the North Korean economy. The most common ways we can influence the conduct of these enablers are (1) prohibiting U.S. persons and their subsidiaries from dealing with the target; (2) denying the target access to U.S. financial markets, trade, foreign assistance, and technology. Clearly, the U.S. has a stronger case when it enforces the terms of a U.N. Security Council resolution than when it acts alone.
While it may be too difficult to merge RINKSA Title III and the BRINK Act at this point in the congressional calendar, the two bills would go together like chocolate and peanut butter. Minor inconsistencies between the two will likely be resolved by amendments to the BRINK Act. I’ll defer to others how best to enact them, but each bill serves important purposes in making sanctions work, and in presenting Kim Jong-Un with that existential choice.
The more potentially significant action, however, wasTreasury/FINCEN’s action against a Chinese bank. The target was the Bank of Dandong, and the weapon was 31 U.S.C. 5318A(b)(5), otherwise known as the Fifth Special Measure of Section 311 of the Patriot Act — thesameprovision used against Banco Delta Asia in 2005. The action effectively makes the BoD a global pariah and cuts it off from the financial system.
[Alderaan shot first.]
Interestingly enough, if you had asked me to pick just one Chinese Bank to make an example of, I would have named the Bank of Dandong. Yes, the Bank of China was the most flagrant violator, but a large bank calls for a different strategy (which I’ll discuss below). Based on the open-source evidence, it was the BoD that had the most integration into Pyongyang’s palace economy. This 2013 report documented its ties to US- and UN-sanctioned Korea Kwangson Bank (KKBC). This report from early 2016 indicates that Chinese merchants trading with North Korea (temporarily) shifted away from the Bank of Dandong after the U.N. Security Council passed Resolution 2270. A few months later, the Justice Department indicted a Chinese company, Dandong Hongxiang Industrial Development, for laundering money for KKBC through 12 Chinese banks, including the BoD. Just a few days before, the Center for Advanced Defense Studies had revealed that DHID had an equity stake in the BoD.
To this body of evidence, the Treasury Department now adds a Notice of Proposed Rulemaking to support the 311 action. Treasury accuses the BoD of facilitating money laundering by trading companies that are fronts for North Korean banks and agencies designated for proliferation. Sorry for the long money quote, but it’s all worth reading:
Bank of Dandong serves as a gateway for North Korea to access the U.S. and international financial systems despite U.S. and UN sanctions….For example, as of mid-February 2016, North Korea was using bank accounts under false names and conducting financial transactions through banks located in China, Hong Kong, and various southeast Asian countries. The primary bank in China was Bank of Dandong.
In early 2016, accounts at Bank of Dandong were used to facilitate millions of dollars of transactions on behalf of companies involved in the procurement of ballistic missile technology. Bank of Dandong also facilitates financial activity for North Korean entities designated by the United States and listed by the United Nations for WMD proliferation, as well as for front companies acting on their behalf.
In particular, Bank of Dandong has facilitated financial activity for Korea Kwangson Banking Corporation (KKBC), a North Korean bank designated by the United States and listed by the United Nations for providing financial services in support of North Korean WMD proliferators. As of May 2012, KKBC had a representative embedded at Bank of Dandong. Moreover, Bank of Dandong maintained a direct correspondent banking relationship with KKBC since approximately 2013, when another Chinese bank ended a similar correspondent relationship. As of early 2016, KKBC maintained multiple bank accounts with Bank of Dandong.
Bank of Dandong has also facilitated financial activity for the Korea Mining Development Trading Corporation (KOMID), a U.S.- and UN-designated entity. As of early 2016, a front company for KOMID maintained multiple bank accounts with Bank of Dandong. The President subjected KOMID to an asset blocking by listing it in the Annex of Executive Order 13382 in 2005, and the United States designated KOMID pursuant to Executive Order 13687 in January 2015 for being North Korea’s primary arms dealer and its main exporter of goods and equipment related to ballistic missiles and conventional weapons.
FinCEN is concerned that Bank of Dandong uses the U.S. financial system to facilitate financial activity for KKBC and KOMID, as well as other entities connected to North Korea’s WMD and ballistic missile programs. Based on FinCEN’s analysis of financial transactional data provided to FinCEN by U.S. financial institutions pursuant to the BSA as well as other information available to the agency, FinCEN assesses that at least 17 percent of Bank of Dandong customer transactions conducted through the bank’s U.S. correspondent accounts from May 2012 to May 2015 were conducted by companies that have transacted with, or on behalf of, U.S.- and UN-sanctioned North Korean entities, including designated North Korean financial institutions and WMD proliferators.
