North Korea’s nuclear blackmail: Trump, make sanctions work again

Co-written by Joshua Stanton.

As North Korea reportedly prepares to conduct a nuclear test, the Trump administration is considering long-overdue sanctions against Chinese companies and banks that do business with Pyongyang. Years of mistakes by presidents of both parties have bequeathed the greatest nuclear crisis since 1962 to President Donald Trump, who must now prevent North Korea from gaining the means to strike the U.S. mainland with nuclear weapons.

It is folly to believe that a “responsible” nuclear North Korea would quietly coexist with the United States. North Korea’s leader Kim Jong-un last month sent assassins to Malaysia to murder his half-brother in a crowded airport terminal with a chemical weapon.

Pyongyang has sent assassins abroad to kidnap and kill human rights activists and dissidents, proliferated ballistic missiles, and sold weapons — including man-portable surface-to-air missiles — to terrorists and their sponsors. It attacked South Korea twice in 2010: sinking a warship and shelling a fishing village, which killed 50 of its citizens. The hermit kingdom is a state sponsor of terrorism, even in the absence of a formal designation: it has helped Syria use chemical weapons against its own people, and attacked our freedom of expression with terrorist threats against movie theaters across the United States. 

Nor can the U.S. invest its hopes in talks alone. Pyongyang insists that it will neither freeze nor dismantle its nuclear and missile programs. U.S. envoys have met with their North Korean counterparts during almost every year in the last decade, yet failed to induce Pyongyang to return to disarmament talks. In 2012, President Obama finally secured Pyongyang’s agreement to freeze its nuclear and missile programs.

Two weeks later, Pyongyang reneged. It will take more than another piece of paper to curb the nuclear ambitions of a regime that signed — and unilaterally withdrew from — an armistice, the Nuclear Non-Proliferation Treaty, two nuclear safeguards agreements with the International Atomic Energy Agency, an inter-Korean denuclearization agreement, and denuclearization agreements with the U.S. in 1994, 2005, 2007, and 2012.

A nuclear North Korea would mean the end of nonproliferation and unleash an age of global insecurity, yet a military solution could escalate into a devastating war. Preventing those outcomes increasingly relies on making sanctions work. The United Nations issued its annual reportMonday on North Korea, revealing numerous sanctions violations and confirming widespread suspicions that international sanctions on Pyongyang are poorly enforced.

Unfortunately, too many pundits cling to unhelpful narratives that harm the development of a more effective policy to disarm North Korea.

First, North Korea is not the world’s most-sanctioned country. As recently as 2014, the U.S. Treasury Department had designated just 43 North Korean entities, compared to 50 in Belarus, 161 in  Zimbabwe, and over 800 in Iran. Until a year ago, the financial pressure was undermined by financial subsidies from South Korea, through the Kaesong Industrial Complex. It is still undermined by widespread sanctions violations by Chinese banks and trading companies. Not until the enactment of the North Korea Sanctions and Policy Enhancement Act and U.N. Security Council Resolutions 2270 and 2321 last year did the international community lay the legal foundations for a serious and coherent sanctions program.

While the number of designations has nearly doubled over the last year, 88 percent of those designations were inside North Korea. Thus, we have failed to attack the critical links between Pyongyang and its foreign enablers, particularly in China.

Second, North Korea is not already isolated from financial system. Pyongyang consistently obscures its access to the international financial system, using non-traceable front companies, a practice that the Treasury Department has called “a threat to the integrity of the U.S. financial system.” Such actions put banks at a disadvantage, especially when governments are unwilling to identify these companies.

A U.N. report released last week confirms that North Korea continues to use foreign banks to process transactions through the U.S. and European financial systems. The Treasury Department also found that designated North Korean banks conduct financial transactions through the American banking system. Last year, a Justice Department indictment alleged that from August 2009 to September 2015 Chinese nationals had used 22 front companies to open Chinese bank accounts to conduct transactions through the U.S. financial system on behalf of a sanctioned North Korean bank.

A forfeiture complaint filed with that indictment refutes a third unhelpful narrative — that North Korea is invulnerable to sanctions because of its isolation. Because dollar transactions are cleared through correspondent banks in the United States, the Treasury Department can regulate or block those transactions and the accounts involved, or penalize the banks that fail to do due diligence to prevent money laundering. 

As the complaint explains, North Korea has tried to evade U.S. sanctions by shifting to the renminbi system; however, “North Korea’s trading needs … cannot be met using only Chinese currency” because many vendors prefer U.S. dollars. Consequently, “North Korean entities, including designated entities … need access to the U.S. financial system.” According to the latest U.N. report, “Most of the financial activity investigated by the Panel was denominated in United States dollars, euros and renminbi.”

There is enough actionable information in these reports for U.S. investigators, prosecutors, and diplomats to unmask and freeze large portions of North Korea’s money laundering network. Yet under the Obama administration, the enforcement of North Korea sanctions lacked both resources and political support. The Treasury and Justice Department units working against North Korea’s sanctions violations are understaffed and overworked, and in some cases, demoralized by a lack of political support for prosecuting the results of their work.

Good investigation can uncover the money laundering network that sustains Kim Jong-un’s brutal rule, but if the U.S. does not police the dollar system, no one else will. U.N. sanctions are not self-executing, and neither Beijing nor Pyongyang has a right to misuse our banks to terrorize and proliferate. The effectiveness of sanctions against Banco Delta Asia — which was sanctioned for laundering North Korea’s money in 2005 — shows us that reputation-conscious banks respond to aggressive sanctions enforcement by freezing and closing North Korean accounts.

Kim Jong-un’s missile program will soon give him a delivery system for nuclear blackmail against the United States. The strategy of pleading for Beijing’s cooperation at the U.N., only to see it violate sanctions shortly after voting for them, has exhausted itself. It is time to acknowledge that China is part of the North Korea problem until Beijing shows otherwise. Sanctions against North Korea and China remain indispensable, as they are the only peaceful means for coercing the regime to disarm. Making them more focused and robust, however, will first require dispelling some entrenched, and often unquestioned, narratives.

Anthony Ruggiero, a Senior Fellow at the Foundation for the Defense of Democracies, was the non-proliferation advisor to the U.S. delegation to the 2005 rounds of the Six-Party Talks and spent more than 17 years in the U.S. government.Follow him on Twitter @_ARuggiero. 

Joshua Stanton, an attorney in Washington, D.C., blogs at www.freekorea.us. He was a fellow with the House Foreign Affairs Committee and has assisted the committee with the drafting of North Korea-related legislation since 2013. The views expressed are his own.