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Treasury Dep’t hits Sun Sidong, N. Korea’s maritime smuggling & mineral exports

Here at OFK, we’ve chronicled a curious fact that few professional foreign policy scholars have noticed: China is opposed to unilateral sanctions, except when it isn’t. Last week — barely a week after President Trump returned from Beijing — he gave Xi Jinping something to oppose.

OFAC designated Dandong Kehua Economy & Trade Co., Ltd., Dandong Xianghe Trading Co., Ltd., and Dandong Hongda Trade Co. Ltd. pursuant to E.O. 13810. Between January 1, 2013 and August 31, 2017, these three companies cumulatively exported approximately $650 million worth of goods to North Korea and cumulatively imported more than $100 million worth of goods from North Korea. These goods have included notebook computers, anthracite coal, iron, iron ore, lead ore, zinc ore, silver ore, lead, and ferrous products.

OFAC designated Sun Sidong and his company, Dandong Dongyuan Industrial Co., Ltd. (Dongyuan), pursuant to E.O. 13810. Sun and Dongyuan were responsible for exporting over $28 million worth of goods to North Korea over several years, including motor vehicles, electrical machinery, radio navigational items, aluminum, iron, pipes, and items associated with nuclear reactors. Dongyuan has also been associated with front companies for weapons of mass destruction-related North Korean organizations. [Treasury Dep’t Press Release]

All told, last week’s designations include four Chinese companies, one Chinese individual, seven North Korean shipping or trading companies, two North Korean government agencies, and 20 North Korean ships. Most of the designations target North Korea’s shipping industry, and OFAC, the Office of Foreign Assets Control, even included photographs of North Korean ships doing ship-to-ship transfers of oil, in violation of UNSCR 2375, paragraph 11. If I had to guess, I’d guess that those photographs were taken by a spy satellite.

Treasury did not name the other ship or its nationality; however, in testimony at the House Foreign Affairs Committee in September, Treasury Assistant Secretary Marshall Billingslea showed other photographs “provided by the intelligence community” and named the ships, the flag states, and their destination ports (in China and Russia, of course).

The designation of the North Korean entities suggests that Treasury is pursuing a phased strategy. In the first phase, Treasury blacklists North Korean entities to put third-country companies, insurers, and banks on notice to avoid doing any business involving them. Treasury is still years behind the U.N. Panel of Experts, however, in naming the various persons and entities known to be involved in violating North Korea sanctions. Although a person designated by OFAC can sue to challenge the designation, the courts would apply a deferential standard and uphold any designation supported by “substantial evidence.” In most cases, the U.N. Panel’s careful and thorough work, including its annexes, would be more than sufficient to meet that standard.

Take, for example, the case of one of Treasury’s designations, the North Korean Maritime Administration. The U.N. Panel of Experts had recommended its designation in its most recent report, in September, for helping U.N.-designated North Korean arms smuggler Ocean Maritime Management evade sanctions. I’ve pasted the relevant text from the POE’s report below the “continue reading” link.

The next phase will require Treasury to hit some third-country targets to sever that business and warn others of the consequences of breaking that boycott. In the case of the Sun Sidong network, we’ve reached that second phase. Sun’s network first came to our attention last August, when a leaked U.N. report revealed that the Egyptian authorities had found a large shipment of PG-7 rocket-propelled grenades aboard a Chinese-flagged merchant ship, the Jie Shun, at the southern end of the Suez Canal. At the time, I’d guessed the rockets were headed for Syria, but the Washington Post later reported that the customer was none other than Egypt itself.

By June of this year, the Center for Advanced Defense Studies had pursued the POE’s clues and traced the ownership and control of the Jie Shun back to a Chinese national named Sun Sidong.

It then released a remarkable report that not only exposed Sun’s network, it effectively mapped out most of North Korea’s money laundering network in China. C4ADS found that this network was “centralized, limited, and vulnerable” to sanctions. Sun and his companies account for a large portion of that network.

For example, one of its subsidiaries, Dandong Zhicheng Metallic Materials Company, was until recently the single largest purchaser of North Korean coal.

“These companies will have a tough time continuing operations as even Chinese banks will increase scrutiny of their transactions, if not completely cut them off,” Anthony Ruggiero, a Senior Fellow at the Foundation for the Defense of Democracies, told NK News.

