How to negotiate a lasting peace in Korea, feed the hungry, and heal the sick

Let’s say you still believe in a negotiated disarmament of North Korea, something to which I assign a ten percent probability at most. Or, let’s say you don’t. Suspend your disbelief and assume that aggressive sanctions enforcement—the enforcement Kim Jong-un tricked Trump into calling off nearly a year ago—becomes a sufficient threat to the solvency and cohesion of Kim Jong-un’s regime that he comes back to the table next year, offers to submit a complete declaration of his WMD programs and let IAEA inspectors in, freezes his nuclear and missile programs, and agrees to dismantle them. Engagers argue that if that happens, we have to offer Kim some incentive to take that deal—an off-ramp. They’re right about this. I’m even prepared to support the agonizing concession to let regime officials escape punishment for crimes against humanity, if that’s what it takes to end those crimes. If sanctions collapse Pyongyang’s economy and a disarmament process is likely to take years, those may be years Kim knows he won’t have unless we give him enough sanctions relief to keep his regime intact while he disarms and reforms.

Our paradox has always been how to offer sanctions relief without surrendering our leverage. America is as good at using sanctions to create economic pressure as it is bad at using that pressure to secure our interests. Just when our sanctions have the rogue state on the ropes, it makes us an offer we can’t refuse, we lift sanctions, foreign investment pours in and refills the rogue state’s empty coffers, the rogue state reneges, and we’re in a worse position than we were in before. That’s exactly how things played out in 2007. I don’t doubt that that’s how Kim Jong-un wanted it to play out in Hanoi, too. It could still play out that way, unless Congress restrains Donald Trump from repeating “the mistakes of the past.” Title IV of the North Korea Sanctions and Policy Enhancement Act tried to learn from these mistakes and solve that paradox. We knew the temptations a future president would face, so we made the sanctions hard to lift permanently, but flexible enough for the President to suspend them in one-year increments, as long as Pyongyang made progress toward certain humanitarian, transparency, and disarmament benchmarks:

(1) verifiably ceasing its counterfeiting of United States currency, including the surrender or destruction of specialized materials and equipment used or particularly suitable for counterfeiting;

(2) taking steps toward financial transparency to comply with generally accepted protocols to cease and prevent the laundering of monetary instruments;

(3) taking steps toward verification of its compliance with applicable United Nations Security Council resolutions;

(4) taking steps toward accounting for and repatriating the citizens of other countries–

(A) abducted or unlawfully held captive by the Government of North Korea; or

(B) detained in violation of the Agreement Concerning a Military Armistice in Korea, signed at Panmunjom July 27, 1953 (commonly referred to as the “Korean War Armistice Agreement”);

(5) accepting and beginning to abide by internationally recognized standards for the distribution and monitoring of humanitarian aid; and

(6) taking verified steps to improve living conditions in its political prison camps. [section 401(a)]

But for a low-overhead state like North Korea, even temporary sanctions relief emits an appetizing odor to the bottom-feeders of the financial ecosystem, who may help it evade sanctions just enough to afford it the option to cheat, break off talks, and go back to nuking up. That’s why we need more than a strategy to get Pyongyang to sign a deal. We’ve signed plenty of deals that failed. We also need a strategy to hold it to a deal, even as we encourage and support the changes and reforms we seek. That strategy is to join with our allies, pool our intelligence and administrative resources with them, freeze and confiscate all the North Korean assets we can lay our hands on, and put those funds into receivership—to be released in small amounts as carefully monitored emergency aid, or in escalating amounts as part of a disarmament and peace agreement, for humanitarian purposes that benefit North Korea’s poor and hungry.

This is a variation of what the Trump administration is doing in Venezuela now–freezing the funds of the state oil company and depositing them into a fund controlled by the government of Juan Guaido, whom the U.S. now recognizes as the President of Venezuela. Guaido is using those funds to try to provide humanitarian aid to his hungry people. The beleaguered Maduro regime has responded with violence, but it has also paid a price for this in bad publicity, a fresh trickle of defections from the military, and the almost certain disapproval of hungry Venezuelans. Shifting regime funds into escrow for the people not only promises them help, it undermines the propaganda of Maduro and his tankie cheerleaders abroad that foreign imperialists are the ones who are starving them. Congress has joined the fight. Senator Bob Menendez (D-NJ) and Congressman Albio Sires (D-NJ) are co-sponsoring a bill calling on the President to find, block, and forfeit the proceeds of official corruption in Venezuela for just that purpose.

