Almost from its very beginnings, the Obama Administration has seemed at a loss about how to respond to North Korea. In his inauguration speech, President Obama told “those who cling to power through corruption and deceit and the silencing of dissent” that he would “extend a hand if you are willing to unclench your fist.”
On April 5th, Kim Jong-il delivered his answer, in the form of a long-range missile test. In May, he conducted his second nuclear test. That same year, Pyongyang was caught shipping arms to Hamas and Hezbollah. In 2010, it sank a South Korean warship and shelled a South Korean fishing village. It tried to assassinate human rights activists and defectors. It assisted Bashar Assad’s chemical weapons program. Its treatment of its own people has become more brutal and repressive. In 2013, it carried out its third nuclear test. And on January 6th, it carried out its fourth.
The Obama Administration responded to these affronts, provocations, and crimes with weak sanctions against isolated, mostly low-level targets, and with meek diplomatic supplications — secret election-year visits, a spasm of shuttle diplomacy, and rumors and trial balloons that the administration might settle for a nuclear freeze instead of full nuclear disarmament. The closest the administration came to success, the so-called Leap Day Deal of 2012, collapsed after just two weeks, when Pyongyang announced yet another missile test.
But even as the Obama Administration waited for a deal that never came, it did have one policy success at home. It convinced a gullible press corps and a credulous foreign policy establishment that it had already imposed tough sanctions against North Korea, (rightly) confident none of them would care to check — or know how to check — the maze of sanctions regulations, statutes, executive orders, and U.N. reports and resolutions.
Just one year ago, for example, after North Korea’s 2014 cyberterrorist attacks, President Obama called North Korea “the most isolated, the most sanctioned, the most cut-off nation on Earth.” Most self-isolated, perhaps, but as a matter of fact and law, the “most sanctioned” bit is nonsense, as one top administration official has admitted, and as any careful analysis of the sanctions authorities reveals.
Numerous examples illustrate this. The Treasury Department has blocked the assets of senior officials in Iran, Syria, Sudan, Burma, and even Burundi for human rights violations, but not one North Korean official, two years after a U.N. Commission of Inquiry found evidence of crimes against humanity, “[t]he gravity, scale and nature” of which do not “have any parallel in the contemporary world.”
Treasury has blocked the assets of Iranian companies for “activities that limit the freedom of expression or assembly,” but no North Korean officials for their far more repressive censorship. It has blocked the assets of nearly every top official in the governments of Belarus and Zimbabwe for undermining democratic processes or institutions, but no top North Korean officials for their extreme repression, which consistently makes Freedom House’s “Worst of the Worst” list. It has blocked the assets of senior Russian officials and financiers for aggression against a neighboring country, but not North Korea, despite its multiple attacks against South Korea.
Neither Kim Jong-un nor any of his highest advisors, officials, or generals are sanctioned. All told, only one North Korean official of arguably senior rank has had his assets blocked — an 85 year-old counterfeiter, proliferator, and general named Oh Kuk-ryol.
After North Korea’s 2014 cyberattack against Sony Pictures, and its terrorist threats against movie theaters across the United States, the Obama Administration promised a “proportional response.” The President signed a broad new executive order, allowing him to freeze the assets of any North Korean entity, official, or third-country accessory. Since then, however, the administration has used this executive order to sanction just 18 targets, including an assortment of low-level arms dealers, and North Korea’s Ambassador to Burma.
The numbers also speak to the administration’s priorities: Treasury has blocked 843 targets under its Iran sanctions, 172 under Zimbabwe sanctions, and thousands of assorted terrorists and drug traffickers. By contrast, it has blocked the assets of just 100 targets under its North Korea sanctions programs, or under a non-country-specific counterproliferation sanctions program.
North Korea is immune from the consequences of using our financial system to launder its ill-gotten gains. The Treasury Department has declared Iran and Burma to be Primary Money Laundering concerns, a designation that can restrict — even cut off — a target’s access to the global financial system. It has never done so to North Korea, the subject of repeated warnings by the Financial Action Task force for its lack of anti-money laundering controls. Yet as recently as April 2013, a senior Treasury official said, in reference to North Korea’s near-perfect counterfeit U.S. hundred-dollar notes, “We believe North Korea is continuing to try to pass a supernote into the international financial system.”