In addition, U.S. banks have identified a substantial amount of suspicious activity processed by Bank of Dandong, including: (i) transactions that have no apparent economic, lawful, or business purpose and may be tied to sanctions evasion; (ii) transactions that have a possible North Korean nexus and include activity between unidentified companies and individuals and behavior indicative of shell company activity; and (iii) transactions that include transfers from offshore accounts with apparent shell companies that are domiciled in financial secrecy jurisdictions and banking in another country. [FINCEN NPRM]
For a brief discussion of the BoD’s rights to challenge this action before it officially becomes final in 60 days, see this post. The Bank of Dandong can’t say it wasn’t warned; in its notice, Treasury cites its November 2016 regulation at 31 C.F.R. 1010.659, calling on banks to exercise enhanced due diligence with regard to North Korean customers, and to deny North Korean banks direct or indirect access to the financial system. That regulation was promulgated to implement Treasury’s designation of North Korea as a jurisdiction of Primary Money Laundering Concern in November, which in turn was in response to section 201 of the North Korea Sanctions and Policy Enhancement Act, which effectively forced Treasury to make that designation.
Naturally, the principal congressional leaders behind passing the law that led to this result welcomed Treasury’s decision. Rep. Ed Royce (R-CA), chairman of the House Foreign Affairs Committee called the action “a big step,” adding, “The administration is right to target any around the world who act as financial lifelines to Kim Jong-un, and to give them a clear choice: You can do business with North Korea or with the U.S., but not both.” Royce also called on the Senate to pass his KIMS Act. Senator Cory Gardner (R-CO) issued a statement applauding the action and calling it long overdue.
It’s hard to believe that it was a complete coincidence that Treasury took this action while Moon Jae-In was in town. The message thus sent is that the U.S. and South Korea must be aligned on sanctions enforcement. We cannot have a repeat of 2005, when South Korea undermined the sanctions the U.S. imposed (Roh Moo-Hyun opened Kaesong, which became a $100-million-a-year subsidy for Kim Jong-Il, just as the Banco Delta Asia sanctions were achieving their effects). Someone in the White House clearly understands that we cannot make a coherent policy of sanctioning and subsidizing the same target at the same time. Treasury Secretary Steven Mnuchin emphasized that yesterday’s action was directed at North Korea, not China, and expressed the hope that China would “continue to work with us” to pressure North Korea.
What should we watch for next? First, for North Korean money men to step up their bulk cash smuggling game, or shift to non-dollar currencies or trade-based money laundering as sanctions dodges. The excellent Noon in Korea Twitter feed, for example, points to a Korean-language report that authorities in Vladivostok have seizedbulk cash from North Korean money launderers who are apparently having trouble sending wire transfers (an increasingly rare case of Russia enforcing sanctions). Interestingly, Treasury says that BoD also maintains “euro, Japanese yen, Hong Kong dollar, pound sterling, and Australian dollar correspondent accounts that would not be affected by this action.” That’s why it will be important for State and Treasury to engage in some good financial diplomacy to get those third-country regulators to blacklist the BoD under their own authorities.
Also, look for the “death spiral” — North Korean money launderers who defect because they can’t pay their kick-up quotas because of sanctions, who then provide us more intelligence, leading to yet more sanctions. Rinse and repeat. (We might as well put out the word now that they’ll get better living arrangements if they bring their ledgers and laptops.) For a fascinating interview of one of those money launderers who defected after the Jang Song-Thaek purge, readthis. North Korean money launderers’ fear of coming home to Pyongyang short-handed may be one of our intelligence agencies’ best tools to be a major player in the sanctions game. For reasons I explained here, that death spiral could pose a serious threat to the survival of the regime.
We should also watch for local regulators stepping in to take over the Bank of Dandong to prevent a run and shield other local banks from secondary effects. We should look for more reports that other Chinese banks are closing North Korean accounts. We should also look for correspondent banks in the United States to raise their scrutiny of Chinese banks that try to clear dollar transactions on behalf of suspicious or poorly documented customers. If FINCEN plays its cards right, Chinese banks that don’t step up their compliance game may find it difficult to clear their transactions. For more on how EU and New York state regulators have applied similar strategies, see this post.
Finally, we should look for China to send more mysterious convoys to North Korea and engage in conspicuous sanctions violations to deter any more actions by Treasury. We must be prepared to escalate in kind. Chinese retaliation may be Trump’s excuse to do what some in his administration have wanted to do all along — hit China with, say, steel tariffs. Fortunately, Trump has backed off from a threat to withdraw from NAFTA. And needless to say, the worst possible time to drop or renegotiate the Free Trade Agreement with South Korea is when China is bullying it with unilateral trade sanctions. After all, you can’t wage a trade war with everyone at once. If you trade less with China and you aren’t willing to eat a recession, you have to trade more with someone else. Given that most of the economies that compete with China as providers of low-wage labor or high-technology manufacturing (or both) are in East Asia, Trump should consider making some face-saving changes to the Trans-Pacific Partnership and reviving it as part of a long-term plan to encourage an emigration of manufacturers from China to friendlier venues in Southeast Asia and Japan. While I’m not a fan of protectionism, Xi Jinping’s behavior in the South China Sea, North Korea, and Hong Kong has also convinced me that “peaceful rise” is a self-serving delusion, and that our economic interest in robust trade with China is outweighed by the threat that we’re selling Xi the rope to hang us with.