Venezuela isn’t the first case of the Treasury Department freezing the assets of a kleptocracy and diverting those funds to the control of a new, representative government. The Treasury Department worked in tandem with the World Bank’s Stolen Assets Recovery Fund to locate Qaddafi’s hidden assets and return them to Libya’s transitional government. The State Department has published a detailed manual on recovering the proceeds of kleptocracy. The idea of freezing, confiscating, and recovering the proceeds of kleptocracy for a state’s recognized government (hold this thought) also has U.N. recognition, in the form of the U.N. Convention Against Corruption. Congressman Stephen Lynch (D-MA) has also introduced legislation that would provide rewards to informants identifying the hidden proceeds of official corruption.

This is also an idea worth considering in the context of North Korea, and at least one member of Congress has also taken a first step in that direction. Senator Chris Van Hollen (D-MD) included “sense of Congress” language in section 115 of his BRINK Act, calling on the President to team up with the Financial Action Task Force to identify and block the proceeds of North Korean kleptocracy. This also a provision in section 104(b) of the NKSPEA that allows Treasury to freeze the provisions of North Korean kleptocracy.

Before we proceed, it’s important to talk about the different colors of money that a serious, aggressive, and sustained sanctions enforcement campaign can sweep into the Treasury, and how those funds can be used. This is a diversion into some wonky law. If you want to read more, click the footnote at the end of this sentence, but the key point you need to understand is that we can use the proceeds of fines, penalties, and forfeitures however Congress directs, while blocked funds remain the property of the owner until forfeited, donated, or unblocked.¹ I’ll roughly estimate that the U.S. government has collected a combined $100 million in fines, penalties, forfeitures, and blocked funds associated with North Korea sanctions violations. That’s about what the UN World Food Program has asked donors to give each year for the last decade, to address North Korea’s interminable, multi-decade, state-enforced food crisis. Collectively, I’ll refer all of these colors of money as “seized” funds, although that’s admittedly an imprecise term. It’s clearly enough money to feed a lot of hungry people. It’s money that Kim Jong-un stole from them and either used or earmarked to buy nukes, yachts, and ski lifts. No state has a sovereign right to misappropriate a nation’s resources for this way, in violation of ten U.N. Security Council resolutions, while its people go hungry.

Unlike Libya and Venezuela, there is no recognized government that’s both willing and trustworthy to disburse the proceeds of North Korea’s kleptocracy to feed its people. Yes, there is a democratically elected government in Seoul that claims jurisdiction over the entire Korean Peninsula, but it has neither the will nor the means to ensure the fair distribution of aid in the North. Moon Jae-in’s default is to be more-or-less subservient to Kim and to do everything he can to undermine U.S. financial pressure on Pyongyang and legitimize its dictator. But Trump’s inability to reach an agreement in Hanoi will weaken Moon politically, and we should want to draw his government into this framework, to gain its intelligence, its imprimatur, and the legitimacy it conveys. Nor is it harmful to us to force Moon to make a politically costly choice between the urgings of his base and those of political moderates.

Pyongyang’s multi-decade obstruction of fair, transparent, and non-discriminatory aid distribution limits our ability to help the majority of its people. Until we can find ways past these obstacles, the best we may be able to do is create the humanitarian and enforcement fund I proposed here, to hire more cops, lawyers, and intel analysts, and to increase broadcasting to the North Korean people. But these are obstacles that the U.S. and North Korean governments could, in theory, resolve through negotiation, if sanctions work well enough to get us there. It may also be possible to test Kim Jong-un’s good faith with an interim “small deal” that provides well-monitored aid to the hungry who have been affected by sanctions.

