GAO: State Dep’t must step up diplomacy to enforce N. Korea sanctions

The General Accountability Office has released a new report on the enforcement of sanctions against North Korea. The report, requested by Senate Foreign Relations Committee Chairman Bob Corker, will probably influence the contours of the Senate’s version of the North Korea Sanctions Enforcement Act. You can read the full report here and a summary here, and listen to a podcast here.

The report correctly points to a key flaw in the enforcement of the sanctions that exist now — a lack of financial intelligence. The reasons for this, however, are multi-layered. The report explains some of those underlying reasons, but not all of them.

Agency officials cited obtaining sufficient information about North Korean persons to be their greatest challenge in making sanctions determinations. Most North Korea–specific sanctions authorities require a determination that a person engaged in a specific activity…

. However, officials said that gathering information on the activities of North Korean persons and personal identifying information can be difficult because of the nature of North Korean society, whose citizens are tightly controlled by the government. Without sufficient information, the United States could mistakenly designate and therefore block the assets of the wrong person, particularly one with a common surname. [GAO 15-485, p. 14]

Executive Order 13,687, signed by President Obama on January 2, 2015, could do much to improve the enforcement of financial sanctions against North Korea, because it is status-based, rather than conduct-based. This would relieve State and Treasury, particularly the overworked staff at the Office of Foreign Assets Control, of the burden of assembling evidence that specific North Korean entities had engaged in categories of conduct prohibited by Executive Orders 13,382 and 13,551, the executive orders under which most North Korean entities are designated today.

“Could” is still the operative word, however. Of the 13 entities designated under Executive Order 13,687, three were already designated, and ten others were individual arms dealers who’ve no doubt returned to Pyongyang and had their places taken by ten other North Korean arms dealers. It’s doubly disappointing to see the administration fail to harness EO 13,687’s potential at a moment of possible political instability in Pyongyang, when our leverage over Kim Jong Un is greatest. The GAO report fails to make recommendations about designations under EO 13,687.

GAO also overlooks another financial intelligence shortcoming — the lack of any broad and detailed requirement to report financial transactions with North Korea to OFAC, except for those incident to imports and exports to or from the United States. And even this doesn’t cover foreign subsidiaries of U.S. companies.

Because sanctions are most effective when enforced multilaterally, the U.N. Security Council’s sanctions resolutions should also be bringing in a wealth of shared financial intelligence about how and where North Korea does its prohibited business. They aren’t, and that’s a problem of political will. Other U.N. member states aren’t making the reports they should be making to the U.N. Panel of Experts (as noted in this post, and this one). Many more of them would if the State Department made it a priority to encourage member states to make them, or to help build capacity in those states that can’t (page 29). GAO found State’s answers about this to be lacking in specificity:

State Department officials informed us that the United States has offered technical assistance to some member states for preventing proliferation and implementing sanctions. However, they were unable to determine the extent to which the United States has provided specific assistance aimed at ensuring that member states provide the UN with the implementation reports it needs to assess member state implementation of UN sanctions on North Korea. [GAO 15-485, p. 30]

State has also failed to press China, Russia, the EU, and other states to harmonize their lists of designated “persons,” or to define simple terms like “luxury goods,” as Section 201 of the NKSEA calls for. GAO should have said more about this, but actually spent more time talking about Uganda’s violations of the resolutions than China’s.

This brings us to another important reason for the slowness of sanctions enforcement — the two usual suspects, Russia and China. Because the U.N.’s sanctions committee operates by “consensus,” either country can hold up a designation indefinitely (see diagram on page 22 for an explanation of the procedure). That’s why it took a full year after the Panama weapons seizure for the 1718 Committee to designate Vladivostok-based Ocean Maritime Management. Even when the U.N. does designate a party, such as Korea Ryonha Machinery Joint Venture Corporation, China and Russia continue to allow that party to operate on their territory. GAO should have mentioned this, too.

