Senate Banking Committee advances the Otto Warmbier BRINK Act, Treasury blocks the Bank of Dandong

Last week, while I was writing my rave review for Donald Trump’s speech to the South Korean National Assembly, the Senate Banking Committee was working to put more tools in his hands to bankrupt the man he would never stoop to calling “short and fat.”* By a unanimous vote, the committee passed the newly renamed Otto Warmbier Banking Restrictions Involving North Korea (BRINK) Act, which I previously discussed here and here. The bill now awaits Senator McConnell’s nod to get on the full Senate calendar. The House is already looking at the text.

This being the Senate, an august deliberative body, the committee vote came after the majority and minority members reached an agreement on a compromise text. As a general rule, compromise amendments are like Star Wars sequels — never as good as the original, and usually a little worse with each iteration. In this case, however, the text actually seems to have improved in the negotiations, if you can believe that. (Next time someone asks you what’s in it for Kim Jong-un to show some restraint, tell them he might get less of this.)

[Chris Van Hollen (D, MD) and Pat Toomey (R, PA) were the bill’s original co-sponsors.]

Under the new bill, many of the discretionary sanctions authorities that were just added to section 104(b) of the NKSPEA by the KIMS Act would now become mandatory. Other new section 104(a) sanctions would mirror sanctions imposed by the U.N. Security Council in UNSCR 2371 and 2375. In addition to requiring the blocking of the bad actor’s assets, section 104(a) sanctions carry more other serious consequences, such as asset forfeiture, immigration sanctions, and the loss of government contracts.

I’m especially pleased that the NKSPEA’s sanctions on His Porcine Majesty’s kleptocracy will also become mandatory.

The most powerful provision, however, is section 111:

This imposes a range of secondary sanctions on banks that continue to process transactions for North Korea. The concept here is similar to what Ed Royce wanted to do back in 2013, in the original version of the NKSPEA (then called the North Korea Sanctions Enforcement Act). Section 201 of that bill allowed for a range of secondary sanctions against financial institutions that dealt with North Korean entities. At the time, however, the Obama administration’s Treasury Department thought that went too far, so instead, section 201 was replaced with the language that would later force the Obama administration to declare North Korea to be a primary money laundering concern, show some promising (if early) results in freezing North Korean accounts, and kill** the Bank of Dandong for laundering Kim Jong-un’s money.

Since I brought up the Bank of Dandong, last week wasn’t a good one for the BoD and its shareholders. Following a July Notice of Proposed Rulemaking, and BoD’s protestations notwithstanding, Treasury’s Financial Crimes Enforcement Network commenced primary ignition and issued a final rule blocking the BoD out of the financial system. FINCEN points out that not only did the BoD lose its access to the dollar system, it may also have lost its euro, Japanese yen, Hong Kong dollar, pound sterling, and Australian dollar correspondent accounts.

That’s going to leave a mark

I’ll believe the Treasury Department is really serious when it starts imposing fines like this one on banks, including big banks, that fail to meet their due diligence obligations to prevent North Korean money laundering. As the new Chinese curse goes, “May subpoenas rain down on your correspondents.”

If secondary financial sanctions this sweeping were ahead of their time in 2013 politically speaking, today, liberal Maryland Democrat Chris Van Hollen, joined by moderate Pennsylvania Republican Pat Toomey, has written the toughest secondary financial sanctions on North Korea to date. Just so you get a sense of how far the consensus has shifted.

The BRINK Act sends a clear and unequivocal message to these banks and firms: you can do business with North Korea or you can do business with the United States, but if you choose to support the North Korean regime or their business associates, you will be held to account. [CNN.com, Senators Chris Van Hollen & Pat Toomey]

Stop me if you’ve heard anyone else argue this before:

Critics argue that, for more than two decades, the United States has unsuccessfully employed a mix of sanctions and economic incentives to convince North Korea to abandon its nuclear arsenal and contain the threat. But our sanctions regime against North Korea is not nearly as tough as what we had in place against Iran, in the lead-up to Iranian nuclear negotiations.

Specifically, the United States has not, in a serious way, gone after the foreign banks that provide illicit support to North Korea and extend credit and financial services to companies engaged in illegal trade with the regime. This is a major hole in our sanctions regime, but one that our legislation would close.

The sanctions in the BRINK Act are known as “secondary sanctions,” because they apply to non-US entities. They target foreign banks and firms serving North Korean enterprises. This bill is modeled on the same secondary sanctions that helped to bring Iran to the negotiating table over its nuclear program.

The reasons for our approach are clear. North Korea’s economy is neither as weak nor as isolated as most people believe. While exact figures are unknown, its annual gross domestic product is estimated to be $40 billion. China accounts for nearly 90% of North Korea’s trade, while others, such as Malaysia, still maintain diplomatic ties.

The United Nations found that North Korea evades existing international sanctions and maintains access to the international financial system through a comprehensive network of front companies, many based in China. North Korea relies heavily on this network to directly support its weapons of mass destruction and ballistic missile programs. Our aim is to cut off North Korea’s remaining access to the international financial system, deprive Kim Jong Un of the resources needed for his regime’s survival, and create the leverage necessary for successful nuclear negotiations.

Read the whole thing.

Section 115 of the bill directs the administration to team up with the Financial Action Task Force — which has just issued tough new guidance to financial institutions on implementing U.N. financial sanctions — to hunt down and freeze the slush funds of Kim Jong-un and his top goons. (See Anthony Ruggiero’s analysis of the FATF advisory and what that means.)

Other provisions prod U.N. member states to step up their enforcement game, ask Treasury to report on North Korea’s use of front and shell companies to hide its beneficial ownership interests, put stricter congressional controls on the licensing of transactions with North Korea, and make it easier for fund managers to divest from companies with investments in North Korea. Congress also asked for reports on North Korean money laundering and cyber capabilities.

However improbably, and despite the alleged dysfunction on Capitol Hill, on this issue, Congress is behaving in a bipartisan, statesmanlike, and diplomatic manner. It’s keeping up with the U.N. in passing implementing legislation, and it’s either forcing or helping the Treasury Department to act like the steward of the financial system that it needs to be for sanctions to work well enough to prevent another Korean War.

That assumes, of course, that the administration enforces this competently and aggressively. It’s not a good sign at a time like this to see the administration cut Treasury’s budget. It’s going to require some aggressive congressional oversight to make this work, but Democrats seem to be positioning themselves to “own” the sanctions issue if they see Trump slow down. Good for them. They can clearly see what the alternative would be.

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* Here at OFK, our position is that jokes about physical stature and body size are beneath our editorial standards. But as a former boss once said, a good lawyer can tell you the rules; a great lawyer can tell you the exceptions. So, by a narrow-yet-unanimous vote, the OFK Editorial Board has approved an amendment to the Style Guide to authorize the use of the term “His Porcine Majesty” for any hereditary, morbidly obese absolute ruler of a country where a third of the kids are stunted due to malnutrition while he exports seafood and other produce for hard currency.

** It’s possible that the Bank of Dandong could do what Banco Delta Asia did and survive for years as a glorified check-cashing / payday loan storefront, using only local currencies. The last time I checked PACER a few months ago, BDA was still in settlement negotiations with Treasury to have its 311 blacklisting lifted.