The “experts” were wrong. The sanctions are working.

The fact that even the New York Times says so didn’t make it so; it just made it harder for people who trust the New York Times to deny it. But for those of us who’ve always put more stock in the Daily NK and Rimjin-gang, the evidence has been piling up for more than a year. Our chronology begins in March 2016, two months after North Korea’s fourth nuclear test and one month after Congress passed the North Korea Sanctions and Policy Enhancement Act (NKSPEA). Treasury is still finalizing the executive order that will partially implement it, and ban dollar transactions in the North Korean mining, transportation, manufacturing, and financial services industries. The Security Council (UNSC) has just approved Resolution 2270, which bans correspondent relationships with North Korean banks and caps (but does not yet fully ban) North Korea’s coal exports. 

• 3/2016: There are early reports that oligarchs known as donju, most of whom have enriched themselves by trading on their connections with the state, are nervous and withholding their investment in the coal mining industry. A few people hoard food, but prices remain stable. Some traders shift to non-sanctioned trade, including food exports from China to North Korea. China unilaterally bans seafood imports from North Korea, a large percentage of which are controlled by the Reconnaissance General Bureau. In North Korean markets, seafood prices fall, and availability increases. The UNSC would approve a ban on seafood exports a year later.
• 4/2016: The mining industry was already marginal before the new sectoral sanctions begin to hit. Now, some miners anticipate the worst, sell their houses, and move into smaller ones. But as the months pass, conditions stabilize.
• 9/2016: North Korea conducts its fifth nuclear test. The UNSC begins work on Resolution 2321, which mostly tightens existing sanctions. The Treasury and Justice departments file their first major enforcement actions against a Chinese company dealing with North Korea, Dandong Hongxiang Industrial Development. It would be the first of many for a Justice Department that is, along with the FBI, an increasingly important player in North Korea sanctions enforcement. Critically, Treasury and DOJ directly target Chinese companies that import North Korean coal.
• 11/2016: Treasury finalizes a rule cutting North Korean banks off from the financial system. Donald Trump is elected President.
• 6/2017: The UNSC approves new sanctions designations in response to North Korean missile tests.
• 8/2017: Congress tightens the NKSPEA with title III of the Countering America’s Adversaries Through Sanctions Act. The UNSC approves Resolution 2371, which bans most remaining North Korean mineral and seafood exports, tightens banking sanctions, and bans joint ventures with North Korea.
• 9/2017: North Korea conducts its sixth nuclear test; the UNSC approves Resolution 2375, tightening oil import and shipping sanctions, and banning textile exports. Traders in China, most of whom had not planned for the possibility of more serious sanctions enforcement, begin complaining that they “have no work” due to sanctions, but that the state is still shaking them down for more “loyalty” payments.
• 10/2017: Chinese investors flee the Rason Special Economic Zone due to sanctions. Textile factories and fisheries there slow or stop.
• 11/2017: A Pyongyang resident reports that conditions are stable. The elites are complacent about their ability to withstand sanctions.
• 12/2017: Banks in China are closing or freezing North Korean trading companies’ accounts. Cross-border trade is slowing. There is an isolated report of electricity shortages in Pyongyang, but the situation improves later, because the state is burning coal it can no longer export to generate more power.
• 1/2018: UN bans on North Korean exports are affecting state-controlled industries, including coal mines, the fishing industry, and the textile industry. A source reports that conditions have worsened in Pyongyang, but the real estate market there is still strong. The security forces are increasingly resorting to extortion and bribery, suggesting that they’ve stopped receiving regular wages. Soldiers along the borders are turning back to smuggling to survive.
• 2/2018: Economic conditions worsen in the border town of Sinuiju as textile factories close and market prices fluctuate wildly. Chinese authorities have tightened customs inspections at the border.
• 4/2018: By now, cross-border trade between North Korea and China has slowed dramatically. Real estate prices in Pyongyang wilt as people sell or rent out their apartments and move into country houses.
• 4/2018: North Koreans’ moods sour after Kim Jong-un’s summit with Moon Jae-in fails to bring significant sanctions relief, and as economic conditions continued to decline. A backlash may be building in response to those unmet expectations, which now shift to the Singapore summit between Kim and Trump.
• 5/2018: Some local governments can no longer provide rations to the favored descendants of anti-Japanese guerrillas.
• 5/2018: The state launches “crackdowns on cadres who are siphoning off money from residents in Pyongyang” through various forms of graft. “Cadres are looking nervous, and those involved in trade are particularly worried.”
• 6/2018: Real estate prices in Pyongyang soar on speculation that Kim Jong-un will persuade Donald Trump to lift sanctions at Singapore.
• 6/2018: Trump meets Kim in Singapore. Before the summit, Trump calls off a new round of sanctions designations but does not lift any of the sanctions then in place.
• 6/2018: Trading companies affiliated with powerful state agencies muscle in on cross-border smuggling, which had historically been an unwritten partnership between private smugglers and local border guards.
• 7/2018: The Bank of Korea estimates that the North’s GDP fell 3.5 percent over the previous year.
• 7/2018: After Singapore, Pyongyang real estate prices crash, falling by 80 percent in some areas. A 50 percent decline is reported in Sinuiju. The state keeps building despite a glut of vacant apartments.The Daily NK attributes the declines to a liquidity crisis caused by sanctions, although overbuilding must also be a contributing cause. Builders voice fears of a prolonged recession.