With your disbelief still firmly suspended, what if Pyongyang actually agrees to resolve the nuclear crisis peacefully? What if I’m wrong and Donald Trump is right that Kim Jong-un really does, on some level, want to make life better for his people? And, for the skeptics among us, what if he doesn’t? While those seized funds continue to draw interest, we could broadcast to the North Korean people the full details of what their leader was buying instead of food, and how he refused to accept food aid and medicine that we were willing to buy, import, and distribute with those misappropriated state funds. This would require new legislation to redirect the proceeds of fines, penalties, and forfeitures. It would also require the Justice Department to assign more prosecutors to forfeit funds that are currently blocked, to make those funds available to buy food and medicine. The effort continues to be under-resourced. This would also be hard work for the diplomats who would have to get our allies to join in this strategy.

I’m all for testing the hypothesis of the engagers that Kim really does want to open up, reform, and help his people, though I’ve noticed how quiet they become quiet when I do. So why not deposit those seized funds into a Peace Fund, or a “pot of gold” if you prefer, to use misappropriated state funds to feed the hungry and heal the sick? If Kim Jong-un is really sincere about helping them, how could he disagree? But of course, to do this without throwing away our leverage or plowing all that money right back into the kleptocracy, we’d have to insist on some strict conditions.

1. A Treasury Department or coalition Receiver must maintain tight control over the funds, from the moment they’re deposited into the Peace Fund, until they’re shipped to North Korea as bulk in-kind aid, and until some trustworthy monitor assures us that that food is distributed to those who need it most. Every disbursement of seized funds must be subject to and contingent on the certifications required under section 401 of the North Korea Sanctions and Policy Enhancement Act, and the monitoring conditions described in section 208. Pyongyang must continue progressing toward disarmament and reform, and it must allow robust monitoring of how that money is spent.
2. During the initial “freeze” phase of the agreement, the Receiver would disburse funds from the Peace Fund to the UN World Food Program or UNICEF, in amounts not to exceed $100 million annually, to fund humanitarian assistance for food-insecure populations inside North Korea, including people in sanctions-impacted industries and areas, children, nursing mothers, and prisoners. This has the added benefit of giving the Receiver more power to pressure the aid agencies to bargain hard with Pyongyang for transparency.
3. During the subsequent “dismantling” phase of the agreement, the Receiver may disburse funds from the Peace Fund in any amount the Receiver deems appropriate to fund public and private agriculture, food processing and manufacturing, and infrastructure in North Korea, under the oversight and monitoring of the UN Food and Agriculture Program, the UN Development Program, and such auditors and inspectors as the Receiver may appoint.
4. All the while, the U.S. and UN member states would have to continue to enforce the sanctions, and Pyongyang would have to acknowledge this. Any funds we find, seize, and forfeit would be deposited into the Peace Fund.
5. When the President certified the conditions described in section 402 for lifting sanctions, the Receiver would transfer any balance remaining in the Peace Fund to the North Korean (or Korean) government.
6. And lastly, the most likely deal-breaker: as long as Pyongyang has closed gulags big enough to hide a city, a laboratory, an arsenal of nuclear missiles, or enough machine tools, materials, and scientists to double that arsenal, we’ll never be able to verify of its disarmament. It must agree to let us use the Peace Fund to bring food and medical aid to its prisons, as a first step toward letting in weapons inspectors. Pyongyang will have concerns about negative publicity and even potential prosecution, of course. We should be prepared to guarantee the confidentiality of whatever the aid workers and monitors see there, and to ask the UN Security Council to agree that as a price for this genuine humanitarian reform, none of those aid workers or monitors will be allowed to give evidence in any criminal prosecution of regime officials.

In the unlikely event that Kim Jong-un ever commits to real change, reform, and a lasting peace, this is the most humane way to dispense sanctions relief from a pot of stolen gold, without weakening sanctions enforcement or throwing away our leverage. In the more likely event he doesn’t, broadcasting to the people of North Korea about his disinterest in their welfare will help make our pressure on him “maximum.”