We also need a strategy for banks like the Bank of China that may think they’re too big to sanction. The Bank of Dandong is expendable, but the Bank of China is not. Unlike the Bank of Dandong, however, the Bank of China has deep links to the U.S. financial system, is under pressure from the Chinese Finance Ministry to improve its anti-money laundering compliance, and has a branch in New York (which regularly checks in on this humble blog for … for posts like this one, I suppose). The better approach for Treasury, then, would be to use FINCEN to treat the BoC’s North Korea ties as an anti-money laundering compliance problem and, in the event the feds smell something fishy, issue subpoenas with a mind toward doing to the BoC what it did to BNP Paribas — impose heavy fines and a deferred prosecution agreement for data stripping and flunking Know-Your-Customer obligations. That is to say, there is no such thing as “too big to sanction,” merely different strategies for different targets. Another advantage of a deferred prosecution agreement, of course, is that it can force a bank to cooperate by providing financial intelligence — intelligence the feds can use to take action against other targets.
Some of these effects should be evident within the next week or two. The effects that matter most, however, are on the stability of the North Korean system. To have any chance at all for a negotiated denuclearization of North Korea, we will have to force the regime to choose between its nukes and its survival. My guess is we’ll see effects of that kind within a year or two if — and only if — we continue to press the financial, law enforcement, and diplomatic campaign needed to starve the regime of funds.
Over the weekend, Malaysian authorities painstakingly decontaminated a terminal of the Kuala Lumpur International Airport where North Korean agents — including a diplomat — carried out a lethal attack with the nerve agent VX, a substance so deadly that a tiny droplet can kill an adult. The authorities are clearly concerned that the use of a persistent chemical weapon of mass destruction in a crowded airport terminal will cause panic among Malaysian citizens and members of the traveling public, as well they should be. Pyongyang’s reckless act endangered thousands of innocent lives. It endangered every child who sat on the floor while her mother used the check-in machines. It endangered every baby who touched a contaminated surface and put her finger in her mouth, and every mother who used one of the sinks the attackers used to wash their hands. It endangered every worker who cleaned the restrooms or vacuumed the floors, every traveler who touched the handrails on the escalators going down to the taxi rank, every passenger who rode in one of those taxis after the attackers did, and every person who walked through that terminal and took her shoes off at her front doorstep.
The first object of Malaysians’ outrage is, and should be, the North Korean government. As of this hour, the North Korean embassy is still harboring two suspects, refusing to cooperate with Malaysian authorities, and spewing flagrant lies to deflect blame. Obviously, I can’t speak for the Malaysian government, but if I could, I’d be making plans to close the embassy, to expel everyone with diplomatic immunity, and arrest any suspect without it.
But if Pyongyang deserves the brunt of our outrage, a second object of outrage should be the Malaysian government itself, which had long been warned in U.N. reports that Pyongyang’s agents on its soil were violating U.N. sanctions and the laws of other nations, yet did little to curtail them. Report after report identified Malaysia as the home base of North Korean spies, smugglers, arms dealers, slave traders, money launderers, and procurers of tools to make missiles. In allowing this activity to go on for years, the Malaysian government not only allowed North Korea to endanger Malaysians, but to endanger the citizens of other countries — and indeed, the security of the entire world.
Just last week, for example, Reuters reported on the contents of a leaked excerpt of the 2017 report by the U.N. Panel of Experts overseeing compliance with U.N. sanctions against North Korea, including an embargo on the sale or purchase by North Korea or arms and related materiel. The report described the interdiction last year of a shipment of North Korean weapons in transit to Eritrea, including 45 boxes of battlefield radios manufactured by the Malaysia-based company Glocom. According to the report, Glocom is a front for the Reconnaissance General Bureau of the Korean Workers’ Party, an entity designated by the U.N. Security Council, and the agency suspected of carrying out the Kuala Lumpur airport attack. Glocom still operates through this website marketing its wares. It does not list Glocom’s corporate officers, so I’ll let the Malaysian authorities investigate whether there are any financial, logistical, material, or personnel links between Glocom and the attackers. Overall, that seems likely to be the case.