• 8/2018: Economic conditions worsen in the coal mining region of Kaechon, North Pyongan. There are goods in the markets, but people can’t afford them. Electricity shortages are reported.
• 8/2018: A source in Pyongyang tells Rimjin-gang that incomes there have fallen by half because people can no longer afford the goods for sale in the markets. The source of the cash flow problem is directly traceable to the slowing of sanctioned trade at the border. According to one “trade institution executive stationed in China,” “[t]he ones having the hardest time are the upper-class people” whose income came from trade. “They are in trouble now that the money is gone.” Darkly, he predicts that “[i]f the government cannot solve these economic problems, the wealthy will grow unhappy and there may be grave consequences.”
• 8/2018: On the border, state trading companies, some of them controlled by Bureau 39, continue to take over cross-border smuggling routes from army units. Military trading companies lose revenue. Soldiers who survived by smuggling are now reduced to borrowing. Officers’ wives must go into business to support their families.
• 9/2018: Bureau 39-controlled and army-affiliated trading companies suffer from a lack of business due to the drop-off in the minerals and seafood trades.
• 11/2018: By now, much of the North Korean mining industry has stopped working. Many coal mines in South Pyongan and the copper mine at Hyesan are idled. It’s the same with the zinc mine at Dancheon, where miners are put on trial for stealing ore and selling it to smugglers. The iron mine at Musan barely functions by selling ore to domestic mills or smugglers. North Korea’s already-decrepit steel mills fail to meet their production quotas. Academic estimates confirm a steep decline, but probably haven’t caught up with its full extent and don’t account for smuggling.
• 11/2018: A North Korean diplomat and his wife go missing in Italy and may have defected. Nothing in the report links his disappearance to sanctions, but historically, Pyongyang has imposed strict, no-excuses earnings quotas on its agents abroad.
• 12/2018: Construction slows to a crawl at Kim’s showpiece tourist resorts at Samjiyeon and Wonsan-Kalma because the state can no longer obtain steel beams and reinforcement bars. It pressures its expatriate workers in China to “contribute” more wages to the projects.
• 2/2019: Production slows in North Korean state-owned factories due to a shortage of raw materials, such as metals from the mines. Traders who cannot obtain domestically manufactured goods switch to imported ones from China. At Musan, iron miners skip work and spend their days hauling and smuggling ore.
• 2/2019: Pyongyang launches a wave of “inspections” of officials, particularly those involved with foreign trade and border control, to root out corruption and confiscate any wealth they’ve earned or embezzled. Even the Guard Command responsible for Kim Jong-un’s security is inspected and purged. This is a significant shift for a state that has previously bought the loyalty of the elites by allowing them to enrich themselves. In the past, it had tolerated a certain degree of graft as long as officials met their quotas.
• 2/2019: Pyongyang summons its diplomats and their families to return home for ideological examinations and reeducation. Purely my own speculation: this may be a second-order consequence of sanctions affecting diplomats’ ability to meet earnings quotas, or it may be related to the “inspections” of corrupt officials and the search for their hidden slush funds.
• 3/2019: Trump and Kim meet again at Hanoi. Kim makes sanctions relief his top demand, but the summit breaks up with no agreement. Conditions for those who rely on state wages, from miners in Musan to elites in Pyongyang, continue to deteriorate. Says one trading company executive from Pyongyang, “If this continues, it could become a big problem. There is a lot of discontent.”
• 3/2019: Following the Hanoi summit, three Ministry of State Security officers posted in Shenyang vanish and may have defected. Their flight may have been motivated by the fear that an inspection team would find the bank accounts where they had hidden “significant amounts of money.” Other North Koreans in China are worried that because of sanctions, they can’t meet the steep earnings quotas imposed by Pyongyang. Days later, another report alleges that their MSS supervisor fled from Pyongyang to China, fearing that he would be punished for the disappearance of the other three. The report hints at other defections or desertions, including from the MSS, since the Hanoi summit ended without a deal for sanctions relief. In some regions inside North Korea, particularly in mining regions, officers in the MSS and the Ministry of People’s Security who aren’t getting steady wages or rations rely on trade and corruption to survive.
• 3/2019: State factories in Pyongyang and other industrial towns begin to shut down: “The enterprises managed to survive until the end of February, hoping that something would come out of the US-DPRK summit, but the summit’s failure has led to a loss of hope . . . . The authorities ensured the state-run enterprises continued to operate, but now they have no way of continuing.” The state lays off the workers and tells them to fend for themselves, even as they “closely monitor[] the situation on the ground to ensure that the discontent felt by workers does not turn into active protests.” Some parts of Pyongyang now only receive an hour of electricity a day (although foreigners in Pyongyang predictably tell a different story; the state may be hiding the shortages from them by supplying more power to the areas where they live, or they may be self-censoring for various reasons). A separate report also describes power shortages in other parts of the country.
• 4/2019: The number of market merchants falls steeply in Pyongyang and the coal mining region of South Pyongan. State workers no longer receive wages and can’t afford to buy goods.
• 4/2019: China’s Dandong Port Group, hit hard by the fall in trade with North Korea, goes insolvent and is placed in court receivership. (See this previous post for more information about the port’s financial troubles and legal vulnerability to section 2014 of the CAATSA.)

