The U.S. & South Korea should enforce existing sanctions against North Korea, not bargain for new ones

Between 2017 and 2022, the leaders of the United States and South Korea performed an experiment: what if they froze joint military exercises, said nothing about Kim Jong-un’s crimes against humanity, offered aid, and stopped actively enforcing sanctions? The results of the experiment are in. This week, Treasury Secretary Yellen is in Seoul, where she met with President Yoon to discuss, among other items, what each of the two government should do about Kim Jong-un’s increased missile tests, and the signs that he’s preparing to conduct another nuclear test.

I had a productive conversation with @President_KR today on topics including holding Russia accountable and limiting the impact of its illegal war on energy prices — such as through a price cap. We also discussed bolstering supply chains to reduce inflationary pressures. pic.twitter.com/vWn97hah96

— Secretary Janet Yellen (@SecYellen) July 19, 2022

What Yellen should do is set an example by enforcing UN sanctions and imposing the mandatory U.S. national sanctions that the law, signed by President Obama and strengthened by President Trump, requires. She has neglected that obligation, and thus extended a historical pattern that has set us on a path to our next failure.

I created the graphic below from Treasury Department announcements of North Korea-related sanctions designations, going all the way back to 2004. The light blue bars reflect the number of Treasury Department designations under either North Korea-specific sanctions programs, or under Executive Order 13382 (for WMD proliferation) for conduct involving North Korea. The number of designations by itself does not reflect the significance of those designations, but because quality of designations has generally corresponded to their quantity, this is still a useful (if rough) barometer of U.S. diligence in enforcing sanctions. The red and green arrows above the line correspond to major North Korean behavioral events. The blue arrows below the line correspond to U.S. and UN responses to North Korea’s behavior.

Note how cycles of higher North Korean testing tend to coincide with transfers of power in Washington and Seoul. That’s a pattern we should have learned to anticipate and prepare for by now, because the second observation we can make is of the inverse relation between North Korean provocations and Pyongyang feeling the effects of sanctions enforcement.

As you would expect, this can be a lagging indicator. It lagged for most of 2017, as Treasury wrote executive orders to implement the North Korea Sanctions and Policy Enhancement Act, and as Kim Jong-un seemed to believe his own sanctions-never-work propaganda. That changed dramatically in 2018, as the sanctions took effect. And so, 2018 was a banner year for summits, though the summits ultimately accomplished nothing useful—nothing useful to us, at least—because the price of more summits was the relaxation of the very pressure that brought Kim to the summits in the first place. One thing 2018 established with certainty is that if you measure “progress” in terms of summits, photo ops, and joint statements, sanctions did nothing to impede progress. It’s fair to assume that they did plenty to advance it.

As the graph shows, sanctions enforcement peaked in 2017, but it never met the definition of “maximum pressure” I offered from the very beginning—nine-digit penalties against major Chinese banks for violating North Korea sanctions. Medium pressure waned after the 2018 Singapore Summit and regressed to historic lows by 2019. The chart is only current through early December of 2021, the end of the first one-year period since 2012 without one single North Korea sanctions designation. The Biden administration broke that drought several days later with a few designations of little real significance in mid-December. Designations in 2022 would show only a modest increase, and only a few designations of significance, such as a cryptocurrency mixer and two small Russian banks.

By now, we know the story of how Moon Jae-in’s administration lobbied against sanctions enforcement, pitched a thousand addlebrained schemes to undermine them, and sometimes violated them.

By contrast, President Biden has reverted to a “strategic patience” North Korea policy—that is to say, no policy at all. But the critical weakness in our policy continues to be exactly what Aaron Arnold, the former U.S. Representative to the U.N. Panel of Experts says it is—the failure of U.S. authorities to hold China and Russia accountable for willfully violating North Korea sanctions. We know from decisions in our own federal courts that three major Chinese banks are now under investigation for money laundering and sanctions violations. We know that a nonparty that certainly appears to be the Chinese government has intervened in those cases to argue that the U.S. and Chinese governments should handle the cases quietly, through the two countries’ Mutual Legal Assistance Agreement.* And we know from filings by prosecutors that we tried that before, and the Chinese government didn’t keep its part of the bargain.

