Selling Slavery: South Korean investors’ $900,000 Kaesong lobbying campaign
Documents filed with the Justice Department in July show that a group of South Korean investors hired a San Francisco law firm and a South Korean consulting firm to lobby the U.S. government to support reopening a shuttered, looted, and partially exploded manufacturing complex near Kaesong, North Korea. The documents were required to be filed with the Justice Department and made public under the Foreign Agents Registration Act of 1938 (FARA), a law designed to expose foreign propaganda and influence in the United States.
The FARA filing includes an agreement between the Kaesong Investors, the South Korean consulting firm HC & Sons LLC, and the U.S. law and lobbying firm of Pillsbury Winthrop Shaw Pittman LLP.
The two firms will split a combined $900,000 in fees over the course of ten months to lobby the executive branch and Congress, presumably to seek exemptions to North Korea sanctions for Kaesong. Kaesong’s viability depends on its access to the U.S. financial system, to meet Kim Jong-un’s demands for payment in hard currency. Its products need access to American markets, and some of its machinery may require U.S. export licenses.
Throughout its life cycle until its closure in 2016, the Kaesong complex faced nagging questions—not only about slave labor and unsafe working conditions, but also about the use of its proceeds to fund Pyongyang’s nuclear weapons program.
Before then-South Korean President Park Geun-hye closed Kaesong following North Korea’s fourth nuclear test, Kaesong provided Pyongyang nearly $100 million a year in hard currency. No one but Kim Jong-un really knew where the money went. The North Korean workers at Kaesong were selected by the regime, had no rights to strike or bargain for better working conditions, were not permitted to speak to their South Korean managers, and received as little as $2 a month out of $130 a month in “wages” paid to the North Korean government by the South Korean manufacturers who invested there. None of the managers could say how much the North Korean workers were paid, if at all.
By contrast, just short of a million dollars is an exceptionally large amount for foreign principals to spend on lobbying Congress. Korean government ministries and the Embassy might pay each of several Biglaw firms or lobbyists they keep on retainer between $130,000 and $260,000 a year to lobby for various trade, economic, immigration, and policy interests. Kaesong investors obviously saved a great deal of money by using North Korean slave labor and South Korean government subsidies. Some quarters of my profession are now sharing in the residuals. As we used to say in the Army, “같이갑시다.”
Pillsbury’s political action committee has also contributed thousands of dollars to members of the House Foreign Affairs Committee and the Senate Foreign Relations Committee, including former Chairman (and now Ranking Member) Michael McCaul. No information suggests that the contributions were linked to specific legislation or policy involving Korea or Kaesong, but the contributions will certainly help Pillsbury get access to powerful members. In fact, it has already met with at least two members of the Foreign Affairs Committee—Chairman Gregory Meeks and Rep. Andy Kim.
Still, their timing could be better.
The blog “Foreign Lobby Watch” previously reported on the story here. Subscribe to find out which former Texas congressman will “spearhead” the Kaesong investors’ campaign; then, leave a comment. Investors have been lobbying Congress to lift U.S. legal impediments to reopening Kaesong since at least 2018, and the left-wing government of Moon Jae-in has between calling for Kaesong’s reopening and expansion since he began campaigning for South Korea’s presidency the same year it closed.
But reopening Kaesong today would confront far greater political and legal obstacles than it did in 2015. In fact, I’ve been told unofficially that Park’s decision to close Kaesong in January of that year was not only a reaction to the nuclear test, but also a recognition that the legal environment for doing business with North Korea was about to change dramatically. That same week, the North Korea Sanctions and Policy Enhancement Act of 2016 (NKSPEA) secured enough votes for a nearly unanimous passage in both houses of Congress. Over the next year, a series of implementing executive orders, Treasury Department regulations, three more U.N. resolutions, and a second law—Title III of the Countering America’s Adversaries Through Sanctions Act (CAATSA)—strengthened the sanctions affecting Kaesong even more.
(Full disclosure: I wrote the NKSPEA and Title III of the CAATSA, but I did not write the acronyms.)
The new UN sanctions ban exports of metals, vehicles, and machinery to North Korea; direct and indirect correspondent relationships with North Korean banks; what the resolutions call “joint ventures” and “cooperative entities;” and joint infrastructure projects. Under Resolution 1718, paragraph 8(d), as broadened by subsequent resolutions, Seoul and the investors would be responsible for ensuring that the money is not used for nuclear weapons or other prohibited purposes. When South Korea’s then-right-leaning government closed Kaesong, it initially claimed that some of Pyongyang’s Kaesong revenue went to nuclear weapons. It later clarified that it simply didn’t know. Moon’s government says the payments to Kaesong didn’t violate UN or US sanctions because there was no direct proof that Pyongyang used the money for nukes or other prohibited things that hungry people can’t eat.