I’ve said all along that with aggressive enforcement, it would take between one and three years for sanctions to have a serious impact on the regime. That prediction is holding up well, despite my quibbles with the aggressiveness of our enforcement when Glocom and other large money laundering fronts are still operating–probably due to Trump’s personal intervention–and when Treasury still isn’t holding the Chinese banking industry accountable for laundering Pyongyang’s money. Those deficiencies suggest that either Treasury is doing more to get Chinese banks to comply than is known publicly, or that Pyongyang might eventually find a way to adapt and muddle through. The administration focused on shipping and sectoral sanctions instead. That’s not the strategy I’d have chosen, because it’s harder to focus on the elites while mitigating the harm to everyone else, but that strategy is clearly hurting the regime badly. The oligarchs in Pyongyang, the “core” class, the military-industrial complex, and the enforcers who inflicted so much misery on the poor for so many decades are suffering, too.

But wait, didn’t nearly all of the experts and all of the anti-anti-North Korean apologists tell us that years of tough sanctions hadn’t worked and so new sanctions wouldn’t work, either? Well—taking each flawed premise in order—these experts weren’t sanctions experts, the pre-2016 sanctions weren’t tough, and they worked well for a brief period (between late 2005 and early 2007) when they were tough. Between early 2016 and late 2017, Congress and the UN finally lost patience with strategic patience and imposed sanctions that cut off most of Pyongyang’s access to the financial system, banned its mineral and seafood exports, and preempted any efforts by South Korea to break them by reopening Kaesong and Kumgang. We’re starting to see grave impacts on the North Korean economy, and that comes with both good and bad news.

The good news is that the “experts” and the apologists were wrong—sanctions against North Korea can work and are working. They’re crashing Kim Jong-un’s military-industrial complex, and costing him the confidence and cohesion of the elites who keep him in power. They’re disrupting the pay of the security forces, and forcing their officers to either relax internal control in exchange for bribes or abandon their duties to work as traders or smugglers. They’re causing significant hardship for the army and border guard units who keep defectors in and subversive information out. They’re triggering internecine competition over dwindling resources between private traders, border guards, and the security forces, who are fighting over smuggling routes. They’re causing Pyongyang to intensify “inspections” of elite traders and officials who have grown rich from trade, kick-backs, and embezzlement, in what appears to be an increasingly desperate search for funds to confiscate.