GAO’s overall conclusion, however, is correct. State needs to devote more diplomatic resources to getting other member states to implement and enforce UN sanctions. This is the kind of language GAO uses when a government agency isn’t doing enough:

GAO recommends the Secretary of State work with the UN Security Council to ensure that member states receive technical assistance to help prepare and submit reports on their implementation of UN sanctions on North Korea. [GAO 15-485, p. 31]

Failing that, Treasury should impose secondary sanctions on “persons” that flout the resolutions by continuing to buy weapons from North Korea, by failing to block the assets of designated entities, and by failing to carry out “enhanced monitoring” of North Korean transactions. That’s what H.R. 757 will do, and that’s why H.R. 757 is needed. As GAO’s report notes, the panel has no enforcement authority. But because North Korea is still using the dollar system, the U.S. government does:

The panel also identified that in most cases the investigated transactions were made in United States dollars from foreign-based banks and transferred through corresponding bank accounts in the United States. The panel’s 2015 final report indicated that North Korea has successfully bypassed banking organizations’ due diligence processes by initiating transactions through other entities on its behalf. The panel expressed concern in its report regarding the ability of banks in countries with less effective banking regulations or compliance institutions to detect and prevent illicit transfers involving North Korea. [GAO 15-485, p. 27]

There is also the more basic issue of manpower. Treasury either needs more staff at OFAC to collect and act on North Korea-related financial intelligence, or it needs to re-prioritize some of the staff it has working on other sanctions programs.

I also caught some inaccuracies in its report. On Page 7, GAO implies that the Iran, North Korea, and Syria Nonproliferation Act (INKSA) sanctions Pyongyang’s trade in luxury goods. Feel free to read the INKSA yourself, deep within the fine-print notes at the bottom of the International Emergency Economic Powers Act. If you can find any reference to luxury goods there, you may redeem the citation of that language for the carbonated grain-based beverage of your choice. In fact, the INKSA is narrowly focused on the proliferation of WMD technology. The U.S. government does have luxury good sanctions in the Commerce Department regulations, but administrations can always rescind or amend regulations — perhaps in exchange for false promises to disarm — after a process of public notice and comment. Statutes can only be repealed by an act of Congress.

Table 3 on Page 19 says that four North Korean entities are sanctioned under Executive Order 13619, which blocked the assets of “persons” threatening the peace, security, and stability of Burma. This didn’t sound familiar to me, so I control-F’ed by my way through the SDN list (which sounds vaguely erotic, but isn’t) and found no references to any North Korean entities sanctioned under the Treasury’s Burma sanctions (SDN Code, “Burma”). In fact, EO 13619 doesn’t even have an SDN index code, because it relaxes (rather than imposes) sanctions on Burma. I wonder if GAO meant to refer to some other executive order. If so, I can’t imagine what other executive order that might be.

The same table also claims that a total of 86 North Korean entities have been designated, but this number includes some double designations (for example, the 13 “persons” designated under EO 13,687 are added to those designated under EO 13551 and 13382, despite the fact that some of these are the very same entities). I actually count 73, excluding aliases. My count assumes that “persons” designated under the INKSA are also designated under EO 13,382 (SDN Code, “NPWMD”).

Appendix I contains a chart comparing North Korea sanctions to Iran sanctions. The chart could have been a very useful tool, but because it reduces broad categories of sanctions to a binary “X” rather than breaking them down by type and degree, it ends up being more misleading than informative, suggesting a parity that does not exist. It overlooks some of the most important sanctions, including special measures under Section 311 of the USA PATRIOT Act (Iran, yes; North Korea, no), comprehensive transaction licensing requirements (ditto), terrorism-related sanctions (ditto), tourist travel sanctions (Cuba, yes; North Korea, no), and the blocking of assets belonging to the government and its top officials (Belarus, Zimbabwe, Syria, and Russia, but not North Korea).

Worst of all, the chart contains an “X” indicating that there are human rights sanctions against North Korea. This is also misleading. Not one single North Korean person or entity has has been sanctioned for human rights violations (again, in contrast to most of the top leaders of Belarus, Syria, and Zimbabwe). The only possible basis for this claim is the fact that EO 13,687 — the one POTUS signed on January 2nd — finally refers to human rights, along with a host of other evil things Kim Jong Un is doing.

What GAO’s report really tell us, then, is that the administration hasn’t prioritized the enforcement of North Korea sanctions. The lesson for Congress is that if it wants that to change, it will have to force the administration’s hand through legislation and oversight.