North Korea is similarly immune from consequences for its support for terrorism. Despite extensive evidence that North Korea has repeatedly armed terrorists and sent agents to assassinate defectors and dissidents abroad, the State Department refuses to designate North Korea as a state sponsor of terrorism. Returning North Korea to this list would close a key sanctions loophole by requiring all dollar transactions with North Korea to be licensed by the Treasury Department, would limit North Korea’s access to IMF and World Bank loans, and would require companies with investments in North Korea to disclose them in their SEC filings.
The most effective sanctions of all, called secondary sanctions, are directed against third-country banks and businesses that have questionable financial relationships with North Korea. Secondary sanctions brought Iran’s economy to the brink of collapse, but the Obama Administration has not used them against North Korea. Not one third-country financial institution or money launderer has been designated, fined, or penalized for facilitating illicit transactions with North Korea since 2005. The Obama Administration has designated no Russian targets for assisting North Korea with its arms smuggling or nuclear research, and no Chinese entities for helping North Korea proliferate, sell weapons, or launder money. As long as that is the case, Kim Jong-un will continue to transact his business through our financial system.
A second excuse for the administration’s inaction is the claim that it doesn’t know where North Korea’s money is. A year ago, in this congressional briefing, a Treasury official said that the administration did not know the “nodes” through which Pyongyang’s hard currency flowed. Yet for years, the U.N. Panel of Experts monitoring the U.N.’s North Korea sanctions has published detailed reports about North Korea’s dollar-denominated wire transfers, which presumably pass through the U.S. financial system. Last week, a witness testified at a congressional hearing that in 2013, “U.S. and South Korean authorities uncovered dozens of overseas bank accounts” in China, “worth hundreds of millions of dollars,” and “linked to top North Korean leaders.” The Chinese government would not cooperate in blocking the accounts, so nothing was done. Now, according to a recent New York Times report, the Treasury Department does, in fact, know which overseas banks Kim Jong-un uses to finance his regime.
But as past history shows, the Treasury Department does not need the cooperation of the Chinese government to impose crippling sanctions on North Korea. The cooperation of China’s banks, which need access to the U.S. financial system to survive, is sufficient for sanctions to work. In 2005, the Treasury Department took regulatory action against a small Macau bank that it accused of acting as a “willing pawn” for North Korean counterfeiters and money launderers. Treasury designated the bank under Section 311 of the Patriot Act, blocking it out of the financial system, cutting one of Pyongyang’s key financial lifelines, and making an example for other bankers. According to one Treasury official at the time, “Because of the way North Korea operates, it’s very difficult for financial institutions to differentiate between its licit and illicit activities. And so, a lot of banks have decided that as long as North Korea is engaged in illicit activity, they don’t want to take any chances of being associated with it.”
Having captured the undivided attention of bankers and finance ministers around the world, Treasury officials went on a world tour of financial diplomacy, warning them of the money laundering risks associated with North Korea. As contemporary news reports confirm, the campaign’s effect on Pyongyang was devastating. Financial institutions around the world cut their ties with North Korea, for fear of losing their access to U.S. financial markets. That made it extremely difficult for North Korea to engage in international financial transactions.
Former Treasury Department official Juan Zarate relates that “[a]t almost every meeting” between U.S. and North Korean diplomats during the following year, the North Koreans “demanded that the United States lift its penalties against” the sanctioned bank. In his book, Zarate quotes a North Korean diplomat as saying, “You Americans finally found a way to hurt us.” Even after the 2007 disarmament deal with North Korea was signed, the financial stigma on the North Korean funds was so great that Chinese banks refused to transfer them, even at the request of their own government. Zarate recalled, “Perhaps the most important lesson was that the Chinese could in fact be moved to follow the U.S. Treasury’s lead and act against their own stated foreign policy and political interests.” But almost as soon as the Bush Administration relaxed its enforcement, Kim Jong-il reneged on the agreement. The Bush Administration packed up and left town, but the old sanctions did not “snap back.” New sanctions legislation that has just passed the House, and which the Senate is expected to take up soon, may finally remedy this, eight years later.
Widespread myths to the contrary, sanctions against North Korea have worked before and can work again. They would work better with the support of the Chinese government, but they will work well enough without it. That is important and good, because China has been violating the U.N.’s North Korea sanctions for years, and probably isn’t going to cooperate now. It is time for us to force Chinese and European banks to make a choice. They can either have access to our economy, or to North Korea’s. That should be a very easy choice indeed.
Joshua Stanton blogs at www.freekorea.us. He has advised the House Foreign Affairs Committee on the drafting of the North Korea Sanctions Enforcement Act and is the author of “Arsenal of Terror: North Korea, State Sponsor of Terrorism.” The views expressed are his own.
