Plan B Watch: Einhorn Goes to Tokyo, Pressure Builds on China

The latest reports in the Korean press tell us that the President will soon sign an over-arching executive order that will subsume the authorities of Executive Order 13,382 (see sidebars), and will also allow the blocking of assets used for proliferation, drug trafficking, and currency counterfeiting:

In a press briefing on Monday, Department spokesman Philip Crowley said, “We have no doubt that North Korea has engaged directly in counterfeit operations as a means of bringing currency into the country. This is a longstanding practice.” [Chosun Ilbo]

Several reports discuss plans by Treasury to blacklist specific individuals and institutions suspected of being involved in illegal activity and money laundering:

Observers say a financial services blacklist of individuals to be announced in the new sanctions will likely include O Kuk-ryol, vice head of North Korea’s National Defense Commission, which is led by Kim Jong-il and his family. O is known to be managing a company that tries to attract foreign investment to the North. [Joongang Ilbo]

It will be interesting to see whether the executive order will make findings that Bureau 39, or perhaps the North Korean government itself, is a primary concern for money laundering. That description has been applied to other states for much less — that is, a lackadaisical rather than intentionally criminal approach to the proceeds of illicit activity. If it weren’t for the State Department and its politics, Treasury would probably have designated North Korea years ago.

The United States is expected to blacklist three key North Korean finance officials believed to be taking care of leader Kim Jong-il’s secret funds as part of new sanctions against the communist nation, a government source said Wednesday.

One of the three finance officials is Kim Tong-myong, head of Tanchon Commercial Bank, the source said. “The U.S. is paying special attention to three people, including Kim Tong-myong, who operate North Korea’s secret funds abroad,” the source said on condition of anonymity. “If they are included in the new sanctions, it could deal a blow to North Korea’s leadership.”

The U.S. has also collected evidence that nine North Korean financial institutions operating overseas and as least two trading firms have been used for the regime’s illicit activities, such as trade in conventional arms, luxury goods and counterfeit money, the source said.

Overall, the U.S. is expected to add some 10-20 North Korean entities and individuals to its blacklist of those to be subject to sanctions, which include freezing their assets in the U.S. and banning them from dealing with American financial institutions. [Yonhap]

And given the lack of food or medical care in nominally socialist North Korea, you might be tempted to assume (or even mislead others to believe) that its government had no money to spend for such things. You would be wrong:

Data from the Bank for International Settlements released last month showed that North Korean deposits at banks around the world stood at $670 million as of the end of March. [Joongang Ilbo]

That sum represents just about enough to fund World Food Program operations in North Korea … for three years. Now explain to me again why North Koreans still starve.

Finally, the Daily NK’s Kim Yong Hun explains why Chinese banks will be forced to cooperate with the U.S. Treasury Department, whether the Chinese government wants them to or not. I won’t give you any quotes — just read the whole thing. Marcus Noland has more on this in via the Council on Foreign Relations:

China–which had been essentially unwilling to implement the sanctions on luxury goods–cooperated with the sanctions against BDA. The reason [for that cooperation] is it was not the Chinese foreign ministry or the customs administration, but rather the Chinese ministry of finance and central bank implementing these sanctions. Their concern was that they had much more at stake with respect to Chinese banks’ [access] to the lucrative U.S. market than they ever would have dealing with some small bank in Macao or possible financial transactions in North Korea. The lessons from this seem to be that financial sanctions–that play on banks’ desire to maintain a good reputation, stay within the increasingly stringent international rules on money laundering, and maintain a good relationship with the United States–play to our strengths in terms of the U.S. financial system and the increasingly well-defined and articulated set of international norms and agreements on money laundering. [Financial sanctions] will be more successful than the traditional trade sanctions that are oftentimes implemented less than rigorously.

I suspect Einhorn will have less difficulty securing the cooperation of the Japanese. Perhaps more surprisingly, Hong Kong also appears to be on an active hunt for dirty North Korean money.

One thing that I will say about this, however, is that we should be prepared for the Chinese government to look for ways to actively undermine Treasury’s efforts, such as shipping hard currency directly to North Korea in paper form, gold, or stored-value cards. This certainly isn’t a very efficient way to do things, but it might be just enough to keep the Kim Dynasty in power until the U.S. government decides to cave yet again for political reasons. As always, determination will be dispositive to whether this will work.

During the news conference held in Seoul, Monday, Einhorn played hardball with North Korea with regard to dialogue.

“We can’t repeat the kind of cycle that we’ve been through on a number of previous occasions where North Korea engages in talks, makes commitments, and then abandons those talks. We have to break that cycle,” he said.

“Before the six-party talks to be convened, it’s essential that North Korea demonstrate in an intangible way that it’s prepared this time to make commitments and to fulfill them. And there are some important commitments already existing such as September 2005 commitments. [Korea Times]

When we see the new executive order that will be used as the legal basis for this plan, we’ll probably find out that 80% of the Korean press reports about this are actually true. Recently, we’ve seen some on the American left call South Korea the tail that wags the dog. Frankly, I happen to agree with them on this, up to a point. One of the things that I continue to find simply staggering is the extent of South Korea’s influence on U.S. government policymaking. Clientitis, in its various forms, is rife within these circles, though many of these insiders still privately suspect that the National Intelligence Service frequently plants stories to manipulate press coverage.

Fine, but where were these same people when the tail was Roh Moo Hyun, and the wag was indirect U.S. financial support for Kim Jong Il, his atrocities toward his people, and his proliferation? By which I mean that as U.S. soldiers (me being one of them) ostensibly defended South Korea from North Korea and subsidized its defense, South Korea sent Kim Jong Il billions of dollars in tribute that it didn’t have to spend on its own defense. If you agree that perpetuating North Korea’s capacity to terrorize and proliferate is contrary to America’s interests, and that finally working with allies in the region to address and suppress that threat is in its interests, then the “tail wags dog” meme would have been far more suitable to the years between 1997 and 2008.