And so today, the Treasury Department’s enforcement of North Korea sanctions is near a record low, despite increased levels of North Korea cheating. The Treasury Department has never levied a significant penalty, prosecution, or sanction against a major Chinese bank for breaking North Korea sanctions, despite strong evidence that they’re doing so willfully.

In 2016, for example, a dozen major Chinese banks held accounts for Dandong Hongxiang. As we learned from the filings in a subsequent case involving Chinese banks that were investigated for laundering money for North Korea—and then held in contempt of court for failing to respond to subpoenas—the FBI and Justice Department were ready to serve subpoenas, but Beijing asked then-Treasury Secretary Lew to address the cases diplomatically, through the countries’ Mutual Legal Assistance Agreement. Lew agreed, but (surprise!) the Chinese government did not follow through and cooperate in the investigation, Dandong Hongxiang is back in business illegally importing and exporting North Korean textiles, and as every report of the UN Panel of Experts makes clear, the Chinese banking industry continues to break the resolutions and our laws with impunity and stonewall the Panel’s investigations of its cheating.

The news isn’t all bad, and there are reasons to believe that President Biden could lead an effective multilateral response, just as he did in Ukraine. The US and its partners already have an air and naval coalition deployed to the waters near North Korea. (South Korea is notably not among them.) They have the legal authority to board, seize, and sink smuggling ships, or they could confiscate or forfeit them as we’ve already done to two North Korean ships. But of course, we won’t do that to the majority of North Korea’s shipping that plies the Yellow Sea between North Korea and China. Nor do we have to, because we have alternatives that would be less risky and more effective.

The same coalition members that are helping with those maritime patrols are also issuers of the world’s convertible currencies. They’ve collected specific intelligence about where North Korea’s smuggled goods are going, and based the previous UN reports, Justice Department filings, and Treasury Department designations, overwhelming evidence can match that illicit commerce to specific Chinese and Russian shippers, ports, and banks that are helping Kim Jong-un to violate sanctions. This same alliance has the power to put the North Korean economy into global receivership—clearing only payments for food, medicine, and other commerce that benefits the people of North Korea, while freezing the proceeds of Kim’s kleptocracy and proliferation financing. And—as millions of suffering women have surely thought on first dates that would also be last dates—don’t even talk to me about Bitcoin.

UN resolutions and US law both require heightened levels of due diligence for the financial industry to avoid laundering Kim’s money. But for now, Russian, Chinese, and Malaysian banks are looking the other way because we let them. They are legally exposed to asset freezes, forfeitures, and criminal prosecution, but they don’t fear these consequences. Ports that help Kim smuggle can be subject to increased inspection requirements when goods coming from those ports arrive in US ports, but probably don’t realize this. 

The authorities that already exist are strong. To beg China and Russia to support new ones might create the appearance of doing something, but would add little strength. If China and Russia did support a new resolution, the price of their votes would not be worth paying. Even then, they’d violate it as surely as they’ve violated the last ten. What’s more, new sanctions would further disperse and dilute our enforcement efforts. Instead of trying to enforce a myriad of provisions poorly, we should focus on a few critical vulnerabilities and target them mercilessly. Bombing Dresden, Hamburg, and every industrial target in Germany contributed little to victory in World War Two, but bombing Germany’s fuel supply was critical to it. Pyongyang’s vulnerability isn’t fuel; it’s the cycle of mining, shipping, and money laundering from the coal industry that provides most of the state’s revenue, and it’s the currency reserves in Chinese banks that keep the state solvent and pay for its WMD procurement.

South Korea should also focus on enforcing the existing UN resolutions. Under the Moon administration, South Korean ministries, companies, and provincial governments often attempted to flout them through barter trade, coal imports, or filtering embargoed goods through Kaesong. North Korea also stole massive hauls of cryptocurrency from South Korean exchanges. The Yoon administration should audit these violations carefully to tell us whether the last administration met its due diligence, enforcement, and “enhanced monitoring” obligations. Seoul should send a clear message that compliance with UN resolutions is mandatory, regardless of which party is in power.

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* My speculation that the nonparty is the Chinese government is based solely on my reading of the brief, not on any direct knowledge. Read it and decide for yourself. I doubt you’ll disagree.