Reuters has a must-read story on Glocom filled with details about how it masked its ownership and control behind layers of front companies and shell companies, and tied itself to Malaysian man with influence in the country’s ruling party. They even made this org chart:
It notes that on one occasion in 2014, a female RGB agent named Ryang Su-nyo was caught at the Kuala Lumpur airport terminal while attempting to smuggle $450,000 in cash through customs (note again the North Korean preference for U.S. dollars). Ryang said she was transporting the money for the North Korean embassy, so the authorities decided not to press charges and gave the cash back. Here’s a newer website for Glocom. This wasn’t like any of the ham-handed, rinky-dink North Korean front companies I’ve seen before. This was a slick, sophisticated, and well-capitalized operation that raised funds for an agency with a long history of terrorism. If any of the money ran through the U.S. financial system, which seems likely, it would be worth exploring a material support charge.
Then, there is the case of a 2007 shipment of missile parts seized en route from North Korea to Syria. That shipment, which transited through Dalian, China and Port Kelang, Malaysia contained, among other items, “solid double-base propellant … usable for gas generators to power Scud missile turbopumps.” When the shipment was seized, the blocks of explosive propellant that had passed through those busy ports were removed “for safety reasons.” (2012 report, Para. 57.)
Malaysia has long been a hub and meeting venue for North Korean arms smuggling. A shipment of tank parts bound for the Republic of Congo, and which was seized in South Africa in 2010, was routed through Dalian, China and Port Kelang. (2010 report, Para. 63.) In June 2009, Japanese authorities arrested three individuals for attempting to illegally export a magnetometer to Myanmar through Malaysia, “allegedly under the direction of a company known to be associated with illicit procurement for Democratic People’s Republic of Korea nuclear and military programmes.” (2010 report, Para. 51.) In 2012, Japan notified the panel of 2008 and 2009 shipments through Malaysia of machinery useful for producing missile gyroscopes. (2012 report, Para. 91.)
Malaysians have seen the tragic results of anti-aircraft missiles falling into the wrong hands. In 2012, a British court convicted arms smuggler Michael Ranger of attempting to sell Azerbaijan “between 70 and 100 man-portable air defence systems”* from Hesong Trading Company, a subsidiary of the notorious Korea Mining Development Trading Corporation, or KOMID, Pyongyang’s principal arms-dealing front company. Ranger “was in regular e-mail correspondence with” O Hak-Chol, a North Korean diplomat and Hesong representative whom Mr. Ranger met in a number of third countries, including Malaysia. (2013 report, Paras. 90-95 & FN.61.) As recently as 2015, KOMID representatives continued to transit through Malaysia. (2016 report, Para. 177.)
As of 2015, long after the Security Council designated North Korean shipper Ocean Maritime Management (OMM) for arms smuggling and required member states to close its offices and expel its representatives, OMM still maintained an office in Kuala Lumpur. (2015 report, Para. 128.) Until early 2015, a Malaysia-based North Korean agent named Pak In-su acted as an agent for the Mirae Shipping Company, a front for OMM.
Pak In-su’s primary employer was Malaysian Coal and Minerals Corporation (2015 report, Para. 143), a company that is almost certainly linked to Malaysia’s use of North Korean labor in its coal mines. What little we know of working conditions for North Korean expatriate laborers in Malaysia, and what we know of the conditions elsewhere, suggests that those conditions are tantamount to slavery. At least one North Korean miner in Malaysia was killed in an explosion in 2014. In the end, the regime in Pyongyang probably keeps most of the workers’ wages.
The Committee for Human Rights in North Korea estimates that 300 North Korean laborers are working in Malaysia. Partially as a result of such labor practices, Malaysia was recently downgraded to Tier 3 under the Trafficking Victims Protection Act, which imposes penalties on legitimate Malaysian businesses that export to the United States. It also subjects Malaysia to sanctions risks, and the entire world to security risks. In a press release announcing its designation of the Mansudae Overseas Project group, for exportation of workers in violation of Executive Order 13722, the Treasury Department listed Malaysia as a market for Mansudae’s services, and said, “Some of the revenue generated by overseas laborers is used by the Munitions Industry Department, which was designated by the Department of State in August 2010 pursuant to E.O. 13382 for its support to North Korea’s WMD program.”
The procurement network that obtained parts and materials for North Korea’s missile programs has long had a strong presence in Malaysia. This presence has included entities that were designated by the U.N., including OMM, Mirae Shipping, and KOMID, and a U.N.-designated North Korean arms exporter known as Green Pine. In 2006 and 2010, the Korea Chonbok Trading Corporation, a front for Green Pine, purchased pressure transmitters from an unnamed European country for its long-range Unha-3 rockets. A payment invoice for the transactions lists one Ryong Jong-chol, a North Korean based in Malaysia, as the purchaser. (2015 report, Para. 195.) The payments, denominated in Euro, were routed through a Malaysian bank. According to the Panel, “Ryom was acting as the representative of Bank of East Land.” East Land was later designated by the U.S. Treasury Department (in 2011), the U.N. (in 2013), and the European Union (in 2013). (2016 report, Para. 186.) As of February 2016, the Malaysian government had still not responded to the Panel’s request for information about the transactions.
