September 14, 2018 | Policy Brief

Treasury Sanctions Chinese and Russian IT Companies Funding North Korea

September 14, 2018 | Policy Brief

Treasury Sanctions Chinese and Russian IT Companies Funding North Korea

The U.S. Treasury Department sanctioned a Chinese information technology (IT) company, its North Korean chief executive, and a related Russian firm for generating funds on North Korea’s behalf by employing exported labor. This is the first time Washington has employed its authority to designate targets for generating funds with exported labor. However, it is the second time in less than a week that Treasury has designated an IT firm acting on Pyongyang’s behalf.

Treasury’s action yesterday targeted Yanbian Silverstar Network Technology Co., Limited (or China Silver Star), its North Korean chief executive Jong Song Hwa, and Volasys Silver Star, a Russia-based front company for China Silver Star. While nominally a Chinese company, China Silver Star is “managed and controlled by North Koreans” according to Treasury, and has “earned millions of dollars” for its work. A North Korean working for China Silver Star created Volasys Silver Star in early 2017, likely to “obfuscate [Volasys’] North Korean workers true nationality from clients.”

The announcement of yesterday’s sanctions emphasized the financial connections between North Korea’s nuclear weapons program and its foreign business ties. The announcement cited the conclusion of United Nations Security Council Resolution 2397 that revenue generated by overseas workers directly finances North Korea’s nuclear and ballistic missile programs. In this instance, Treasury found that China Silver Star is associated with two UN- and U.S.-sanctioned North Korean entities, the Munitions Industry Department (MID) and Korea Kuryonggang Trading Corporation. Whereas MID is responsible for overseeing of Pyongyang’s ballistic missile programs, Kuryonggang procures commodities and technology for North Korean defense research and development.

The administration’s actions yesterday build further momentum for targeting North Korean sanctions evaders, as they follow last week’s designation of and criminal charges against a North Korean computer programmer responsible for major cyber attacks.

The U.S. government should continue to investigate North Korean-affiliated IT companies. North Korea has prioritized the development of an indigenous IT industry that provides a wide range of services to foreign customers and operates firms overseas. In June 2017, Treasury sanctioned the state-owned Korea Computer Center for generating revenue for MID as well. Further investigations into other North Korean IT companies may identify additional sanctions targets. In addition to generating revenue, these firms enhance North Korea’s ability to wage cyber-enabled economic warfare against South Korea and the United States.

The U.S. should also focus on North Korean firms in other industries that benefit from North Korean overseas workers, many of whom labor in extremely abusive conditions. The “Supply Chain Risk” advisory that Treasury released in July revealed that North Korea sends workers to dozens of countries in Asia, Africa, Latin America, and the Middle East. The industries who employ them include apparel, construction, footwear manufacturing, hospitality, logging, seafood processing, textiles, and several others. Since the Countering of America’s Adversaries through Sanctions Act (CAATSA) mandates sanctions on individuals and firms exploiting North Korean labor, the Trump administration should fulfill its legal obligation to investigate and punish all those involved.

While the U.S. continues its delicate balance of enforcing sanctions and pursuing diplomatic engagement, yesterday’s sanctions give Washington the high ground necessary to remind Kim Jong Un that implementing the Singapore Joint Statement and enhancing bilateral ties will require an end to Pyongyang’s illicit activities.

Mathew Ha is a research associate at the Foundation for the Defense of Democracies, focused on North Korea. Follow him on Twitter @Matjunsuk.

Follow FDD on Twitter @FDD and follow FDD’s Center on Sanctions and Illicit Finance @FDD_CSIF. FDD is a Washington-based, nonpartisan research institute focusing on national security and foreign policy.