North Korea, sanctions, and the argument to impotence

With support for the Obama Administration’s North Korea policy collapsing in Washington, the White House desperately needs a win at the U.N., by showing that it can get the Security Council to pass tougher sanctions and make sanctions work. Let’s review what we know about the substance of a potential resolution:

Two administration officials said the United States was now drafting a proposed resolution for United Nations Security Council approval that would impose sanctions on North Korean trade and finance, including a partial ban on permitting North Korean ships to enter ports around the world, an effort to cut off more of the country’s trade.

A second set of sanctions under consideration is a cutoff of North Korean banking relationships, similar to the restrictions placed on Iran in the successful effort to drive it to the negotiation table on its nuclear program. [NYT, David Sanger and Choe Sang-hun]

Although Sanger wrote just over a year ago that “North Korea is under so many sanctions already that adding more seems futile,” he and Choe now recall the Banco Delta Asia stategy of 2005, which “caused considerable pain” to Kim Jong-il’s regime because “the bank was used to finance the lifestyles of many in the North Korean elite.” For some contemporary accounts of how effective that strategy really was, see this and this. 

The BDA strategy wasn’t effective just because it blocked the money that was in BDA. It wasn’t even that the money was backed up elsewhere, waiting in line to go through BDA. What really made the strategy work was financial diplomacy. Treasury officials traveled around the world to warn other bankers and finance ministers about the risks of doing business with North Korea, and to raise the reputational risks of having North Korean customers.

“Any bank will be in fear of being branded as a colluder of the Kim regime and I believe Washington’s so-called ‘secondary boycott’ will surely put Pyongyang into a corner if it is implemented,” said Yang Moo-jin, a professor at the University of North Korean Studies. [Korea Times, Yi Whan-woo]

While the Obama Administration waited for Godot, hoping that His Porcine Majesty would eventually decide to cut a deal, a growing number of us were urging the President to go back to what worked before. The administration answered from both sides of its mouth. From one side, it said it was pressuring North Korea through sanctions. From the other side, it argued that there was nothing more that sanctions could achieve.

After the Sony cyberattack, President Obama called North Korea “the most sanctioned, the most cut off” country in the world. By now, you’ve seen where I debunked that. The administration has also argued that North Korea’s secrecy and self-isolation effectively shielded it from sanctions. A year ago, in this congressional briefing, Treasury Undersecretary Daniel Glaser* said that Treasury hadn’t identified the “nodes” of North Korean finance post-Banco Delta Asia. In this event, Ambassador Robert King said the North Koreans weren’t even using the dollar system. I never believed a word of it, probably because I read the U.N. Panel of Experts reports, which have published many details about North Korea’s dollar-denominated wire transfers.

Now, the Treasury Department is acknowledging that it isn’t quite true.

The Treasury Department has identified similar institutions used by Mr. Kim’s son, the current leader, Kim Jong-un. [NYT]

And this, from Bonnie Glaser’s testimony yesterday, before the House Foreign Affairs Committee’s Asia Subcommittee:

In 2013, US and South Korean authorities uncovered dozens of overseas bank accounts worth hundreds of millions of dollars that were linked to top North Korean leaders, which they proposed including in UN sanctions lists, but Beijing refused. China has also strongly opposed levying sanctions on high-level North Korean officials such as the head of the North Korea’s agency responsible for conducting its nuclear tests. [link]

I know the Chosun Ilbo sometimes gets a bad rap, which it sometimes deserves, but here’s one thing it seems to have gotten right.

You can watch yesterday’s hearing and read all of the witness statements at this link. Bruce Klingner’s is particularly useful for the clarity of its recommendations.

In other words, we do, too, know where at least some of the money is. This is despite the fact that the administration doesn’t seem to be trying very hard to follow it. The Office of Foreign Assets Control doesn’t require licenses for most transactions with North Korea under 31 C.F.R. Part 510, and hasn’t imposed any enhanced due diligence or reporting requirements on North Korea under Section 311 of the USA PATRIOT Act. Our best sources of financial intelligence are the compliance reports that banks file with the Treasury Department. If you want to know where the money is, it’s helpful to at least ask.

When Treasury went after Kim Jong-il’s money in 2005, according to the New York Times, “the Bush administration relented and lifted the sanction, in part because of pressure from the government then in place in South Korea.” That seems to have changed, too. The Korea Times is also reporting that the U.S. and South Korea are considering a strategy “to cut off a flow of cash to North Korean leader Kim Jong-un which is used to prop up his regime,” “freeze Kim’s overseas financial assets,” and “scale up economic sanctions against Pyongyang.” The Korea Times also says the two governments “will urge the international community not to hire North Korean laborers or travel to the repressive state.” The report cites “sources” inside the Blue House. 

President Park Geun-hye vowed Wednesday to make all diplomatic efforts to ensure that the U.N. Security Council can adopt a resolution to slap the most powerful sanctions on North Korea.

The sanctions “will be useless unless we ensure North Korea feels pain,” Park said in a televised address to the nation.