Kim Jong Un is usually chauffeured in a top-of-the-line Mercedes limousine — but he arrived in what appeared to be a black Rolls Royce at his meeting with US Secretary of State Mike Pompeo this weekend https://t.co/ZFtxDayFHL

– CNN (@CNN) October 9, 2018

The morning session is over, and Kim Jong Un, riding in the Mercedes limo, gets the human motorcade treatment, as his 12 bodyguards get in some nice midday cardio. pic.twitter.com/ZWQC9z2xE6

– Jonathan Cheng (@JChengWSJ) April 27, 2018

~ ~ ~

1.

• Blocked or frozen funds are the property of persons the Treasury Department has blocked out of the financial system, when there is substantial evidence that the person has engaged in transactions that violated U.S. laws or regulations. Those funds usually get caught when the owner tries to wire dollars from one foreign bank to another, without realizing that the foreign banks actually wire them through correspondent banks in the United States, which in turn have legal obligations to ask six-degrees-of-Kim-Jong-un questions about the parties to the transaction, and either report or block suspicious ones. Even after they’re blocked, the funds remain the legal property of their owner, but no person subject to U.S. jurisdiction may deal in that person’s funds, property, or interests in property. Practically speaking, that means the money sits in a bank account and draws interest until it’s unblocked or forfeited. The U.S. government has no legal authority to spend that money or return it to anyone but the owner (this created major complications for Agreed Framework II in 2007, when the North Korean government demanded the unblocking and return of $25 million in frozen accounts in Banco Delta Asia, which legally belonged to its smurfs and pwags in Macau). Last year, the Treasury Department reported that it was holding $63 million in funds frozen for violations of sanctions against North Korea, but only some of those funds were property of the North Korean government. About half of that money was frozen between 2005 and 2008. I roughly estimate that this amount will approach $100 million when Treasury publishes its next report.
• Fines and penalties are funds that a court or an administrative law judge may order a criminal defendant or civil respondent to pay to the government. The target of an investigation may also agree to pay a fine or penalty as part of a settlement, to avoid prosecution. Penalties may be either criminal or civil. How those funds are deposited and spent depends on the statute that controls them. Criminal fines, for example, are deposited into a Justice Department fund to assist crime victims.
• Forfeited or confiscated funds are either the proceeds of, or “involved in,” crimes that are designated as “specified unlawful activities” in the money laundering statute, 18 U.S.C. 1956. There are three types of forfeitures–administrative forfeitures (usually for customs violations, for up to $500,000); civil forfeitures against the property itself where the court must find by a preponderance of the evidence that the property constitutes “proceeds” or is involved in the specified unlawful activity by a preponderance of the evidence; and criminal forfeitures, which are decided in a post-trial remission proceeding after a defendant is convicted of a crime beyond a reasonable doubt. The court may then forfeit the property to the United States if it finds a substantial connection between the property and the specified unlawful activity the defendant was convicted of. But North Korean defendants are rarely subject to arrest, which means that criminal forfeiture is seldom an option against them. Instead, in most North Korea cases, the FBI and the Justice Department will typically use civil forfeiture, using sections 104 and 105 of the NKSPEA.
• After a court forfeits funds to the United States, the government can spend them for whatever purposes Congress allows. Under current law, that usually means they go into a Justice Department Forfeiture Fund or a Treasury Department Forfeiture Fund to pay for law enforcement expenses. The feds can also share them between the two funds, or with state or foreign governments that helped with the investigation and legal proceedings. Congress may also direct the feds to deposit forfeited funds into different accounts and use them for different purposes. Since 2016, the Justice Department has sued to forfeit somewhere between $20 and $50 million dollars from violators of North Korea sanctions–another very rough estimate–depending on how quickly federal judges rule in the various pending cases, and how much was in these accounts when Treasury froze them. Under current law, the feds deposit that money into one of two U.S. government forfeiture funds to fund law enforcement operations, but Congress can direct the executive branch to use forfeited money for any purpose it specifies. For example, it used the BNP Paribas fines, penalties, and forfeitures to create a fund to compensate victims of terrorism and care for 9/11 first responders.
• You can read more about these funds and their permissible uses here.