Malaysia’s tolerance of North Korea’s deceptive financial practices endangers Malaysian banks’ access to the global financial system. Malaysia is one of the few nations that still deals with North Korean banks, despite U.N. resolutions requiring “enhanced monitoring” of its financial activities (Para. 11), and warnings by the Financial Action Task Force to take “countermeasures” against North Korean money laundering and proliferation financing. In 2009, U.S. sanctions coordinator Philip Goldberg and Treasury official Daniel Glaser traveled to Malaysia and met with senior officials of the Malaysian government and central bank, regarding the implementation of U.N. financial sanctions under then-new UNSCR 1874. That visit followed reports that Malaysian banks were involved in transferring funds between North Korea and Burma for weapons-related transactions, in violation of a U.N. arms embargo. In 2013, Treasury Undersecretary David Cohen visited Malaysia to discuss its compliance with U.N. financial sanctions.
At least one major Malaysian Bank, Malayan Banking Berhad, was reported by the Panel in 2010 to maintain a correspondent relationship with, or to issue letters of credit for, North Korean banks. (2010 report, page 68.)It’s important to note, however, that the U.N. Security Council did not prohibit correspondent relationships with North Korean banks until 90 days after the adoption of U.N. Security Council Resolution 2270, on March 3, 2016. The Panel’s 2013 report listed the International Consortium Bank, a/k/a Hi-Fund International Bank as having been partially capitalized by and founded by the Malaysia Korea Partners Group of Companies (2013 report, page 132.)
ICB is a subsidiary of a North Korean front company called the MKP Group, which has the world’s most hilariously awful website, appears to have some ties to the Mansudae Overseas Project Group, also operates in Zambia, and really merits a post of its own one day. The existence of these banking relationships shows the importance of Malaysia as a secondary hub in Pyongyang’s financial network, which is often used for illicit purposes.
A recent investigation by Bangladeshi authorities into the smuggling of undeclared luxury goods, including LED televisions, tobacco, Rolls-Royces, and BMWs, has reportedly implicated the North Korean embassy in Malaysia. Under UNSCR 1718, North Korea is prohibited from importing luxury goods. In this case, the end destination for the goods isn’t clear, but whoever is behind the shipments conspired to evade Bangladesh import duties.
For the most part, the substantial network of North Korean arms smugglers, spies, and money launderers who operate in Malaysia merely endanger the citizens of other nations — most obviously in South Korea, but also in Syria and the Republic of Congo. In most cases, however, it’s impossible to predict who and where the next victims of North Korea’s activities will be. North Korea sells the world’s most dangerous weapons and technology to any buyer without regard to end users, victims, or consequences. As the VX attack at Kuala Lumpur illustrates, allowing North Korean agents to operate on one’s soil eventually endangers the host country’s citizens and interests, too. The question that the Malaysian people and government should be asking is whether the benefits of their financial and commercial ties to North Korea are really worth those risks.
~ ~ ~
* North Korea has been caught selling MANPADS before. One shipment of them was seized in Bangkok in 2010, on its way to Iran’s terrorist clients. In 2010, Yi Qing Chen was convicted of attempting to smuggle Chinese-made QM-2 man-portable surface-to-air missiles into the United States in 2005. In 2011, he was sentenced to 25 years in prison. The QM-2 is a Chinese copy of the Russian Igla-1, or SAM-18.
Reading through the new Panel of Experts report, I saw a finding, at Paragraph 108, relating to two 2011 “[s]hipments of spare parts and equipment for submarines and military boats brokered by Green Pine” — a North Korean trading company designated by the U.N. over proliferation concerns — “from Austria to Angola and Viet Nam.” Reading on, I saw that “[t]he consignments were shipped from Vienna by an Austrian national, Josef Schwartz, through his company, Schwartz Motorbootservice.” Remember him? Sure you do.
Italy blocked the multimillion-dollar sale of two luxury yachts that Italian police say were destined for North Korean leader Kim Jong Il in violation of international sanctions.
The 105-foot and 95-foot Italian-made seafaring vessels were ordered from the Azimut-Benetti boatyard, a maker of luxury yachts near Turin, by an Austrian company. A Chinese company stepped in later to complete the purchase, Italy’s Economic Development Ministry said.
Italian financial police said the Chinese company paid a Hong Kong business to take delivery of the vessels, valued at nearly €13 million ($18.5 million).
