The Warmbier Act could raise the pressure on Kim Jong-un dramatically, whether Donald Trump likes it or not

Kim Jong-un is wrapping Donald Trump’s Christmas present, and Putin and Xi Jinping say that Trump should lift the sanctions on Kim they’ve been violating anyway, but Congress just made those sanctions much tougher in a new bill, the Otto Warmbier North Korea Nuclear Sanctions and Enforcement Act, which just passed both houses of Congress as an amendment to the National Defense Authorization Act for Fiscal Year 2020, or NDAA. The bill is an updated version of the BRINK Act, which I wrote about here two years ago. The NDAA now sits on the President’s desk. Trump has promised to sign it by midnight to avert another government shutdown. The text of the Warmbier Act starts at page 1126.

The bill’s drafters, Senator Chris Van Hollen (D-MD) and Pat Toomey (R-PA), are members of the Senate Banking Committee. As such, they were well-positioned to build on the sanctions in the NKSPEA and the CAATSA by raising the legal pressure on the Chinese banks that Steve Mnuchin still won’t sanction or penalize, despite the fact that those banks are still breaking our laws, violating UN sanctions, and even defying court orders and grand jury subpoenas.

At the core of the Warmbier Act is a list of sweeping categories of financial enablers, whether North Korean or not, who are helping Pyongyang to evade UN sanctions.[1] The Warmbier Act calls them “Covered Persons,†and before we unpack those categories or talk about what sanctions apply to them, ponder the fact that nothing in the definition of “Covered Person†says that the activity causing a person to be “Covered†has to happen within U.S. jurisdiction (that is, done by a U.S. person or occurring, even in part, in the United States). That goes far toward making these truly secondary sanctions, like our sanctions against Iran. In fact, the drafters explicitly say that this was their intent.

[T]he 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. [link]

But as I’ll discuss later in this post, the Warmbier Act’s real power may be the way it circumvents the weak link of Steve Mnuchin by shifting the enforcement authority out of the Treasury Department (which has pulled its punches because of Donald Trump’s “love†for Kim Jong-un and Mnuchin’s fear of Donald Trump, and Chinese bankers) and into the Justice Department (which, as its record clearly shows, has not). Let’s begin by examining who is defined as a “Covered Person:â€

-> Naturally, “Covered Person†includes persons previously designated by existing executive orders sanctioning North Korea. It also includes North Korean banks, money launderers, financial institutions (whose representatives continue to operate in China, Russia, and other places), and smugglers of bulk cash, precious metals, jewelry, and precious stones, and any person who works for or employs any such Covered Person.

-> “Covered Person†also includes any North Korean working outside North Korea, except for diplomats and refugees. As with the previous category, it also includes any person who works for or employs such a Covered Person. This provision comes just in time to put teeth into the UNSCR 2397 obligation to send North Korean workers home by Christmas — a ban both China and Russia appear to be violating by making a show of flying North Korean workers home, while quietly flying other North Korean workers in.

-> To address North Korea’s maritime smuggling, “Covered Person†includes anyone who knowingly registers or insures a ship owned, operated, or controlled by North Korea.

-> Supporters of PUST and Choson Exchange (see note 26) will be deeply disappointed to hear that “Covered Person†includes anyone who provides “specialized teaching, training, or information or … material or technological support†to a North Korean person that may contribute to Pyongyang’s WMD programs or computer hacking.

-> “Covered Person†includes any person who knowingly facilitates the import or export of goods, services, technology, or natural resources, including energy, minerals, or their derivatives to or from North Korea. There is an exception for the export of food, medicine, or medical supplies to North Korea to meet civilian humanitarian needs.[2]

-> “Covered Person†also sweeps in any person who invests in North Korea, participates in a joint venture with North Korea, or provides financial services in North Korea.

Within 180 days of the date the President signs the NDAA, the Treasury Department is required to write and publish regulations limiting a Covered Person’s access to the financial system:

-> A foreign financial institution that knowingly facilitates financial transactions for a Covered Person, or knowingly provides financial services to a covered person, may be subject to civil penalties, criminal penalties, or limits on its access to correspondent accounts in the United States. The criminal and civil penalties under this provision are the same as those found already found in section 206 of the International Emergency Economic Powers Act, but unlike IEEPA penalties, these provisions don’t require that a Covered Person be designated, and “Covered Person†clearly goes beyond the list of Specially Designated Nationals. Similarly, the restrictions on foreign banks accessing correspondent accounts in the United States will probably mirror those in section 311(b) of the Patriot Act, but no 311(b) designation is required here.

-> U.S. financial institutions will also be prohibited from knowingly engaging in significant transactions with, or benefiting, a Covered Person. Only civil penalties apply here, but they may be up $250,000 per transaction or twice the amount of the transaction (which potentially exceeds the IEEPA civil penalties).

