Understanding North Korea Sanctions: Policy Options to Force Disarmament & Reform

Let no one say that there’s nothing more we can do. Although additional sanctions could help to close loopholes in the current North Korea sanctions regimes, with the passage of the North Korea Sanctions and Policy Enhancement Act and U.N. Security Council 2270, our priority should now shift to enforcing the existing sanctions.

Enforcing existing sanctions:

  • Work closely with the South Korean National Intelligence Service to exploit the financial intelligence delivered by recent high-level defections. Recent reports suggest that managers of North Korean slush funds in Russia, China, and Southeast Asia have defected, which could expose large portions of North Korean finance to blocking actions by U.N. member states, particularly the issuers of reserve or convertible currencies. Demonstrate a willingness to impose secondary sanctions on banks and finance ministries that refuse to cooperate. The objective here should not be a complete blockade, but to put North Korea into the equivalent of receivership, in which the UNSC would authorize only those purchases, such as food and medicine imports, that provide for the needs of the North Korean people, until North Korea is disarmed.
  • Use secondary sanctions under the North Korea Sanctions and Policy Enhancement Act, Executive Order 13687, or Executive Order 13722 to make examples of the dozens of persons and entities implicated for knowing violations of North Korea sanctions in the February 2016 Panel of Experts report. As long as there are no costs associated with violating sanctions, there will be people who will be willing to violate them. One of the targets of sanctions should be the Bank of China, which willfully misled its U.S. correspondents to facilitate arms smuggling for North Korea, and should face a substantial civil penalty (at the very least) for doing so. A credible threat of sanctions will make our diplomacy more effective.
  • Step up our diplomacy to enforce UNSC sanctions requiring the expulsion of North Korean arms dealers. Angola and other states continue to host North Korean officials, including agents of arms dealer KOMID, who have been named in Panel of Experts reports.
  • Persuade Tanzania, Cambodia, Mongolia, Vanuatu, Panama, Liberia, Sierra Leone, and other states to de-register North Korean ships and end reflagging, as UNSC 2270 requires (Mongolia has reportedly done this, Cambodia may be considering it). Shipping registries that continue to violate the sanctions must face secondary sanctions.
  • Designate and block North Korea’s shipping, banking, and insurance industries, and its national airline, Air Koryo. Force North Korea to rely on third-country shippers, air carriers, banks, and insurance companies, which will be more averse to the risk of violating sanctions. (On insurers in particular, the EU is way ahead of us, and we should follow its lead.)

New sanctions provisions:

  • Expel North Korea from the SWIFT network, which it may have recently robbed of $90 million. SWIFT sanctions were highly effective against Iran. (I am not convinced, for reasons I’ll decline to get into here, that North Korea is no longer using SWIFT.) It would be preferable that this sanction begin with UNSC action banning all “specialized financial messaging services” to North Korean financial institutions so that SWIFT is not put at a competitive disadvantage against less-reputable services. As of October 2016, a bill is pending in Congress to do this.
  • Require the disclosure of North Korean beneficial ownership in assets or property, as Bill Newcomb and I recommended in our comment on Treasury’s recent notice of proposed rulemaking for its Patriot 311 designation of North Korea. This should be done in tandem by both the UNSC and by Treasury.
  • Require SEC filings to disclose when issuers of securities have investments in North Korea on the grounds that those investments are a material risk for divestment, boycotts, and sanctions. No doubt, plenty of Orascom shareholders would agree today.
  • Ban transactions incident to tourist travel to, from, and within North Korea. While tourist income seems trivial by our standards, it’s probably a significant source by North Korea’s. Another reason to reduce tourist travel to the North is safety; it creates hostage situations for the tourists themselves. In the U.S., this cannot be done by unilateral administrative action; it would require legislation.
  • Push for a UNSC ban on food exports by North Korea. This is not a case of North Korea leveraging the principle of comparative advantage to feed its people; North Korea is selling food that its people need desperately to raise cash for other priorities.
  • Push for a UNSC ban on North Korean labor exports. Not only would this end highly exploitative practices, it would close a money laundering loophole. Money laundering requires legally derived funds to co-mingle with illicit funds. By expelling North Korean labor, which is legal under the domestic laws of those countries that host it, we deprive North Korea of “legal” funds to help conceal and launder illicit funds. (The Obama administration has signaled a willingness to impose unilateral sanctions on North Korean labor exports in EO 13722). Of course, engagers will say this closes off an opportunity to reform North Korea and expose the workers to the outside world. I wonder how many of them would meet me halfway and agree with a ban, subject to using the revenue to fund World Food Program aid appeals, and an exception if the ILO certifies through regular inspections that working conditions meet internationally accepted standards.
  • Amend the coal/iron ore “livelihood” loophole to allow exports only when exchanged for in-kind aid or food. Don’t close it completely; sanctions need safety valves in case of unintended humanitarian impacts.
  • Ban exports of crude oil (which can be refined into jet or rocket fuel) to North Korea, but do not ban exports of gasoline or diesel (which are used to transport food and consumer goods).

Information Operations & Engagement

  • Re-focus engagement on the North Korean people instead of the government. South Korea should encourage (rather the prohibit) remittances by refugees to their families in North Korea. Let these family connections become the nuclei of informal, church-based humanitarian networks to feed the hungry, heal the sick, gather and report news, and rebuild the foundations of civil society.
  • Spare no expense to open the internet to the people of North Korea, so that they can communicate freely with their South Korean kindred and organize with each other to resist the state’s repressive power. Ask Google and Facebook to pilot their global internet initiatives in North Korea. South Korea, in particular, should increase the range and power of TV and AM broadcasting to North Korean audiences.
  • Continue to demand the strict enforcement of cargo inspections, but do not impose a full trade embargo, especially at the land borders. That will hurt the wrong people. We will not change North Korea for the better by starving the poor. Our objective should be to shift the balance of power away from the elites and toward the jangmadang classes. That will force underpaid soldiers and security forces to turn to merchants for sustenance, encourage more smuggling, and prize open the borders Kim Jong-un has done so much to seal. In time, the ruling class will see that time is not on its side.

Humanitarian Policies:

  • If 21 years of humanitarian aid haven’t solved North Korea’s chronic food crisis, we are overdue for a top-to-bottom review of humanitarian aid policy. Current aid policies aren’t working. Aid agencies must stop misleading donors about the true causes of hunger in North Korea and call out the wasteful, discriminatory, and inefficient government policies that are the true root causes. They need to read the work of Angus Deaton. Their review should consider abandoning the North Korean government’s corrupt and increasingly irrelevant food distribution system to distribute aid, and look to market-based solutions to grow and distribute food.