An investigation determined that the yachts ultimately were bound for the reclusive communist nation in violation of international sanctions barring sale of luxury goods to North Korea, the ministry said.
Col. Antonio Leone, the financial-police commander in Lucca, said “it is an irrefutable fact” that Mr. Kim was the intended final recipient, according to Reuters. “There has been a thorough investigation, partly in Austria, backed up by confessions and investigative breakthroughs,” he said. [Wall Street Journal, July 24, 2009]
And then there are the Austrians, who let Josef Schwartz run free, despite his long history of repeatedly violating EU sanctions regulations. Austrian authorities prosecuted Schwartz for the yacht sale and sentenced him to nine months in prison. Evidently, that wasn’t enough to get the point across, because Schwartz has now been called out by name in no less than three Panel of Experts reports. This is from the 2012 Panel of Experts report:
84. The Panel obtained copies of contracts for the purchase of two yachts concluded by the Austrian firm Schwartz Motorbootservice und Handel GmbH. It also obtained associated financial records and copies of contracts transferring rights and responsibility for making payments from the Austrian firm to a Chinese firm, Complant International Transportation (Dalian) Company Ltd. Member States provided information that Josef Schwartz, during questioning by Austrian police, admitted to being aware of the triangulation that Complant was planning to carry forward, with the intent of selling the ships, subsequently, to the Democratic People’s Republic of Korea. He was convicted by an Austrian court of violating applicable law of the European Union on restrictive measures against the Democratic People’s Republic of Korea both for his attempt to export yachts and in a related case of exporting luxury automobiles to the Democratic People’s Republic of Korea, fined, and sentenced to a nine-month prison term (on parole for a period of three years).
85. The Austrian court judgement records Schwartz’s purchase of eight S-class Mercedes automobiles for the Democratic People’s Republic of Korea. The Chinese firm Complant International is identified as a falsely declared end user for some of these vehicles. Austrian authorities learned that Schwartz purchased the vehicles at the order of Kwon Yong Rok, a citizen of the Democratic People’s Republic of Korea and formerly long-term resident of Austria (he has since left). Numerous media reports and several books have linked Kwon Yong Rok to Office 39 of the Democratic People’s Republic of Korea. He was associated with Golden Star Bank in Vienna (a subsidiary of Korea Daesong Bank, itself subordinated to Office 39)57 before it was shuttered by regulators.
177. The Panel knows that the Democratic People’s Republic of Korea has used indirect payments in attempts to acquire prohibited items. It included in its 2012 final report a 2009 attempt to buy two luxury yachts in Italy.107 Financial techniques used to evade paragraph 8 (a) (iii) of resolution 1718 (2006) included pooling of funds in the Austrian bank account of Josef Schwartz, the owner of Schwartz Motorboot service, who signed the purchase contract. Funds were wired in various amounts from a number of companies in different locales as well as from banks in the Democratic People’s Republic of Korea itself.108 While under investigation, Schwartz reassigned the contract to a second company, Complant International Transportation (Dalian) Co., Ltd, which continued the subterfuge to conceal the actual destination. It used yet another company to wire at least a portion of more than €5 million paid to the shipbuilder, according to Italian authorities.
And yet, Schwartz is free again, enriching himself on money stolen from starving children. A guy with ethics like these probably doesn’t believe there will be retribution in Hell, but can’t someone at least lock up this repeat offender against the laws of man?
The cable cars for the Masikryong ski resort, which are at least 30 years old and out of fashion on European ski slopes, were made by Doppelmayr, an Austrian company, and used for years in Ischgl, a skiing town in Austria. After the resort decided to install new cable cars, the old ones were sold to an Austrian secondhand dealer, Pro-Alpin, according to Ekkehard Assmann, head of marketing at Doppelmayr.
Pro-Alpin, in turn, sold the cable cars to an unidentified Chinese company, according to Pro-Alpin’s website. The Chinese company then arranged for the equipment to be shipped to North Korea. [NYT, Jane Perlez & Yufan Huang]
The Times also examines China’s lame and risible excuses for ignoring the U.N. luxury goods sanctions it repeatedly voted for at the Security Council.
By almost any estimate, the sale of such items appears to violate the intent of United Nations sanctions meant to punish the North for its nuclear weapons program — specifically, sanctions targeting luxury goods, intended to cover products like Champagne and caviar, yachts and expensive cars.
But China, whose companies were involved in providing the equipment for the Masikryong ski resort, which opened in 2013, told a United Nations panel that those sanctions did not apply because skiing is a “normal activity” in North Korea, a country where most of the population is impoverished and food shortages are common. “Skiing is a popular sport for people, and ski equipment or relevant services are not included in the list of prohibited luxury goods,” the Chinese said, according to last year’s annual report from the United Nations panel, which monitors sanctions violations. [….]