“These actions continue the narrative on the problem China has in Dandong and Dalian, something Treasury highlighted in its advisory where it noted the activities of Chinese banks and companies working with North Korea.” [NK News, Leo Byrne]

Last week’s designations are not the feds’ first strike on the Sun Sidong network. In August, the Justice Department filed a civil forfeiture complaint against DZMM. Last month, the Wall Street Journal reported that Sun was under investigation by the FBI, so it may not be the last strike, either.

One other company, the Korea South-South Cooperation Corporation, was designated for slave labor exports to “China, Russia, Cambodia, and Poland.” Technically speaking, UNSCR 2375 permits member states to allow labor contracts with North Korea to expire, but in this case, Treasury is telling the parties to those transactions to keep them out of the dollar system.

Although the designations came one day after President Trump announced that North Korea would be returned to the list of state sponsors of terrorism, the designations are not directly related to North Korea’s recent sponsorship of terrorism. It would not surprise me, however, to see future designations of North Korean nationals under Executive Order 13224. The President has indicated that we’ll see more designations soon.

President Donald Trump, in announcing Monday his administration’s decision to designate North Korea as state sponsor of terrorism, indicated that additional sanctions measures were on the way. “It will be the highest level of sanctions by the time it’s finished over a two-week period,” Mr. Trump said. [WSJ, Felicia Schwartz]

The designations also tell us a few things about the role of China in enforcing these sanctions. First, although I’d feared that Trump would get hoodwinked by Xi Jinping in Beijing and ease off on secondary sanctions, it’s clear that he hasn’t eased up entirely. It’s also clear that the visit by a Chinese emissary to Pyongyang, which was much ballyhooed on Twitter (including by the President himself) achieved exactly as much as I’d expected (bupkes). By now, all wizened Korea-watchers either know or should know that the words “great expectations,” “diplomat,” and “Pyongyang” can only be assembled into transitory delusions.

We soon learned that when Xi Jinping’s messenger showed up, His Porcine Majesty was conveniently out of town looking at things. No doubt, Xi is unhappy with both Donald Trump and Kim Jong-un now. But he’d have no reason to be unhappy with us now if he enforced the sanctions his government voted for at the U.N.

More on the designations via The Wall Street Journal and Reuters.

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Update: Hmmm:

The Chinese government unexpectedly arrested the head of a major company operating cargo ships linking North Korea and China, which the United States had designated as an entity subject to its independent sanctions, a joint investigation by The Dong-A Ilbo and Channel A found on Sunday. Beijing is reportedly conducting far-reaching investigation of all companies engaged in trade with North Korea, as well as Chinese firms and individuals Washington included in the list of entities subject to its independent sanctions since this past summer, and is taking disciplinary action if illegal acts are detected.

According to informed sources on North Korea, the Chinese government arrested a man identified by his last name Jin, head of Dalian Global Unity Shipping, and is probing him in a location other than Dalian. Jin, a Korean Chinese, is an entrepreneur widely known in the field who is almost monopolizing shipping service linking Dalian and North Korea. Since his arrest, the operation of all the vessels linking Dalian and North Korea has been suspended. The measure is reportedly putting heavy pressure on North Korea, with the North’s export to China having been halted. [Dong-a Ilbo]

Dalian Global Unity isn’t part of the current round of designations; it was added to the SDN List back in June.

Finally, OFAC designated Dalian Global Unity Shipping Co., Ltd. (Dalian Global Unity) pursuant to E.O. 13722 for operating in the transportation industry in the North Korean economy. Dalian Global Unity is reported to transport 700,000 tons of freight annually, including coal and steel products, between China and North Korea. According to the 2013 report by the UN Panel of Experts on North Korea, Dalian Global Unity was actively involved in eight cases of luxury goods smuggling incidents and is suspected of involvement in at least one other case. Middlemen from Dalian Global Unity gave specific instructions about how shipments and transactions could evade the UN-mandated luxury goods ban. [U.S. Treasury Dep’t]

Remember the ten-week rule: never celebrate any apparent Chinese compliance with North Korea sanctions until it has been in effect for at least ten weeks.