She said the sanctions should be powerful enough to make North Korea change its course. North Korea has repeatedly vowed to develop its economy and nuclear arsenal in tandem, viewing its nuclear program as a powerful deterrent against what it claims is Washington’s hostile policy toward it. [Yonhap]

See also President Park’s latest call, for “bone-numbing” sanctions. Except, of course, for South Korea’s pet subsidy for Kim Jong-un: Kaesong.

Our own foreign policy establishment — including made members with close associations with past agreed frameworks — also seems to have shifted its views:

A new approach to persuading the North to abandon its nuclear program must focus on asymmetric pressure points. A look at recent history helps to outline such a strategy. In our experience working on North Korea policy, the government in Pyongyang has seemed truly caught off guard only twice: in September 2005 when the Treasury Department’s sanctions led to a freezing of its bank accounts in Macau; and in February 2014 when a United Nations commission called for the Security Council to refer the North’s leadership to the International Criminal Court for a long list of crimes against humanity.

The United States and the United Nations should immediately increase sanctions. A new Security Council resolution will most likely emerge soon, providing one opportunity for this. Another comes in the form of the presidential executive order created after the cyber attack on Sony Pictures last year. These should include targeted financial sanctions; travel bans and indictments against officials working on the nuclear program, human rights abusers and cyber criminals; as well as secondary sanctions on anyone doing business with North Korean companies.

But sanctions are only one part of the strategy. Many observers believe, credibly, that slave labor bankrolls the nuclear weapons program. The United Nations must also continue to hold individuals in the government directly accountable for crimes against humanity, and all countries, including China and Russia, should be pressured to stop accepting North Korean laborers.

Even if China’s government has made clear that it is unhappy with North Korea’s behavior, Beijing won’t abandon its ally anytime soon. But the United States can — and should — push for Beijing to dial back its support. China could instruct Chinese companies to curtail business with North Korea, and the government could reject any calls from North Korea for new economic projects until the government returned to negotiations. China could also agree to not obstruct any Security Council discussions on human rights abuses in the North. Washington must frame cooperation on North Korea as a cornerstone of United States-China relations.

North Korea thinks that nuclear weapons make it more secure. That’s wrong. North Korea’s only path away from isolation and insecurity will require negotiation on all issues, including security, human rights and economics. In order to help it understand this, the United States must use the nuclear test Wednesday to force the North back to the table. [NYT, Victor Cha & Robert Gallucci]

In Foreign Policy, Bush-era NSC official Michael Green gives my article in The Fletcher Security Review a nice shout-out:

Despite claims from frustrated engagers that North Korea is already the most sanctioned and isolated country in the world, the fact is that economic sanctions on Pyongyang fall short of those put on Iran before the administration’s nuclear deal with Tehran. An excellent study in the Fletcher Security Review demonstrates how incomplete sanctions on the North really are. If the United States worked with Japan, South Korea, and other allies to require inspections of all vessels and aircraft arriving from North Korea, for example, there would be a considerable impact on the country’s illicit shipments of drugs and counterfeit money, as well as the North’s ability to procure materials for its missile and nuclear weapons programs. Other measures would also impact the North, such as blacklisting known North Korean individuals and entities involved in commerce (none of which are purely commercial entities). [Michael Green, Foreign Policy]

See also last week’s Washington Post editorial, calling for “stepping up U.S. sanctions on those that trade with North Korea, including Chinese companies.”

It’s gratifying to see the arguments moving away from arguments to impotence to concrete proposals. Overall, the aftermath of North Korea’s fourth nuclear test has been comparatively free of nonsense about sanctions being maxed out, with a growing realization that there is much more we can do financially.

The better question is how we use all that pressure once we’ve built it, and what end state sanctions can help us achieve. The financial strategy of 2005 was a tactical success that ultimately failed to achieve our objectives, because the State Department and the Treasury Department weren’t playing from the same sheet. State didn’t understand the strategy or the authorities on which it was based, and an ambitious Chris Hill and a weakened President Bush were desperate for a deal — any deal.

North Korea knows very well that it gets its best deals from U.S. and South Korean presidents near the end of their terms, or during moments of domestic political weakness. For the strategy to work this time, we have to embark on it with clear objectives and firm conditions for relaxing sanctions. That’s why Congress wrote those conditions right into the law (see sections 401 and 402).

I envision two alternative objectives for a financial strategy. One would be to use that pressure to secure North Korea’s disarmament, and some progress on humanitarian reforms, relaxing and lifting sanctions on an action-for-action basis, but not before North Korea performs meaningfully. The alternative strategy — if you will, the Plan B — would be to disrupt Kim Jong-un’s consolidation of power, by denying him the means to pay his military, security forces, and elites. This would go in concert with disruptive and subversive information operations, and a diplomatic campaign of isolation over human rights issues, similar to the one that put global pressure on South Africa in the 1980s.

Call it an “insecurity guarantee” as long as he continues to nuke up and run gulags.

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* I don’t know whether they’re related or not.