The luxury goods sanctions have a glaring loophole: Each country is permitted to define what it considers luxury goods. The United States has published a detailed list, down to such items as vanity cases, binoculars and television sets larger than 29 inches. The European Union says “articles and equipment for skiing, golf, diving and water sports” are luxury goods and bans them from export to North Korea. [NYT]
Here is the U.S. list (see Supplement 1), and here is the EU list (see Annex III). Yet, nearly a decade after the U.N. Security Council approved resolution 1718 ….
But China has failed to publish such a list and has not honored those of other countries, the documents of the United Nations panel show. Because it has never said what it considers to be luxury goods, China can argue that cable cars for Mr. Kim’s prestige resort were permissible, even justifying them as equipment for the masses.
“China appears impervious to shame,” said Marcus Nolan, of the Peterson Institute for International Economics in Washington, who said there were no penalties for flouting the luxury goods sanctions. [NYT]
The Times also traces the genesis of Xi Jinping’s obstructionist policy toward sanctions enforcement generally.
The Chinese hope to prevent tougher sanctions for fear that the North will become a hostile neighbor, a policy that diplomats said appears to have been shaped by President Xi Jinping last summer. In talks last week with his Chinese counterpart, Foreign Minister Wang Yi, Secretary of State John Kerry made little headway in persuading China to toughen sanctions against North Korea, and he warned that the United States would most likely move ahead on its own. [NYT]
Tougher sanctions legislation is moving through Congress that, among other things, would target Chinese banks that do business with North Korea. The administration has been reluctant to call for such sanctions, known as secondary sanctions, and it is not clear what the White House would do about the legislation, American experts said.
“Given the broad and variegated bilateral relationship between the United States and China, U.S. officials have been reluctant to confront and economically punish China with secondary sanctions in case it should undermine other key priorities in the bilateral relationship,” said Elizabeth Rosenberg, senior fellow at the Center for a New American Security. [NYT]
The Times also gives us some absolutely breathtaking data on what Kim Jong-un is wasting on luxury goods, while most of his subjects are food-insecure, malnourished, stunted, or starving.
Chinese customs data showed that North Korea imported $2.09 billion in luxury goods between 2012 and 2014, according to recent congressional testimony by Bonnie S. Glaser, senior adviser for Asia at the Center for Strategic and International Studies. Among the items that have slipped through the sanctions are Mercedes-Benz S-Class cars, photographs of which appeared in last year’s United Nations report. An unidentified American company armored the cars, the report said. It also said that a luxury yacht worth as much as $6 million, made by a British company, Princess Yachts International, made it into North Korea and has been used by Mr. Kim.
In 2014, China exported $37 million worth of computers; $30 million of tobacco; $24 million of cars; and $9 million of air-conditioning equipment to the North, according to trade statistics from the United Nations Department of Economic and Social Affairs. In all these categories, China was the top exporter, the United Nations said. [NYT]
As the Times notes, “luxury goods may seem a relatively minor issue,” but “they help to ensure the loyalty of the tiny elite around” His Corpulency, thus helping to preserve its cohesion. Their availability also sends a signal inside Pyongyang that the regime is financially secure, bolstering the confidence of the elites in the regime’s survival.
There is also another, more important, reason why luxury goods sanctions matter. It bears repeating that the World Food Program’s operations in North Korea cost just $100 million a year, to feed just 2.4 million women and children, a figure that undoubtedly includes substantial salary and overhead costs. If the period from 2012 to 2014 is inclusive, that’s a three-year period, and an expenditure of almost $700 million a year — an even higher estimate than the one I cited here.
Yesterday, I posted evidence that for many North Koreans, the food situation remains desperate. No government has a sovereign right to steal and waste the wealth of its people when the people are hungry. Viewed this way, North Korea’s luxury goods imports and missile tests aren’t just a sanctions violation, they’re a crime against humanity. What’s especially frustrating is that it’s a crime the world has the power to prevent, by putting North Korea’s assets into financial receivership. The world’s financial regulators should put Kim Jong-un and his minions on notice that their offshore bank accounts are available to buy food, medicine, and humanitarian supplies, but not for ski resorts and luxury cars.
Throughout North Korea’s Great Famine, as millions of North Koreans either starved to death or watched their loved ones die, suppliers across Europe willinglysold Kim Jong-Il millions of dollars’ worth of luxury cars, yachts, cognac, and Swiss watches. In 2006, the U.N. Security Council recognized the obscenity of this practice by adopting Resolution 1718, which first banned the export of luxury goods to North Korea.
