Trump & North Korea: In search of maximum pressure (Pt. 1)

Last week’s North Korea designations from the Treasury Department were the second round since Inauguration Day, and like the first round, they omitted the essential element for sanctions against North Korea to be effective: secondary sanctions to deter Chinese | banks and companies from enabling North Korean proliferation and money laundering, as they’ve been | doing for so long, and so flagrantly. On this point, I need not repeat Anthony Ruggiero’s arguments, so I’ll just refer you to his post.

In other words, this still isn’t the “maximum pressure” the Trump administration promised us, and continues to promise us. Rather than designate the dozens of North Korean front companies and agents identified in the U.N. Panel of Experts’ recent reports, OFAC continues to designate North Korea’s support network in China incrementally. The only Chinese connections in this round were the designation of Korea Zinc Industrial Group, which has offices in Dalian, and the designation of (U.N.-designated) Koryo Credit Development Bank official Ri Song-hyok, who “has reportedly established several front companies in order to procure items and conduct financial transactions on behalf of North Korea.” (Under UNSCR 2321, paragraph 33, China and other states were supposed to have expelled all representatives of North Korean financial institutions last year. The fact that Ri is still doing business in Beijing speaks volumes.)

How does one explain this not-even-remotely-maximum pressure? One obvious possibility is that Xi Jinping snookered Trump into quietly withdrawing his support for secondary sanctions against North Korea’s Chinese enablers. If so, “maximum pressure” will certainly fail. A second possibility is that this Japanese report that President Trump gave Xi Jinping 100 days to tame His Porcine Majesty is accurate, in which case the 100-day grace period will expire in mid-July. In any event, the evidence that China is holding up its end of the bargain is hardly conclusive, and whatever China is doing isn’t enough to moderate Pyongyang’s provocative behavior. For all of the recent rhetorical differences between Pyongyang and Beijing, Pyongyang seems to be as skeptical as I am that China will exert serious, regime-threatening pressure on it.

There are still some straws an optimist can grasp. The designation of the entire North Korean military (specifically, the State Affairs Commission, the Korean People’s Army, and the Ministry of People’s Armed Forces) may seem symbolic at first glance, but it could be a step in the direction of designating the many military-affiliated trading companies that fund it. If OFAC proceeds to do so, it will fill various banks’ anti-money laundering compliance databases with the names, addresses, and passport numbers of North Korean agents, which will trigger heightened due diligence obligations under 31 CFR 1010.659, which could pave the way for subpoenas, civil penalties, and deferred prosecution agreements against non-compliant large banks, and the potential loss of correspondent relationships by non-compliant smaller banks. Going after the security forces that suppress dissent and the trading companies that collect the revenue that sustains them would be a sound targeting strategy if the administration pursues it aggressively. Again, whether the Trump administration has the political will to do this remains to be seen.

Another hopeful sign is that the Trump administration doesn’t seem to be sparing Russia with regard to secondary sanctions.

OFAC designated Moscow-based Ardis-Bearings LLC and its director, Igor Aleksandrovich Michurin, pursuant to E.O. 13382 for their support to Tangun.  Ardis-Bearings LLC is a company that provides supplies to Tangun, and Michurin is a frequent business partner of Tangun officials in Moscow. [….]

OFAC designated the Independent Petroleum Company (IPC) pursuant to E.O. 13722.  IPC is a Russian company that has signed a contract to provide oil to North Korea and reportedly has shipped over $1 million worth of petroleum products to North Korea.  IPC also may have been involved in circumventing North Korean sanctions.  OFAC also designated one of IPC’s subsidiaries, AO NNK-Primornefteproduct. [OFAC Press Release]

Leo Byrne has more information on the designation of IPC here.

Both rounds of designations by the new administration show a continued focus on the use of Executive Order 13722’s sectoral sanctions to strike at critical elements of Pyongyang’s economic support, including coal and energy. The designation of the Korea Computer Center is interesting is that it was not for hacking (see section 104(a)(7)), but for raising revenue for the military by selling software (see section 104(a)(8)). Also, Treasury finally got around to designating Kim Su-Kwang, the North Korean Reconnaissance General Bureau agent who infiltrated the World Food Program’s offices in Rome.

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The other sanctions news last week was the Security Council’s approval of Resolution 2356, which contains no new substantive provisions, only designations. On one hand, designations are certainly better than a “presidential statement,” and it’s some consolation that the U.N. is now pursuing North Korean officials who are responsible for censorship (the Propaganda and Agitation Department) and terrorism (the Reconnaissance General Bureau), suggesting an approach more holistic than one that treats Pyongyang’s proliferation as an isolated problem. The designation of Kangbong Trading Company, a military-affiliated coal-merchant designated by the Treasury Department in December, is worth watching. We’ll see if it means China will actually comply with the coal cap. I’m not holding my breath for that, but China’s agreement to a U.N. designation should hush China’s objections if the administration later decides to indict the purchasers of Kangbong’s coal later, for money laundering, conspiracy, and violations of the International Emergency Economic Powers Act.

On the other hand, this is a Chapter VII resolution in name only. There are no new restrictive measures, such as a ban on labor exports, or Pyongyang’s unconscionable export of food for cash while its people starve. The number, quality, and geography of the designations does not suggest a collective U.N. seriousness about uprooting North Korea’s proliferation network in China, Malaysia, Singapore, or Africa. The failure to designate Air Koryo, a key smuggling tool of the regime, is disappointing, and the failure to designate entities exposed in the most recent Panel of Experts report — notably Glocom and its affiliates — is simply egregious. While Resolution 2356 is certainly better than nothing, it’s also much less than what’s needed to enforce sanctions and make them work. As such, it’s a depressing sign of weakness from the Trump administration and disunity from the Security Council.