Remember when I wrote that the administration wasn’t enforcing the NKSPEA, that Congress was losing patience with the Treasury Department, and that one alternative it had for expressing that impatience would be to give Justice Department prosecutors in 94 federal districts the independent authority to prosecute NKSPEA violations? Something like that just happened here. Congress expects the President to enforce the laws it writes and passes. When he doesn’t, and he also ignores Congress’s complaints that he isn’t, then Congress has legislative and fiscal powers to overcome the President’s obstruction. That will be to the long-term detriment of the President’s power to make foreign policy.

Can Congress really do that? Sure it can. —in the very same clause as the Interstate Commerce Clause, which is infamous among federalist-minded lawyers and judges for how broadly the courts have interpreted it—gives Congress the power to regulate commerce with foreign nations. That the President has done most of the real work of regulating it in recent decades owes mostly to Congress’s choice to give him that power under the Patriot Act, the International Emergency Economic Powers Act, trade promotion authority, and other statutes. But what Congress gives, it can also withdraw.

It will be important to watch Treasury’s draft of these regulations carefully, to see how it tries to keep control of enforcement. If it tries to draft the regulations to make the definition of “Covered Person” dependent on some kind of executive designation authority, that would be contrary to Congress’s apparent intent to give the Justice Department independent prosecutorial authority. If it does that, Congress could legislate a rule of construction clarifying that the criminal penalties of the Warmbier Act may apply without regard to whether the President has designated the Covered Person.

On the not-as-strong side are the new law’s suspension and lifting provisions. The President can suspend sanctions against Covered Persons on a case-by-case basis if Pyongyang commits to a verifiable freeze of its WMD proliferation and testing, and agrees to multilateral talks on “permanently and verifiably limiting†its WMD and missile programs. This is a low bar that Pyongyang has met more than once. Fortunately, the authority is “case-by-case†and limited in time. The President may also terminate the sanctions entirely when the he certifies one of the following:

1. Pyongyang has ceased to pose a significant threat to our national security;
2. Pyongyang has committed to taking effective steps to permanently and verifiably limit (not dismantle) its WMD and missile programs; or
3. Termination is vital to the national security of the United States.

The President would at least be required to explain the basis for his or her certification, but that’s not saying much. Donald Trump just about made the first one in a tweet after Singapore. The second is a retreat from CVID, though even if the President did make that certification, it would not affect NKSPEA sanctions, which have much tougher conditions, and which have already caused enough damage to the palace economy that Kim Jong-un seems to care about getting them lifted more than anything else, even if their effects have probably waned over the last 20 months. As to the third, it gives any president almost complete discretion.

Still, it’s unlikely that we will see any of these conditions met in the next year. So who should be very worried right now? Every bank in China, Singapore, or Malaysia that intends to conduct itself like these three Chinese banks have after President Trump signs the NDAA and Treasury publishes its regulations. So should Kim Jong-un. His appeal to Donald Trump’s ego bought him a 20-month reprieve in Treasury sanctions designations, aside from a few minor or sham designations that appear to have been designed to create an illusion of enforcement. One way or another, whether Donald Trump still loves him or not, Kim’s reprieve is about to end.

Readers of this site already know that Kim Jong-un kills many people, and that the world seldom gives him reasons to remember or regret doing so. Lately, in fact, the leaders of the two democracies that could pose the greatest challenges to Kim’s legitimacy have showered him with declarations of love and finger hearts (oh, get a room). Almost exactly a year ago, the Chief Judge of the U.S. District Court for the District of Columbia found that North Korea tortured Warmbier to death based on a doctor’s testimony that his arms were “curled and mangled,†that it “almost appeared that he had chewed a hole through his bottom lip,†that his once “perfectly straight†teeth were “noticeably misaligned,†and that his vegetative state was consistent with the effects of the same tortures the North Korean government routinely inflicts on its own people. Whatever happened to Otto would have happened around March of 2016—right after North Korea’s sixth nuclear test, right around the time that the UN Security Council passed Resolution 2270 and President Obama signed Executive Order 13722, both of which represented significant escalations of U.S. and UN sanctions against Pyongyang. Before this week, His Porcine Majesty already had 501 million reasons to regret that he killed Otto Warmbier. Now he has one more. He finally killed someone whose loved ones could make him regret it.

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[1] In U.S. law, a person acts “willfully†if he knew he was doing something illegal. It doesn’t require that he knew what specific law he was breaking. Although some people really are stupid enough to sit down with FBI agents and admit they knew they were doing something illegal, or write that in emails that FBI agents later obtain through Title III warrants, prosecutors usually prove this element through circumstantial evidence, such as the use of fictitious names, shell companies, bulk cash smuggling, the use of code words for contraband, co-mingling illicit funds with legitimate income sources, and other typical methods of money laundering.

[2] A carve-out, probably inserted at the insistence of the House Ways and Means Committee, exempts imports of goods to the United States, although this doesn’t weaken the sanction much, given that imports of goods, services, and technology from North Korea have been prohibited for years under Executive Order 13570.

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