Among European nations, probably none has done more than Switzerland to enable the democidal kleptocracy of North Korea’s rulers. It served both as Kim Jong-il’s banker, and as a willing supplier of luxuries. According to Vanity Fair, Bureau 39 managed “multi-billion-dollar personal bank accounts in Switzerland and other private banking havens around the world” for Kim. Kim’s former Ambassador to Switzerland, Ri Su-Yong, is also said to have played a key role in the regime’s Swiss finances before his promotion to Foreign Minister. North Korean refugees have called on Switzerland to freeze those accounts.
In 2013, the Federation of the Swiss Watch Industry claimed that its exports to North Korea had fallen to just $76,000 per year. But as NK News’s Leo Byrne reports, Kim Jong-Un is on another Swiss watch-buying spree, even as 70 percent of North Koreans are “food insecure,” and as the World Food Program asks foreign donors for $111 million to feed North Korean infants, children, and pregnant women.
North Korean imports of Swiss watches rebounded to their highest levels in years in the first six months of 2015, according to official figures from the ITC Trade Map.
Swiss exports of the luxury items dropped to zero for the whole of 2014, however have since rebounded to nearly $80,000 since the start of the year. [NK News, Leo Byrne]
That is to say, North Korea spent as much on Swiss watches in the first half of 2015 as it spent in all of 2013. Byrne notes that the jump in exports “coincides with the opening of Pyongyang’s new airport terminal, where watches from Switzerland appear to be on sale.” KCNA recently published these photos of Kim Jong-Un — upgraded by me, and you’re welcome — touring one of the duty-free shops where watches were on sale.
Those photos, as lovely a juxtaposition as they are, did not show the watches in sufficient detail to reveal their cost or their origins. That question is now resolved.
“Air Koryo watches (for man) – Swiss made – price: (US$220) – they said it is a joint venture product with Swiss company – Sells in new Terminal 2 Pyongyang international airport,” Flickr user Jaka Parker writes under a recently taken picture of one of the watches.
Byrne’s report did not specify that North Korea imported the watches directly from Switzerland, but his report relies on International Trade Centre (ITC) data published by each exporting country, which implies a direct transfer.
Although the Security Council resolution makes no distinction between luxury goods imported for domestic consumption and those imported for resale, the Pyongyang duty-free shop may well be a front for allowing the regime to claim that it is only importing the watches for resale, while gifting its elite with most of the inventory.
The U.N.’s ridiculously short list of luxury items does not list watches, but does list “jewelry of precious metal or of metal clad with precious metal.” Switzerland is not an EU member, but it is surrounded by EU states, and the EU list is instructive. It lists “[l]uxury clocks and watches and their parts.” Thus, with the sole exception of its refusal to sell Kim Jong-Un a ski lift, Switzerland continues to be an outlier among European nations for its failure to abide by U.N. Security Council resolutions, and for its irresponsible and unethical trade with North Korea.
The newest U.N. Panel of Experts report* on North Korea sanctions enforcement contains this buried treasure:
The first question this raises is what those appropriate measures were. The use of passive voice conceals whether the feds took any measures at all.
The second question is why there should be a “lack of information” from Rodman, when the Commerce and Treasury Departments have subpoena powers and an obligation to cooperate with U.N. authorities enforcing North Korea sanctions. The law applies to superpowers and celebrities, too.
There is video evidence of Rodman personally giving Kim Jong Un banned luxury gifts in violation of Commerce Department regulations and Executive Order 13551. I previously explained here why that’s a felony, and there’s no question that at least some of the goods presented are listed on Supplement 1 and were luxury goods.
Don’t get me wrong here. There are bigger fish in this sea than Dennis Rodman. I don’t believe this is the sort of thing that justifies prison time, but it does compel making an example of Rodman and his assortment of camp followers and opportunistic sociopaths, even if only through a modest civil penalty and a (publicly posted) cautionary letter. Ignorance (or willful ignorance) of the law may mitigate punishment, but it’s not a defense.
Having said that, this sort of thing does matter. Cutting off Kim Jong Un’s luxury goods is ultimately about North Korea’s chronic food crisis and the completely needless suffering of its people. The purpose of the ban is to force him to prioritize feeding the 80% of North Koreans who are barely getting through the lean season each year. Conduct like Rodman’s sends a message that the world doesn’t care about their suffering, and that it’s willing to give Kim Jong Un access to the fruits of the world’s fleshpots anyway.
Overall, the POE report paints a picture of a sanctions framework that is being ignored by most U.N. member states. There’s a display of concern when North Korea does something hideous that actually makes headlines, and then everyone goes right back to ignoring them. How are North Korea’s arms clients in Uganda, Tanzania, and Ethiopia supposed to react if the U.S. doesn’t appear to be serious about enforcing them, either?
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.
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.