Moon’s interpretation is wrong. It reverses the burden of proof and hides behind Pyongyang’s secrecy and notoriously opaque finances to refuse to perform due diligence about what is overwhelmingly likely. Any wire transfer of dollars to North Korea would require a license from the Treasury Department, which should deny it on that basis alone.
Then, there is the question of U.S. market access. Legally, Kaesong products could not be imported into the United States since 2011 because they’re made in North Korea, but there have been widespread suspicions that they were leaking into U.S. Commerce as components of manufactured goods, or vaguely marked as “Made in Korea.” Since 2017, the CAATSA has created a rebuttable legal presumption that products made with North Korean labor are made with forced labor and banned from U.S. Commerce under the Tariff Act. U.S. Customs and Border Protection (CBP) has enforced that law aggressively. Some North Korean products, or products made with North Korean labor, have entered U.S. commerce through China or Russia anyway, but Customs has pursued those imports to their countries of origin and requested information from the exporters about their use of North Korean slave labor. It has also seized several shipments of goods.
Of course, the U.S. government still isn’t the main obstacle to reopening Kaesong.
If anyone knows when the investors plan on lobbying the Supreme People’s Assembly, let me know. We can split the reward.
More supplemental FARA filings (1, 2, 3, 4) name the individual lobbyists involved in the Kaesong campaign. So if you’re a congressional staffer, and if Matthew Oresman, Greg Laughlin, Craig Saperstein, or Elizabeth Moeller pays you a visit, say hello for me. It must be a small world. Oresman’s name also shows up in this 2013 FARA filing, when he was with a different law firm, Patton Boggs LLP, representing the Government of Albania. (So does Don McGahn, who was White House Counsel during the Trump Administration and refused to testify in the House impeachment hearings.) In a separate filing, Pillsbury discloses that the South Korean government hired it to lobby for nuclear energy cooperation and trade relations with the U.S. government, and to find out more about the Biden administration’s appointees affecting those policy fields.
Kaesong was once the centerpiece of what former South Korean President Kim Dae-jung called the Sunshine Policy. Its hypothesis was that more investment in North Korea would build economic integration, break down its isolation, and eventually spur economic and political reforms and peaceful relations. Needless to say, things haven’t worked out that way. “Engagement” projects played by Pyongyang’s rules, did not crack the isolation of the people, were an economic lifeline for a system that enforces isolation and repression, and thus stifled demands from within for reform and change. Instead of changing Pyongyang for the better, it changed those who engaged Pyongyang on its terms for the worse, by making them complicit in its deceptions, secrecy, and illicit activity.
Rather than appeasing Pyongyang, Kaesong became a source of tension as Pyongyang leveraged Seoul’s political interest in showing progress toward improved inter-Korean relations to demand “wage” and tax increases. Occasionally, it detained a South Korean who took the promises of engagement seriously and broke the rules against unauthorized contact with North Korean workers. The closure of Kaesong cost the investors more than $600 million, and South Korean taxpayers probably paid most of it. It also guaranteed that no non-Korean company would ever invest there or make it a critical link in its supply chains. A few South Koreans were willing to invest for nationalistic and political reasons, but also because of those taxpayer subsidies. As of 2017, the North Koreans had driven away most of Kaesong’s vehicles, looted much of the equipment, and allowed many of the facilities to fall into disrepair.
At last word, however, they were at least keeping up the landscaping.
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Update: As I think of the vastness of the legal and consulting fees being poured into the bottomless pit of sunk costs called Kaesong, it certainly raises my suspicions that a group of small manufacturers could not have afforded that sum alone. Good investigative journalism would inquire into whether the South Korean government is really paying this bill and using the manufacturers’ group as a shield from controversy, and to avoid friction with the U.S. government. If I were a South Korean taxpayer, I’d want to know much more about not only that question, but about all the governmental and semi-governmental organizations that spend my money on foreign lobbyists and lawyers. When you dive into the FARA filings, the entire relationship between the two countries starts to look deeply corrupt.
By the way, why hire lawyers as lobbyists? The innocent explanation is that they understand legislation. But if a law firm is big enough and limits the percentage of time the lawyer spends on lobbying, the lawyer can take advantage of a loophole in the Lobbying Disclosure Act. Lawyers also have something that lobbyists don’t—attorney-client privilege, which shields both attorney and client from nosy questions about their confidential communications.