The latter development strikes me as hugely significant. Until now, Kim Jong-un had made the promotion of oligarchy—buying the loyalty of a privileged and powerful few with material wealth, imported luxuries, and leisure facilities like ski resorts and a dolphin aquarium—the center of his political survival strategy. Now, he’s trading loyalty for time, and his reserves of loyalty may not be as deep as foreign observers assume. Between 2016 and 2017, there was a modest surge of defections by North Korean diplomats, soldiers, and money launderers. This surge had slowed by mid-2017, but it may be picking up again. In the case of the MSS officials, the defections may–I stress, may––be sanctions-related, in that the officials were unable to meet their hard currency earnings quotas and were too afraid to return home. If their computers, phones, and financial intelligence end up in U.S. hands, they have the potential to incriminate their North Korean and non-North Korean partners, support additional enforcement actions, and prevent other North Korean officials from meeting their quotas. If these defectors are in a position to flee into the open arms of the FBI, that has the potential to start a death-spiral. That is all good news, because Kim Jong-un is so committed to his possession of a nuclear arsenal that only an existential political crisis that threatens his very grip on power will force him to sign and abide by a verifiable disarmament agreement and agree to the opening and reform that “engagement” promised but didn’t deliver.

The bad news is also that sanctions are working. Even without sanctions, it would have been a hard year in the countryside after terrible harvests in 2017 and 2018 depleted the country’s food stocks, and because an uncaring state squeezed, taxed, and robbed the rural poor to the brink of starvation. A few, when pushed to their limits, organized petitions and protested. Most have learned to be adaptable, resilient, and resourceful farmers, traders, and smugglers. Inevitably, some have also suffered—mainly, workers in state industries like mines and munitions factories who never had to learn to farm or trade. The times are very bad for them, and we should take no joy in that.

We should expect Pyongyang and its apologists to shift from the sanctions-never-work narrative to the human shield narrative soon now. They will blame sanctions for the misery of the people, in hope that some UN member states will loosen enforcement on the regime that steals the food, the money, the wages, and the labor of North Korea’s poor. They will ignore the most obvious answers to the problem–for Pyongyang to stop collecting overdue fees, taxes, and “food debts” from them; to stop confiscating private farms and destroying private crops; to spend less on weapons and luxury goods; and to import more food. Here and there, one now finds evidence that it has imported and may import more food, for the non-expendable classes in the capital. But to the extent we have a responsibility to help those we’ve harmed—and yes, I believe we do—then we can help Kim Jong-un make better decisions for his people by freezing and confiscating his misspent funds, and by making those funds available for carefully monitored food aid.

The fact that Pyongyang can no longer hide the effects of sanctions is bad news for a government that invested much credibility, bravado, and maskirovka in the narrative that sanctions wouldn’t work. It had considerable success in selling that narrative to Twitter sanctions experts and the media darlings of the commentariat, many of whom would also suffer significant deductions from their credibility if we lived in a world where experts were judged by the predictive value of their analysis. They will answer—and they will be right—that sanctions only “work” when they end the threat posed by the target’s behavior. Our Treasury Department is as adept at creating economic pressure as our State Department is inept at translating it into just and lasting peace. Time and pressure will tell us whether Kim Jong-un will feel the hot breath of his generals and agree to disarm, but for once, time is on our side, and our chances of diplomatic success will rise in proportion to the internal pressure on Kim Jong-un.

But what if nothing will persuade Kim to disarm? There are many ways to change a regime’s behavior, including the paths chosen by South Africa, by Serbia, by Burma (however haltingly), or the more chaotic ones chosen by the people of Libya and Syria. It should go without saying that no one should prefer the latter alternatives. But any of them is still arguably better than interminable crimes against humanity, a nuclear crisis that grows more acute with each passing month, a global pandemic of proliferation and cybercrime, and the de facto subjugation of South Korea under Pyongyang’s nuclear hegemony.